China is approaching a turning point in its food security strategy and will become more dependent on imports to meet domestic demand. Even a small adjustment in its overseas purchases could add to the recent upward spiral of international prices.
By Robert F Ash for ISN Insights
In its efforts to guarantee food security, China faces two major challenges: first, to eliminate hunger and second, to meet the dietary aspirations of an increasingly affluent population. Three decades of economic reforms have lifted hundreds of millions of people out of poverty, and China is one of very few countries in the world that will have fulfilled the Millennium Development Goal of halving the incidence of hunger by 2015. Even so, the Food and Agriculture Organization’s most recent report on The State of Food Insecurity in the World shows that in 2005-07 undernourishment still affected 130 million people, about 10 percent of the population – most of them living in the countryside in central and western regions.
The other key challenge is that of meeting the dietary aspirations of a population that is becoming richer and more demanding. In this respect, profound changes have already taken place. In the early 1980s, domestic food output supplied little more than subsistence needs. But since the 1990s, rising incomes have accompanied major improvements in diet, with most Chinese enjoying significant increases in the consumption of non-staple foods, including meat, fish, fruits, eggs and dairy products. These changes have been most pronounced in cities, although the same broad pattern of change is now making itself felt in the countryside. As incomes continue to rise, especially among rural residents, demand for non-staples will intensify, adding to China’s food security challenge.
Supply meets demand
Under current Chinese conditions, the minimum average requirement per individual is about 400 kilograms of raw grain. 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. Taking into account population growth, the implication is that in order to fulfill the imperative of “basic” (i.e., 95 percent) self-sufficiency, China will need to produce at least 580 million tons of grain by 2020, compared with a total output of 546 million tons in 2010.
Buoyant grain output growth in recent years would appear to suggest that the 2020 target will be fulfilled. That China has the capacity to generate the required growth is not in doubt. Personnel at the Ministry of Agriculture have proven themselves to be able to formulate rational and purposeful policies; the Ministry also has an enviable agricultural R&D record, not least in the development of high-yielding hybrid crop strains, as well as in the promotion of GM and food nanotechnology. As long as complementary requirements (e.g., adequate water supplies) are met, such advances have the potential to impact crop production on a dramatic scale.
However, fluctuations in grain output since 1979 provide a warning against sanguinely assuming that even seemingly low rates of required growth will be achieved in the future. Production reached historic peaks in 1984, 1990 and 1998, only, in each case, to stagnate or collapse later on. For the time being, it is premature to assume that China has attained a new trajectory of sustained output growth.
… And then hits a wall
More fundamentally, however, in its pursuit of such growth, China faces severe resource and environmental constraints. For example, population pressure, urbanization and rising prosperity have resulted in the loss of some of China’s best farmland. Since the mid-1990s, China has suffered a loss of about 8.3 million hectares of arable land, or about 6.5 percent of the country’s total arable area. The implied loss of output is even greater than this contraction implies, since the process of net land contraction conceals the disappearance of disproportionately large amounts of land in the most fertile regions of coastal China, where economic growth and structural change have been most marked. Land degradation, through desertification and the creation of enormous dust bowls, has also become a major problem.
The Chinese state will be faced with an additional challenge: water. Farming is by far the most water-intensive industry. Under the pressure of mushrooming demand, China faces serious water shortages, which are exacerbated by the uneven distribution of existing supplies. In particular, the North China Plain, where much of China’s wheat and cotton is produced, is severely deficient in water, thanks to the depletion of surface water supplies and underground aquifers through over-pumping. A recent report issued by the Earth Policy Institute in Washington, DC estimates that some 130 million people in China are fed with grain that is produced by over-pumping. When the aquifers are exhausted, the output impact will be severe.
Meanwhile, the shrinking glaciers of the Qinghai-Tibetan Plateau region, declines in the run-off of major river systems, increased incidence of drought in Southern China and rising coastal sea levels – all highlight adverse effects of climate change that are potentially damaging to farming.
Natural disasters too continue to pose a serious threat. In February 2011 the FAO issued an alert, warning that severe drought – the worst in 60 years – had placed China’s wheat harvest in jeopardy. Conditions were especially severe in Hebei, Henan, Shandong and Jiangsu – four provinces which in 2009 accounted for almost two-thirds of total wheat output. The sheer size of China is such that its entry into international markets can have a destabilizing effect. In 2004, for example, a serious reduction in domestic wheat stocks forced China to undertake large-scale purchases overseas. As a result, China became the largest importer of wheat in the world, and in a single year between 2003 and 2004 net exports of 1.8 million tons of wheat was transformed into net imports of 6.5 million tons.
Analysis of the composition of production reveals that since the 1980s all three cereals – rice, wheat and corn – have experienced output growth, but that maize has enjoyed the fastest rate of growth (up 3.5 percent p.a.), followed by wheat (2.5 percent) and rice (a mere 1. 2 percent). In one respect, this is an encouraging record, given that the fastest-growing cereal – corn – is the basis not only of China’s animal feed, but also of its biofuel industry. However, reasons for concern are also concealed in recent trends. It is noteworthy, for example, that the previous peak (1997) levels of rice and wheat output have not been yet re-attained. Moreover, corn’s buoyant recent performance is attributable more to an expansion of sown area – partly the result of reallocating land out of rice and wheat – than to increases in yields. If rice, wheat and maize output are to continue to rise, the burden on yield improvements will intensify. A recent report points out that rice yields in China are approaching those of Japan, where yields have been flat for the last 14 years. If Chinese rice yields have reached a plateau, reallocating more land to corn production may become increasingly difficult, unless China is prepared to increase its rice imports.
All these considerations point to one conclusion: The Chinese government will find it increasingly difficult to continue to fulfil its long-held target of maintaining 95 percent self-sufficiency in the provision of basic foodstuffs. As this target is abandoned, China’s engagement in international grain markets will increase. This will prove to be a watershed for China, which has previously never wavered in its pursuit of basic food self-sufficiency. It may also prove to be a watershed for international food security through the impact on world cereal prices and supplies of China’s emergence as a significant player in world cereal markets.
The precise scale and focus of future cereal imports are difficult to predict. Unless they are quickly overcome, current drought conditions in Hebei, Henan, Shandong and Jiangsu may force China to undertake significant overseas purchases of wheat. Reports are already suggesting that such imports could exert upward pressure on international wheat prices. China has been a net importer of wheat since 2009, and its status in this regard may persist into the foreseeable future. However, the cereal whose imports are likely to rise most sharply is corn. It is true that since 1996 China has, remarkably, been a net exporter of corn. But it is striking that the scale of such exports has contracted dramatically (from 16.4 million tons to a mere 0.05 million between 2003 and 2009). Accelerating demand for corn for both feed and biofuel is almost certain to outstrip domestic output growth in the coming years, thereby forcing China to resort to purchases from overseas – especially from Latin America and the United States – as a permanent feature of its agricultural trade.
Dr Robert F Ash is Professor of Economics at the School of Oriental and African Studies (SOAS), London, and the Director of the Centre of Taiwan Studies.