China is Cropping Up on US Soil

China is Cropping Up on US Soil

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.  

Why Is China Hungry for US Land? (see report)  

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.  

A Blight on American Industry?  

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.  

Sowing its Seeds  

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.  

The Seeds of De-Risking  

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.

            

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