2016 Garlic Market Situation and 2017 Price Forecast

As a minor agricultural product, garlic has a low threshold for cultivation and a small market capacity, making it highly prone to herd behavior and speculation. In recent years, garlic prices have frequently fluctuated violently, adversely affecting garlic farmers, inventory traders, and consumers alike. Since the new garlic season of 2016, affected by reduced production in major producing areas, rising costs, garlic farmers holding back sales, and the influx of hot social capital, garlic prices opened high and climbed higher, repeatedly breaking historical records; the tight garlic supply and demand situation is expected to continue until April 2017, during which garlic prices will remain high, and after new garlic comes onto the market in May, garlic supply and demand is expected to return to normal or become somewhat loose, with prices falling significantly.

I. Analysis of Market Supply and Demand Situation in 2016

(1) Extremely cold spring weather led to reduced garlic production

In recent years, the garlic planting area has basically remained stable at 11.7 million mu. The planting area for the 2015/16 year is estimated at 11.73 million mu, flat or slightly reduced compared with the previous year. However, from last winter to this spring, affected by a severe cold wave and unstable weather, garlic production in major producing areas such as Shandong, Henan, and Hebei all suffered severe frost damage, greatly affecting garlic output. Among them, the main producing area of Shandong encountered extremely cold weather, and some garlic seedlings suffered frost damage, with the Tai'an and Laiwu production areas being particularly hard hit; in some areas the garlic seedling mortality rate exceeded two-thirds or even resulted in total crop failure. In Qixian, Henan, because garlic was planted earlier in 2015 and plastic film mulching was applied early with high temperatures, root burn occurred, causing garlic seedlings to die or become weak after the Spring Festival and resulting in reduced production; later heavy snow further worsened the garlic production reduction. In 2016, garlic yield per unit area was about 1,450 kg/mu, down 10.3% year-on-year, and total output is estimated at 17.01 million tons, down about 10% year-on-year.

(2) Garlic demand showed an amplified trend

In 2016, garlic consumption is estimated at 13.38 million tons, with seed usage at 1.92 million tons. Amid reduced garlic production and soaring prices, influenced by the mentality of “selling when prices fall, not when they rise,” many farmers, eager for prices to rise, hoarded garlic, vendors withheld goods from the market, and brokers bid up prices to purchase and then waited to sell at a better price. Without cold storage, garlic will sprout if stored for more than two months, so the hoarding cycle of small households is relatively short, and stocks are mainly concentrated in the hands of large traders able to rent cold storage, causing hot social capital to enter the garlic market for hoarding. Garlic demand showed an amplified trend, even producing a butterfly effect, reducing effective market supply and causing further imbalance between market supply and demand.

(3) Inventory significantly lower than in previous years

In 2016, the amount of garlic put into storage decreased markedly. The garlic supplied on the market is divided into fresh garlic and cold-storage garlic. Generally speaking, from May to August about 25% of fresh garlic directly enters the domestic consumer market or is exported, while the remaining garlic is basically purchased by brokers and stored in warehouses, later coming onto the market gradually as cold-storage garlic. According to consultations with major garlic-producing counties on inventory levels, the amount of garlic put into storage in 2016 fell from nearly 2.4 million tons in the same period of the previous year to about 1.9 million tons, and some cold storage facilities were left idle. In Shandong, the storage volumes in Jinxiang, Laiwu, and Lanling were 1.2 million tons, 120,000 tons, and 100,000 tons respectively; in Henan, Qixian and Zhongmu were 180,000 tons and 130,000 tons respectively; and in Pizhou, Jiangsu, it was 170,000 tons.

(4) Garlic exports contracted significantly

Garlic is an important foreign-exchange-earning export product of China. With the continuous improvement of garlic varieties and the gradual enhancement of processing, storage, and transportation conditions, Chinese garlic has been exported to more than 150 countries and regions worldwide, and a diversified export market structure has taken shape. Affected by high domestic garlic prices, garlic exports were somewhat restrained in 2016, while imports increased markedly. From January to November, garlic export volume was 1.56 million tons, down 10.0% year-on-year, and import volume was 566 tons, 10 times that of the same period of the previous year. By country, Indonesia is the main destination market for Chinese garlic exports, accounting for about 26% of total exports, and the export price to Indonesia will directly affect the overall export price of Chinese garlic. Garlic sold to Vietnam, Malaysia, the United States, and Brazil accounted for 9.1%, 7.5%, 7.1%, and 5.9% of total exports respectively.

(5) Prices trapped in a cycle of dramatic surges

According to monitoring data from the Ministry of Agriculture, the annual average wholesale price of garlic in 2016 was 11.00 yuan per kg, up 88.6% year-on-year and up 22.9% from the historical high in 2010 (8.95 yuan per kg). In the first eight months, the average wholesale price soared to 9.90 yuan per kg. After the garlic price in September (12.10 yuan per kg) broke through the historical high of 11.42 yuan per kg in 2010, it continued to rise steadily. The wholesale prices in October, November, and December were 12.88 yuan, 13.48 yuan, and 14.38 yuan per kg respectively. This round of dramatic garlic price increases was mainly due to the following three reasons: First, garlic output decreased. Looking at the three major garlic price surges in 2010, 2012, and 2016, the main trigger was changes in market supply and demand caused by reduced garlic production, leading to relatively tight market supply. Second, costs increased somewhat. The average cost per mu of garlic was 4,500-5,000 yuan, an increase of about 10% over the previous year, of which seed expenses accounted for about 20%, hired labor costs 15%-30%, and land rental costs 10%-15%. Third, hot social capital poured into the garlic market. Garlic's characteristics of being easy to hoard and store and able to remain fresh for a long time, along with the large number of cold storage warehouses in garlic-producing areas, made garlic speculation more convenient.

II. Expected Market Trend in 2017

Because the amount of garlic put into storage in 2016 was significantly lower than in the same period of previous years, and there is also a relatively large shortage of garlic flakes on the market at present, the tight garlic supply and demand situation is expected to continue until April 2017, during which garlic prices will remain high. In the 2016/17 year, garlic farmers generally expanded the planting area, and after new garlic comes onto the market successively in May, garlic supply and demand is expected to return to normal or become somewhat loose, with prices falling significantly.

(1) Planting area expanded substantially

Garlic for the 2016/17 year was fully sown by October. Stimulated by high garlic prices, garlic farmers' enthusiasm for planting increased markedly. In ordinary years, the fluctuation range of the planting area is about 5%. For this season, the garlic sowing area is conservatively expected to increase by about 10%, reaching 12.8 million mu, of which Shandong's garlic planting area is 3.6 million mu, Henan 2 million mu, Jiangsu 1.5 million mu, Sichuan 560,000 mu, and Yunnan 500,000 mu. If there is no major meteorological disaster during garlic growth, yield per unit area is expected to recover to 1,600 kg/mu, and total output is expected to reach 20.48 million tons.

(2) Consumption to grow steadily

There are two positive factors affecting garlic consumption in 2017: First, in recent years, people's awareness of the nutritional and health benefits of allicin has gradually increased, especially as haze weather has worsened, and some urban residents may choose to increase their purchases of garlic. Second, people's dietary preference for traditional garlic products has strengthened somewhat, which may promote a steady increase in consumption of processed garlic products. However, because garlic prices will still be relatively high in the first half of 2017, low- and middle-income people may choose substitutes such as onions for garlic consumption, which may have a certain restraining effect on garlic consumption. In 2017, garlic consumption will maintain a steady, slightly increasing trend, expected to reach 15.14 million tons, while seed usage will remain flat or slightly decrease to 1.88 million tons.

(3) Exports will recover somewhat

In 2017, China's garlic industry will still occupy a pivotal position in the international garlic market. Garlic exports will gradually emerge from the cold period, and export trade will show recovery growth, expected to reach 1.95 million tons, up about 15% year-on-year. Garlic export foreign exchange earnings will still rely on quantity trade, with export varieties mainly low-value-added products such as garlic bulbs, fresh garlic, dried garlic, vinegar-preserved garlic, frozen garlic, and brined garlic, while the export volume of deeply processed products is relatively small. In 2017, it is necessary to prevent a rush of concentrated exports after new garlic comes onto the market, avoid the emergence of “rising volume but falling value,” and guide the international garlic market price to operate steadily. In the future, it is necessary to leverage the advantage of being a major garlic exporter to substantially increase the export added value of garlic products and realize the transformation from a major trading country to a strong trading country.

(4) Garlic prices are expected to remain high in the first half of 2017 and may fall sharply in the second half

The annual average wholesale price of garlic in 2017 is expected to be 7.00 yuan per kg, down 36.4% year-on-year. From a temporal perspective, before new garlic comes onto the market, driven by holiday consumption, short-term garlic demand will increase somewhat, and garlic prices may continue to rise slightly. At the same time, the start of spring in 2017 is somewhat later than in previous years, and combined with the influence of climatic factors, fresh garlic from Yunnan will come onto the market later than usual. Moreover, based on the current garlic inventory and consumption levels, garlic inventory in April will be negligible, while the limited fresh garlic from Yunnan coming onto the market will be a drop in the bucket for both domestic and international markets, unable to ease the tight garlic supply situation, so the high prices of stored garlic from 2016 are expected to continue until the end of April 2017. After new garlic from the north comes onto the market in May, prices may fall sharply due to the concentrated large-scale release of garlic. The direct cost of garlic in 2017 (covering the entire process of garlic seed, garlic peeling, land preparation, planting, plastic film, watering, chemical fertilizer, pesticides, harvesting, drying, etc.) is about 4 yuan per kg. When garlic prices fall from the current abnormally high level, no matter how large the decline, as long as the field price does not fall below the cost price of 4 yuan per kg, it is an inevitable requirement of value regression.

III. Production and Operation Recommendations

Garlic farmers need to guard against planting risks early. Since 2006, garlic cultivation in China has shown a typical vicious cycle of “price rise — follow-the-trend planting — price fall — reduced planting.” Based on the current sowing area, garlic output in 2017 will increase significantly. Garlic farmers may handle already planted garlic early, and it is recommended to bring garlic sprouts or garlic chives to market ahead of time, which can both ease the current relatively tight supply situation and achieve the goals of reducing the planting area and lessening the risks borne when new garlic comes onto the market in 2017.

Storage traders need to moderately increase outbound transaction volumes. The leverage effect of price is reflected in supply and demand as a counter-effect: when prices are high, consumption is restrained; when prices are low, consumption is stimulated. The current high garlic prices will inevitably restrain demand to some extent, thereby adjusting the supply-demand relationship. The result is that garlic sales volume declines, the supply period is extended, and there may even be a situation of forced price reductions before new garlic comes onto the market. Therefore, it is recommended that dealers with large inventories of garlic not push garlic prices excessively high in deviation from the law of value, nor harbor a reluctance-to-sell mentality and wait and see for sales. They should moderately increase outbound transaction volumes, bring garlic prices back to a reasonable range, and reduce their own operational risks.

Local governments need to strengthen garlic information release. As a minor fresh agricultural product, garlic is a highly market-sensitive product, so information has a particularly obvious impact on market price fluctuations. At present, garlic industry information is scattered and lagging, and there is a lack of market early-warning and emergency response mechanisms from the national to local levels, making it impossible to effectively prevent and respond to large market fluctuations. It is recommended that governments in major garlic-producing areas strengthen information monitoring across the entire industrial chain, including garlic production, processing, consumption, inventory, imports and exports, and release in real time changes in garlic market supply and demand and price fluctuations, guide garlic farmers and garlic traders to follow market laws, proactively adapt to market changes, and sell garlic smoothly at the appropriate time, at the appropriate price, and in stages and batches.