Why Vegetable Prices Increased

Last week, the Farmers Daily contained a long article explaining why vegetable prices increased in 2010. The article notes that the rapid increase in prices attracted a lot of attention and prompted the central government to issue a series of 16 policies to address the issue. According to the authors, a clear understanding of the reasons for rising prices is necessary in order to make good policies.

Many factors contributed to rising prices. While some regions had unusual weather last year and urbanization gobbled up land, the article insists that supply and demand are basically balanced. Ministry of Agriculture statistics show that acreage planted in vegetables went up 8 million mu last year. Rather, the article points to rising costs in each stage of the supply chain as the main reason. The author argues that rising costs are not unreasonable and points out that profits need to be spread evenly among the various actors--farmers, traders, retailers--to preserve a stable long-term supply chain.

The first reason for rising prices is higher costs of growing vegetables. This is due to rising prices of fertilizer, pesticides, fuel, and plastic sheeting as well as increasing land rent. In Hainan, the rent for vegetable land was quoted at 1200 yuan per mu in 2009, up from 50 yuan in 2005.

Labor costs are also rising. In many areas, labor costs have doubled in the last few years. Vegetable-growing is labor-intensive and must compete with other industries for labor. Rising wages have been the main factor increasing rural incomes, but they also raise production cost.

As a result of urban sprawl, vegetable production has been pushed out of areas on city outskirts and into the hinterland. This raises the costs of transportation and handling. When bad weather disrupts transportation, it's hard to get vegetables into cities, leading to price spikes and high rates of spoilage.

Vegetable consumption is increasing. As more peasants go into cities to work they become consumers of vegetables and stop growing them. Some who stay in their villages have stopped planting gardents, buying vegetables instead. “Statistics” show that aggregate vegetable consumption was 602 million metric tons in 2009, up 24% from 2001.

The average price of a vegetable reflects higher quality and more value-added. The travel and food service industries have raised the value-added and demand for quality, color, and expensive exotic varieties. Investment in greenhouses and irrigation is higher, it costs more to meet safety standards and grow vegetables in the off-season.

The article traces the price of a cucumber from farm to table. A farmer in Shandong sells a cucumber for .93 yuan per jin. His costs include pesticide, seed, water, electricity, plastic sheeting, labor, land rent, depreciation on greenhouses.

The price at the Shouguang market in Shandong is 1.15 yuan, giving the farmer a profit of .22 yuan.

After cleaning, sorting, packaging, and transporting the cucumbers to a wholesale market in Beijing the price is 1.65 yuan. This includes .23 yuan distribution costs and .27 yuan in profit.

The wholesaler's price is 1.8 yuan, which includes his stall fee, labor and truck costs and a profit of .09 yuan.

The retail price is 2.5 yuan. Costs include a stall fee, labor, waste, and a profit of .27 yuan.