Global Supply Assurance

Late last week China revealed that it was about to approve a plan to buy large tracts of land in South America and Africa. The purpose of the purchases is to assure that China is not left to the risks of the market place in the future when its own agricultural production is not able to keep up with its growing demand.

China is essentially self-sufficient in food at the present (something that it cherishes) but rising incomes are changing the mix of demand from lower quality vegetarian diets to meat and more refined and processed foods. China has about nine percent of the arable land and the current global food crisis is helping to fuel the long-held desire by China not to be at the mercy of foreigners. China is currently self-sufficient in corn but imports lots of soybeans. As its livestock production ramps up for future demand, it will need to produce substantially more feed stuffs than its own resources currently can support.

China has been making similar deals with Africa and Indonesia for future supplies of oil and energy. The UN complained that it was trading dirty smokestack (outdated) technology to these countries to seal the deals. China was reported to be within 12 days of running out of coal a week or so ago. This is the consequence of a rapid ramp up of electrical power generation to meet higher demands and gives a clear indication of the stresses that relentlessly increasing demand can bring. Inflation is beginning to be a problem too as demand outstrips production.

It will be difficult for China to acquire this land for future food production if it comes across as colonial or high handed. It will be interesting to see how this develops. Supply assurance is replacing reliance on the global free market as other "oil rich but food poor" countries contract for production of food exclusively for their use. Libya was reported to be seeking a deal with the Ukraine to grow wheat for its exclusive use. Trading oil for food could establish a new set of global alliances and have some dramatic impacts on future trade.

Last week India stopped futures market trading for four months in the commodities. This was a move stop speculators from driving up basic food prices due to the current castastrophe in Burma and the general shortage of coarse grains around the world and region.