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

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 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 can be both customer & competitor, depending on the commodity Dairy products Fresh apples Kiwifruit

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

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

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

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

China increasing competitiveness in labour-intensive horticulture Trade Competitiveness Index TCI ij =(X ij -M ij )/(X ij +M ij ) TCI = 1 if only export TCI = -1 if only import

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