China's Policy Changes Could Impact U.S. Ag, Economist Says

China's Policy Changes Could Impact U.S. Ag, Economist Says

China's new premier eyeing expanded free trade, which could mean good news for U.S. ag producers, says Iowa State University economics professor Dermot Hayes

Corn and livestock producers may be on the winning end of recent government policy changes in China that could favor U.S. agriculture, Iowa State University economics and finance professor Dermot Hayes explained last week at a Risk and Profit Conference hosted by Kansas State University.

China, which is similar in size to the U.S., hosts the world's largest population, according to the Central Intelligence Agency. Currently coming in at 1.355 billion people in the country, it leads India with 1.236 billion, the U.S. with 319 million and Russia at 142 million.

China's new premier eyeing expanded free trade, which could mean good news for U.S. ag producers, says Iowa State University economics professor Dermot Hayes

Hayes said that most of China's population density is also where the best agricultural land is and there have been recent signs that citizens in its rural areas are being encouraged to move to urban areas.

"In China, the amount of corn and soybeans planted is determined by the government," Hayes said, and not by market forces. In addition, China has about one-fifth of the per capita water resources that the United States has.

About 30% of the pork in China comes from smaller "backyard" producers that readily quit raising pigs once they can afford a car to drive to the grocery store and to find employment.

Related: Vilsack Visits With Chinese Leaders on Ag Trade

Hayes, who is the Pioneer Hi-Bred International Chair in Agribusiness at Iowa State, added that while China's Ministry of Agriculture has traditionally protected its farmers, China's new Premier Li Keqiang has been quoted as saying that protectionism is a blind alley, and that free trade can help achieve a global economic recovery.

Li was a pupil of free-market economist Li Yining and is the first Chinese premier to have a doctorate in economics.

"I don't know how this will turn out," Hayes said, but noted that private Chinese firms spent more on U.S. investments in the past 15 months than in the previous 11 years. He cited the purchase of Smithfield Foods Inc. in 2013 as an example.

At the time of Smithfield's sale to Shuanghui International, the company was the largest shareholder of China's biggest meat processor.

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Hayes acknowledged that despite signs of potential in China, the Chinese government owns much of the country's farmland and does not disseminate accurate land use data, which makes it difficult to get accurate information.

"No one really knows how much land China has in crops," he said, although he estimated the figure at about 275 million crop acres, much of it poor quality land. "They are farming on land we wouldn't because we can't get a tractor up the hill, but you can (farm such land) if you have the manual labor."

In contrast, the U.S. has about 360 million acres in crops and about 400 million acres of pasture.

Related: Smithfield Agrees To $4.7B Chinese Merger

Despite the uncertainty that shrouds China and its impact on the rest of the world, Hayes said that if China frees its people and urbanization moves forward, it will need as much as 140 million tons – more than 5 billion bushels – of corn, which is bigger than the impact ethanol has made on the market. If China moves to a more free market for its livestock markets, a large proportion of its future needs will be imported.

"The impact of livestock product imports on world markets will not be as severe as the alternative policy of importing grain. Chinese livestock have poor feed conversion efficiency because Chinese consumers have complimentary preferences to consumers in the West," he said, noting that the Chinese prefer parts of the animal that U.S. consumers don't.

Still, Chinese companies purchasing U.S. assets may not be as important as many think. When Japan went on a buying spree of U.S. companies in the 1980s, fears of Americans were generally proved unfounded, he said, adding that the buildings and land are still here in the U.S.

Source: Kansas State

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