Agrilogics

China hungry for more

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It has the world’s most people and the second largest economy. It has successfully produced one-fourth of the world’s grain and fed one-fifth of the world’s population with less than 10% of the world’s arable land.

But China wants — and needs — more.


In 2019, China surpassed the United States and the European Union as the world’s top importer of agricultural products. While population growth essentially has stagnated, falling in 2021 to the lowest rate of growth since 1960, disposable household income increased 9.1% in nominal terms over last year. The nation is experiencing rapid urbanization and consumers’ preferences are changing to a more sophisticated diet.

This all leads to the need for more — more crops, more food, more imports. What China doesn’t necessarily have is more resources to meet these needs internally. Still, it will push for self-sufficiency, a goal it has had for decades that has come more into focus recently in official government pronouncements.

“It’s always been a concern, but two shocks sparked a renewed interest: the US-China trade war and African swine fever,” said Wendong Zhang, associate professor of economics, Iowa State University. “I think that another thing that also changed is that when China used to talk about self-sufficiency in agriculture, it was mainly talking about food crops. Now they’re probably thinking more broadly, this is food products.” 

“They are clearly managing some very serious trade-offs between a desire for security and to have enough food, and to be in control and be self-sufficient." - Joe Janzen, University of Illinois at Urbana-Champaign
Chinese economic agencies, the National Development and Reform Commission and the agriculture ministry have all stressed security as a priority for 2022, pledging to secure the supplies of grain, energy and raw materials. It has even released detailed plans to set aside more land for soybeans, a crop that it had mostly given over to imports after entering the World Trade Organization (WTO) in 2001.

At the same time, the nation also seems to be relaxing its stance on genetically modified organisms, likely as a means to meet its goals through increased yield.

Still, analysts say it’s too much more, especially for soybeans, and China won’t be able to achieve those goals. At the same time, its actions seem to contradict policy, as China increases its purchase of soybeans and corn.

“This tension between what the government says and how it acts is really interesting,” Joe Janzen, assistant professor, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, told World Grain. “They are clearly managing some very serious trade-offs between a desire for security and to have enough food, and to be in control and be self-sufficient. That’s in part why they have to behave opportunistically. They make decisions that are right at that time, so when they really need commodities from other parts of the world, they go get them. When they feel like the cost of that is too great, they pull back. They are constantly managing this trade off.”

While the COVID-19 pandemic and now the Ukraine-Russia conflict has increased China’s push for self-sufficiency, it will still need to be a part of the world market to provide food security to its people.

“Although the Chinese government would want to be self-sufficient in all products, they lack the resources, especially for land intensive feed grains and meat products like beef, soybeans and sorghum,” Zhang said. “All they can become is more self-sufficient. They will continue to be a significant driver in the global market.”

History of reform

In its quest to feed more than 1 billion people, China has undergone multiple agricultural reforms. Grain output in 1949 amounted to 113.18 million tonnes, and the agricultural foundation was fragile. The government responded with land reform in the 1950s in which peasants were given their own land. During the First Five-Year Plan from 1953-57, gross agriculture output increased by 4.5% on average, according to a report by Guoqiang Cheng, Institute of Market Economy, Development Research Center of the State Council of China.

Over the next two decades, excitement for agriculture production waned under China’s commune systems, with output increasing by only 2.3% on average per year. Shortly before the next round of reforms, 250 million of China’s 780 million rural residents were living in poverty and food and other basic consumer goods were rationed. Grain output was 283 million tonnes and the average yield was only 2,600 kilograms per hectare. 

In 1978, China launched a market-oriented rural reform, reigniting enthusiasm for agriculture production and boosting the nation’s overall gross domestic product. After those reforms, grain production increased from 283 million to 407 million tonnes in 1984.

Agricultural development entered a new phase in 1998 that included significant changes in the supply and demand, and strategic restructuring of agriculture and the rural economy. Production shifted from long-term shortages to equilibrium or even excess supply in bumper harvest years. 

Cheng attributed the changes to technological progress, increased investment in agriculture, improved infrastructure for farmland, water conservancy and irrigation facilities, market-oriented reform of product pricing and greater openness of the agricultural sector to the outside world. Growth of the national economy, urbanization and growth in disposable income increased demand for meat products, seafood, fruits and vegetables. 

As the agriculture sector developed and restructured, it also opened up to the outside world and integrated into the world trade system, Cheng said. This accelerated further with China’s accession into the World Trade Organization in 2001. Exports increased from less than $11.3 billion in 1992 to $31.03 billion in 2006, with an average growth rate of 7.5%. During the same period, imports increased from $5.3 billion to $31.99 billion with an average growth rate of 13.7%.

Through the years, agricultural imports grew at a much faster pace than exports, and today China is a net importer of agriculture products. In 2021, it imported 28.35 million tonnes of corn, an increase of 152% from 11.3 million in 2020, according to data from the General Administration of Customs. Wheat imports also hit a record 9.77 million tonnes, an increase of 16.6% from 8.38 million in 2020.

Planning for self-sufficiency

Chinese demand continues to outstrip domestic supply, particularly as the middle class grows and is willing to spend a large portion of its disposable income on higher quality food. China finds itself importing more and more, even as policy stresses the need for self-sufficiency.

The 14th Five-Year Plan (2021-2025), issued this February, called for annual grain production of no less than 650 million tonnes and meat production of 89 million tonnes. It also said retaining poverty eradication in rural areas, food security and seed development are top priorities.

“Pronouncements have come out in the last three or four months from the Chinese government suggesting they need to focus more on food self-sufficiency,” Janzen said. “At the same time, we have relatively high levels of soybean and corn exports from the US to China. It’s not because China loves the idea of importing US soybeans and corn, but because they need those products to meet short-term food security objectives.”

According to China’s published statistics, annual grain production has exceeded 650 million tonnes for seven consecutive years, including a historic high of 682 million tonnes in 2021. Meat production reached 88.8 million tonnes in 2021.

The plan also said scientific and technological innovations shall account for 64% of the growth of agricultural output by 2025. Use of fertilizers and pesticides must continue to decrease, and the use of animal manure must reach 80% or more by 2025.

To stabilize the grain planted area, the government said it will provide protective price policies with rice and wheat procurement, producer subsidies for corn and soybean growers and expanded scope of full cost insurance. It will keep 120 million hectares of arable land, with 103 million hectares dedicated to grain production. Total construction of high-standard farmland must reach an area of 71.7 million hectares by 2025. High-standard farmland is restricted to grain production.

The Chinese government is improving the safety net for farmers and experimenting with land reform, Zhang said. Before 2007, there was no agriculture insurance market and now China is the second-largest crop insurance market in the world. 

“They’re offering a different variety of products, including revenue production products and incentivizing more machinery purchases,” Zhang said. “They’re also allowing farmers to pretend to own the land, so they are able to rent it out to another farmer. Now, about a third of the land is rented out, so that could potentially increase some of the production scales and efficiencies and allow the use of more machinery.” 

   China includes cultivated meat in its plan for the future of food

China’s ability to achieve self-sufficiency depends heavily on the commodity, Janzen said. In staple grains such as corn, rice and wheat, it’s not far from self-sufficiency in part because the nation has made a conscious decision to focus on staple grains.

“It’s a zero-sum game,” said Stephen Nicholson, global grain and oilseed strategist for Rabobank. “If you focus on one crop, you’re going to have to import something from someplace else. It’s a steep curve for them to get to, along with trying to adopt all the Western practices to get to the yields, increasing hectares and adopting GM seeds. I’m a bit of a skeptic as to whether they’re ever going to be self-sufficient in anything. They are lofty goals, commendable goals. But I think the reality is it would be really difficult for them to be self-sufficient.”

Agriculture practices, seed varieties, lack of modern machinery are just some of the factors limiting yield growth, Nicholson said. Corn and soybean yields in China are about 60% of the US levels, Zhang said.

“When you look at our yield growth, we’ve seen nearly two bushels every year in corn and smaller in wheat and soy,” Nicholson said. “But they’re not seeing that at all. In some cases, they’ve had some issues over the last several years that production is relatively flat. Well, that’s not going to work.”

Corn production in 2022-23 is forecast at 265 million tonnes, a drop of 2.8% from the previous year. Corn imports are estimated at 20 million tonnes, down 4 million tonnes from 2021-22, but still the third highest year on record. China is building reserves in response to the pandemic and is preparing for any other external shocks, the USDA said. 

“In addition, lower planted area for corn due to a shift to soy acres, as well as persistent, high domestic prices will further the desire for imports as market opportunities present themselves,” the USDA said. 

The most recent Five-Year Plan calls for improving soybean production capacity in northeast China and expanding the planted area for rapeseed in the Yangtze River Basin. The 2022 No. 1 Document on agriculture and rural development specifically focused on soybean and other oilseed production, a change from previous years.

It includes subsidies to plant grains and oilseeds, intercropping corn and soybeans, increasing production of non-soybean oilseeds and adjusting oilseed utilization in animal feed. China has said it plans to boost domestic soybean production by 10% per year, for an overall increase of 40%, Janzen said. 

“It’s not totally clear where those beans would come from,” he said. “Would it be additional acres or some kind of improvements in yield? Any sort of increase in soybean acreage will come at some expense of some other crop. That conflicts with the goals of self-sufficiency stated for other crops.”

One possible solution is intercropping, the practice of growing two or more crops in proximity, which reached 466,666 hectares in 2021, according to the USDA. China is calling for an increase of 1 million hectares this year. This could reduce corn area and yields, but the overall impact is small, the USDA said. Subsidies for intercropping could be as high as $824 per hectare, much more than for soy alone.

China’s soybean production in the 2022-23 market year is estimated at 17.4 million tonnes, an increase of just 1 million tonnes from last season, based on expected acreage of 8.9 million hectares and minimal yield growth. Total oilseed production is estimated at 62.4 million tonnes, up from 61 million tonnes in 2021-22, according to the USDA. 

Oilseed consumption is forecast at 166.7 million tonnes with imports at 104.1 million tonnes, up from 98.4 million tonnes a year ago. Demand continues to outstrip domestic supply, so imports are expected to account for 62% of total domestic oilseed consumption.

Finding more acreage is no easy task. With urbanization, cities are taking up more land and expanding fruit and vegetable production also is swallowing up acres, Zhang said. 

“Also, China pledges to be more sustainable and carbon neutral, so there are also programs to convert some of the previous cultivated fields back to forest or pasture,” he said. “There’s not a whole lot of new land that they can cultivate. They’re more thinking that with the better technology and more efficient management, they’re hoping for better productivity gain.”

GMO on the horizon?

Those productivity gains could come not only from more modern farming practices, but also the adoption of GMO technology. At some point, the pressure to approve GMO technology is going to be too great, Janzen said. The Five-Year Plan included increasing support for “modern agricultural science and technology research” with efforts on, among other things, biotech breeding. High-level Chinese officials have made strong public statements emphasizing the importance of biotechnology, the USDA said, and the Biosecurity Law of China came into effect in April 2021. 

While China has not approved any genetically engineered (GE) food or feed product for domestic cultivation, it has issued biosafety certificates for cultivation of some domestic products. The USDA said there are 10 domestically developed traits that have biosafety certification that are waiting for variety registration for commercialization. 

This January, China issued a revision of the major crop variety registration rules that define a clear pathway for domestically developed GE crops to be commercially cultivated, the USDA said. Domestically produced seed could be commercialized as soon as next year.

China has been hesitant in the use of GM in part because the general public has a distrust of the products, Zhang said, but also the government doesn’t want the technology to be dominated by foreign companies. Over the past 10 years, China has invested heavily in the technology, especially CRISPR and genome editing, he said. 

“China is not that far behind and in some areas, it is probably even more advanced than its foreign counterparts,” Zhang said. “So there is more of a conscious push that way, but this still is going to be a long road.”

It took the United States about 20 to 25 years to improve yields 20% to 25% through the adoption of GM technology, he said, and even if China went full speed ahead, it would probably take the same amount of time.

Chinese officials have shown no willingness to accept safety testing data from outside of China without first conducting verification trials, the USDA said. This is a concern for foreign developers because they lose control over the timeline to conduct the trials and the trial results, the agency said. 

Janzen said it’s more likely China will approve GMO for use in some kind of animal feed product versus products that go into the food supply chain.

“I think it’s probable, given the levels of GM adoption around the world,” he said. “But that decision has to be acceptable to the Chinese population.”

Nicholson questioned if GM is such a big issue for the Chinese, why do they import soybeans from the United States and Brazil?

“It’s more about what is convenient and what’s not to meet their political goals rather than some big upsurge in policy or some big public upsurge against GMOs,” he said. “If they decide this is what they’re going to do, and they’re going to be self-sufficient, they will say this is what we need to do. If nothing else, the Chinese are pragmatic.”

World market impact

Global disruptions, including the COVID-19 pandemic and the Ukraine-Russia conflict, has propelled China to further stress the importance of food security. And while those disruptions make the call for self-sufficiency louder, ultimately China will need to still be a major player in the global market to ensure it is prepared for all eventualities and can feed its 1.4 billion people. 

“Sometimes that means having to source commodities from places where it wouldn’t otherwise source,” Janzen said, adding that US corn is a good example. Up until 2020, China didn’t buy too much US corn, but when Ukraine had a poor crop, it turned to the United States. Because that’s a way it can meet its objectives at the lowest cost. I think it will continue to be opportunistic in that sense. China has the economic wherewithal to import grain when it needs it from other parts of the world.” 

Strategically, China wants to have a more diversified portfolio, to the extent it’s possible, Zhang said. For certain products, like corn and soybeans, the United States is indispensable. 

“Overall, unless China dramatically increases yields, which is unlikely in the short run, it will continue to be very consequential in the global market,” he said. “Especially with the increasing income it could potentially play a bigger role in consumer-oriented agriculture products.”

There are a lot of moving parts related to energy policy in China and the United States that could influence agriculture markets, Zhang said. Low carbon fuel standards will impact the soybean market and change the relative price ratios for whole soybeans versus soybean meal. 

“What will the Chinese want to do with the ethanol mandate, which is currently in suspension?” Zhang said. “That could change the calculation for China’s import needs for ethanol versus corn. Those are some of the things that are also very interesting to watch and see how this will play out.”

Another consideration is how much China will allow market price incentives to exist to help match supply and demand inside of China, Janzen said.

“Chinese farmers face prices well above the world price for most of these commodities, so they’re insulated from global markets,” he said. “That would be another lever the Chinese government could use to help meet its food security goals at lowest cost. But whether it will move even toward using market incentives domestically, and give up control, is an open question.”

It’s hard to say how the Ukraine-Russian conflict will impact China, analysts agree. Ukraine has been a significant import country of origin for China, and even occupied the top spot for a few years, Zhang said. 

“There’s some uncertainty there so that’s why we’re seeing a little uptick in corn purchases from the US,” he said. “It will also depend on the duration and severity of the conflict.”

Nicholson said the Ukraine-Russian conflict could be a monkey wrench in China’s plans, but it will find a solution.

“The Chinese will find, whether it’s direct or intermediate, other sources of grain and make sure this doesn’t impact them,” he said. “Certainly, the political challenges with China are always going to be there. But I’m optimistic they’re going to continue to import, whether from the US or someone else.” 


Agrilogics