Ag Leaders Applaud Progress Made in Phase 1 of China Deal
- General News
On the heels of the World Trade Organization’s ruling that the United States breached global trading rules with its implementation of billions of dollars in tariffs, starting in 2018, on China, leaders for the U.S. agricultural sector spotlighted the progress that’s been made under “Phase 1” of the trade deal with China inked in January.
Iowa’s Secretary of Agriculture Mike Naig said China is a very important and complex market for not only Iowa but for agriculture as a whole.
Total exports in Iowa are valued at $16.8 billion and when it comes to food and agricultural exports, the state is second only to California.
“When it comes to trade, we benefit when things go well, and we suffer when they don’t,” Naig said. “Trade matters!”
At the national level, Jim Sutter, CEO of the U.S. Soybean Export Council, said that 60% of the U.S. soybean crop gets exported in the form of beans, meal and oil.
“So much of what gets produced gets exported,” he said. “I think that’s why farmers recognize the importance of growing international markets.”
Additionally, Sutter pointed out that 60% of what gets exported ends up in one country — China.
“When you get shut out of a market that takes 60 percent of the global product, that leaves a lot of product that has to find a home.”
Naig highlighted the following from Phase 1 of the trade deal with China:
Adding to the conversation was Dan Halstrom, CEO of the U.S. Meat Export Federation (USMEF).
“We were talking about China in the 1980s, and we are still talking about China today,” Halstrom said. “China is going to continue to be a force and drive a lot of demand-and-use patterns globally.”
There have been a lot of barriers, Naig said.
“We should have been selling and participating at a higher rate in a lot of different categories,” he noted. “If you think about what has happened with beef and poultry and corn and DDGS, ethanol and biotech trait approvals, there have been significant structural issues that need to be addressed.
“Phase 1 begins to address some of those very important non-tariff barrier issues that have been irritants for so long.”
Some of the non-tariff barriers Naig called out were Intellectual property theft, intellectual property protections and forcing joint ventures.
“These have all been great challenges for folks wanting to do business in China,” he said, adding that China needs a great deal of what we produce.
It’s estimated by the Office of the U.S. Trade Representative and CSIS “China Power” that China will import $141 billion worth of food and agricultural imports in 2020.
“We are looking for progress anywhere we can find it,” Naig said, adding that 50 of 57 desired structural changes have gone into effect.
“This has been an amazing story that has mostly gone untold,” he said, noting that ractopamine and biotechnology are still outstanding issues. “We now we have 3,500 U.S. facilities approved to export to China. Before Phase 1, only 1,500 were approved. U.S. pork exports in the first six months of 2020 equal total 2019 exports.”
Both Halstrom and Jim Sutter, CEO of the U.S. Soybean Export Council (USSEC), talked about African Swine Fever and its impact on trade and demand.
When it comes to pork production, “there’s a definite incentive to produce in China,” Halstrom said, noting that there are still new cases and breaks of ASF in China. “It’s not as simple as building new barns, as the repopulation in China could take several years.”
Halstrom said China’s hog prices are high and steady, suggesting that supplies remain limited.
It’s still profitable to raise pigs in China, just not as profitable as it was prior to ASF, added Sutter.
“I’ve talked with industry members who report they expect a return to pre-ASF swine herd number by mid 2021,” he said. “This is much faster than most were projecting not long ago. Large investments by the likes of COFCO and New Hope are really modernizing and ramping up China’s swine industry.
“They have been following a central government mandate to get this done and bring pork prices down and assure supplies of pork for consumers.”
Sutter said the re-building of China’s swine herd is good for U.S. Soy exports.
According to the U.S. Foreign Agricultural Service, exports to China during the first week of the 2020/21 marketing year were at 400,850 metric tons, nearly double that a year prior. Additionally, export sales (including prebooking rollover) for the first week of the new marketing year came with a bang at 15.47 million metric tons. The prior year it was less than 1 million metric tons.
“Now we need to see all the purchases actually get shipped,” Sutter said. “We’ve seen demand continue to grow month after month.
“Soy is very lucky in that we continue to see growth year after year. I should say that it’s in a sweet spot that as populations increase their protein intake, the demand for soy also grows.”
Sutter said global soy demand grows at 4% per year.
USMEF’s Halstrom reminded that “industry often gets frustrated on the response times to important issues, but the work USDA and USTR have done in the past 12 months on critical trade agreements has been phenomenal.”
The Phase One Deal has been good, specifically for beef and pork, he said, calling attention to the removal of age restrictions on U.S. products, the removal of traceability requirements and the adoption of CODEX maximum residue levels for synthetic hormones only. Additionally, China has committed to a review process regarding the risk assessment for ractopamine.
Livestock and meat, as well as poultry categories, are the only two categories ahead of the 2020 budgeted scheduled of Phase 1 goal, Halstrom said.
In terms of soy, Sutter added that we are closing the gap and things are looking better in total, in terms of the scheduled buys versus actual buys.
“We have a record pace of new crop sales to China and all destinations,” he said.
Iowa’s Secretary Naig said that success like this doesn’t just happen; it takes work.
“I want to commend all the folks who have worked to develop this market in China,” he said. “It’s important to acknowledge the great work, the hard work put in over the decades to be where we are today.
“If this is Phase 1, one should assume there will be a Phase 2, and that means more good things to come.”
While these agricultural leaders see progress stemming from “Phase 1” of the trade deal with China, they also recognize the importance of having a diversified market strategy.
“While the business in China and Hong Kong is fabulous and we are going to take advantage of it, we are making a conscious effort of it in the pork industry, as well as beef, that we don’t become overly reliant on any one market,” Halstrom said.
Strategically, USMEF is diversifying its focus and trying to increase investment in some of the developing regions.
“More countries are better than less, and more customers are better than less,” Halstrom said. “Some of the emerging markets we are focusing on are in Central America and South America, particularly Chile, Colombia, Peru and Guatamala.
Sutter echoed some of those same remarks.
“We are working to diversify sales to other destinations — we do not want to be too dependent on China,” he said. “We want to continue to work there and we will, but we also want to continue to grow, especially in developing markets.”
Working in countries such as Egypt, Bangladesh and Pakistan, Sutter said USSEC has witnessed some good successes.
“We had a trade mission from the Iowa Soybean Association travel to Bangladesh and Pakistan,” he said. “While these are not country names that slip off your tongue normally, they are becoming big soy importers from the United States, and those are markets you’re going to hear more about.”
Sutter said these markets are worth investing in, but they take time to build.
He reminded that U.S. Soy’s work in China started in 1982 when U.S. soybean farmers with their state checkoff dollars initiated a meeting and visit to China.
“You can imagine in 1982 things in China were much different than they are today, and we opened our office shortly after,” Sutter said. “But it wasn’t until 1995 that the first sales commenced.
“This shows the value of having a plan and sticking with it. I think this is very important as we do other work around the world and looking to grow those markets.”