Cancelling road tolls fails to steady vegetable prices
The central government's recent attempt to stabilise prices by cancelling road tolls for all cargo trucks carrying vegetables does not seem to have had much impact on wholesale and retail markets.
Wholesalers say the scrapping of the tolls has been offset by rising fuel prices while most retailers still mark up produce substantially to ensure profits.
Shipping prices offered by truck drivers remained high, said Wang Ruiqi, a vegetable trader in Shouguang, Shandong .'But to be fair, they don't make profit [by transporting my cucumbers to Beijing] because fuel costs have kept rising. The way they make money from the journey is carrying something more expensive for other people on the way back here.'
As always, retailers mark up the price much more than wholesalers so that the smaller volume of produce they sell brings similar profits.
And they have reasons to be confident. 'For example, in a vegetable market at a residential neighbourhood, the number of sellers is usually small and consumers are relatively stable,' said Gao Wang, an analyst at Beijing Orient Agribusiness Consultant. 'With limited competition and foreseeable demand, a retailer would definitely raise prices if his purchase price was higher today than yesterday, but it's very unlikely that he would cut prices if the purchase price was lower.'
In an attempt to ease inflationary pressures brought on by surging food prices, the central government announced in late November that all mainland toll roads should exempt cargo trucks carrying designated farm produce, including cucumbers, from charges.
It has also issued several notifications to local commercial authorities ordering a crackdown on price manipulation which has occurred since early last summer, when some vegetables such as garlic became the subject of speculative investment and prices began soaring.
Administrative measures such as forbidding sellers from raising prices were harmful to the market in the long term, said Weng Ming , a researcher specialising in the agricultural products trade at the Chinese Academy of Social Sciences. 'And in fact they only work in state-owned supermarkets such as Jingkelong, which account for only a small part of the market.'
Gao said that overall, wholesale vegetable prices fell considerably last month. 'In December 2009, the average wholesale price for cucumber in major markets across China was 3.97 yuan [HK$4.66] a kilogram compared with 2.67 yuan in December 2010.'
Ministry of Agriculture data show that by December 19, retail prices of 28 vegetables had dropped for five consecutive weeks.
Observers believe that reducing the number of times that a vegetable is traded is the long-term solution to excessive price increases, instead of enforced price controls.
As real estate prices climb in major cities, more land is being used for more lucrative industries such as tourism than farming, which leads to a growing dependence on suppliers further away, Weng said.
'For mega-cities like Beijing, only 10 per cent of the vegetables they consume are produced locally,' he said. Shouguang , the biggest vegetable supplier in northern China, has become the most important source of farm produce for the capital.
The Farmers' Daily, a newspaper run by the ministry, has reported that 70 per cent to 80 per cent of vegetables sought by major northern cities in winter and spring are transported from southern provinces.
In Beijing on December 29, Commerce Minister Chen Demin said linking farms with supermarkets should be a top priority for local commercial departments.
He said that if supermarkets bought direct from farmers, logistics costs would drop by 10 per cent to 15 per cent. By 2015, the government wants to see 30 per cent of fresh farm produce in big and medium-sized cities sold by farmers direct to supermarkets.