There has been much talk about food security. The hot topic of how to feed a global population of nine billion by 2050 given water constraints gain profile in the Word Economic Forum (WEF) in Davos with and the discussion raged on in the UN World Water Week in Marseille in March and is sure to continue to do so in the upcoming water week hosted by Stockholm International Water Institute in late August. Over here in Asia, the topic was recently debated at the Standard Chartered Earth’s Resources Conference (on agriculture and mining) in a panel discussion on “Will China Import More Food?”.
Why is food security such a hot topic? A growing population is hardly new news and neither is the limited availability of our key natural resources: land and water. Besides, we often hear that there is enough food to feed us all … so why is everyone worried?
“a complex problem of infrastructure, governance, markets and education”
Could it be (a) the two big spikes in food prices in just under four years? (b) Arab Spring (food riots over a rise in bread prices)? (c) Export bans by countries which sent the price of rice rocketing to over US$1,000 per ton in April 2008? Or is it because (d) the two food price spikes occurred in 2008 and 2011 irrespective of the financial crisis? Or (e) all the above … I think Hillary Clinton sums it up pretty well … the hunger crisis is “a complex problem of infrastructure, governance, markets and education”.
Now, that’s depressing; that around 1 billion people still go hungry not because we don’t have enough food but because governments and trade organisations can’t get their act together. This is beginning to sound like Rio, so I will stop talking about why it doesn’t work and focus on the positives.
A silver lining: depressing stats paint a bullish picture
- To feed an additional 2 billion people, we need an additional 1 billion tonnes of cereal and 200 million tonnes of livestock (and this does not include the 1 billion now that are still hungry).
- Limited land and water resources mean we have to push yields, rely on fertilisers, GM seeds and land grab strategies, amongst other strategies including reducing consumption.
- Increasing urbanisation and affluence mean more calories will be consumed. India and China urbanization ratios are around 30% and 50% respectively and have some ways to go to that of Japan’s 67% and South Korea’s 83%.
Yes, every dark cloud has a silver lining – all “depressing” statistics on the food front paint a bullish long term trend for food and food related companies.
Will China import more food in the future?
I have talked about limited water resources in China and the choice between allocating water for beef and iPads before (you can read about that here and here ) but it is nice to hear what others had to say at the panel discussion.
Guy Williams, the Global Head of Agricultural Trading of Standard Chartered Bank kicked-off the discussion. Whilst it’s no secret that self-sufficiency has been a target for China, he noted that China is already a significant importer in certain food categories, namely soya bean and palm oil. He expects the burgeoning middle class to continue to drive these imports in the future.
Sunny Verghese, the CEO of Olam agreed, saying that China’s food consumption per capita has grown very rapidly. He cited that the food gap in consumption between the urban and rural population is as much as 3,000 calories. An increasing urbanization rate would definitely point to an increase in demand for food, in particular meats, dairy and other ‘higher value’ foods.
Water, or rather the lack, of strengthens this argument. Indeed, the International Food Policy Research Institute (IFPRI) examined the impact of two possible scenarios in the Yellow River Basin (1) 30% reduction in water availability and (2) 50% reduction in water availability by 2030. These scenarios are in line with Chinese estimates of future shortages. The results indicated that by 2030 cereal production could fall by 17%, which in turn could elevate global cereal prices by up to 10% for maize, 9% for wheat, 6% for rice. Water scarcity is no longer only China’s worry; it global pricing implications due to China’s dominance in across most agricultural product categories.
The panel agreed that South America rather than Africa would be the major beneficiary of China’s imports. Many believe that Africa’s infrastructure will take another 30 years or so to mature. So apart from soya beans and palm oil what else will they import? My best guess is still meat.
It’s not about switching into higher value labour-intensive crops, it’s about switching out of water-intensive meats
It’s a question of economics. GDP contribution from agriculture has been trending down for China and is projected by many analysts to continue as industry and tertiary services grow. The farming debate typically centers on whether China should swap growing ‘low-value’ grains for labour-intensive higher value crops like fruits and vegetables. However, given China’s water crisis and water scarcity issues in the north where 75% of the country’s wheat is grown, the fundamental decision driver should be water not labour.
A rule of thumb that was bandied around the speakers was that roughly 1 calorie of food requires 1 litre of water to produce. So a shift in calories upwards means we also need more water. What is not captured here is the composition in the diet. Meat requires more water. Bearing in mind that 17 bathtubs of water goes into one 8oz steak and the Top Four Farmers have anywhere from 2 – 7 bathtubs of water per person per day, it doesn’t take a rocket scientist to figure out that water will be a bottleneck for food production, if not already.
Buying more beef from Brazil/ Argentina would free up more water for industry or grains and we all know how grain sufficiency is of paramount importance to China. In some regions of China where there just isn’t enough water to do everything, so something’s got to give.
City dwellers’ craving for more meat is good for world trade
A higher urbanization ratio signals a higher propensity to consume meat. With a current urbanization ratio of around 50%, China is running a meat deficit.
According to Goldman Sachs, it is not the absolute levels that is interesting but the rate at which it has fallen from a USD70 billion surplus in the 1990’s to a USD133 billion deficit in 2011.
China’s meat cravings are expected to increase given an urbanization target of 60% by 2015 and given the water-intensive nature of meat production, it looks like China’s meat importing trend is set to continue.
Of course this has implications for grain production, land and water resources for the countries that they will import the meat from.
Climate change also appears to favour agribusinesses
Climate change puts the water crisis into hyperdrive. Although on the bright side, it could result in more rain in northern China, where 64% of the arable land lie. Too little rain doesn’t work for farming but unfortunately, neither does too much rain. The 2nd National Assessment of Climate Change noted that a 2.5oC increase in temperature could result in a 20% fall in crops.
So can we protect against this at all? Can we use less water and raise yields at the same time?
China is an efficient grower but there is room for improvement in irrigation, biotech & food waste
Indeed China is quite an efficient user of water compared to India and Australia (see virtual water content). Also, fertiliser has been used to push up yields so much so that China is now the world’s largest user of fertiliser. So is there still room for improvement?
The Chinese government seems to think so. They are targeting efficiency rate for rural irrigation to be improved to at least 55% by 2015. According to the World Bank, only 30% of water withdrawals reach the crop root zone due to conveyance loses and inefficient irrigation. Drip irrigation could improve water efficiency by 40% and this is pushed further. In Israel, 90% of the water can be saved through drip irrigation and usage of micro sprinklers. The FAO estimates USD1 trillion to be invested globally in improving irrigation efficiency.
Duncan MacIntosh of the International Rice Research Institute also reminds us that it is not all doom and gloom. China is making some headway with aerobic rice, which uses less water in the North. He noted that China is also improving yields with hybrid strands. And of course there is always GM seeds which Peter Brabeck, the CEO of Nestle is a vociferously staunch supporter of. Surprisingly in China, despite a small plot size per farmer, is relatively efficient at farming. Olam’s Verghese highlighted that soya bean yields in China are comparable to what the US was achieving before the US switched to GM seeds. So if there are indeed to be any uplifts in yield, it will have to be through bio-tech. Not surprising then that bio-tech is one of the seven new Emerging Strategic Industries identified by the Central Government.
Finally, let’s not forget about food waste. In a country where up to 30% of food is lost in the logistics and transportation, fixing this with cold storage facilities and better logistics would immediately mitigate the 20% loss through rising temperatures. Here’s to wishful thinking – at least Swire is on the case. The 250 strong audience seem to agree. In a poll conducted during the panel discussion, the majority thought a way to solve the issue was to make the domestic supply chain more efficient.
Unfortunately, the search for yield so far has resulted in shocking pollution through excessive and improper use of fertilizer…
Cadmium rice, cardboard dumplings and fake eggs could benefit foreign producers and MNCs
You know something is very wrong when Chinese Olympic athletes are banned eating meat that has not been pre-approved. Last month, food fears reached an apex when an online database of food scandals run by Shanghai grad student Wu Heng (吳恆) was brought done after 25,000 hits in two hours. The website documents horror stories such as fish contaminated by sewage, borax filled dumplings, diseased meats, mercury laced milk powder, sanitary towels in recycled cooking oil, worm eggs in bottled water to fake honey and fake eggs of course… the list is endless and mind blowing.
Contamination is not surprising as untreated tailings from mines and illegal mining have seeped into the ground and have resulted in soil & water tainted with heavy metals like chromium, cadmium and mercury. A study in 2007 by Nanjing Agricultural University showed that 10% of 91 samples of rice from markets at the county level or higher in six regions across China had excessive levels of cadmium. Soil pollution experts at the Chinese Academy of Sciences estimate that 10% of China’s arable land is polluted by heavy metals, primarily cadmium and arsenic. Most of these polluted areas are still used for farming, most farmers are still eating their own crops and these contaminated crops are still reaching the market.
No wonder the affluent are switching to imported foods. Surely now you are convinced that water woes in China will mean more food imports and trade going forward. After all, would you buy a Chinese milk powder brand or some Swiss brand for your child … My point exactly.