What you probably do not know about China’s food crisis

With the support of modern media and the Internet, we are well-informed about the state of the world. But perhaps not so well-informed as we believe. In The Myth of Grand Strategy I state

It is hubris to believe that any person or small group has sufficient information to develop a plan on a global scale. There are too many complex, unknowable factors. Social factors, such as ethic and religious dynamics. Plus economic, military, and political factors. We lack the understanding to process the data into accurate patterns – a plan. That requires a science of sociology developed to the degree of modern chemistry, so that we could reliably predict results of our actions. Unfortunately sociology is at the stage of chemistry in the Middle Ages, when it was called alchemy. In fact, the yearning for a grand strategy is the equivalent to the search for the Philosopher’s Stone.

Here is a small, brief test. The global food crisis is front-page news. How well-informed are you? Here are a few questions, based on the Bank Credit Analyst report “Is China Running into an agricultural dead end?” (16 April 2008).

1. As China emerges from poverty and famine, their consumption of of food is low compared to the global average. True or False?

… average Chinese household consumption of various agricultural products is already very high. Home to 19% of the world total population and with per capita income at 25% of the global average, China consumes 50% of global pork production, 30% of rice, 28% of fish and 26% of soybean oil. This means that per capita consumption of these food products is already much higher than the global average, or put another way, very advanced along the ‘income curve.’ Therefore, the expectation that Chinese demand for these agricultural products will ‘catch up’ with the rest of the world could largely be illusional.

2. OK, but their consumption of basic food stuffs has been increasing — one reason for the current food supply crisis. True or False?

However, it is safe to say that Chinese demand for major good staples such as grain, mean andedible oils has been very stable. Therefore, it is highly unlikely that the explosive price gains of these products are due to a sudden demand shock.

3. Enough looking backwards. China’s urban growth has resulted in a loss of farmland! True or False.

… there are concern that China’s rapid industrialization is eroding farmland, which will eventually hurt food supplies. These concerns are factually unfounded, as China’s totla farmland has gradually been growing, albeit slowly. The Chinese government has been very careful in preventing industrialization and urbanization from aggressively depriving farmland. The rules prohibiting the conversion of farmland for industrial use have been further strengthened since 2006.

4. Even so, they are dependent on food imports. A growing world population makes them more dependent on this limited resource.

Overall, China does not rely on international markets for agricultural products, and has traditionally been a net exporter of major staple foods. In fact, there has been an explosive growth of grain exports in recent years…

5. But what explains rising global food prices? And rising metals prices? And rising energy prices? It must prove the doomsters right — we are running out of resources!

Answer: it is probably inflation, just like in the 1970’s.

Under the Bretton Woods II system, emerging nations have artificially depressed their currencies. Inflation is the natural side-effect. Just as it is for the United States, as the dollar declines in value — making imports more expensive. 

After all, it defies common sense that all commodities should sudden suffer supply shortages. Almost all commodities have rising prices, therefore there must be a systemic explanation. No matter what one reads at The Oil Drum.  This is basic economics. Economic dynamics can be explained from many perspectives. Here is one, explained with usually clarity by Jeffrey Frankel — Professor at the Kennedy School fo Government of Harvard University: The Effect of Interest Rates on Commodity Prices. Note the links at the end to articles in the mainstream media, giving non-technical translations of his work.

Please share your comments by posting below (brief and relevant, please) or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information about this subject

  1. Important news about the global food crisis!   (1 April 2008)
  2. A view from Indonesia of the food crisis  (3 April 2008)
  3. Stratfor warns about the global food crisis  (18 April 2008)
  4. Higher food prices, riots, shortages – what is going on?    (29 April 2008)
  5. A modest proposal for solving the global food crisis  (30 April 2008)
  6. Weekend reading about the Food Crisis  (17 May 2008)

This archive shows all posts about the food crisis, plus reports from from major international agencies.

18 thoughts on “What you probably do not know about China’s food crisis

  1. According to China caught in potash crunch by John Helmer, China is currently facing higher and higher price pressure in order to import potash, a major fertilizer. According to the article, Canada, Russia, and Belarus account for 85 percent of world potash exports.
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    Fabius Maximus: This is just a typical commodity story these days. Iron ore, fertilizer, grains, yak meat, oil … many or most commodity prices are zooming up. This sparks attempts to rapidly increase production, which creates shortages of inputs, which increases their prices. This sparks hording, which creates shortages, which increases prices.
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    The name for this phenomenon is “inflation.”
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    Billboard at Middleton High School, in the movie Kim Possible: “Those who fail history are doomed to repeat it.”

  2. What incredible bollocks. That testimony is based on so much self justifying “free market” nonsense, and loose, dismissive theoretical speculation, how can it be regarded as real world knowledge based?

    Try reading Anything by Noam Chomsky, He is a realist, instead of an abstract business theory apologist. Also, I recommend, “World Hunger”: 12 Myths”.

    Really, virtually any hands-on, NON CORPORATE FUNDED social programs filed work based studies will show a very different mechanical and proportional description of the convection and cause /response systems that truly make the world run. Jeesh!
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    Fabius Maximus replies: Thank you for sharing. Unfortunately there is nothing in your comment with actual content by which we can evaluate your criticism. Even one specific bit of analysis would help. Comments like this, in the form “I disagree! Read Prof X.” — are just chaff.

  3. Food price increases started in advanced countries with biofuels industries in place. Let’s say people there simply decided that their agricultural produce should sell more, take or leave.

    What is hard to understand is, why people in underdeveloped economies that have their biofuels program yet in the planning stage, have already started to increase prices of domestic agriculture.

    Take or leave, everyone is free, I guess that’s how it is.

    19% of total population accounting 50% of total consumption? Maybe data are false. Or maybe they’re right but the problem is in the 81%. If you’re familiar with the third world, we have families that each can afford only one or two kgs of meat per week when they ought to be buying 10 or 12 kgs.
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    Fabius Maximus replies: The answer to your question (paragraph one) is “inflation.” Has little to do with speculation or shortages (except the usual short-term events). That explains why the scope of price increases is wide both throughout the commodity spectrum and geographically.

  4. Another thing you may not know about Chinese food culture: Chinese hygiene is not exactly medieval, but many if not most Chinese restaurants would not survive an OSHA inspection. So if a Chinese person says he’s not running out of farmland, he might mean, “I love eating vegetables grown beside a busy street, with a thick, black dust on them from air pollution.”

    Given that China exports food — that doesn’t mean that food meets American standards for healthiness, or that the people who eat it will stay healthy.

    While I don’t think Noam Chomsky knows a darn thing about China, I suspect China’s environmental problems are considerably worse than Fabius is opining.
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    Fabius Maximus replies: I said nothing about China’s environmental problems, which are imo horrific. Just that the have maintained their cropland, in terms of space. Quality may have declined, as prime riverbed land is developed and marginal land cultivated. Per capita cropland has declined.
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    On the other hand, they have great potential to improve farming productivity.

  5. Another thing you may not know about Chinese food culture:

    A very good source of information about traditonal Chinese food culture happens to be Gloria Bley Miller’s Thousand Recipes Chinese Cookbook , the introduction to which contains extensive discussion about how food traditionally had been obtained and prepared.

    Nobody wants to accuse Fabious Maximus of spreading barnyard fertilizer, but if contemporary Chinese agriculture requires potash importation, then it requires the spreading of some quite different form of fertilizer than it once did.

    And this portends much – for the traditional Chinese equivalent of “How do you do?” is “Have you eaten?”
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    Fabius Maximus replies: We seem to have a bad case on this thread of “folks criticising without actually reading the post.” Unless you are a Jedi Knight, this is a bad procedure. Nowhere in my post does the word “potash” appear.
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    Even worse, Kinder’s assertion is wrong. This is an excerpt from an excellent article on the subject, a quote from Liu Guocai, the Beijing-based chairman of Migao Corp., which produces potash-based fertilizers in China: “The {new} taxes will lead to higher global prices for urea and ammonium phosphate, and have little effect on potash, of which China is a large importer, Liu said.” From “China to Raise Fertilizer Export Tax to Boost Supply“, Bloomberg, 17 April 2008.
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    On the other hand, it was nice of Kinder to recommend a cookbook.

  6. I apologize for putting words in Fabius’ mouth re the environment.

    I think Duncan Kinder was referring to the potash linked in the John Helmer story at:
    http://www.atimes.com/atimes/China/JD22Ad02.html

    The ambiguity of the English is that Kinder’s sentence can be read as saying that Fabius referred to potash imports, which is probably not what was meant.

    I read him as meaning, “No one wants to say Fabius’ posted points are wrong, but Helmer says China imports potash.” Heck, I could be misreading him too, and not know it.

  7. Although pertaining to Africa and not to China, note the following:

    Sheeran said rising fuel and fertilizer prices were adding to the misery. She said she recently returned from a trip to Kenya’s Rift Valley, where the cost of fertilizer has climbed 135 percent since December.

    That increase, along with rising prices for seed and diesel, led farmers to plant only one-third the crops they planted last year — a pattern being repeated around the world, she said.

    Here is a (somewhat dated )backgrounder on the transformation of Chinese fertilizer use.

    China has made great strides in increasing fertilizer production in recent years. However, in order to continue improving agricultural yields, farmers need to use more phosphatic, potash, and especially compound fertilizers. Thegovernment also recognizes the need to increase efficiency of nutrient absorption given the large amount of waste and growing concerns about nitrates and phosphate-induced eutrophication of waterways and lakes. It is clear that in the next stage of development, additional technology inputs will be necessary, both to produce fertilizer and to realize optimal use of a limiting resource.

    Fertilizer production was the topic of a late-June conference in Beijing that brought more than 400 directors, senior engineers, and technical personnel in the fertilizer industry to discuss how to enlarge Production and transfer technology. The Ministry of Chemical Industry (MCI) has outlined a plan to boost annual fertilizer production to more than 170 t (35 t calculated in pure N, K20, and P205) from the present l14 tons by the end of the century. China possesses 1,565 chemical fertilizer plants, of which 915 produce nitrogen fertilizer (832 small- scale) and 539 potash fertilizer plants (400-500 of which are small)

    So the Pearl Buck, Good Earth, type of scenario no longer represents the Chinese countryside.

  8. China & India also get blamed for the high price of oil, but I agree with you that the price increase has more to do with the dollar (and of course Peak Oil). See my post: Re-Examining Bigger, Faster and More Part 2 where I show that “the US consumes from 4 to 5 times its share of world energy resources”.
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    Fabius Maximus replies: The US dollar is one factor, but not the only major factor. Proof: the price of oil is increasing even in terms of strong currencies (e.g., the Euro).
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    As for your last point, how does one compute “America’s fair share” of the world’s energy resources? We are not obligated to emulate other’s poverty. For example, Mao destroyed China’s economy for several generations, which was not our problem.

  9. My apologies for omitting the following clip in my prior post:

    Chinese agriculture throughout most of its 4,000-year history has operated as a “closed system” employing night soil to fertilize fields. Productivity has increased very slowly. Today, soil fertility is Declining in many areas, and organic content is decreasing, e.g., on the north China plain, it is less than less than 1.5 percent. Due to increased Urbanization, peasants use less night soil and have only in the last few years begun to reincorporate straw and other crop residues into their fields. The Ministry of Agriculture, in response, has begun to promote the use of organic fertilizers by recently setting up, for example, Beijing Xinnong Bio-Chemical Organic Fertilizer ltd., a joint venture between the Beijing Nongfeng Demonstration Farm and the South Korean Pacific Enterprise Co.

    The point being that now Chinese agriculture is now subject to market forces which traditionally it had not been. Which is not just an economic topic but which impacts Chinese society profoundly on a basic level.

  10. Complex systems are funny things. Everything can seem to truck along quite nicely and then suddenly a crisis happens and a collapse happens. All sorts of explanations are put forward .. and everyone ignores that constant warnings were made, often for a long term before the crisis.

    Take a simple example, I once examined the performance of some private hospitals and found that their real (inflation adjusted) profit had dropped sharply over the last few years. After spending some time at them studying their operations it was clear that they had exceeded their maximum efficient capacity. At over 90% utilisation their efficiency dropped markedly and hence their costs increased faster than revenue increased, hence a profit drop. The real issue was that queues built up the system (anyone knowing queuing theory would get this), causing increased waiting times that rippled through the whole system and bed days jumped. To try and improve the situation more nurses’ time was expanded and wasted, increasing labour costs.

    The solution? To either cut patient throughput or increase capacity.

    All complex system are prone to this, as utilisation approaches the maximum possible then efficiency drops and, very importantly, redundancy disappears. This means the system is now very vulnerable to even small disruptions in inputs, which can then cause much larger impacts on outputs than when utilisation was at a lower level.

    Now the food issue has been around for a long, long time. I remember studies from the 70’s, 80’s and 90’s that predicted it. The issue is that the system has gone past maximum efficient utilisation. More and more inputs have led to lower and lower increases in outputs. Worse, as commentated on, arable land is disappearing (though drought, salinity, desertification, urban expansion, etc). So to even stay at the same level as (say) 20 years ago more inputs have had to be pumped in, bringing forward the day of maximum efficient utilisation. Redundancy (spare land, stockpiles, etc) has disappeared over the last few years. So we have a system that is running flat out, well past its maximum efficiency and with little redundancy left for a perturbation.

    What we are having now is a combination of disease (anyone been following the spread of wheat disease across Africa and now heading for the ME), increased cost of inputs (oil, etc), drops in production caused by drought (etc), currency instability, etc on a system that has been very close to the limit for a while now. These minor input changes are having a much larger impact now than they would have had 20 years ago. Impacts on one food type is rippling through to others, wheat problems impact rye demand for example, demand increases for basic foodstuffs impact meat production and so on and so on. Of course speculators jump on the bandwagon as well, adding a further positive reinforcement to the whole process. Countries are stopping their exports to feed their own people (everywhere is only 3 days away from revolution).

    And the whole unstable system starts to grind to a halt.

  11. I should add that it was relatively easy to expand capcity in the hospitals, we cannot increase agricultural capacity. Disease means that world wide wheat production is going to be down for quite a while (it takes years, even decades, to develop new disease reistant strains). The (now) extraordinarily high energy inputs required per unit of output means that prices will remain high, even if demand/supply get back into synch. Ditto fertiliser (probably past peak production now) and in quite a few places, water.

    What is needed now is a system change (e.g less meat production, more local production rather than cash crops, local fertiliser usage, etc) Changes in practices (e.g. less water usage, less fertiliser, less oil dependency on production) and, the one that no one wants to talk about, population control and actual reduction (as per EU, Iran, Japan, etc). But this will take time, so we better all get used to very high prices and periodic shortages of various foodstuffs.

    When Japan experiences rice shortages, which with all its money and wealth it simply cannot buy enough, than it really is a wake up call.
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    Fabius Maximus replies: I think this and your previous post are highly overstated in terms of the available data. Farm price cycles have been with us for ages — driven by weather, over- and under-inevestment cycles, and inflation. Looking back, most are just cycles.
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    As are shortages. Food is largely a just-in-time production process, with minimal stockpiles outside of the large national reserves. Hoarding, a more or less random phenomenon of crowd hysteria, can hit at any time — emptying the shelves of even the richest countries. Remember Y2K?

  12. I disagree FM, posted on the the Australian Broadcasting Corporations website 1 hour 13 minutes ago:

    “Brazil has temporarily banned rice exports to protect its domestic supply and contain pressure on food prices. Brazil will not meet orders from other Latin American countries and Africa for half a million tonnes of the grain.”

    and

    “Brazil’s neighbour Argentina is also halting exports to contain local prices and just yesterday the Governments of Venezuela, Bolivia, Nicaragua and Cuba agreed on a $105 million plan to grow more food. “

    New Scientist:
    “A WHEAT disease that could destroy most of the world’s main wheat crops could strike south Asia’s vast wheat fields two years earlier than research had suggested, leaving millions to starve. The fungus, called Ug99, has spread from Africa to Iran, and may already be in Pakistan. “

    We are in uncharted times now and there are no precendents to guide us. Once the US surpluses could have carried is through (for a while the Saudia Arabia of food) but it is now a net food importer (que? how did that happen?).

    Yes there are cycles, but the long term trends (in the production, population and consumption sides) having been working away for decades, like termites on a house. Cycles around a trend line. Quite a few foodstuffs can be stored for long periods and in the past have been, but stockpiles have disappeard in recent years (New Scientist again), leaching out redundancy in the whole system. It then only takes a slight knock to cause major damage (just like the house).

    We are now in simultaneous financial, resource and food crises (and of course there are links and inter dependencies).

    An unstable and collapsing financial system, combined with (under its current design) a maxed out food production and distribution system (which also means that food production can increase, plus spoilage and waste decreased, at least a fair bit, under a different system over time) along with reserve and production shortages in certain key resources (with some distribution bottlenecks helping things along, does everyone know just how old the world shipping fleet is now?). Add in a very serious wheat disease outbreak and …. well we all now live in some very interesting times.
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    Fabius Maximus replies: I disagree with most of this. Food prices are far lower than in the 1970’s, after adjusting for inflation. The world has underinvested in agricuture for the past two decades, as it has in all four groups of commodities (energy, industrial materials, precious metals, agricultural products). That is the primary reason we have cycle.
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    At the end of cycles we get inflation, small surplus of supply over demand, and depleted stockpiles. The last two mean that any problems quickly get transmitted to the end user. Nothing “unprecidented” about this.
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    As for the stories you mention (73 minutes ago!) … I wrote about both of these on 1 April, and again on 18 April.
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    The first two reports are just hoarding, as I mentioned in a previous comment. Governments react to inflation not by tackling the monetary causes — which is painful — but by attempting to mute the price signal. This is self-defeating, as rising prices spark increased supply. Pushing down prices decreases supply by discouraging production and incenting hoarding.
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    The UG99 what fungus is a potentially severe threat. These things have always been with us, but they hurt each time.

  13. Yes and no. Over reaction is as bad as under reaction. Price signals are essential to change investment into production improvements, alternatives and efficiency gains.

    You are one of the very few who understands the difference between price changes and inflation (the latter, for others, is a monetary condition, not a fundamental change in supply/demand). One of the, less well spoken about, dangers of inflation, is that it can distort the price/response signals causing over/under reaction to real events.

    But, every system (biological, ecological, financial, et al) has a rate of adaption to environmental changes. Too fast an environmental change and it exceeds that capacity to adapt. Shortages and rising food prices are not an issue if it happens within the response time of our agricultural systems (ie 3-20 years depending on what products we are talking about) and our social systems (consumption patterns change, people have less, or delay, children, wastage is cut, etc). But we are having rapid price increases in a very short space of time because of (largely, but not all) real supply bottlenecks, not just monetarily caused inflation or speculation (though there is some of that as well).

    This also implies that the current financial debacles are having and will have in the future, real affects on agriculture, by the drying up of credit, rising interest rates (as in Australia), currency instability, etc.

    These Govt’s responses are perfectly logical and predictable – every society is just 3 days away from revolution – which is what happens if food runs out or becomes unaffordable. Hard to talk about price signals when there are riots in the street, bit like talking about the value of aromatherapy when you are having a heart attack. A short term response like this is not really a big issue, provided it is only short term and then is followed by more reasoned and sensible responses (I note the idea by them for cooperation to raise food production, which is a very positive thing). Buying time is an ok tactic, provided it is only a short amount of time (if it becomes a long term policy then that’s another issue). They’re looking after their own interests, I hope they get through it ok.

    I should add another variable from our narrow, 1st world (largely Anglo Saxon) point of view. Variability in food production (the cycles) was met by both stores and 3rd and 2nd world countries going hungry, as we in the rich countries could out bid them for it (or even just take it as the British did to India in 1942, killing millions of Indians). But when some of these countries can now out bid us for it then that mechanism has gone for maintaining OUR cheap food supply. From a US perspective, if you get in a bidding war for food (or even agricultural input resources) with China, you will lose. For a long time the US was insulated from this as a ,once, massive food exporter. As a now net food importer (peak food?), things will change. (Australia is ok to a point, we’re still, just, an exporter and our Prime Minister talks Manderin)

    There is hope though, in WW2 the British Govt introduced scientifically designed food rationing and produced the healthiest generation ever seen. A re-enactment for British television on a family a few years ago showed that both their physical and (interestingly) mental health improved by reliving that war time diet and lifestyle for even just a few months.

  14. I recommend reading Oldskeptic’s posts above. An excellent description of key dynamics of food economics. I will be post about the global food situation on Sunday, and lift much of his comment into it.

  15. Re: Britain and WW2 rationing. Reports I have seen is that the people were scrawny. i.e. underfed.

    Re: Energy. Help may be on the way if this works out and can be ramped up fast enough: WB-7 First Plasma

    BTW we may not be having just a monetary inflation. We may be at the end of a productivity cycle where despite good profits there are few good investments. The “free dollars” produced by good profit are chasing too few opportunities. I have heard about this in the alternative energy sector. It may be true in others as well.

    Of course we are having big problems in the USA – the people are too fat and we have too many houses.
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    Fabius Maximus replies: All good points!

    1. Many accounts of WWII note the difference between the British and German soldiers. The former were small, often bow-legged. The latter larger, well-formed. This reflects the different national public policy solutions to the Great Depression of the 1930’s. The German’s handled it much better (if only Hitler was content to be a populist — well fed German’s driving the People’s Car).
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    2. The WB-7 is the last work of that giant in the world of physics, Robert W. Bussard (who passed over in October 2007). This is also known as the Polywell.
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    As still in the experimental stage, it is probably of little relevance to our adaption to Peak Oil. Radical new technology usually takes several decades to perfect, commercialize, and develop on a large scale. On the other hand, projects like this are of the greatest significance for the long-term future of hAmerica — and all humanity.
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    I agree that this deserves attention and funding. Government money is far better spent on this than biofuel subsidies.
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    3. A change in productivity is another explanation, another possible factor, in the current downturn. I doubt it, but we will only know many years from now.

  16. #11, Oldsceptic , have you any references for similar hospital studies ? This is my problem with my business. It is just the wrong size and it is hard to see which way to throw the dice.

  17. #16 , I still have my ration book , used for the first 3 years of my life . I dont remember anyone being scrawny or bow legged , except jockeys . The difference I see now, is how fat people are and how many women are as tall as men . And how everyone claims some serious chronic illness .
    The problem with rationing, from anecdote , was not calories , protein or vitamins : it was boredom . There are only so many recipes for Potato and Turnip Soupe A La Mode D’Ici.
    Off topic but interesting , the British population is supposed to be 65,000,000 , having grown recently due to immigration . This increase is causing angry feelings among the ‘ natives ‘.
    But a flashback in the Telegraph newspaper 14/10/09 is to a headline of 14/10/39 . ” The 80,000,000 ration books , prepared for every man , woman and child in Britain are ready and stored at suitable centres , but distribution will not begin until until the national register has been completed ..will take another 12 days.”

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