186: Major Gustavo Ferreira testifies at the U.S. China Economic and Security Review Commission.

Today, we welcome back Major Gustavo Ferreira, a Civil Affairs agriculturalist.
 
Gus originally came on episode 123 to discuss agriculture's impacts on foreign policy. 

Gus has published two articles, 
"Does China Have Enough Food to Go to War?" and 
"Taiwan's Food Resiliency—or Not—in a Conflict with China."

After publishing, Gus was interviewed on this show, which resulted in an interview with the Economist, a session at the Center for Strategic and International Studies, 

and now resulting in a congressional testimony with the U.S. China Economic and Security Review Commission.
 
Gus was joined by two others but for this episode, I will only focus on his testimony and discussion with the commission. I'll include links for the full testimony and papers in the show notes. 

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One CA is a product of the civil affairs association 

and brings in people who are current or former military, diplomats, development officers, and field agents to discuss their experiences on the ground with a partner nation's people and leadership.

We aim to inspire anyone interested in working in the "last three feet" of U.S. foreign relations. 

To contact the show, email us at CApodcasting@gmail.com 

or look us up on the Civil Affairs Association website at www civilaffairsassoc.org

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Links: Commission link: https://www.uscc.gov/hearings/chinas-stockpiling-and-mobilization-measures-competition-and-conflict

Does China Have Enough Food to Go to War? https://www.armyupress.army.mil/Portals/7/PDF-UA-docs/Ferreira-UA.pdf

Taiwan's Food Resiliency—or Not—in a Conflict with China
https://press.armywarcollege.edu/parameters/vol53/iss2/10/

 

Special Thanks to Joyful Jamboree · CM BGM Room Bossa Nova In The Café ℗ Cloud Media Released on: 2023-05-16 Producer: CM BGM Room Composer: CM BGM Room Music Publisher: CM BGM Room. 

Retrieved from https://youtube.com/watch?v=YCTzOnKNaSQ&si=v2hajnhu77yw3FzU

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Transcript

00:00:02    Introduction

Welcome to the 1CA Podcast. This is your host, Jack Gaines. 1CA is a product of the Civil Affairs Association and brings in people who are current or former military, diplomats, development officers, and field agents to discuss their experiences on ground with the partner nation's people and leadership. Our goal is to inspire anyone interested in working the last three feet of foreign relations. To contact the show, email us at capodcasting at gmail .com. Or look us up on the Civil Affairs Association website at www .civilaffairsassos .org. I'll have those in the show notes.

 

00:00:38    House Chair

We'll begin with Dr. Gustavo Ferreira, Senior Agricultural Economist with USDA and a Civil Affairs Ag Officer in the U .S. Army Reserve.

 

00:00:46    Introduction

Today we welcome back Major Gustavo Ferreira, a Civil Affairs Agriculturalist. Gus originally came on Episode 123 to discuss agriculture's impacts on foreign policy. Gus had published two articles, Does China Have Enough Food to Go to War and Taiwan's Food Resiliency or Not in a Conflict with China. After publishing, Gus was interviewed on this show, which resulted in an interview with The Economist and a session at the Center for Strategic and International Studies, and is now resulting in a congressional testimony with the U .S. Economic and Security Review Commission. Gus was joined by two others. But for this episode, I will only focus on his testimony and the discussion with the commission. I'll include links in the show notes for the full testimony and papers. Enjoy.

 

00:01:37    House Chair

Dr. Ferreira will assess China's dependence on foreign agriculture. Next, we're happy to welcome back Dave Collins, Baker Botts Fellow in Energy and Environmental Regulatory Affairs at Rice University's Baker Institute. Mr. Collins will assess Beijing's strategic energy reserves. Finally, we'll hear from Dr. Zoe Liu, our Greenberg Fellow for China Studies at the Council on Foreign Relations. Dr. Liu will detail China efforts and sanctions prove it to come. Thanks again to all the witnesses for your testimony. The Commissioners are very much looking forward to your remarks. I'll remind all the witnesses to please limit their remarks to seven minutes. And Dr. Ferreira, we'll begin with you.

 

00:02:16    GUSTAVO FERREIRA

Thank you. Good morning. Commissioners and staff, thank you very much for inviting me to this hearing. Please note that I'm not here today on behalf of the U .S. Department of Agriculture or the Department of Defense, and I'm speaking only for myself. My testimony discussed the intersect between food security and national security in the People's Republic of China, and specifically focused on grains. This issue is of the highest importance for the PRC's government, and therefore, it should warrant our attention here in the United States. For millennia, the ruling class in this country has been extremely sensitive about ensuring food security for its population, gives the precedence of famines and food crises that trigger political instability and regime collapse. While the PRC is the largest food producer in the world and has made remarkable progress in the food security space, the country also faces growing challenges to feed its population of 1 .4 billion people. Furthermore, recent events such as the African swine fever outbreaks or the war in Ukraine revealed fragilities in the PRC food system. One must understand that the term food security translates literally to grain security in the Chinese language. Not surprisingly, the nation established self -sufficient targets at 95 % or higher for rice, corn, and wheat. Despite early successes, self -sufficiency rates for some food products fell below those targets. And in early 2000s, BRC's imports of grains and oilseeds began to soar to unprecedented levels. The country is now the world's largest buy of key agricultural commodities. As an illustrated example, in the year 2000, the PRC combined imports of corn, wheat, rice, and soybeans were just above 10 million metric tons. Fast forward to 2023, and those same imports surged to 140 million metric tons. This 1 ,200 % increase was mostly driven by soybeans. as the PRC now accounts for about 60 % of the world's soybean imports, mostly supplied by the United States and Brazil. Early on, the United States was the PRC's top soybean supplier, but in the past 15 years, Brazil gradually claimed that title. As a response to this growing import dependency, General Secretary Xi Jinping made food security a national priority, and under its leadership, the PRC is now employing a multi -pronged approach to tackle this issue. Some of the main policies that I would like to highlight here include significant increases in public investment in agricultural research and development, the goal of boosting agricultural production and the domestic seed industry. Another one is the diversification of the PRC pool of agricultural suppliers to mitigate geopolitical risk for the United States. Also, a notice of expansion grain stockpiles, but these are a state secret. Therefore, outsiders can only speculate about their location, true size, and quality. Nevertheless, official communications state that the PRC has built nearly 700 metric tons of grain storage capacity. Furthermore, USDA data provide evidence that the PRC has amassed very large commodity stockpiles. As an example, in 2023, the PRC alone accounted for 67 % of the world's corn stocks and nearly 60 % of the world's rice stocks. Another important note here has to do with the question of how long this strategic research will last. in the event of a conflict or major disruptions to trade. Evidence seems to indicate that the PRC has somewhere between one to two years' worth of stocks. However, there are also questions about the conditions of those stockpiles, given the complexities and the difficulties associated with maintaining the quality of so much grain over time. Despite its efforts to improve its food security status, the PRC faces significant challenges in the future, and I would like to highlight a few. First, the loss and shortage of farmland due to rapid urbanization, widespread pollution, and uses of land for other non -agriculture purposes. Second, climate change and its impacts on agriculture production, not only in the PRC, also in Maine's supply in nations. Third, decreased availability of agricultural labor, which constrained ongoing efforts to expand domestic agriculture production. And the last one, water scarcity. The United Nations assessed that the PRC is now facing extreme water shortages due to growing demands for the agricultural sector, rapid urbanization, and pervasive pollution of water sources. Climate change will only worsen water shortage in the PRC. The bottom line is that it is very difficult for outsiders to discern whether the PRC's actions to improve its food security are just a government reaction to this structural challenge or another step in the preparation for conflict. Nevertheless, U .S. observers should attempt to identify and monitor developments in the PRC's food and agriculture space, especially those that deviate from normal market signals that could be part of a large political capitalist. An example of such an indicator would be the noticeable surge in soybean and soybean imports in the context of very low profit margins with Chinese hog farms or decreasing domestic demand for pork meat. Our main policy recommendation focuses on improving our ability to better assess the true food security situation in the PRC. To achieve that, I propose a close collaboration between non -Title 10 and 50 federal agencies that have expertise in agriculture and trade and the intelligence community, which will collect new information and data related to PRC's food security space. Such cooperation could yield important wins, such as identification of early food -related indicators that may signal potential preparation for conflict. Lastly, if the United States is to effectively leverage the PRC dependency of food imports as part of a broader economic statecraft, it will need to work closely with other global agriculture powerhouses such as Brazil, Argentina, Australia, or Ukraine. This will involve strengthening our economic and diplomatic ties with these nations. perhaps even beginning to design compensation mechanisms that will incentivize nations to use agricultural trade to pressure the PRC in the event of a conflict.

 

00:08:21    House Chair

Thank you, Dr. Ferreira. Going in, reverse alphabetical order. Start with Mr. Wessel. One benefit of having a last name starting with a W on this commission. Thank you all for being here. If I could get a fairly quick answer to my first question, because I have some others, but... As we look at the potential lessons from Russia's invasion of Ukraine, I think it surprised a lot of people as to the duration or the durability of the conflict. Have you seen an acceleration of stockpiling and other activities resulting from the duration of that, meaning that they think that the ability to sustain sanctions, or that a conflict could be of greater duration that they have to plan for more stockpiles. Thank you for your great question.

 

00:09:09    GUSTAVO FERREIRA

The conflict in Ukraine brought agriculture issues front and center, specifically strategic importance of grains and oil seeds. And he caught China right in the middle of an effort to expand his pool of suppliers. Ukraine was regarded as a key actor in their strategy. So that threw a kink in that plan. But what he did, he did alter the course in terms of stockpiling and increasing food self -revisation in the food space. I think he just accelerated. He really alerted the Chinese authorities about the perils of food supply chains, especially in an environment where some commodities are literally in the hands of two or three producers globally. And it takes one to be knocked out of the system to bring a lot of... external shocks to the markets. So, yeah, so I'll say it just confirmed the course and the need for the certain policies that are in place. Okay.

 

00:10:09    House Chair

Do you have any, is there any current reporting that you're aware of that would indicate sufficient capabilities to execute on a Taiwan contingency, or do we not know? For the food security space,

 

00:10:23    GUSTAVO FERREIRA

the Achilles heel, The PRC truly is the dependency on imported oil seeds. The thing is, in terms of how the PRC government is approaching this, first, it had to be acknowledged that we don't know the size of their stockpiles. As I stated before, it's a state secret. But even from conversations with colleagues, even the central government, Albert does not even know the true size of those stockpiles. I mean, they're massive. They're scattered across the provinces. There's issues with data, accuracy of data, reliability of some provisional data. So in terms of how to address this issue, the PRC knows there's no quick solution to it. And actually, the way they address it is eating the elephant one bite at a time. But none of those solutions will ever fix the issue. And I'll give you an example. So South America itself produces enough soybeans to supply the animal needs of China. However, that will put them on a very precarious situation because they will literally depend on the weather and crop conditions. One of the lessons from Russia's invasion of Ukraine,

 

00:11:42    SPEAKER_03

lessons from Russia's invasion of Ukraine, I think it surprised a lot of people as to the duration or the durability of the conflict.

 

00:11:53    SPEAKER_03

Either of the first two witnesses seen an acceleration of stockpiling and other activities resulting from the duration of that, meaning that they think that the ability to sustain sanctions or that a conflict could be of greater duration, that they have to plan for more stockpiles. Mr. Ferrer, can you start?

 

00:12:17    GUSTAVO FERREIRA

Sure. In the agriculture space, I think... Remaining a reliable and affordable supplier of food products to the PRC is probably the best tourist that we can design. We are intrinsically connected by this massive trade. And a conflict with the PRC will obviously result in the loss of that market and will have significant structural shocks into our agricultural sector. Now, if we want to be proactive and prepare ourselves and lean forward. We'll have to start designing policies of what to do with those surplus. We already started to diversify our exports to markets away from the PRC. And we've been fairly successful in finding a new buyer for our products. But it's something that we have to be forward -thinking about if that scenario materializes so our farmers and rural communities are now completely off guard.

 

00:13:13    SPEAKER_03

Thank you. Mr. Cockett, let me ask Gustavo. So as I was listening to both of you talk about the end product, I was trying to think about the inputs and the things that we need and require to maintain the industries that you were talking about. So in the agricultural industry, we obviously need seed fertilizer and a variety of other things to maintain that market and produce those goods. Who owns the supply chain? Or how should we think about that with respect to China and then our own strengths and weaknesses?

 

00:13:41    GUSTAVO FERREIRA

Thank you, Commissioner King. Excellent question. When it comes to food and agriculture, really... It's a tale of two markets. So when it comes to inputs, the U .S. has a clear dominance in seeds. This is something that PRC is very aware of. They're well behind the technology level that feed producers have both in the U .S., Brazil, Europe. So that's something they're really investing very heavily in focus to try to close that gap, sometimes through sheer research, but sometimes through illicit methods. such as stealing seeds from other countries. But on the flip side, we do depend, we have depended on key agricultural fertilizers from PRC. And during the Ukraine war, both Russia and China began to curb their exports of those key agricultural inputs to the U .S. and other countries. The way it usually works with agricultural markets or any other market. It will take some time for us to find alternative suppliers. And we did that. We engaged with Canada and other key partners that are now filling up the gap left by those two nations. So yeah, so there's a story that both nations depend from each other for different types of inputs.

 

00:14:56    SPEAKER_03

Mr. Albert.

 

00:14:58    SPEAKER_04

Is it the consensus of this panel that China is effectively preparing for war at this point? I know that a number of you have talked about different signs that... would support that thesis. But on a first principles level, does everyone on this panel agree that China's preparing for war?

 

00:15:15    GUSTAVO FERREIRA

When it comes to food security, China's been doing this for thousands of years. They've been building stockpiles, different emperors, have that policy in place to prevent famine. So no change that. But China has a legitimate interest of becoming food secure, like we are. A very well -served country when it comes to natural endowments and food and food availability. So I think that is a legitimate aspiration by PRC. It's not just food.

 

00:15:43    SPEAKER_04

food. It's energy. It's currency. It's basically every area. The technology supply chain. I mean, it goes well beyond just food, does it not?

 

00:15:51    GUSTAVO FERREIRA

Yeah. It's part of a broader resiliency effort. And I think food is one piece of it. From my angle, from my foxhole, it's hard to distinguish. Is this a preparation for conflict or is this a legitimate effort to become more resilient, more resilient to food shocks and to climate change? So we have to be a little bit careful. At least, again, on the food security space, we've got to be a little bit careful to distinguish those two lanes.

 

00:16:20    SPEAKER_04

Just because we're a little bit over time, I have one last question. So on this topic of China pursuing resilience, is it fair to say that China is effectively pursuing a policy? of decoupling from the United States? And are they farther along that path of decoupling than we are from them?

 

00:16:41    GUSTAVO FERREIRA

I think the two nations are decoupling at the same similar pace. They both are trying to find alternative markets in terms of suppliers. But I think we're going to reach a point, a threshold where that decoupling is going to stop because there's no other ways around. And we still are connected by trade. And just remember... The PRC are very opportunistic food buyers, and sometimes prices will trump even national security. They're known for that. So I think that decoupling is going to hit a wall when it comes to food security. Mr. Friedberg.

 

00:17:15    SPEAKER_03

Okay, thank you. Dr. Liu, could I see if I can summarize what I understood you to say? China may have been interested and may still be interested eventually in having renminbiage used as a reserve currency. They talked about it back around the time of the global financial crisis. They seem to have given up on that idea, at least for the time being, for reasons you suggest. And they've focused on trying to find ways in which their currency can be used to settle international trade. Secondly, the extent to which they're able to do that seems to be quite limited. And Commissioner Miller asked how much of global trade could be eventually conducted in RMB. It seems like they're limited, at least for now. to a kind of a block of countries which are under sanction by the United States and its allies. And so that's a pretty small portion of China's overall trade that might be insulated from the ability of the United States to impose sanctions. Is that correct?

 

00:18:12    GUSTAVO FERREIRA

May I just add a second? When it comes to food security, I believe this is an area where the PRC knows. that they're not fully ready to go. And both government and academic communities are brutally honest about it. This is one area they do a miracle, but they realize their shortcomings. So I think the question that remains open is whether modern China and the middle class will be willing to endure a hyperinflation in the food sector or worst case scenario, food rationing. This has been quite a time since the Great Famine. So this is a whole generation that it's... dyingly slowly that experience those hardships. And we don't know if this generation, how they will react to such scenarios. Thank you.

 

00:18:58    SPEAKER_03

Thank you.

 

00:18:59    GUSTAVO FERREIRA

Thank you. Last but not least,

 

00:19:01    SPEAKER_03

Chair Cleveland.

 

00:19:02    SPEAKER_01

So I want to pull a little bit on this and maybe challenge what Mr. Friedberg was saying. Mr. Forer, you mentioned that you thought that one way that China might consider the potential food scarcity issues.

 

00:19:15    SPEAKER_01

the potential food scarcity issues. Water scarcity and pollution and a number of other issues that are affecting access to food would be to work with Brazil and Argentina to pressure them to cooperate with us. At this very moment, China is renegotiating the giant debt that they hold of Argentina. So I'm curious how these two issues are fused, because it seems to me we are paying attention to global trends. But on a transactional basis, China may be asserting a leverage within our backyard in Argentina. And that debt is not only substantial, the country is teetering as a result. There are also national security implications in terms of facilities that are in Argentina. So pull together for us how Argentina might be a case study of moving beyond what Dr. Friedberg described as. countries that are aligned in sanctions because Argentina is not under any sanction. It just has a lot of debt and poor economic management policies.

 

00:20:25    GUSTAVO FERREIRA

Great question, Chair Cleveland. It's something I've been trying to bring up to policymakers' attention that when it comes to agriculture trade, this is not a bilateral issue. It does involve other key players. And in order for us to be effective in place on our side, we're at least to have a neutral posture where they follow rural law, international diplomacy. It's not a coincidence that as soon as President Lula won the election, the PRC sent immediately a high -level delegation to Brasilia. It's not a coincidence that the PRC just lifted restrictions of GMO corn imports for Argentina. Those are all very much part of a concerted effort to expand those relationships with those countries. Without jumping to the classified space, At this time, PRC controls substantial sections of the agricultural supply chain in Brazil. They've been making very large investments. It's all part of it. And again, there's so much we can do. I mean, this is our market -driven as well. So there's so much we can influence. But definitely, we need to be aware. We need to really strengthen our relationships with our two southern neighbors. Thank you.

 

00:21:37    SPEAKER_03

Thank you. All right. Well, thank you very much for your time today. We are on a one -hour break and we'll reconvene for our third panel at 1 .50.

 

00:21:45    SPEAKER_00

Thanks for listening. If you get a chance, please like and subscribe and rate the show on your favorite podcast platform. Also, if you're interested in coming on the show or hosting an episode, email us at capodcasting at gmail .com. I'll have the email and CA Association website in the show notes. And now, most importantly, to those currently out in the field, working with a partner nation's people or leadership to forward U .S. relations. Thank you all for what you're doing. This is Jack, your host. Stay tuned for more great episodes. 1CA Podcast.