By Anthony James
Although it is one of the world’s largest producers of food, China is in a pickle: the country is running out of farmland. That's pretty surprising for a country that feeds close to 20 percent of the world’s population and employs more than 300 million farmers. However, with rapid industrialization, mass migrations of farmers to the cities, and the growing demand for food by its middle class, how is China going to get more food?
One solution, similar to what’s been done in the United States and the European Union: provide incentives for domestic farmers to increase production. For the current Chinese administration, this was a bold step for a government that two decades ago provided practically zero farm subsidies. However, today, with farm aid, that is equivalent to 17 percent of the total value of farm production, Chinese farmers are almost as reliant on government help as EU farmers are. In fact, according to the 2013 Organization for Economic Cooperation Development (OECD) annual report on agricultural policies, China spent US$165 billion on farm support while the EU only spent US$106 billion. Farm protectionism is becoming big in China, and that doesn't exactly bode well for other countries.
At the moment, the country with the biggest magnifying glass on China's farm subsidies is Australia. Back in 2005, China and Australia started a joint feasibility study to look into creating a free-trade agreement to bridge commerce of goods, including agricultural goods, between the two countries. Though the Australians would have access to China's growing market, which would include agricultural goods, farm protectionism would definitely hurt their business. For Australian farmers, who only receive 3 percent of farm aid from the Australian government, opening their doors to China would mean fewer goods going out, and certainly more would be coming in, causing unfair competition. This challenge has already pushed Australia's politicians into coming down with some pretty harsh criticism on the current FTA. However, as of October, a final resolution had yet to made.
Though China is doing a lot to help its own farmers to produce more, it’s simply not just a matter of lack of farmers, but lack of farmland that is the leading obstacle to meeting its food demands. China has approximately 1.3 billion people, and it has only 9 percent of the world's farmland. This issue has caused the Chinese to look for purchasing land outside of China. In the most recent news, China made the largest land lease ever - three million hectares (11,500 square miles) of Ukraine, equivalent to 1/20th of the whole country of Ukraine. China's land lease will prove to be a long-term trial for Ukrainians: on one hand it will bring billions of dollars into Ukraine, on the other hand, the food produced on the leased soil will only go toward feeding the Chinese and not Ukrainians.
China's growing agricultural demands are more far-reaching than just domestic troubles. Countries like Uganda are benefiting from joint Chinese-Ugandan agricultural projects that provide the sharing of farming practices, producing better crops. In order to satisfy the growing pork demand of China's middle class, many Chinese farmers are looking toward the U.S. pork producers. Where China once feared of being unwelcome to the table, this past May saw one of the largest American pork processers, Smithfield Foods Inc., being bought out by Shuanghui International Holdings Ltd. for US$4.7 billion.
China knows it has to do a lot quickly in order to keep its population from starving. A recent research publication by Standard Chartered PLC, a British multinational banking and financial services company, anticipated that China would be facing a scenario of importing 100 million tons of food every year into the country by 2033 in order to avoid a food shortage in the country.
While China may be protecting its own farmers and grabbing farmland from other countries, it also provides an example of China's potential economic power outside of what we normally see as basic stock market trading. Trade agreements or land purchases could provide powerful policy cards in which China could use to their advantage in international politics. Partnerships with poorer countries could provide win-win scenarios, but they could mean someone is going to lose. China’s rapid industrial expansion and rise of its middle class have taken away from one of its most powerful international assets, agricultural output. In order to meet its own needs, China might have to adopt more bullish tactics to increase domestic farming while buying away farms internationally.