China agriculture: customer or competitor?

Allan Rae

• 1.3 billion people– 800 million rural– 500 million urban

• 34 cities with >1 million

• Farm production still primarily in the hands of smallholders. E.g.– 98% dairy farms & 65% of milk production on

farms with less than 20 cows– But 5% output on farms with >1000 cows

Trends in China's food consumption

0

50

100

150

200

250

300

rice meats dairy fruit vegetables fish

kg/p

erso

n 1981-83

1991-93

2001-03

Drivers of consumption growth

• Rapid economic growth: average 8% since 1990– Expenditure elasticities

• Grains 0.42• Meat/dairy/fish 1.31• Processed foods 0.81

• Rapid urbanisation– Urban population grows by 3.5% per year

How does urbanisation drive consumption?

• Higher incomes• Sedentary life style• Supermarkets• Exposure to mass

advertising• Refrigerated supply

chains

China's Beef consumption growth higher in urban residents (kg/person)

0.00

0.50

1.00

1.50

2.00

2.50

Rural

Urban

China’s production response

• Production of foods such as animal products, fish and fruits/vegetables has also increased rapidly

• Recognises comparative advantage in labour-intensive agriculture

• Some reasons:– Economic reforms

• Household responsibility system• Development of local markets• Land tenure reform

– Less policy emphasis on grains– Vegetable Basket Programme– Productivity growth:1%-5% in livestock

• FDI : dairy, horticulture…impacts on productivity & quality

China: milk self-sufficiency and net imports

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2001-03 1991-93 1981-83

'000

to

nn

es production

consumption

net imports

Beef: Self-sufficiency and net imports

-1000

0

1000

2000

3000

4000

5000

6000

7000

2001-03 1991-93 1981-83

'000

tonn

es production

consumption

net imports

China: Sheep&goat meat net imports

0

500

1000

1500

2000

2500

3000

3500

2001-03 1991-93 1981-83

'000

to

nn

es production

consumption

net imports

China can be both customer & competitor, depending on the

commodity

• Dairy products

• Fresh apples

• Kiwifruit

China’s Imports of Dairy products: A continuing customer…

China's total dairy imports

0

100

200

300

400

500

600

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

US

$ m

illi

on

Series1

Shares of China's dairy imports

0

10

20

30

40

50

60

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005%

by

valu

e Australia

NZ

USA

EU15

China is world’s largest apple producer, & has 12% of global exports

China's Apple Exports

020406080

100120140160180

US

$ m

illio

n ASEAN-10

EU15

Russia

South Asia

China's Rising Share of ASEAN10 Fresh Apple Imports: A competitor to NZ

0.010.0

20.030.0

40.050.0

60.070.0

80.0

% to

tal v

alue

impo

rts

China

USA

EU15

NZ

Australia

China’s kiwifruit output second only to Italy: rapid increase in exports over last few years

China's trade in fresh kiwifruit

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

US

$ exports

imports

New Zealand the major supplier to China: will China become a competitor in future?

Shares of China's Kiwifruit Imports

0

20

40

60

80

100

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005% t

ota

l HS

08

10

50

imp

ort

va

lue

From Chile From NZ

China increasing competitiveness in labour-intensive horticulture

• Trade Competitiveness Index

• TCIij=(Xij-Mij)/(Xij+Mij)

• TCI = 1 if only export• TCI = -1 if only import

China's increasing international comepetitiveness

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1999 2000 2001 2002 2003 2004 2005

TCI i

ndex

fresh apples

cut lfowers

kiwifruit

Net imports of maize and meats (grain equivalent)

-20000

-15000

-10000

-5000

0

5000

10000

ne

t im

po

rts

('0

00

to

nn

es

)

China maize

China meats

Will China continue to export, or import, grains or meats?

Outlook

• Demand growth likely to continue, if overall income growth & urbanisation trends continue

• Supply increasingly facing constraints– Environmental– Water– Land– Animal health issues– Quality standards

• Future growth especially in labour intensive cropping & small animal prodution

• China will be both customer and competitor