Global Agribusiness Series: Opportunities in China
Colin Carter is Distinguished Professor of Agricultural and Resource Economics at the University of California, Davis and Director of the Giannini Foundation of Agricultural Economics. His research interests include international trade, futures markets, and commodity markets. In this blog, he discusses China’s role in world food markets, as well as opportunities for the US in Chinese Agribusiness.
Since joining the World Trade Organization in 2001, China has played an increasingly greater role in world agriculture trade, and has grown to become the world’s largest agricultural economy. It’s currently the top producer of various food products, including pork, wheat, rice, tea, cotton, fish, and tomatoes.
To help put their role into perspective, China has been ranked as the 4th largest agricultural exporter and the 2nd largest agricultural importer in the world. Specifically regarding the U.S., China is the number one market for agricultural exports (including soybeans, cotton and corn), and it’s the 3rd most important supplier of agricultural imports for the U.S (including products such as apple juice, dog and cat food, and canned citrus). Currently, the U.S. has a trade surplus with China in agricultural products, which means we sell more to them than we buy.
Major Challenges for Agribusiness in China
One of the major challenges facing China’s agriculture is a transition to larger-scale farms. Right now, the farms in China are very small, approximately one acre in size. One-third of the Chinese labor force is farming, and most of those individuals are relatively poor compared to residents in urban areas. It will be a major challenge and social issue for the government to facilitate allowing farms to get larger, more efficient, and more profitable.
To us, it might seem like a disproportionately high percentage that one third of the population is farming; however, just recently the population in the cities has exceeded the population in the countryside, which is a major shift. Going forward over the next ten to twenty years, this trend towards massive urbanization will continue. There are major discussions going on regarding the creation of farm cooperatives and land ownership reform to increase the size and scale of existing farms. Ultimately, China can’t modernize its agricultural production unless it makes the transition to larger scale farms.
Another obstacle is dealing with resource scarcity – primarily water, because a large share of Chinese agriculture uses irrigation. Another is the environmental impact of agricultural production in China. They’ve expanded food production quite rapidly, but have done so using very intensive production techniques, such as heavy use of chemical fertilizer. Management of natural resources is key including the use of chemicals and controlling the pollution externalities associated with agricultural production.
Opportunities for the U.S. in Chinese Agribusiness
Again, China is the number one market for agricultural exports, in the U.S., so the opportunities are tremendous, and not only in terms of importing and exporting agricultural products. A few examples:
- Technology transfer: China faces major challenges in food safety. The way the U.S. produces, processes, handles, and transports food is much more advanced and environmentally friendly, creating an opportunity to transfer this technology to Chinese markets. Investment is critical on a global level because it’s about world food safety, not just about food safety in China.
- Changing tastes: A growing urban middle class with higher income has led to a higher percentage of disposable income. Because of China’s food safety issues, this population is gravitating towards higher quality imported food and organic food, which offers multiple opportunities for U.S. exporters.
- Talent: Larger Chinese agribusinesses are having trouble retaining talent – finding and keeping people with the know-how and technical savvy to help the country modernize agricultural practices. Americans with experience will find their skills in high demand in this emerging market.
- Trade: With growing urbanization, the country is seeing significant changes in food consumption, primarily greater demand for protein in the form of meat products like pork and poultry. The U.S. has a comparative advantage in producing and exporting animal products.
UC Davis Executive Education is leading the way in this area, launching a program bringing the business of agribusiness to China. Importing education on these topics to facilitate agricultural modernization.
Professor Carter is a presenter at the upcoming Global Agribusiness Entrepreneur Symposium Series in China, co-hosted by UC Davis Executive Education and the CHIC Group in Shanghai. Click here to learn more about program details, and click here to read a recent news release on the program.