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China’s Future Potential Up for Debate

China was a key topic of discussion at the 2014 Iowa Farm Bureau Economic Summit earlier this week at Iowa State University in Ames.

Twenty-one Iowa Farm Bureau members had recently returned from an 11-day market study tour to Beijing, Shijiazhuang, and Changchun.

Dave Miller, director of research and commodity services, provided a highlight of the study tour. “China has limited arable land and remains mostly dominated by small, part-time farms,” he said. “Northeastern China does have larger corn farms. Corn acreage has expanded, but it may have topped out.”

He said tour members were reminded almost daily that China is the world’s largest pork producer. “Estimates range from 31 million metric tons of pork per year to possibly 51 million metric tons per year,” Miller said.

China also is a major producer of rice, corn, wheat, fruits, and vegetables. “Rice and wheat acreage seem to be holding steady,” Miller said. “These are their staples, and they won’t be quick to subject them to import competition.”

Miller identified six major issues confronting China:

Consolidation: “It’s a mess,” he said. “There’s no history of property rights. The Chinese can’t own land, but beginning in 2008, peasants could obtain use rights.”

Land rights: These are tradable, but it’s difficult question to determine who has the rights, he said.

Mechanization: “China needs a larger scale of farms so that greater use of technology makes sense,” he pointed out. “To go from 1/6-acre farms to 16-acre farms means losing 99% of your farmers,” he said.

Technology: China is beginning to realize that to acquire more technology, it must develop more of its own, plus related capabilities. Scientists and engineers who have returned to China after studying in the U.S. and Europe may hold the key to this effort.

Infrastructure: The government plans to spend $23 billion on five new rail lines and increase investment in China’s electric grid by 22%. But it will require continued efforts.

Rule of law: “There are problems with the “trustworthiness of the food production system,” Miller said. “That’s how you get the industrial chemical melamine in baby formula. It supplied the protein requirement, but babies died.”

He cited additional challenges, including the youth brain drain, culture drain, and an aging population.

Miller said the Chinese would continue to upgrade their diet with meat.

“There is an emerging middle class with rapidly rising incomes, and even a gaudy display of wealth,” Miller said. “The urban consumption of pork will double because they have the income potential to buy it. But there remains an urban/rural income gap.”

He described the need for structural change as “immense.” China is attempting to become more of a consumer-led economy. “Capitalism is emerging in roadside markets and stores, but China is a long way from a free market system,” he said.

Miller said that tour members only expected one formal dinner, but they were treated to six formal dinners. “They rolled out the red carpet," he said.

China’s economic growth is slowing. GDP growth has been projected at 7.5% by the World Bank. But as Miller concluded, “1.3 billion times anything is a big number.”

Will Zhang, Des Moines Area Community College professor and chair of the Iowa Sister States Committee, offered his perspective on China to summit participants.

“China not only is the largest pork producer, but it is also the largest consumer of pork in the world, consuming half of 1,001 million tons in 2013,” he said.

Zhang said that China became an importer in 2007 due to high demand and limited farmland and water resources.  “China is the second-largest buyer of American corn,” he said. “By 2020, China might need to import as much as 100 million tons of grain.”

But Zhang said that pollution casts a large shadow. “About 16% of the country’s soil and 19% of its arable land is polluted from inorganic sources such as heavy metals,” he said. “As many as 8.24 million acres are unfit for farming.”

Earlier this year, China banned GMO corn imports containing a non-approved GMO variety. Zhang said that the Chinese Minister of Agriculture has expressed concerns about the long-term impact of GMO core technology. He said that China imports GMO corn as animal feeds and industrial use more than for human consumption. “GMOs continue to be a major concern for China,” he said.

Miller countered, “The government does buy GMO soy oils, so what it says doesn’t always match what it does with its pocketbook,” he said.


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