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January 07, 2012

Africa is not growing the food commodities China imports

On the face of it, it should be a logical tie-up. China, with its burgeoning middle class and shrinking arable farmland, is facing increasing strains in its agricultural sector to meet domestic food demand. Africa, with its vast stretches of fertile but underdeveloped farmland would appear to be a natural partner to help the world’s most populous nation meet its food needs.

Yet for all the polemics surrounding Chinese “land grabs” in Africa the continent remains a bit player in Beijing’s food security strategy – at least according to this new report from Standard Bank.

The numbers served up in the report certainly offer food for thought.

Food consumption in China over the past decade has increased at an average annual rate of 23.4 per cent (or five time faster than in India) from $57bn in 2000 to $463bn in 2010. The figure is expected to double to over $1,000bn by 2015 as income growth fuels food demand further.

Within this, average per capita consumption of meat in China is expected to rise from 71.2kg in 2010 to 82kg by 2015 – China currently consumes half of the world’s pigs each year.

Higher demand for meat in turn causes a spike in demand for agricultural produce that feed animals – namely corn, wheat and soybeans. Adding to the supply tensions, industrial activity has also spurred demand for certain agricultural commodities. i.e – car manufacturing has stimulated demand for rubber, and textile manufacturing for cotton.

So why is it that Africa – whose wealth of energy and natural resources have long caught the eyes of Beijing – remains on the sidelines when it comes to agricultural trade with the Asia powerhouse?

As Standard Bank noted, the majority of Chinese agricultural imports come from Asia and the Americas. Total China-Africa trade in agricultural goods amounted to less than $4bn, compared to $100bn between the two for the year.

From the report:

…there is a clear disconnect between the agricultural commodities which Africa principally exports and those which China is increasingly importing. In comparing lists of the top ten Chinese agricultural imports with the top ten African agricultural exports, Chaponniere et al (2009) show how only two commodities, cotton and rubber, emerge – and even these products remains relatively modest.

One reason is that boosting domestic agricultural production is a key plank in Beijing’s long-term food security policy. At the moment, China is a net exporter of food and has enormous stockpiles of most soft commodities. Thanks to state support, China’s agricultural output is expected to increase by 26 per cent in 2019. Another reason is agriculture in Africa simply does not enjoy the same economy of scale and subsidies that make food products from Asia and the Americas so much more competitive.

Standard Bank – being the Africa bulls that they are – thinks the relative undeveloped nature of Africa’s agricultural sector can be an attractive proposition for a country like China, particularly as demand-overhangs, driven by demographics, continue to develop. According to the Food and Agricultural Policy Institute, for example, China will adjust from a net wheat exporter of 2.3m tonnes in 2007/8 to a net importer of 1.4m tonnes in 2017/18, while cotton imports will double from 3m tonnes to 6.1m tonnes. Meanwhile, the report reckons that 60 per cent of the world’s available and unexploited cropland is in Sub-Saharan Africa.

According to Simon Freemantle and Jeremy Stevens, authors of the report:

In Africa, two core areas create an allure for China. First, given the manner in which the continent’s agricultural sector has persistently underperformed, the provision of develop-mental and technical assistance allows Beijing an important avenue in fostering and building deeper bilateral ties. And, second, Sub-Saharan Africa’s (SSA)immense and largely untapped agricultural potential is being increasingly viewed by China as a cog in an unfolding and inclusive food security strategy. For now, China’s strategy is overtly developmental, and, though commercialism inspires many of the cooperative farming projects, profits are generated almost entirely in local and regional markets.

However, it is notable that for all Standard Bank’s bullishness about China in Africa there is little current evidence to back it up. Trade between the two – while rising – is low and direct investment by China in Africa is minuscule by its own standards. According to the report, Chinese activity in Latin American agriculture has been substantially more pronounced than in Africa. Thus, predictions of massive Africa-specific growth in the future must be treated with caution – especially given the rising backlash against Chinese investment on the continent.

Perhaps that should be the report’s real message.

Financial Times

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