Monday, 21 May 2012

Chinese agricultural revolution


By Sarina Locke
China's revolution in agriculture has the backing of $1 trillion for agricultural investment over the next five years
Its strategy is to subsidise large-scale modern farms to feed its people, and make use of technology like animal genetics to improve production.
Australia is reaping some of the rewards, but could it be playing a bigger role?
So much focus has been on Australia's $47 billion mineral exports to China that agricultural trade barely rates a mention.
Australian agricultural exports total $32 billion, of that 15 percent goes to China (ABARES 2010-2011).
But China has been on a drive to 80 per cent self-sufficiency in agriculture for the past nine years.
It's not an easy task, feeding 22 per cent of the world's population with just 7 per cent of the world's arable land.
Dairy expansion
One of the key expansion areas is huge dairy sheds, as reported recently inThe Wall Street Journal.
"On this side we have 10,000 cows, on the other side there's another 10,000 cows."
"Deng Jiu Qiang is the founder and chairman of Modern Dairy, and this is one of his company's 15 farms, financed by the US private equity firm KKR and other investors.
"It's modelled on American factory farms, that Deng saw on a tour a few years ago."
A record migration of 100,000 dairy cattle will board ships bound for China this year, from Australia, New Zealand and Uruguay.
"Australia has an enviable reputation and position in the world, given that we are able to provide consistently high quality, safe and disease-free cattle herd, " says the group general manager of Elders International Trading Tony Dage.
Increasing farm output is so important to China, that the Government has set aside 6,000 billion yen, or $1 trillion, for it over the next five years.
Those subsidies help underwrite the massive growth in importing live animals: from hogs to hens and dairy heifers to beef breeds.
As the largest supplier, Elders will buy $90 million worth of Australian dairy heifers to go into China this year.
Tony Dage says Elders can't get enough dairy heifers from Australia.
"It's a bit of a struggle.
"When we talk about China specifically, Elders International will supply about 30,000 head of cattle into China; about 30 per cent of the market.
"We're only able to do that because we can source very good quality cattle from three procurement points: Victoria in Australia, New Zealand and Uruguay.
Australian dairy farmers are busy rebuilding their own herds, and can get better prices domestically for their heifers, so Elders has to find the balance overseas.
Safe and healthy food
China's dairy production suffered badly with the melamine contamination scare four years ago, where several babies died and children were hospitalised from poisoning via baby formula.
Under pressure to keep prices down, Chinese dairy companies added melamine to replace milk protein.
"Back in 2008 there was the the melamine scare; since that time, China has been significantly more focussed on ensuring that genetics, pedigree and quality of their domestic herd is at such a level that they have certainty around food security.
"So the Government is providing incentives... is encouraging external investments in some of this infrastructure over the last four years."
No longer free range
China has 1.4 billion mouths to feed, growing wealthier and demanding more protein - that has to be produced on a small piece of land.
Australian dairy heifers are journeying from pastures to life in a shed.
China's Modern Dairy is unapologetic.
"Applying Australia's pastoral grazing model in China will get us nowhere, it's a dead-end.
"So I see the American factory farm model as the way forward for China."
Chinese farm subsidies
So it's not just about producing the quantity - but quality too.
Large scale farms need to be better prepared for deadly epidemics, like foot-and-mouth disease and bird flu.
A company that consults the Chinese Government and foreign agribusiness investors is Beijing Orient Agribusiness Consultants.
"To deal with the issues like disease control and hygiene, the Chinese government adopted many specific policies aimed at supporting scaled animal farms, to promote animal farming industry and no longer encourage household animal farms," says senior analyst Wang Xiaoyue.
The subsidies equate to a $55,000 hand out for a farm producing one million meat chickens a year, and $130,000 for a large piggery.
Farms are regulated to continually increase production.
"By Chinese standards, scaled animal farms should reach a target each year.
"Piggeries have to produce over 50 live pigs, broiler farms have to turn out more than 2,000 meat chickens and layer farms have to house more than 500 egg producing hens.
"And beef and mutton farms have to turn own over 10 cattle or 30 sheep in stock at any one time," says Wang Xiaoyue.
China has only recently opened up to foreign backers.
To give you an idea of the scale of that investment, the likes of Thailand's CP food group has started building a $AU550 million pig breeding and slaughtering facility in Hubei to process a million pigs a year.
CP has already made similar investments in two other provinces, Shandong and Guangdong, where it produces 100 million chickens a year.
Self-sufficiency goals
The head of food and agribusiness in Asia for Rabobank John Baker says China aims to be 80 per cent self sufficient in all agricultural commodities.
"China has different self sufficiency goals for each sector.
"For grains, they have an ambition for 95 per cent self sufficiency, whereas in sugar they have a self sufficiency ambition for 85 per cent.
Fertiliser they have an ambition for 100 per cent, in fact they're a net exporter today of fertiliser products."
Shortage of experts
The limiting factor for Chinese agriculture is a lack of technology - and funnily enough - people with agricultural expertise.
One of those experts is Peter Batt, Professor of Food and Agribusiness Marketing at Curtin University, Western Australia.
Peter Batt frequently visits Nanjing Agriculture University to advise on agribusiness projects.
"Agriculture is on fire," he says -but he concedes the process seems abhorrent to Western eyes.
"Farmers are basically taken off the land, bulldozers move in, the landscape is changed.
"Flats are constructed into which the farmers move.
"The farmers are given the land back, importantly.
"The farmers become tenant farmers, what they grow is determined and managed by the investment property.
"You've got vegetable production, alongside animal production - you may have chickens, goats, rabbits. You'll have an aquaculture park - fish or crawfish, fresh vegetables and fruits."
Professor Batt established a state of the art, temperature controlled mushroom farm at Shandong.
"It was a case of saying suddenly to the 150-odd farmers that occupied the 40 hectares that I wanted that 'we're taking it over, 25-year lease', and the next thing I know is I've got 150 farmers working for me.
"The farmers were re-engaged at 350 yuan, 50 yuan more than they would have earned."
There's a downside to lending a hand and creating success, and that is China can take over supplying Australia's markets.
"Australia, WA has been a major supplier of fresh vegetables into Singapore, Malaysia and Hong Kong.
"We've seen that market almost disappear completely in the last 20 years, all because of China's investment in horticulture," says Peter Batt.
"They came on strong, but like any new country, initially the product wasn't too crash hot, but now it's as good as anywhere in the world."
"Things like carrots, cauliflowers and broccoli, and in many cases that's through having engaged joint ventures through Australian and New Zealand companies."
Australia may be able to supply dairy heifers, wheat, sugar and beef cattle - but what about livestock consultants and managers of food processing?
John Baker of Rabobank says "One thing I'd encourage everyone to do is get on a plane and see what's there.
"There is a lot of expertise in Australia, that could be used."
The world is gearing up for the Chinese agricultural revolution.
For the first time the International Agribusiness and Food Safety investment Conference will be held in China - in Shanghai city in June.
The Chinese Government knows it has a delicate balance, to support intensive agriculture, and smallholder farmers - or it will struggle to deal with the biggest human migration in history, from the Chinese countryside to the bulging cities.
Fonterra's dairies in China
The world's largest milk exporter, Fonterra, receives Chinese Government subsidies, to boost their dairy farms in China.
Fonterra has opened two large dairies totalling 12,000 cows and has two more dairies in the pipeline.
It's playing a part in China's push to meet milk consumption that's expected to double over the next ten years.
Fonterra's main business in China is, as the largest importer of dairy products into China, principally from New Zealand and also from Australia.
Phil Turner, president of Fonterra China, told Sarina Locke that the opening of the dairies in China won't reduce the demand of dairy products from Australia and New Zealand.
He says the subsidies are a small part of the overall investment.
"Construction of a third farm in Yutian County, (near Beijing) is underway and... we will be investing NZ $100 million in a further two farms in the same province."
Overall Fonterra plans to produce up to one billion litres of "high quality milk every year by 2020."
Fonterra was tied up with the contamination scare of 2008, when a company it had shares in Sanlu, was found to be putting melamine in dairy products.
Phil Turner says the industry and consumer confidence in the sector has recovered slowly, helped by government regulations and assistance to improve health and quality of Chinese dairies.
He says Australia and New Zealand will continue to have a market in China for their products, but China hopes to be more self sufficient in fresh milk and yoghurts.
Original Article Here

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