In November 2010 as the world struggled to recover from one of the biggest economic collapses of all time and dealt with renewed European worries China had other problems. The price of food in the country was rising substantially, and civil unrest was just around the corner. Food prices rose 10% in November compared with 4.4% overall inflation in the country. Something had to be done.
The government began subsidizing necessities and allowing food to flow out of stockpiles to ease market pressure. There was also a substantial amount of food imported from around the world to meet the growing demand.
A crisis in China was averted in 2010/2011, and the Chinese government has been taking steps to prevent the same set of circumstances from occurring again. Nothing is scarier for a leader in the developing world than a food crisis. It was the price of bread after all that kick started the French revolution and caused a great deal of its violence.
Since those terrifying times, China has begun to buy farm land and agricultural companies around the world. These tools will be useful for the Chinese under grievous circumstances. They will be less useful to the people in whose countries they have been placed. In November 2011, it was revealed that China’s state owned trader COFCO Co. Ltd. would spend more than $10 billion in international mergers and acquisitions in the decade afterward to secure food stability.
As China’s economy grows, so too will its demand for food. It’s own ability to supply that food has become lessened, and China’s sensitivity to world commodity prices, one of the primary drivers behind the 2010 problem, still effects them.
China is one of the world’s largest importers of food and is soon to become the largest. It imports huge amounts of soy beans and pork as well as grain in times of need. If China faces a drought it will need to come to knocking on America’s door for food. The country already depends on the US for many products and the US is not immune from the country’s spending spree abroad. In 2008 COFCO began buying shares in America’s largest pork supplier Smithfield Foods Ltd. (NYSE:SFD).
Global food prices, apart from shocks in the late 2000s and early 2010s, have been at a low for some time. That day is over, and China, with the most mouths to feed, will be the most important link in the global food chain. As we’ve seen, China is starting to make that chain more complicated by the day.
China’s impact on the world of food trade becomes much more serious as forecasts for the market don’t look particularly optimistic. A rising world population combined with probable rising oil prices and global warming’s effect in destroying arable land will all effect the world’s food markets and none of them will lower the price.
China depends on sovereign support as well as support from its own trading companies to ensure food security. If food security is not maintained there is no telling what might happen in the country’s poorer district where wages are low and local food supply is key.
Any crisis in food will be exasperated by the country’s crisis in demographics. According to the Chinese census of 2010 almost 120 males were born for every hundred females. The country is still young with almost 20% of the population under 14. A surplus of young men is not good for a country’s stability.
On top of this are the other economic problems China mace face in the coming years that could reduce income without having a negative effect on food prices. The property bubble the country now faces is primary among these.
China is vulnerable to a crisis in food production and the rest of the world is vulnerable to a Chinese crisis. The country’s assets around the world might trigger crises in Sub Saharan countries where China owns enough land. It would trigger a hike in food prices around the world including the West.
The West is not immune to food crises. In 2008 when oil pressures caused a spike in food prices there were riots around the world. Some of those countries, like Mexico, are a little too close to home to ignore. Higher food prices didn’t make the world recession easier on the millions unemployed in the West either.
Food is a problem. If China runs out of food, the world’s economies could head for absolute chaos. This is an issue that will not go away and one that my very well cause a real political crisis inside China in the not too distant future. A political crisis in China would throw the world into absolute chaos.
Whether we like it or not China’s problems are now the world’s problems. We have to deal with them at least as fervently as we deal with our own.
