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Chinas Agricultural Development and Implications for California Agriculture David Roland-Holst Department of Agricultural and Resource Economics College of Natural Resources UC Berkeley dwrh@berkeley.edu CALIFORNIA AGRIBUSINESS EXECUTIVE

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China’s Agricultural Development and Implications for California Agriculture

David Roland-Holst

Department of Agricultural and Resource Economics College of Natural Resources UC Berkeley

dwrh@berkeley.edu

CALIFORNIA AGRIBUSINESS EXECUTIVE SEMINAR Monterey Plaza Hotel and Spa, Monterey, CA March 5-7, 2006

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Contents

  • 1. Global Overview – Doha and all that
  • 2. China’s Agricultural Potential – Supply
  • 3. China’s Food Requirements – Demand
  • 4. The Path Ahead for California

Agriculture

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  • 1. Global Overview
  • The landscape of international agricultural

trade will change rapidly in the coming decades

  • Over this period, California farmers can

reap large gains from this for two reasons:

– The Doha Round will confer competitive advantages on California farmers – Huge food markets will emerge in Asia, led by China

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How we got here:

Total World Grain and Oilseeds

80 100 120 140 160 180 200 1975 1980 1985 1990 1995 2000 2005 2010 2015 Production Yield Area Harv Percap Use Population

Index: 1975 = 100

Peak Peak

Source: USDA.

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The Meaning of Doha

  • The current round of World Trade

Organization (Doha) negotiations is a watershed event for global agriculture.

  • For the first time in history, significant

agricultural protection is on the bargaining table, including over $350 billion of direct and indirect farm support in OECD countries.

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Doha and California Agriculture

California food and farm exports will accelerate under Doha for three reasons:

1. U.S. levels of farm and food protection are lower than those of our major trading partners (Europe, Japan, and Korea), particularly for California. 2. The way we support agriculture at home is less trade distorting. This will tilt competitive advantage in our favor. 3. Huge markets will emerge in East Asia.

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Three Pillars of Agriculture Protection

  • 1. Direct farm subsidies
  • 2. Market support from import

protection

  • 3. Export subsidies
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US Support is Smaller

(percent of producer price)

Source: USDA.

10 20 30 40 50 60 70 New Zealand United States Europe Japan

1991-93 2001

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5 10 15 20 25 30 35

Direct Subsidy Export Subsidy I mport Tariff Export Subsidy I mport Tariff Primary Agriculture Processed Agriculture United States EU Japan Korea ANZ

147%

US Support is Less Trade Distorting

Source: World Bank.

US support measures are less WTO negotiable/actionable.

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Doha and Agriculture: What’s at Stake?

Agric & food Textiles & clothing Other merch. Total High-income countries 135 15 9 159 55% Developing countries 47 23 58 128 45% All countries’ policies 182 63% 38 14% 67 23% 287 100%

Source: World Bank.

Income gains from Doha (2015, USD Billions) Nearly two thirds of Doha’s gains will come to agriculture. Over half will go to high income economies.

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Doha will sharply accelerate agricultural trade

Now Free Trade Percent Change Rice 3 9 200 Sugar 6 20 233 Meats 7 15 114 Other grains 12 20 66 Oilseeds 31 19 19 Dairy products 67 11 83 Other Ag 7 12 71

World exports as a percent of world output.

Source: World Bank.

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  • 2. China’s Agricultural

Potential

Opportunities

  • 1. Productivity growth – impressive but

not keeping pace with other sectors

  • 2. Economies of scale – serious

institutional challenges Constraints

  • 1. Land area – small and shrinking
  • 2. Water – nationally scarce, most major

aquifers are already in overdraft

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2 4 6 8 10 12 14 1994 1999 2004 2009 2014

India Thailand Bangladesh Pakistan Indonesia Malaysia Philippines

Asia Pork and Poultry Production

Million metric tons

Source: USDA.

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10 20 30 40 50 60 70 80 90 100 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

India Thailand Bangladesh Pakistan Indonesia Malaysia Philippines China

Asia Pork and Poultry Production

Million metric tons

Source: USDA.

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1979 1984 1989 1994 1999 2004 2009 2014 20 40 60 80 100 120

China World

China Pork Production

Million metric tons

Source: USDA .

Source: USDA.

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5 10 15 20 25 30 1984 1989 1994 1999 2004 2009 2014

China Asia minus China

Asian Poultry Production

Million metric tons

Source: USDA .

Source: USDA.

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Chinese Arable Land

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Stock of Cultivated Land in China

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Provincial Land Stock Changes

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Annual Rainfall

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Yellow River Basin Water Use

300 350 400 450 500 550 600 650 2000 2010 2030 2050 100 Million Metric Tons

Available Water Resources Water Demand, Best Case Water Demand, Worst Case

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Human Resources

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 10 20 30 40 50 60 70 80 Percent Reduction in Farm Population Farm Worker Value Added (2003 USD)

Chinese farms are simply too small to mechanize and too poor to invest in innovation.

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Chinese Supply Conditions

Productivity growth has been impressive, but resource constraints are very serious. Output growth might sustain current trends for the next decade, but it is unlikely to accelerate in any major categories.

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  • 3. China’s Food Requirements

One of every seven people on the planet is a Chinese farmer. Should we be worried about this?

  • No. One of every five people on the planet

is a Chinese consumer. Average incomes are rising fast, and so is the resource intensity of consumption. Concluson: You ain’t seen nothin’ yet.

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It wasn’t always so…

but we are in a new world now.

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Income is Rising in China…

(2000 USD and growth rate)

0% 5% 10% 15% 20% 25% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 500 1000 1500 2000 2500

Domestic GDP % Per capita GDP, dollars

Source: USDA.

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And so is Inequality

Source: USDA.

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China’s Population is Moving

(Rural and Urban, millions)

200 400 600 800 1000 8 8 2 8 4 8 6 8 8 9 9 2 9 4 9 6 9 8 2 4 6 8 1 1 2 1 4

Urban Population Rural Population

Half a billion people will switch from the food supply side to the demand side.

Source: UN.

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And Diets are Changing

kcal/person/day Percent of caloric intake

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Emergent Imbalances

Despite significant progress in productivity, the implications of these trends in supply and demand are obvious. China’s growth can only be sustained with increased absorption of resources and resource-intensive products. As it has with energy, China will emerge as a leading global importer of agricultural products.

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Exhibit A: Petroleum

  • 120
  • 100
  • 80
  • 60
  • 40
  • 20

20 40 60

1 9 8 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4

Million Metric Tons

China’s Net Oil Exports

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Exhibit B: Soy products

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Exhibit C: Income and Imports, Meat or Feed

Poorer Richer

  • 20

20 40 60 80 100 120

Vnm Phl Id Chn Tha Mys Kor Jpn

Per Capita I ndex (China= 1)

Demand M eat Net Imports Feed Net Imports

Import the meat or the feed to produce the meat.

Source: Author’s estimates.

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Verdict:

China Will be Asia’s Largest Ag. Importer

Source: Author’s estimates.

Net Agricultural Imports in 1997 USD Billions

10 20 30 40 50 60 70 80 90 100 2005 2010 2015 2020 1997 USD Billions China Korea, Taiwan ASEAN Japan

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China’s rapidly rising imports

Agricultural trade of China (including Hong Kong, excluding intratrade)

5 10 15 20 25 30 35

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: WITS.

Billion US$

Exports Imports

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20 40 60 80 100 120 140 160 180 200 1984 1989 1994 1999 2004 2009 2014

China Asia minus China

Corn Feed Use

Million metric tons

Source: USDA.

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10 20 30 40 50 60 70 1984 1989 1994 1999 2004 2009 2014

China Asia minus China

Soybean Meal Feed Use

Million metric tons

Source: USDA.

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10 20 30 40 1974 1979 1984 1989 1994 1999 2004 2009 2014

EU,FSU East Asia Lat in America Ot her SE Asia Sout h Asia China

Global Cotton Imports

Million bales

Source: USDA

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Consumer Food Imports from US

Source: USDA.

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China’s Import Trends 1

Who will take these markets?

Annual Growth Product Millions in 2004 1999-2004 Almonds 4.048 22.5 Beef 7.110 4.4 Cereals 2,218.543 34.9 Cherries 2.334 160.5 Crustaceans 312.036 20.5 Blueberries 1.163 29.1 Fish - whole (chilled, frozen) 1,516.575 30.0 Fish - fillets (chilled, frozen) 45.556 24.9 Frozen Potato/ French Fries 51.485 71.3 Grapes 67.546 23.4 Hazelnuts 2.297 17.6 I nfant Formula 88.821 27.5 Juices and Concentrates 61.001 35.4 Lobsters (uncooked) 0.131 159.3 Mollusks 332.462 26.6 Oranges 36.994 31.4 Pistachios 17.432 21.9

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China’s Import Trends 2

Annual Growth Product Millions in 2004 1999-2004 Pollock 1.250 1.9 Pork 54.452 17.5 Poultry 153.413

  • 17.8

Prunes 0.922 39.4 Raisins 14.666 104.5 Salmon 26.612 63.0 Scallops 8.023 15.5 Soybeans 6,956.654 50.9 Soy Flour 1.758 5.9 Thickeners 12.604 14.7 Whey Powder 119.744 15.6 Wine (containers less than 2L) 25.247 30.4 Wine (containers more than 2L) 24.436

  • 2.0
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  • 4. The Path Ahead

If Doha progresses, two major new

  • pportunities exist for California farm

and food exports:

  • 1. China – an emergent giant with

scarce resources

  • 2. High income Asian countries – very

high prior protection levels and significant purchasing power

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Chinese Agricultural Imbalances

(USD 1997 billions in 2010)

5 10 15 20 25 Rice OthCereal Fruit&Veg Veg Oil and Seed Sugar Plant Fiber OthCrops Meat&Dairy Wool&Silk OthFood Beverage Forestry Fishery Exports Imports Source: Author’s forecast.

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Food Cost is Rising in China

Annual CPI change by commodity, 2004

In global energy markets, China is increasingly being seen as a demand-side OPEC. Can a single economy reverse global food price trends?

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Doha’s Gift to California: Japan and Korea

Given the scale of prior protection, imports will increase very sharply. Rice, Meat & Diary, Specialty, and Processed Foods will see most of the absolute growth.

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Japanese Agricultural Trade

(USD 1997 billions in 2010)

Source: Author’s forecast.

5 10 15 20 25 Rice OthCereal Fruit&Veg Veg Oil and Seed Sugar Plant Fiber OthCrops Meat&Dairy Wool&Silk OthFood Beverage Forestry Fishery Exports Imports

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Conclusion

Three Friends of California Farmers

  • 1. Doha – really
  • 2. The Chinese consumer – riding to the

rescue

  • 3. China’s Currency (RMB)

– In China, the biggest opponent of RMB appreciation is the Agriculture Ministry – You should be its biggest supporter

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Competitive Principles for California Agriculture

  • 1. Resources – Your forbearers were

talented and fortunate, and you can extend their legacy with entrepreneurship and stewardship.

  • 2. Quality – As a prosperous and mature

market, we set tastes and product standards for the rest of the world.

  • 3. Innovation – Take your rightful place with

IT, biotech, and the state’s other knowledge-intensive industries to sustain global leadership.

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Thank You