Food Inflation (III) – Where Is Arable Land?

It is only likely that India and Pakistan will stay perennially engaged in a competition to sell their basmati rice in West Asian countries, the UAE, the US and the UK. Helped by restricted supplies from Pakistan and stock building by mot importing countries, India could lift basmati rice exports by 11.5% to 4.9m tonnes in 2023, almost equalling the record high of 5m tonnes in 2020. But revenue from exports was a record $5.4bn, 21% up on 2022, thanks to high prices.

A Reuters report, however, says: “India’s basmati rice exports are likely to fall in 2024… as rival Pakistan is offering the grain at competitive prices amid a rebound in production.” In the meantime, in order to put a check on suspected trade malpractices, New Delhi first laid down minimum export price (MEP) of basmati rice at $1,200 a tonne in August. Expectedly, the move provoked an outcry from the trade since the MEP was found to be higher than market price prevailing then. Subsequently in October it was brought down to $950 a tonne.

No other country or group of countries in Asia will ever have the same kind of bearing on global food economy like that of China. The world’s second largest nearly $18.5 trillion economy with less than 10% of the planet’s arable land is the producer of one-fourth of the world’s grain but has the onerous task of feeding one-fifth of the earth’s population. No wonder then a major concern of the Xi Jinping led administration is to ensure that there are no disruptions to food supply triggering domestic unrest.

What haunts the Chinese leaders all the time are the memories of the Great Famine of 1959-61 that claimed 30m lives and caused nearly the same number of lost or postponed births. No surprise since taking charge of the country in 2013, President Xi had many occasions to say: “The rice bowls of the Chinese people must always be held firmly in our own hand and filled mainly with Chinese grain.”

Mark the word “mainly.” According to the ministry of agriculture and rural affairs, China produced a record amount of 695.4m tonnes of grain in 2023, a year on year rise of 8.8m tonnes over 2022. Incidentally, this was the ninth year in a row that the country, which is the world’s largest producer of cereals such as corn, wheat and rice, harvested over 650m tonnes of grain. China’s per capita grain output exceeding the globally recognised security level of 400 kg by over 90 kg is, however, of little comfort to the authorities for several reasons. First, the country still continues to lose arable land because of neglect and use of excess fertilisers. What further aggravates land loss situation is the country being subject to extreme weather, environmental issues and water scarcity.

Mercifully, China has introduced a “farmland red line” policy that sets a preservation target of at least 120m hectares of arable land for growing crops. Moreover, there is a target for very high quality 66.7m hectares of farm land. (Loss of farmland and its progressive deterioration is also a major problem for India and many other countries in south and south-east Asia.)

Second, since the beginning of the millennium, China’s food self-reliance is down to around 65% from 93.6%. Why is this so in spite of high grain and dairy products output? The fear of disruptions in food supply has led Beijing to build stockpiles of food, mainly corn, rice, wheat and pork, mostly by way of imports. China’s large imports of soybeans, corn, wheat, rice have invited criticism from many quarters. This way of seeking insurance against domestic food supply problem at any point leads to rises in food prices throughout the world as it may create shortages outside China.

Third, despite improvements in national food safety standards brought about in 2022, the urbanites with sufficient buying capacity being scared of local food not safe and toxic will opt for imported stuff. Concern about food safety is also a booster for imports. USDA says in a report: “As incomes rose, the average Chinese diet changed to include more meat, dairy and processed foods. In the past 20 years, per capita consumption of poultry meat increased 32%, soybean oil consumption more than quadrupled and fluid milk intake more than tripled.” The country is close to 70% import dependent on edible oils.

Fourth, in a number of farm products, the Chinese cost of production is higher and productivity lower than from the countries, including the US and Brazil from where imports are made. Take soybeans for instance, the cost of its growing in China is 1.3 times more than in the US. The yield too is 60% less.

For many years, the US remained the largest supplier of farm products to China. But then the two countries got locked in a trade war in 2018. This and also Beijing’s good relations with Brasilia are the reasons for China buying more and more from Brazil leading finally the South American country replacing the US as China’s largest agricultural supplier.

Being highly sensitive to any food supply disorders, since heightened by geopolitical crisis in Europe and West Asia, Beijing is actively pursuing diversification of supply sources. Its Belt & Road Initiative (BRI) is primarily a massive China led infrastructure development programme. But Beijing is taking advantage of it to promote agricultural cooperation with BRI participants in all continents. As it has done with minerals, China continues to encourage its investors to buy farmland in foreign countries. According to USDA, Chinese investors had by 2021 owned 383,935 acres of farmland in the US. Africa is the principal target of China for owning land to grow crops.

(This is the concluding part of the series)

Read Part I: Food Inflation – Grains of Truth

Read Part II: Food Inflation – The Rice Factor

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