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Underlying the FAO’s warning is the central message that should China lose its winter wheat crop, it will go to the international grain market to make up any shortfall. The sudden entry of such a huge buyer could certainly rock the international food markets.

However, the FAO’s warning is a false alarm. First, because for the past six to seven years, China has lost around 7 percent of its annual grain output to various forms of natural disasters, and yet its annual grain production has been on the rise. In 2010 China’s total grain production was a historical record of 546 million tons. Second, successive years of bumper grain harvests have enabled China to build up a large grain reserve of more than 40 percent of its annual consumption – much higher than the world average of around 17-18 percent. The growth in grain productivity for the past three decades has been very impressive, particularly since 2004.

China’s population accounts for 21 percent of the world’s total population, but the country is endowed with only about 9 percent of the world’s arable land. Feeding such a vast nation, with such an unfavorable man-land ratio, has always been a great challenge for China’s rulers, past and present. Hence the old Chinese adage: “An economy without strong agriculture is fragile, and a country without sufficient grain will be chaotic”.
Even in modern times it remains an enormous task for the Chinese government to ensure food security. China’s serious food crisis between 1959-1962 is still fresh in the collective memory of the present generation of Chinese leadership. Therefore, China has always taken food security very seriously, much more so than many other countries. Food security in China basically means “food self-sufficiency”, with the bottom line set at 95 percent of domestic grain supply.

Such a stringent definition of food security naturally puts an additional burden on the government. The problem is aggravated by the fact that for the past three decades, China’s total population increased from 960 million in 1978 to 1.3 billion in 2009, while arable land, the total sown area, increased only marginally by 5.4 percent.

Worse still, the total sown area devoted to food crops declined substantially from 80 percent in 1978 to just 64 percent in 2009, mainly because, with economic prosperity and rising incomes, farmers were growing more lucrative non-grain commercial crops.

Accordingly, China has come to depend heavily on increasing the output per unit of land area to maintain its food security. This, in turn, needs continual technological progress, such as using hybrids or other high-yielding varieties, and increasing intensification of cultivation with greater use of modern inputs like chemical fertilizers and pesticide.

The trouble is that barring the use of genetically modified (GM) crops, the productivity growth potential of traditional technological progress based on modern seeds and modern inputs has started to slow down everywhere in the world. Widespread use of modern inputs of industrial origins also inflicts long-term ecological damage.

Rapid economic and social changes have further worked against food production. Industrialization and urbanization in China as elsewhere inevitably spell agricultural decline. Farming is also becoming economically and socially unattractive to young people. As in other densely populated East Asian economies with severe land constraints, food production in China has also become an increasingly high-cost business.

With China having achieved successful industrial take-off, economic theory suggests that it should have a stronger comparative advantage to export labor-intensive manufactured products to the United States in exchange for its cheaper food produced by land-extensive farming. In other words, China should scale down its existing high level of food self-sufficiency and let international trade take care of any shortfalls, much as Japan has done.

However, the world has a stake in China’s strong food security. If China followed the economic theory of comparative advantage by relying on international trade to achieve its food security, its import requirement would seriously destabilize the international grain market and drive up world inflation.

It is therefore in the favor of the whole world for China to rigidly adhere to its basic tenet of maintaining strong food self-sufficiency.

The author is director of the East Asian Institute, Singapore.

Indeed, the real purpose of our helicopter trip was to view Mr Batista’s latest project, a vast superport north of Rio, built with this customer in mind.

The centrepiece of the complex is a two-mile-long pier jutting straight out into the South Atlantic, which has been dubbed “the highway to China”.

[...] Click here to read the full article direct from BBC

(Oct 26-30, 2009)

*metals commodity prices obtained via Kitco Metals
*energy commodity prices obtained via Yahoo Finance
*agriculture commodity prices obtained via Yahoo Finance
*wheat futures via Bloomberg

“I don’t see any adequate-supply situation in any commodity market over the next decade or two,” Rogers, the chairman of Singapore-based Rogers Holdings, said today in an interview in New York. “The commodities boom is not over and the bull market has several years to go.”

“I own some cotton,” Rogers said. “I own some sugar,” he said. “Sugar will go much, much higher over the course of the bull market.”

“Oil could reach between $150 and $200 a barrel,” because known reserves of crude are declining, Rogers said. He said international relations, particularly between the U.S. and Iran, will help guide prices.

“Natural gas is very cheap,” he said in the interview between sessions at an ETF Securities Ltd. investor conference.

Commodities ‘Best Place’

“Commodities are the best place to be, if you ask me, based on supply and demand,” Rogers said. He said he hasn’t invested in equities outside of China in two years.

“Everything has gone through the roof,” Rogers said of equities prices, adding that he may consider buying stocks “if something collapses.”

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“Protectionism is getting worse and worse. I’m terribly worried about because protectionism lead to the Great Depression… I’m worried about a lot of things. A 50% rise in 6-9 months is something to worry about. You usually have corrections after that.

June 29 (Bloomberg) — Commodities, heading for the first quarterly advance in a year, may struggle to repeat their gains in the next three months as supply expands and speculators sell.

Nickel may average 29 percent less in the third quarter than now, crude oil 16 percent, copper 14 percent and gasoline 10 percent, analyst estimates compiled by Bloomberg show. Hedge funds and speculators cut their bets on higher prices by 23 percent in the two weeks ended June 23, the first back-to-back drop since March, based on an index using U.S. Commodity Futures Trading Commission data. The World Bank said June 22 the global recession will be deeper than it expected three months ago.

“Commodities have gotten a little ahead of themselves,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “As long as there’s uncertainty about growth, that’s going to be headwind commodities won’t be able to overcome.”

Commodities rose 14 percent this quarter, led by nickel, oil and sugar, after three consecutive declines, according to the Reuters/Jefferies CRB Index of 19 raw materials. This year’s 57 percent advance in oil costs, combined with widening budget deficits, may cause another global slump, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis.

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As usual, Jim Rogers is sticking to what he knows best-raw materials. If you’re a new reader, or have not heard of Jim Rogers definitely run a search on the right of his name to bring up past posts and videos including him.

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Part 3 / 3

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