Chinas Agricultural Development and Implications for California - PowerPoint PPT Presentation

China’s Agricultural Development and Implications for California Agriculture David Roland-Holst Department of Agricultural and Resource Economics College of Natural Resources UC Berkeley dwrh@berkeley.edu CALIFORNIA AGRIBUSINESS EXECUTIVE SEMINAR Monterey Plaza Hotel and Spa, Monterey, CA March 5-7, 2006

Contents 1. Global Overview – Doha and all that 2. China’s Agricultural Potential – Supply 3. China’s Food Requirements – Demand 4. The Path Ahead for California Agriculture 5 March 2005 Roland-Holst Slide 2

1. Global Overview • The landscape of international agricultural trade will change rapidly in the coming decades • Over this period, California farmers can reap large gains from this for two reasons: – The Doha Round will confer competitive advantages on California farmers – Huge food markets will emerge in Asia, led by China 5 March 2005 Roland-Holst Slide 3

How we got here: Total World Grain and Oilseeds Index: 1975 = 100 200 180 160 140 120 Peak 100 Peak 80 1975 1980 1985 1990 1995 2000 2005 2010 2015 Production Yield Area Harv Percap Use Population 5 March 2005 Roland-Holst Slide 4 Source: USDA .

The Meaning of Doha • The current round of World Trade Organization (Doha) negotiations is a watershed event for global agriculture. • For the first time in history, significant agricultural protection is on the bargaining table, including over $350 billion of direct and indirect farm support in OECD countries. 5 March 2005 Roland-Holst Slide 5

Doha and California Agriculture California food and farm exports will accelerate under Doha for three reasons: 1. U.S. levels of farm and food protection are lower than those of our major trading partners (Europe, Japan, and Korea), particularly for California. 2. The way we support agriculture at home is less trade distorting. This will tilt competitive advantage in our favor. 3. Huge markets will emerge in East Asia. 5 March 2005 Roland-Holst Slide 6

Three Pillars of Agriculture Protection 1. Direct farm subsidies 2. Market support from import protection 3. Export subsidies 5 March 2005 Roland-Holst Slide 7

US Support is Smaller (percent of producer price) 0 10 20 30 40 50 60 70 Japan Europe United States New Zealand 1991-93 2001 Source: USDA. 5 March 2005 Roland-Holst Slide 8

US Support is Less Trade Distorting US support measures are less WTO negotiable/actionable. United States Direct Subsidy EU Primary Agriculture Japan Korea ANZ Export Subsidy I mport Tariff Processed Agriculture 147% Export Subsidy I mport Tariff 0 5 10 15 20 25 30 35 Source: World Bank. 5 March 2005 Roland-Holst Slide 9

Doha and Agriculture: What’s at Stake? Nearly two thirds of Doha’s gains will come to agriculture. Over half will go to high income economies. Income gains from Doha (2015, USD Billions) Agric Textiles Other Total & & merch. food clothing High-income 135 15 9 159 countries 55% Developing 47 23 58 128 countries 45% All countries’ 182 38 67 287 policies 63% 14% 23% 100% Source: World Bank. 5 March 2005 Roland-Holst Slide 10

Doha will sharply accelerate agricultural trade World exports as a percent of world output. Now Free Percent Trade Change Rice 3 9 200 Sugar 6 20 233 Meats 7 15 114 Other grains 12 20 66 Oilseeds 31 19 19 Dairy products 67 11 83 Other Ag 7 12 71 Source: World Bank. 5 March 2005 Roland-Holst Slide 11

2. China’s Agricultural Potential Opportunities 1. Productivity growth – impressive but not keeping pace with other sectors 2. Economies of scale – serious institutional challenges Constraints 1. Land area – small and shrinking 2. Water – nationally scarce, most major aquifers are already in overdraft 5 March 2005 Roland-Holst Slide 12

Asia Pork and Poultry Production Million metric tons 14 India Thailand 12 Bangladesh 10 Pakistan Indonesia 8 Malaysia Philippines 6 4 2 0 1994 1999 2004 2009 2014 Source: USDA . 5 March 2005 Roland-Holst Slide 13

Asia Pork and Poultry Production Million metric tons 100 India Thailand 90 Bangladesh 80 Pakistan Indonesia 70 Malaysia 60 Philippines China 50 40 30 20 10 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: USDA . 5 March 2005 Roland-Holst Slide 14

China Pork Production Million metric tons 120 China 100 World 80 60 40 20 0 1979 1984 1989 1994 1999 2004 2009 2014 Source: USDA . Source: USDA . 5 March 2005 Roland-Holst Slide 15

Asian Poultry Production Million metric tons 30 25 China Asia minus China 20 15 10 5 0 1984 1989 1994 1999 2004 2009 2014 Source: USDA . Source: USDA . 5 March 2005 Roland-Holst Slide 16

Chinese Arable Land 5 March 2005 Roland-Holst Slide 17

Stock of Cultivated Land in China 5 March 2005 Roland-Holst Slide 18

Provincial Land Stock Changes 5 March 2005 Roland-Holst Slide 19

Annual Rainfall 5 March 2005 Roland-Holst Slide 20

Yellow River Basin Water Use 650 100 Million Metric Tons 600 550 500 450 400 350 300 2000 2010 2030 2050 Available Water Resources Water Demand, Best Case Water Demand, Worst Case 5 March 2005 Roland-Holst Slide 21

Human Resources Chinese farms are simply too small to mechanize and too poor to invest in innovation. 2,000 1,800 Farm Worker Value Added 1,600 1,400 (2003 USD) 1,200 1,000 800 600 400 200 0 10 20 30 40 50 60 70 80 Percent Reduction in Farm Population 5 March 2005 Roland-Holst Slide 22

Chinese Supply Conditions Productivity growth has been impressive, but resource constraints are very serious. Output growth might sustain current trends for the next decade, but it is unlikely to accelerate in any major categories. 5 March 2005 Roland-Holst Slide 23

3. China’s Food Requirements One of every seven people on the planet is a Chinese farmer. Should we be worried about this? No. One of every five people on the planet is a Chinese consumer. Average incomes are rising fast, and so is the resource intensity of consumption. Concluson: You ain’t seen nothin’ yet. 5 March 2005 Roland-Holst Slide 24

It wasn’t always so… but we are in a new world now. 5 March 2005 Roland-Holst Slide 25

Income is Rising in China… (2000 USD and growth rate) 25% 2500 20% 2000 15% 1500 10% 1000 5% 500 0% 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 Source: USDA . Domestic GDP % Per capita GDP, dollars 5 March 2005 Roland-Holst Slide 26

And so is Inequality Source: USDA . 5 March 2005 Roland-Holst Slide 27

China’s Population is Moving (Rural and Urban, millions) Half a billion people will switch from the food supply side to the demand side. 1000 800 600 400 200 0 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 1 1 Urban Population Rural Population Source: UN . 5 March 2005 Roland-Holst Slide 28

And Diets are Changing Percent of caloric intake kcal/person/day 5 March 2005 Roland-Holst Slide 29

Emergent Imbalances Despite significant progress in productivity, the implications of these trends in supply and demand are obvious. China’s growth can only be sustained with increased absorption of resources and resource-intensive products. As it has with energy, China will emerge as a leading global importer of agricultural products. 5 March 2005 Roland-Holst Slide 30

Exhibit A: Petroleum China’s Net Oil Exports 60 40 20 Million Metric Tons 0 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 -20 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 -40 -60 -80 -100 -120 5 March 2005 Roland-Holst Slide 31

Exhibit B: Soy products 5 March 2005 Roland-Holst Slide 32

Exhibit C: Income and Imports, Meat or Feed Import the meat or the feed to produce the meat. 120 100 Per Capita I ndex (China= 1) 80 60 40 20 0 Vnm Phl Id Chn Tha Mys Kor Jpn -20 Demand M eat Net Imports Feed Net Imports Richer Poorer Source: Author’s estimates. 5 March 2005 Roland-Holst Slide 33

Verdict: China Will be Asia’s Largest Ag. Importer Net Agricultural Imports in 1997 USD Billions 100 90 80 70 1997 USD Billions 60 50 40 30 20 10 0 2005 2010 2015 2020 China Korea, Taiwan ASEAN Japan Source: Author’s estimates. 5 March 2005 Roland-Holst Slide 34

China’s rapidly rising imports Agricultural trade of China (including Hong Kong, excluding intratrade) Billion US$ 35 30 25 20 15 10 5 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Exports Imports Source: WITS. 5 March 2005 Roland-Holst Slide 35

Corn Feed Use Million metric tons 200 China 180 160 Asia minus China 140 120 100 80 60 40 20 0 1984 1989 1994 1999 2004 2009 2014 Source: USDA . 5 March 2005 Roland-Holst Slide 36

Soybean Meal Feed Use Million metric tons 70 China 60 Asia minus China 50 40 30 20 10 0 1984 1989 1994 1999 2004 2009 2014 Source: USDA . 5 March 2005 Roland-Holst Slide 37