China - Prepared for crisis

Misfortunes never come singly. That's especially true for this year's global grain market.

A disastrous drought in the United States and an equally ravaging heat wave in Russia have quickly pushed up global grain prices, causing a panic that is similar to what was seen in the last grain crisis in 2008.

It is rare for exceptional droughts to hit both North and South America. And other parts of the world, such as Australia and Ukraine, have also suffered from a lack of rain. The effect of the weather on grain production, therefore, could be more serious than expected.

Apart from that, the US government has chosen to reduce subsidies to farmers in the coming decade, a decision that has led to concerns about a decline in grain supply.

Meanwhile, the US' greater emphasis on bio-fuels has contributed greatly to the increase in grain prices. That will reduce its reliance on oil imports and, as less corn is produced in the world and the price of the crop increases, may also give it greater supremacy in the global grain trade.

The policy, though, is not good news for the world's grain market. The 2008 global grain shortage resulted partly from the bio-fuel programmes adopted by some important grain producers, most notably the US.

It's high time that the world kept a closer eye on the grain market. Those who do the monitoring should prepare themselves to see such things as financial speculation in the capital market, which could exacerbate real-world price fluctuations.

Some organisations, such as the G20 and World Bank, have moved in the right direction by drafting precautionary plans that will help them cope with any prospective difficulties.

And there is still reason for optimism; various observers argue things today are different from what they were in 2008.

The danger is that troubles often come when you least expect them. Back in 2008, few people could foresee a grain shortage that would eventually lead people in certain vulnerable countries to take to the streets.

China, for its part, should proceed cautiously, especially since it suffered from "imported inflation" in 2008 and is now importing more grain.

As it tries to avoid a repeat of that year's conditions, it can take solace in the likelihood that it will have another strong harvest this year, as well as in its large cache of foreign reserves, which will enable it to iron out price fluctuations by importing grain.

Editorial Desk
China Daily

Business & Investment Opportunities 
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Healthcare and Life Science with expertise in ASEAN. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programmes. Many thanks for visiting www.yourvietnamexpert.com and/or contacting us at contact@yourvietnamexpert.com