China: The Hungry Dragon Looks Outward

As reported by Stratfor (subscription required), China added agricultural investments to its “go outward” strategy in 2008, under which domestic businesses are encouraged to venture into foreign markets. As global food prices continue soaring, food security has catapulted to the top of Beijing’s priority list alongside energy and other key resources.   As the article notes:

“…China is expanding its “go outward” strategy to include agricultural commodities and farming land, the Chinese-language Beijing Morning Post reported April 29. “Go outward” is a push for Chinese businesses to venture into foreign markets, acquiring foreign assets and equity stakes in key sectors such as energy and aviation.

The new initiative really represents an expansion of a policy that is already in place. With a dwindling supply of arable land at home, China has been leasing overseas farmland to build agricultural park projects since 1996 in countries such as Cuba, Laos, Mexico and the Philippines. Beijing is now considering extending that scheme to include Australia, Latin America and the former Soviet Union. Chinese agricultural park projects established to date include not only crop planting, but also fishery and farm produce processing.

In much the same way that Chinese investment in foreign energy and resource industries supports China’s strategic energy security, the new push for agricultural investments is designed to secure national food security. The new projects will meet many of the same obstacles that Beijing has already encountered in the energy and resource sectors, however.

Food security sits high in the minds of both the Chinese people and government officials, partially because of the 1958-1961 Great Famine, in which an estimated 30 to 40 million people died. China’s current food consumption is mostly satisfied by domestic production, but foreign imports are still necessary to satisfy all local needs. The continued upward spiral in global grain prices has sent food security shooting to the top of the Chinese government’s list of concerns.

For China, leasing foreign farmland is simply a more efficient option for food production than purchasing agricultural products from overseas producers. The potential per-hectare yield of the foreign farming land in places such as Laos is usually much higher than China’s average. When complemented with Chinese labor and farming technology, the return on investment is even higher. Meanwhile, access to Chinese farming technology and capital is what motivates foreign host governments to enter such contracts with Beijing.

But ultimately, Beijing will not be able to protect its outsourced farming projects overseas as well as it can protect domestic farming projects. As with China’s overseas energy and mining projects, China’s overseas farming investments come with political risk. Its mining and energy investments have already sparked a backlash in some host countries — especially in Africa where China is accused of “neo-imperialism” — and these agricultural ventures could invite the same kind of attacks. Also, host-country interest groups might accuse their governments of selling out their own food security

Such projects can also get caught up in local political battles, as happened after the Philippine Department of Agriculture agreed in 2007 to lease about 2.5 million acres — 10 percent of the nation’s agricultural land — to China’s Jilin Fuhua Agricultural Science and Technology Development Co. A local political scandal broke out involving Philippine President Gloria Macapagal Arroyo’s husband and ZTE Corp., a Chinese company. The Fuhua contract was suspended (along with several other Chinese agricultural and fishery projects) to counter the attacks of Arroyo’s political rivals, even though deals had no specific link to the ZTE fracas. Local politics gave anti-China factions inside the Philippines the edge they needed, and put Arroyo in a vulnerable position with regard to accepting any Chinese money (not just from ZTE).

To avoid competing with the host country’s local agricultural producers and to help the host government counter domestic critics, Chinese enterprises will likely target agricultural regions that local producers have avoided and that remain underdeveloped due to high investment costs, such as Australia’s wetter regions of the Northern Territory or northern Queensland. It will also avoid politically sensitive regions such as the border areas of Russia or Kazakhstan.

As global food supplies continue tightening, China will have to pay a premium above going market rates to secure the foreign farming lands it wants. But if its foreign energy shopping spree is anything to go by, money will not be an obstacle to Beijing where such fundamental strategic interests are concerned.”

This entry was posted on Tuesday, April 21st, 2009 at 6:33 pm and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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About This Blog And Its Author
Seeds Of A Revolution is committed to defining the disruptive geopolitics of the global Farms Race.  Due to the convergence of a growing world population, increased water scarcity, and a decrease in arable land & nutrient-rich soil, a spike of international investment interest in agricultural is inevitable and apt to bring a heretofore domestic industry into a truly global realm.  Whether this transition involves global land leases or acquisitions, the fundamental need for food & the protectionist feelings this need can give rise to is highly likely to cause such transactions to move quickly into the geopolitical realm.  It is this disruptive change, and the potential for a global farms race, that Seeds Of A Revolution tracks, analyzes, and forecasts.

Educated at Yale University (Bachelor of Arts - History) and Harvard (Master in Public Policy - International Development), Monty Simus has long held a keen interest in natural resource policy and the geopolitical implications of anticipated stresses in the areas of freshwater scarcity, biodiversity reserves & parks, and farm land.  Monty has lived, worked, and traveled in more than forty countries spanning Africa, China, western Europe, the Middle East, South America, and Southeast & Central Asia, and his personal interests comprise economic development, policy, investment, technology, natural resources, and the environment, with a particular focus on globalization’s impact upon these subject areas.  Monty writes about freshwater scarcity issues at and frontier investment markets at