Food crisis in China? Rising domestic prices and large import purchases send a signal

Rising demand, floods, insect infestations and rumors of spoiled inventories are contributing to the development of food-related problems in China.

China has a food problem. For a nation whose leaders are old enough to have been directly affected by the Great Famine, the severity of the food shortage cannot be overestimated. China’s growing population, growing industrial economy, and growing consumer culture are contributing to a steady increase in demand for agricultural products.

But agricultural production, lest anyone forget, is subject to the Biblical forces of floods, fires, plagues, and a host of other variables, some of which are currently disrupting China’s delicate food stability. The world’s most populous nation will certainly not run out of food, but prices are rising and signs of diminishing supply are beginning to appear. Things can get worse before they get better.

Three main themes are challenging China right now: floods, pestilence, and inventory problems.

Floods threaten rice, wheat and other crops

Above-average rainfall and increased floods not only threaten to compromise the gigantic Three Gorges Dam in China; Rain and floods are already disrupting the production of rice, wheat and other crops in the provinces along the entire Yangtze River.

Perhaps this is why China, which holds just over half of the world’s wheat inventories and is the world’s second-largest wheat producer (behind the European Union), has already imported more wheat in the first half of 2020. than in the first half of any year in the last decade. In June alone, China’s single-month wheat import volume from all sources was the highest in seven years.

Inventory problems and insect infestations threaten corn

According to the USDA, China is not only the second largest corn producer in the world (behind the United States), but will also have sixty-five percent of the world’s corn inventories at the end of this harvest year. But press reports emerged last week citing poor quality in some state corn inventories, some of which are years old. The reports coincided with two large Chinese purchases of corn from the United States, one of which was its largest purchase (1.76 million metric tons or 69 million bushels).

Furthermore, corn prices in China have risen to 5-year highs despite the fact that China has recently sold more than 1.4 billion bushels of corn from state reserves, indicating that there is a definitive problem of some kind with supply. of Chinese corn. The USDA Foreign Agricultural Service notes an unusually early and intense infestation of the Autumn Army Worm in June as the likely cause of the current corn distress in China.

Increasing demand

It is worth noting that, so far this year, China is on track to achieve its highest soybean purchase rate from the United States since 2014, and Chinese soybean imports from Brazil since June increased a staggering 91% year-over-year. previous. China is aggressively buying soy and soy products to feed its expanding pig herd, the largest in the world. In fact, the USDA projects that China will import a record total amount of soy from all sources next year.

Overall, the past few months have seen China increase its imports of pork, soybeans, soybean meal, wheat, corn, sorghum, and prepared / frozen foods from the United States and elsewhere. China cannot feed itself; It needs the help of the world, especially if its national production and inventories are compromised.

It is too early to assess the ultimate severity of China’s total food problems, and the domino effects of China’s food problems are highly unlikely to cascade through the global food chain, but right now the Chinese leadership has Food safety is the main concern.