By Monish Gulati | eurasiareview.com: The Chinese position on the Ukraine crisis and the Russian
intervention in Crimea has been described as being of “studied
ambiguity”, and one of the objectives of this policy was to balance
interests in both Russia and Ukraine. The discussion on Chinese
interests in Ukraine has largely centered on military cooperation and
shipbuilding, obscuring Ukraine’s developing connection to China’s food
security strategy. 

China late last year concluded a deal to farm three million hectares
of arable Ukrainian land over the span of half a century. Under the
initial agreement worth $1.7 billion with KSG Agro, Ukraine’s leading
agricultural company, 100,000 hectares were slated to be leased to
Xinjiang Production and Construction Corp (XPCC), a Chinese
quasi-military organization, also known as Bingtuan. The leased farmland
in Dnipropetrovsk region of eastern Ukraine was to be cultivated
principally for crops and raising pigs and the output sold to two
Chinese state-owned grain conglomerates at preferential prices.
Eventually the project size was expected to increase to three million
hectares, 50 percent more than China’s own agricultural land – becoming
China’s largest overseas project involving farmland.

Food Security

According to the 2013 FAO report on food insecurity in the world, in
2011–13 a total of 842 million people or around one in eight people in
the world are estimated to be suffering from chronic hunger, regularly
not getting enough food to conduct an active life. Food security is a
complex condition, with dimensions relating to availability, access,
utilization and stability. The People’s Republic of China (PRC) is home
to 22 percent of the world’s population, but has only 9 percent of its
total arable land. In 2009 China possessed just 2 million hectares of
farmland. In 2011-13, the number of undernourished people in China stood
at 158 million.

The situation has been aggravated by rapid industrialization and
population growth, resulting in rising demand for farmlands which are
not available within the country. A recent report declared nearly
one-fifth of the nation’s soil, including 19.4 percent of its
crop-growing areas, as polluted. China faces increasing pressure to
enhance its domestic food production as it consumes one-fifth of all
global food supplies.

Although China’s domestic grain output had grown for 10 straight
years, demand for imported grain had also grown. It imported nearly 14
million tonnes of cereal and cereal flours last year, an increase of
more than 150 percent from 2011. With a target to become 90 percent
self-sufficient in food production, the Ukraine farming project was an
important part of China’s food security programme and strategy of
outsourcing the production of food to farms overseas.

African nations, with their vast and sparsely populated fertile
lands, offer China a solution to its rising food demand. Most Chinese
investment in African agriculture is concentrated in southern Africa:
Mozambique, Tanzania, Malawi and Angola. The first major Chinese
investment in Africa’s agricultural sector was in 1995. Elsewhere, China
has also made substantial agricultural investments in South America,
where it acquired 234,000 hectares to grow soya bean and corn in
Argentina.

Incidentally, Chinese efforts to seek out foreign farmlands is a
global trend. Countries such as the US, Britain, Saudi Arabia, South
Korea, United Arab Emirates and India have also purchased foreign
farmland, initially mostly in Africa, but now increasingly also in
eastern Europe, Latin America, and Asia. A study from January 2013
showed that between 0.75% and 1.75% of the world’s farmland is now being
transferred from locals to foreign investors.

Ukraine Connection

Ukraine has well-developed agriculture and is one of the world’s top
10 wheat exporters. Under the deal signed between China’s XPCC and KSG
Agro, a Warsaw-listed Ukrainian agricultural company, crops raised in
the region were to be sold at below-market prices to two Chinese
state-owned firms. In exchange for its produce, Ukraine would receive
seeds, equipment, a fertilizer plant (Ukraine imports about $1 billion
worth of fertilizer every year), and a plant to produce a crop
protection agent. Also part of the deal is a $3 billion loan for
agricultural development from China’s Export-Import bank. XPCC had also
proposed to help build a highway in Ukraine’s Autonomous Republic of
Crimea as well as a bridge across the Strait of Kerch.

India

Indian agricultural companies too have been involved in the recent
trend of large-scale overseas acquisition of farmland in Asia and
Africa. Many international companies have traditionally grown cash crops
abroad, and more recently crops for producing biofuels for the global
markets. The various factors driving the “outsourcing” of domestic food
production have been identified as the Indian government’s concerns
regarding long-term food security and diminishing ground water tables in
northern and central India. Other factors include the allure of much
cheaper land and more abundant water sources in overseas locations. In
2011-13, China had 158 million undernourished people as against 213.8
million in India. The Indian government has been taking steps such as
high-level trade diplomacy and lines of credit from the Export-Import
Bank to facilitate this trend.

Assessment

The decision of China to partner in farming projects by Ukraine, a
country once referred to as Russia’s breadbasket, appears to be based on
geopolitical calculations. It was only after the Ukrainian government
lifted a law that barred foreigners from buying land last year that
paved the way for the Chinese project. Some analysts consider the
Ukrainian decision as an attempt to distance the country from Russia and
build stronger ties with the European Union and other partners. Ukraine
and China, to further their partnership, set up an Intergovernmental
Commission on Cooperation, as well as several sub-committees to
intensify bilateral trade and economic cooperation. The Ukrainian
economy and agricultural sector require the infusion of Chinese
investment.

The Chinese situation in Ukraine illustrates how globalization has
moved food security beyond a nation’s borders and neighbourhood. China
characteristically employs a large percentage of Chinese labour at its
overseas farm acquisitions, and if the Ukraine project had progressed
beyond the initial stage it would have presented an added dimension to
Chinese security concerns in Ukraine.