China-More grain subsidies.

CHINA-GRAIN SUBSIDIES.

The Chinese Government started to ramp up subsidies to its grain producers to allow them to deal with drought.

Severe drought in northern China is affecting more than 9.3 million hectares of wheat, or about 43 per cent of the winter crop.

The government has announced US$12.7 billion to help wheat-growing communities survive what is said to be the worst drought in 50 years.

The money will be brought forward out of annual subsidies normally distributed to aid capital spending by grain farmers and to supplement their incomes. It’s also brought in rain-making scientists to help crack open the skies.

A University of Leeds study last month highlighted the growing fragility of global grain supply, assessing how socio-economic factors affect the vulnerability of wheat, rice and corn to drought.

In a nutshell, urban drift has swallowed up large tracts of prime agricultural land. Housing, infrastructure, industry and higher value crops have taken over more profitable farming land, pushing more and more grain crops to marginal country. It’s a drift that China can’t sustain without trade.

If China were to start importing just 5 per cent of its grain, the University of Leeds claims the entire world’s grain exports would be consumed. As we’ve seen in recent years, price spikes would ensue. That of course assumes no change in other trends that would place further pressure on stocks.

The fragility of supply isn’t showing up in output numbers.

Last year, China’s total output of grain reached 528 million tonnes, an increase of 5.4 per cent.

Those grain increases are just keeping pace with the growth in meat production, which are needed to meet demand by an increasingly affluent population.

What does it mean for us? With climate variability one of the only certainties in the future, global grain markets volatility will increase as a major consumer and producer like China comes and goes from international trade.

Grain availability is such a big factor in global food security risks, which won’t go away despite a financial crisis hitting demand.

It also means that actions by governments to protect their own citizens’ food supplies will be easier to implement than any global accord on food security.