Analysts are divided on what impact China’s new three-child policy will have on future feedgrain demand.
China’s Communist Party declared in May that the government will allow all couples to have a third child. It is unclear when the new policy will take effect.
CoBank, an American farm lender, thinks it will be bullish for long-term demand.
“The base level of structural demand for protein (and thus feedgrains) could increase following a recent policy shift allowing Chinese families three children, up from the two-child policy enacted in 2016,” the lender said in a recent report on China’s feedgrain demand.
“We interpret the efforts by China’s government to tame inflation as a signal to make larger families more affordable.”
Arlan Suderman, chief commodities economist with StoneX, isn’t so sure the new policy will result in more mouths to feed.
He noted that the one-child policy was in place for so long that it has become entrenched in the culture.
“It’s not just changing the policy, it’s changing the culture,” said Suderman.
He noted that the 2016 policy shift to allow two children after decades of a one-child policy hasn’t been a roaring success.
China’s population growth rate has been steadily declining since the 1970s. The country of 1.44 billion people grew by 0.39 percent in 2020.
That declining growth trend could eventually pose a problem for future protein and feedgrain demand from that important region of the world.
A Bloomberg analysis of the new three-child policy comes to a similar conclusion about China’s population challenge.
Bloomberg Economics estimates the declining birthrate will result in a shrinking Chinese population by 2025.
It reports that 12 million babies were born in China last year in the midst of the COVID pandemic, the lowest number since 1961.
The concern is that eventually there won’t be enough workers to keep China’s juggernaut economy on track and that could really impact protein and feedgrain demand.
Bloomberg reports there was a brief spike in births following the introduction of the two-child policy but that was short-lived due to the high costs of housing and education in China.
There are concerns that the three-child policy will have the same muted results.
Suderman said the bigger worry in the medium-term for feedgrain markets is China’s growing emphasis on food security.
He said that is a policy priority for President Xi Jinping that was recently amplified by the COVID crisis.
“They deeply want to be self-sufficient on food production and not depending on other countries,” said Suderman.
China is taking steps to bolster yields, with moves like ChemChina’s takeover of Syngenta Group. Syngenta is now using its technologies to boost crop yields in China.
But StoneX’s team in China doesn’t believe the government will be successful in raising yields as long as the country still has hundreds of millions of growers farming small tracts of land because it is hard to get technology into the hands of so many small farmers.
“I don’t think they are going to be able to do it,” said Suderman.
That is why he remains bullish on Chinese feedgrain demand, at least in the short to medium term.
It will vary from year-to-year but in general it will be more than it has been in the past decade or two, he said.