American lawmakers on both sides of the aisle have increasingly expressed concerns about foreign investment in the US agriculture industry, including purchasing farmland. Although the increasing criticism may seem like an overreaction because foreign investors own just 3.1 percent of all US farmland (as of 2021), significant strategic factors must be considered if the US continues to allow the continued increase in foreign ownership. The ownership of critical assets and areas of farmland allows for leverage over food supplies and international markets.
Between 2009 and 2019, foreign ownership of American farmland nearly doubled. During this time, Chinese investment in American farmland grew nearly tenfold as the Chinese Communist Party (CCP) was more and more proactive in encouraging investment in the US agricultural market. With increased ownership comes increased market influence.
Over the past several years, China has faced increasing food instability due to various factors, including a lack of arable land. Despite having a comparable land mass to the United States, China possesses nearly 100 billion fewer arable acres. Considering China is the most populous country in the world, this deficit is already crippling.
The amount of farmable land in China continues to be at risk of shrinkage as it is converted to account for rapid urban growth. Pollution has worsened as China has urbanized and threatens the
available land. The Chinese Ministry of Ecology and Environment reported in 2018 that approximately 15 percent of groundwater was unusable. This is exacerbated by the Ministry of Land and Resources data, which suggests nearly 20 percent of China’s agricultural land had contaminated soil.
Economically, China has prioritized urban growth through its 14th Five-Year Plan. Accordingly, flight from the agricultural sector has resulted from its focus on industrialization and urbanization.
Additionally, the farming demographic in China is aging out, as young people are incentivized to pursue more white-collar positions in cities. Compounding the flight from the agricultural sector is the relative success of China’s economic strategy. China’s middle class has grown substantially, and with it, the taste for more expensive foods. The meat industry faces higher demands, and the Chinese have failed to keep up with the increased interest.
Adding to this stress are natural disasters, pests, diseases, and pollution that continue to wreak havoc on China’s food industry. Recent breakouts of African Swine Fever have devastated the pork industry. Also, the fall armyworm, which feeds on over 80 different types of crops, has decimated provinces across the country since 2019. When these pests and diseases are paired with record flooding due to global environmental changes, China’s agricultural sector simply cannot keep up with the demands of its booming population.
Domestic pressures have pushed the Chinese government to look abroad, and Beijing has turned to investing in foreign lands worldwide to help stabilize and subsidize its local market.
High-profile purchases like the WH Group’s acquisition of Smithfield Food in 2013, the Fufeng Group’s purchase of land near a North Dakota air force base in 2022, and Chinese billionaire Sun Guangxin’s attempt to build a wind farm on hundreds of thousands of acres in Texas near yet another Air Force base in 2021 have lawmakers raising their hackles over perceived threats to food supply and national security.
How much of a risk are these acquisitions, and how are they monitored?
It is worth noting that both projects near the Air Force bases in North Dakota and Texas were halted over security concerns. The Committee on Foreign Investment in the United States approved the Smithfield acquisition and has not publicly been found to cause any security concerns. Furthermore, in the case of Smithfield, which primarily facilitates the production and processing of pork, most of the land owned by the company is not necessarily arable farmland, according to the CATO Institute.
Smithfield has come under fire from politicians for its extreme consolidation along the supply chain and vertical integration, which could have economic ramifications for US businesses looking to be competitive at every level. However, regarding the threat to food supply, the Center for Strategic and International Studies suggests that these purchases and the Chinese
ownership of farmland in the United States do not pose a significant risk to food stability in the US. The low degree of threat comes from the fact that China owns only a tiny portion of available farmland in the US.
According to a report by the US-China Economic and Security Review Commission, the acquisition of US farmland has potential national security ramifications, regardless of the location of the land being purchased. By involving itself heavily in the US agricultural sector, China has put itself in an excellent position to benefit from American technology and other intellectual property.
This report indicates that China has historically shown interest in obtaining US intellectual property in the agricultural sector through illicit channels like IP theft and physical seeds. However, integrating Chinese-owned farms into the American agricultural sector would likely simplify Chinese acquisition of advanced American technology.
For example, agricultural technological developments, such as genetically modified (GM) seeds, are in high demand because of changing environmental factors and food insecurity around the globe. GM seeds mitigate risks surrounding droughts, disease, and pests and offer an increased yield per acre of arable land. This resistance and productivity reduces the land needed to produce sufficient crops. In short, GM seeds appeal to a Chinese state ridden with agricultural insecurity and lagging behind US innovation.
Stabilizing China’s food production capacities is not the only consequence of American technology falling into Chinese hands. Chinese possession of GM seeds and specific agricultural IP could pose serious military risks. The US-China Economic and Security Review Commission suggests that GM seeds and IP are subject to reverse engineering, which could allow nefarious actors to unlock blights and bioweapons based on the genetic material available. This is particularly concerning because GM crops are by nature minimally varied, meaning that any type of bioweapon or disease could more easily wipe out entire crop populations. Chinese acquisition of this technology could allow the country to stabilize and increase its crop production. It could fuel a dangerous conflict spiral between significant powers and heighten the risk of bioterrorism.
Although foreign acquisitions of US land are monitored by the USDA and subject to further approval by the Committee on Foreign Investment in the United States, businesses in the agricultural sector should take extra steps to consider their business partners and potential buyers.
The concept of “knowing your customer” (KYC) due diligence so frequently applied to banks can also apply to agriculture. Because USDA data relies entirely on self-reporting, American business owners in the agricultural sector must look for warning indicators and risks surrounding investors, buyers, and partners. This obligation includes knowing whom you do business with at
the personal and corporate levels. Due diligence on prospective business partners in this sector is becoming more important.
Screening individuals for foreign political ties, ties to State Owned Enterprises (SOEs), major criminal organizations, intelligence agencies, or front organizations reduce reputational risk from partnering with entities that may draw scrutiny and scandal.
This kind of in-depth screening requires more than a background check. It includes checking and interviewing sources abroad, data mining social media posts, and employing skilled investigators with sophisticated OSINT (Open Source Intelligence) techniques to identify imposters and bad actors.
As an agricultural vendor in the US, being approached by a business interested in land near sensitive US military sites offers a clear warning indicator of potential risk.
The location of your assets, such as proximity to military sites, can inadvertently expose your company to legal and regulatory liability and potential violation of national security laws if you sell to a bad actor.
Knowing the companies you sell to is another level of risk mitigation that goes beyond basic investigation. This kind of sophisticated screening involves intelligence gathering to know the background of your partner company, its beneficial ownership, and motivations.
For companies selling agricultural assets to Chinese buyers, intelligence and due diligence investigation is just good business.