Protracted Chinese Drought Setting Off Food Price Inflation Fears

Here’s at least one part of China that could use some additional liquidity…

In south-western China, drought is threatening to reduce crop yield and thus cause food price inflation.

Coupled with an especially cold winter in Northern China at the same time, this has caused the government to be concerned that its 2010 goal of producing 500 million metric tons of grain could be missed, according to Xinhua.

The situation so far remains contained, but if water shortages were to hit other parts of China, then food prices could be in for a jump:

China Daily:

China was hit by drought every year and history proved regional drought would only result in an imbalance between supply and demand and the temporary price fluctuation in that particular region, said Huang Dejun, chief analyst for Beijing Orient Agribusiness Consultant Ltd, a consulting firm specializing in agribusiness.

“I don’t expect the drought to have much impact on rice prices,” he added.

“But if the drought spreads into the major grain producing areas including the provinces of Hubei, Hunan and Jiangxi, it will create upward pressures on prices and push up inflation expectations,” Huang remarked.

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