Kuta Beach

Kuta Beach

Friday, 11 January 2008

China to Keep Food Prices Low

China's government has announced that it will temporarily intervene in market to control rampant rise in food and fuel prices.

Retailers and producers will face heavy fines if they increase the price of basic necessities, the government says...

And the UN's food aid agency is warning that another measure taken by China - restricting the exports of rice and other staples - could have serious effects in the region...

Source: China to curb insane food prices
This news is very worrying. At first, it may sound good. Food prices are high, the poor will struggle to buy food, so the Chinese Communist Party (CCP) makes it illegal to raise prices too high.

The problem this creates is if Chinese farmers, seeing how low the price of food is in China, start to export food out to other countries where they can get higher prices. However, the CCP makes it illegal to export as well!

What I am worried about is that if there are low prices then farmers will have their profits reduced thereby giving them less incentive to provide food. They may find it more lucrative to work in a factory. Thus fewer food will be supplied. Also, because prices are lower in China than in, say, Japan, imports will halt and be diverted to where they can fetch higher prices. Thus the supply of food in China will decrease.

The low prices will mean the demand for food in China will increase. Excess demand and lack of supply of food means we will have a shortage. This can lead to starvation an turmoil in China.

A better idea for the CCP is to give food vouchers to the very poor as they do in the USA. Sometimes it may be difficult to know whether a poor person is poor enough for welfare. My suggestion is to measure the BMI. If a person is starving then he will lose weight and his BMI will decrease. I suggest that the CCP give food vouchers to people if their BMI is below 20.

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