You're listening to Asia Centric from Bloomberg Intelligence, the podcast that explores the big ideas and trends moving money across the region. I'm John Lee in Hong Kong.
And I'm Kadi Dmitriyeva, also in Hong Kong. John, I was reading a UN report earlier this year about this big global change that's happening in agriculture. India is set to overtake China as the world's number one driver of global food demand and that's going to be over the next decade.
Interesting, and that's quite a big change from what we saw in the past few decades where all the growth in demand came from China, everything from meat to rice. We shift a lot of supply chains, impact prices and in general, it's a trend that most investors should be aware of.
Yeah. Also the climate factor. We're seeing bigger and more frequent climate change events, particularly in India and China. Well, here to discuss all things agriculture across the region is Darren Fredericks, director of Setonia Consulting. Welcome, Darren, Hi, thanks for having me well in this report.
Darren.
The un FAO, that's the Food and Agriculture Organization They said that China's agriculture and fisheries consumption growth will drop to about eleven percent, So it's a pretty big decline from the sort of twenty eight percent we've had over the past decade, So quite a big shift, a big slowdown, and the un cited China shrinking population, flat income growth. I'm just wondering, from what you're looking at, are you seeing that slow down in China's agricultural demands yet?
Yeah, Yeah, we're definitely seeing a slowdown. Part of that is due to the school or economic growth that we're seeing following COVID. Part of that's also the changing demographics. You have an aging population, they're trying to eat healthier. You know, back in twenty ten you saw very high
growth in port consumption things like that. But now China's the economy slowing, the older demographics are trying to eat healthier, the younger demographics also trying to eat healthier, And we've sort of had all the major gains previously and now things are settling into a more slower pace.
What kind of agricultural goods are we talking about, Like, if someone wants to eat healthy in China, what kind of items are they reaching for or what are they not reaching for anymore.
I think the biggest thing that we've seen impacted is pork. I mean, pork remains the dominant protein source, the biggest meat, but over the past decade, pork consumption is basically flat in comparison consumption of paltry so like chicken meat that's actually increased quite a bit over the past decade. So
as people are eating healthier, they're going for that. We've seen a big increase in beef consumption eggs as well, So pork is still the dominant meat, but people are switching to alternatives, and they're also going for what they see as healthier options.
Darren China consumes roughly, you know, half the world's poor consumption, so it's still very important. How has a slow down impacted poor prices?
Generally, consumers right now are being just more frugal, and we're seeing that across the board, even in things like flour demand or rice demand. People are just not spending quite as much money. We're seeing that also in the restaurant industry, where a lot of restaurants are noting that people want discounts, they want deals. They're being more cautious what they're spending. A common phrase that's used is downgrading consumption.
You know, people are still going out, they're still spending money. But if previously they were spending you know, one hundred remen be on dinner, now they're probably trying to spend seventy. So it's just this downgrading of consumption.
What about the production? And I guess sort of implications for investors, like if we know that China's consumption of agricultural goods is going to sort of flatline, well grow at a slower pace in the coming years, does that open up space for Chinese investors to look offshore that increase competition for investors. You know, we've seen Chinese investors buying farmland in North America for example. What are sort of those implications.
So one of the big things we've seen this here is because of the scower growth, we've seen, for example, hog populations decline. We've seen soybean imports are relatively weak on the sort of international markets in Chicago, we've seen soybean's fall to very low levels. Soybean futures, we've seen corn prices relatively weak. Same thing with wheat, where China's had a very good wheat crop, but there's not that
much demand. So that's definitely pressure and global markets from the demand side because China is simply buying less.
Sit down, if you are a say like a weight or a soybean farmer sitting in the US or maybe even Brazil, what's the strategy going forward because it sounds like China's going to be consuming less these products.
I mean, I think it raises the issue of diversification of finding these new markets because for the past let's say twenty years, China has been the demand driver. Pretty much. Every year demand would go up, China would import more, and that was your market. So now we're faced with the scenario where China is not going to stop buying, but they're not going to increase every single year and they're not going to be the biggest demand driver in the world. So I think it's important for those people
to understand that they need to diversify markets. And we've been seeing this in some countries where for example, Australia is trying to make sure that they've got a diversified supply chain and just selling to a broader range of countries, and that does mean expanding and making those trade connections in new countries because the sort of year on year endless growth that we've seen out of China is not happening at this point.
Basically, does that weaken the demand for certain commodities now you talked about like soybeans, wheat prices longer term, does that kind of add pressure on those commodities that China usually eats up.
I think that we'll still see relatively good demand for that, it's just going to be from different markets. So for example, you know plenty of markets in Africa and South Asia they're having huge population growth, rising incomes, and what we've seen from China, I think we can apply to these countries as well. As people get wealthier, they're going to eat more meat, they're going to consume more protein, They're going to have more money to spend on food, and
they will spend it on food. I mean, we've seen this in China. I think it's just shifting the markets from where it was traditionally to maybe new markets.
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of industries for a number of decades. How has China been Has it been successful in the self sufficiency for agriculture, for food?
Yeah, so it's been relatively I would say mixed. For contexts. In the past decade, China's faced a lot of potential supply sharks. I mean, we had the trade world between China and the US. We had the sus Canal getting blocked, we had COVID, we had supply chain disruptions. There's a lot of reasons that China is worried about it self sufficiency, so it has been trying to increase that, but I
would say the results have been relatively mixed. For example, one of the big pushes is to increase soybean production. China is by far the biggest importer of soybeans. They import about one hundred and five million tons every year. In comparison, they were growing about fifteen million tons before. After the self sufficiency push, they're growing about twenty million now in comparison to importing one hundred and five million.
That's not really going to help them much. So they've been making efforts towards it, but there's some things that simply can't be fixed.
You talked about a lot of risks there, and one thing been thinking of is does this increased climate change risk extreme weather events impacting harvests and yields. And we recently had pretty bad flooding in China. Wonder as we see this shift from China to India and of growth of consumption, how does that play into these climate change disasters.
Yeah, I mean this year has been very difficult in terms of weather. You know, big agricultural areas in the north of China had droughts to begin the year, than it switched to very heavy rainfall. We've seen vegetable prices go up by fifty percent in some cases, and there's just been more weather volatility and that increases the risks.
We've seen record amounts of rainfall in some areas, We've seen extreme temperatures and that's just going to have to be something that needs to be adapted to, but it's definitely having an impact on agriculture, on prices, and then also on consumer spending.
Do you expect those swings to continue? I mean, climate change risk is always going to be a risk. It will probably intensify, storms will intensify, and the impact will intensify. But in terms of agriculture in China, how are you kind of thinking about that a longer term, like over the next ten twenty years, just more volatility? Are there certain momodity is you're eyeing?
Yeah?
I think I definitely think that there's going to be more volatility as we go forward, as we're dealing with climate change. And this is I think part of the reason that the Chinese government is very focused on self sufficiency,
very focused on food security. They're making a very big effort to have large stockpiles of this basically buffer stocks, because if we do have a situation where there's an excessive rainfall or excessive drought and we have a very bad corn harvest or wheat harvest or rice harvest, they want to have those stockpiles built up so that they can prevent prices from going up, make sure everyone is fed.
And so I think part of the reason for China's food security push is because of this awareness of the climate risks.
So Darren, we've seen wheat prices as well as soybean prices almost that like you know, three year lows. What's the outlook going forward? It seems pretty bleak. Can we see a recovery?
Yeah, it does seem pretty negative at the moment. So part of the reason is on the supply side, we've had relatively good crops out of the US and out of Brazil. They're producing plenty of corn, plenty of soybeans, plenty of wheat. And then on the demand side, China has been the traditional driver for a long time and now is entering a period of slower growth muted consumption.
So that's a bit of a perfect storm where we have very good crops out of the main growing regions, farmers planted quite a bit, and the weather's been good there in China, demand has been relatively weak, So there isn't really a terribly optimistic outlook at the moment.
Are there certain companies Like if you're an investor and you know you're looking at what's happening with soybeans and you want to invest them or else and you know that Chinese demand is just not going to be there the way it was the past decade. What should investors be doing? Where should they be investing their money?
Well, I think there's a couple areas that are very promising, even if within China it's sort of slow. For example, sea technology is going to be a very big thing. So China recently approved GMO genetically modified seeds after the much of the world has already adopted those. So China's adopting those and they're needing to build up that industry, and part of that also plays into climate change. Part of GMO seeds is that they are more resistant to
drought or flooding, so that's a potential opportunity. Also, even though pork demand is down in China, beef consumption has also been rising a lot. So I've seen record levels of beef and a lot of that is coming from Brazil, Australia, the United States. They're shipping huge amounts of beef to China. Chinese consumers are eating more and China is not going to be self sufficient in that, so a lot of those companies are going to benefit as well.
Darren, we did touch on other markets that are seeing some growth, like maybe India South Asia. Can India and South Asia pick up the slack from China for a start.
Yeah, I think they will. It's just also adjusting to sort of the scale of the market. I mean, China just grew so fast, so consistently for so long, and there's also one market, so I mean, if you're a soybean exporter, you can just deal with China, whereas with South Asia you're dealing with you know, bang Goadesh, you're dealing with India, you're dealing with Sri Lanka. So it's a little bit harder to scale at the same pace. But I think they're definitely doing that because we've seen
a bunch of milestones in the past few years. For example, like previously a lot of these markets would only take containerized cargo, and now they're able to do these big Panamax vessels, the bulk vessels. So there is a lot of progress there and their growth rates are also very very strong.
Yeah, you spoke about some of the ships there just now that transport this stuff. And if you think about Chinese demands bowing and demand from India picking up, I mean, how could that reshape some of the ways that food is delivered. How could that reshape not just the supply chains, but also ports and ships and the you know sort of trucks that you need to deliver this stuff or they're potentially you know, opportunities there And how big of a change do you think that'll be in the next decade.
Yeah, absolutely So. Part of the thing is China has been very good at building large ports, deep water ports, able to take these big Panamax vessels not only for grain but also for iron ore, coal, other commodities. A lot of South Asia is still at a point where they're taking a lot of this by container, these you know, forty foot twenty foot shipping containers bringing in that way, which is more expensive, it's less efficient, it's more expensive.
So there's a lot of opportunities there, especially with infrastructure. I mean, one thing that China has very good is really good infrastructure, ports, trains, efficient shipping, and that's going to be something that South Asia will need to build out more. So I think there's a lot of opportunities for growth there.
So, Darren, after what we've discussed, it sounds like being a pig farmer is not looking too good. If you were a farmer, what would you focus on.
If I was a farmer right now, I would focus on probably something like beef to sell to the Chinese market. It's not something that they are going to be self sufficient in. Despite the long economy, people still have money in China. There's just spending a little bit less. I think there's still great market opportunities there and I think it's a product that I would enjoy eating, and I think that those customers there would as well.
And why is it so tricky for China to get self sufficiency with beef production.
It's basically they have limited land. I mean, if you look at someplace like I'm from Iowa, we have wide open fees. You look at someplace like Brazil, wide open fields. China is a very crowded country. On top of that, it's also they don't have the forged materials, so they need to import a lot of alfalfa and hay to feed these cows. So it's just something that they're never really going to have the space because beef farming takes a lot of space.
That's quite interesting. But some of the neighboring countries are very famous with beef, like Japan and Korea.
Yeah, and they do import there, but it also comes down to the scale. So I mean the biggest supplier to beef right now to China is Brazil, and then we have after that Australia, Argentina and the US. So yeah, I mean the Japanese beef is very good, but it's also very expensive, whereas Brazil it's more affordable.
Yeah. It makes you think about potential pain points for future tariffs as well.
Yeah, we've definitely seen that, especially with the European Union over the past few months, because the European Union put tariffs on Chinese electric vehicles. In recent sponse, China has put tariffs on pork from the EU and now recently dairy. So it is a point of leverage. Because China is such a net importer of agricultural products, it's very easy for them to put tariffs on that certain country. We
saw that with Australia back in twenty twenty. So yeah, it does also provide the government a large amount of leverage in sort of trade wars, trade disputes, or political disagreements.
Yeah. So Darren, China seems to have water problems at both ends of the spectrum. Some areas appoint to flooding. As you mentioned, you know, some are prone to droughts. What's the bigger risk and which areas in China are the most exposed.
Yeah, it's definitely a serious problem. This year, for example, we've had Southern China facing way too much rain, we've had Northern China had a drought at the beginning of the year, and it is a very serious problem, especially in northern China. The groundwater levels have been depleted over the past several decades. So when there was a drought situation earlier this year in northern China, a lot of the farmers were simply struggling to get water out of
the groundwater wells. They were running dry. And this is not a one time thing. The groundwater levels have been depleted over several decades due to this farming, and it's going to be a very serious challenge if you have sort of acute droughts or periods without rain. Sometimes, you know, farmers will pump from a well give the field irrigated, but if you're doing that over decades and you run
out of water, that creates a very serious risk. The crops that are probably most affected by that would be corn, wheat and then also just vegetable production as well.
So, Darren, you mentioned that you previously lived in Shanghai for some time, you have since moved to Ireland. Any initial takeaways on the food, different things you're seeing in the grocery store.
I think my biggest impression is just the changes in the vegetables. So being in Shanghai, you could go down to any wet market and they have the widest variety of French vegetables you've ever seen, just everything, and it's also very cheap, and I would say in comparison, Ireland has maybe less variety and it's also a little bit more expensive. So I'm definitely missing some of my traditional sort of Chinese staples that I used to cook.
Okay, great, it's been an interesting conversation on China agriculture, it's food security and the impact on climate change. Thank you Darren for appearing on the show.
Thanks so much for having me.
I'm John Lee in Hong.
Kong, and I'm Katy Dmitrieva, also in Hong Kong.
And this podcast was produced by Clara Chen and you've been listening to the Asia Centric podcast