The garlic bubble

I first came across China’s garlic bubble on the Economist, which said prices in China’s garlic growing capital – Jinxiang have risen 40 times since March. China produces as much as 75% of the world’s total garlic, and is the biggest producer in the world.

Here are the ostensible reasons for this garlic mania:

1. Ward off H1N1: Some schools are mandating their students to eat garlic with lunch every day, as they believe it wards off H1N1. This seems to have triggered a price rise because people are buying garlic as prevention to this virus. So much for people worried about actually getting the vaccine.

2. Reduced garlic plantings last years: Garlic prices had collapsed last year, and farmers moved to other crops reducing the land under cultivation. This led to reduced supply this year, and when demand built up, there wasn’t enough garlic to go around for everyone.

3. Garlic hoarding: There are reports that coal mine bosses are engaged in hoarding garlic. They buy garlic and haul it between warehouses keeping supply low, and fueling the price rise.

4. Increased exports: There is increased garlic demand from abroad, possibly for the H1N1 reason, and this is also fueling the fire.

5. Speculation: Increased liquidity is funneling money into various assets, and garlic happens to be one of them. Combined with the other factors, speculative trading is leading to price rise. Among all reasons, I think this one must contribute the maximum.

Just like demand from India and China didn’t explain the rise in oil prices sufficiently, just the demand and supply factors can’t explain this spectacular gain in garlic prices.

Amazing what goes on around the world.

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