China's Agricultural Policy and the Ukraine War: "Beijing Buys Influence and Expands Its Power"

Created: 03/25/2022, 19:07

By: Sven Hauberg

Grain harvest in the Chinese province of Hubei: China has been hoarding food supplies for years.

© Xinhua/Imago

China has been stockpiling huge amounts of grain for years.

Agricultural expert Hendrik Mahlkow explains what this has to do with the war in Ukraine and how Beijing could take advantage of the high world market prices.

Munich – The Russian war of aggression not only causes unspeakable suffering to the people in Ukraine*, it also causes global grain prices to rise.

This is particularly felt by people in poorer countries, who already have to spend a large part of their income on food.

At the same time, China* sits on about half of the world grain stocks.

In an interview with Merkur.de*, agricultural expert Hendrik Mahlkow from the Kiel Institute for the World Economy explains how Beijing could use this treasure to make other countries dependent on itself.

For four weeks Russia has been at war with Ukraine, which is considered the “breadbasket of Europe”.

What impact does this have on the global food supply?

The impact is significant.

Russia* and Ukraine are responsible for 25 percent of global wheat exports.

In all likelihood, production for export in the Ukraine will be completely canceled.

The fields were already cultivated last autumn.

But now it would have to be fertilized, and that is currently not possible in large parts of the country.

The farmers are afraid that the investments that have to be made now will not pay off - because the harvest cannot be brought in or is simply flattened by tanks.

And even if it were possible to harvest in summer, the yields would be much lower because there is no fertilization now.

Ukraine is also a major corn exporter, including to the EU.

Sowing should now take place – but that is not happening.

And how is the situation in Russia?

Russia* and former Soviet republics such as Kazakhstan are also currently facing logistical problems.

Because these countries export grain mainly via the Black Sea - and that is a war zone.

There are reports that wheat tankers have already been shelled there.

The insurance rates for ships sailing in this region are increasing exorbitantly.

Even if export via the Black Sea were possible, it would increase transport costs enormously.

In addition, the Russian Federation has imposed an export ban on grain*.

In the next few months, no more wheat will be exported in order to ensure security of supply.

Both together is a hard blow.

Hendrik Mahlkow conducts research at the Kiel Institute for the World Economy on international trade, among other things.

© Private

China: Grain as a means of geopolitics

How does this affect poorer countries?

This is completely different from country to country.

Egypt, for example, imports 70 percent of its wheat from Russia.

At first glance, that sounds like a very large dependency.

However, wheat is a commodity that is traded on the world market.

So you can get it from somewhere else.

However, all countries are currently trying to replenish their stocks because they are afraid of getting nothing more.

Many countries are playing against each other here.

This increases the prices enormously.

The price of a ton of wheat* has doubled since the war began.

This is also a problem for countries that have not yet imported anything from Russia.

Because now they too have to pay the increased prices.

Are prices only going up, or is there a risk that there will not be enough grain on the markets due to the shortages in Ukraine?

The problem isn't that there isn't enough.

We have enough food and enough grain worldwide, even if there are enormous losses in storage and consumption, so a lot is wasted*.

The problem is the rising prices.

What role does China play in this?

The country has been bunkering enormous amounts of grain since the beginning of the corona pandemic.

It is part of China's strategy to become food sovereign*.

As a result, the country has built up massive inventories.

The exact figures are unknown, but analysts assume that China holds 50 percent of the world grain stocks.

That is 150 million tons and corresponds to the domestic consumption for a year and a half.

The government wants to prevent price increases and supply shortages.

At the same time, China also has a geopolitical pound up its sleeve: on the one hand, the country can sell its grain very lucratively because prices are now very high.

On the other hand, Beijing can make very good use of its market power.

For example, when developing countries apply to China for help because they cannot pay for their imports on the world market.

China: Massive investments in agricultural technology

Is China already doing that?

We do not yet see this behavior in the agricultural sector.

However, we were able to observe this at the beginning of the corona pandemic in mask exports.

On the one hand, masks were sold at high prices, but at the same time they were given to developing countries as aid.

That was clearly geopolitically motivated.

How dependent is China on grain imports from Russia and Ukraine?

For several years now, China has been importing significantly less grain than it used to and is instead concentrating on establishing sovereignty in the food supply.

Low prices are extremely important for the regime, otherwise a social powder keg would emerge.

That is why China is investing massively in domestic production.

Only seven percent of grain consumption in China is imported.

How does China do that?

The country has about 20 percent of the world's population, but only has nine percent of the world's cultivated area.

In recent years, China has invested massively in modern agricultural technology and new cultivation methods, such as irrigation.

In addition, China cooperates closely with foreign companies, for example in the fields of seeds, genetic engineering and agricultural machinery.

Beijing has also imported knowledge on a large scale through joint ventures.

That's why China is now much more independent of foreign technology than Russia, for example.

When the country can be completely self-sufficient is still open.

Agricultural policy: Meat consumption plays a crucial role

The EU also wants to make itself less dependent on grain imports in the wake of the Ukraine war.

That's true, and I personally see it quite critically.

The EU* imports a lot of corn from Ukraine and now wants to become independent of the world market.

That is why, for example, fallow land and ecological compensation areas should also be managed, which I do not think makes sense.

In addition, the international division of labor in the agricultural sector is based on the fact that a plant is cultivated in a region where it grows well.

So there is no point in planting grain maize in northern Germany in the future, where grain grows much better here.

The independence that the EU is striving for comes at the expense of the cultivation volume.

So, although we will be more independent, we will also produce less overall, which in turn leads to higher prices.

We Germans spend less than ten percent of our income on food, so a price increase of five percent doesn't affect us that much.

In countries where people spend 80 percent of their income on food, the consequences are very different.

What role does meat consumption play in this?

Unfortunately, the EU only focuses on a supply policy, it wants to produce more.

But one does not dare to approach the demand, it would be urgently necessary.

Today we feed enormous amounts of grain in animal stomachs for meat production.

This does not make sense to this extent ecologically and energetically, because we have to feed pork three to six times as much energy as we get back from meat.