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Thursday, July 21, 2011

Watershed moment in China's food security


SINGAPORE — China appears to have reached a watershed in its food security strategy, which has long set a target of 95 percent self-sufficiency in four key grains — rice, wheat, corn and soybeans.

If recent trends continue, the world's most populous nation and second-largest economy will become a leading importer of staple foods for its 1.3 billion citizens, as it has in industrial raw materials and energy, including oil and more recently natural gas and coal.

In a tight market, this will push prices higher in Asia and elsewhere, as China — the biggest producer of rice and wheat, and the second grower of corn after the United States — becomes more dependent on imports to meet rising domestic demand.

Last year, China imported some 95 million metric tons of these grains, about 17 percent of domestic production.

The bulk of imports were soybeans from North and South America, mainly to feed pigs, cows and other livestock as increasingly affluent Chinese consume ever more protein-rich meat, milk and dairy products.

In 2011, China has added to its feedstock demand. Imports of corn are projected to reach record levels. China will probably buy 5 million tons this year, mainly from the U.S. Such a volume would dwarf China's corn imports in 2010 and mark the second consecutive year it has been a net corn importer, after 15 years of net exports.

China's growing reliance on major agricultural exporters such as the U.S., Brazil and Argentina has important strategic implications.

In the case of the U.S., it is likely to add a stabilizing factor in relations, just as U.S. reliance on Chinese purchases of Treasury bonds and other dollar assets has enabled Americans to keep buying Chinese goods and kept U.S. inflation low, thus strengthening Sino-U.S. interdependence.

In the case of Brazil and Argentina, China is rapidly becoming a top resource development investor, committing $15.6 billion to both countries in the year to the end of May, nearly three times more than the previous year. This includes major capital spending by Chinese companies to lease and develop farms to grow wheat, corn, soybeans, fruit, vegetables and wine grapes for export to China.

China has done phenomenally well in maintaining a high level of self-sufficiency in food grains in recent years. It has 21 percent of the global population, but only 8.5 percent of the world's arable land and 6.5 percent of water reserves.

China's grain production quadrupled from 1950 to 2010, helped by development of high-yielding crop strains and extensive use of irrigation and tube wells. The harvest in 2010 was the largest ever.

This impressive expansion provided a basis for economic reforms that lifted hundreds of millions of people out of poverty and kept retail food prices at affordable levels, legitimizing Chinese Communist Party rule.

Today, this food security strategy is under intense strain as China tries to maintain as much self-reliance in grains as possible, while increasing imports to check food price inflation and ensure adequate supplies.

Much of the grain imported last year was not for immediate consumption, but for storage in case of crises. Chinese officials say that the national grain reserve amounts to 40 percent of annual consumption.

The minimum average raw grain requirement per individual in China is about 400 kg. Supplies at this level are considered sufficient not only to meet basic subsistence needs, but also to allow significant amounts of grain to be allocated to animal feed and processing purposes.

Robert Ash, an economics professor at the School of Oriental and African Studies in London, has calculated that taking population growth into account, China will need to produce at least 580 " tons of grain by 2020, from 546 " tons in 2010, to maintain the policy of 95 percent self-sufficiency.

While this seems an achievable target in light of previous Chinese success in grain output, serious resource and environmental challenges make China's food security prospects difficult to predict. They include continuing loss of some of the best farmland to the spread of cities and factories, extensive land degradation, and serious water shortages, including in the northern plain where much of China's wheat and cotton are grown.

China is so big that if some unforeseen contingency forces it to import grain on a large-scale when global supplies are tight, the consequences for other importers — especially those in the developing world — could be very uncomfortable indeed.

Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.


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