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China: Farmers Going Extinct

In China, those working in primary industries like agriculture accounted for 40 percent of total labor force at the end of year 2010, in comparison with 70 percent in year 1978 (Chart 1).

Chart 1: Chinese employment by industry

Since 1990 the percentage of farmers in China has been declining over time, resulting in a shortage in food supply.

The same declining trend in farmers was also visible for the U.S. (Chart 2). Agriculture employment accounted for 40% in 1900 and dropped to 2% in year 2000.

Chart 2: U.S. farm population and rural population as share of population

Today, China's agriculture employment stands at 40% and will likely continue to drop due to industrialization. China will follow this similar path as the U.S. did from year 1900 up till today.

The amount of farmers in China is declining, but production is still increasing at a fast pace due to industrialization (Chart 3).

Chart 3: Agricultural Production in China

From year 2000 though, China is facing a water shortage due to depletion of aquifers and this poses a big problem for agricultural production growth. Since then on, for example, China became a net importer of grain.

Meanwhile, the Chinese population is expected to grow 0,5 % per annum. For India the growth rate is 1% per annum. If production doesn't keep up with population growth, food prices will inevitably spike upwards.

Chart 4: Population Growth

As oil is becoming scarce (higher oil prices), we finally started to see the first real panic in one of the advanced economies like the United Kingdom. People are waiting in lines to get their gasoline. As I already pointed out in this article, food prices always go up in tandem with oil prices.

Therefore, it's of the utmost importance to anticipate this future trend in food inflation by buying agricultural commodities like Rogers Agriculture ETN (RJA), farmland Adecoagro (AGRO) or fertilizer stocks (POT).

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