January 21, 2009
World Grain Demand Could Surge With Failed China Crop
A small percentage change in China's agricultural output would cause a large increase in China's demand for grain crops.
Global grain markets are facing breaking point according to new research by the University of Leeds into the agricultural stability of China.
Experts predict that if China's recent urbanisation trends continue, and the country imports just 5% more of its grain, the entire world's grain export would be swallowed whole.
The rapid economic growth of such a populous country means that world markets become more susceptible to events in a single country. China's growing buying power and rising living standards will increase its grain demand. Rising per capita meat consumption strikes me as a far larger source of long term food demand growth than a drought.
The knock-on effect on the food supply - and on prices - to developing nations could be huge.
Sustainability researchers have conducted a major study into the vulnerability of Chinese cropland to drought over the past 40 years, which has highlighted the growing fragility of global grain supply. Increased urban development in previously rich farming areas is a likely cause.
"China is a country undergoing a massive transformation, which is having a profound effect on land use," says Dr Elisabeth Simelton, research fellow at the Sustainability Research Institute at the University of Leeds, and lead author of the study. "Growing grain is a fundamentally low profit exercise, and is increasingly being carried out on low quality land with high vulnerability to drought."
A small percentage decrease in Chinese crop output would cause a large increase in grain imports.
At the moment the Chinese government claims that China is 95% self sufficient in terms of grain supply. If China were to start importing just 5% of its grain (to make up a shortfall produced by low yields or change of land use to more profitable crops) the demand would hoover up the entire world's grain export.
When the United States went through industrialization it did so with a population that was approximately a tenth of China's 1.33 billion population today. Adding a fully industrialized China to the world demand for agricultural products and other resources is going to strain ecosystems around the world. I expect we will see a lot of species extinctions as a result. Lots more land will get shifted into agricultural production.
From the International Herald Tribune:
BANGKOK: At least 29 countries have sharply curbed food exports in recent months to ensure that their people have enough to eat, at affordable prices.
When it comes to rice, India, Vietnam, China and 11 other countries have limited or banned exports. Fifteen countries, including Pakistan and Bolivia, have capped or halted wheat exports. More than a dozen have limited corn exports. Kazakhstan has restricted exports of sunflower seeds.
The restrictions are making it harder for impoverished importing countries to afford the food they need. The export limits are forcing some of the most vulnerable people, those who rely on relief agencies, to go hungry.
"It's obvious that these export restrictions fuel the fire of price increases," said Pascal Lamy, director general of the World Trade Organization.
By increasing perceptions of shortages, the restrictions have led to hoarding around the world, by groups as varied as farmers, traders and consumers.
"People are in a panic, so they are buying more and more - at least, those who have money are buying," said Conching Vasquez, a rice vendor who sat one recent morning among piles of rice at her large stall in Los Baños, in the Philippines, the world's largest importer of rice. Her customers buy 8,000 pounds, or 3,600 kilograms, of rice a day, up from 5,500 pounds a year ago.
The new restrictions are just an acute symptom of a chronic condition. Since 1980, even as trade in services and in manufactured goods has tripled, adjusting for inflation, trade in food has barely increased. Instead, for decades, food has been subject to a convoluted tangle of restrictive rules, in the form of tariffs, quotas and subsidies.
Now, with the Australian farm sector crippled by drought and Argentina suffering a series of strikes and other disruptions, the world is increasingly dependent on a handful of countries like Thailand, Brazil, Canada and the United States that are still exporting large quantities of food.
Food could be the "New Oil" of the 21st century. As petroleum reserves around the world decline and oil is replaced by other materials, food could become the new international critical commidity. This would be good tidings indeed for the relatively few countries listed in the article that are still capable of exporting large amounts of food. The US, for example, is the only major rice producer that does not restrict exports. These countries are mostly democratic and all pretty friendly with each other. How about an OFEC (Organization of Food Exporting Countries)?
I think instead of more land being used for agriculture what you will more likely see happen first is a longterm increase in the price of grains which will encourage more production. The world depends on grain for something like 80% of their food energy. Fruits and above ground vegetables are mainly water, don't store well (how long will a fresh tomato store versus a bag of rice),and they have relatively little caloric value. There is a reason people are urged to eat more vegetables and less grains when they are dieting. Animal protein too is secondary, most people love it but for half the world it is a luxury product.
For most of the past two decades the value of all the major grains have been steadily dropping steadily. Even at the height of last year's blip in nominal value, inflation adjusted prices were far below what they were in the 1960s and 1970s. (current farm gate corn and wheat prices are about the same today as they were when a bottle of coke cost a dime). No wonder farmers everywhere, including China, are switching the most prime agricultural land into high value crops like flowers. They need to do something different to raise money or they will go out of business.
Global grain production has the potential to dramatically increase if prices for production rise enough to make it worthwhile. Today close to a third of the world's most productive farmland in in the Ukraine sits largely idle due to badly flawed land reforms. Production across the former USSR nations is just a fraction of what it was during soviet times. Almost all of the agriculture land in east African should be as productive as the US midwestbut isn't due to stone age farming practices and political unrest.
Other land could be added as you noted, much of it on the Brazilian cerrado. (most of Brazil's potential farmland is not in the Amazon as most people assume. Much of the rain forest is swampland and is unsuitable for agriculture).
how much more land does the US devote to agriculture now than it did 100 years ago? answer: not more, less. advanced, free market societies use less land for agriculture because they use land more efficiently.
One of the areas in which we in the US still have an advantage over other countries is food production. We cannot outsource that industry -- it is land-based. People need to eat, and China has a lot of people. The Chinese need to do something with all those US dollars they have. So sell them our grain for the dollars they have saved. This is a far better use of the grain than converting it to ethanol.
Ag maybe land based but don't forget the Chinese could go on a buying spree both here and in Brazil to assure grain supplies. If you own the land you have control of the crop. So even if the grain is grown here, does not mean it is destined for American dinner tables. It could just as well end up in Shanghai.
Sovereign force trumps title deeds.
Um ... demand doesn't rise just because supply fell. Prices might rise, but demand is whatever demand is regardless of supply. That's pretty much basic economics.
You assume that the US Government would intervene. What if due to the balance disparity in trade the US decides to do nothing in a quid pro quo? Considering the likes of the clintons were in the pocket of the chinese that is not a unlikely scenario.
Sounds like a good time for the U.S. government to stop paying farmers not to farm....
As far as I can tell, the numbers in this article are simply incorrect. China is a net exporter of grain. Total production of grain in China is about 500 million tons a year, total international exports from all sources usually run around 200 million tons a year. Maybe I'm missing something, but it looks as if this article is bogus.
So common sense tells me that if I were a "developing nation" I'd be developing agriculture as fast as I could. Then I could sell food to the Chinese and use the money to develop the rest of my economy. Unfortunately some of the "developing nations' aren't developing at all. They are dependent on gifts disguised as loans from the rest of us. And when Chinese food consumption increases lots of folks are going to get hungry. Too bad for you if you live within walking distance of those hungry folks.
I find indications that China's a net importer.
In 2003, China became a grain net importer, and its import volume has continued to increase in recent years in order to compensate the gap between grain production and demand.
In 2007, China witnessed a net grain import of 23.86 million tons.
China's corn production rose in 2008.
After importing large quantities of soybeans ahead of the Lunar New Year due later this month, China is buying South American soyoil to replenish government reserves as it sells around 150,000 tonnes into the rising domestic market.
China's state reserve bought 50,000-60,000 tonnes of South American soyoil imports last week and is likely to buy the remainder from South America as well, traders said.
The country has raised its grain output forecast after sources said it would soon set quotas for exports. China's corn production hit a record 165.5 million tonnes in 2008, a rise of 9 percent from 2007, the China National Grain and Oils Information Centre said, as it revised its estimate upwards
But China wheat production will fall in 2009:
China Drought May Cut 09 Wheat Output By At Most 5% -Analysts
China's major wheat producing areas are undergoing a serious drought, which analysts said Friday may affect wheat output by at most 5% this year.
China has cut the amount of corn export allowed:
Dec. 30 (Bloomberg) -- China, the world’s second-biggest corn grower, will allow 500,000 metric tons of the grain to be exported next year, about 10 percent of levels seen in previous years, as the government seeks to ensure domestic supplies.
And an article claims that US grain exports cost less at Asian ports than Chinese grain.