FRED GALE — During the spike in global grain prices a decade ago, Chinese officials urged agribusinesses to secure farmland overseas to fill the country’s growing food deficit.
Now the country has 1,300 companies which have made $11.7 billion in total investments in agriculture, forestry, and fisheries in 85 countries and regions, according to the agriculture ministry. To help propel the Belt and Road Initiative’s infrastructure-building campaign, Chinese leaders have recently rebranded these foreign farm investments as a form of international cooperation.
The strategy described in recent speeches and state news reports envisions giant agro-industrial parks, tractors and irrigation networks spreading out along the “New Silk Road” of railroads, highways and ports being built by Chinese companies to link up the neglected regions en route to Europe. In this vision, new flourishing farms in the deserts, mountains, hillsides and steppes of Asia, Africa and Eastern Europe will promote global food security, end poverty and spread environmentally friendly production methods.
China’s aspirations to play a more active role in global affairs should be taken seriously by business and government leaders in food and agricultural spheres. However, its promises to overhaul agriculture in other countries may be premature in view of the ongoing overhaul of China’s own farming sector that is still in its initial stages. China’s offer of a superior “inclusive” approach to global governance in agriculture should be evaluated by carefully weighing both the successes and shortcomings in China’s experience feeding its people.
Via its new strategy, China has promised that poor countries can enrich their rural population and modernize their farms by studying its reform experience over the past 30 years. Beijing is pledging to reshape institutions such as the World Trade Organization to make them more inclusive and “respect the views of different countries.”
Despite this benevolent rhetoric, Belt and Road agricultural cooperation strategy at its heart still seems largely about feeding China. As Ye Xingqing, director of an agricultural economics think tank affiliated with the State Council, wrote in June in a newspaper commentary, agricultural investment in Belt and Road countries is needed to stabilize China’s future food supply and diversify its food import sources.
Sharing technology and encouraging institutional innovation will eventually produce food surpluses in these nations to address future food deficits in China, he wrote, and avoid risky dependence on supplies from the U.S. and other nations in the Americas and Oceania. The shift toward Belt and Road imports will help narrow regional inequality within China, Ye added, by channeling food trade now focused on coastal ports through western and southern regions instead.
Troubles back home
China’s plans to overhaul food production in Asia, Africa and Eastern Europe mirror its efforts to do the same thing at home. Officials worry that China’s fragmented small-scale farms cannot meet the food needs of a large population with rising living standards. Agricultural productivity growth has slowed considerably in the new millennium.
Plans and policy documents call for investment funds, government loan guarantees, interest subsidies, experimental mortgages and arm-twisting “guidance” to convince banks and business tycoons to invest in farms, flour mills and grain silos. The menu of farm machinery eligible for purchase subsidies is being expanded to include equipment for drying and processing grain and for farming overseas.
A State Council initiative this year to develop domestic agricultural processing industries has received President Xi Jinping’s endorsement, according to a state media article in June. The article explained that the agricultural processing sector is “still not strong” and needs to be developed to meet consumer demands for high grade products.
The collective rural land system, designed to preserve subsistence farming, hampers the emergence of scaled-up farms. In China, assembling even a moderate-sized farm can require elaborate schemes to secure plots from hundreds of villagers, pay them rent and dividends, and hire them as laborers — assuming it is possible to document where land boundaries lie and who controls which plots. In contrast, China’s overseas farm investors often comment that one of the main attractions of going abroad is the ease of acquiring vast tracts of cheap land. They routinely acquire thousands of hectares of farmland in Russia, Southeast Asia and Africa in a single deal.
China’s degraded environment also motivates investors to look for pristine farmland overseas. Officials now acknowledge that past exhortations to maximize grain output sacrificed China’s ecological balance and future productivity for short-term gains. A 2007 pollution census identified chemical fertilizer runoff and livestock manure as major sources of water pollution. China’s first soil pollution survey found that 19% of farmland was contaminated with heavy metals. The pumping of irrigation water from ever-deeper wells has depleted underground aquifers and the soil has lost organic matter in many areas.
With gross domestic product growth serving as a basis for promotion, officials had little motivation to prevent pollution or stamp out food safety violations. Though China is promising to share technology with its poor neighbors, officials are in a quandary about how to stimulate domestic innovation in agricultural technology. Inadequate protections for property right makes it hard to reap returns from research and development, so Chinese seed companies concentrate their efforts on marketing while leaving plant-breeding to publicly supported research institutes. China launched a program 15 years ago to subsidize farmers’ use of improved seed strains. Corrupt local officials, however, in effect redirected the subsidies to monopoly suppliers.
Indeed, the most successful agribusiness companies in China are often those skilled at seeking favors and subsidies from local officials. This can leave Chinese investors ill-equipped to operate in international markets without favored access to loans, land, and subsidies. There have been a handful of megadeals in which Chinese companies have paid high prices to become largely passive investors in top-line agribusiness companies in Europe, Oceania, and the U.S. But most Chinese investors have gravitated toward authoritarian countries in Africa, Southeast Asia, and Eastern Europe, the same regions targeted by the Belt and Road initiative.
Chinese researchers however have found that overseas farm investments have generally fallen far short of their goals, with little exported back to China. Chinese investors complain of corrupt officials, inefficient local bureaucracies and burdensome local taxes, as well as inadequate support from their own government.
Chinese companies have been farming in Russia, for example, for more than 15 years, but they have only begun to send produce back to China in the last few years. The investors have complained that Russian officials impose exorbitant tariffs on equipment imported from China, refuse to issue work visas and have dragged their heels on an agreement on grain exports. In Bulgaria, a Chinese company acquired 10,000 hectares of land in an impoverished region but quickly abandoned it when it discovered the land was unproductive and its managers could not communicate with local laborers.
In recent speeches, Chinese officials have boasted that their inclusive approach to mutually beneficial cooperation and trade is superior to past approaches which they allege have been designed to benefit a few countries. The lofty rhetoric has not yet been matched by consistent results on the ground, but business and government leaders around the world will be watching as China enters a new phase of engagement in global commerce.
Fred Gale is senior China economist for the U.S. Department of Agriculture’s Economic Research Service. The views expressed here are the author’s and do not represent those of the USDA and PKonweb.