Drought Threatens China’s Harvest When World Can Least Afford It

(Bloomberg) — The extreme weather hitting China on all points of the compass comes at a pivotal time for the harvest in the world’s most populous nation. 

China has largely escaped this year’s surge in global food prices due to Russia’s invasion of Ukraine. But persistent, searing heat in central and southwestern areas, and flooding in the northeast — all worsened by climate change — now threaten a grain harvest that runs to hundreds of millions of tons, most of which is gathered in the fall. 

The broadest risk is that lost output could raise China’s already hefty import needs, adding to intense price pressures in the rest of the world. Global food supplies have been affected by the pandemic and then the war in Ukraine, sending grocery bills skyrocketing in some nations, while scorching conditions from the US Midwest to India continue to threaten crops in the northern hemisphere. China is by far the world’s biggest importer of food.

“The impact of adverse weather conditions at the present time will weaken mainland China’s net food balance in the current harvest cycle,” said Charles Hart, a commodities analyst at Fitch Solutions. “The autumn harvest represents roughly three-quarters of total grain production and thus will determine whether or not China achieves its goal of 650 million tons of output.”

The worst drought since the early 1960s afflicting the regions along the Yangtze River and the Sichuan basin holds the most peril, because that’s where almost half of the nation’s rice is produced, according to Goldman Sachs Group Inc. The supply of the staple foodstuff tops the list of China’s anxieties around food security, and the farm ministry has already warned of severe challenges to grain output in the autumn.

“The crops that are mainly going to be impacted are corn and rice,” said Darin Friedrichs, co-founder of Sitonia Consulting, as furnace-like conditions in central and southern China reduce yields. Some soybean output in the Yangtze River delta has also been hit, although most of China’s production of the oilseed is in the north, he said.

In China’s northeastern bread basket, heavy rains have flooded parts of Liaoning and Jilin provinces. That could reduce corn output by about 4.5 million tons, according to a report from commodities broker Yongan Futures Co. China was expected to produce around 270 million tons of the grain this season, on a par with the previous year.

The extent of crop losses still depends on the weather and forecasters have better news on that front, with rains expected in southern China in the next 10 days likely to ease drought conditions in some areas.

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Today’s Chart

Summer droughts and floods may force China to rely more on coal than its current 57% of generated capacity, as hydropower is disrupted, according to Bloomberg Intelligence. Sichuan’s power woes show that hydro, usually seen as the most dependable renewable source, is still not as reliable as coal, which raises questions about how smoothly China can shift from fossil fuels, as wind and solar are even less stable, said BloombergNEF analyst Hanyang Wei. 

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