Friday, 9 May 2008

Can China feed itself?

Today the FT has a front page article on China's attempt to guarantee food supplies.

This article dovetails nicely with a recent World Bank paper looking at the role of climate changes on China's ability to feed itself.

The economics of this move and quite profound. So profound in fact that I need to think about it a bit more. Capitalism should not object to vast tracts of Africa being farmed by the Chinese or for the Chinese if they pay the market rate. But what happens when the host country needs to feed its own people? I suspect property rights will be worth very little then. The other aspect is the classic tragedy of the commons externality with land being cleared for farm land with the usual environmental consequences.

This "factoid" surprised me initially:

China has about 40 per cent of the world’s farmers but just 9 per cent of the world’s arable land.

It is important to remember that China is not all about exports and skyscrapers. Underneath the new wealth is a large underbelly of the population still living a hand to mouth existence.

China eyes overseas land in food push [FT]

Chinese companies will be encouraged to buy farmland abroad, particularly in Africa and South America, to help guarantee food security under a plan being considered by Beijing.

A proposal drafted by the Ministry of Agriculture would make supporting offshore land acquisition by domestic agricultural companies a central government policy. Beijing already has similar policies to boost offshore investment by state-owned banks, manufacturers and oil companies, but offshore agricultural investment has so far been limited to a few small projects.

If approved, the plan could face intense opposition abroad given surging global food prices and deforestation fears. However an official close to the deliberations said it was likely to be adopted.

“There should be no problem for this policy to be approved. The problem might come from foreign governments who are unwilling to give up large areas of land,” the official said.

The move comes as oil-rich but food-poor countries in the Middle East and north Africa explore similar options. Libya is talking with Ukraine about growing wheat in the former Soviet republic, while Saudi Arabia has said it would invest in agricultural and livestock projects abroad to ensure food security and control commodity prices.

China is losing its ability to be self-sufficient in food as its rising wealth triggers a shift away from diet staples such as rice towards meat, which requires large amounts of imported feed.

China has about 40 per cent of the world’s farmers but just 9 per cent of the world’s arable land.

More FT comment here:

New eating habits force revolution on China's farms [FT]

China, a small net exporter of rice and largely self sufficient in wheat, has been something of a spectator in the global food crisis of recent months, with Beijing's role confined to tightening scrutiny of exports to prevent profiteering.

"There is no grain crisis in China at the moment, and there won't be for some time into the future," says Cui Xiaoli, a researcher at the development research centre, a think-tank under China's cabinet.

The country's inflation hit 11-year highs in recent months, almost entirely because of an increase in food prices, but the government and many economists argue that these rises are a temporary phenomenon.

The above line depends on the classic "supply and demand" diagram. There has been a demand shock or supply should increase right? Prices will then fall. In the long term this should work but as the first article notes, supply, at least in China, is constrained.

Here is the academic article.

Can China Continue Feeding Itself? The Impact of Climate Change on Agriculture

Chinese Academy of Sciences - Center for Chinese Agricultural Policy
Yale University - Department of Forestry & Environmental Science
World Bank - Agriculture and Rural Development Department
Chinese Academy of Sciences (CAS)
University of California, Davis - Department of Agricultural and Resource Economics
Affiliation Unknown January 1, 2008

World Bank Policy Research Working Paper No. 4470

Several studies addressing the supply and demand for food in China suggest that the nation can largely meet its needs in the coming decades. However, these studies do not consider the effects of climate change. This paper examines whether near future expected changes in climate are likely to alter this picture. The authors analyze the effect of temperature and precipitation on net crop revenues using a cross section consisting of both rainfed and irrigated farms. Based on survey data from 8,405 households across 28 provinces, the results of the Ricardian analysis demonstrate that global warming is likely to be harmful to China but the impacts are likely to be very different in each region. The mid latitude region of China may benefit from warming but the southern and northern regions are likely to be damaged by warming. More precipitation is beneficial to Chinese farmers except in the wet southeast. Irrigated and rainfed farmers have similar responses to precipitation but not to temperature. Warmer temperatures may benefit irrigated farms but they are likely to harm rainfed farms. Finally, seasonal effects vary and are offsetting. Although we were able to measure the direct effect of precipitation and temperature, we could not capture the effects of change in water flow which will be very important in China. Can China continue feeding itself if climate changes? Based on the empirical results, the likely gains realized by some farmers will nearly offset the losses that will occur to other farmers in China. If future climate scenarios lead to significant reductions in water, there may be large damages not addressed in this study.

Keywords: Climate Change, Crops &Crop Management Systems, Global Environment Facility, Common Property Resource Development, Rural Development Knowledge &Information Systems