March 03, 2016

03/03/2016: Commodities: China’s agricultural challenges

Part 2: Supply constraints 

Suwei Jiang, PwC Partner, China Business Group and Richard Ferguson, Agriculture Advisor to PwC

First published in Milling and Grain, January 2016

The evidence of an economic slowdown in China is clearly demonstrated by the leading indicators of falling commodities prices. China is likely to shift its economic emphasis from a high-investment, export-driven model towards one spurred by domestic consumption. Therefore, whilst there might be some short-term adjustment, further increasing affluence should remain the norm.

In short, the need to build bridges, highways and commercial property will become less prominent but diets will continue to change. This in turn will increase the enormous burdens on an already challenged domestic food system even further, as well as having significant ramifications on international agricultural trade.

China currently feeds 20 percent of the world’s population with just 8 percent of the earth’s arable land, which works out at approximately 0.09 hectares (ha) per person. The so-called ‘red line’ of one hundred and twenty million hectares of farmland as a Chinese policy goal is widely seen as an acknowledgement of this pressure.

The first policy document of 2014, referred to as ‘No.1 Document’, emphasised that the ‘red line’ should be strictly protected. The reason for this apparent obsession is simple: China has lost farmland consistently over the years due to an unprecedented increase in activities such as urbanisation, construction and land degradation.

According to China’s first national land survey that was conducted in 1996, arable land amounted to 130 million ha. By 2008, this was estimated to have fallen to about one hundred and one hundred 121 million ha. However, a second national land survey that concluded in 2009 (but whose results were only published in 2014) found that arable land was now estimated at about 135 million ha.

However, after deducting land that was deemed either too polluted or in need of restoration, available arable area was estimated to be just above 120 million ha. The ‘No.1 Document’ also recognises the importance of developing sustainable agriculture, as well as the need to restore polluted and degraded land. Degradation can be caused by either overcultivation, over-grazing or as a result of deforestation.

In 2008, a three-year study conducted jointly by the Ministry of Water Resources, the Chinese Academy of Sciences and the Chinese Academy of Engineering, found that over 350 million ha of land was affected by erosion, of which 160 million ha was caused by water and 200 million ha was caused by wind erosion. In total, about 4.5bn tonnes of soil were eroded each year, at a cost of RMB200billion since 2000. As well as erosion, land can also be degraded by pollution and this has become a major concern in recent years. Earlier this year, China’s vice-minister of land and resources, Wang Shiyuan, noted that a soil survey had identified some 3 million ha of contaminated land.

Not that this is a new problem by any means. In 2006, Zhou Shengxian, the director of the State Environmental Protection Administration (SEPA) said that China faced ‘serious’ soil pollution that would affect both people’s health and the environment. He further noted that approximately 12 million tonnes of grain are polluted each year by heavy metals from the soil, with economic losses of over US$2.5billion.

Read the full article in Milling and Grain HERE

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