Specialty crops struggle to regain Chinese markets

The “phase one” trade deal with China is paying off substantially for commodities like soybeans, corn, wheat and sorghum, but it’s hit or miss for specialty crop farmers, many of whom are still trying to find replacement markets.

Chinese importers can’t seem to get enough California oranges after China began lifting some tariffs in conjunction with “phase one,” but U.S. producers of walnuts, almonds, cherries and other specialty crops aren’t seeing a resurgence in trade. U.S. blueberry and avocado farmers are angling to make new sales to China, but it's still unclear if they will.

In early March, less than a month after the “phase one” deal became effective, China began exempting importers from paying tariffs on most U.S. ag commodities. Importers, on a case-by-case basis, could avoid paying the Chinese tariffs that were set in retaliation to the U.S. Section 301 tariffs on Chinese goods. That was a swift and major boon for soybean, corn, wheat and sorghum buyers. But China also has tariffs that correspond to the U.S. Section 232 tariffs on Chinese steel and aluminum. China is not exempting importers from paying those tariffs.

That means a punitive 15% tariff remains on U.S. cashews, pistachios, hazelnuts, walnuts, raisins, citrus fruit, grapes, apples and many other products.

The impact of those tariffs depends largely on the commodity, according to farmers and the farm groups that represent them.

For California’s orange farmers, it hasn’t stopped trade. For West Coast almond producers, it’s still a major trade barrier.

“All the reports I’ve gotten from our marketers that do business in China show that trade has picked up significantly,” says Casey Creamer, president and CEO of California Citrus Mutual. “The tariffs coming off in March — significantly reduced from where it was — was a huge thing for our exports and our domestic market.”

China’s tariff exclusion program is effectively cutting the tariffs on U.S. oranges from 56% to 26% and the results were immediate. March, April and May are the biggest months for U.S. orange exports to China, and business is booming Creamer said.

The totals are not in yet, but Creamer told Agri-Pulse he expects this year's exports to China to far surpass last year's, when tariffs were in full effect.

While it will be a much-needed improvement, sales still aren’t expected to reach the highest level since the 2017-18 marketing year, which reached 71,000 metric tons and gave the U.S. 20% share of China’s import market.

China’s orange imports this year aren’t likely to beat pre-trade war levels, but the new business is a major relief for California farmers, Creamer said. Many of the oranges that traditionally went to China had to be sold in other foreign markets that were already saturated or pushed onto the domestic market, and the result was lower prices.

It’s been worse for walnut farmers. The California Walnut Commission reached out to U.S. sellers and Chinese importers when China announced the tariff exclusion process on March 2, but it did little good, said Pamela Graviet, senior marketing director for the group.

“At this time, has it made a significant difference in orders from China?” she said. “The answer is no.”

U.S. walnut exports to China had been slowly declining as Chinese production rose before the trade war began in 2018, but that process accelerated quickly after China hit the nuts with multiple tariffs that added up to a total of 75% for inshell walnuts and 70% for shelled walnuts.

The exclusion would shave some of those tariffs down, but not enough to boost sales, as has been the case for oranges.

China imported 52,722 short tons of walnuts in the 2016-17 marketing year, according to commission data. That was cut roughly in half to 25,667 tons in 2017-18, and then dropped farther to 16,456 tons in 2018-19.

“China does have other viable places to import from, so they can buy from Chile or Australia, which both have tariff-free agreements with China,” Graviet said. “At this time buyers are not likely to use the exclusion process unless they have specific customers that only want California products.”

Adding to the problem is the fact that California farmers continue to produce more. The industry is diversifying its exports, but prices are declining.

“For the most recent crop year ending Aug. 31, 2019, the industry saw a 7% increase in production, reaching 672,723 short tons from 350,000 bearing acres,” Graviet said. “Despite tariff and non-tariff barriers, the majority of the larger crop was sold, however at significantly reduced prices. Total value of the crop saw a 44% decline to an estimated $879 million — a loss in value of close to $700 million.”

For U.S. almonds, exports had been growing before the trade war, but China’s tariffs — even after the exclusions began — are significantly holding back trade.

Almond shipments to China fell by 25% last year and are down 20% so far this year, said Julie Adams, a vice president for the Almond Board of California.

It’s unclear how many Chinese importers are taking advantage of the exclusion process, which would take the tariff level down from 55% to 25%, but it hasn’t pushed trade back up to anywhere near previous highs, she said.

A major problem is that California farmers are competing with producers elsewhere that do not have to contend with any tariffs.

“In the case of almonds, Australia has a free-trade agreement with China, so there is (no tariff),” Adams said.

Before the trade war, China levied a base 10% tariff on U.S. almonds and they were still able to compete, but now that would be more than double even after an exclusion.

“We understand some importers have been looking at (tariff exclusions), but obviously the numbers don’t bear out that it’s had a significant impact on shipments,” she said.

In the case of U.S. blueberries, farmers are still welcoming China’s decision last week to open its border to the fruit for the first time, but tariffs are expected to block any sales in the foreseeable future.

China’s base 30% tariff on fresh and frozen blueberries (25% on dried), plus 20-40% in punitive tariffs will make it very unlikely that U.S. farmers can take advantage of China’s growing demand, says Elizabeth Carranza, trade director for the California Blueberry Commission.

“We’re hoping if there’s a 'phase two,' it will address this, especially because we were just given market access,” Carranza said. “China has a lot of opportunities for the U.S. I know there’s demand in the market already and their consumption has been increasing over the past several years.”

China, as a condition of "phase one," also just opened its market to U.S. avocados, and farmers are hoping to do a lot of business there, despite the tariffs.

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“Yes, there are still some steep tariffs and it’s too early to determine how this is going to play out, but I’ve got one packer already planning to make a shipment this week,” said Ken Melban, a vice president for the California Avocado Commission.

What Melban and avocado farmers are counting on is a bet that wealthy Chinese will be willing to pay more avocados with the prominent oval sticker that reads “California.”

“We’re targeting a very discriminating consumer — one who is willing to pay a premium price for a premium product,” Melban said. “We’re going to focus on Shanghai, Beijing and Guangzhou and see what happens there. There are 100,000 millionaires in those three cities and that’s who our target customers will be."

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