What If China's Drought Goes Global?

Given the global repercussions of a severe wheat shortage in China, Beijing's aggressive efforts to deal with the crisis should be welcomed by all.
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China's drought is bad, the worst in at least 60 years. Roughly 12.5 million acres of winter wheat crop have been damaged. And a United Nations Food and Agriculture Organization (FAO) alert reported last week that 2.57 million people and 2.79 million livestock are suffering from shortage of drinking water.

The mood in China is not upbeat, as forecasters are predicting that the drought may well continue into the late spring-early summer months -- threatening the summer wheat crop. And though the Chinese might have a reasonable amount of wheat stockpiled, no analyst I've read pretends to know with certainty how deep the stock goes or how long, in the face of unyielding drought, it can sustain the needs of the population. What we do know is that the prospect of a China running low on water and wheat is not pretty -- for anyone.

China is the largest wheat-producing (and wheat-consuming) country in the world. Wheat shortage there means not only that prices in China will rise, but also that prices on the international market will go up.

Some pundits have already argued that the recent unrest in Tunisia and Egypt was prompted in part by surging food costs. Global wheat prices jumped 77% in 2010 (a spike that continues unabated into 2011). If China is forced to turn to the international wheat market, how steep will global prices rise? Will China's demand resulting shortages elsewhere? And will shortages and steeper prices, in turn, lead to social and political unrest in other spots of the world?

Other pundits remind us that if the current Chinese wheat harvest is a bust, China will likely look to the U.S. market for imports. How will Chinese import demand affect wheat supply and prices here? And will this demand contribute to growing inflation in the U.S.?

Inflationary pressures in China are already high. The present drought only exacerbates these pressures. The anxiety of the Beijing government is palpable. President Hu Jintao and Premier Wen Jiabao have made personal visits to the stricken areas calling for "all-out efforts to combat drought" and committing $1billion to fight the devastation. They've made television appearances assuring the people that the government has abundant stockpiled wheat and is taking all possible measures to maintain the balance between supply and demand of the grain. What Hu and Wen, of course, know is that droughts and famines have made for restive populations in China's past -- they've even toppled governments (the Taiping and Boxer rebellions of the 19th and earlier 20th century are still fresh in their minds and Huang Chao's rebellion at the end of the Tang dynasty (618-907) has a place in their high school history texts).

So, the Beijing government continues to fire the cloud-seeding chemical silver iodide into the atmosphere to encourage more snowfall (to little effect, however, according to reports in the China Daily and the Global Times); it's begun digging 1350 emergency wells, constructing irrigation facilities, and planning water-diversion projects in the major wheat-growing provinces affected by the drought; and it's handing out $334 million in emergency relief aid to farmers.

Such measures by the Chinese government are intended principally to ease the burden on the Chinese people and to ensure social and political stability. But, given the global repercussions of a severe wheat shortage in China (or, indeed, anywhere in the world, as events in Tunisia and Egypt have suggested), Beijing's aggressive efforts to deal with the crisis should be welcome by all.

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