China’s demand for food stays strong

China’s decreased rate of growth might be a concern for some, but agriculture should be fine as long as China’s consumers retain purchasing power

It was bound to happen.

China’s economy is slowing down or at least its rate of growth is. However, those in the agriculture sector shouldn’t be concerned about the impact here at home, according to Farm Credit Canada’s chief agricultural economist.

“We monitor China all the time, but especially a week ago when they released their numbers for GDP growth,” said J.P. Gervais. “It triggered a bunch of stories about how China is slowing down, and this is bad, and overall this is not a good thing.”

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But Gervais disagrees with that assessment.

While China’s GDP growth of 6.8 per cent last quarter is lower than recent years and the previous quarter — and far below the 1993 peak of 15.40 per cent — the economist believes that GDP doesn’t provide the whole picture.

“What does it say really? Not much,” Gervais said. “We should not be focusing on GDP when we’re in the ag sector.”

What is key for agricultural producers and exporters is how much food Chinese consumers buy, how much they spend on it, and how much food China is actually producing.

“Disposable income is perhaps a statistic I look at more carefully,” said the economist. “And when you look at disposable income in China — the money that consumers have to spend on food — it’s still growing at a rate of over nine per cent a year and inflation is low. So there is no doubt in my mind that consumers have more money to spend on food now.”

For years now, the diet of Chinese consumers has been improving as more disposable income and a changing social landscape increased the consumption of meats and proteins, which usually means an increase in agricultural imports.

And while China has reduced some imports — like dairy — over the last couple of years, Gervais is quick to point out that is the result of production issues, not an economic slowdown.

“That’s because of the overproduction of the last couple of years. It’s not a demand issue, it’s a production issue. They are also importing fewer feed grains, but again, it’s because of the overproduction of the last few years,” he said. “And that is going to change, they are still importing a lot of oilseeds and lot of corn.”

Oilseed and corn imports have actually picked up over the last six months, he added.

What the slowing rate of GDP growth does show, is that the country’s demand for investment has been reduced.

“The biggest risk for me is to see China not slow down fast enough,” Gervais said. “When you think about investment 10 years ago or over the last 10 years, you would go ahead with investment projects that were easy to identify… but now, China has sort of picked all of the low-hanging fruit. So if it wants to keep having a good return on the investment, then China needs to pick more risky projects.”

Not surprisingly, risky projects come with a lot of risk and uncertainty. Gervais also noted that as sure investments such as infrastructure projects disappear, new investments will become more reliant on borrowed money and increased debt.

But as growth slows and China’s economy moves away from an investment-heavy model, risk is decreased and ensuing stability helps allow consumers to retain and grow purchasing power.

“I realize it’s not as positive for other sectors, but for the ag sector I think it’s actually positive,” he said.

About the author


Shannon VanRaes is a journalist and photojournalist at the Manitoba Co-operator. She also writes a weekly urban affairs column for Metro Winnipeg, and has previously reported for the Winnipeg Sun, Outwords Magazine and the Portage Daily Graphic.



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