Commodities

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Rani Molla is a Bloomberg Gadfly columnist using data visualizations to cover corporations and markets. She previously worked for the Wall Street Journal.

China faces a perpetual struggle to feed its population of 1.4 billion, the largest in the world.

With an aging rural society, a limited supply of quality arable land and a continuing shift in young people from the countryside to the cities, China's farmers are under pressure to increase yields.

Living on the Land
Arable land per person
Source: World Bank

ChemChina's $43 billion offer for the pesticides and seeds producer Syngenta provides a ticket to do just that, and it gives the Swiss company the chance to expand sales. The Chinese seed and crop-protection market is valued at about $10.6 billion a year, Syngenta reckons.

Jeremy Redenius, a chemicals analyst at Sanford Bernstein, says large Western agricultural chemical companies have made only limited inroads into the country because the large number of local suppliers makes the market highly competitive.

In 2015, the Asia-Pacific region accounted for 14 percent of Syngenta's sales:

syngenta

Data on calorie availability show the gap between China and western diets has narrowed significantly over the past two decades:

Eating Up
Calorie supply per capita per day
Source: Food and Agriculture Organization of the United Nations

As Chinese people have become wealthier, their diets have shifted away from grains toward animal protein:

Meating Up
Meat supply per capita per year
Source: Food and Agriculture Organization of the United Nations

 

Grain Drain
Cereal supply per capita per year
Source: Food and Agriculture Organization of the United Nations

To produce all that protein, China needs animal feed. It has become the world's top soybean importer, for example.

China's farming industry is also compelled to increase crop yields. To do that, it relies on large quantities of fertilizer:

Infertile Ground
Fertilizer consumption per hectare of arable land
Source: World Bank

Buying Syngenta gives ChemChina access to genetically modified crop technology that could help cut the country's dependence on fertilizer, a known pollutant.

With calorie consumption already approaching Western levels in China, however, Redenius doesn't expect a further boom in food demand. China's population growth is also waning:

Slower Growing
Cumulative change in population since 2005
Source: World Bank

That should help give China's farmers a break -- but it also means ChemChina will have to work hard to justify the price it's paying.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net
Rani Molla in New York at rmolla2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net