Chartbook 445: Is a "China shock" coming for the "big ag" food regime?

China’s integration into the world economy is the most dramatic development of modern economic history. As far as “global imbalances” are concerned, this is a story of net trade surpluses and growing Chinese prowess in industry. But the flip side of that, are imports of raw materials, energy and food. In agriculture China has gone through a highly unusual “opening up”.

Global food trade takes place between blocs, in which production and consumption have developed under tight government regulation and a political economy dominated by major incumbent corporate interests - so-called “food regimes” (a term owed to Harriet Friedmann and Philip McMichael). Agriculture is one of the original sectors to experience what Karl Polanyi called a “double movement”, of market “opening” followed by collective regulatory backlash. Except in moments of crisis, this entrenched political economy does not generally allow for dramatic shifts in trade flows or production regimes. It is designed to prevent them. But since the 2000s it is demand growth in China that has been the driving force of the “neoliberal corporate” food regime and China has played that role as an importer, not an exporter. From a liberal point of view it is one of the great triumphs of the “free trade” era. The question is whether we are on the cusp of a new phase in which China applies to “big ag” the policies with which it has up-ended so many major areas of industrial production?

In the 1990s China engaged in tiny amounts of agricultural trade with the rest of the world, running a small trade surplus. Twenty years later, China has substantially expanded its exports. But it had also become an even larger agricultural importer, with the largest food trade deficit in the world and a self sufficiency ratio that is estimated to be less than 70 percent.

To say that this lopsided development in China’s agricultural trade is unusual, is an understatement. Around the world, agricultural markets are hotly contested and fiercely defended by national policy, lobby groups and corporate interests. To see a lurch into deficit is highly unusual. China’s scale puts it in a different league. To see how unusual China’s trajectory is, compare it to that of the US and the EU - the other major players in global trade. Since 2000 US imports of agricultural goods have increased too, but they are broadly in balance.

Along with China, NAFTA and the dispersed category of ROW dominate US agricultural trade. On paper, Mexico has a similar gdp per capita to China and since the 1990s it was subject to a considerable shock of trade integration through NAFTA. Nevertheless, since the 2010s, Mexico’s food trade balance with the US has shifted strongly into surplus. Over the same period, the EU has steadily widened its export surplus in agriculture.

To understand how China’s huge lurch into agricultural trade deficit was possible, one needs to dig far more deeply into the subordinate political economy of the Chinese countryside in the period of reform and opening up. That is a task for another time. But one key factor in helping to understand this shift is to recognize that it is additive. Whereas Europe and the US may have adjusted their food consumption regimes at the margins over recent decades - more avocados, less lard. But basic patterns are relatively static. Not true for China. Since the 1990s the national diet has been completely transformed, with a huge surge in the consumption of meat and fish protein.

It is this surge in protein consumption that has driven China’s agricultural globalization. In basic grains China is largely self-sufficient.

Source: https://millermagazine.com/blog/chinas-new-grain-equation-balancing-self-sufficiency-and-rising-feed-demand-6743

Indeed, thanks to price subsidies, China has accumulated huge stocks of corn, rice and wheat.

But in high-value animal feed, above all soybeans, the deficit is huge.

China’s huge surge in demand for meat entirely dominates the dynamics of the global soy industry, as this graph from 2019 shows.

https://www.proag.com/news/ers-report-interdependence-of-china-united-states-and-brazil-in-soybean-trade/

Brazilian and American soy bean production has surged over the last quarter century with Brazil leading the way. The growth in Brazilian production has been driven by Chinese demand, which accounts for 73-83 percent of Brazilian exports .

So, to summarize the historical backdrop, the last quarter century has seen the emergence of a dramatically new food system for one sixth of humanity (China) featuring far higher levels of protein consumption supplied by feed cultivated above all in Brazil.

The obvious question, in a moment of change like the one we are living through, is whether this can be expected to continue. An import dependence on the scale of China’s for something as basic as protein, is a vulnerability. It is a vulnerability that neither the US nor the EU live with, let alone other “global players” like Russia. In a geopolitical environment of growing stress, it is hardly surprising that “food security” is a key concern for Beijing’s leadership. In the shock year of 2022, Xi Jinping mentioned the issue once every five days.

Of course, policy buzzwords come and go frequently in Beijing. But what if China were to get serious? This is the question I ask in an op-ed in this weekend’s FT. What if Beijing were to apply to agriculture the same multi-faceted “industrial” policy toolkit, which has had such dramatic impact on areas like new energy? This is the scenario explored in a recent report by Systemiq commissioned by the Gordon and Betty Moore Foundation.

As Systemiq and their collaborators at China’s Agricultural University point out, the signs are there. Between the 14th and 15th Five-Year Plans, the key elements of a “whole-system” policy shift seem to being put in place. If this plays out on the timeline of industrial policy, then over the next 15-20 years we might very well see a spectacular shift in China’s food regime. The consequences for the global agricultural system that has taken shape since the early 2000s could be dramatic. Chinese imports from the US could fall by more than 85 percent.

The point here is not to make a specific prediction about the future of global ag markets. The point is to stress how radically new the current configuration of global agricultural trade is. How asymmetric it is in terms of the dependence of China on key inputs for high-value agriculture and how the story of Chinese industrial policy since the 2010s has taught us lessons about who quickly and how dramatically basic parameters in the world economy can be changed.

---

I love writing the newsletter. If you enjoy it too and fancy buying me a coffee once a month, you know what to do. Click below!