Speculators blamed for sharp rise in China's garlic prices

By Robert Cookson and Patti Waldmeir
Washington Post Foreign Serivce
Thursday, November 26, 2009

HONG KONG -- Garlic prices are hitting record highs in China, the world's biggest producer of the pungent bulbs, amid reports of a speculative bubble in the market even as people rush to buy it as a putative cure for swine flu.

The China Daily reported last week that a high school in the eastern city of Hangzhou bought more than 400 pounds of garlic and made students eat it at lunch to stay healthy.

Wholesale garlic prices in Beijing are now 15 times as high as in March, and still rising.

Jerry Lou, a Morgan Stanley China strategist who has researched the opaque market here, said speculators -- fueled by the abundant liquidity sloshing around China -- have moved into the small market and strategically driven up prices.

"You need a warehouse, a lot of cash and a few trucks. That's how it works," Lou said, describing garlic speculators' tools of the trade. "Basically, what you do is try to arrest as much supply as possible, then you bid up the price. Moving garlic from one warehouse to the other, you make millions of dollars."

Lou said garlic wholesalers told him that gangs that had amassed cash and credit from dealing property and stocks in other parts of the country had chosen the garlic market as their latest ruse.

In the basement of Shanghai's Dagu Road meat and vegetable market, vendor Zhang Weidong said foreigners are importing Chinese garlic for their own swine flu wars, exacerbating a shortage on the mainland. He said customers are paying a $1 per pound for his garlic for protection against swine flu.

China's Commerce Ministry -- which tracks commodity prices across the country -- recently posted an article on its Web site quoting Chinese traditional-medicine experts debunking the notion that garlic is as good as a flu shot.

China usually produces three-quarters of the global garlic supply, but farmers slashed their planting areas by as much as 50 percent last year after prices collapsed during the financial crisis.

But some experts say that neither a smaller crop nor rising flu fears are sufficient to explain why prices have jumped so high so fast, making garlic the country's best-performing asset.

Whatever the real story behind the price increases, growers in California, America's garlic heartland, will be pleased. For years, despite tariffs, the U.S. market has found it difficult to compete with cheap garlic from China.

-- Financial Times

Waldmeir reported from Shanghai.

© 2009 The Washington Post Company