The coronavirus outbreak and the ups and downs of the Sino-American trade war have underscored China's outsize impact on global food prices, along with the need for import-reliant countries like Japan to shield themselves from these swings.
The impact of Chinese demand fluctuations is especially obvious in soybeans. China's recent move to slash tariffs on U.S. imports, including soybeans, sparked hope among Chicago commodities investors that American soy exports would pick up. Trade tensions had destabilized the crop's price in international markets last year, at one point sending it to a 10-year low.
The easing of tensions between Washington and Beijing is good news for markets. But few expect a steady upward march in soybean trade between the two, owing largely to the emergence of a new risk factor: the novel coronavirus.
China mainly processes imported soybeans into cooking oil and animal feed. The outbreak has depressed economic activity there, weighing on consumption and potentially slowing soybean imports.
This comes on top of existing downward pressure on soybean demand caused by African swine fever, which has devastated Chinese pig stocks, reducing demand for soy-based feed. Meanwhile, the country has rushed to import more pork to compensate for the shortfall in domestic supply, sending prices of the meat soaring in Europe and raising concern that other importers could find it tougher to secure their supply.
China accounted for only 20% or so of global soybean imports around 2000, but its share has swelled to more than 60% as its breakneck economic growth has fed demand. Though this has recently declined somewhat amid the trade war, the growth trend is expected to continue over the medium term. The country also produced nearly half the world's pork before the outbreak of African swine fever.
The global effect of supply and demand shifts in the massive Chinese market will only continue to grow. To mitigate the impact on global prices, the country should improve hygiene management at its farms and work to ensure steady food procurement from overseas.
Countries and regions saddled with low food self-sufficiency rates -- such as Japan, South Korea and Taiwan -- should work to secure stable import routes for agricultural products, while also solidifying domestic production. Expanding export channels to encourage farmers to boost output will be key to this effort.
Also critical is to fix agricultural subsidy programs, prevalent in Japan and other countries, which often breed inefficiencies in the industry. Governments must take steps to bolster farm productivity to convince the public that its taxes are well-spent on protecting domestic food production.