Greek crisis diverting attention fromother markets

The  Euro sculpture stands in front of the old European Central Bank in Frankfurt, Germany
The Euro sculpture stands in front of the old European Central Bank in Frankfurt, Germany

As financial events have unfolded in Greece we have focussed on them to the exclusion of something potentially more serious going on in one of the most important countries for global agriculture. That is China, which when it comes to food is the world’s biggest importer for every major commodity, not least dairy products.

Over the past month or so its stock market has plunged by 30 per cent, prompting some analysts to suggest that the pieces are now in place in China for a financial event as cataclysmic as the Wall Street Crash in 1929. That makes the problems of Greece and the euro small beer indeed, in comparison.

With a one billion plus population everything about China is huge, and the collapse of its stock market is equally huge. The drop in value over the past four weeks equals the total annual economic output of the UK. This has reduced the value of all Chinese companies. More seriously it has happened despite government intervention to steady the market. Having done that unsuccessfully the government effectively has no other cards left to play. That is why people are suggesting the Chinese share bubble and collapse is akin to what happened in the US at the end of the 1920s. This led to the Great Depression when companies could not raise funds to keep their businesses going.

When stock markets collapse in Europe, as happened in the 2008 recession, it is mostly large investors and pension funds that pay the price. However in China investments are not by pension funds, but by its growing middle class, enjoying being capitalists after years when this was stamped upon by communist rulers. People in China are feeling a lot more poor, and that means one of the world’s biggest economies has the potential to stop spending and growing. One of the first casualties will be the middle class demand in China to westernise their diets – and that will have a direct impact on their demand to import food.

Look thorough all the major commodities and for years we have got used to the mantra that China is the world’s fastest growing import market. That applies to beef, lamb, pork, dairy products and even wool. Countries like Australia, New Zealand and Brazil have increasingly geared up their farming industries to supply the open goal market China has been. When that falters a lot of certainties disappear, and if the Chinese problems spread elsewhere in Asia it will be even more serious.

For some time now agriculture around the world has enjoyed the certainty that the global demand for food will grow for the foreseeable future. Equally it has had the reassurance of a growing and prosperous middle class demand from countries like China. If that now falters, which seems inevitable in China, there will be a lot of products looking for new homes, which will have only one impact on prices. What this means in Europe is that we are now closed out of what was the biggest export market, Russia, because of its trade ban, while the other big global market in China is facing deep internal problems.

We have seen what has happened to global dairy markets because of weak demand in the face of over-production. That is really down to China not holding the big stocks of milk powders it once bought – and perhaps one of the reasons is that its financial confidence is not what it was. The impact on other products is not as obvious yet, but it will happen if the gloom and doom that China’s stock market has become continues. This is yet another sign of how globally dependent agriculture has become on events over which it has no control. In the past farming fortunes were dictated by prices and the weather, but now events thousands of miles away, from oil prices to the latest – the slump in the Chinese stock market – have an impact. The frustrating thing is that there is nothing farmers, national governments or even the European Commission can do about it. It is in many ways proof of the old chaos theory claim that a butterfly flapping its wings in Brazil can cause a tornado in Texas. That is about the impact the butterfly has on tipping atmospheric conditions over the edge, so it is probably best not to mention for now the possible impact on global agriculture of El Nino weather patterns forecast for this year.