Are We Ready for a Chinese Reshaping of the Global Agrifood System?

Food security has always been a priority for China. However, a confluence of factors has recently brought the issue into sharper focus. To address this challenge, China has proposed a slew of new agrifood policies and plans, many of which place a firm emphasis on self-reliance.

The current reality, though, is that China’s need for particular commodities outstrips the ability of its domestic production to meet demand, and the infrastructure, investment and talent required to develop and leverage new agrifood technologies are lacking.

Despite these limitations, Beijing’s ability to concentrate China’s enormous pools of capital and talent into sectors of national interest means that incremental policy shifts are likely to have a major impact on the rest of the world. And, as we saw with Covid-19, even temporary disruptions to the global supply chain are likely to have major social, economic and political implications. Policymakers would do well to understand the impact of these policies and start planning how to react.

Pollution and Practices

Various influences have led to increased pressure on China’s food security. Overuse of chemical fertilizers and pesticides, coupled with poor industrial waste management, factory accidents and use of sewage irrigation, has led to widespread damage to China’s agricultural resources. Not only is heavily polluted land less productive, but the consumption of foods produced in contaminated areas has been associated with health issues including hepatitis A, typhoid and cancers of the digestive tract.

A national soil survey in 2014 found that roughly 20 per cent of Chinese farmland was contaminated by chemical waste, pesticides and heavy metals. In fact, 35,000 square kilometres of farmland were so contaminated, officials concluded that no agriculture should be allowed on it at all.

In addition to pollution, recent floods have hit agricultural regions hard, destroying homes, crops and livelihoods. Flooding has always been a risk but overreliance on dams, excessive construction in low-lying areas, land reclamation and cities built with poor drainage systems have exacerbated the effects of extreme weather and climate change, damaging millions of tonnes of crops.

Similarly, while climate change also contributes to the desertification of agricultural lands, human activities such as deforestation, overgrazing and the misuse of water have aggravated the problem.

Disease

In 2018, African swine fever (ASF), a fatal virus affecting pigs, spread across Asia. This was especially disastrous for China, the world’s largest producer and consumer of pork. Within a year, China had culled almost 50 per cent of its herd. As a result, the price of pork rose globally, especially in China, as demand for pork and animal feed skyrocketed.

Covid-19 had an even greater impact on food security and access: China’s long lockdowns successfully reduced the spread of Covid-19, but abrupt lockdowns and changing border restrictions across cities and provinces meant that the food supply chain was severely disrupted, leaving some regions unable to sell their products and others with shortages.

Geopolitical Risk

Finally, while imports have long been part of China’s food-security strategy, recent political tensions with the US and other major food suppliers have led to concerns around how these issues may affect not only food security, but also national security.

The message that China is dangerously dependent on imported resources has been frequently highlighted in the media recently, with officials calling seeds the “microchips” of agriculture. Even Chinese President Xi Jinping declared that "Chinese people should hold their rice bowls firmly in their own hands".

While China has increased its domestic production of many staples, the country is still not producing enough high-quality products to be totally self-reliant, particularly as Chinese consumers’ tastes change and as they become more concerned with the quality of products.

To ease some immediate pressure, Beijing has sought to diversify its food sources, looking to countries like Brazil and Argentina instead of traditional suppliers like the US to reduce overdependence on one country. Longer term, China’s policies focus on modernising the country's domestic agrifood system and boosting production and competitiveness by leveraging some key emerging technologies.

The 14th Five-Year Action Plan

In China’s latest five-year plan, a manifesto for how Beijing wants to steer the country over the next five years, innovation is a major theme. While a focus on innovation isn’t new, the aim has shifted from moving up the value chain, establishing China as a centre for innovation, and fostering long-term productivity to protecting the nation from external vulnerabilities through self-reliance in science and technology in a few key sectors, including agrifood.

The Ministry of Agriculture and Rural Affairs’ (MARA) subsequent sub-plan outlines in more practical detail how China intends to achieve these aims. It focuses on innovations in areas that are currently subject to a high reliance on foreign technology, putting particular emphasis on improving the competitiveness of the seed industry, upgrading agricultural machinery and equipment, and improving the national agricultural research system.

The document also emphasises broader innovation, with guidelines around smart agriculture and application to agriculture of parallel technologies such big data, artificial intelligence and blockchain. Interestingly, deepening international exchanges and cooperation in R&D are also highlighted.

The MARA action plan also explicitly mentions alternative proteins for the first time, stating its intention to “research the culture and manufacturing technology” of novel foods such as cultivated meat and synthetic proteins. Although the plan is outlined in just a couple of sentences, it has attracted widespread attention from global media as legislation tends to follow stated goals in China. In a recent speech, President Xi similarly highlighted the importance of developing plant, animal and microorganism-based proteins. A signal that China is willing to embrace cultivated meat marks a major milestone for the technology and is hugely significant for global climate efforts given that China’s meat consumption is expected to double by 2050.

Other Key Policies

Progress in modern breeding techniques has also been emphasised. Multiple draft rules and announcements from the MARA suggest China will allow greater use of genetic modification (GM) technology in agriculture by approving new regulations to allow the planting of GM seeds to boost domestic production of crops.

Some reports suggest that GM crops could be ready for market launch within a year. This marks a change from previous policy, which remained cautious in its approach to GM crops; although China has previously allowed GM soybeans and corn to be imported for animal feed, it has prevented them from being planted. Acceptance from consumers may be a roadblock: Chinese consumers have been wary of GM crops as a result of multiple food-safety scandals.

China has also shown its intention to develop and approve gene-edited crops, which can increase yields with less land and fewer inputs. Gene editing differs from GM as it involves modifying the DNA of organisms, rather than transferring entire genes from one species to another, attracting attention from other countries around the world. In January 2022, the MARA published trial rules for the approval of gene-edited plants, paving the way for faster improvements to crops. Already, China is a leader in this space: According to a recent analysis of publicly available patent applications involving CRISPR, the majority of applications involving agricultural uses are coming out of China.

Supply and Demand

Some of China’s new policies have already had an impact. In the past year, the price of food has risen sharply around the world: the UN Food and Agriculture Organisation’s food price index jumped 28 per cent in 2021, the highest level in a decade, with both poor and rich countries feeling the effects.

There are several factors driving this, but a key contributor is China's stockpiling of grain and other commodities. Amid geopolitical tensions and Covid-19, Beijing has also increased grain-reserve requirements at the regional and provincial levels.

Fluctuating prices also have an impact on the burgeoning alternative-protein market. Many companies in this space rely on plant protein sourced from key commodities like soybean, and swings in price and availability can make it even harder for them to compete with traditional meat.

In September, the Wall Street Journal reported that soybean futures had risen more than 20 per cent in the previous 12 months, suggesting that soy-derived products could also soon be feeling the effects of inflation. China’s mass culling of pigs due to ASF drove up the price of pork, and the resulting rush to take advantage of Chinese government subsidies and easy financing led to a subsequent crash in the price.

Extremely cheap pork makes plant-based alternatives less attractive not only for customers but also investors: although there is interest in these alternatives, anecdotal evidence has suggested that the ASF epidemic diverted a significant amount of capital and attention to livestock technology.

Broader Politics

Another consideration is how these policies play out in the political arena. As noted earlier, concern that dependence on countries for key commodities could be used as political leverage has been a strong motivator behind Beijing’s focus on self-reliance. China has also shown that it is willing to use economic sanctions or threats of sanctions in the face of political difficulty.

A recent example gives us some insight on how this could play out: in 2020, China put in place several tariffs and other barriers against Australia after their relationship deteriorated following several political disputes. As China is one of Australia’s largest trade partners – more than a third of exports are sold to China – this had a significant impact on many industries, including barley, beef, lamb and lobster.

While Australia was able to divert many products to other markets – the Australian treasury estimates that while exports to China fell by AUD $5.4 billion, exports to the rest of the world increased by AUD $4.4 billion – not all industries were able to do so easily. Similarly, not all countries are able to divert their exports so readily, and the narrative might play out differently for smaller countries dependent on Chinese financing and access to the Chinese market.

Investment and R&D

As funding of public agricultural research stalls in developed countries, China is expanding investments domestically and abroad. Beijing’s recent emphasis on “common prosperity” and sector crackdowns have also served as a not-so-subtle hint for the private sector to support national goals, amplifying the volume of capital and talent pouring in, as companies’ and sectors’ growth (or survival) is increasingly linked to how well they align with these priorities. For example, Beijing Dabeinong Technology Group, Shandong Denghai Seed and Winall Hi-Tech Seed, companies involved in seed technology, have been promised generous state-backed support and the value of shares in all three firms has increased by around 100 per cent since the beginning of 2020.

Increasing Chinese investment abroad is not necessarily a bad thing, particularly as there is a need for more agricultural investment globally. Since the inception of the Belt and Road Initiative (BRI), China has signed over 100 agricultural cooperation agreements with BRI countries, many of which have large agricultural sectors, covering agricultural investment, agricultural technology transfer, investment in infrastructure and policy coordination. China has similarly been ramping up agricultural investment into developing markets across Africa and South America.

Clearly, China is still looking to engage with the world, but increasingly on different terms and with different partners. With food insecurity still a major problem for millions of people, Chinese investment could improve the lives of producers and many others suffering from food insecurity around the world. It’s also a win for China in the sense that if these countries can produce more food, as a large buyer, China enjoys better prices if there’s a global surplus. Additionally, Chinese investment will naturally focus on Chinese priorities, use Chinese technology and Chinese infrastructure, and be influenced by Chinese norms.

In short, increasing investment means that China will likely have an increasingly significant impact on the development and direction of the global agrifood system.

While China is actively seeking to boost its domestic production and become a leader in agrifood technology, complete self-reliance is not possible – the country simply does not have the land or resources. Instead of viewing the emphasis on self-reliance as the start of China’s decoupling from the world, policymakers should see it as a strategic tool to strengthen the domestic economy and mitigate political risk. Much of the media hype around regionalisation is not supported by trade or capital-flow data, and international economic relations remain an explicit part of many of China’s policies.

Given that China must rely to some extent on the international markets, it is likely that we’ll see more of Beijing’s global behaviour at least partially underpinned by the basic domestic concern of feeding its people. This also means China is determined to play a bigger role in shaping the rules and norms of the global agrifood system. And as one of the world’s largest importers, China has realised that it has the power to demand adherence to its own rules rather than simply following others. The launch of the mandatory overseas food manufacturer registration platform, which imposes new requirements for all firms who export into China, is one such example of China’s ability to flex its economic muscles. It is likely that we will continue to see China more involved in all stages of the global food supply chain, agrifood technology and governance.

Consequently, the question we must ask ourselves is not whether we are prepared for a world where China is completely self-reliant, but whether we are ready for one where China plays a larger role in the global agrifood system.

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