The State of China’s Agriculture

By Debra Tan 9 April, 2014

Get the latest update on agriculture & water and see how multiple polices are set to ensure food safety & security

Water & farmlands are mismatched: Top 4 Farmers are water scarce & have 25% of China's sown land
Farming is reliant on groundwater; Crops & farmlands exposed to agri & industrial heavy metal pollution
No water & rising demand for food = multiple policies from controlling pollution & water use to dieting & imports

The situation is bad… China’s limited water and arable land plus rampant water pollution not only exacerbate water scarcity, but also raises concerns over food safety. A worrying 87% of Chinese surveyed by the MEP are worried about food safety and drinking water.

HSBC’s No Water No Food Report, based on our analysis and findings, highlighted key constraints to food security & food safety – limited arable land & water resources plus rampant pollution. The report says that underlying water scarcity & pollution issues plus China’s increasing focus on food safety & security could lead to higher food imports – see HSBC’s opinion here.

Here is the current lay of the land: water, farmlands & pollution and the multiple strategies central government are employing to ensure food security and safety:

Water resources  & farmlands – Mismatched !

  • Only 14% of China is arable land;
  • 34% of China’s total sown farmlands lie in the Dry 11;
  • The 4 farming provinces of China (Top 4 Farmers) have 41.6 million hectares in 2012 and account for a quarter of China’s sown lands:
    • Henan, Shandong & Hebei: extremely water-scarce with 33.9 million hectares or 21% of sown land; and
    • Jiangsu: water-scarce with 7.7 million hectares or 5% of sown land

HSBC Map 1 - China's 2012 Sown area mapped onto water resources (700 pixels)

North China Plain: heavy pollution + reliance on groundwater = food security & safety concerns

  • North China Plain Pollution & Supply Status (CWR)These Top 4 Farmers lie in the North China Plain which according to a Ministry of Land & Resources groundwater survey (Feb 2013) suffers from severe groundwater pollution with over 70% of overall groundwater quality classified as Grade IV+, in other words, unfit for human touch (see graph). This is the  most comprehensive survey conducted to date;
  • Henan, Shandong & Hebei are all heavily reliant on groundwater (as opposed to surface water) ranging from 40% to 80% of the water supply mix (National Average or Groundwater Reliance = 21%) (see graph);
  • Moreover, groundwater is over-extracted in the North. This together with high pollution levels accelerates water scarcity;
  • Corn & wheat  sown lands are most exposed to water risk with some 64% of arable land dedicated to wheat and 42% to corn in the Dry 11;
  • According to the HSBC report, “three fifths of China’s sown area is exposed to 85% of the nation’s heavy metal discharge”. For more details on the status of heavy metals & agriculture read our review here; and
  • Rice is the most exposed grain to heavy metal pollution according to the HSBC report – check out 8 Things You Should Know About Rice & Water

So on one hand, there is limited arable land, limited water resources, water pollution and soil contamination; on the other, there is rising demand for food…

Urbanisation: rising demand for food & a growing appetite for meat

Against this backdrop is a population that is rapidly urbanising. Urban residents have grown from 11% of the total population in 1949 to 53% today (2012). In 2011, China’s urbanisation rate exceeded 50% and by the end of 2012, there were 70 million more people living in Chinese cities than in than rural areas.
Urban vs Rural Household Food Expenditure (CWR)With Chinese GDP projected to continue to grow at 7-7.5% p.a., the UN estimates the urbanisation rate to be at 61% by 2020. This together with the relaxation of the One-Child Policy could exponentially increase the speed of urbanisation.

Chinese kcal intake has increased steadily in line with urbanization but has plateaued over the last decade. Using the past decade as a guide, we expect food intake to rise to around 3,260 kcals/day, similar to the intake by South Korea today.This has serious implications for food as urbanites spend more on food (see graph).  According to the HSBC report, urbanites already spend 2.6x more on food than their rural counterparts.

China’s affluent has also favoured an increasingly more meat biased diet. We talked about this growing a few years ago in “Agriculture: A Prosperous Ever After” … and today, proteins as a % of the Chinese diet are still rising. Unfortunately, meats are more water intensive than grains and we argued previously that this “Business As Usual” (BAU) scenario is not viable given limited water resources (see here).

More population more food

According to FAO’s “State of the World’s Land and Water Resources for Food & Agriculture” (SOLAW) published in December 2011, to support the additional 2 billion people by 2050, an additional 1 billion tonnes of cereals and 200 million extra tonnes of livestock products will need to be produced every year. This report prompted many to comment that vegetarianism is the way forward much to the chagrin of the meat industry. Two years on, it would appear that the Chinese government is having the same thought: combating rising affluence propensity towards meat by controlling diet mix to save water.

This year, central government has announced policies to optimize the Chinese diet and has indicated that they will tap overseas markets whilst maintaining minimum arable land to support basic grain sufficiency. These policies are expected to supplement the more obvious ones focused on improvements to irrigation, controlling fertiliser use to reduce water use & water pollution in agriculture.

Government: multiple strategies & policies to ensure food & water security plus food safety

As with industrial and municipal water (discussed in detail here), we see the government adopting multi-prong strategies:
1.     Control water (three red lines)

    • Control water use – the national quota for agriculture indicated by central government is 360 billion m3 by 2025 but the Ministry of Agriculture says this should be at 390 billion m3. Currently, 388 billion m3 or 63% of total water used is used in agriculture. So despite the rise in demand for agricultural products, water allocation to agriculture is expected to fall.
    • Control water efficiency – improving this is one of the ways to achieve the water quotas set. Focus is on expanding irrigated land & improving irrigation efficiency with target irrigation efficiency coefficients set at 0.53 (2015), 0.55 (2020) and 0.60 (2030) as per the State Council’s Most Stringent Water Management System. This will be carried out in tandem with policies encouraging agri-tech to yield more-crop-per-drop. For examples of agritech in rice, 8 Things You Should Know About Rice & Water”.
    • Control water pollution – lower the excessive use of fertiliser and  introduce better discharge standards for industry to curb heavy metal discharge from industry (see here for list of industries). There are new national & provincial limits & targets for COD, NH4, Lead, Mercury, Cadmium, Chromium & Arsenic. New Soil and Water Pollution Prevention Plans are expected to be issued in 2014.

2.     Control land use

    • Minimum farmland – has been set at 120 million hectares to maintain basic grain sufficiency; China’s sown land is currently at 163 million hectares but last year lost 3.3 million hectares as they become too contaminated by heavy metals for farming.
    • Larger farm plot sizes – Current farm plot size per rural household is 2.3mu (0.16ha). Government has indicated that they would like to form bigger farms in the long term to capture economies of scale  – indeed the farms in the ‘focus’ farming provinces in Northeastern China (Inner Mongolia, Liaoning, Heilongjiang and Jilin) have  a larger plot sizes of 3.8mu -10.4mu compared to the Top 4 Farmers of 1.3mu -1.9mu.

3.     Control grain mix

    • CWR China Daily Calorie Intake - Actual vs PlannedLimited Water = eat less + more grain & less meat – New Guidelines on China’s Food & Nutrition Development 2014-2020, indicate that central government would like the country to go on a “diet” with a per capita daily calorie intake target of 2,200-2,300 kcal. This is a reduction of around 35% from the 2009 levels of 3,036 kcal. The State Council guidelines also recommend grains to be >50%, fat to be <30% of the diet and to include 78g of proteins per person per day. Interestingly, the WHO expects the world daily per capita calorie intake to rise to 3,050 kcal by 2030 with a higher projected for East Asia of 3,190 kcal by 2030.

Agriculture policies are key to winning the war on pollution

Echoing Wai-Shin Chan’s views, tackling agricultural pollution is key to winning the war. Water is not only a key input in agriculture but at 63% of national water use, managing water in agriculture is crucial to the total water resources management of China.

Limited farmland and water means that it is imperative to protect farmlands from excessive water pollution be it from agriculture or from industrial wastewater. Controlling water pollution is a key strategy that will “kill three birds with one stone”:

  • Protect limited water resources;
  • Protect soil quality of limited farming land; and
  • Allay food safety fears.

“We will … apply the strictest possible oversight, punishment and accountability to prevent and control food contamination and ensure that every bite of food we eat is safe.”

Premier Li Keqiang, 18th National People’s Congress


In practice, small plot size may hamper execution and we see government also trying to implement polices to scale up on this front. We expect government to also focus on reducing pollution from improper application of fertiliser and better monitoring of wastewater discharge from animal husbandry (dead pigs in rivers). But it’s not just agricultural related products that will be in the spotlight… non-agri related industries such as oil, chemicals and tanning will also face increased scrutiny due to high heavy metal discharge.

For these multiple strategies to be successful, environmental law and ministerial oversight reforms must take place. Food safety issues are urgent. Premier Li Keqiang has promised in his speech at the 18th National People’s Congress meeting in Beijing, “We will … apply the strictest possible oversight, punishment and accountability to prevent and control food contamination and ensure that every bite of food we eat is safe.”

Given these, isn’t it time to adopt non-BAU thinking by viewing agriculture & food through a limited water lens. Water policies set can shape and shift the global agricultural trade.
Sheer size of China's agriculture sector

Yes, China’s agriculture may only be 10% of its GDP, but this total agricultural output is almost as large as Australia’s entire economy and larger than the entire economy of South Korea (see graph).  30% of this comes from the Top 4 Farmers which have similar water resources to the Middle East.

Moreover, 40% of China’s USD0.8 trillion farming and USD0.5 trillion animal husbandry output is generated from by The Dry 11.

Whether or not China ‘gets it right’, water & agriculture policies matter – not just for China but for the rest of the world.

Further Reading

  • HSBC – No Water, No Food – HSBC explores the implications of China’s quest for food safety and food security given current water scarcity and pollution issues in a newly released research report. China Water Risk was commissioned by HSBC Climate Change Centre to research and analyse the findings which form the basis of this report
  • Water Pollution May Lead to More Trade – Check out China Water Risk’s overview of the status of heavy metals discharge into wastewater, priority provinces, overlap with agriculture sown lands, crops exposed and industries targeted for clean-up
  • Crying Lands: China’s Polluted Waterscapes – Award-winning photographer Lu Guang shares his journey in documenting  sensitive social, health & environmental issues in China. See the tangible linkages through his heart-rending and insightful photographs
  • Heavy Metals & Agriculture – Check out China Water Risk’s overview of the status of heavy metals discharge into wastewater, priority provinces, overlap with agriculture sown lands, crops exposed and industries targeted for clean-up
  • 8 Things You Should Know About Rice & Water – How much of water & farmlands are used to grow rice in China? What about exposure to Cadmium, Mercury, Lead & Arsenic? Can China ensure rice security? Here are 8 things you should know about rice & water in China
  • Global Agriculture & Water Scarcity – With more than 25% of global agriculture grown in high water stress areas, tension between global crop production & water supply is forecasted to grow. WRI’s Frances Gassert tells us why we must look at food and water together
  • The War on Water Pollution – Premier Li Keqiang has just declared war on pollution. Tan expands on the government’s stratagems & offensives and fundamental changes required to shore up the MEP’s arsenal in order to wage a successful war
  • Agriculture: A Prosperous Ever After? – With recent reports on by the Chinese government, FAO, HSBC and WEF all highlighting agriculture concerns, Debra Tan takes a closer look at food, property. the weather and potential strategies to ensure a prosperous ever after
Debra Tan
Author: Debra Tan
Debra heads the CWR team and has steered the CWR brand from idea to a leader in the water risk conversation globally. Reports she has written for and with financial institutions analyzing the impact of water risks on the Power, Mining, Agricultural and Textiles industries have been considered groundbreaking and instrumental in understanding not just China’s but future global water challenges. One of these led the fashion industry to nominate CWR as a finalist for the Global Leadership Awards in Sustainable Apparel; another is helping to build consensus toward water risk valuation. Debra is a prolific speaker on water risk delivering keynotes, participating in panel discussions at water prize seminars, numerous investor & industry conferences as well as G2G and academic forums. Before venturing into “water”, she worked in finance, spending over a decade as a chartered accountant and investment banker specializing in M&A and strategic advisory. Debra left banking to pursue her interest in photography and also ran and organized philanthropic and luxury holidays for a small but global private members travel network She has lived and worked in Beijing, HK, KL, London, New York and Singapore and spends her spare time exploring glaciers in Asia.
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