Headlines and Articles

Agriculture in China rapidly modernizing – Pig Site
U.S.-EU trade agreement could benefit agriculture – Capital Press
Salt poisoning costs agriculture $27 billion annually – Nature World
Beyond disruption: The age of the impact entrepreneur – Wired
Problems are only hurdles in front of goals – Entrepreneur
The future of innovation belongs to the mega-city – Washington Post
Amidst public controversy China debates GMO development – Forbes
This is the path of innovation – Globe & Mail
There’s no ‘there’ there with latest ‘deflation’ scare – Forbes

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Whether manufacturing becomes of greater or lesser relative importance in China than in the United States, it is certain that there will be need for a constantly increasing agricultural production, and that the fullest utilization of the arable land consistent with a permanent agriculture should be a major concern of the Chinese government.. 
~ O.E. Baker, 1928 Issue of Foreign Affairs, Agriculture and the Future of China

Opportunities for US-China Investments in Agricultural Innovations

I recently published a paper with the Paulson Institute, Opportunities for US-China Investments in Agricultural Innovations and New Technologies.  The paper outlines four models that can link US and Chinese investment activity, particularly private sector investment, to help yield productive new avenues of commercial collaboration. All four models focus on animal protein supply chain technologies. That is because agricultural innovation in this realm is of particular importance to demand side developments and rapidly changing consumption patterns in China.

The models focus on early-stage agricultural business development activities, representing a new element of US-China private sector engagement. Although mergers and acquisitions (M&A) between US and Chinese agribusiness and food companies—for example, the acquisition of Smithfield Foods by Shuanghui—may continue to be an important part of strengthening agricultural ties, collaborative early-stage commercial activity promises to deliver more enduring impact. Connecting investors, business people, and entrepreneurs from both countries has the potential to build collective knowledge and imagination, resulting in greater indigenous agricultural innovation in both countries.

The United States has in many ways set the global standard for agricultural innovation. And China, for its part, has made significant strides in agricultural productivity as well. China continues to both rapidly integrate innovations from abroad and to develop homegrown innovations. But is the rate of agricultural innovation adoption in China rapid enough to meet the growing food needs of a huge and increasingly wealthy population?

The average family in the United States today spends 10 percent of its disposable household income on food, while that figure is double in China. Both of these figures have declined over time—in the United States over an extended period, and in China more dramatically in the last thirty years. When families spend less of their income on food, it represents a relative gain in prosperity as disposable income can then be spent on other necessities, leisure, or luxury items.

The decline in food prices is directly related to the rise of agricultural productivity over the last thirty years. The key factor responsible for such significant gains is innovation, not just previous gains from input intensification and crop-area expansion. It takes significantly fewer resources today to produce one calorie of food than it did in the past, with much of the credit for that improvement attributable to agricultural innovation.

For this reason, investment in agricultural research and development (R&D) is an important driver of agricultural innovation. But while public sector spending on such R&D is important to both the United States and China, it is private sector investment in both R&D and commercialization that will determine the ultimate effect of future agricultural innovations.

This raises an important question for the United States and China: are there opportunities to link private sector investment activity in agricultural innovation and connect the agricultural innovation engines of the two countries?

This paper suggests four models could link US and Chinese private sector investment, and thus yield productive new avenues for commercial collaboration. All four models focus on animal protein supply chain technologies. That is because agricultural innovation in this realm is of particular importance to demand-side developments, and rapidly changing consumption patterns, in China.

Model One: Joint Agriculture Fund. Such a fund, backed by US and Chinese equity partners, would have an explicit focus on investing in businesses with technology relevant to both the United States and Chinese animal protein supply chains. Chinese investors would be limited partners in the fund itself, but personnel with deep experience in, and perspective on, Chinese agriculture would help to bring unique capacity to the fund’s portfolio companies. The goal would be to help them scale portfolio businesses in both the United States and China.

Model Two: Joint Agriculture Accelerator. In this model, Chinese investors would partner with a US-based organization to start a US-China Agriculture Accelerator. Such an accelerator would provide participating businesses with office, laboratory, and/or engineering space, as well as access to mentors, skills training, a support network, and ultimately connections to investors and customers. The joint accelerator would, as is customary, often take an equity stake in businesses that participate in the program.

Model Three: University Student Incubators. In this model, US and Chinese investors would help to create student incubators at US universities, with the explicit goal of supporting development of startup businesses created by teams of both US and Chinese university students. Startup businesses that emerge from this student incubator would have market potential in both countries.

Model Four: Emerging Africa Agriculture Fund. This model would combine Chinese and US investors (and potentially third-country investors), as well as agribusinesses from both countries, into partnership active in third countries where agricultural development is a pressing need. One opportunity that stands out is the prospect of investment in greenfield agriculture projects in Sub-Saharan Africa. Such a fund would aim to discover projects where mutual participation would benefit the Africa-based project but also build opportunities for participating US and Chinese agribusiness partners.

The rise of the Chinese consumer has been one of the most important drivers of change in global agriculture in the last 25 years, and that process is only beginning. Combined with the emergence of middle class food consumption habits across emerging markets, the resulting demands on agricultural production systems represent among the most important economic and environmental challenges of the next 50 years.  To meet these challenges, these four models represent opportunities to link investment activity in agricultural innovation—and connect the agricultural innovation engines of the two countries at the center of global agriculture.

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