Keep calm and trade on: China’s decisive role in agricultural markets under turmoil
Author : IAMO
Source : https://www.iamo.de/en/press/press-releases/article/keep-calm-and-trade-on-chinas-decisive-role-in-agricultural-markets-under-turmoil/
China is the world’s largest consumer and importer of agricultural goods. As a result, its trade strategies influence international markets and affect consumers worldwide. However, rising domestic demand for food and limited land and water resources are posing a particular challenge to China’s food security. This is exacerbated by world market price volatility resulting from recent geopolitical tensions, the Covid-19 pandemic, and extreme weather events caused by climate change. The Chinese government has turned to a range of measures to overcome these challenges, including building up immense strategic reserves. In IAMO Policy Brief 45 Lena Kuhn, Tinoush Jamali Jaghdani, Sören Prehn, Zhanli Sun and Thomas Glauben take a look at these developments and how they affect global markets.
As the world’s largest consumer and importer of agricultural goods, China has significant influence over world markets. In 2021, China’s imports of agricultural products exceeded its exports by a factor of 2.6 to reach USD 219.8 billion. As China’s middle class grows so too does its domestic demand for high-quality food and, in particular, meat and dairy products. However, both require more land and water resources than the grains and vegetables consumed as part of traditional diets.
At the same time, production resources are stretching thin. For example, China has 20% of the world’s population but less than 7% of the global freshwater supply, making it one of the most water-scarce countries in the world. For decades, Chinese agricultural policy has therefore focused on increasing agricultural productivity, in particular via higher inputs of fertilizer, pesticides and irrigation, coming at the cost of arable land and water resources.
It is estimated that the current nutritional transition in China will require an additional three to 12 million hectares of land between 2020 and 2050. This will be difficult to meet, as China is already struggling to maintain its current farmland area.
On 11 June 2022, the Chinese Ministry of Agriculture and Rural Affairs (MARA) launched a rural investment program to stabilise grain production and expand soybean and oilseed production. This included the use of “smart” grain storage.
In 2021, China had 142 million metric tons of wheat stocks. This means that while China has 20% of the world’s population, it likely holds more than 50% of the world’s total wheat stocks as a reserve. The same can be observed for corn, which is used mainly in animal feed. China is a key producer of corn, with a self-sufficiency rate of 95.8%. However, it is also the world’s largest net importer of corn. At the end of the last season, China held 210 million metric tons of corn stocks, which accounted for more than two-thirds (68%) of global reserves.
China’s current high demand for strategic agricultural products is often viewed as a reaction to short-term shocks such as the Covid-19 pandemic and, most recently, the war in Ukraine. However, it is more likely a response to long-term macrotrends, particularly those caused by climate change, population growth and higher consumption of animal proteins. Considerable parts of China’s population have reached higher income levels, and demand for food on world markets will therefore continue to increase steadily. It is not clear whether productivity gains can keep pace in the face of climate change and scarce water resources.
Complete self-sufficiency in terms of major food products may be China’s goal, but it can’t be achieved without resource depletion and massive losses in welfare and quality of life. To master the coming challenges, China will have to participate in international markets to share various production, price and logistics risks. International agricultural trade is essential for China to ensure its own food security.
According to IAMO Director Thomas Glauben, “International agricultural trade remains the key to global food security. Not only poorer countries in the Global South but also main economic actors like China and Germany must participate in international agricultural trade, especially in times of crisis, to ensure their populations have sufficient access to nutritious foods.”