Brady Sidwell knows a thing or two about China. He understands the value of an economy that boasts a 6 percent annual growth rate — $1.3 trillion a year. He recognizes the importance of the growth rate of China’s middle class — 27 million people entering that economic segment each year.
He understands the constraints of China’s food and fiber production system. And he knows well the challenges foreign businesses face in China — a company he once worked for in China was banned from doing business there.
“China is an enormous wild card as it transitions to a more market-based economy,” Sidwell said at the Oklahoma State University Rural Outlook conference held on the Stillwater campus. He worked for the OSI Group in China, but now is president of Enterprise Grain Company, Sidwell Seed, Sidwell Strategies, and AgVenture Capital at Kremlin, Okla.
“No matter your age, discipline, location, employer, or interests, the urbanization of the developing world — especially China — will have a profound impact on what we do, especially in agriculture,” he says.
He acknowledges that China is already one of the world’s largest food and agriculture producers, growing half of the world’s vegetables and half the world’s pork. It is also the world’s second largest cotton producer, second in corn, and fourth in soybeans. “China is also a large trader,” Sidwell says, and offers significant opportunities for agriculture, including pork, wheat, and corn. “It presents a huge potential market for beef — they want American beef.”
Increased demand for improved nutrition by the growing Chinese middle class can’t be met by current agriculture production, he says. “Farms are small — average farm size is half an acre. The average size of a U.S. farm is 441 acres (431 acres in Oklahoma). The U.S. also has an advantage in experience and technology.”
China’s rural population is double the number of people in the U.S. total population, but urbanization is a trend, Sidwell says. “More urbanization means more consumers.” Also, China’s rural inhabitants are aging. And another limitation on agricultural productivity is “zero private land ownership, which hinders farmers from consolidating acreage to increase farm size and improve efficiency.”
China’s farms are, for the most part, subsistence operations. “U.S. farmers farm because they want to — Chinese farmers are of the peasant class, and have no other opportunities.”
Urbanization is occurring and “changing the consumer demand profile,” Sidwell says. Incomes are rising, by a factor of 1.5 over the past 10 years. The country’s 700 million Internet users have discovered new markets, and now account for half of all sales of expensive Louis Vuitton products.
The population is five times richer than it was in 2003, he says, and now purchases 10 times more food and beverage. “China’s economic focus is spurring a significant and sustained private, domestic boom in consumption.”
The Chinese government is responding with changes in policy, especially with regard to agriculture. Also on the agenda are industrialization, urbanization, agricultural modernization, and information. “Food safety reform is at the top of the agenda,” Sidwell says. “But agriculture should be a more strategic part of the conversation.”
Agricultural trade will be necessary to meet China’s growing demand for food. “Urban consumers are evolving at a faster pace than production agriculture. For instance, China consumes everything it produces, and grain self-sufficiency is impossible,” since the country has a limited agriculture production capacity. Land is less productive than U.S. farmland, which limits China’s potential growth in agricultural production.
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Sidwell worked for the OSI Group before the company was banned for a “staged meat scandal,” for which 10 people were arrested, nine facilities were shut down, and U.S. employees had to leave the country, Including him. “It’s a difficult place for foreign companies,” he says.
Trade may be the better option. “China is now buying more companies than the U.S., and agriculture will be a key target for acquisition. State-owned enterprises are buying technology.” Trade will be increasingly important — “It’s a critical part of the U.S. policy conversation.” (Editor’s Note: Sidwell’s presentation occurred before the presidential election, so that conversation could change in coming months.)
Politics aside, he says, better communications will be an important factor in improving relationships with Chinese businesses and enhancing trade. “A lot of dialogue has to happen with companies in China. The next two decades offer opportunities for agriculture to be more tuned in to China’s urban population growth and the demand they can’t meet.”
As with any business opportunity, Sidwell says, relationships matter. “Developing relationships with people in China will pay dividends.”