Earlier this year, a Chinese company tried to buy a chunk of Australia the size of Wales (about the size of Kentucky, to provide an American example). The 250 million AUD purchase of the beef station was blocked by Australian regulators, who found security reasons to reject the sale that covered one percent of Australia’s gargantuan landmass. Plenty of pundits pointed out, however, that while Australia’s foreign investment review board is theoretically independent of the powers-that-be, politically speaking, rejecting the deal was easily the more palatable option in the current electoral climate.
The entire affair can be seen as a microcosm of China’s efforts to secure agricultural land worldwide; while seen as necessary by the Chinese authorities, it’s a massive endeavor that requires Chinese companies to navigate the political and social systems of other cultures, often with mixed results. From Africa to South America, Australia and Europe, Chinese companies are doing their best to secure local farm assets. This, of course, prompts the question as to why China is so desperate to buy foreign food and get its hands on foreign farms.
China’s issues with food security are entwined with its history. Famines, be they natural or manmade, have plagued successive dynasties and governments to such an extent that even today ensuring the nation has enough food, at stable prices, is a key concern of the authorities—so much so that China keeps a “strategic pork reserve” of both frozen pork and live pigs to deal with market fluctuations. It’s just one example of food security anxiety in the halls of power, which manifests in a number of policies, such as those geared toward self-sufficiency in grain production. The Communist Party of China has, ever since its inception, had a heavy emphasis on agriculture in its key policies.
Beyond the history and political considerations, however, is the raw business case for acquiring agricultural assets. Over a billion people live in China and a large proportion of them have seen significant rises in living standards over the past few decades. Demand from the new Chinese middle class is changing consumption habits to resource-intensive models. This, combined with land degradation and urbanization, is why over the last few decades China has become a net importer rather than exporter of various kinds of foods, such as grain. The difficulties of gathering accurate statistics over such a large country mean estimates on when this occurred for each type of food vary, but what is agreed is that China’s fragmented farming model—where small farmers own small plots of land—is now inadequate in terms of both supplying enough food and in being able to live up to food safety standards.
Simply put, for some time now, China hasn’t been able to feed its population without outside help.
This of course means there is an impressive chance to make money for Chinese companies, which have far greater access to Chinese markets than foreign competitors, but they need to source food elsewhere, and unlike their Western counterparts, Chinese companies haven’t always had a lot of experience dealing with foreign legal systems and work practices, let alone potentially xenophobic local sentiment.
Sometimes, all it takes is a whiff of a deal to set the media frenzy on edge. In September 2013, a spate of news reports indicated that a Chinese company had purchased, or agreed to rent for 50 years, three million hectares of farmland in Ukraine. Given the recent civil war in Ukraine, it is perhaps fortunate that the deal in reality was far more modest— the company came out with an announcement that the reports were inaccurate and that there was only a far smaller deal for 3,000 acres. The deal was just one of many that, when probed, indicated in all probability that Chinese companies had bitten off more than they could chew and had to settle for less.
There are plenty of success stories of Chinese companies purchasing farmland overseas, though smaller buys have proven much easier to successfully cement. Large Chinese companies may prefer to be able to scoop up big deals in one fell swoop, but the reality on the ground shows that these kinds of deals are far more likely to prompt a backlash.
In the period since the failed beef deal and amid widespread media reports expressing anxiety over foreign purchases, Australia’s foreign investment review board dropped its threshold for investigating investments from 252 million to 15 million AUD.
This was not a direct result of the deal of course, but can’t be viewed in isolation from it, nor the recent signing of a free trade arrangement between the two nations.
Australia has been a popular destination for Chinese agriculture investments, and Chinese investment in general. According to a report, jointly released in April 2016 by market research company KPMG and the University of Sydney, Chinese investment in Australia’s agriculture sector stood at 375 million AUD in 2015, and in terms of overall investment, Australia has been the second largest recipient of aggregated global direct investment from China behind the US over the last decade.
It is, of course, important to separate trade from investment. While trade headlines demonstrate China’s deep economic ties with developing nations, when it comes to investment, China overwhelmingly prefers to purchase assets in developed countries. In both cases, however, the US is by far China’s largest partner. In 2015, the US department of Agriculture pointed out in a report that, “The United States accounted for over 24 percent of the value of China’s agricultural imports during 2012-2013, a larger share than any other country. US agricultural sales to China doubled from 2008 to 2012, reaching nearly 26 billion USD in annual sales. China has overtaken Japan, Mexico, and Canada to become the leading export market for US agricultural products.”
It was an interesting insight into the ways in which the world’s two most powerful nations—for all the tensions and disagreements that appear in media—are often, economically speaking, joined at the hip. And this is only likely to increase in future, as the report pointed out: “While bulk commodities remain predominant in China’s agricultural imports, evolving consumer tastes and increased purchasing power are stimulating demand for higher value products. Imports of wine, beer, cheese, breads, cookies, extracts of coffee and tea, and ice cream are growing rapidly.”
China’s growing appetite certainly causes consternation in plenty of quarters—a recent campaign including celebrities such as Arnold Schwarzenegger targeted Chinese consumers, urging them to cut down on their meat intake for the sake of the environment—but in many ways it certainly seems like one place where Chinese and other consumers all over the world are coming together is the dinner table.
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