China's role in global food markets expanding
April 01, 1999
by Teresa Acklin
Because of its size and dynamic growth, China's role in future global food markets will be extraordinarily important in the 21st century, according to projections by the International Food Policy Research Institute, Washington, D.C.
China could account for 23% of the growth in global cereal demand and 41% of the growth in global meat demand through 2010, with a substantial volume of net cereal imports by 2010 of 35 million tonnes.
The range of predictions about China's food economy in the 21st century varies greatly, according to Mark Rosegrant, one of the authors of the I.F.P.R.I. report, “Global Trends in Cereal and Livestock Demand to 2010.” Some experts believe China will become a major exporter, he said, while others believe that China will be come the world's largest importer. Others predict that China could have a grain shortfall of more than 200 million tonnes by the year 2030, resulting in spiraling cereal price increases and massive hunger in other developing countries.
Mr. Rosegrant said that while the I.F.P.R.I. does not support the “alarmist” view that growth in China will disrupt world cereal markets, “it is worthwhile exploring whether there are conditions under which China could cause major dislocations in world prices to environmental and economic growth outcomes.” The I.F.P.R.I. examined scenarios with different combinations of income growth and environmental degradation, he said. In one scenario, with baseline income growth and trend degradation, China's total cereal imports were projected at about 35 million tonnes in 2010. At the other extreme, with high income growth and severe degradation, China could import 84 million tonnes of cereals in 2010.
Under the latter scenario, environmental degradation would cause a loss of 4 million hectares of cereal area compared to the 2010 baseline and a decline in average cereal yields from 4.67 tonnes per ha to 4.57 tonnes per ha, resulting in a decline in production of 27 million tonnes in 2010.
Under this scenario, the I.F.P.R.I. report said, cereal consumption in China will increase by 21 million tonnes as income growth rate is expected to increase from 5.6% per year to 7.7%. The projected large increase in import demand is the combined effect of reduced production and higher consumption, the report concluded.
China's cereal imports will be dominated by maize and wheat. Maize imports are projected to increase by 21 million tonnes and wheat imports by 14 million tonnes.
But even in the extreme case of rapid income growth and severe degradation, world wheat and maize prices in 2010 would only be about 7% higher than the baseline projection and the price of other grains would be 5% higher, the I.F.P.R.I. report concluded. Only rice prices would increase substantially, by 11%, compared to the baseline price in 2010. “Thus, China's welfare does have significant impacts on global food prices,” Mr. Rosegrant said.
The results show that with extraordinarily rapid income growth and severe degradation, China's cereal imports do increase substantially, Mr. Rosegrant said. “The effect on projected world prices is significant, but not devastating. The results also indicate that world markets are in fact quite resilient and can absorb large increases in Chinese imports without huge price consequences.”
Although China is already a significant player in world food markets, and is likely to become increasingly important, it does not represent a major threat to the long-term stability in these markets, Mr. Rosegrant added.
Considerable flexibility in supply response still exists, both in China and elsewhere in the world, Mr. Rosegrant said. “If anything, China's evolution into a consistent grain-importing country would benefit grain exporters without causing serious price dislocations.”
The United States would increase cereal exports by 17 million tonnes (mainly for maize), and Western Europe would boost cereal exports by nearly 4 million tonnes under the high income growth/severe degradation in China scenario. “Doomsday scenarios for China and the world food situation are not plausible, because they ignore the responsiveness of both the Chinese and the world food economy to initial changes in prices induced by changes in underlying growth factors,” Mr. Rosegrant said.
China will continue to feed itself primarily through domestic production, he said, which is projected to account for 92% of cereal consumption in 2010. Even under the extreme scenario, 82% of cereal consumption in China would be produced domestically.
“Underlying the China doomsday scenarios is a belief that there is no more potential for yield growth in China,” the report said. “But there is considerable evidence of further potential for productivity growth in China. Raising yields further to international levels will provide most, and could supply all, of the increased output China needs to meet its expanding demand.”
There is reason to be “relatively optimistic” about the future role of China in global food markets, Mr. Rosegrant said.
“There is a consensus by Chinese leaders about the need for economic growth and stability and the key role that agriculture plays in this process,” he said. “China has shown an uncanny way of finding solutions to its rural problems in the past, especially when they stand in the way of broader development concerns. The commitment to gradual reform and a society willing to experiment with alternative ways of solving tough problems should help supply fresh ideas as leaders search for effective policies and institutions.”