Xi Jinping Must Tackle Corruption and Boost Innovation in Food Sector

In January 2013, Australia’s biggest supermarket chain Woolworths began restricting sales of baby formula to four tins per customer after a massive increase in demand stripped shelves bare of popular brands such as Karicare.

The buyers were not Australian mothers suddenly clamoring for more baby formula; the demand epicenter was in China, where families fearful that domestic baby food might be tainted were turning to Australia-based relatives and middlemen to source supplies from overseas. Chinese parents were prepared to pay a hefty premium for food they perceived to be free from the contamination that blights much of the Chinese marketplace.

The same scenario had already played out earlier in New Zealand, prompting Nutricia—part of French food group Danone and the maker of Karicare for the Australian and New Zealand markets—to quadruple production of baby formula at its Auckland plant to 20,000 tons a year, and to announce it would lift capacity by another 10,000 tons over the next twelve months.

What is good business for Nutricia and other suppliers based in perceived “clean and green” environments pinpoints one of China’s biggest challenges over the next fifteen years: the food, water, and air security of its 1.35 billion people. China has less than 10 percent of the world’s cultivated land and only 7 percent of its potable water, but must seek to feed almost 20 percent of the world’s population. People in China are living longer and have a growing appetite for water-intensive and protein-rich food such as meat and dairy.

Food Health Scares

Memories of the 2008 dairy scandal, when six children died and 300,000 became sick from milk laced with the industrial chemical melamine, still haunt Chinese families, even though authorities cracked down hard and executed two of the perpetrators.

In recent times, the emergence of “gutter oil”—illegal cooking oil sourced from leftover or used oils and animal parts—has added to the fear factor. Along with tainted food and farming land that is poisoned by toxic runoff from mining and industrial activities, there is another threat—livestock overcrowding, exacerbated by poor feeding and animal husbandry practices. Any outbreak of disease among China’s vast stock of pigs, chickens, and ducks compounds the pressure on the food supply chain.

Food safety is such a big issue in China and has such costly health consequences that President-designate Xi Jinping and Premier-designate Li Keqiang will have to pursue it with the same determination their predecessors exhibited in chasing economic growth from the 1980s. There is now at least official recognition that the environmental downside of economic success has been the widespread contamination of China’s soil, water, and air.

In the current twelfth five-year plan covering 2011-2015, for example, the Chinese government's “green” measures include binding targets for resource conservation and environmental protection. It aims to make agricultural irrigation more efficient, cut industrial water consumption by 30 percent, trim energy consumption by 16 percent per unit of GDP, and cut CO2 emissions by a similar margin.

The five-year plan also has such goals as “build a solid national food strategic base,” “protect the grain production base to safeguard the security of food supply,” and “strengthen capacity building in food safety detection.”

In recent weeks, the cities of Beijing and Shanghai have announced their own crackdowns, warning that companies breaching food safety regulations will be banned for life. But time certainly is not on the side of Xi Jinping and his team. At most, they have the next ten years to get it right or leave a bleak environmental legacy.

Where is the Water Going to Come From?

Water quality and scarcity is intimately linked to food security. According to research by McKinsey, more than 20 percent of China’s available water is unfit for agriculture. As well, China is drawing on its groundwater faster than rainfall can replenish it.

By the time China’s population reaches 1.6 billion around 2030, average per-person water availability will have dropped from 2,195 cubic meters (m3) a year to just 1,760 m3. The UN’s Food and Agriculture Organization defines stress conditions as below 1,700 m3, with chronic scarcity below 1,000 m3 and absolute scarcity below 500 m3.

Already, Beijing, Tianjin, Shandong, Jiangsu, and other parts of northeastern China are water-stressed, according to the 2012 stress index compiled by global risk analyst Maplecroft.

That desperate situation is the reason why China is prepared to commit up to $60 billion to its South-North Water Diversion project that involves the country’s two most important rivers, the Yangtze and the Yellow, plus numerous tributaries, canals, and other rivers such as the Huai and Hai. This massive civil engineering project, split into eastern, central, and western routes, is designed to move water from the southern half of China to the north.

Whatever the long-term environmental and social impacts of this project turn out to be, it is urbanization, migration, prosperity, general population growth, inadequate water infrastructure, and the competing demands of households, industry, energy, mining, and agriculture that are the here-and-now pressure points. Factor in natural disasters such as drought, floods, earthquakes, landslides, and other extreme climatic events, and China’s food security picture starts to look bleak indeed.

A Growing Taste for Meat and Dairy

Even so, in key staples such as wheat and rice, China is still self-sufficient. It is also the world’s biggest producer of vegetables, pork, and chicken and a major exporter of a host of other foods. But the change in middle class consumption habits has been so swift that farmers must produce more soybeans and corn for animal feed—or import what they can’t grow.

China can produce 15 million tons of soybeans a year, but demand is so high that it must import four times that amount from the U.S. and Brazil. By 2015, it could be importing 80 million tons a year, while corn imports could reach 20 million tons.

Pressure on China’s agricultural sector is so severe that unless it rethinks its water usage patterns, food supply chains, and waste disposal systems, and undertakes a massive greening of its industrial landscape, it risks social dislocation that could undo much of its economic progress.

Food price inflation in the big cities could trigger unrest. Severe income disparity is already regarded as the biggest likely global risk over the next decade, by China experts contributing to the World Economic Forum’s Global Risks 2013. They identify the other top four risks as water supply crises, greenhouse gas emissions, entrenched corruption, and mismanagement of population aging.

Lessons From Japan

With the right policies, China has the chance to fix both its food security and its environment. For example, more city dwellers should be encouraged to adopt urban farming, where rooftops become vegetable gardens.

China's often-tense relationship with Japan makes it a reluctant imitator of its more advanced neighbor, but in the 1990s, after decades of massive post-war industrialization, Japan showed how a heavily polluted landscape could be re-greened. Big cities such as Tokyo, Osaka, and Yokohama led the way in cleaning up their air and waterways. It is a model China could well follow.

Along with the conservation mantra of “reduce, reuse, recycle,” China’s ability to withstand its coming food and water shocks ultimately will depend on another “R”—reform—and three “I”s—innovation, investment, and infrastructure.

Xi Jinping must lead the reform effort to address corruption and criminal behavior in the food supply chain while stepping up the level of innovation in making food safer and its production more water-efficient. His team must facilitate long-range investment in domestic and overseas food assets, and must spend even more money on infrastructure to upgrade food and water distribution and waste disposal systems.

Food Safety, Water, Australia, Japan