[An ironic legacy of economic success, China's resource scarcity
is worsening as its GDP grows, incomes rise, and standards of living improve,
placing new, daunting pressures on the domestic food supply. This is not
necessarily because the Chinese agricultural industry is underperforming. The
sector has long faced a daunting task: filling the stomachs of 20 percent of
humanity with just 8 percent of the world's arable land and only about 30
percent of the world's per capita availability of fresh water. But
the task is further complicated by Beijing's grain security policy, which insists on near
self-sufficiency of production in spite of a scarce resource base, preventing
imports from playing the same role as domestically produced food.]
By
Damien Ma, William Adams
On
Aug. 20, the Australian mining giant BHP Billiton announced that it will pump nearly $3 billion
into developing a deposit of Canadian potash, a mineral used in the manufacture
of fertilizer destined for farms fields across the world. And in late
September, Chinese pork producer Shuanghui officially purchasedSmithfield
Foods in the largest Chinese acquisition ever made in the United States. The
companies' investments are both decisions that speak to a vote of confidence in
global food consumption growth over the next decade -- and nowhere will bellies
be filling up faster than in China.
For three decades, resource-intensive manufacturing fueled
China's spectacular economic rise. By 2012, the country was consuming nearly half of the world's coal and producing 46 percent of its steel, 43 percent of its aluminum, and about 60 percent of its cement. The Chinese economy has slowed in 2013 in part because of the government's recognition
that such a resource-intensive growth model has become
unsustainable. As a result, Beijing is trying to rebalance away from exports
and investments and toward domestic consumption. Companies like BHP Billiton
are betting that China's rebalancing will spur rapid growth in demand for food
and the inputs needed to produce it. The underlying
economic logic -- China as demand driver -- is the same, but it reflects the
resource scarcity that is starting to replace maintenance of rapid growth as
China's foremost economic challenge.
An ironic legacy of economic success, China's resource scarcity
is worsening as its GDP grows, incomes rise, and standards of living improve,
placing new, daunting pressures on the domestic food supply. This is not
necessarily because the Chinese agricultural industry is underperforming. The
sector has long faced a daunting task: filling the stomachs of 20 percent of
humanity with just 8 percent of the world's arable land and only about 30
percent of the world's per capita availability of fresh water. But
the task is further complicated by Beijing's grain security policy, which insists on near
self-sufficiency of production in spite of a scarce resource base, preventing
imports from playing the same role as domestically produced food.
Beijing's food security policy is an
uncharacteristically impractical choice from a usually pragmatic government. It
is motivated by the psychological legacy of repeated, disastrous famines that
scarred the Chinese public over the last 150 years, the most recent being the
policy-induced famine during the Great Leap Forward that led to tens of millions
of deaths in the late 1950s and early 1960s. Food is central to the national
mindset, especially for the many Chinese alive today who have personally
experienced crippling scarcity.
Food became more plentiful in the decades following Mao Zedong's
death in 1976, when the Chinese government adopted liberal agricultural
policies that allowed farmers to sell their products into the market. Called
the "household responsibility system," this reform, as well as
sustained investments in agricultural sciences and technology, prevented China
from descending into the Malthusian nightmare of finite resources
outstripped by exploding population growth that seemed to threaten the developing
world in the 1970s. Since the early 1980s, China has been able to produce most
of the meat needed for domestic consumption; the government also maintains a
strategic pork reserve that it occasionally taps to lower pork prices. Over the
last few years, the Chinese government has even achieved its goal of near self-sufficiency in rice, wheat, and
other staple grains that form the basis of the Chinese diet.
But the growth of China's food consumption is now threatening to
undermine these achievements. The meat of the matter is, well, meat: Diets are
being transformed by rising affluence and a cultural fixation that correlates
carnivorousness with class status. Other formerly
impoverished countries have seen their meat consumption rise alongside their
GDP. But in China, it is progressing much faster than experts once expected. In
2000, agricultural economists, including former World Bank chief economist
Justin Yifu Lin, predicted that China's per capita meat
consumption would rise by over 50 percent in 20 years. Thirteen years into
their forecast horizon, China's per capita consumption has already risen by
more than 150 percent.
Total annual meat consumption in China reached 80 million tons in 2012 -- equivalent
to 115 pounds a person. That total is double that of the United States, though
the average Chinese person still eats only about half as much meat as an
average American. Members of China's middle class -- estimated at roughly 10 percent of the
population, or 140 million people -- eat more meat than the average Chinese. By
2020, however, the middle class is projected to be 40 percent of China's
population. In wealthy cities like Beijing, residents consume an average of 130
pounds of meat per person annually. In Taiwan, where developed-world incomes
meet ethnic Chinese dietary preferences, consumption is much higher at 190
pounds per year. Barring dramatic cultural and ethical shifts, there will
likely be hundreds of millions more regular meat consumers in mainland China in
the coming decade, as continuously rising incomes make middle-class lifestyles
affordable.
Sadly, pork chops don't grow on trees. While China is close to
self-sufficiency in meat production, it is far from it in terms of the feed
grains, principally soy, that raise the livestock destined for Chinese dinner
tables. One of the world's largest soy producers until 1996, China has seen
production levels languish over the last 15 years while domestic
consumption has grown to five times the amount that Chinese farmers can supply. Foreign soybeans are now ubiquitous in the
Chinese agricultural value chain.
Today, China increasingly looks like it is
following the examples of Japan and Taiwan, two Asian nations that became food
importers as growing cities took land away from agricultural use, rising
incomes allowed consumers to enjoy more diverse diets, and urbanization pulled
people from farms and rural life.
These trends will have important global implications. Take rice,
for example. Although Chinese rice yields rose dramatically in the 20th
century, China found it necessary to import 2.6 million tons of rice in 2012. With
the global market accustomed to a weak Chinese buying presence -- the country
has been a net exporter of rice almost without fail for the last half-century
-- China's rice purchases may have helped send global prices to a near all-time high.
It seems too early to say that China's domestic rice production has hit the same
supply-side bottlenecks that have required the country to become a huge soy
importer. But the recent discovery of cadmium-tainted rice produced in central China
-- only the latest in a series of food scandals -- certainly does not help
alleviate pressures. Anxious Chinese consumers could opt out of the domestic
rice market and demand to buy the staple of their diet in the global market,
further eroding China's self-sufficiency.
Another revolution in agricultural technology could mitigate
these scarcities; however, this is very unlikely in the near term. The fruits
of the Green Revolution, from which China benefited
tremendously a generation ago, seem exhausted -- not only in China, but
globally. As economist Tyler Cowen noted in his 2012 book, U.S. farming productivity growth leveled off
between 1990 and 2002. A similar dynamic may be at play in China, where
burgeoning imports suggest agricultural productivity growth is stagnating.
All these factors point to a harrowing decade
ahead for Chinese food security. Just as the last three decades of catch-up
economic growth created a wealthy middle class in China, the next decade could
see catch-up consumption growth from hundreds of millions of Chinese who do not
yet eat meat daily. The Chinese government is experimenting with rural land
reforms and industrial farming to encourage higher efficiency and promote
economies of scale. But between ideological opposition to allowing rural land
to function as a form of productive capital and pragmatic concerns over the
livelihoods of landless rural peasants, progress will likely be too slow to
prevent Chinese food demand from outstripping supply.
China will likely become a reluctant and ever-larger presence in
global food markets. This will benefit economies like the United States that
are major food exporters. But just as China's industrial and property booms of
the last decade buoyed prices of oil, coal, and iron ore, in this decade
Chinese food demand growth could raise food prices in the United States and
elsewhere. China already consumes 60 percent of the rest of the
world's soybean exports. And as it keeps growing, China could fundamentally
alter global food supply and demand.
Of course, Beijing does not make policy for
the countries from which it imports agricultural products, but as Amazonian
rain forests are cleared for soybean production or if global rice prices spike
again, China could see a backlash. Chinese policymakers are certainly concerned
about the impact of their country's food demand on the rest of the world, which
is one reason they insist on grain self-sufficiency. The less China buys on the
market, the less it will be in the international spotlight.
Toeing such a line will be difficult. China's unmatched
combination of scale and need means it cannot be an anonymous participant in
global markets. The China price that today describes the country's
cheap manufactured exports could soon refer to higher-priced food on dinner
tables across America.
