The Chinese economy is showing some hairline cracks. Growth is lagging behind expectations and the extensive real estate sector is faltering. This week, China came up with a package to stimulate the economy. As a major player in the (agricultural) raw materials market, the Dutch agricultural sector can also benefit from this.
The Chinese economy (GDP) grew by 2023% in 5,2, the Chinese government announced last week. Although that was slightly more than the official goal, it is not entirely acceptable. Consumer and business confidence is weakening, local government debts are rising, real estate investments (accounting for approximately 20% of the Chinese economy) fell by 10% and youth unemployment remains relatively high at 15%. This week, the Chinese government announced that it would come up with a support package for the economy. One of the measures is to reduce the reserve requirement for banks. By lowering this by half a percentage point to 7%, China hopes to unlock approximately $140 billion in new loans.
Analysts were practically falling over each other to interpret the Chinese government's data. What is paid much less attention are the possible consequences of the faltering Chinese economy on the agricultural commodity markets. For example, China is by far the largest soy importer in the world with an import of approximately 100 million tons. To put it into perspective: according to data from the USDA, the EU follows at a great distance as number two with 14 million tons. China is also the largest buyer on the world market for wheat and corn, but China is also high on the list of major importers for dairy products, rapeseed and various types of fruit.
Luxurious position
The fact that the economy is currently doing less well does not mean that China will suddenly stop food imports. In principle, the government is committed to becoming self-sufficient, but realizes that this will not happen automatically. Seen from the outside, the policy makes a reasonably well-thought-out impression. You can conclude almost ironically that there is no lack of a certain merchant's spirit in the People's Republic. Relatively large stocks are being held, so China can afford to wait.
When the price of a product falls, as we have seen in recent months with soy in Brazil, China does not hesitate to strike. It doesn't matter who delivers, as long as the delivery is as competitive as possible. It is not inconceivable that in times of economic headwinds (although the government expects economic growth of around 2024% for 5), China will be less active in purchasing agricultural raw materials. The line between shortage and excess is thin in agricultural raw materials. If China holds back for a while, a small surplus could depress grain prices.
Small player in fries
The role of China on the grain market is less relevant for Dutch agriculture, although China is an important buyer in the EU, especially of barley. Potatoes, or rather fries, play a much more important role in Dutch arable farming. The good demand for fries from Asia is often cited as a reason for the relatively high potato prices over the last year and a half. If you delve a little deeper into the figures, it appears that China only plays a limited role in this. According to data from World Integrated Trade Solution (WITS), Belgium exported 2022 million tons of fries in 2,8 (latest published figures) and the Netherlands 2,0 million tons. Together with exports from Canada (1,3 million tons) and the US (1,0 million tons), these four countries account for approximately 80% of the world market.
China imported a total of 2022 tons of fries in 39.933. Calculated in volume, China therefore accounts for approximately 0,5% of imports on the world market. The US is China's most important French fries supplier with 20.419 tons. Belgium and the Netherlands exported 2022 and 4.921 tons of fries to China respectively in 2.456, according to WITS. Seen in that light, the Dutch arable farmer has less to fear from the economic headwind in China than his South American colleagues, who rely heavily on soy exports to that country.