China’s Coming Boost to the Rural Sector

If you asked an educated American to identify Norman Borlaug — the Nobel Prize winning agronomist whose hybrid wheat doubled food production in Pakistan, India and Mexico among other places — the chances are you’d get an empty stare. The Atlantic dubbed him in 1997 “the forgotten benefactor of humanity”. On the other hand, the name Yuan Longping — who created a hybrid rice variety 30% more efficient than normal rice, and which now accounts for 20% of world production — is close to venerated in China, recently named China’s greatest businessman by a Sohu poll, often named as the Chinese person most deserving of a Nobel Peace Prize, and he was dubbed last April by China Social Sciences press with the somewhat bizarre title “China’s Richest Soul.”

The large disparity of fame between the largely forgotten about Borlaug and the still idolized Yuan is a keen reminder that many people in China still hold memories of starvation. Whereas Bourlag was mostly responsible for averting starvation far away from his country of birth, Yuan’s hybrid rice is primarily grown within China, and is one of the main reasons the country doesn’t have to deal with food shortages.

China is facing some new problems on the agricultural front, and Yuan is not alone in trying to find solutions. China plans to cut its rural population down to approximately 20% of its current levels. Beyond this, China is suffering from both a shortage of land – the land used for agriculture and the land used for cities is the same – and a shortage of water. Creating this difficult transition means more farm equipment, more hybrid seeds, and more agritech in general. There is a pool of companies working around the clock to make this happen.

The international imperative

Besides pushing forward China’s industrialization, the changes to China’s agricultural sector have become something of an inspiration to a number of African states. As South Africa has returned farmland to blacks, they have been sending experts to China in order to learn how to create high yields on small segments of land. “In agricultural technology China is ahead of the pack,” Ron Sandrey, an agricultural economist with the Center for Chinese Studies at Stellenboch University told me during one visit, pointing out that it is particularly adept at dealing with small stakeholders. 

The China-Africa Development Fund has also been investing heavily in this area. In my interview with them, Mark Fung described a cotton project they were working on in Malawi: “If they start producing more cotton, our farmers in Xinjiang could transition to producing processing equipment, or something along those lines.” African development depends on a large net increase in the agricultural sector, and many people in both Africa and China see this as a place where the continent and the country can work together.

Finally there is also “agricultural substitution” driving this sector. As oil prices have gone up, agriculture has been increasingly used as a substitute, both in ethanol, and as a replacement for synthetics in fabrics. Agriculture is a far more renewable resource than most commodities, and has the biggest potential for long term gain.

Why this is a China story

There are two reasons why this is a China story more than it is a Monsanto or Dupont story. The first is the issue of cost. Monsanto has been credited (though they claim wrongly) with bringing up the price of inputs through aggressive patenting. In a developing market situation, and particularly in a country with poor IP protection that simply isn’t going to fly. Monsanto has a tiered system which produces its products first for the US market, and secondly for the African market. China is specifically targeting a developing market. Their technology may not be nearly as good, but their speed and cost are much better.

Second is a question of market. The primary market for new agricultural goods in the coming years will be China, meaning that outside market participants need to deal with the Chinese tendency towards protectionism. I can think of few markets where governments are less active than in agriculture, and I expect China to be no different. Then there is the difference in Chinese tastes – rice and soybeans have a different set of demands than wheat and tomatoes, and producers that specifically focus on those areas will have a leg up.

Last, Americans are not yet used to seeing Africa as a market, whereas China has for some time. Monsanto does not sell to the poor in Africa until they are ready to do it for no profit. China is looking for a profit in Africa, and in agriculture they are likely to find it, which is enough to motivate 1,000 budding Yuan Longpings.