China's Wise Wheat Reserves

The idea of storing surplus grain in good times to guard against famine dates back at least as far as the Old Testament.

By Jim Harkness

It's fashionable to worry about China. One common fear is that China's increasing demand for food will wreak havoc on international markets, causing mass starvation in food-importing countries. However, China uses safeguards to stave off food shortages. We could learn from its approach.

The Food and Agriculture Organization (FAO) recently declared a "food emergency" in China due to a once-in-a-century drought affecting one-third of its wheat fields. China is the world's largest wheat producer, with an annual harvest of around 115 million tons. That's equivalent to the total amount of wheat in all international trade. So while its current imports are negligible, news of the drought brought dire warnings that if China turns to global markets to make up for a poor harvest, it could outbid developing countries and sharply drive up prices.

But China isn't a big player on global grain markets. Even in years when harvests fall short, it maintains a large emergency grain reserve. In China, food security is national security, making the reserve's size a state secret. The FAO estimates it at about 55 million tons. Other estimates run much higher than that. So the equivalent of between one-half and two-thirds of the county's annual harvest is available for precisely this kind of emergency.

Reserves have helped to largely insulate China's domestic grain markets from the ups and downs of world markets, benefiting both China and everyone else. So while we can't be certain that China won't disrupt the global grain supply through imports, we know that unlike countries without reserves, they can meet domestic needs.

The idea of storing surplus grain to guard against famine dates back at least to the Old Testament, when Joseph gave just such advice to the Pharaoh. Its history in China is almost as long. Ancient records describe how the emperor's "Ever-Normal Granary" not only prevented famine, but also stabilized prices for the benefit of both farmers and consumers. New Deal farm programs inspired by China's imperial reserve system pulled us out of the Dust Bowl and fostered the most stable and prosperous period in U.S. agricultural history.

While China maintains vast reserves of grain and other foods like pork and edible oils, the United States and most other countries have abandoned this wise approach. For 30 years, neoliberal market fundamentalism has treated food like any other consumer product--rather than as a necessity. Big grain traders never liked reserves, which they claimed were inefficient and market-distorting. U.S. Farm Bills have abandoned reserves and other tools to manage supply.

This free-market system left food-importing countries without a lifeline when global prices spiked in 2007. The ranks of the world's hungry swelled by another 100 million over the following year.

Another food crisis is emerging. In February, the U.S. Department of Agriculture reported the lowest stocks for corn in the last 15 years. This puts us one severe weather event away from a major corn shortage. Major agricultural exporting countries like Russia, Argentina, and Australia have already experienced severe weather that has limited crop production and further tightened global grain supplies. 

Fortunately, grain reserves are gaining traction again. The issue will be discussed at the upcoming G-20 meeting. And countries in West Africa, Asia, and the BRIC (Brazil, Russia, India, and China) are all exploring grain reserves.

Certainly, China's food system is far from perfect. Chinese demand sometimes does impact global prices. While it strictly adheres to self-sufficiency for wheat, China relies on foreign supplies for its burgeoning soybean consumption. It recently became the world's biggest soy importer. But overall, for a country that must feed 20 percent of the world's people on 9 percent of its arable land, China has clearly figured something out that others haven't.

It has become clear over the last three years that our global food system is vulnerable to disruptions. In this new era, China's approach to "food security as national security" may offer some important lessons for the rest of the world.