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China's Food Prices Rise as Population, Wealth Grow

An index of global food prices jumped 83 percent in the 3 years ended in February, while wheat prices nearly tripled. Enlarge to see price projections for key food crops.

A key factor in soaring food prices is growing demand, not just from increasing population but also because people in big developing countries like China are becoming richer and can afford more food.

Even though the nation's eating habits are changing, and even though there are now 1.3 billion mouths to feed, this old Chinese saying still holds true: "To the common people, food is as important as heaven."

Profitable Time for Pig Farmers

The second report in a six-part series

It's feeding time for the big, pink pigs in farmer Zhu Shangzun's pen. With 200 hogs, he's one of the biggest pig farmers in his village on the outskirts of Beijing. Most of China's pigs are bred on small, family-owned farms like his.

Zhu says prices for his pigs have more than doubled in the past couple of years, and he's clearing $70 in profit for each of the 30 pigs he sells every month.

"I doubt prices will rise further," he says. "This is the most profitable time for us pig farmers, but I think this is as far as it's going to go."

Pork is the main meat for most Chinese. In 2006, China produced more than 50 million tons of pork, accounting for more than half of the world's total — and it consumes most of that itself.

Fallout from Rising Inflation

Rising pork prices have been a major factor in inflation, which reached nearly 5 percent last year, a level not seen here in more than a decade. One reason for the rising prices is a recent outbreak of blue ear disease, which decimated the hog population. But farmer Zhu cites another reason.

"It's because of the fuel issue," Zhu says. "They make corn into ethanol, and it's cheaper than oil. But that drives up the price of the corn in our pig feed."

China's leaders are worried about the political fallout from inflation, because inflation has historically been a factor in social unrest. In a bid to halt rising food prices, the government has limited the use of corn for making ethanol and introduced agricultural subsidies. Zhu gets subsidies worth about $14 for each pig.

But Zhu's profits translate into grocery sticker shock for consumers like Li Shujuan.

Spending More for Groceries

Li is a publishing house editor. She's making her daily trip to the market to buy meat and vegetables for dinner. She looks at the frozen pork ribs, which are selling for about $2 a pound.

Compared to a year ago, she says, the prices are much higher — "almost double. That's why, you know, I bought this big rib, it cost me 38 [yuan], I thought, 'Wow, so expensive.' "

There are a lot of foods that weren't available here 10 or 20 years ago, and all of them command higher prices. There is a lot more lean meat. There are convenience foods, like frozen dumplings and instant noodles. Li remembers when she was a child, she used to fight with her family members over who got the chicken drumsticks.

"At that time, I thought, 'Wow, if the chicken had more legs, everyone can have one.' But now, you can see, the chicken is divided into different parts, so people can choose whatever they want."

Li goes home to prepare dinner. She knows that many poor people in China are being hit hard by inflation. They already spend most of their income on food, and now they have to cut back on their meat intake. She says that's not an option for her family.

"You have to spend more money, because you have to live in this way," she says. "We cannot say, 'OK, the price of pork rises and we won't eat it,' because that's impossible, because we need that for daily life. So the only thing is we have to make more money to cover the expense. That's why we work hard and we come back home late."

China's Role in Global Food Prices

Foreign media often cite China's increasing consumption as a reason for higher global food prices. Nicholas Lardy, an economist with the Peterson Institute of International Economics in Washington, says that so far the statistics don't bear this out.

"When you look at the trade data, China is a small exporter of food, but they're mostly exporting high value-added products, vegetables and other things like that," Lardy says. "They are importing huge quantities of soybeans, but they're not importing a lot of other grains, like rice and wheat. And they don't transmit much of their higher prices for pork to the rest of the world."

China's leaders bristle at the suggestion that their country is exporting its inflation overseas or that feeding China will ever become the world's problem. But it is clear that as Chinese people become more affluent, they will want more meats and more grains to feed their livestock, so demand has nowhere to go but up.

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Transcript

RENEE MONTAGNE, host:

People in China are finding food has gotten more expensive as they change their eating habits. That nation now has 1.3 billion mouths to feed. NPR's Anthony Kuhn found in this report, though, that an old Chinese saying still holds true: To the common people, food is as important as heaven.

(Soundbite of pig grunting)

ANTHONY KUHN: It's feeding time for the big pink pigs in farmer Zhu Shangzun's pen. With 200 hogs, he's one of the biggest pig farmers in his village on the outskirts of Beijing. Most of China's pigs are bread on small family-owned farms just like his. Zhu says prices for his pigs have more than doubled in the past couple of years, and he's clearing $70 in profit for each of the 30 pigs he sells every month.

Mr. ZHU SHANGZUN (Farmer): (Foreign language spoken)

KUHN: I doubt prices will rise further, he says. This is the most profitable time for us pig farmers, but I think this is as far as it's going to go.

Pork is the main meat for most Chinese. In 2006, China produced over 50 million tons of pork, accounting for more than half of the world's total, and it consumes most of that itself.

(Soundbite of pig grunting)

KUHN: Rising pork prices have been a major factor in inflation, which reached nearly five percent last year, a level not seen here in more than a decade. One reason for the rising pork prices is a recent outbreak of Blue Ear disease, which decimated the hog population. Farmer Zhu cites another reason.

Mr. SHANGZUN: (Foreign language spoken)

KUHN: It's because of the fuel issue, Zhu says. They make corn into ethanol, and it's cheaper than oil, but that drives up the price of the corn in our pig feed.

China's leaders are worried about the political fallout from inflation, because inflation has historically been a factor in social unrest. In a bid to halt rising food prices, the government has limited the use of corn from making ethanol and introduced agricultural subsidies. Mr. Zhu gets subsidies worth around $14 for each pig.

But farmer Zhu's profits translate into grocery sticker shock for consumers like Li Shujuan. Li is a publishing house editor. She's making her daily trip to the market to buy meat and vegetables for dinner.

How is this price compared to, say, a year ago?

Ms. LI SHUJUAN (Publishing House Editor): Well, much higher. Almost double. That's why I, you know, I bought these pigs, ribs. It cost me 38. I said, wow. It's so expensive.

KUHN: There are lots of foods that weren't on sale here 10 or 20 years ago, and all of them command higher prices. There's a lot more lean meat. There are convenience foods, like frozen dumplings and instant noodles. Li Shujuan remembers when she was a kid, she used to fight with her family members over who got the chicken drumsticks.

Ms. SHUJUAN: So at that time I thought, wow, if the chicken had more legs, so everyone can have one. But now you can see, you know, the chicken, you know, divided into different parts so people can choose whatever they want.

KUHN: Li goes home to prepare dinner. She knows that many poor people in China are being hit hard by inflation. They already spend most of their income on food, and now they have to cut back on their meat intake. She says that's not an option for her family.

Ms. LI: You have to spend more money, because you have to live in this way. We cannot say, okay, the price of pork rises and we won't eat it because - well, it's impossible, because we need that for daily life. So the only things we have to, you know, make more money to cover these expense. That's why we work hard. This is why we come back home late.

KUHN: Foreign media often cites China's increasing consumption as a reason for higher global food prices. Nicholas Lardy, an economist with the Peterson Institute of International Economics in Washington, says that so far, the statistics don't bear this out.

Mr. NICHOLAS LARDY (Economist, Peterson Institute of International Economics): When you look at the trade data, China is a small exporter of food, but they're mostly exporting high value added products - vegetables and other things like that. They are importing huge quantities of soy beans, but they're not importing a lot of other grains like rice and wheat. And they don't transmit much of their higher prices for pork to the rest of the world.

KUHN: China's leaders bristle at the suggestion that their country is exporting its inflation overseas, or that feeding China will ever become the world's problem. But it is clear that as Chinese people become more affluent, they'll be wanting more meats and more grains to feed their livestock, and so demand has nowhere to go but up.

Anthony Kuhn, NPR News, Beijing.

MONTAGNE: We continue our series on the rising price of food tomorrow with how the current global food crisis is revitalizing agriculture in some European countries. Transcript provided by NPR, Copyright NPR.

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