A crisis is an opportunity riding the dangerous wind.
– Chinese Proverb

In late May/early June  I led a group of ISU faculty, students, and ag industry folks on a trip exploring entrepreneurial supply chains in China. The trip was provided funding the the USDA International Science and Education (ISE) Competitive Grants Program.

This was only my second trip to China, though I did some work in the 1990s on a team that developed Pioneer Hi-Bred’s entry into China.  As a side note, we visited the head office of Pioneer-China, and they now have 600 employees in-country.  It was an interesting way for me to close a loop on some work I did sixteen years ago!

There is tremendous discussion in agriculture today about opportunities, whether trade, investment, or business partnerships.

I was struck by the scale and speed of economic change.  China is able to absorb technology and business innovation decades in the making in a very short period of time.  In an environment of almost unlimited capital, this makes for rapid change.  For those traveling in Chinese cities, you just need to look up.  The number of cranes is unbelievable.  The eastern part of China is a massive construction zone.

Chinese Skyline: Cranes and Hazy Smog

The size of the country and its population magnifies the change.  At 1.4 billion people, China’s rounding number is more people than in the United States in total.

The implications of this rapid change for agriculture are the new demands placed on agriculture and the food industry for a more wealthy Chinese population.  While per capita income in China is moving up rapidly, it still is just around $7,000.  However, even a portion of 1.4 billion people moving up to middle class incomes involves an upgrade in diet and subsequent impacts on agricultural demand.

The chart below is dated, but depicts the general idea of dietary upgrade as per capita income changes.  The proportion of calories consumers derive from animal proteins (eggs, dairy, meat) grows as income moves higher increases.  Cheaper calories from starches (rice in China) give way to more expensive calories from eggs, milk, cheese, and meat products.  You will notice China is on the far left side of the chart (2002 data).

China faces significant constraints in its agricultural production capacity even as its population demands more, however.  China has approximately 300 million acres of arable land, covering 13 percent of its territory. This amounts to 0.67 acres per capita, less than 40 percent of the world per capita average, one-eighth the U.S. level, and one-half the Indian level.   China comprises 22 percent of the world total population, but has only 7 percent of all arable land.

China will apply resources to increase its agricultural productivity; certainly price incentives/high prices will motivate it.  The constraint in land resources, however, is fundamental and limits the agricultural production capacity of the country.

Another significant challenge is the structure of land holdings in China.  The average farmer in China is very small, with only about one third an acre per farmer.  This makes the application of large scale cropping technology very problematic.  One can’t farm gardens/smallholder plots with 200+ horsepower tractors equipped with the latest in precision farming technology.

The limits of production capacity of agriculture in China create a frontier of opportunity for U.S. agriculture.  Untapped agricultural production capacity in the U.S., from more abundant natural resources as well as acumen in agricultural technology, can and will play a significant role in meeting the demands of Chinese consumers.

The U.S. already ships bulk commodities to China, soybeans being the biggest export.  About half our soybeans from Iowa end up in China, for example.  China is importing a little U.S. corn, which will also likely increase.  Imports of higher value food and agricultural items are also likely to increase, along with technologies related to improved agricultural productivity.

Chinese cultural and political currents heavily favor self-sufficiency in agriculture and food.  However, resource constraints and comparative advantage favor trade flows with manufactured products flowing out of China and agricultural products flowing in.  It will be interesting to see how this dynamic evolves in the next decade.