FEEDing Frenzy: Corn, Investment, and Agribusiness in China

It’s a FEEDing frenzy out there.  Suddenly, what pigs are eating in China has caught the attention of commentators, reporters, and investment analysts alike.  This is big business that some see as a massive opportunity for investment and profit, while others see disastrous environmental and climate consequences.  I see steady and increasing dispossession of China’s small-scale farmers, further consolidation of market power for trans-national agribusiness, and explosive expansion of Chinese political and economic power in global agricultural markets vis-à-vis Chinese agribusinesses.   Here’s a quick rundown of some of the recent press about corn imports and investment opportunities, and a few comments about the implications…

CORN: Perhaps the biggest news in the past few months is the 1.2 million metric tons of corn that China has imported from the US so far this year.  A combination of strict rules against GM crops and products[1], and an intense focus on grain self-sufficiency has kept China from importing corn in any significant quantity in the past.  So, while the precise reasons for this year’s historic buying spree aren’t yet crystal clear (as the Wall Street Journal reports, Chinese officials are incredibly tight-lipped on corn policy as a matter of national security), the rush to industrialize pork production under the auspices of feeding the growing (urban) middle class’s appetite for pork is certainly at the heart of the matter.

COFCO, China’s top state-owned grain trader, is the major corn buyer.  Because COFCO’s operations are not open to the public, it’s impossible to say for certain where all of the corn shipments are destined.  In May, Bloomberg reported that COFCO had sold some corn inventories to “cool local prices”, and planned to use corn imports to further curb rising domestic prices.  It would seem that COFCO would also use this corn for its own industrial pork production, a segment it has been increasingly investing in over the past few years, even buying a 4.95% share in Smithfield in 2008.  Another 2010 corn buyer is New Hope Group, China’s largest agricultural products supplier.  In May Liu Yonghao, the Group’s president, confirmed that New Hope will use imports in the manufacture of pig feed.

Writing about this issue in a Grist post last week titled, “With the global climate pact dead, China gets hungry for U.S. factory pork”, Tom Philpott argued that China’s recent corn imports signal a boon for agribusiness, especially through the conversion of large tracts of land in Argentina and Brazil to corn production, as well as pending climate disaster for all the reasons commonly associated with globally sourced, or long-chained agricultural production.  He quotes Hanver Li, a Chinese agribusiness executive, who said that the arrival of corn shipments meant that a “new era” had dawned in world corn markets.  A writer at PETA picked up Philpott’s ideas and concerns and (predictably) made them more dramatic and much less nuanced, writing, “How Will China Destroy the World?”. Both of these commentators clearly see recent corn imports as just the beginning of a much longer story.  Investment advisors seem to agree.

INVESTMENTS For the past few months, and especially in the past two weeks, investment advisors are promoting Chinese agribusinesses.  This month, The Motley Fool predicts that Zhongpin, a leading Chinese fresh and frozen pork producer, might well be the next top growth stock.  The CAPS community gave Zhongpin the top rating of 5 stars, as a stock with the potential to outperform the S&P 500.  The Street also lists Zhongpin among the three top Chinese firms with strong internal growth; the other two are Yongye International, a firm that specializes in liquids and nutrient compounds for the agricultural industry, and AgFeed Industries, a leading producer of premix and blended feed and animal nutrients (mostly for pigs).  An analyst at Cabot Wealth Advisory also recommends AgFeed Industries as a low priced stock with great potential for growth.

It’s no coincidence that Chinese agbiz firms are coming on the investment radar at the same time that pork prices have been rising for 8 weeks in a row in China, causing overall consumer price inflation, and as corn imports surge to historic levels.  These investment recommendations rest on the assumption that China’s pig industry will continue to develop along Western lines, and will continue to rely on imported corn (and soybeans, which have been largely left out of recent press, though they make up the significant proportion of China’s agricultural imports and industrial pig feed rations.  Two articles, one from the Washington Post and one from farmlandgrab.org report that Chinese companies are trying to buy land in Brazil to plant soybeans themselves.  Much more on this later.).   In other words, investors assume that agricultural development in China will proceed through a  “business as usual” model, reproducing the players, relations, technologies, and methods of US-style, TNC-led agricultural production.  Anyone with a cursory understanding of development politics understands that the deck is stacked in favor of the agribusiness elite, whose sole purpose is reigning in profits under the banner of improving livelihoods, diets, farming practices, etc.

If the world food price crisis in 2008 taught us anything, it’s that the “business as usual” model doesn’t work, and never has.  It’s fundamentally flawed, and is promoted by a group of elites with a singular focus on marketizing food and agricultural systems to create new investment and profit opportunities, all at the expense of small-scale farmers and local food systems (lest we forget that while people were eating grass burgers in Haiti in 2008, Cargill and others were making record profits, or “Making a killing from hunger“, as GRAIN would say) .  The food price crisis was just one instance of a much more generalized and ongoing world food crisis that continues to grip the most vulnerable populations.  As a recent GRAIN report called, “Global agribusiness: two decades of plunder” outlines, TNCs are smack dab in the middle of the food and agriculture issues we find ourselves struggling with today.  China and other countries in the midst of deciding how to invest in agriculture would do well to heed these warnings.  Whatever the case, corn, investment, and agribusiness will continue to be important players in this unfolding drama.

[1] Currently, of the 20 varieties of GM corn in the world, 11 have pass the requisite food safety checks in China and are allowed to enter the country.

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2 Responses to FEEDing Frenzy: Corn, Investment, and Agribusiness in China

  1. erika says:

    It’s not just the assumption of business as usual but the assumption of linear economic and social development proceeding as it did in Europe and the United States — even though anyone could tell you the game and the players are very different in the case of contemporary China. It gets my goat I tell you!

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