China's economy creates challenges for U.S. exports

by Holly Demaree
Share This:
Search for similar articles by keyword: [China], [Corn], [Soybean], [United States], [Exports]

soybean
Concurrently, demand for soybeans (mostly for meal and oil) expanded more than 900% during the last 25 years, while soybean production only grew 11%. 
 
WASHINGTON, D.C., U.S. — Since joining the World Trade Organization (WTO) in 2001, China’s agricultural imports have grown more than tenfold, propelled by economic growth, rising household income, land scarcity, increasing urbanization and changing diet, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) said in a September 2016 report. China is now the world’s third largest agricultural market, after the E.U. and the U.S. The average Chinese diet changed to include more meat, edible oil, dairy and processed foods, while grain consumption declined. According to China’s Bureau of Statistics, between 2000 and 2012, urban household per-capita consumption of poultry meat nearly doubled and pork and vegetable oil increased 27% and 12%, respectively.

China produces most of the meat it consumes, and the dietary change drew more of the country’s land into production of feed, as evidenced by corn acreage surpassing rice area in recent years. However, domestic feed supplies have been unable to meet soaring demand, causing imports of soybeans and other feed ingredients to surge, the FAS said. Between 1990 and 2015, production of meat and poultry nearly tripled, with pork dominating more than two-thirds of the output. Concurrently, demand for soybeans (mostly for meal and oil) expanded more than 900% during the last 25 years, while soybean production only grew 11%. To bridge the rapidly-widening gap between domestic production and soaring consumption, imports grew from virtually nothing in 1990 to 82 million tonnes in 2015, which was greater than 60% of total world trade, according to the FAS.

Although self-sufficiency, particularly for strategic commodities such as wheat and rice, remains paramount to the Chinese government, economic reforms and market liberalization have led to booming imports and exports. With 40% of the world’s farmers and only 10% of its arable land, China’s agricultural economy has benefited greatly by importing land-intensive bulk and intermediate commodities and exporting labor-intensive, consumer-oriented products, the FAS said. Besides soybeans, China’s major imports also include vegetable oils, grains and feeds, cotton and hides and skins. Since its WTO accession, growth of China’s agricultural imports has far outstripped that of exports, resulting in a widening trade deficit.

According to the report, the U.S. is the largest supplier to China with a 22% market share. Feed ingredients such as soybeans, coarse grains, distillers dried grains with solubles (DDGs), and other feeds and fodders constitute more than three-fourths of U.S. exports to China. These commodities destined for the livestock and poultry industries have been important drivers of China’s impressive import growth, leading China to become the largest U.S. agricultural market in 2010, the FAS said.

U.S. agricultural exports to China peaked in 2012 at $25.9 billion and have declined since; current year-to-date shipments are down 26% from last year. China’s slowing economy and bulging stocks are key factors driving the decline, as well as a strong U.S. dollar, making American products relatively more expensive, according the FAS. In recent years, China’s restructuring toward a more consumer-oriented economy has led to a slowdown of gross domestic product (GDP) growth, which is expected to be 6% this year, down from 10.6% in 2010 and the lowest rate since 1990, the report said.

Corn feed
Corn and cotton stocks both amounted to more than half of the world’s total. 
 
China’s policy to support producers’ income through minimum purchasing prices has led to stock-piling of wheat, rice, corn, cotton and other products in state reserves, the report said. Corn and cotton stocks both amounted to more than half of the world’s total. To dispose of the large corn stocks, the government auctions off corn at below acquisition cost, while discouraging imports of corn and corn substitutes with various measures favoring utilization of domestic grains, according the FAS. Since early 2014, the U.S. dollar has appreciated against the Chinese yuan and many U.S. competitors’ currencies, most notably the Brazilian real, making U.S. exports less competitive.

Although China accepts that imports are necessary to help meet surging demand, it does not hesitate to use border measures and other tools to control import flows to protect domestic interests, the FAS said. Exports of DDGs from the U.S. are currently facing a new round of antidumping investigations, after China launched an earlier investigation in 2010 that was subsequently dropped in 2012. These actions create uncertainties for traders and negatively affect U.S. exports, according to the report. China’s 2015 Food Safety Law and the Facility and Product Registration Requirement for all overseas feed and food manufacturers could pose additional scientifically and legally unjustifiable barriers on trade, according to the report. At a minimum, the myriad laws and measures are expected to raise the transaction cost of doing business in China.
Partners