China's Road Map to Food Security

15 November 2018

Amid worldwide concerns about how China will feed its billions of people and burgeoning middle class, little attention is paid to one possible scenario—China may already be largely self-sufficient in food. Self-sufficient in feeding people, that is. But for pigs and other livestock, the picture is considerably different.

This month, the Chinese National Bureau of Statistics revised the past 10 years of production data significantly higher, claiming that millions of hectares had gone untallied in the past. The revision’s most powerful impact was to make marginal corn deficits into small surpluses, further solidifying food self-sufficiency. However, it still doesn’t adequately address China’s worsening protein-import dependency.

In this Weekly Insight, we look at China’s future food supply and demand balances. We rely on forecasts that are based on models Gro Intelligence built using long-term projections for China’s population and GDP growth, demand-growth-rate forecasts, and modest increases in crop yields.

Self-Sufficiency and Food Security

China’s latest five-year plan, which runs from 2016 through 2020, set two remarkable objectives for the agricultural sector: achieve self-sufficiency in cereal grains and “absolute” food security. As for self-sufficiency, supply and demand in the world’s most populous country are roughly in balance for grains such as rice, corn, and wheat, which provide the bulk of calories in most people’s diets. But thwarting its goal of food security, China must import 100 million tonnes of soybeans, mainly as feedstock for farm animals, making China the world’s biggest importer of the oilseeds.

 

What remains unknown is to what lengths will the country go to maintain soybean supplies to satisfy China’s appetite for meat. Will China continue to rely on foreign markets, including the US, Brazil, and perhaps markets that haven’t been developed yet, to supply it with the soybeans needed for livestock production? Or will China seek to ramp up its own production of soybeans, which would assuredly be a Herculean task. Another question—how will China implement more environmentally sustainable farming methods without cutting into the domestic production of food its population relies on?

One wild card is China’s mandate, announced last year, to roll out ethanol-blended gasoline for motor-vehicle use nationwide to help combat rampant air pollution. However, diverting enough of its corn crop to convert to ethanol, or importing more of the grain, would throw China into a severe corn deficit, totaling about 60 million tonnes a year in the short term, with that gap continuing to widen. Since there are more effective ways for China to deal with its air pollution problems, we still may see Beijing backing away from its ethanol goals.

While China’s population growth is leveling off, continued urbanization and economic expansion are likely to bring increased demand for major crops, including corn, rice, soybeans, and wheat. To come up with additional supplies from domestic production, China will need to both expand the area that is farmed and squeeze more yield out of each hectare. With the exception of wheat, Chinese crop yields today are roughly equal to what existed for US farmers 20 years ago.

Achieving higher yields won’t be straightforward. It will require further modernization of farm practices, including consolidating some of the country’s many small farms into larger entities for economies of scale. Farmers will also need to receive additional training in modern farming techniques, and adopt more optimal plant-rotation practices to include nitrogen-fixing crops.

To be sure, yields on Chinese farms have increased steadily since 1964, as increasing mechanization and education on best practices have spread through the farming community. Less happily, China owes significant portions of its past yield gains to rampant overuse of pesticides and fertilizers. But such quick fixes can’t be sustained, given China’s many problems with air and water pollution.

China has slowly, but systematically, improved practices across domestic agriculture. As an example, the government has trumpeted its investment of $450 billion in modernization, which will aim at mechanization and some degree of land consolidation.

Genetically modified organisms (GMOs) in combination with complementary pesticides have enhanced yields greatly while reducing total chemical usage in the Western Hemisphere, but have met with resistance in China. The May 2017 ChemChina purchase of Syngenta, an important Swiss crop-science firm, shows increasing flexibility on the GMO issue, which will help Chinese crop yields to catch up to their Western rivals.

Tilling More Land

Expanding farm acreage also can help boost domestic production. China’s total farm area has risen slowly over the period surveyed since 1964. (As a percentage of total land under cultivation, corn area rose sharply at the expense of soybeans and wheat.) The government has outlined modest goals for continued agricultural area expansion. But the growth in farmland hectares alone without improvements in yield will prove insufficient to keep pace with growing Chinese demand.

Curbing Pollution

Sustainability in agriculture causes some definitional confusion, but when we’re looking for good proxies for ecological impact, it seems clear that fertilizer and pesticide usage fit the bill. Fertilizers provide essential nutrients to crops and become especially necessary in soil cultivated for centuries or millennia such as those in China. But if used in excess or even just with unfortunately timed rain, they will wash into water bodies and poison them.

Pesticide application can result in food contamination linked to a wide variety of human illnesses such as cancer, Alzheimer’s disease, and birth defects. Furthermore, pesticides tend to destroy a wider spectrum of organisms than intended, leading to unanticipated effects throughout the ecosystem. Experts emphatically agree that farmers and others should minimize their use.

China has a lot of room to improve in the area of sustainability. In both fertilizers and pesticides, China’s statistics are abysmal. Compared with the US, China uses four times as much fertilizer per hectare of crops and six times as much pesticide, all to achieve a much worse result in terms of yield. Initial sustainability gains should come fairly easily, since some significant portion of the country’s profligate chemical use certainly goes to waste.

Water availability has increasingly become a problem for Chinese agriculture, partly due to contamination from industry and its own fertilizer and pesticide runoff. As nutrient-rich water flows off farmland into rivers and lakes, algae feed on it, and explode in population. In the process, they starve existing aquatic life and contaminate the water with their waste, rendering it unfit for human and animal consumption. Eventually, the water becomes so poisonous that farmers can’t even use it for irrigation, all because they sprayed too much fertilizer.

Soybeans and other legumes, unlike cereal crops, have the ability to take nitrogen from the atmosphere and use it to generate amino acids and other compounds that nourish crops. Alternating planting of legumes with other crops can keep the soil from becoming depleted, as corn or wheat draw on the soil’s nitrogen reserves in one season and soybeans replenish them in the next.

China’s apparent decision to avoid soybean cultivation while expanding production of the other three main crops comes at a high cost. The nitrogen that soybeans and other legumes fix into the soil could save China from much of its fertilizer use. Corn-soybean rotation in the US has helped to cut the growth of fertilizer use there, and a similar technique would work just as well in China. Adoption of rotational planting would partially address both China’s protein shortage and fertilizer overuse.

An Expanding Global Footprint

In pursuing “absolute” food security, as its five-year plan states, China has been diversifying where it obtains crops that it can’t grow in sufficient quantities at home, including deals to buy or lease farmland in other countries. Overseas agricultural investments by Chinese private and state-owned enterprises, in some 100 countries, totaled $26 billion as of 2016, according to China’s Ministry of Agriculture. In South America, Brazil’s vast soybean plantations largely cater to Chinese demand. Now, China is working with the governments of Brazil and Peru to construct a planned 5,000-kilometer railway linking those plantations with ports on the Pacific Ocean, which would allow shipments to bypass the Panama Canal.

In sub-Saharan Africa, China runs some two dozen Agriculture Technology Demonstration Centers, with more being developed. The ATDCs serve as an aid platform for local farmers, transferring technology and Chinese know-how, and thereby helping to increase local food supplies. The ventures also serve as an entree for Chinese private and state-owned agribusiness companies.

According to Land Matrix, an independent land ownership monitoring consortium, China’s agricultural expansion has resulted in 6.6 million hectares of land being acquired around the world over the past 15 years alongside its strategic acquisition of corporations such as Smithfield Foods in the US and Syngenta. It has also strategically placed ATDCs in countries where agricultural productivity is low and has room to improve, and in places where China already owns land or has a high probability of acquiring it down the line. With this track record, we shouldn’t expect the Chinese to stop their quest for food security through expansion of its global agricultural footprint anytime soon.

Locations of Chinese land purchase agreements, proposed deals, and Agricultural Technology Development Centers

Conclusion

China’s agricultural authorities have outlined several objectives that seem to conflict with each other. Simultaneously achieving food self-sufficiency, absolute food security, environmental sustainability, and a bioethanol fuel program appears to be impossible. Still, those betting against China reaching its lofty goals have consistently met with grief in the past. Gro Intelligence incorporates multiple satellite- and land-based data sets that give its customers the ability to track China’s progress toward its stated goals.

Contact sales