The price of Chinese garlic has been through the roof again this year, beating out the 2009/10 crop by a significant margin. The two root causes of the bullish price are lower production in the country and an increase in demand on the Chinese domestic market.
But the real culprit behind the price rises has been speculation – local investors trading garlic as a commodity have driven the price up around 250 per cent on last year.
“Chinese garlic prices are currently trading at around US$2,500 per tonne FOB, compared with around US$1,000 per tonne last year,” Sarah MCormack of Chinese marketer Dalice told Fruitnet.com in early September. “There’s a worldwide shortage of garlic, so people are holding out for higher prices – they’re storing product.”
The speculation this season, which began around June, is a continuation from the last, when garlic investments outperformed both crude oil and gold futures, a feat that looks likely to repeat itself this season.
“The garlic price has increased because of a bit of a shortage, but there are also many speculations,” explained Peter Li, director of Chinese grower-marketer Heng Feng. “On garlic, there are three electronic futures markets – just on garlic. It’s not very civilised, it’s not good.”
Fuel to the speculative fire, China’s lower production this season has been compounded by rising demand internationally, and particularly within China. Consumption spiked early this year during the H1N1 bird flu outbreak in the country.
“There’s been a dramatic upswing in garlic prices, and it’s partly been fuelled by an increase in consumption as people believe eating garlic can ward off bird flu,” John Chapple of China-based residue testing company Sino Analytica told Fruitnet.com. “This factor, combined with speculation, has driven up prices.”
But the domestic market in China is becoming more tolerant of high prices, explained Mr Li. “The domestic market is growing more and more quickly and has more endurance for high prices.”
As the largest garlic exporter in the world, China’s high prices have of course affected the sector globally. Neighbouring India has seen a jump in exports and prices this year as a result, with local media reports pegging wholesale prices for garlic at around Rs7,000 (US$155) per 100kg.
While India hasn’t imported any Chinese garlic since a ban on the product two years ago, exports of Indian garlic rose 327 per cent over the April to August period, according to the Indian Spices Board.
In the US, Chinese garlic was selling earlier this month at US$34 for a 30lb (13.6kg) carton of netted garlic, reported The Packer, up from US$11 the same time last year, with local importers predicting no drop in prices in the near future.
Other global suppliers of garlic are steadily increasing production, but Mr Li said they wouldn’t have a significant effect on pricing any time soon.
“Chile, Argentina and Egypt are increasing their plantations, but compared to the needs of the whole world, they only account for a small portion, so they won’t impact the Chinese price,” he said.
As for next season’s Chinese garlic output, Mr Li expected acreage to increase only by around 15-20 per cent, despite a general trend in the country for growers to increase plantings following a year of good returns.
“I don’t think there will be a big increase in output next year,” he said. “Mainly because the seeds are very expensive, and the farmers don’t want to take a risk with so high a cost. Who knows what the price will be next year?”
