Agricultural prospects seen in Australia, China deal

 

 

Australia and China agreed in a two-way trade worth more than US$113 billion, which has been centred on energy and resources but open to agricultural opportunities.

 

China faces a number of challenges in agriculture, creating opportunities for Australia.

 

Water is a serious issue in China. China has 21% of the world's population but only 8.5% of the world's arable land and just 6.5% of the world's water reserves.

 

The rapid acceleration in urbanisation and industrialisation during the past 30 years consumed farmland and diminished water resources.

 

Massive urbanisation reduces land for agricultural use. Between 1996 and 2006, China lost 6.5% of its total arable area, mainly in the most fertile regions of coastal China.

 

In addition, water shortages are exacerbated by the uneven distribution of supplies. For example, the North China Plain, where much of China's wheat and cotton is grown, is severely deficient in water due to the depletion of surface water supplies and underground aquifers through over-pumping.

 

There is also competition for water use from industry, with industrial water demand in China growing at about 6% per annum and impacts from climate change.

 

On the demand side of the food equation, the picture is the complete opposite, with China's rising wealth driving the growth and patterns of food consumption.

 

(The value of) food consumption in China has increased from US$57 billion in 2000 to US$463 billion in 2010. A growth rate five times that of India.

 

China is now the second largest consumer of food in the world, behind only the US.

 

China's large population means that any increase in per capita consumption will have a profound impact.

 

China's GDP per capita has grown in the past decade from just over US$1,000 to over US$5,000. Rising incomes are changing food consumption patterns. Consumption of beef, mutton, poultry and milk has increased strongly, while consumption of grains and vegetables has declined.

 

For example, China produces and consumes more than half of the world's pigs each year. There has been a corresponding increase in demand by China for the agricultural produce such as soy and corn to feed animals.

 

Today, China consumes 25% of the world's soy, 20% of the world's corn and 16% of the world's wheat.

 

The importance of a stable food supply, and food security, to China's political stability cannot be overstated.

 

China's leaders have long set a target of 95% self-sufficiency in four key grains - rice, wheat, corn and soy. China has achieved this through the development of high-yielding crop strains, intensive and innovative farming methods and the extensive use of irrigation.

 

However, the loss of arable land and water constraints means that it will be increasingly difficult to meet self-sufficiency targets.

 

By virtue of its size, any small%age change in China will have a big impact on the world. Thus if, for whatever reason there is a shortfall in food production in China, it will have a big impact on world supply and on world prices as China turns to international trade channels to satisfy its demand.