• Geoff Donald

Food Security and China - Part 2

In the first part of this post, we looked at the importance of food security to China leadership from both a historical point view and a national security point of view. In this post, we are going to drill down a bit further and look at what steps China is taking to improve its food security, what constraints does China face in obtaining its goal of food security, what are China’s risks in pursuing this goal, and why China’s approach to food security matters to the rest of the world.





What steps has China taken to achieve food security?

As mentioned in the first post, China has been taking steps to achieve food self

sufficiency (which is China’s definition of food security) for a long time and recently the central government has taken additional steps, both domestically and internationally, to meets its goal. Let’s look at the steps China has taken domestically first. These steps include:


a. The Government of China has set aside 12% of its total area or 1.24 million square kilometers of arable for the purpose of agriculture -meaning not urban or manufacturing development. This is to make sure that it has enough land to grow the foods its needs to feed its citizens.


b. China massively subsidizes its agricultural industry. According the OECD in 2021 China paid out $289 billion in agricultural subsidies – nearly three times as much as the EU ($98 billion) and more than five times as much as the US ($53 billion). Without these subsidies, it is very unlikely that many Chinese agricultural companies would exist in their current form.


c. In addition to the above direct subsidies to the agricultural industry, China has also been investing in its agricultural industry both directly through agricultural technology research or indirectly through the expansion and upgrading of its transportation infrastructure that allows China producers to transport agriculture products faster and at lower costs.


d. Unlike most countries, China maintains national strategic food reserves. While China has not released the specific numbers of what products it specifically stores or exactly how much it stores but recent research estimates that China has 650 million tons of grain, 1million tons of pork, 200 million tons of corn in its strategic food reserves.


In November 2021 an official at China’s National Food and Strategic Reserves Administration told reporters that its food stockpiles were at "historically high level," and "Our wheat stockpiles can meet demand for one and a half years. There is no problem whatsoever about the supply of food." Even assuming slight exaggeration by the official, China food reserves are massive.


e. China has not only focused on expanding the supply of food for Chinese consumers, but the government has also taken steps to get Chinese consumers to use less food. An example of this is “Operation Empty Plate” an anti-food waste campaign promoted by President Xi Jinping. In a country where researchers found that up to 18 million tonnes of food a year was wasted in large Chinese cities, enough to feed 30 to 50 million people a year” the impact of getting consumers to be a little less wasteful could have a significant impact on China’s food security.


With the recognition that even with improvements to its own domestic agricultural market, China is unable to achieve its goal of food security. Therefore, China is taking steps to internationally to improve its food security position. Two steps that the government of China has taken include encouraging its private sector companies and state-owned companies to purchase farms overseas as well as encouraging the purchase key infrastructure within the agricultural production and processing supply chain.


From 2000 and 2018, China companies purchased an estimated 3.2 million hectares of land abroad making China the fourth largest buyer in the world. These purchases have been in every part of the globe including Africa, Asia, North and South America. For example, as of 2018 In Australia, China was the second-largest foreign landholder in Australia after the United Kingdom.


Over the same period, Chinese companies have been buying agriculturally based infrastructure such as grain elevators, food processing plants, and storage facilities in addition to investments in transportation infrastructure such as ports, rail lines and terminals around the world. China’s state food processing company – COFCO Group – has a massive presence including ownership of key facilities in a diverse group of countries such as the Ukraine, Brazil, and Argentina.

According to a recent report in the Nikkei Asia "Chinese companies, state-owned and private, have been on a global shopping spree, buying land, grain elevators and food processing plants throughout the world as consumption outpaces agricultural production that is constrained by rapid urbanization." Large investment in a sector’s supply and transportation chain is not uncommon for China as can be seen in the country’s current domination of solar panels, electric vehicles, and critical minerals through a similar investment strategy.





Can anything stop China from achieving its goal?

With all these steps that China has taken, the question of what are the constraints (if any) that China may face to meet its food security goal. There are a few.


The first constraint that China faces is the availability and quality of its arable land. With about one-fifth of the world’s population, China only has about 7% of the world’s arable land. While we mentioned earlier that the government of China had set aside 12% of its total area for agriculture, both the amount of land available for agricultural in China and the quality of that land has been shirking due to pollution and urbanization. According to a 2019 report by the Chinese Ministry of Natural Resources, the land suitable for farming in China was only 13% of its total land , a decrease of 6% in just 10 years.


A second major constraint is for China is its poor water and soil both of which are crucially important to growing food. As of 2018, over 15% of China’s ground water was considered so polluted that it was not allowed to be used for anything. Soil contamination is also a major problem for the Chinese agricultural industry. Whether it is from industrial waste, sewage, or industries such as mining, China's soil is polluted with high levels of contaminants to the point that the government has had to prohibit farming some areas such as was seen in the Henan province where 8 million acres of contaminated land were identified.


To give a sense at how this could have happened, China is the world’s largest consumer of agricultural chemicals, using more than 30 percent of global fertilizers and pesticides on only 7 per cent of the world’s crop land. Using high use of fertilizers and pesticides on ever shrinking amount of land is resulting is poorer and poorer soil quality that will continue until new farming habits are adopted or more land is classified as contaminated.


The third constraint that China faces is the overall efficiency of its agricultural industry. One of the major challenges in improving its agricultural efficiency is that over 70% of Chinese farms are estimated to be less than 2 hectares. These smaller farms tend to produce lower yields, use higher amounts of pesticides and herbicides (which affect the soil quality).

According to a report by Goldman Sachs on grain production, China’s output per hectare is significantly below that of countries such as the United States and Chinese farmers use higher levels of inputs. As a result, China’s grain production costs are about twice as high as those found in the United States.


A fourth constraint is climate change. Like all countries, China is being impacted by global climate change. For the agricultural industry, there has been an increase in droughts, heatwaves, and floods all of which have made China’s growing season less predictable.

In the summer of 2022, China issued a nationwide drought warning amid the hottest temperatures in sixty years and a lack of rainfall. Of particular concern, is that those regions most affected - Jiangsu, Sichuan, Anhui, Jiangxi, and Hunan,- are responsible for over 50% of China’s rice production.


With climate change expected to get worse not better over the short and medium term, China will have to take added steps to mitigate its impact at the local and international level if it wishes to meet its food security goals.





What China’s risks does China face in obtaining its goal?

The first risk that China faces in meeting its food security goal is rising food prices. 2022 has been a difficult year for food consumers around the world and China has not been spared.


According to research published in September 2022 but the United Nation’s Food and Agriculture Organization, globally food prices rose by 7.9% in August 2022 which is a decline from the 16.% increase in July and 23.1% increase in June. More recent data released by the Chinese government show that food prices in China rose by 8.8% in September 2022 on top of a 6.1% increase in August. Pork (a key food in Chinese homes) prices rose by 36% while vegetables prices increased by 12.1% in the month of September.


The rapid increase in the cost of food is often a social destabilizer and represents a real risk for the Chinese government.


The second risk for China is its reliance on food imports from other countries. This increase in food imports has been driven by both rising incomes and by the Chinese consumers changing consumption habits. With the changes, China’s food trade deficit continues to grow. In 2020, China imported almost $160 billion worth of food from around the world while exporting food products $69 billion to the world.


One product that is example of China’s increasing reliance on food imports is soybeans. China is the world's largest importer of soybeans which are used both by consumers and by the agricultural industry where it is an important source of animal feed for Chinese livestock. In 2020/21, China imported 100 metric tons of soybeans with Brazil and the United States being responsible for more than 75% of those imports.


Geography or perhaps geography’s revenge is a major risk for China. None of China’s immediate neighbors are well suited to produce the massive amounts of foods that China needs. This means that everything needs to be shipped into the country by either rail or by sea. Unfortunately for China, even with their investment in the Belt and Road Initiative, rail is not enough to meet its food sustainability needs.


This means that the same risks that China faces in bringing oil - the sea lanes are largely controlled by less friendly countries – it also faces for food imports. While sea shipment is more cost-effective than rail, ships can be sent to new ports to sell their goods depending on the economic and geopolitical situation of the day.


A fourth risk for China is who their actual food suppliers are. If we look at the top five countries from which China imports its food in 2020, the countries were Brazil (hello soybeans), United States, New Zealand, Australia, and Canada. None of these countries are immediate neighbors, bilateral relationships between China and the US, Australia and Canada have all been very difficult over the past few years and these countries are all very far away from China.


Looking at the next five largest suppliers (Spain, Thailand, Indonesia, Argentina and Russia) we see that only one of these countries is a neighbor (Thailand), two countries are part of the European Union, Indonesia has concerns about China’s intentions in the South China Seas and even if Russia wasn’t invading other countries, most of its agriculture products are found on the west side of the Ural mountains meaning that the distance between producers and consumers is vast.


Of China’s top 10 suppliers, one can be considered an ally (Russia), four countries could be considered agnostic (Brazil, Thailand, Argentina, and Indonesia), while the remaining 5 countries are more wary of China and its role in the world.


Why is China‘s Food Security important to the world?

At the most basic level there is a limited amount of food in the world that can be grown each year. China with its growing demand for food, it is willingness to store huge amounts of specific food products thus creating market shortages and the financial capabilities to purchase needed food in the open market means that its actions can drive the global price of food higher which affects everyone in the world.


As mentioned earlier, one of China’s solutions for acquiring food supplies has been the purchase of agricultural lands in other countries. These activities however have sparked local backlashes in Asia, Africa, Europe, the Middle East, Oceania, and North and South America. Politicians have taken notice of these protests and begun to take regulatory or legal steps to prevent further farm purchases.


A recent example of pushback to China acquiring farms overseas is Representative Dan Newhouse of Washington State who proposed legislation to prohibit foreign nationals from China. from purchasing land in the United States. This is but one example of recent legislation, but you should expect to see similar bills being put forward in other countries as the backlash to China ownership of farmland grows.


In addition to increasing global food prices, creating market shortages, and increasing political backlash over land purchases and ownership of key agricultural infrastructure, China pursuit of food self-sufficiency also undermines the current global trade architecture which has primarily focused on free trade and open markets. While China has greatly benefited from the current trade architecture, it views these policies as being imposed on China by Western governments and thus can be resisted, ignored or changed.


Conclusion

In trying to achieve its food security goals, China’s actions will have impact locally and globally. It has clearly identified its growing reliance on agricultural and food imports as being a significant challenge to meeting its goals but for the reasons laid out above it lacks the internal capabilities to be self-sufficient.


Rather than relying solely on trade with foreign companies and countries, China is attempting to control the complete agricultural supply chain (from farms to processing to transportation). This attempt at control is resulting in backlashes by other countries citizens and their political leaders.


Yet it is unlikely that China will adopt any new strategies over the short or medium term for dealing with the concerns of others. This will only result in making likelihood of China meeting its own national food security goals even more difficult.






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