July 2014. A Hydroponic facility under construction near Hok Tau. Turning green into desert.  

Hydroponic systems are touted by their promoters for safety and high yield. They claim hydroponically grown produce is safe from pollution because the vegetables are entirely detached from the ground. They also claim to be free of pesticides because hydroponic systems are usually housed in enclosed structures that keep pests out. According to it’s proponents, the high yield makes it suitable for a space-deprived Hong Kong.

Agriculture is an industry that exists within our economic system. As such, the laws of economics must apply to it. The law of comparative advantage, familiar to any first year economics student, states that we should specialise in areas where we have an advantage and trade with others for goods in areas where we do not. Both parties to the trade will end up better off.

Large-scale hydroponic systems were developed by the US military in the 1950’s to supply fresh vegetables to soldiers stationed on remote islands. The remoteness of the islands made the transport of fresh food costly and difficult. The barren soil made it unsuitable for growing on the land. Hydroponic facilities are factories that can produce “safe” vegetables anywhere, irregardless of the surrounding environment.

If hydroponic factories are completely safe because they are detached from the land then it doesn’t matter where they are located. The only requirements are land, labor and sources of water and electricity. Land, labor and water are significantly cheaper one hour away, in Shenzhen. If land and labor in Shenzhen are 1/3 to 1/4 the cost of that in Hong Kong, then a hydroponic facility in Hong Kong would be at a huge comparative disadvantage. The same “safe” vegetables could be produced in Shenzhen at a fraction of the cost. (It is for this reason, the law of comparative advantage, that all clothing factories have long since moved from Hong Kong to China.)

Since any first year economics student could arrive at this conclusion, might there be another reason why savvy businessmen (the owner of the facility in the photo above is the former CEO of Esprit, whose clothing factories are located in China) and highly educated bureaucrats are furiously promoting hydroponics?

In most cases, building the structures for hydroponic facilities here entails clearing all trees and vegetation from the land and pouring concrete over fertile agricultural soil. This completely destroys its ecological and agricultural value. Land with low agricultural and ecological value is significantly easier to re-zone. Once re-zoned the value of the land increases by orders of magnitude. Hydroponics creates a loophole, allowing savvy businessmen to destroy agricultural land on the pretext of undertaking agricultural activities.

When considered as vegetable production systems, hydroponic facilities located in Hong Kong make no economic sense. When viewed as the first step, in the extremely lucrative business of real estate development they make perfectly good sense. Our savvy businessmen and vaunted bureaucrats are not successful for no reason. They know how to play the long game.

If the bureaucrats in the AFCD and other government departments were sincere in their efforts to nurture agriculture, they would instead leverage Hong Kong’s comparative advantage – unpolluted soil and abundant pristine water from mountain streams – to promote organic agriculture.