An employee works on a pile of corn at a drying yard in Beian, northeast Heilongjiang province, on October 20, 2022. China is a top importer of the most widely traded crops globally: soybeans, vegetable oil, corn and sugar. Photo: Xinhua
Opinion
Macroscope
by Doug Christie
Macroscope
by Doug Christie
4 reasons India won’t overtake China as the world’s agricultural commodity hub any time soon
The media frenzy around India overtaking China as the world’s most populous country has led to questions about what it means for the global agricultural market
The confluence of slow growth, a large vegetarian presence, diffused urbanisation and trade protectionism render India an unlikely contender to dethrone China
India recently overtook China as the world’s most populous country, according to UN projections. Around one in three people on the planet now lives within the borders of these two nations.
The media frenzy surrounding the revelation centred on the economic implications of India’s new status, much to the chagrin of the Chinese authorities. The question now arises as to what this means for the global agricultural market.
Since the dawn of the Malthusian spectre, population growth has been associated with a reduction in living standards. As the theory goes, populations grow faster than the resources required to feed them.
China has been able to defy that thesis in the past two decades, combining a growing population with consistent income growth. It has become the largest buyer of key agricultural commodities to ensure its inhabitants enjoy a diversified diet.
China is now a top importer of the most widely traded crops globally: soybeans, vegetable oil, corn and sugar. With that, Beijing wields enormous influence in this space. Chinese demand has caused explosive growth in South American soybean production, leading Brazil to pass the United States as the world’s leading producer of soybeans and prompting Argentina to become the top exporter of soybean meal.
It is now vital to ascertain whether India can challenge China in this field. The confluence of four distinct factors suggests India’s trade trajectory will diverge in significant ways and that China’s standing is likely to remain unmatched for the foreseeable future.
The primary reason is tied to income. While age plays a partial role in the type and amount of food consumption, income levels are the most important driver of global demand for agricultural products.
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India set to overtake China as the world's most populous country in 2023, UN predicts
India set to overtake China as the world's most populous country in 2023, UN predicts
At the lowest income levels, food is consumed in its most basic form as whole grain or in simple porridges. As incomes rise, that grain is increasingly consumed indirectly – it could be baked into bread or fed to animals for meat production. Each subsequent stage requires further processing, as well as additional ingredients such as oil and sugar to complete formulations.
Exponential increases in higher-value food consumption take hold as incomes grow from US$1,000 and US$10,000 before plateauing above US$20,000. A large, young and rapidly growing population base with incomes rising from modest to median levels makes an ideal environment for agricultural commodity demand growth.
Within these parameters, the first divergence between India and China becomes clear. China’s average annual GDP growth in recent years topped 9 per cent, rising from a pure subsistence level of just US$1,000 per capita in 2000 to more than US$12,000 today.
India’s economy not only lags behind China’s, it is also growing more slowly. With an average GDP growth rate of around 5 per cent, it will take India decades to surpass the US$10,000 per capita threshold from its current level of around US$2,300.
The second reason is cultural. India has a large number of vegetarians among its population and the culture of meat production or consumption is not as widespread as in other countries. It is therefore unlikely that a large commercial livestock industry will emerge to drive corn and soy imports on a similar scale to China.
Corn and soy are the second- and third-most shipped grains by volume globally. Without this important trade flow, India will find it hard to match China’s agricultural buying prowess.
Third, India’s urbanisation is diffused across the country, and much of its population remains in areas with limited infrastructure to support the movement of bulk commodities. In contrast, China’s urbanisation is concentrated in coastal cities, granting them convenient access to imported materials and facilitating their use in livestock feed and supply to consumers.
A shipload of South African feed corn arrives at the Machong port in Dongguan, Guangdong province, on May 4. Photo: Xinhua
The ultimate deciding factor will be trade. India’s attitude towards trade is very different from China’s. India is prone to protectionism in all trade matters, particularly in the agricultural space. As a major producer and consumer of wheat and sugar, India has to manage the balance of these staple commodities through a complex web of domestic production subsidies, export and import quotas, tariffs and incentives.
As a democracy, it also places a larger emphasis on popular opinion in the decision-making process. Elected officials must not only seek to satisfy consumers who demand stable domestic prices but also cater to a large farming base that relies on higher commodity prices for income support. As a result of this dynamic, it is unlikely that India will commit to a fully fledged policy of agricultural imports.
A man loads sugar cane onto a truck at a market in Navi Mumbai, India, on May 6. Photo: AFP
That said, there is no doubt that imports will play a vital role in India’s quest for a broader diet. It is already a leader in vegetable oil imports, and it is possible to envision further imports of lentils and other pulses to ensure more proteins feature on the domestic menu. As incomes grow, India could also become the world’s leading consumer of meat substitutes.
For now, the unique confluence of slow growth, a large vegetarian presence, diffused urbanisation and trade protectionism render India an unlikely contender to dethrone China as the leader in importing agricultural commodities.
Doug Christie is author of the Hedder publishing house series Agricultural Commodities Focus
