Beijing — For a sense of how this country’s changing demand for food is reshaping world markets, Liu Shuwen’s journey from street chicken vendor to poultry industrialist is a good start.
There are the 24,000 hens he currently raises, triple what he had a few years ago. There’s the expansion to 60,000 he is planning. Then there’s the feed factory that’s under construction, where Liu and his partner will add to growing world grain demand by mixing hundreds of tons of soybeans and corn a year into a recipe he feeds his chickens and sells to other farmers.
It’s a dramatic turn for a man who grew up incubating chicks under his bed, and one that shows why farmers, food economists and others conclude that the world may be entering an era of steadily rising food prices. As developing countries become richer, so do their diets, shifting from traditional staples such as rice and wheat to meat and dairy products, which require more grain as feedstock. That trend, along with the increasing use of corn in fuel, is taxing world grain supplies.
So far, that has been a boon to the United States. China relies on American farmers in particular for soybeans to use in animal feed. Last year, total U.S. soy exports were nearly $20 billion — triple the level of a decade ago.
And in general, rising prices for staple commodities such as wheat have less of an impact on consumer prices in the United States and other developed countries, where people eat more processed foods, than in developing economies. The wheat in a grocery store loaf of bread, for example, contributes only a small fraction of the final price; the rest reflects the energy, labor, shipping and other costs involved in its preparation.
But eventually, higher commodity costs will pass through to consumers. More expensive corn and soy ultimately mean more expensive dairy products and meat.
According to the most recent data, food prices have been rising about 3 percent a year in the United States — faster than inflation overall. The cost of food prepared at home — reflecting prices at grocery stores, as opposed to restaurants — has been increasing even more quickly.
For China, the world’s most populous country and now its second-largest economy, changes in food consumption are happening fast. In a nation where the word for rice is synonymous with food, people are eating less rice and other grains, preferring pork, fish and, to Liu’s delight, chicken. Pig herds are swelling, and demand for some dairy products has been climbing 20 percent a year. Chinese imports of soybeans, a key animal feed, are booming.
“We are keeping up with the world,” said Liu, who migrated to Beijing from the countryside 30 years ago. He once roamed the streets selling baby chicks out of a bucket. Then he and a veterinarian named Zhang Huaicheng took over a bankrupt state-owned chicken farm. The pair specialize in brood hens, incubating millions of eggs a year into hatchlings for sale to other farmers who want to produce eggs or broilers.
Diminished reserves
World food prices climbed to record highs this year after drought and flooding reduced harvests in major producers such as Australia and Russia. Although prices have come down somewhat, analysts noted a decline in key reserves and other evidence that markets for basic food commodities may now be persistently tight.
Food costs have always been volatile. But for decades, rising farm productivity has meant that any jump in price would soon be offset as farmers brought more land under cultivation, or shortages in one part of the world were eased by bumper crops in another.
Now, with key reserves of many commodities at or near record lows, World Bank President Robert Zoellick has said the world is “one shock away” — a major crop shortfall in a large nation, a run of bad weather — from a serious food crisis. The potential fallout is clear: Rising food prices were partly behind recent unrest in the Middle East, and the bank estimates that food inflation has pushed tens of millions of people into poverty over the past year.
In China, food prices rose about 7 percent last year, according to official statistics, prompting the government to release some of its emergency reserves and put restrictions on sales of key staples such as wheat to try to prevent hoarding or speculation.
The changing diet can be seen throughout Beijing — from the young people hunkered around tables at a KFC, which has helped build a taste for chicken filet sandwiches, to the profusion of yogurt stocked on grocery shelves.
“Particularly over the last two years, [Beijing] has become a huge market,” said a sales representative for Yilli, one of two major local dairy companies.
Dressed in a Minnie Mouse costume to promote a drinkable yogurt branded with Disney characters, she ticked off the benefits of the flavors blended with fruit, vegetables and grains to try to suit the local palate. Stretching across an entire back wall at a Wal-Mart Supercenter were pumpkin and oat yogurt, pineapple and barley, red bean and mulberry, aloe, lichi and grape, yogurt with tuckahoe (an herb considered good for the spleen) and yogurt mixed with gelatinized donkey skin (said to have been an emperor’s favored energy drink).
According to reports from the U.S. Foreign Agriculture Service, Chinese yogurt sales grew 15 percent in 2009, and dairy consumption overall is expanding 10 percent a year. Since dairy consumption remains low by the standards of the developed world, the report noted, it is expected to continue growing fast. The government plans to double dairy production by 2013, adding millions of cows to the dairy herd.
An appetite for soybeans
Globally, China’s changing food habits have been felt most acutely in the market for soybeans. Though the plant is native to China and has been cultivated since early in the country’s history, the government since the early 1990s has emphasized production of rice, wheat and corn because officials consider them more important for people’s diets.
That policy was set at a time when China grew about 15 million metric tons of soybeans a year, enough to export some, said Hu Bingchuan, an analyst at China’s Rural Development Institute.
China still produces about 15 million metric tons of soybeans — but now imports more than three times that amount to feed its pigs, chickens, cows and farm-raised fish. Much of that will come from the United States, which sends about a quarter of its soy crop to China and is expecting a fourth consecutive record year of exports, forecast at more than 25 million metric tons, according to Xiaoping Zhang, acting director in China for the U.S. Soybean Export Council.
China has remained largely self-sufficient in wheat, rice and corn. The government has encouraged production of these crops through measures such as setting base-line prices for farmers. To see how much longer China can remain self-sufficient, the markets for these staples are being watched closely by commodity trading companies, U.S. farmers, the World Bank and other organizations concerned with global food security.
Xiaoping said that most of the land in China that can be farmed profitably is already under cultivation and that available land is actually shrinking in the face of development. In addition, yields are beginning to plateau, he said, with little expectation of major gains.
He said he expects China to increasingly import corn to keep up with demand resulting in part from dietary changes and its use in producing biofuels.
Analysts such as Lester Brown, president of the Earth Policy Institute, said he expects wheat to follow, contributing to rising prices that will become “chronic and trend-driven” in the future. Other experts say this could be the year China begins buying substantial amounts of wheat abroad. Even if imports represent only 5 or 10 percent of China’s total need, they say, the buying would probably push world prices higher.
For entrepreneurs such as Liu Shuwen, it is a trend that has taken him from poverty to the top of an industrial-scale enterprise. As he strolls through a warehouse of incubators, crates full of chicks peep and squawk as farmhands prepare to ship a load to the province of Inner Mongolia. The clamor is deafening.
“The product keeps selling,” he said, “so we’ll keep expanding.”
Researcher Liu Liu contributed to this report.