Food Security in China: recent policy development and implications

The Issue

“Food security” (粮食安全) literally translates as “grain security” in Chinese. China has been proud of its ability to feed 22% of the world’s population with only 7% of the world’s arable land, and continuously stresses the importance of food security. China’s recent moves on wheat imports drew worldwide attention and triggered speculation on the country’s food security status. For example, China lifted all wheat-import restrictions and dropped all phytosanitary rules for Russia amid Russia’s controversial invasion of Ukraine. Even more recently, President Xi Jinping reemphasized the importance of food security at the “Two Sessions” (Chinese annual national legislative meetings) amid worries about grain price fluctuations and potentially China’s worst wheat harvest in recent decades due to heavy rainfall and flooding in the fall of 2021.

Food security gained attention during the U.S.-China trade war in 2018 and was pushed to the top of the country’s policy agenda at the beginning of the COVID-19 pandemic in early 2020 when the global food supply took a marked dive. There was a dramatic worsening of world hunger in 2020 according to the report, “The State of Food Security and Nutrition in the World”, which assessed global food security status during the pandemic. In response, grain production quickly became a top policy priority in China to ensure food supply. In an unusual move in August 2020, President Xi declared a war on food waste, which soon turned into a national campaign.

This has brought food security to top the agenda of high-level political meetings and policy documents over the past two years. The Russia-Ukraine war only serves as another reason for China to ramp up its rhetoric around safeguarding food security.

Background

Safeguarding food security has always been a top priority for China's policymakers and central to the country's "Three Rural Issues" (a.k.a San Nong) strategy. With strong policy support, China's food security has improved massively since 1949 according to the Food Security White Paper published in 2019. Apart from highlighting China's progress in combating hunger, the White Paper also sets standards aimed at ensuring China’s grain self-sufficiency and absolute self-sufficiency of staple cereals. The white paper shows grain output in China has grown steadily, with per capita food output reaching around 470 kilograms, higher than the world average. On the other hand, the White Paper admitted that "moderate imports" were also a part of the country's food security strategy, given the considerable gap in other grains, oilseeds, and seafood.

The question arises, has China achieved food security amid the headwinds of soaring global energy and grain prices, slowing economic growth, and intensifying geopolitical tensions?  China has been nearly self-sufficient in grain supply for some time now, with 97% of staple cereals (namely wheat and rice) domestically produced, although China still imports massive amounts of oilseeds, corn, sugar, meat and dairy products to fill supply gaps. In 2020, China produced 560 million tons of corn, wheat, rice, and soybeans combined, but had a total demand of 697 million tons. Most grain and oilseed imports are used as animal feed or vegetable oil. Among the imported grains, soybeans have the largest domestic supply gap, and 85% of its domestic consumption relies on imports. The Russia-Ukraine war has only a limited direct impact on China’s food supply and prices, at least in the near term, as the trade volume between China and the two countries is relatively small. However, in the longer run, China may purchase more wheat and barley from Russia after lifting the import restrictions to meet increasing domestic supply shortage in certain types of wheat. Meanwhile, corn and barley imports from Ukraine have become an important part of China’s grain supplier diversification effort to shore up food security in recent years. Now, export disruptions caused by the Russia-Ukraine war are affecting China’s food supply chain by pushing up energy, fertilizer, and food prices. Furthermore, other factors exacerbating China’s food insecurity concerns include power cuts, rising vegetable costs, and panic buying triggered by the recent pandemic resurgence. Having a population of 1.4 billion to feed, China must stay alert to possible food scarcity in the face of market turmoil compounded by the Russia-Ukraine war.

What are China’s concerns?

China’s anxiety about food is rooted in its long history of food insecurity. A Chinese saying --“people regard food as their heaven” (民以食为天)-- reflects the importance of food security in China. Even today, when there are no obvious signs of food shortage, China still has many reasons to insist on “holding the rice bowl in Chinese hands", meaning to totally secure the country’s supply of grains, as the fear of shortage remains. China’s overall food self-sufficiency rate has continued to decline in recent years. Official data shows that oilseeds and coarse grains (i.e., soybeans, corn, barley, and sorghum) imports saw a significant rise of 18.1% in 2021 from a year ago, hitting a new record. A study by Tsinghua University shows that by 2035, China’s food self-sufficiency rate may fall from 76% to 65%. In particular, the corn supply gap will likely broaden to three times its current size. China will also need to continue increasing soybean imports, which will account for over 80% of domestic consumption by 2035, due to limited domestic soybean output.

Another concern for Chinese regulators is declining arable land, most of which is allocated for wheat and rice production. According to the third National Land Survey, China’s arable land shrank by nearly 6% between 2009 and 2019. More importantly, high-yield land makes up only one-third of the total farmland and cropland degradation is a major issue of increasing concern in China. The uneven land distribution between crop varieties, determined by China’s “absolute security for staple cereals” policy, is a key factor in China’s stagnant grain production. The dependence on foreign oilseeds, particularly soybeans and canola seeds, has been long viewed as the key vulnerability in the national food strategy. Improving soybean and oilseed production is a top agricultural priority in 2022, which China hopes will lead to self-sufficiency in five to ten years, despite the country’s declining planting area.

Losing competitiveness to other major global producers of agricultural products, a deeper cause of the country’s growing dependence on imported agri-foods, is also drawing attention in China. Compared to other producers, China has little comparative advantage in producing soybeans, beef, corn, cotton, and dairy products domestically, which is demonstrated by China’s widening demand-supply gap in these food categories.

In recent years, China has been implementing a supply source diversification strategy to reduce dependence on Western countries in agri-foods. Nevertheless, this policy has yet to significantly change China’s relations with its traditional agri-food trade partners which are primary developed economics. Seemingly, China is struggling to develop stable trade relations with emerging agri-foods trade partners, mainly countries along the route of the Belt and Road Initiative, as risk remains high in these countries' economic, political, and climate conditions. Additionally, trade relations have been challenged by bouts of conflicts between China's emerging agri-food suppliers, most notably between Russia and Ukraine.

What does this mean for Canada?

The challenges to China’s food industry, which will continue to weigh on the country for at least the short to medium term, suggest opportunities for international food producers, such as Canada. Canada is an important supplier of canola seeds, wheat, barley, seafood, and meat products to China. Statistics Canada’s 2020 data shows that Canada exported more than $10 billion in agricultural and agri-foods products to China in 2018. However, food exports soon slumped by 38.3% in 2019 due to the diplomatic tension between the two countries before jumping dramatically by nearly 50% in 2020 and 2021, driven by strong demand in China. China’s inconsistency in geopolitical policies is considered the biggest uncertainty for its Western agri-food partners. Yet Canada might, to a certain extent, benefit from trade disputes between China and other suppliers. For example, China reportedly increased its purchase of Canadian barley after its barely trade with Australia was impacted by worsening relations.

Despite the canola seed bans targeting the two largest Canadian canola exporters, China’s imports of other agricultural products from Canada have recently seen a significant increase. In 2021, Canada was ranked the second-largest barley exporter to China, and China’s barley imports are projected to continue to grow in 2022.  Wheat trade has been in the international spotlight due to the current Russia-Ukraine war. Canadian wheat has been widely imported into China thanks to its high-quality and competitive prices. Canadian wheat accounted for half of China’s total wheat imports in recent years. China’s additional imports of Russian wheat likely will not significantly affect Canadian wheat exports, as they are not comparable in quality determined by the protein content. In 2021, China purchased USD$ 1.1 billion worth of seafood from Canada, China’s the third-largest seafood exporter. Driven by strong demand from China’s growing middle class, Canadian lobster, crab, and Arctic shrimp are the most popular products among Chinese consumers and the demand will likely continue to grow in post-COVID years.

Conclusions

China’s constant focus on food security and self-sufficiency in grains is an unsurprising reaction to external crises such as the COVID-19 and Russia-Ukraine war. It also aligns with the country’s “Dual Circulation” economic strategy putting greater economic focus on domestic production and consumption cycles. Amid warnings of trade headwinds and geopolitical complexities, Chinese government sees food security as key to ensuring China’s resilience to external uncertainty. For Canada, trade opportunities will remain in food categories such as canola, wheat, barley, peas, seafood, and pork, given Canada’s strong competitiveness in these areas. Additionally, China’s appetite for imported foods is still on the rise, with growing middle-class demand for high-end food products outpacing domestic supply. China’s recent lowering of tariffs on many imported seafood products reflects this trend. However, to successfully navigate agricultural trade with China, Canada must stay alert to relevant changes in China’s agriculture and agri-food sector, including demand for high-quality agricultural products, agri-food trade policies, and the structure of China’s food consumption. For example, high-end food products, such as luxury seafood and imported high-protein grains, will likely become relatively more important exports over time.