Some Chinese investors switch from stocks to garlic

Jinxiang (China), June 15: Yang Fei doubled his money last year buying and selling in the unofficial garlic capital of the world. He did pretty well the year before, too, and the year before that.

One of a few dozen garlic agentsinJinxiang,inChina's eastern Shandong province, 34-year-old Yang is at the centre of a trade that has attracted a small group of retail investors, mainly wealthy businessmen,seekingasurer bet than China's volatile stock and real estate markets.

When prices are low around the spring harvest, investors buy as much of the crop as they can, put it into store, and release it on to the market when prices rise later in the year.

“Manipulating the garlic market and hyping the price is pretty simple compared to the stock market and real estate. Many of my clients have stocked tens of thousands of tonnes of garlic and don't sell it until the price rises,” another agent, Liu Yunfei, told Reuters.

Yang's profits and those of his dozen or so clients ballooned to 7 million yuan ($1.07 million) last year, when the price of garlic rose to 10.6 yuan ($1.62) per kg.

“For the last three years, our investors have made money, we made a 100% profit last year,” said Yang, who has built five warehouses for garlic storage and plans another four.

This year, though, may be different.

The one-way bet on garlic has lured many new investors, driving prices up to a record 13.4 yuan/kg in March, much earlier than usual. Also, frosts in China at theturnof theyearhitplantings and yields, and that could squeeze margins when the investors' stored garlic comes on to the market later.

Agents said there were more investors this year, and they were spending more to buy up the garlic crop.

“This year, garlic prices are especially high,” said an agent named Yan Jianhua. “A lot of people have been looking for me. I know one person from Guangdong who wants to store around 5,000 tonne. Last year, he stored less than 1,000 tonne.”

With a population of around 640,000 and no previous claim to fame other than proximity to the provincial capital, Jinxiang has boomed.

It produced 1.69 million tonne of garlic last year, around 7% of China's total — and more than the whole of South Korea, the world's third-largest producer. China's annual crop of around 25 million tonne dominates the global market.

Garlic fields stretch out around Jinxiang, and at harvest time the air is filled with dust kicked up by trucks ferrying the crop to market and storage. The town also grows onions and hot peppers.

Reuters