The year 2020 has been a tough year for China. In addition to the COVID-19 virus that first emerged in Wuhan, Hubei province, causing a global pandemic, China was hit by the most devastating flood since 1998 that affected many major cities and provinces in the Yangtze River valley and threatened the Three Gorges Dam, which is the world’s largest dam in terms of installed power generation capacity. The floodwaters affected 11 provinces in the central and eastern parts of China including major cities like Chongqing, Wuhan, and Shanghai displacing over 14 million people [FloodList, 2020]. Over 200 people were declared as dead or missing as a result of floods [Chinanews.com, 2020]. In total, it has been estimated that the natural disaster affected 54.8 million people and caused an economic loss of 144.4 billion Yuan ($20.8 billion) [The Economic Times, 2020]. The flood was caused by incessant torrential rains throughout June-August of 2020. Late spring and summertime is the wettest season in most parts of central, southern, and eastern China when most of the annual rainfall occurs. However, the rains in the 2020 summer months were exceptionally intense and broke records in many areas raising the water level in the Yangtze River and its tributaries.
Apart from human casualties and economic losses from damages to the infrastructure, the floods in China also destroyed vast areas of croplands. The estimates of the area of farmlands damaged by floodwater vary from over 600,000 [Signs of the Times, 2020] to nearly five million hectares [Guo et al, 2020]. The degree of damages to the crop yield varies depending on the level of floodwaters that inundated the cropland. The losses of agriculture are significant even for the enormous Chinese economy because heavy rains affected primarily the areas along the Yangtze River basin, which is the country’s largest and the most important river in terms of its agricultural significance.
Such enormous damage to Chinese agriculture from floods raised concerns over food security in China. Chinese leader Xi Jinping launched a campaign against food waste in the country calling waste shameful and thriftiness an honorable act in his speech [Xinhua, 2020]. Before that, Xi Jinping stressed the issue of food security while inspecting croplands of the Jilin province located in the northeast of China [China Today, 2020]. Many provincial authorities immediately deduced from this the priority of focusing on the minimization of food waste in their local policies. On the other hand, according to the recent Fitch Ratings-Shanghai, food security of China does not seem to be at risk thanks to large amounts of crop harvest in northern areas of the country and its large reserves of main agricultural commodities [Fitch Ratings, 2020]. However, the harvest that was destroyed by floodwaters will certainly cause a sharp drop in the supply of crops and push food prices up.
Historically, ensuring food security has not been a very easy task for the Chinese government. Although China has almost 6.9% of the global arable land, its total population amounts to nearly 1.4 billion people, which is about 18% of the world’s population. For instance, even though China is the largest producer of wheat, it still has to import it to fully cover its demand. Since 1949, nearly one-fifth of China’s arable land has been lost due to urbanization and industrialization, and this process continues [The Economic Times, 2020]. Moreover, factors like demographic growth along with changing lifestyles and food preferences have increased the demand for many basic agricultural commodities, especially over the last two decades. Although China managed to increase its crop yield by using new technologies and fertilizers, the demand constantly grows and it remains to be very dependent on imports of many vitally important agricultural commodities. Thus, for instance, China is the largest importer of rice and soybean, although it is among the largest producers of both. China is also among the largest importers of many other crops like maize, barley, wheat, etc. [World’s Top Exports, 2020]. In other words, China is a very important player in the global market of cereals and basic agricultural commodities.
Therefore, recent events related to the floods along the Yangtze River valley and subsequent changes of the market variables like projected yield rates, amounts of harvest, change of the stocks of agricultural commodities, policy measures by the government in agriculture, and even China’s diplomacy towards its key trade partners become relevant in making projections for the global agricultural market. Prices of many agricultural commodities have indeed notably increased over the last three-four months. The price of soybeans in future markets has recorded a price increase of more than 18% while the price of maize has grown around 14% on average since early June 2020. The price of wheat also increased between 5-10% on average in future markets since the beginning of the summer of 2020 [Investing.com, 2020]. According to the projections of the International Grain Council, China’s imports of soybeans and maize in the 2020/2021 marketing year would be the highest in the last decade while the imports of wheat would be record high since 2013/2014 [IGC, 2020].
China has already announced its intention to import more grain including wheat to cover its domestic demand. Thus, recently, it has considerably increased its import of wheat from France [Caixin, 2020]. It is expected that China will import nearly two million tons of wheat more in 2020/2021 than in 2019/2020 [Bloomberg, 2020]. Australia, the United States and Canada are the main three sources of China’s imported wheat making about 90% of its total wheat imports [UN Comtrade, 2020]. However, there are serious reasons to expect that starting from the marketing year 2020/2021 China will take steps towards reducing its reliance on the above-mentioned countries when it comes to the imports of key agricultural products. Firstly, the Chinese Communist Party (CCP) specified food security as one of the principal objectives in the economic policy and the supreme leader of China has frequently reiterated this issue in his recent official speeches in the context of natural disasters that hit the country this year. Secondly, China has currently very strained relations with many countries in the western world. China’s actions taken to suppress the freedoms in Hong Kong, escalating tensions in the Taiwan Strait, armed conflicts in the South China Sea, accusations of covering up the spread of COVID-19 by many countries, and other actions greatly worsened China’s relations with the West. In certain cases, an intense diplomatic confrontation is extrapolated to economic activities. Thus, for instance, China has recently suspended the import of barley from the Australian exporting company CBH Grain after pests were found in shipped cargoes [Reuters, 2020]. This action was understood by many as a retaliation for Australia’s heavy criticism and condemnation of human rights abuses by the CCP. Currently, China has similar diplomatic tensions with the United States and Canada, and the situation does not seem to be resolved any time soon.
In this light, we can project a longer-term trend by China towards reducing imports of agricultural commodities from several major producers such as the United States, Canada and Australia and increasing imports from a larger number of smaller producers. Obviously, it is impossible for China to change the geographic configuration of its agricultural imports in a short amount of time. However, since China is among the major consumers and importers of many agricultural commodities, any of its more or less noticeable actions will produce considerable shifts in the global agricultural market. The fact that China is currently experiencing the devastating effects of natural disasters makes the issue even more relevant. When it comes to wheat in particular, large exporters like Russia and Kazakhstan are the first options in the list of potential wheat exporters from which China would choose to import more wheat. Firstly, Russia and Kazakhstan are the nearest options where China can easily import wheat with low transportation costs. Both countries have friendly relations with China, which is currently an important factor for Beijing. Secondly, the intensification of trade via freight trains with Russia and Kazakhstan would help to restore to a certain extent the railroad transport capacity in the westward direction, which has decreased due to the recent decline of trade operations between China and Europe [The Loadstar, 2020]. The export of wheat is of particular interest for Kazakhstan because it is the largest source of revenues for its economy after extractive sectors and metallurgy. Kazakhstan is among the top ten wheat exporters in the world. Its yearly wheat export ranges between 3.4-6.2 million tons. In 2019, around 60% of Kazakhstan’s wheat export went to nearby Uzbekistan and Tajikistan and only less than 10% of its wheat, or nearly 425,400 tons, was exported to China [UN Comtrade, 2020]. Given China’s current situation and its willingness to diversify its grain imports, we can expect a large increase in Kazakhstan’s export of wheat to China.
References
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Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.