Elephants in the Room
The Battle of the Breadbaskets Is Coming to a Head
The United States needs to strengthen its agriculture sector — or be overtaken by China.
The United States has long been the breadbasket of the world, as large swathes of fertile farmland and cutting-edge agricultural innovations have enabled it to both feed its own people and populations across the globe. However, America’s agricultural leadership now faces a serious test from China. China has been making aggressive moves to boost its own agriculture sector in order to feed its population and become a major player in the global agricultural industry. With the world’s population expected to reach nearly 10 billion by 2050, requiring a 70-percent increase in food production, the agriculture industry will play a critical role in the global economy. Given that trajectory, the U.S. agricultural industry must maintain its competitive edge in the face of a strong Chinese challenge for agricultural dominance.
Chinese leaders, many of whom witnessed the worst famines and largest population explosions in history, have agricultural modernization as one of their top goals. For the 14th year in a row, the Communist Part of China’s “No. 1 Central Document” focused on the agricultural sector. With 19 percent of the world’s population and only 7 percent of its cultivated land, China needs to boost the quantity and quality of its agricultural production to feed itself, and compete with the U.S. in feeding others. Achieving that goal requires advanced farming technology. Lacking the capacity to develop this technology domestically, China instead has pursued an aggressive investment strategy abroad, spending nearly $100 billion in the last decade to purchase foreign intellectual property involving agricultural production and technologies.
China’s largest investment so far has been the 2017 acquisition of Swiss agricultural giant Syngenta by state-owned China National Chemical, known as ChemChina, for $43 billion. As China’s largest-ever foreign acquisition, the purchase marks how serious China is about becoming an agricultural power. By purchasing one of the “big six” agricultural biotech companies, China not only acquired a significant portion of the world’s agricultural intellectual property, but now boasts a new national champion with a state-funded mandate to strengthen China’s agriculture sector relative to the United States and European Union. U.S. and EU agriculture companies must be prepared to face Chinese competitors that have the full backing of the state. Inability to compete will make U.S. and European firms increasingly susceptible to Chinese acquisition, and potentially lead to the transfer of important intellectual property to the Chinese.
The United States has a significant comparative advantage in domestic research and development capabilities — one that will take China decades to match. To keep that advantage, the U.S. government and the American private sector should redouble their research and development efforts to develop new and innovative technologies. One way industry can compete is by pooling resources and enhancing innovation through consolidation. Robert Young, the former chief economist for the American Farm Bureau Federation and the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, recently noted how the combining of agricultural firms with different areas of expertise creates the potential for improved research processes and increased innovation.
Dow and DuPont, two leading American agriculture companies, completed their merger in September of 2017. Meanwhile, Monsanto, the other top U.S. company, was rebuffed in its effort to acquire Syngenta. Now Germany’s Bayer AG is looking to partner with Monsanto in a deal that just received approval from the Committee on Foreign Investment in the United States, the interagency group charged with reviewing acquisitions of domestic companies for security concerns. Such deals could create new research and development jobs in the United States and prevent the Chinese from gaining valuable intellectual property. Regulators should avoid standing in the way of deals that enhance the ability of U.S. and EU companies to withstand the coming wave of Chinese competition.
The United States should view agriculture as a key area of economic opportunity, especially as world food demand continues to increase. As such, the Trump administration and U.S. Department of Agriculture should take steps to bolster the agriculture sector, both by continuing to support agricultural innovation, and by allowing the private sector to utilize market-oriented methods to stay strong in the face of Chinese rivalry.