Drought, food security and markets

As global food prices continue to soar (wheat and corn prices have nearly doubled since June 2010), a severe drought in South and Central China is reviving fears over domestic food inflation and its potential effects on global grain markets.

Drought in China is not new. Back in February, the country experienced a serious drought in some major wheat producing regions, mainly in the northern areas, and international experts predicted that China's wheat production would decline by a significant margin. But latest Ministry of Agriculture estimates show that wheat output will actually increase by 2 percent because of the measures taken by the central and local governments, as well as farmers.

The drought in South and Central China, however, is severe and precipitation in the rice producing regions along the Yangtze River basin is at its lowest in 50 years. This once again raises the question: Will the grain production decline and will China need to import large amounts of grains.