November 25, 2009

Record High Garlic Prices In China

Experts say garlic prices in China have nearly quadrupled since March and may soon rank ahead of gold and stocks as the country's best-performing asset of 2009, Reuters reported.

Morgan Stanley economists said the catalyst of the bull run may have been the idea that the potent bulb can ward off H1N1 swine flu.

The China Daily reported last week that a high school in Hangzhou, a prosperous city in eastern China, had bought 200 kg of garlic and forced students to eat it every day for lunch to stay healthy.

Zhang Ping told Reuters that he wasn't sure about H1N1, but he claims garlic can indeed prevent ordinary colds.

"Take me. I've not had cold for many years and every year I buy several dozen pounds of garlic," he said.

Meanwhile, darker forces may better explain the recent surge.

Coalmine bosses -- who are often depicted as being both extremely rich and nefarious speculators -- had been playing the garlic market, hoarding bulbs and hauling them between storehouses, according to an article in China Business News.

After a flood of lending by banks to help fight off the global financial crisis, Morgan Stanley said garlic served as a case study of the asset price appreciation that China will have to contend with.

The wholesale price of garlic is up as much as 40-fold in some parts of Shandong province.

Analyst Jerry Lou said in a research note this week that too much liquidity in any market can lead to speculation.

"The most recent evidence of asset speculation in China's commodity markets has been for garlic," he said.

But the explanation may not be so involved.

A wholesale trader was quoted as saying in the Nanfang Daily that garlic prices were extremely low last year, convincing many farmers that it was not worth planting the crop again.

The trader said that supply could not keep up with a pick-up in demand from home and abroad and it sent prices sky-high.

There is no need for panic, according to Yi Xianrong, a researcher with the Chinese Academy of Social Sciences, a top government think-tank.

Yi told Reuters that the garlic market is cyclical and that price rises are short-term and they will fall again before long.


On the Net: