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China's Food Security – important update

05 Mar

Chinese media reported Feb. 26 that ongoing drought in the northeastern province of Heilongjiang has damaged 1,000 acres of farmland. In recent years, China has worked to convert the province into a major agricultural area and give it a key role in the country’s food security. However, population growth, rapid urbanization and environmental degradation will continue to challenge China’s traditional grain centers’ ability to meet demand, so Beijing increasingly will depend on Heilongjiang to make up the difference. As that dependence grows, and as Heilongjiang’s linkages to the national grain market multiply, the consequences of drought there will become far more widespread.

Heilongjiang plays a unique and increasingly central role in China’s agriculture sector. While China’s traditional grain-producing regions rely primarily on small, family-owned farm plots, Heilongjiang represents an experiment in centralized, modern industrial agriculture. Building an integrated national grain market with Heilongjiang at the center provides China with a buffer grain supply to help stabilize food prices. However, as China’s population and consumption levels rise, that buffer is becoming increasingly integral to Beijing’s efforts to meet basic food demand. Given the new importance of Heilongjiang’s agricultural sector, China can be expected to work assiduously to protect the province.

Contrast this with Heilongjiang, which is China’s sixth-largest province by landmass but only contains 2.9 percent of the country’s population. Its large, state-owned farms represent a divergence from traditional agriculture methods, and its low population means that almost all its grain flows into national markets, not onto local farmers’ plates.

China currently stores the equivalent of 40 percent of one year’s grain output. (Total output in 2011 reached 571 million metric tons.) This is far above the global average of a 17-18 percent reserve rate. China’s reserves include 100 million metric tons of wheat (roughly equal to annual production), sizeable stores of rice and around 13 million metric tons of corn. In recent years, under state-owned company Sinograin, this reserve system has taken on responsibility for the grains’ storage, transport and distribution.

Following a 2007 report from the National Development and Reform Commission titled “Modern Grain Logistics for 2006-2015,” Sinograin aimed to expand beyond its role as “the national grain reserve” and become “the grain market’s merchant.” Currently it is working to establish six trans-provincial logistics systems linking northeast China with the North China Plain, the middle and lower sections of the Yangtze River and the Beijing-Tianjin urban conglomerate. At a time when water depletion and desertification pose ever more persistent threats to grain output in areas such as the North China Plain, Beijing sees surplus grain from Heilongjiang as a safety measure to help it maintain its benchmark of 95 percent food self-sufficiency and relative control over food prices.

Converting the province into this buffer also introduced a systemic risk to the grain market. Water depletion, desertification and other environmental problems compounded by growing population and explosive urbanization will make it increasingly difficult for China to meet basic grain demand, let alone maintain its grain stores.

Recognizing this possibility, Beijing has in recent years begun purchasing farmland throughout Latin America, Australia and East Africa. These farms, like Heilongjiang, would come under direct control of Chinese state-owned farming companies with very little of their output left to the foreign country itself. Beijing cannot easily afford another shock to its food sector. Given the close relationship between food security and political stability throughout Chinese history, the Communist Party will work to find ways to mitigate the effects of prolonged drought in its new nationalized heartland

This post was brought to us by Stratfor – please click here to read the entire article.

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