2017 Garlic Market Price Trend Analysis and Forecast

Garlic cultivation has a low entry threshold and a small market capacity, making it highly prone to herd behavior and speculation. In recent years, garlic prices have frequently experienced violent fluctuations, adversely affecting garlic farmers, inventory holders, and consumers alike. Since the new garlic season of 2016, influenced by reduced production in main producing areas, rising costs, garlic farmers holding back sales, and the influx of idle social capital, garlic prices opened high and kept climbing, repeatedly breaking historic highs; 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 are expected to return to normal or become somewhat loose, with prices falling significantly.

I. Analysis of Market Supply and Demand Situation in 2016

(1) Extreme cold weather in spring led to reduced garlic production

In recent years, garlic planting area has remained basically stable at 11.7 million mu. The 2015/16 planting area is estimated at 11.73 million mu, flat to slightly down compared with the previous year. However, from last winter to this spring, affected by a severe cold wave and unstable weather, garlic production in main producing areas such as Shandong, Henan, and Hebei all suffered serious 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 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 early in 2015 and plastic mulch was applied early, high temperatures caused root burn, leading to dead and weak seedlings after the Spring Festival and reducing production, and later heavy snow further worsened the garlic production decline. 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 expanding trend

Garlic consumption in 2016 is estimated at 13.38 million tons, with seed use 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, and brokers bid up prices to buy and held out for better prices. Without cold storage, garlic will sprout if stored for more than two months, so small households hoard for a relatively short period, and stock is mainly concentrated in the hands of larger traders able to rent cold storage, causing idle social capital to enter the garlic market for hoarding. Garlic demand showed an expanding trend, even producing a butterfly effect, reducing effective market supply and further worsening the imbalance between market supply and demand.

(3) Inventory significantly lower than in previous years

Garlic storage volume in 2016 dropped 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 for storage and later released onto the market as cold-storage garlic. According to consultations with major garlic-producing counties on inventory levels, the 2016 garlic storage volume fell from nearly 2.4 million tons in the same period the previous year to about 1.9 million tons, with some cold storage facilities left idle. In Shandong, 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 Jiangsu, Pizhou was 170,000 tons.

(4) Garlic exports contracted markedly

Garlic is an important export product for earning foreign exchange in China. With the continuous improvement of garlic varieties and the gradual perfection of processing, storage, and transportation conditions, Chinese garlic has already 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 the previous year. By country, Indonesia is China's main garlic export market, accounting for about 26% of total exports, and the export price to Indonesia directly affects 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 fell into a cycle of sharp increases

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, with wholesale prices in October, November, and December at 12.88 yuan, 13.48 yuan, and 14.38 yuan per kg respectively. This round of sharp garlic price increases was mainly due to the following three reasons: first, garlic production decreased. Looking across the three sharp garlic price increases in 2010, 2012, and 2016, the main trigger was changes in market supply and demand caused by reduced garlic production, leading to tighter market supply; second, costs increased somewhat. The average cost per mu of garlic was 4,500-5,000 yuan, up about 10% from the previous year, of which seed expenditure accounted for about 20%, hired labor costs 15%-30%, and land rental costs 10%-15%; third, idle 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 facilities in garlic-producing areas, made garlic speculation more convenient.

II. Expected Market Trend in 2017

Because garlic storage volume in 2016 was significantly lower than in the same period of previous years, and because the current market gap for garlic flakes is also relatively large, the tight garlic supply and demand situation is expected to continue until April 2017, during which garlic prices will remain high. In 2016/17, garlic farmers generally expanded planting area. After new garlic comes onto the market successively in May, garlic supply and demand are expected to return to normal or become somewhat loose, and prices will fall significantly.

(1) Planting area expanded substantially

Garlic for the 2016/17 season was fully planted by October. Stimulated by high garlic prices, garlic farmers' enthusiasm for planting increased markedly. In ordinary years, the fluctuation range of planting area is about 5%. For this season, garlic planting area is conservatively estimated 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.