‘Boom’ coming for crop producers

Economist says China will remain a major food importer despite slowdown in economy

All the headlines and talk about China’s economic slowdown hide a crucial truth for Canadian farmers, says a Yale economist.

Demand from China for food products might actually increase in coming years, even as its other commodity demands plunge, Vikram Mansharamani said in an interview during the Canola Council of Canada annual convention March 5.

“As consumption booms, many of the exports from Canada that have come, canola and other agricultural products, will continue to see robust markets in China,” Mansharamani said.

It’s due to a profound shift in Chinese economic development that Mansharamani said is already occurring and that he predicts will pick up steam in coming years: economic growth will be driven by consumption instead of investment.

It’s good for food products but bad for industrial commodities.

China has been growing at a stupendous rate for more than two decades as it pours hundreds of billions of dollars into massive infrastructure projects from highways and railways to skyscrapers and entirely new cities.

The growth allowed the Chinese economy to boom and attracted massive amounts of the world’s resources. However, China has hit the end of that runway.

The country is now weighed down by overcapacity, with underused highways, “ghost cities” and other infrastructure that might be needed sometime, but not for a few years.

It will probably end Chinese demand growth for industrial and construction commodities because there won’t be much new building, Mansharamani said.

It won’t be a happy situation for exporters of those commodities.

“If you are a commodity producer in that industrial or investment commodities space, this is going to feel like a total train wreck,” said Mansharamani.

However, food producers and exporters are not likely to feel this pain. China’s strategy for the past few years, and the general pattern of industrializing economies, is to shift from building capacity to increasing consumption.

Food is one of the first things people consume more of when they have the money.

“It’s going to feel like an unprecedented boom,” said Mansharamani.

“What I see happening is a criss-cross that goes on underneath the headlines.”

Chinese demand for canola seed and canola oil has been massive in recent years, making China Canada’s No. 1 customer for the oilseed.

ed.white@producer.com

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