A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
politique monétaire américaine
Editorial

China plays on interest and exchange rates to rein in "agflation"



momagri Editorial Board




Following the implementation of various measures to better control the volatility of agricultural commodity prices earlier this summer1, the Chinese Government, on November 7, said it intends to activate a price control policy. The goal is "to improve the financial aid system, fine-tune the selling prices of some goods if necessary and fight speculation on food products."

Prices indeed are continuing to soar: The consumer price index rose by 4.4 percent in a single year. Food products are especially affected: In more than 36 large cities, the average cost of 18 basic vegetables surged by 62.4 percent from a year earlier. "We do understand public concerns about the relatively rapid surge in prices for food and other staple products," indicated the National Development and Reform Commission.

This sharp rise in agricultural prices results from a combination of several factors in a context of sustained domestic demand:
    - A massive inflow of liquid assets toward agriculture through futures markets following the over-investment in Chinese real estate. A portion of available funds actually fell back on commodities and agricultural goods, thus playing a role in the surge of food products and consumer prices in general.

    - An inflow of international––especially American––liquidities. The American Central Bank decision to maintain its key rates at low levels has bolstered investment toward emerging countries posting a strong growth rate. Just like other nations, China was affected by this new liquidity inflow that focused on its fastest growing market: agriculture.

    - This year's poor weather conditions in China that impacted estimated crop prices and price volatility.

In an attempt to remedy for such price hike––which some observers consider as "imported" inflation––the Chinese government has initiated various measures:
    - A strict control of agricultural and food prices to prevent any excessive volatility not consistent with the "natural" fluctuations observed on agricultural markets.

    - Steps to reduce stocks by drawing on domestic reserves. Consequently, 62,400 tons of pork and 410,000 tons of sugar have been put on the market since the end of September.

    - Monetary measures by assessing the key rates charged by the Chinese Central Bank to curb the inflow of both liquidities and investors on agricultural markets.

    - Financial measures through a "modest" assessment of the Yuan to increase the purchasing power of Chinese consumers for more costly agricultural and food products.
The measures determined by China are indeed essential and corroborate three major trends:
    1. The volatility and inflation of agricultural and food prices are currently key concerns for the major agricultural powers, thus truly proving the fact that agricultural issues are again a key component in global economic policies.

    2. While the measures planned to contain inflation and price volatility are many, an international consensus is becoming apparent on the need to control agricultural and food prices and to implement a successful stock policy managed at various levels (national, regional and global).

    3. Exchange rates and currency policies set by central banks represent two powerful vectors to stabilize domestic agricultural prices and competitiveness in a globalized and liberalized world.
These three trends are essential and must serve as a foundation for the discussions currently held in various arenas to design––or redesign––a global governance system that is simultaneously fairer, more durable and more efficient.

1 Please see momagri June 14, 2010 article, "China takes steps to fight price volatility in agricultural markets". http://www.momagri.org/UK/a-look-at-the-news/China-takes-steps-to-fight-price-volatility-in-agricultural-markets-_700.html
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Paris, 11 December 2018