Food security downplayed in China land deals

It is debatable whether Chinese hunger for foreign firms and arable land is driven by a desire to secure food supplies or commercial opportunism.

The buying up of arable land and food companies overseas by China is being seen by analysts as less about food security and more about commercial opportunity.

In September, Reuters reported that China’s Xinjiang Production & Construction (also known as XPCC or Bingtuan) had signed a $1.7 billion agreement with Ukraine’s leading agricultural company KSG Agro for farmland in the eastern Dnipropetrovsk region.

It was the first step of a 50-year plan by XPCC, an economic and semi-military governmental organization, to control 3 million acres of arable land to grow crops and rear pigs.

China already owns swathes of farmland in Africa, South America and Southeast Asia, although it has faced accusations of a neo-colonial land grab. An investment in the Philippines was recently blocked, for instance. But then other countries, notably Korea with its failed attempt to buy 1.2 million hectares in Madagascar in 2009, have faced opposition too.

Meanwhile, Chinese food companies have been purchasing foreign producers of processed and raw foods, including Shuanghui International’s $4.7 billion purchase of Smithfield Foods. 

It is debatable whether Chinese hunger for foreign firms and arable land is driven by a desire to secure food supplies or commercial opportunism.

“In general Asian companies buy agricultural land or international food producers and other firms on the supply chain for commercial reasons, not as part of governmental strategies. Also, many want to acquire expertise to accelerate their learning curve and improve their productivity,” said Fred Neumann, an economist at HSBC.

In addition, Chinese firms may have bought farmland overseas and invested in commodity trading companies to cut out the middleman and protect themselves from the potential threat of a politically motivated blockade. 

“There is a commercial logic here,” said Michael Spencer, chief economist and head of research, Asia Pacific, Deutsche Bank, adding that the apparent urgency shown by some governments to secure food supplies as a result of the extreme commodity price rises in 2008 has diminished significantly. 

“Food prices have been stable since then, albeit at an elevated level, so China and other Asian countries have adopted a more relaxed and pragmatic stance,” he said. 

Neumann at HSBC echoed the point that food security worries have subsided with just occasional, short-lived price spikes in individual foodstuffs. Besides, “markets tend to underestimate the supply response to price rises; farmers adjust rapidly by switching crops - for instance out of biofuels - or assigning more land to livestock if that is where the demand is strongest. In addition, farmers are more prepared to pay more for inputs, such as superior fertilizer and seed, if the returns make it worthwhile,” he said. 

Indeed, China’s policy makers now recognise that it is “not a terrible thing to have to import rice,” said Spencer. The crop is water - and land - intensive and the steep hillsides where terraces are often constructed in China are hard to mechanise. Agricultural productivity in China is generally poor, so it is also acknowledged that there is no requirement to be self-sufficient in other produce, such as meat, fruit and vegetables. 

After all, it is normal for a country to import more food as it develops and moves away from an agriculture-based economy, Spencer said. South Korea, with a $17 billion food deficit, and Taiwan have been net importers for decades, while Japan is opening up its agricultural-trade to greater foreign participation. “Of course, all countries want some domestic production if possible,” he said.

A greater priority for China’s policy makers is that the country’s farming sector is more commercial, productive and competitive, and they are encouraging private investment into industrial agriculture, said Spencer, adding that the clarification of rural property rights at the Third Plenum of China’s leaders in November should lead to greater land consolidation.

“Urbanisation and growing affluence is creating new dietary habits, especially for dairy products and meat alternatives to pork. It makes more sense to import packaged beef, for instance, than livestock and cattle-feed,” said Spencer.

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