CHINA: Buying Farmland Abroad, Ensuring Food Security

IPS | 9 May 2008

By Antoaneta Bezlova

BEIJING, May 9 (IPS) - Rattled by rapidly rising global grain prices, China is looking at strategies to ensure long-term food security for its 1.3 billion people such as procuring farmland overseas and opposing the formation of any international grain price- fixing monopolies.

Official reactions to Thailand’s proposal earlier this month to set up a rice cartel, similar in style to the Organisation of Petroleum Exporting Countries (OPEC), to magnify the power of rice exporters have been muted, but Chinese agricultural experts have argued against it, suggesting Beijing might oppose it if the proposal is formalised.

As the world’s largest producer and consumer of rice, China has surprisingly little say in the international rice market. To ensure domestic supplies, in 2007 the country exported just 1.34 million tonnes of rice, compared with its total output of around 130 million tonnes.

"China’s rice exports account for only one percent of its total output but because of the large volume produced and the vast area that is farmed, no country can afford to ignore China’s stance in the matter," argues Bai Yongxia, Shanghai-based expert on agricultural trade. "If China believes that rice prices are being manipulated to serve certain geopolitical interests, it won’t be difficult to find ways to oppose the proposed regional cartel."

The run-up in rice prices amid global food inflation has caused some countries like India and Vietnam to curb rice exports to guarantee their own supplies. After export restrictions were announced rice prices soared even further, bringing home a poignant illustration as to what potential effect a rice monopoly can have.

"With a sensitive commodity like grain, if one country assumes protectionist attitude, others would follow suit, which makes the formation of ‘Rice OPEC’ really difficult," Zhang Xiaobo, a senior analyst with the International Food Policy Research Institute, told the 21st Century Business Herald.

Some experts have argued that Thailand’s proposal for setting up a rice monopoly organization, together with Laos, Burma, Cambodia and Vietnam, would be undone by its own limitations.

"Few countries would support such proposal as a way of stabilising rice prices because controls of production and trade would be very difficult to implement," said one grain expert from the China Grain Industry Association. "Rice production in Asia is dependent on small farming plots and millions of small farmers and one can’t control them the way OPEC countries control oil production."

China, which advocates food self-sufficiency for its vast population and keeps a lid on grain prices, has so far escaped the food crisis unscathed. While the price of rice in Thailand -- the world’s largest rice exporter -- has more than tripled in just six weeks, Chinese domestic rice prices have remained stable.

The government has vowed to keep the grain output above 500 million tonnes in 2008 to ensure domestic supplies, repeatedly coming out to reassure the public that the country has enough reserves to keep grain prices stable. Beijing has also pledged 4.5 million US dollars to the U.N. World Food Programme to help provide food aid to the world’s poor.

But despite repeated declarations that the country is well equipped to deal with the food crisis engulfing the world, government officials remain worried about China’s long-term abilities to feed its population.

"We now have less room to increase grain planting acreage, and it is becoming more and more difficult to raise yields," Nie Zhenbang, head of the State Administration of Grain, was quoted as saying by the ‘China Daily’ this week. He cited shrinking arable land and water shortages as the main challenges to China’s future grain supply.

Meanwhile, government price controls on food and rising production costs have squeezed profit margins for Chinese grain-growing farmers, causing many to switch to other, more lucrative crops. "With such little profits and high costs, there is little incentive for farmers to keep growing grain," says Lu Xueyi, an agricultural expert with the Chinese Academy of Social Sciences.

To counter growing domestic challenges in ensuring food self-sufficiency, China is drafting a policy to encourage agricultural companies purchasing farmland abroad.

While Chinese state banks and oil companies have made numerous investments overseas, snapping contracts for oil and mineral resources, there has been little official incentive so far for Chinese agricultural companies to venture abroad.

Nevertheless, Chinese companies have forged a series of farming deals and taken land concessions in countries in Southeast Asia and Africa, harvesting oil palm, eucalyptus, teak, corn, cassava, sugar cane and other crops. In several countries, Chinese companies have been criticised for violating laws, human rights and the environment in the process of acquiring their land concessions.

Beijing’s move now to formalise an investment trend that already exists comes amid soaring global food inflation and scramble by oil-rich nations in the Middle East and North Africa to invest in agricultural operations in other countries.

Citing an unidentified official source, London’s ‘Financial Times’ said, Friday, that Beijing was expected to endorse the plan in spite of the expected international backlash.

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