Chinese investments in US agriculture
China’s plan to build corn mill in US draws scrutiny
GRAND FORKS, NORTH DAKOTA, US – Combining a shrinking 7% to 9% of the world’s arable land with a growing 20% of the global population means China must add another element to the equation if it wants to feed its people.
Trade with other nations helps with the deficit but also opens China to risks such as conflicts with trading partners or supply chain breakdowns. Reaching outside of its borders through foreign investment, including investing in farmland, animal husbandry, agricultural equipment and intellectual property across the globe, is that new element China is bringing to its equation, and the reaction in other nations has been a variable.
“They are not self-sufficient so they are trying to do everything they can to get assets in place that will help them be more self-sufficient or have direct access to a commodity on a global basis,” said Stephen Nicholson, executive vice president, global sector strategist-grains and oilseeds, Rabobank.
The nation has made significant agriculture-related acquisitions in Africa, Asia, Australia, South America and the United States, amounting to more than 1,300 agricultural, forestry and fisheries enterprises with registered overseas investments of $26 billion by the end of 2016. Signs point to more investment as Chinese leaders encourage it as a core component of the One Belt, One Road initiative that seeks to build connectivity across six main economic corridors.
Some purchases have made the home nations uncomfortable, raising concerns about national security as well as questions about China’s motives. In the United States, a 2021 purchase of North Dakota farmland by Fufeng Group of Shandong, China, for a new wet corn mill has met with resistance from local and national political leaders. They say the project is a major security concern given its proximity to a US Air Force base. As a result, some US lawmakers are calling for policies that range from increased scrutiny of agriculture deals to outright bans of purchases by some countries.
“There is no goodwill tied up in their presence in the US,” said Rick Crawford, US representative for Arkansas and member of the US House Agriculture and House Intelligence committees. “They are here for the advancement of their own interests and not for ours. Everything that China does, in the US in particular, but anywhere else, is done with an eye toward gaining a strategic advantage for themselves. A lot of times they cloak this in the idea that they’re doing this to improve economic conditions in a given country.”
In terms of total foreign ownership in the United States, China accounts for slightly less than 1%, and it has spent about 2% of its overseas agricultural investments in North America, according to the US Department of Agriculture (USDA).
Weighing those small percentages against the large volumes of agriculture products China buys from the United States is critical when determining policies on foreign investment, said Wendong Zhang, assistant professor, Dyson School of Applied Economics and Management, Cornell University.
“Injecting too much political influence into the mutually beneficial trade relationship is not necessarily beneficial,” he said. “It’s easy to disrupt relations, but it takes a very long time to get those restarted.”
Given the volume of its imports, China is far from self-sufficiency in feeding its people. It imported a record amount of corn in 2021 at 28.35 million tonnes, a 152% increase from 2020 and more than 10% of the country’s total corn consumption. In 2020, soybean imports accounted for 85% of China’s domestic consumption. The Chinese government has continued to push for self-sufficiency but given the size of the population and the loss of arable land, that goal has become less likely.
“Injecting too much political influence into the mutually beneficial trade relationship is not necessarily beneficial. It’s easy to disrupt relations, but it takes a very long time to get those restarted.” - Wendong Zhang, assistant professor, Dyson School of Applied Economics and Management, Cornell University
Urbanization and industrial growth have encroached onto farmland, and soil and water pollution have threatened arable land availability, according to a 2022 report from the US-China Economic and Security Review Commission (USCC). Increased migration to the cities has strained farms across China with children opting to pursue professions that pay more than farming. At the same time, urban growth has increased household wealth and the demand for more protein and higher-quality cuts of meat, the study said.
Livestock diseases, such as African swine fever, pests and extreme weather conditions have exacerbated the land scarcity issue, the USCC said. Flooding in the summer of 2020 from historic rains affected 63 million people and 14 million acres of cropland.
The Chinese government is addressing land scarcity concerns with two main options: purchasing land abroad and working to improve its domestic land. Foreign investment diversifies China’s supply chain and gives it a level of insurance should it face environmental challenges at home, such as the flooding it experienced in 2020.
“China’s demand for food from the global market is rising, so there’s a need to diversify the portfolio to make sure demand is met,” Zhang said. “It makes sense to also invest in infrastructure.”
Overall, China has invested in hundreds of agriculture- and food-related ventures that involved dozens of commodities on every continent. Less-developed nations are a popular target because there are fewer competitors, abundant land and less political resistance, coupled with the ability to improve productivity using Chinese technology, according to a 2018 report by the Economic Research Service of the USDA.
“Globally, China is making a lot more investments, buying land and also resources in other countries,” Zhang said. “You’ve seen a lot more projects completed in Southeast Asia and in Central Asia. Their investments in Africa, Australia and New Zealand are also very significant. In general, there is a desire to strengthen ties with US competitors along with the Chinese push for the Belt and Road Initiative.”
The One Belt, One Road Initiative calls for infrastructure construction and other types of investment with the goal of creating trade routes from China to Western Europe, creating new markets for Chinese goods. It includes building ports, railroads and other transportation and logistics infrastructure and promoting trade and technical exchanges, the ERS report said.
“They’re trying to find a place where they can put their money and have direct access to farm commodities that they can bring back home to China,” Nicholson said. “When China waves money in front of somebody in a Third World country, that’s pretty attractive, because capital is always a challenge for those countries.”
However, projects that are part of the initiative can create a lot of debt for nations, many of which are cash poor, Nicholson said.
“These countries are then indebted to China, and there’s some question as to whether China then becomes a bit of an overseer in those countries,” he said. “They don’t have a lot of assets or exports to generate cash to pay back that debt, and that gets them into a long-term relationship that China can really dominate. Those are some challenges and downsides we need to be wary of.”
An initial wave of Chinese investment from 2004-12 focused on crop production, fishing ventures and acquiring raw materials for the Chinese market, the ERS report said. Areas targeted included eastern Russia and neighboring Asian countries. Investments in Southeast Asia focused on tropical crops such as palm oil, cassava, sugar, fruit and lumber. Overall, Asia accounts for about half of China’s foreign investment in agriculture, forestry and fishing, the USDA said.
In the past 10 years, Chinese companies and officials have shifted their focus from farming overseas to acquiring established agribusiness companies based in Europe, North America and Australia, the ERS report said. This has included ChemChina’s 2017 purchase of Syngenta, a Swiss farm chemical and seed company; COFCO’s purchase of Noble Agri and Nidera in 2017; and Shuanghui International’s (now known as WH Group) purchase of US-based Smithfield Foods in 2013.
COFCO also formed a partnership with GROWMARK, a US grain logistic company, in 2017. With the deal, COFCO has joint ownership and operation of a Mississippi River barge, truck and rail terminal in Illinois.
Other US investments included $17 million from China’s New Hope Liuhe for an alliance with Lansing Trade Group. New Hope has a 20% ownership in the company and access to several of Lansing’s grain elevators. New Hope also invested in an Australian beef producer and a joint venture in Australian dairy farms.
With the purchase of Smithfield, China’s investment in the United States increased from 13,720 acres in 2010 to 352,140 acres in 2020. That’s still less than 1% of the foreign-owned land in the United States.
“Overall, looking at US purchases, China is not a major player yet, especially for farmland,” Zhang said. “There are a lot of restrictions. I don’t think China will make a huge new wave of US farmland purchases. Not because it doesn’t want to, but because of the political attention and also the rising restrictions.”
While it’s hard to say if purchases are slowing down or speeding up, Nicholson said China is in it for the long game.
“If this route doesn’t work, they’ll try something else,” he said. “They’re going to be here. We just need to pay attention to it.”
The skepticism surrounding Chinese landholdings in the United States is a little too harsh, Zhang said, given its small share of the overall foreign ownership pie, compared to Europe and Canada. However, he added, certain locations and land parcels, such as near military facilities, present legitimate concerns.
Canadian investors own 32%, or 12.4 million acres, of US foreign-owned land. Other significant land holders include foreign investors from the Netherlands with 13%, Italy at 7%, the UK with 6% and Germany at 5%.
Representative Crawford acknowledged China’s small percentage but also pointed out the differences in the relationships the United States has with China and the nations that own more land.
“Canada is an ally,” Crawford said. “Canada has a trade agreement with us. I don’t see any malign influence or interest on the part of Canada.”
He and other members of Congress believe any ownership by China is too much.
“However small the footprint may be, it’s dangerous to allow them to establish a foothold,” Crawford said. “They have made it clear what their intentions are. When you weigh the actual statements made by (Chinese President) Xi Jinping, the goals of the CCP (Chinese Communist Party) and the aggressive nature of the PLA (People’s Liberation Army), I don’t think they should have any access to US farmland. I don’t think they should be allowed to invest anywhere in the US.”
In its report on China’s interests in US agriculture, the USCC said China’s efforts “present several risks to US economic and national security.” These could include undue leverage over US supply chains, access to agricultural intellectual property that could erode US competitiveness, and illicit acquisition of genetically modified (GM) seeds that would deprive US companies of revenue.
Concerns surrounding national security have received the most attention in the United States, particularly in relation to land purchases, most recently the Fufeng project in North Dakota. If realized, the Fufeng corn mill would be located 12 miles from the Grand Forks Air Force Base. The base is home to some of the United States’ top intelligence, surveillance and reconnaissance capabilities.
“The location of the land close to the base is particularly convenient for monitoring air traffic flows in and out of the base, among other security-related concerns,” the USCC said in its report.
“It’s no coincidence that the land purchase is in close proximity to a strategic military asset. It’s not the first time this has happened.” - Rick Crawford, US representative for Arkansas
Thousands of Grand Forks residents signed a petition seeking a referendum on the proposed project and brought a lawsuit against the city, hoping they could stop the mill from moving forward. At the end of August, a judge rejected their lawsuit.
City officials have paused construction work on Fufeng specific items until a federal review by the Committee on Foreign Investment in the United States (CFIUS) is complete. The committee on Sept. 1 said it needs more information before it can determine if the project poses a risk to national security. Upon receiving that information, the review will take 45 to 90 days to complete.
“It’s no coincidence that the land purchase is in close proximity to a strategic military asset,” Crawford said. “It’s not the first time this has happened.”
In his home state of Arkansas, Crawford said a Chinese firm tried to start an operation near a General Dynamics Ordnance and Tactical Systems facility. He said the projects are presented to local communities as economic development opportunities.
“When I hear about states that have fallen victim to that, it’s really kind of sad,” Crawford said. “You’re basically falling prey to Chinese interests that are here for their advantages, not for ours.”
Another possible impact from China’s foreign investments is a change in trade flows and price fluctuations in the global commodity marketplace.
The ERS report suggested that Chinese investments in New Zealand dairy and Australian beef may bolster the share of commodities China imports from those countries versus competing US commodities.
“Some of China’s guiding strategies for agricultural investment aim to reduce reliance on the US for agricultural imports by nurturing new suppliers, steering more of the profits from Chinese imports to Chinese trading and logistics companies, improving China’s capacity to develop its own agricultural technology and using commercial agricultural projects as a platform for dispensing China’s foreign aid,” the report said.
Japan similarly invested in US farmland and agribusinesses during the 1980s, driven by the appreciation of the Japanese currency, falling US farmland values and Japanese companies’ vertical integration strategies, the ERS said. Japan also invested in Australia, Latin America, Mexico and Africa, and ended up playing a role in developing Brazil as an exporter.
At that time, there were concerns Japan’s investments would hurt the amount of US exports to that market. But the United States remains the leading supplier of Japan’s agricultural imports and their ownership of US farmland is modest, the ERS said.
Global trade could be impacted in several ways, Nicholson said, including reduced trade volumes, in terms of how many people get to handle that grain.
“The grain companies don’t get to handle the grain because China handles it directly, so it does have an impact on the ability for those companies to be involved,” he said. “It does reduce the competition and reduce that flow through other people’s hands.”
It could also impact prices, Nicholson said. If the grain never hits the open market, it could be detrimental to pricing longer term and lead to more volatility.
Agriculture trade between China and the United States is a win-win situation, Zhang said. It wouldn’t be easy for the United States to find as large and reliable of a buyer as China, and the United States is an indispensable supplier for China.
“They are buying 75% of Brazil’s soybeans and they still need significantly more,” he said. “Without the US, they cannot satisfy that demand. Unfortunately, whether we like or not, China will continue to be one of the very important trading partners for US agriculture.”
But that relationship could be strained by legislation proposed by US lawmakers. Coming on the heels of the Fufeng project, both the US House and Senate have bills that would create a “blacklist” of buyers, including China, North Korea, Iran and Russia, preventing them from investing in, purchasing or otherwise acquiring land or businesses involved in agriculture.
“Not only do I think we should prevent China from investing in the US, I think we should prevent the US from investing in China,” Crawford said. “I’m not advocating that we shouldn’t sell grain. China is a significant market, and whatever happens, US grain is going to find its way to China.”
But China is quick to retaliate, Nicholson said, pointing to the 25% tariffs China imposed on US soybeans in 2018 during the trade war between the two nations.
“Any time you start banning x or y, I think it creates more disruption than less disruption,” Nicholson said. “While it may be the popular thing to do, or it solves an immediate problem, I think it has consequences. It poses a question in other buyers’ minds, ‘What is the US doing? Why are they doing this? Could they do that to us?’ While it may make people feel better in the short term, the intermediate or longer-term effects could be negative.”
Maybe it’s time for the United States to rethink its relationship with China, Crawford said. A direct relationship is difficult, so maybe China becomes a retail destination and not a wholesale destination, he said.
“Not trading directly with China doesn’t deny US farmers’ access to the global marketplace,” Crawford said. “China is not a good partner for us. We can deal with the competitive rivalry, but what we can’t deal with is the out-and-out theft and illegal activity.”
Crawford also has advocated for creation of an intelligence office within the USDA, which has the subject matter expertise but not the ready and daily access to the intelligence community. When working on the legislation, they found only one USDA individual was cleared to work with the intelligence community.
“Without the intelligence community having the subject matter expertise present, there’s a lot of things that can go unnoticed,” he said. “That’s not because they aren’t paying attention to agriculture, but because they don’t know what to look for.”
Still, Nicholson said the United States needs to maintain a long-term relationship with China for many reasons.
“We don’t do that by banning this or passing a law or restrictions,” Nicholson said. “We may agree or disagree, but we have to maintain that dialogue to make sure everyone knows where we stand, on each side.
“Let’s make sure that we have consistency of business or trade with China that is beneficial to both parties.”