China Running Out of Farmland

As the Chinese growth engine continues to propel forward, the government is faced with the dilemma: How do we feed our growing and developing population? China’s middle class is expected to double over the next 10 years and will demand a higher protein diet. China has roughly 20% of the world’s population although only 7% of the world’s arable land.

The big problem is that China’s farmland has disappeared at an alarming rate and the country may no longer be able to self-produce its food supply. Between 1997 and 2007, roughly 755,000 hectares were lost each year to development, erosion, and desertification. Farmland that is lost to development or erosion is difficult to recover and put back into crop production.

In order to be self-sufficient in grain production, the Chinese government estimates they need to maintain 120 million hectares for crop production until 2020. Government figures estimate that the current amount of arable land is roughly 122 million hectares, which has been unchanged since 2005.



In order to prevent the loss of arable farmland, the Chinese government is strictly controlling the conversion of arable land for commercial purposes. In 2007, the government introduced a nationwide land regulatory system to maintain the arable farmland. Nine land inspection bodies were set up to supervise land use and management by local governments, which often approve illegal investment projects despite central macro-control policies.

The Chinese government is doing all it can to protect farmland resources, but it may be too late. Bank of America estimates that China’s arable land has already fallen below the 120 million hectare threshold and could decrease to 117 million hectares by 2015. Urban sprawl, desertification, and illegal commercial conversion are the culprits of the reduction in farmland according to Bank of America.

Signs are pointing to Bank of America’s estimates being correct. China announced this summer they will no longer be self-sufficient in corn production and will rely on imports. The U.S. Grains Council estimates that China will import 15 million tons of corn in 2014 and Bank of America estimates 17.4 million tons of corn imports by 2015.

How will China feed its growing population if it is not self-sufficient in grain production? They will have to use imports to make up for the production shortfall. The first place they will turn to is the U.S., which is the world’s largest corn exporter, accounting for 60% of global corn exports in 2009.

Chinese imports will have a substantial effect on U.S. ending grain stocks over the next few years. Keep close attention to export data as exports will be driving grain prices over the next few years.

- Colvin


 

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  • 11/4/2010 10:15 PM Maureen wrote:
    This is an interesting article. Here's my take on it. I think the future scarcity of farmland is real.I wonder, what is your take on buying farmland in developing countries that have rich arable lands? Some developing countries attribute as much as 98% of their GDP to agriculture and agricultural products, and have done so for years.I think this is the real untapped potential.The US may produce 60% of the world's corn, but it isn't because of abundance of rich soils. I think it's due to heavy government subsidization-the soils per se are only as productive as the fertilizer applied.(Fertilizer-soil exhaustion-more fertilizer cycle). So, to assert that US farmland will have a pay off in the future years to come is to assert that US corn will always be the cheapest corn on the market. Government will continue to subsidize the corn industry such that US corn is cheaper (and therefore more attractive) than any other country's corn. But what about competition from traditionally agricultural countries? One advantage the US has had over developing countries in this regard has been un-paralled access to superior agricultural technology. Will this always be the case? China now has equal access to these technological advances. Here's how it has played out so far in sub-saharan Africa:
    Chinese company offers expensive/advanced farm equipment and other forms of capital to countries with rich soils in exchange for huge chunks of land. (not for food crops like they did ten years ago)
    xxx
    Reply to this
    1. 11/5/2010 9:30 AM Colvin & Co. wrote:
      We appreciate the depth of your comment. You raised many good questions. Agriculture is going to spread wealth to a variety of countries. Purchasing land in developing countries may be a good investment, but there are a lot of reasons on why it is probably a riskier investment. We have done a lot of research on why farmland in the U.S. is in fact the best investment opportunity.

      Take a look at our article, Why U.S. Farmland Best Investment (http://farmlandforecast.colvin-co.com/2010/01/05/us-farmland-best-investment.aspx), which lays out why U.S. soils are superior to many developing country soils, including African Countries and Brazil. The article also includes comparisons between the U.S. and other areas of the world on soil content, growing season, infrastructure, property rights, and government support.

      Fertilizer certainly is the key to high yields and quality crops, but the soil content will reflect how much fertilizer is needed. Mollisol soils, which are present in the Midwest U.S., contain material that allows the soil to retain water and nutrients. On the other hand, Brazilian soils, which include oxisols and ultisols, are made up of soil contents that allow for quick filtration of water since the region receives three times the amount of rainfall as here in the Midwest. Unfortunately, these soils filter everything in them very efficiently, including fertilizers and chemicals.

      As for the technology, we believe that the U.S. will continue to use cutting edge technology in agriculture, and especially with seed varieties. The intellectual property rights in the U.S. are superior to developing countries. For example, Monsanto will not enter the Chinese seed technology market simply because of IP rights.

      Thanks again for the excellent comment and points raised. Investing in foreign farmland could pay off very well, but the risk involved is significantly higher than here in the U.S. where farmland and production have an unparalleled track record.

      - Colvin
      Reply to this
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