China is a major agriculture powerhouse. It is amongst the largest producers of key meats and grains globally. Feeding nearly 20% of the world’s population with only 8% of arable land and 7% of fresh water resources is a major achievement. But, is this sustainable? Already, agriculture is the largest user of water resources at 61% and also accounts for almost 50% of water pollutants. It is therefore a key sector of focus to hold the ‘Three Red Lines’.
An event like the Global Agriculture Sustainability Forum (see event brief on the right) was thus timely and probably the first of its kind in China. Held in Shanghai during 8 – 9 April 2015, the forum brought together government officials, industry leaders and agriculture experts to share insights and suggestions on how to promote agriculture sustainability. China Water Risk was invited to talk on “War on Pollution: Implications for Agriculture and Food Security”.
Water Ten Plan addresses key issues raised at the forum
Shortly after this forum, the new ‘Water Pollution Prevention & Control Action Plan’ (also known as the “Water Ten Plan”) was released (find out more here). Many of the issues discussed during the two-day discussion in Shanghai are covered by the new plan. Here are five key takeaways from the forum as well as expected changes for China’s agriculture industry:
1. Watch out! Changes expected for fertilizer & pesticide markets
We need to grow more food to feed the rising population. At the forum, Percy W. Misika, the FAO representative in China, DPR Korea and Mongolia, highlighted that global fertilizer consumption (including nitrogen, phosphorus pentoxide (P2O5) and potassium oxide (K2O)) has been increasing over the last few years and is expected to double from 101.5 million tonnes in 2008 to more than 200 million tonnes by 2018. A similar trend is also happening in China over the last decade (see below chart).
Global fertilizer use is expected to double from 2008 to 2018
China’s use is also increasing… but MoA wants zero increase by 2020
However, excessive use of fertilizers and pesticides as well as lack of proper treatment is one of the main reasons for the worsening pollution in China. The pesticide residue in agricultural products is also a threat to food safety. The Water Ten Plan aims to address these issues by reducing such excessive use whilst increasing utilization rate and effectiveness of field application. This direction was echoed by the Ministry of Agriculture (MoA) in a recent document to reach zero increase rate by 2020 for total consumption of fertilizers & pesticides.
Stopping using pesticides could reduce China’s agri production by 25-40% after one year & by 40-60% after two years
Li Zhonghua, Secretary-General of China Crop Production Industry Association
That said, fertilizers and pesticides are both crucial to guarantee agriculture productivity and food security. As argued by Li Zhonghua, Secretary-General of China Crop Production Industry Association (CCPIA) (a government-related industry association), if we stop using pesticide, China’s agricultural production will reduce by 25%-40% after one year and by 40% – 60% after two years.
It is the type of fertilizers and pesticides that matter to help tackle non-source point pollution. According to Gu Baogen, Director of Agriculture Product Quality Safety Center from the MoA, the types of pesticides used by Chinese farmers have also been shifting away from those with high toxicity. Low-toxic and micro-toxic pesticides now account for over 75% of total pesticide usage. Moreover, according to Li, 37 pesticide companies also initiated the founding of an industrial committee in April 2014, to push for safe and scientific application of pesticides.
Controlling fertilizer & pesticide use will impact mining companies that supply raw materials
These will definitely change how companies produce and sell fertilizers and pesticides. Less obvious is how it will impact mining companies which supply raw materials such as boron and zinc.
The fact that, ETiMaden, which manages 74% of the world’s boron reserves, and Teck, one of the world’s largest producers of zinc, were present, underscored the importance of the Chinese market globally.
Finally, another issue highlighted during the forum was plastic waste from disposed pesticide bottles. CCPIA is currently drafting a standard of pesticide packaging to standardize the size, material and production of packages in order to reduce plastic waste.
Given the size of Chinese fertilizer and pesticide market, all the above changes will no doubt have global implications.
2. Irrigation water-saving technologies poised to boom
Most of agricultural water use goes into irrigation. Improving irrigation efficiency is thus key. During the forum, tech companies like Mebiol Inc and Netafim introduced their innovative ways to reduce irrigation water use whilst still maintaining high yield.
Technologies available to greatly reduce irrigation water use…
…pilot projects in China cut both water & energy use in irrigation
Dr. Yuichi Mori, CEO of Mebiol Inc, spoked about their “hydromembrane” and intelligent membrane culture (Imec) system. The Imec system could reduce irrigation water use by 70% compared to soil application.
Stephan Titze, President of Netaflm (China), stated that they have implemented pilot projects with their low-flow irrigation system in the Helan Mountain area in Ningxia. The new technology could reduce both water and energy use during irrigation.
China has been investing a lot in agriculture water savings. In 2014, NDRC set aside RMB70 billion in agricultural water resource infrastructure. However, our analysis shows that only about 20% of arable land has adopted water-saving irrigation measures. Moreover, currently, most of the agriculture water use in China is not monitored and charged. The good news is that the Water Ten Plan aims to promote rural water pricing reform. Titze expected that, if China could put prices on agriculture water use and establish effective metering systems at least for big farmers, it could encourage more efforts in irrigation water-savings.
Water Ten promotes rural water pricing reform & will encourage more water-saving
As we highlighted in our latest report “Towards A Water & Energy Secure China“, more aggressive measures should be taken to significantly reduce irrigation water use (read more in “Balancing Water For Agri & Coal“). This calls for large-scale infrastructure upgrading and hence investment. Regardless of the level of aggressiveness, investment in irrigation water-saving technology is poised to boom.
3. Training of smallholder farmers to move away from “more is better”
As clearly indicated in the 2015 No.1 Document from the central government, China aims to develop modern agriculture. However, China’s farming landscape is shaped by the small average plot size of 2.3mu (0.16ha). This, together with availability of funding, could hamper efforts made in both pollution control and irrigation improvement. Moreover, although modern technologies could provide solutions for both agricultural pollution control and irrigation water-savings, the farmers are often ill-trained to implement them effectively.
Lack of training led to overuse of fertilizers & pesticides as well as water for irrigation
Many speakers at the forum talked about the importance of providing training to farmers, especially smallholders who hold a “more is better” attitude. Many farmers are not equipped with sufficient knowledge about how to apply fertilizers and pesticides based on the actual needs. This has often led to overuse of these chemical substances, resulting in pollution of water bodies and soil, which threatens China’s food security and food safety.
Similar mentality also exists in irrigation. Some farmers still prefer “flood irrigation” methods even though water-saving measures are in place. They are simply afraid that their crops are not getting enough water. Trainings are thus necessary to help these farmers adopt and adapt to new farming practices.
Both CCPIA & corporations such as Nestlé have been making efforts in training farmers to adopt new practices & technologies
Both the government and private sector have been making efforts. For example, Li introduced that, CCPIA has carried out over 83 trainings with more than 20,000 attendees by the time of the forum.
Meanwhile, Nestlé established a Dairy Farming Institute in Harbin in Northeast China, to provide training to dairy farmers as well as technicians for the company and the rest of the industry. Robert Erhard, General Manager of the Nestlé Dairy Farming Institute, called for more open sharing of knowledge within the industry – to be more proactive instead of protective.
In addition, Ma Changyan from Unilever mentioned about community/peer effect when introducing new tech/measures to farmers. This can be effective to counter resistance to change – as these new technologies will completely change many farming practices that have been passed on from generation to generation.
4. Food safety fear demands traceability along the supply chain
Many Chinese people worry about food safety. A MEP survey in 2014 showed that nearly 90% of people held such concern. During the two-day forum, all the speakers agreed that people’s concern over food safety is at all-time high. Lack of information and transparency of the food safety monitoring system also didn’t help. So there is an urgent need for change and people want to have an channel or a tool to track information such as origins of food and safety records of the producers, etc. Both the government and corporates have started some initiatives to provide such tractability services.
Government-built traceability platforms: still fragmented – provides opportunities for integration
The government itself has established some online platforms such as the National Food Safety Traceability Platform where people can get information of the producers by inputting barcodes. However, such platforms are managed by different government bodies. They are neither linked with each other nor integrated into one simple platform to cover the entire food supply chain.
From corporate side, Peter Beust, the China CEO of Star Farming Consulting, introduced their system, which is used by the METRO Group, a global retail and wholesale corporation. Peter shared that nearly 70% of customers need confidence in transparent food supply as per their survey. But, he also pointed out that certification will have less value if consumers cannot trace the products from farms to supermarket.
METRO’s customers can use mobile App to check food production info from farm to shelf…
… but auditing system still lacking
With their traceability system, consumers can simply use a mobile app to scan the barcode on the product and then immediately get information about producer, farm base, processing, test report and certification, etc. However, such system is not yet perfect, as most of the information is still provided by suppliers and can be tampered with given the lack of verification. Thus, effective auditing systems need also to be in place to ensure the integrity of information.
As China becomes more urbanised, the demand for traceability system, associated technologies and auditing services will increase. It will bring new opportunities for companies that offer agricultural services. In the meantime, by providing more transparency along the supply chain, the Chinese agriculture and food & beverage sectors can hopefully regain the trust of the public.
5. China’s agriculture: expected to consolidate
China is a big market. The forum thus attracted many leading international companies from both the agriculture and food & beverage sectors, such as Syngenta, Monsanto, Nestlé and Unilever. Some agricultural technology companies and service providers from Japan, Europe and the Middle East were also present to introduce their technologies and pilot projects. However, there were no speakers representing Chinese companies. This is not surprising as the majority of Chinese farmers are smallholders. There are no large seed providers nor irrigation champions either.
But this is set to change. The 2015 No.1 Document has prioritised rural reforms, developing modern agriculture and ensuring food security (read more here). Later, in March 2015, the State Council issued a new plan to boost sustainable development of agriculture by 2020. In this plan, key directions for the next five years are to protect farmland, increase irrigation efficiency, tackle pollution and restore agricultural ecology.
State council’s new policies will favour consolidation of small farms & help domestic companies scale up.
Also let’s not forget, the first national environmental standard in agriculture was put in force to control pollution from large-scale breeding of livestock & poultry; the new Water Ten Plan highlighted this issue and aims to control or even forbid livestock farming in certain areas. It will be a long way. But there will also be tremendous opportunities because China is such a huge market for the agriculture and related sectors. The new Water Ten Plan will help solution providers capitalize on these new opportunities.
In the meantime, these new policies will lead to the consolidation of small farms and “force” domestic companies to scale up. Maybe soon there will be a home grown ’Archer Daniels Midland’ or ‘Monsanto’ or ‘Jain Irrigation’.
- Balancing Water For Agri & Coal – China’s coal mines lie next to its farmlands and it plans to save water used in agriculture to fuel coal growth. In “Towards a Water & Energy Secure China”, China Water Risk explores strategies to control water use between agriculture & coal to ensure both food & energy security
- China: Gaps in Rainy Day Funding – Given increasing economic losses & negative impacts on food production due to extreme weather, China Water Risk’s Hu highlights gaps in flood control investment and expands on how the Chinese government expects to finance rainy days ahead
- The State of China’s Agriculture - China’s limited water and arable land plus rampant pollution raises concerns over food safety & food security. Get the latest update on agriculture & water and see why these policies matter
- Water Pollution May Lead to More Trade - Upon publishing “No Water, No Food: ensuring food safety & food security in China”, HSBC’s Wai-Shin Chan tells us why China’s war on pollution & the need for self-sufficiency may result in more agri trade
- Heavy Metals & Agriculture - Check out China Water Risk’s overview of the status of heavy metals discharge into wastewater, priority provinces, overlap with agriculture sown lands, crops exposed and industries targeted for clean-up
- 8 Things You Should Know About Rice & Water - How much of water & farmlands are used to grow rice in China? What about exposure to Cadmium, Mercury, Lead & Arsenic? Can China ensure rice security? Here are 8 things you should know about rice & water in China
Water Ten Plan & Water Policy
- Water Ten: Comply Or Else – China’s new Water Ten Plan sets tough action on pollution prevention & control. While this is good for the water sector, less obvious is who or which sectors will be impacted. China Water Risk’s Tan on why China is serious about its fast & furious pollution reforms to propel China to a new norm
- Groundwater Under Pressure - New official survey says that China’s groundwater quality has yet again deteriorated. Can the ‘Water Ten Plan’ turn this around? Who will be affected? Hear from China Water Risk’s Hu on what’s at stake & why the next 5 years are crucial
- 8 Game-Changing Policy Paths – There has been a fundamental shift in planning China’s future growth with changes in regulatory landscape due to multiple polices set & changes in law. Many come into full effect in 2015. Get on top of these
- China Water Risk’s 5 Trends for 2015 – As China moves to re-balance its economy and environment, Beijing will shepherd the nation towards water, food & security. For the Year of the Goat, it is better to be the surefooted goat than the sacrificial lamb so check out our top 5 trends in water for 2015
- New Trading Markets to Enforce Red Lines – China has been experimenting with market mechanisms. Can China’s new water permit trading markets (discharge & use) help the nation hold its Three Red Lines on water use, efficiency & pollution as well as catalyze a bigger water market? Feng Hu expands
- China Water Investments: 3 Thoughts - Investing in the water sector looks attractive with the Chinese government & consumers wanting water tariff hikes. Will water supply or wastewater treatment be the larger market? Debra Tan shares some on-ground views distilled from recent conversations
- 2014 Investments in Chinese Waters - With the government encouraging public & private sector water spend, check out investments in 2014 from agriculture, wastewater, water infrastructure, drinking water to Israeli cleantech