I’ve got brick and ore for wheat

In the world-popular board game Settlers of Catan, there’s six types of land tiles that you can occupy in order to obtain resources to fuel your growing empire. Quarries for brick, mountains for ore, forests for wood, plains for wheat, and grasslands for sheep. In your bog standard Settlers game, the most important two to secure are invariably brick and wood: you need them to build settlements and roads, and the game will often go to who can expand the fastest. But in the expansion set Knights and Cities, the games take longer, and the dynamic shifts. Invariably I find the most important land tile to secure in the long-distance run are plains. In the longer game you run up against limits of land. You reach the point where you can’t gain points from expansion anymore, and so you must develop what you have. Your settlements have to turn to cities, and that takes wheat (and ore). Then you need to raise and maintain knights to defend them, and that takes wheat too. The thing about the game is that if you only realise this need once you’re starting to turn your settlements into cities, you’re going to be starved by the players who occupied all the prime spots from the start. The game’s often made or lost by what tiles you initially claim.

Food supplies are one of those things you have to think long term about if you want to win. And two of the latest Stratfor podcasts[1] give an insight into how one of the governments more known for its long term thinking is viewing this particular phase of play, given the current food and fuel crisis.

The first discusses a proposal by China’s agricultural ministry to provide incentives (think tax breaks, subsidies for farm buildings and projects, etc) for companies to purchase or lease farmable land in foreign countries, and particularly Australia. This indicates the long term aspect of their planning: currently four out of ten Chinese are farmers (albeit in a peasant economy), and it’s still a net food exporter. But the podcast cites a McKinsey report saying that China’s urban population will reach 1 billion by 2030. By 2025 there’ll be 219 cities in the country with individual populations >1M.  And for a country with currently 19.6% of the world’s population, it’s only got 9% of the world’s arable land. Additionally, the east asia analyst that starts talking partway through points out that food imports are historically important to China as a result of their Great Famine (although looking back over the list, they’ve had a few).

So they’ve been acquiring foreign land for this purpose since the mid 90s in places like Cuba and the Philippines. This is not new. That they will be looking to Australia is. To continue the Settlers allusion, Australia can be thought of as two of the world’s largest quarry and plains tiles.

As the second podcast goes into detail to explain, although Australia is commonly regarded as drought stricken (which it still is in the wheat and rice-producing parts, but it’s hopefully emerging from this), its northern states particularly have great potential for agriculture (ie, it rains there in tropical amounts). And it’s very underdeveloped in this aspect. It’s more that the rice and wheat growers are partially where they are (ie, under drought) for historical reasons as much as anything else, and prefer the southern climate. Australia stands to gain from it in a small way (93% of all foreign owned land in Australia is Crown lease-hold, rather than freehold, and at least Victoria imposes a 20% additional land tax on foreign owners [2]), but it’s probably not how the government would like to see things going down. It’s far better for them to actually export it to China, and make use of the Free Trade Agreement they’re currently negotiating. I wouldn’t be surprised if the Australians do pass some more protectionist laws in this regard. Its use-of-local-labour and property ownership laws and are strong when it comes to foreign entities. Additionally in the north most land isn’t freehold but leasehold [3]. That makes things easier for the government, but they are still very much constrained by the free market. A lot of farmers there are hurting from the drought, and China’s willing to spend large on long term assets.

Other countries China’s interested in (and there are a few, in the interests of risk management by diversification) include that other big grain bowl of the world, Russia. But it’s one thing for them to talk about buying land in Australia, and another in their large, border-sharing neighbour. The Russians are even more sensitive about foreign ownership of land, and if the new president Dmitry Medvedev is anything like his patron Putin (who was rather strident in nationalizing gas and oil supplies), then he probably isn’t going to be a strong advocate for free market liberalization and foreign investment. The Stratfor podcast concludes that if similar farm purchases happen in Russia, we won’t be hearing much about them due to this sensitivity. I expect that if it does start happening in Australia, particularly near an election cycle, we’ll be hearing plenty about it. The Australian reaction will be worth watching.

This can be regarded as an over-cautious strategy in some ways. China’s economy will soon be the world’s largest again. It’ll have money to buy its food for a long time. So this is interesting (even if it doesn’t happen) in how it shows how sensitive the Chinese government is to food pricing. To keep a population that large happy, you need a lot of bread, and a lot of ciruses.

[1] If anyone’s feeling particularly generous and for some reason wants to spend several hundred dollars on a birthday present for me next month, I’d appreciate a StratFor subscription. Failing that, I’ll just keep on going with their free content features. Their daily podcasts I can particularly recommend as being a neat way to go beyond the typical media depths (shallows) of analysis.

[2]  Doug Cocks – Use with Care: Managing Australia’s Natural Resources in the Twenty-First

[3]  http://www.bmr.gov.au/education/facts/tenure.htm

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