April 27, 2012

BILL KIERNAN Director, GAI Research & Insight

I had the distinct fortune of being able to dine with Jim Rogers one evening at the Global AgInvesting 2012 conference in New York City held April 23-25.  Dinner conversation was very interesting, with Mr. Rogers sharing his perspectives on investing, commodities, agriculture and the rise of China in the 21^stcentury.  Mr. Rogers believes strongly that the rise of China as a dominant world power will create significant opportunity for investors as this nation’s roaring economic engine eats up more and more of the world’s commodities and natural resources.  When asked about the possibility of war between the U.S. and China over increasingly scarce resources, Mr. Rogers had a very interesting observation.  He felt that war between the U.S. and China was unlikely for two reasons.  First, he related, China has not historically behaved as an aggressor and colonizing nation, and second, China’s one-child policy would make war an exceedingly unpopular means of diplomacy in the minds of its populace; Chinese citizens would be very reluctant to risk their only child in armed conflict.  Like all great insights, I found this fascinating in its simplicity and logic.

I believe that the rise of China will have significant impacts on the global agricultural sector.  Chinese meat consumption per capita has risen dramatically along with its GDP per capita-as incomes grow, meat consumption grows right along with it.  Over the past 20 years, China’s GDP per capita has grown 14.8% annually, and meat consumption has grown by 3.7% annually.  You can see this dramatic growth in the following chart: 

To get an idea of the importance of China’s rising wealth and meat consumption consider this: It takes 10 pounds of grain to produce one pound of beef, and every time Chinese per capita beef consumption increases by one pound, it takes 1.6 million acres of additional corn production to produce this increase in beef consumption- that is two percent of the entire U.S. corn crop. 

In fact, in the past ten years, China has transformed from a net exporter of grains to a net importer as it struggles to feed its rapidly growing livestock industry.  This not only bodes well for grain producers and farmland investors, but also for investors in meat processing, marketing and infrastructure in China.

For a much more in-depth analysis of China’s rising importance to the global agricultural sector and the investment opportunity this presents, please read my colleague Bill Devins’ excellent research paper entitled “China’s Impact on World Grain and Oilseed Markets” in the Publications and Downloads section on our Research & Insight page.