Wow!!!! China’s got a whole bunch of people!
And they don’t have much land or water!
That should be great for us as people involved in agricultural production, right? Check out the chart below:
That was one of the many charts supplied by Rabobank, the international Dutch lender with a particular interest in agriculture, in a presentation I listened to recently. The Rabobank analyst who gave it also appeared at the Banff Pork Seminar.
The chart above is the kind of thing people look at and then jump to conclusions, such as that China’s going to be importing more and more meat as its population, which is getting richer, eats more of the stuff.
But the reality is far less certain, analyst Chenjun Pan said in the presentation. China may not increase demand much for any meat other than offal and value-added, processed pork from abroad. How can this be? Doesn’t an urbanizing population naturally eat more meat as it gets richer? And isn’t it more efficient for China to produce more grain – a much more efficient way of producing carbohydrates, fat and protein than meat production – to feed its giant population and leave the relative luxury of meat production to folks like us, with wide open spaces and lots of water?
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In a simplistic way, it does.
But Pan said other concerns occupy the minds of China’s policymakers, and she thinks China will prefer to import grain than meat in the future. I have a story coming out in this week’s paper about this topic, so I won’t go into it in depth, but simply put: China wants to have its own modern, efficient, job-providing meat industry and will likely buy crops from us to support that industry. Grain farming doesn’t provide many jobs and will provide less as, like here, it has industrialized.
This would obviously have implications for us, such as not providing the big surge in demand for meat that we hope for. And lots of folks in the meat industries are hoping for Chinese demand growth to lead to a golden future.
But the point I want to make here is that it is dangerous to make big assumptions about China, which is still much of a mystery to most of us. Before we leap to major conclusions about demand growth from the middle kingdom, we should first consider how much we actually know about China. Check out this map:
Now quick – name seven of those Chinese cities.
Ok, now more slowly – name seven of China’s major cities.
If you can do that, you’re a rare Canadian. Some industry consultants can name a lot more than seven, but how much they actually know about them is an open question. And how much any of us know about how China’s political-economic decision-making process is another open question. Do any of us really understand exactly what’s behind China’s stand on canola and blackleg. Sure, we all speculate, but what do we really know?
So it’s nice for us all to fantasize about China, and dial in aggressive numbers into our supply and demand projections, but the reality is likely to be different than we can imagine. That’s always the case with everything, but I’ve noticed in markets chatter in the last few years that the China factor is used to justify every rosy projection imaginable, and that’s something we should be careful about.
China’s likely to be a bigger deal in a few years than it is now, but be careful presuming you can figure out exactly how it’s going to evolve, especially if those presumptions are convincing you to make decisions that have long term implications. Until you can name and spell out 20 Chinese city names, you probably shouldn’t rely to heavily on your assessment of the future demand of the Chinese market.
