New research on China’s shrinking agricultural land base and what it means for pork imports

Dr. Dermot Hayes, agricultural economist at Iowa State University, shared original ongoing research on the Chinese agricultural market at the Four Star Veterinary Service Pork Industry Conference held in Fort Wayne, Indiana in mid-September.

“The Chinese grain markets are of particular interest in the crop area – how much land they have available,” said Dr. Hayes. “This is a slide showing the value of Chinese imports of wheat, corn, pork, beef, rice, soybeans, poultry, etc. Producers of every one of these products in the US dislikes the China market because the Chinese come and then they go. They come in and buy ethanol and DDGs and then they put duties on that, and then they buy sorghum and then they place a duty on that.”

To any individual commodity market in the US, China has been an unreliable market. However, Dr. Hayes said the chart (below) illustrates that when added together, China’s commodity imports are a reliable growth market. The US just doesn’t know which product they are going to buy.

China was buying pork in 2020, but by the end of 2020 and all 2021, they bought more corn and less pork. He said sometimes they buy products they can substitute like corn and ethanol, using one to make the other. When they do this, it gets political and involves duties. Dr. Hayes bottom line: the import value trend line is going up, and we are seeing about $100 billion in Chinese imports of land intensive products.

“China is driving world commodity prices, even though exporters all over the world really do not like that market,” he said.

Chinese corn imports saw a significant surge in 2020-2021 crop year to about 30 million metric tons. The USDA export estimate for this 2022-2023 crop year shows China is closer to 20 million tons.

“China can only buy corn from the US or Ukraine; they’re not yet set up to buy it from Brazil or Argentina,” he said. “The surprising jump in imports explains why our [US] market started to improve in the fall of 2020.”

Recently, China has been consistent with soybean imports at 100 million metric tons.

“Iowa produces about 10 million acres of soybeans or 12 million metric tons,” said Dr. Hayes. “For one country to buy more soybeans than what the Midwest can produce is quite amazing. Soybeans are the most land intensive crop. This is an economic concept that you can divide goods into land intensive or capital intensive or labor intensive. Almost all the cost of producing soybeans is the acre of land that they are grown on because the seed and fertilizer costs are low relative to other products. What China has done is given up on being self-sufficient in soybeans, they only grow a small amount of domestic soybeans for tofu; all of their soybeans for animal feed are imported.”

Using Google maps, Dr. Hayes shared the images above of the city of Shanghai, China. On the left is Shanghai 20 years ago in 1997 and it’s about 20 miles across. On the right is Shanghai in 2017 and it’s now about 100 miles by 100 miles.

“Shanghai, like the other big cities in China, is located on the land that is the best; that’s how the cities got to be big,” he explained. “If you are out in the desert in China, you couldn’t survive. So, the prosperous cities in China are the ones sitting on good land. The proposition I’m going to set up is how can China claim to have a constant number of crop acres and yet continue to see that kind of growth in their urban areas. It’s not just happening in Shanghai; it’s occurring in Beijing and Tianjin and others. The question is how they are accommodating this rapid growth and urbanization without losing farmland?”

China’s land use policy

“In 2007, an economist in the US wrote a book titled Who Will Feed China, and the answer was – the whole world is going to have to feed China,” said Dr. Hayes. “That scared the Chinese leaders and they said, ‘we’re not going to allow that to happen. We’re going to limit how much crop land we allow for conversion.’ That was in theory, but I’ve been going back frequently and I see more and more land that has been converted.”

According to Dr. Hayes, Chinese leaders, in a typical top-down approach, told the provincial governments that they shouldn’t convert any more land to development.

“What’s different in China is that nobody owns the land itself. The local governments have been making most of their money from converting the land – taking it from peasants and selling it to developers,” he said.  “About 60% of the [provincial] revenue comes from those transactions. So, you can see the central problem. The boss is saying no more conversion of land; but the provincial governments make legitimate revenue from selling communally owned crop land for development.”

For example, consider if every county in Iowa had to report their crop acres to the Iowa state government, and then the state reported those acres into the federal government. The counties aren’t working under any incentive program, so they are reporting accurately that they’re losing land. The state doesn’t want to report their losses to the central government, so about half stopped giving public access to county level data.

“However, the other half continued to publish their losses, which was a mistake, because now we’ve got a look at what they were collecting from the prefecture (like county governments in the US) and what they’re reporting to the Chinese central government. That was an example of what was happening to the land in China before it became political,” he said. “They were losing about 1.5 million hectares (3.7 million acres) a year. Around 2007, it became political, and the government told the provinces they cannot go below a redline set at 120 million hectares, so everyone reported that they were at the redline and not converting any land, which is impossible given what has been reported and what we can see.”

The graph above is from research conducted by Xiaorui Qu, a Ph.D. student who works with Dr. Hayes. The solid line shows China’s claimed crop land. The dotted line above shows where Chinese land now stands based on Xiaorui’s research. China is still losing about 1.5 million hectares a year and they are well below where they say they are. The research estimates China is losing a land base the size of Iowa every decade.

“What does it all mean? It explains the chart showing that China is starting to import a lot of land intensive products,” he noted. “If you ask them, they will say, ‘We are importing corn for a couple of years to rebuild our stocks.’ But the question is, how did their stocks get so depleted in the first place? I think the answer is that if they want to grow wheat and rice to be self-sufficient, then they’ve already given up on soybeans, and I think they are slowly giving up on corn due to the lack of land.”

Dr. Hayes bottom line

“I think US pork exports will resume strong at the end of 2022 and into next year, because of the culling that’s happening in China and Europe,” he said. “I think China will be at import parity for pork going forward, meaning production costs will be at least twice as high and with a 12% import duty, that industry is not protected. I expect to see considerable turmoil in China with considerable imports of pork muscle meat from Europe and pork variety meats from the US. Whether we like China as a customer or not, we’ve got them.”