China As America’s Banker, America As China’s Farmer: Malthus Was Right

China’s agricultural problems, where a quickly growing and increasingly affluent population is putting pressure on food supplies, will eventually spill over to the U.S., says environmental and agriculture guru Lester Brown. With the U.S. the world’s largest grain producer and China the largest holder of U.S. debt, Lester asks, “with China now America’s banker, will America become China’s farmer?”

Thomas Malthus sparked one of the most heated debates in economics back in 1798 when he anonymously published his Essay on the Principle of Population in which he famously postulated that as population growth turned exponential and outstripped agricultural production, which grew at a linear rate, famine and poverty would lead to civil strife and war. In a teleconference on Wednesday, Lester Brown, head of the Earth Policy institute, echoes Malthus’ fears noting that the British economist “was right in the sense that we are having trouble feeding the world population.” Apocalyptically, he adds that he sees he sees “no prospect that we will be able to face rising demand.” (Read On The Verge Of A Global Food Crisis).

China, Brown explains, will put incredible strains on global grain markets and will force the American consumer to forget about cheap food. With news that China had quietly entered the U.S. grain market to buy corn in the last couple of weeks, a nightmare scenario is brewing up for both countries. The U.S., with grain production at around 400 million tons a year, is the world’s breadbasket, according to Brown, exporting more than Canada, Argentina, and Australia together, the next three largest exporters. China, with over $900 million in Treasuries, is the U.S.’ banker.

“Like it or not, we will have to share our grain with China,” says Brown, “which means the U.S. consumer will have to compete with a population of 1.3 billion with fast-growing incomes that is quickly moving up the food chain, demanding grain intensive products.” In the past the U.S. could resort to restricting exports, as Russia and Argentina did in the ’07 – ’08 food crisis, this is not an option now. China’s massive holdings of U.S. debt and its continued financing of an exploding deficit makes it politically impossible to not cooperate. “In a country that has been the world’s breadbasket for more than half a century, a country that has never known food shortages or runaway food prices, the world is about to change.” That country is the U.S.

Brown expects Chinese wheat imports from the U.S. will be close to 10 million tons, most of it corn. Those could rise to 20 million tons by the end of the decade. “[China] would’ve been in the market for more hadn’t it been for record grain and soy bean prices, but if they come in too big, they will rock the market,” explains the environmentalist. (Read Why World Food Prices Will Keep Climbing).


Food Price Index - UN FAO
Global food prices have been testing all-time highs since last December, according to data from the UN’s Food and Agriculture Organization, with eight consecutive months of increases. Stemming from bad policies and rampant population growth, the problem can’t be pinned down to any one nation. But China, with the largest population, is definitely a game changer. (Read Global Food Prices Hit New All Time High After 8 Consecutive Months Of Gains).

China’s agricultural policies have restructured the whole of the Western hemisphere’s agriculture. In the ‘80s, Chinese leadership was composed of survivors of the Great Famine of ’58 to ’61, where 20 to 43 million are estimated to have died. The psychological scars, notes Brown, led to an “all out effort in agriculture, including research to raise yields, investment incentives, and other things.” In a desperate attempt to become self-sufficient in grain, one of their policies was the abandonment of the soy bean. “In 1995 China produced and consumer 14 million tons of soy beans, by 2010 they continued to produce 14 million but consumed 70 million, making them heavily dependent on soy bean imports.”

Soy bean is now the most common crop from Canada to Argentina, explains Brown. The top three exporters, the U.S., Brazil, and Argentina, responsible for 80% of the world’s harvest and 90% of exports, essentially feed China, which imports 60% of global stock. “The U.S. has more land dedicated to soy beans than grains, Brazil has more land for soy beans than for all its grain products combined, and Argentina has doubled the amount of land for soy beans than for all grain products combined.”

While soy bean, intended to feed China, comes to dominate Western crop-land, at the expense of grains, China’s own grain production has begun to face problems of its own. Along with the U.S., China is the world’s greatest grain producer, each with about 400 million tons a year, according to Brown. Industrialization and modernization have had their toll, as agricultural production was moved to the wind-erosion prone North Western regions of the country, leading to falling yields. Urbanization has drained young workers from rural areas, sending rural wages skyrocketing and forcing the abandonment of smaller plots with no scale. Rampant growth in automobile demand, with China adding 14 million cars to its fleets in ’09, 18 million in ’10, and an expected 20 million in ’11, means paving millions of square miles.

Arguably China’s biggest problem, though, are over pumped aquifers. With four-fifths of its grain coming from irrigated fields (compared with one-fifth in the U.S.), the over pumping of China’s large North China plain fossil aquifer means it has been feeding approximately 130 million people more than it should with those supplies, it has inflated its capacity. “This will lead to catastrophic consequences for future generations, as inflated grain capacity is by definition a short-term solution,” says Brown, noting that 18 countries, including all four of the world’s largest grain producers, are depleting their aquifers.

Another major problem hitting the global food situation is the use of grain to make ethanol, according to Brown. “Malthus never anticipated that,” he says. “The price of grain is now tied to the price of oil, this is a situation we have never faced before,” notes Brown, “and as oil prices continue to rise, hitting $150 or maybe $200 a barrel according to some estimates, means that if producing ethanol is more profitable, people will turn to that.” Therefore, the simple equation is that as oil prices go up, ethanol prices go up, and so do grain prices, putting further strains on the global economy. Brown predicts ethanol production will face regulatory challenges in the near future in tandem with a substantial tightening of global food markets.

Brown puts the finger on what will become one of the biggest challenges facing the world. Spiking global food prices have been part of the catalyst behind recent unrest in the Middle East and North Africa, as real wages fall in the face of rising food-price inflation. With approximately one sixth of the world in “chronic hunger” according to the U.N and global population expected to hit 7 billion by the end 2011, it would be wise to pay more attention to people like Brown.