In a fortunate turnaround for domestic garlic growers, the price of Chinese garlic continues ebbing upward, reaching unprecedented levels and outperforming gold and stocks.
Indeed, wholesale garlic prices in Beijing have soared 15 times as high as March prices and, in certain parts of Shandong province, wholesale garlic prices have jumped 40-fold.
Why the massive jolt?
Several variables, including swine flu fears, speculation and a global shortage, are steering the price, many say.
A renewed demand for fresh garlic as a remedy for the H1N1 swine flu is a likely perpetrator. Case in point – the China Daily reported that a Hangzhou highschool recently purchased more than 400 lbs. of the bulb and required students to eat it daily during lunch to fight the disease.
Many also have begun pointing fingers at speculators, who, industry members claim, are playing the market by controlling as much supply as possible, and then raising the price. A wealth of liquidity – as is the case with Chinese garlic – can easily lead to speculation, according to articles in The Washington Post – “Speculators Blamed For Sharp Rise In China’s Garlic Prices” and CNBC – “Garlic Price Rises Surpass Gold, Stocks In China.”
“You need a warehouse, a lot of cash and a few trucks. That’s how it works,” said Jerry Lou, a Morgan Stanley China strategist, in The Washington Post article. “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.”
However, the worldwide reduction in garlic is also a significant price motivator.
Due to low returns for Chinese producers, there was a 50% drop in Chinese garlic production in 2008 – a considerable amount, particularly for a country that typically accounts for 75% of the world’s garlic supply. Thus, basic economics suggests, when there’s minimal supply, prices rise.
Regardless of rationale fueling the present price increase, California growers – like Christopher Ranch – are welcoming the situation, as they have been unable to compete with cheap Chinese garlic in years’ past, resulting in the devastation of much domestic garlic business. At times, the price of Chinese garlic – the product’s most attractive quality – has dipped 50% below the price of California heirloom garlic from Christopher Ranch.
It’s impossible for domestic growers to drop prices to such low levels, as U.S. suppliers adhere to costly strict food-safety and quality control guidelines, including pesticide and fertilizer management, testing for microbial contamination, clean facilities, fair labor and equitable wages and third-party food safety testing, which the majority of Chinese suppliers are not forced to abide by.
Markets are often unpredictable, so it’s hard to forecast the next move. For the time being, however, Chinese garlic’s major price bump is a boon for California growers looking to recoup business that has been lost to cheaper Chinese garlic.