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China Agribusiness Report Q1 2009
Business Monitor International, Nov 2008, Pages: 57
The China Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on China's agribusiness service.
China's vast agricultural industry looks set to have to face up to some major challenges in the coming years, as urbanisation interferes with agricultural acreage and inflation dramatically ramps up industry input costs. In the new China Agribusiness Report for Q109, we examine the nature of these challenges and analyse the steps China must take if it is to cost effectively meet the growing and changing food needs of its immense population.
As per capita disposable incomes in China increase, demand for staple food items in the country, among them rice and wheat, has fallen. This has triggered a decline in production volumes for these commodities and an increase in production for superior items, such as beef and dairy, demand for which is growing at a rate ahead of that of income growth. To 2012, the author expects beef consumption in China to increase by 32% to reach 10.2mn tonnes; production is forecast to increase by 27% over the same period. Meanwhile, per capita consumption of dairy products in China is forecast to increase from 10.1kg in 2007 to 21.7kg in 2017.
Surging demand in these new product areas could be supported if a reduction in land devoted to the production of inferior goods was directly linked to an increase in the area of land devoted to the production of superior goods. However, this is not the case. China's agricultural landmass is declining in general, as urbanisation and industrialisation take their toll on the countryside. Massive improvements in agricultural efficiency, driven by increased commercialisation and technology use, have helped offset the impact of falling acreage on output, and yet shifting dietary preferences could exacerbate this problem in the future.
The challenge for China is that it is import dependent or fast heading towards import dependency in highvalue commodity areas, such as grains and processed dairy. Meanwhile, it is a leading exporter in product areas where prices are slightly more stable, for example fish and fruit and vegetables. China's dietary requirements might have altered, but the general make-up of its agricultural output has not altered as
rapidly. The global price spike of certain soft commodities is only serving to enhance this. Consequently, in 2008, China is expected to run a food trade deficit of US$234mn, down from a surplus of US$4.9bn as recently as 2006.
China's changing agricultural requirements go some way towards explaining the country's position in the recent, failed Doha round of World Trade Organisation talks. The country sided with India over the maintenance of safeguards, allowing it to raise import tariffs should it witness a surge in cheap imports. This stance, coupled with encouragement of technology usage and commercialisation and a willingness to provide price guarantees to farmers in the declining rice and wheat sectors, highlight Beijing's eagerness not to let changing consumption habits undermine the competitiveness of its agricultural industry, the livelihood of some 40% of its population employed in the industry, or the availability of basic foodstuffs in the country.
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