Sunday, September 22, 2019

"And So It Begins. US Agricultural Producers Should Look To Russia In Order To Supply China"

An interesting sales pitch.
From Russia Briefing, September 17:
The US-China Trade war has been taking a large toll on agricultural produce sold by the United States to China. This is partially because China retaliated in a measured response to Washington, knowing that US President Donald Trumps voter base has a large agricultural segment crucial to his being re-elected. Thus far, while sales to China have plummeted, the US President has compensated American Farmers by providing them with grants – effectively meaning the US taxpayer is bailing them out. We can see how sales have plummeted to China in the graphic below, courtesy of the US Grains Council
An issue facing American farmers however is that China needs to protect its interests. It is a one-party state and will not tolerate interruptions to its supply chain. We can already see in Hong Kong the results of what happens when discontent sets in. For such a situation to develop across China would be catastrophic, both for the country and the global economy. China has already endured civil war and revolution, and such a scenario today is unthinkable. This means that food security is of paramount importance to Beijing. If Washington wishes to illustrate it is not prepared to offer China this, then it becomes a matter of Chinese national security to find alternative sustainable suppliers without a trade agenda to upset the status quo.

It should be a matter of concern then to the American agricultural industry that China has been doing just that. Russia has stated it will ramp up production of grains; it is already the world’s largest producer. The supply chain gap left by the US effectively leaving the China market is seeing the Russians and others move into the China market to replace the US farmers exports to China. Primary products among this are wheat, corn, soy and other grains. I wrote about this in the article Russia Takes Advantage Of The US-China Trade War To Expand Grain Export Potential Russia has also been delivering. According to Bloomberg, this years wheat harvest is both high quality and significant in volume. The Russian production trend is certainly on an upward tick, the 2017 grain harvest was the highest for 40 years, with Russia’s arable steppes benefiting perhaps from global warming. We can see the Russian market position here:
However its not only Russia that is looking to make up the US-China supply gap. The Kazakhstan President, Kassym-Jomart Tokayev was in Beijing last week to discuss numerous issues, not least among them a tripling of Kazakh wheat exports to China.

These new trends away from US suppliers are not just limited to grains. They also include poultry, pork and other foodstuffs, in addition to technologies such as semi-conductors. What the US-China trade war has done in effect is to move the US supply chains that China previously had in place to countries nearer to home and less likely to create problems within that supply chain. With 1.4 billion people, Beijing requires a sense of stability – Russia and other neighboring countries such as Kazakhstan can offer comparable agricultural produce, with shorter delivery times and less political nuances. So where does this leave American farmers?
It means, that if the desire to supply China is still there, then US farmers and the agricultural industry in the United States as a whole will need to invest in countries such as Russia. The China market for agricultural produce is growing, and demand is likely to continue. We can take a look at China’s consumption of Soy as an example.
Investing in Russia however is a sanctions issue. We can examine this as follows:....

Beyond the sanctions question there is one potentially giant fly in the ointment should American agribusiness invest in Russia, in particular the Russian far east but also more generally across Siberia.
As seen in June 2019 (and earlier) China wants the land:

"The Chinese influx into Asian Russia"
We've looked at these demographics a couple times. From last year's "Siberia As Breadbasket For China" here is the map the way the Chinese think it should be drawn:

China has been eyeing their neighbor to the north based on some revanchist claims to the land for 160 years.
Here is part of the Chinese pitch from a few years ago as verbalized by the New York Times:
...The border, all 2,738 miles of it, is the legacy of the Convention of Peking of 1860 and other unequal pacts between a strong, expanding Russia and a weakened China after the Second Opium War. (Other European powers similarly encroached upon China, but from the south. Hence the former British foothold in Hong Kong, for example.)

The 1.35 billion Chinese people south of the border outnumber Russia’s 144 million almost 10 to 1. The discrepancy is even starker for Siberia on its own, home to barely 38 million people, and especially the border area, where only 6 million Russians face over 90 million Chinese. With intermarriage, trade and investment across that border, Siberians have realized that, for better or for worse, Beijing is a lot closer than Moscow....
—via "Why China will 'reclaim' Siberia", China Daily Mail,
The new map is envisioned to look something like this:
Expanded China-Siberia map showing possible claims China might make

In the meantime China is leasing. From the South China Morning Post, December 18. 2018:
Russia offers 2.5 million acres of land to Chinese farmers, but will it ease Beijing’s soybean shortage?
And although the SCMP's editorial stance usually seems to be pretty much independent of the official Beijing line, the fact the paper is owned by Alibaba means the potential for government pressure should always be factored into stories such as this from the July 20, 2018 edition:
Why forecasts of a Chinese takeover of the Russian Far East are just dramatic myth
With all that as prologue....
From the Asia Times, June 13:
China’s rising economic clout in Siberia and the Russian Far East is fueling ancient local dreads....MORE

Related, August 22:
Russia Warns China: Don't Count On Us For Soybeans