Growing consumption rates and disruption of global supply chains have led China to eye a sustainably focused circular economy and to search for reliable agricultural imports. This give Russia a major chance to expand trade relations with China beyond oil and gas exports, and to assert itself as a reliable, even indispensable, partner for China’s food security.
During the past few decades China has demonstrated a spectacular shift in consumption habits. Grain consumption more than tripled from 125 million metric tons in 1975 to 420 million in 2018, while currently the average Chinese person eats 63 kilograms of meat a year, six times the meat-eating rate in 1978. With the world’s largest population, this has established China as the biggest consumer of meat globally.
Beijing recently announced plans to increase productivity in its US$1.7 trillion agricultural sector, but food security still raises concerns. Although China’s agriculture sector logged robust performance in the first quarter of 2020 and recorded a 3.5% year-on-year increase in the added value of the planting industry, there were multiple signs of weaknesses in China’s agricultural sector.
In August, President Xi Jinping raised the issue of food security when he spoke about “shocking and distressing” wastage, called for better public awareness and the promotion of a social environment where “waste is shameful.”
At the same time the China Academy of Social Sciences warned about a grain supply gap of about 130 million metric tons by the end of 2025. That has been attributed to increasing urbanization and an aging rural workforce. For instance, since 1949, China lost one-fifth of its arable land to urbanization and currently only about 10% of land is suitable for agriculture.
Concerns about food waste and growing consumption demand also take a toll on the environment. For instance, direct manure discharge from China’s animal husbandry activities are dramatically polluting the rivers and about 34% of food produced on China’s farms is never eaten, according to McKinsey.
Currently China imports more than 20% of its food, and the Covid-19 pandemic has revealed the importance of avoiding disruptions.
Fears of food shortages, unexpected severe floods and typhoons that hit the country this year boosted food prices on average by more than 13% in July alone and by 11.2% from a year earlier in August. China also announced the release of 62.5 tons of rice, 50 tons of corn and 760,000 tons of soybeans from its strategic reserve and is set to purchase record volumes of meat and dramatically boost imports of wheat and soybeans.
Thus the pandemic has revealed shortcomings in China’s agricultural patterns and the need to invest in a sustainably focused circular economy, while also looking for ways to diversify food supplies.
As Russia-China economic relations continue growing, Moscow’s agricultural exports that have been shrinking under Western sanctions could become a natural hedge. China’s decreasing trade volumes with the US as a consequence of trade wars might create a major momentum for Russian suppliers to cement their shares in local markets.
Last year, China slapped a 25% tariff on US soybeans in response to American tariffs on a range of Chinese products, and shortly after that approved major wheat imports and soybean imports from all parts of Russia.
The opening of the Chinese market has provided opportunities to more than 30 Russian agricultural companies, including Cherkizovo Group, the largest meat producer in Russia. Thus many Russian businesspeople became increasingly enthusiastic about lucrative export perspectives in China.
These expectations have gradually started to be realized. In 2019, Russia-China trade turnover totaled $110.75 billion, a modest increase by 3.4% in annual terms that was compensated by agriculture emerging as the fastest growing segment.
For instance, last year, Russia exported a record 207,000 metric tons of poultry worldwide, 10% more than in the same period of the previous year, and of this amount 62,600 tons were sent to China, worth $143.4 million. This caused a 65% increase in poultry exports in monetary terms, which for the first time in history totaled $329 million, according to the analytical center of the Russian Agricultural Ministry.
Despite the pandemic, there are multiple signs of deepening China-Russia agricultural ties. In August, Beijing proposed a “soybean industry alliance” with Moscow as it strives to cement economic ties and offset threats of decreasing supplies from Western nations. There are also multiple signs of China seeking to boost its imports of Russian wheat, pork and poultry.
As China seeks to invest in a circular economy and allow more Russian companies into its agricultural market, Russia’s share will likely continue to grow.
All in all, high capacity establishes China as the most promising market for Russian companies. Although Russian suppliers still struggle from multiple constraints when accessing the Chinese market, there are strong signs of agricultural ties continuing a robust upward trend in coming years.