Appetite for Destruction

On Aug. 20, the Australian mining giant BHP Billiton announced that it will pump nearly $3 billion into developing a deposit of Canadian potash, a mineral used in the manufacture of fertilizer destined for farms fields across the world. And in late September, Chinese pork producer Shuanghui officially purchased Smithfield Foods in the largest Chinese acquisition ever made in the United States. The companies’ investments are both decisions that speak to a vote of confidence in global food consumption growth over the next decade — and nowhere will bellies be filling up faster than in China.

For three decades, resource-intensive manufacturing fueled China’s spectacular economic rise. By 2012, the country was consuming nearly half of the world’s coal and producing 46 percent of its steel, 43 percent of its aluminum, and about 60 percent of its cement. The Chinese economy has slowed in 2013 in part because of the government’s recognition that such a resource-intensive growth model has become unsustainable. As a result, Beijing is trying to rebalance away from exports and investments and toward domestic consumption. Companies like BHP Billiton are betting that China’s rebalancing will spur rapid growth in demand for food and the inputs needed to produce it. The underlying economic logic — China as demand driver — is the same, but it reflects the resource scarcity that is starting to replace maintenance of rapid growth as China’s foremost economic challenge.

An ironic legacy of economic success, China’s resource scarcity is worsening as its GDP grows, incomes rise, and standards of living improve, placing new, daunting pressures on the domestic food supply. This is not necessarily because the Chinese agricultural industry is underperforming. The sector has long faced a daunting task: filling the stomachs of 20 percent of humanity with just 8 percent of the world’s arable land and only about 30 percent of the world’s per capita availability of fresh water. But the task is further complicated by Beijing’s grain security policy, which insists on near self-sufficiency of production in spite of a scarce resource base, preventing imports from playing the same role as domestically produced food.

Beijing’s food security policy is an uncharacteristically impractical choice from a usually pragmatic government. It is motivated by the psychological legacy of repeated, disastrous famines that scarred the Chinese public over the last 150 years, the most recent being the policy-induced famine during the Great Leap Forward that led to tens of millions of deaths in the late 1950s and early 1960s. Food is central to the national mindset, especially for the many Chinese alive today who have personally experienced crippling scarcity.

Food became more plentiful in the decades following Mao Zedong’s death in 1976, when the Chinese government adopted liberal agricultural policies that allowed farmers to sell their products into the market. Called the "household responsibility system," this reform, as well as sustained investments in agricultural sciences and technology, prevented China from descending into the Malthusian nightmare of finite resources outstripped by exploding population growth that seemed to threaten the developing world in the 1970s. Since the early 1980s, China has been able to produce most of the meat needed for domestic consumption; the government also maintains a strategic pork reserve that it occasionally taps to lower pork prices. Over the last few years, the Chinese government has even achieved its goal of near self-sufficiency in rice, wheat, and other staple grains that form the basis of the Chinese diet.

But the growth of China’s food consumption is now threatening to undermine these achievements. The meat of the matter is, well, meat: Diets are being transformed by rising affluence and a cultural fixation that correlates carnivorousness with class status. Other formerly impoverished countries have seen their meat consumption rise alongside their GDP. But in China, it is progressing much faster than experts once expected. In 2000, agricultural economists, including former World Bank chief economist Justin Yifu Lin, predicted that China’s per capita meat consumption would rise by over 50 percent in 20 years. Thirteen years into their forecast horizon, China’s per capita consumption has already risen by more than 150 percent.

Total annual meat consumption in China reached 80 million tons in 2012 — equivalent to 115 pounds a person. That total is double that of the United States, though the average Chinese person still eats only about half as much meat as an average American. Members of China’s middle class — estimated at roughly 10 percent of the population, or 140 million people — eat more meat than the average Chinese. By 2020, however, the middle class is projected to be 40 percent of China’s population. In wealthy cities like Beijing, residents consume an average of 130 pounds of meat per person annually. In Taiwan, where developed-world incomes meet ethnic Chinese dietary preferences, consumption is much higher at 190 pounds per year. Barring dramatic cultural and ethical shifts, there will likely be hundreds of millions more regular meat consumers in mainland China in the coming decade, as continuously rising incomes make middle-class lifestyles affordable.

Sadly, pork chops don’t grow on trees. While China is close to self-sufficiency in meat production, it is far from it in terms of the feed grains, principally soy, that raise the livestock destined for Chinese dinner tables. One of the world’s largest soy producers until 1996, China has seen production levels languish over the last 15 years while domestic consumption has grown to five times the amount that Chinese farmers can supply. Foreign soybeans are now ubiquitous in the Chinese agricultural value chain.

Today, China increasingly looks like it is following the examples of Japan and Taiwan, two Asian nations that became food importers as growing cities took land away from agricultural use, rising incomes allowed consumers to enjoy more diverse diets, and urbanization pulled people from farms and rural life.

These trends will have important global implications. Take rice, for example. Although Chinese rice yields rose dramatically in the 20th century, China found it necessary to import 2.6 million tons of rice in 2012. With the global market accustomed to a weak Chinese buying presence — the country has been a net exporter of rice almost without fail for the last half-century — China’s rice purchases may have helped send global prices to a near all-time high.

It seems too early to say that China’s domestic rice production has hit the same supply-side bottlenecks that have required the country to become a huge soy importer. But the recent discovery of cadmium-tainted rice produced in central China — only the latest in a series of food scandals — certainly does not help alleviate pressures. Anxious Chinese consumers could opt out of the domestic rice market and demand to buy the staple of their diet in the global market, further eroding China’s self-sufficiency.

Another revolution in agricultural technology could mitigate these scarcities; however, this is very unlikely in the near term. The fruits of the Green Revolution, from which China benefited tremendously a generation ago, seem exhausted — not only in China, but globally. As economist Tyler Cowen noted in his 2012 book, U.S. farming productivity growth leveled off between 1990 and 2002. A similar dynamic may be at play in China, where burgeoning imports suggest agricultural productivity growth is stagnating.

All these factors point to a harrowing decade ahead for Chinese food security. Just as the last three decades of catch-up economic growth created a wealthy middle class in China, the next decade could see catch-up consumption growth from hundreds of millions of Chinese who do not yet eat meat daily. The Chinese government is experimenting with rural land reforms and industrial farming to encourage higher efficiency and promote economies of scale. But between ideological opposition to allowing rural land to function as a form of productive capital and pragmatic concerns over the livelihoods of landless rural peasants, progress will likely be too slow to prevent Chinese food demand from outstripping supply.

China will likely become a reluctant and ever-larger presence in global food markets. This will benefit economies like the United States that are major food exporters. But just as China’s industrial and property booms of the last decade buoyed prices of oil, coal, and iron ore, in this decade Chinese food demand growth could raise food prices in the United States and elsewhere. China already consumes 60 percent of the rest of the world’s soybean exports. And as it keeps growing, China could fundamentally alter global food supply and demand.

Of course, Beijing does not make policy for the countries from which it imports agricultural products, but as Amazonian rain forests are cleared for soybean production or if global rice prices spike again, China could see a backlash. Chinese policymakers are certainly concerned about the impact of their country’s food demand on the rest of the world, which is one reason they insist on grain self-sufficiency. The less China buys on the market, the less it will be in the international spotlight.

Toeing such a line will be difficult. China’s unmatched combination of scale and need means it cannot be an anonymous participant in global markets. The China price that today describes the country’s cheap manufactured exports could soon refer to higher-priced food on dinner tables across America.