China’s water levels have reached a decade-long low due to drought, which has caused a “severe threat” to the autumn harvest, which supplies 75% of China’s grain. This is the most recent in a string of food supply shocks that have rocked international markets this year. Chinese businesses have been buying up land, grain elevators, and food processing facilities all over the world for more than a decade, and China’s leaders prioritize food security. However, due to rising incomes and declining arable land, Chinese investors are attempting to establish themselves in many sectors of the global food supply chain. Zhu Danpeng, deputy director of the Guangdong Food Safety Promotion Association, believes that overseas mergers and acquisitions will accelerate in the future due to China’s need to ensure its future food security.
Cofco Group, a state food processing goliath, has bought several global grain companies since 2014 and has grown to be Argentina’s largest exporter of grain and oil, Brazil’s largest exporter of soybeans to China, and one of the top exporters from the Black Sea region. It has also acquired French wine producer Chateau de Viaud, Chilean winemaker Bisquertt Vineyard, and purchased an 80% share in Australia’s Tully Sugar. Chinese companies, including Cofco and local grain companies, have accelerated their international M&A in the past few years due to Chinese demand and commercial interests. However, due to political pressure, Chinese companies have focused less on land and more on infrastructure as they are sensitive to being branded as “land grabs”. Deborah Brautigam, director of the China Africa Research Initiative at the Johns Hopkins University Paul H. Nitze School of Advanced International Studies, contends that Chinese investments are made ad hoc rather than as part of a centrally planned push to seize resources.
The United States imposed a 21-year trade embargo on China in retaliation for its intervention in the Korean War. This embargo, along with sanctions against Russia and the potential extension of sanctions against the Chinese technology sector, has heightened Beijing’s paranoia about relying on foreign food suppliers. China started its “going out” strategy in the late 1990s, providing incentives for companies to invest abroad, especially in agriculture. This push opened up new opportunities for China to diversify its global food sources. Cofco eventually played a crucial role by securing access to important markets and establishing a network of transportation to deliver goods from countries like Brazil and Ukraine to Asia.
China’s agricultural involvement abroad is increasingly being done by integrating state-owned enterprises like Cofco into the global commodity chain. China’s SOEs have established significant footholds in Latin America, where Cofco and ChemChina have emerged as market leaders. China has invested in a new global food chain, dubbed the “Food Silk Road,” which includes agritech and biotech projects, regional SOEs, and private companies. The Chinese government has increased its efforts to clean up domestic farmland by reforming rural land rights and investing in water-saving technologies. It has also invested in the development of “future foods” like plant-based eggs and meat grown from animal cells.
China’s agricultural sector is essential for domestic food security and the world’s food supply. However, its heavy reliance on imports and its practice of stockpiling global grain supplies could pose problems for other nations. China is keeping its food stockpiles at a “historically high level,” with enough wheat on hand to last for an additional 1.5 years. The Ukraine war has been a turning point for China and other countries about the need to rethink their food systems. If China purchases goods like grain in mass quantities from the open market, it could drive up global prices further and make it harder for poor countries to source these commodities.
China is facing a difficult adaptation to climate change due to new and erratic weather patterns, soil degradation, and increased frequency of floods, droughts, and heat waves. Local and central governments struggle to come up with ways to support farms, and agricultural technology has become a key component of China’s adaptation strategy. However, domestic realities have forced China to continue looking outward to meet its needs. Despite political opposition, China will continue to invest in foreign agriculture to boost global production.