Beijing has rice to go around, but that might not be enough

Feeding China

Beijing has rice to go around, but that might not be enough

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China produces more rice than it can consume. Yet, grain imports are rising rapidly and that makes the central government uneasy

Rice is serious business in China. The country ingested 146 million tons in 2013, making it by far the world's largest consumer of the grain, a longstanding title.

What's worrying the government isn't how much rice China will eat this year. That figure is set to slowly decrease as the country urbanizes. Rather, leaders are closely monitoring how much rice China imports, as well as the factors that could make China dependent on foreign grain in the future.

During the past four years, rice shipments to China have climbed some 530%. In 2013, China bought 3.4 million tons of rice from abroad, surpassing Nigeria for the first time as the world's biggest importer, according to Index Mundi, an edible commodities tracker.

Beijing isn't exactly celebrating the new title. In fact, this year agricultural policymakers will step up their guard on what they consider to be grain self-sufficiency. In early 2014, China's State Council will issue an annual policy report known as “Document No. 1.” The statement, compiled by a special team from the country's cabinet, will likely call for 100% self-sufficiency in edible grain, clarifying one of China's longest-running policies.

A less specific definition for self-sufficiency was originally set at 95% in a long-term plan running 12 years through 2020.

“[The government is] very, very worried about imports,” said Huang Guiheng, research director at BRIC Consultants in Beijing. “They have increased very rapidly in the past few years.”

The good earth

For a country that produced more than 200 million tons of rice in 2013, 3.4 million tons in imports seems like a trivial sum. As agricultural policymakers watch import levels rise, they're also tracking the country's long-term capacity to supply its own grain – often in the face of mounting environmental challenges.

In 2010, the director of China's Rural Development Institute, Chen Xiwen, first sounded the alarm on the scarcity of water in the northeast, the country's grain basket. Of the increasing shortfall, he wrote, “It's inevitable that the rate of self-sufficiency will decline.”

China feeds 22% of the world's population with just 7% of the earth's arable land and the second figure is declining steadily as croplands desertify. This week, the State Forestry Administration said that 9% of China's wetlands disappeared during the past 10 years.

Chen raised doubts again early last year when, as grain imports hit an all-time high, he announced that the country would not impose curbs on imports in 2013. It's unclear at present if limits will be introduced this year but Document No. 1 could clarify how the government will act on this.

Pollution is another bombshell. In May, a government test in rice markets in the southern city of Guangzhou said that half of the tested grain was contaminated with high levels of the heavy metal cadmium, although the scope of those tests was later shown to be quite limited.

In the final days of 2013, the Ministry of Land and Resources said about 2.5% of China's arable land was too contaminated by heavy metals to farm. It was a major admission from the government, which hadn't made such data public since 1996. The ministry called the situation “grim.”

Legacy policy

Anxiety over cadmium-laced rice or drying paddy fields isn't misplaced. Given its history with famine, and its long-term struggle to be self-sufficient, a deteriorating environment gives China good reason to worry.

Self-sufficiency has been a guiding light for the country dating back to the early years of New China. In the 1950s, the age-old tradition of household farming was broken apart by the central government and reorganized into collective farms that put hundreds of people working together in the fields.

Collective farming for the most part was disastrous. Tens of millions of people starved in the countryside due partly to poor productivity and low yields on farms in 1959 and 1960. Farmers continued to till the fields in that manner until the late 1970s, when villages began spontaneously breaking away to resume household-based cultivation.

The opening up of China in the late 1970s and early 1980s was led by reformers striving to stabilize crop yields and keep bellies full.

“Grain self-sufficiency has been the most important challenge since the establishment of People's Republic of China, and it was the main reason of starting the policy of reform and of opening doors,” said Chisa Ogura, a Tokyo-based senior consultant at agricultural-focused Promar Consulting, giving a sense of the weight put on agricultural policy in the country.

Ogura isn't convinced of the potency of Document No. 1 this time around. The last major central policy statement on self-sufficiency was issued in 2008 after world grain prices surged the year before. Reaffirming and even strengthening the definition of self-sufficiency this year with Document No. 1 wouldn’t be terribly surprising, she said.

Fu Zhenzhen, an analyst at Beijing Shennong Kexin Agribusiness Consulting, agreed with that. She said for decades the government has strived to incrementally raise the rate of self-sufficiency with one goal in mind: “The first thing it wants to do is protect the edible grain. Everything else is less important.”

Bushels after bushels

The central government isn't just worried about rice. Imports of wheat, corn and soybeans have grown dramatically during the past few years. China is also the world's largest consumer of wheat, putting down 126 million tons of noodles, fried gluten, as well as wheat-based animal feed, in 2013. Imports jumped by 187% last year alone.

Corn imports grew by 159% in 2013, after surging by 2,657% in 2009 and some 3,000% in 2005, according to Index Mundi.

Because the amount of rice, wheat and corn consumed in the country is so vast, a slight adjustment in China's self-sufficiency rates can lead to upheavals in the amount it imports, Huang at BRIC said. That's why even seemingly small changes in policy can have a great impact on the global market.

 “[Consumption] is so huge that if one type of these three main grains' self-sufficiency rate declines a little, it means that China will become the largest importer immediately,” he said.

This happened with rice during the past three years, but not for the most obvious reasons.

At the end of 2012, as China closed in on the No. 1 rice-importer title, some analysts questioned if the country's new hunger for imported grain would continue to grow and eventually push the price of rice on the international market sky high.

Experts have come out to disprove that notion. Huang Jikun, director at the Center for Chinese Agricultural Policy at the Chinese Academy of Sciences in Beijing, told China Economic Review that China's overall demand for rice is falling as the country urbanizes. Urban dwellers consume about half the amount of rice their counterparts in the countryside eat. As more and more rural folk move to the cities they will slowly diversify their diet and China will eat fewer bowls of rice.

“It is not too difficult for China to achieve food grain self-sufficiency because per capita consumption for rice and wheat will fall in the coming decades,” Huang said.

Pricing is the dominant factor contributing to imported rice. Central planners set grain prices that, in terms of rice, have been higher than international prices since countries such as India and Pakistan flooded the market with the grain in 2012. Many Chinese traders have opted for the cheaper stuff.

Global diet

“What rate of self-sufficiency do we have to achieve before we are considered safe?” a reporter at Chinese weekly newspaper The Economic Observer asked in December.

By the accounts of many experts, the country has long been self-sufficient despite rising imports. Environmentalists, on the other hand, might say that major challenges such as pollution and water shortage stand between China and a full basket of rice in the future.

In a possible indication that leaders doubt China's agricultural capacity at home, they have pushed state firms to buy up farms and companies abroad to help boost supply.

In September, state-owned Xinjiang Construction and Production Corporation struck a deal with Ukraine for the rights to farm 3 million hectares of its land for 50 years. The deal more than doubled China's overseas agricultural projects in what analysts said was a new era for Chinese farming abroad.

Recently, China's state grain trader Cofco put in a US$250 million bid for a stake in Dutch grain trader Nidera with the hope of securing new access to resources.

Whether agricultural resources abroad, when brought under the control of government firms, will be added to China's calculation on self-sufficiency is questionable. What does seem evident is that feeding China – with imports, buyouts or homegrown crops – is a global feat and will not be confined to the country's borders.