President Donald Trump and White House officials insist that China will be buying $40 billion to 50 billion worth of U.S. agricultural products annually over the next couple of years, if the countries nail down a trade deal in the coming weeks. Now, ag industry leaders are looking at the feasibility for U.S. farmers, processors and exporters to meet that challenge.
No details have been released for the "phase one" deal that’s expected to be signed in mid-November on the sidelines of the Asia-Pacific Economic Cooperation meeting in Chile. But it's possible to significantly increase sales to China if the agreement puts the U.S. on an even footing with competing nations by lowering tariffs and non-tariff barriers, industry officials tell Agri-Pulse.
U.S. Trade Representative Robert Lighthizer
“They’re all obviously watching what happens with China,” U.S. Soybean Export Council CEO Jim Sutter said about farmers across the country. “They want to see if something really gets done. Is this phase one agreement going to get signed and what exactly does it mean? Depending on what exactly the deal is, I think farmers will react by producing more.”
The U.S. ag sector can export billions more worth of pork, beef, dairy, ethanol, sorghum, soybeans and ethanol, producer groups and economists tell Agri-Pulse, but only if U.S. negotiators succeed in getting agreements from the Chinese to drop tariffs and other barriers, including a ban on growth hormones and a restrictive biotechnology approval process.
U.S. ag exports to China, at its height in 2012, sold about $26 billion worth of farm commodities, but that figure included very little ethanol, no beef, sorghum, rice and just a fraction of the wheat that the U.S. is capable of shipping there, according to USDA data.
“I don’t think it would take that much, frankly, to get to that point,” American Farm Bureau Federation economist Veronica Nigh tells Agri-Pulse about the possibility of massively increasing U.S. ag exports to China. “Because so much of our trade with China has been strictly in soybeans … If we’re able to diversify our exports to that market more, I don’t see why we couldn’t hit the $40-$50 billion mark.”
One of the biggest winners could be beef. The U.S. exports only small amounts, but if China were to do away with its tariffs and non-tariff barriers on the meat, U.S. exports could get a big boost in a relatively short period of time. Last year the U.S. sold only about $60 million worth of beef to China, but even that was a record-setting level.
If U.S. beef got the same level of access to China as it does to other foreign markets like Mexico or Japan, U.S. exporters could easily ship as much as 250,000 metric tons – worth roughly $1.9 billion – in 2020, according to an estimate provided to Agri-Pulse by the U.S. Meat Export Federation.
U.S. negotiators would have to win China's agreement to cut the current 47% tariff down to 12% (the base WTO-allowed level) and withdraw the hormone ban, but that is definitely possible, according to Kent Bacus, director of international trade and market access for the National Cattlemen’s Beef Association.
“China has a lot of potential … for U.S. beef, but unless we address those significant barriers, it’s just not going to be as lucrative of an opportunity as we would hope,” said Bacus.
He said U.S. and Chinese negotiators have been going back and forth on those trade barriers for months now. “That is a tremendous market there … We’re hopeful we will see a positive outcome from these negotiations.”
Bacus said he expects the Chinese beef market to be worth more than $4 billion over the next five years.
Another rapidly growing Chinese market is for pork. China, the world’s largest pork-producing and pork-consuming country, is suffering from nationwide outbreaks of African swine fever, killing off swine to try to stop the spread of the virulent disease while at the same time trying to rebuild herds.
The country is so desperate for pork, it is already buying record amounts from the U.S. even with a 72% tariff. The U.S. exported about 174,000 metric tons of pork to China in the first eight months of this year, and that’s more than the total amount of shipments for the entire year in 2017 or 2018.
U.S. pork exports to China in 2020 – especially if China lowers the tariff – will be much higher, says Dermott Hayes, an economist at Iowa State University.
“They’ve just lost half their pork herd and pork is by far the meat of choice over there … so they will be buying a lot of our pork,” said Hayes, who predicted that the U.S. could easily sell China 1 or 2 million metric tons.
That would add up to 5% to 10% of total U.S. production and be worth billions in new sales.
U.S. exports of ethanol, DDGs and sorghum are other examples of potential for growth markets that could add billions of additional dollars in new ag exports to China, says U.S. Grains Council CEO Ryan LeGrand.
Ryan LeGrand
Right now, China has punitive tariffs totaling 70% on U.S. ethanol at a time when the country is looking to consume and import more.
About two years ago China announced it would mandate that 10% of all the gasoline sold in the nation would be ethanol. That’s now looking like it won’t be possible, but the country’s national blend rate has moved up to about 2.5% this year and is expected to reach 3.5% next year. That’s a lot of corn-based fuel for a country that consumes about 40 billion gallons of gasoline per year.
The U.S. is largely being left out because of the tariffs, but the turnaround could be sharp and profitable if tariffs are cut in the phase 1 agreement.
“It could potentially be a huge market,” said LeGrand. “People are starting to talk about 1 billion gallons going to the Chinese market. That potential is there if the tariffs are taken off.”
That would add an extra $1.5 billion in annual ag exports to China.
The tariffs on U.S. DDGs are even steeper due to China’s antidumping and countervailing duties that are as high as 96% on the feed product. If those duties come down, LeGrand said, U.S. exports could bounce back quickly, reaching about 5 million metric tons, or about $1.3 billion, annually.
And another $2 billion-plus in U.S. exports to China could come from sorghum sales. Back in the peak year of 2012 for U.S. ag exports to China, there were no sorghum sales. Exports of the grain skyrocketed over the next three years, eventually reaching $2.1 billion in sales in 2015, but then dropping down steadily for the next few years.
“We could go right back to that,” LeGrand said about the $2.1 billion in sorghum exports to China. “It’s doable. We’ve done it before.”
What’s also doable is increasing U.S. soybean exports to China, but only if farmers are truly convinced that the Chinese market will open back up and stay open without the threat of a return to the tariffs that basically shut down trade in 2018, says USSEC’s Sutter.
“Hopefully once we get the phase one agreement signed, we’ll see a further increase in prices and then we’ll see U.S. soybean farmers reacting by planting more acres,” he said. “I think farmers are more optimistic now than they were a couple months ago. They’ve heard about this phase one deal, but they’ve got to see it before they start increasing acreage significantly.”
But both Sutter and the Farm Bureau’s Nigh don’t expect an immediate, massive jump in production and exports. When Trump announced on Oct. 11 that the phase 1 deal would boost U.S. ag exports to China to $40 billion to 50 billion, annually, U.S. Trade Representative Robert Lighthizer was quick to specify that it would take a couple of years to get there.
“It takes a while to build markets in a sustainable way,” Nigh said. “That’s the thing we’re most interested in and focused on. A $40-billion blip sale is fantastic, but what would be better is if we got … to sustain $40 billion (annually). That would be huge.”
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