Deal bodes well for N.C. farmers

Posted 11/19/20

As heated election rhetoric cast dark clouds over U.S.-China relations, a silver lining is emerging for North Carolina farmers.

If you have any doubts something historic is happening, get this: …

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Deal bodes well for N.C. farmers

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As heated election rhetoric cast dark clouds over U.S.-China relations, a silver lining is emerging for North Carolina farmers.

If you have any doubts something historic is happening, get this: U.S. farmers are selling rice to China, the world’s largest rice producer.

Nothing goes better with rice than beef and pork, and that’s one reason North Carolina is one of the states positioned to cash in on Phase One of the U.S.-China trade deal, according to an international trade researcher, as control of the pandemic has strengthened China’s economy.

“Definitely, there is already significant improvements in the exports and commodity prices, especially in recent months,” said Wendong Zhang, an assistant professor in Iowa State University’s Department of Economics.

Zhang’s optimism was echoed in an interim government report on Phase One issued Oct. 23 by U.S. Trade Representative Robert Lighthizer and U.S. Agriculture Secretary Sonny Perdue.

“It is still to be seen whether they meet their target,” the report said, “but particularly given the COVID-19 effects on the global economy, they are making substantial progress.”

Also offering an optimistic outlook is Ryan Quarles, the president of the National Association of State Departments of Agriculture.

“2020 should have been the year of trade for agriculture, but it has been overshadowed by the pandemic,” said Quarles, Kentucky’s agriculture commissioner. “With that said, progress on China has been significant as they seem to be buying historic amounts of U.S. commodities of corn, soybeans, and — for the first time ever — rice.”

The U.S. and China signed the deal, formally known as the Economic and Trade Agreement Between the Government of the United States of America and the Government of the People’s Republic of China, last Jan. 15.

The deal addresses issues involving intellectual property, technology transfer, trade in food and agriculture products, financial services, macroeconomic policies and currency, and dispute resolution.

As for trade, Phase One covers manufacturing (70%) and agriculture (22%) as well as energy.

In the deal, China agreed to increase its purchases of U.S. goods and services by at least $200 billion over the next two years with 2017 imports as the baseline.

The deal formally started on Feb. 14. As March 14 represented the first full month of the deal, the interim government report covers eight months of transactions. Phase One extends until Feb. 14, 2021.

Independent observers like Zhang include Chad P. Brown of the Peterson Institute for International Economics, an independent nonprofit, nonpartisan research organization based in Washington, D.C.

Although results so far are mixed, Brown noted on Oct. 27 that “some U.S. exports to China — including medical supplies, pork, and semiconductors — actually accelerated in 2020.”

8 is a lucky number

In English the trade deal is 96 pages, including appendices, but the Chinese version is an 88-page document. Eight is a lucky number in China. Symbolically, the Opening Ceremonies of the Olympics in Beijing began at 8 minutes after 8 o’clock on the eighth day of the eighth month, August 2008.

Would U.S. farmers be so lucky? In February, Zhang wondered whether Phase One would be “a big win for farmers or too good to be true?”

After all the deal followed nearly two years of a U.S.-China trade war.

Zhang noted that in the deal China made “historic and bold promises” and committed to reduce and eliminate structural, non-tariff barriers to U.S. agriculture in China’s market.

“This is especially significant politically and symbolically,” Zhang said, “because this deal represents the first time both countries made moves to actually reduce the tariff rate rather than escalate the situation.”

According to the interim government report, the agricultural categories included corn, soybeans, dairy products, poultry, pork, beef, seafood, rice, infant formula, pet food, animal feed and feed additives, products of agricultural biotechnology, and horticultural products, including fresh chipping potatoes, California nectarines and California Hass avocados and blueberries.

“Using the best methodology, we have calculated that China has purchased approximately 71% of its target for 2020,” the interim government report said. “They have purchased $23.6 billion in agricultural products so far this year. This is substantially more than the base year of 2017, and should end up being our best year ever in sales to China.”

Zhang raised a cautionary note: “The key thing is that the 71% counts commitments that may not be realized soon.” Likewise, an Oct. 23 Bloomberg report questioned the $23 billion figure, saying “that amount includes both goods that have been shipped and also sold but not yet exported.”

On Oct. 13 the General Administration of Customs in China announced the latest data for the first three quarters of 2020, noting that China imported 91.39 billion yuan ($13.61 billion) of agricultural products from the U.S., an increase of 44.4%, according to a Xinhua (New China) news agency story from Beijing.

The government report said, “American farmers have never sold as much corn to China as they are selling right now ... As of October 8, 2020, total accumulated corn sales for 2020 are more than 12 times greater than those accumulated by the same date in 2017.”

N.C. sweet spot

China’s demand for beef and pork hits a sweet spot for North Carolina farmers and ranchers, just as fruits do for California and Florida farmers and dairy for Wisconsin farmers, Zhang said.

According to the government report, U.S. pork exports to China hit an all-time record in just the first five months of 2020, and as of October 8, total accumulated beef sales to China in 2020 were over 25 times greater than those accumulated over the same period in 2017.

Outstanding sales of corn to China are 8.7 million tons, an all-time high, the report said, while outstanding sales of soybeans to China stand at 17.4 million tons, double 2017 levels.

Asked which U.S. farmers are best positioned to cash in on Phase One targets, Zhang mentioned soybeans grown in the Midwest, where beef and pork are abundant; poultry in the Southeast, including North Carolina; and nuts and wine from California.

If there were any question that farmers live in a global economy, Zhang and his colleagues, Xi He and Dermot J. Hayes, put that to rest last month in a policy brief.

In the first six months of 2020, they noted, China imported 93% of its corn from Ukraine, 72% of its soybeans from Brazil, 57% of its pork from the European Union and 72% of its beef from Brazil, Australia and Argentina, combined.

Quick Quiz 1: What U.S. farm product cornered 97% of China’s imports in June 2020?

Answer: Sorghum.

“There is still a lot of room for U.S. corn and soybean exports to China in the following months,” the policy brief added optimistically.

Farmers hit on both sides

Feeling the brunt of a trade war beginning in 2018, weathering storms and natural disasters, then being hit with a pandemic, American farmers will take any good news they can get. The same is true in China.

Also beginning in 2018, farmers in China battled African Swine Fever, which wiped out an estimated 180 million hogs, or 40% of China’s herd, last year, and heavy rains and floods in southern China have contributed to renewed outbreaks.

Wuhan, a trade hub for the distribution of products for many industries through water, land and air, was shut down for two months, two weeks and two days, ending April 8, 2020, as it became the epicenter of the COVID-19 pandemic.

Quick Quiz 2: What country poses the greatest competition for U.S. farmers in meeting China’s demand? And how might it have an edge?

Answer: Brazil.

“Germany would have been,” Zhang said, “but now they are also dealing with African Swine Fever, which gives the U.S. a rare opportunity for pork exports. Brazil is the biggest competitor because of strategic diversification by China and sharp depreciation of the Brazilian currency this year.”

Brown at the Peterson Institute for International Economics added Canada to the list at the expense of Maine lobster farmers.

“Sales of the lobster industry remain at only 39% of its year-to-date target,” he said on the PIIE website, adding that China lowered its tariffs on lobster from Canada and other countries while retaliating with higher tariffs on U.S. lobsters beginning in 2018.

Assessing progress on the Phase One deal is complicated, but the government report said the U.S. tally “corresponds with the similar numbers China keeps.”

“Looking at simple import or export numbers alone is misleading because actual sales oftentimes lag exports by several months,” the report said. “What we have done is combine actual export numbers with the sales indicated in the U.S. Department of Agriculture (USDA) weekly Export Sales Reports (adjusting to eliminate any double counting) then, since the weekly sales reports only cover approximately 80% of U.S. agriculture sales, we have proportionally adjusted upward to cover products not included in the weekly reports.”

The agreement does not clearly specify how progress should be calculated.

Seth Meyer, the associate director of the University of Missouri’s Food & Agricultural Policy Research Institute, told Bloomberg:

“The agreement explicitly calls for the goods to be imported into China, so on its face, compliance would seem to require not just an outstanding sale, but also delivery within the calendar year.” It can take up to a month for goods to reach China.

According to the government report, another indicator of Phase One success is the number of facilities in the U.S. that can export agricultural goods to China. It calculates a 167% increase to more than 4,000 facilities from about 1,500 before the agreement.

Scorecard: Here are some highlights from the government report on progress over the first eight months of Phase One:

Soybeans

U.S. soybeans sales for marketing year 2021 are off to the strongest start in history. Exporters reported nearly 15.0 million tons in sales of U.S. soybeans to China since early August, valued near $6.2 billion at current prices, and U.S. soybean exports to China are averaging over 1.1 million tons per week since the beginning of September.

Pork

U.S. pork and pork product exports to China stand at more than $1.5 billion from January through August 2020. As of October 8, 2020, total accumulated pork sales to China in 2020 are eight times greater than those accumulated by the same date in 2017.

Sorghum

U.S. exports of sorghum to China from January through August 2020 totaled $617 million compared with $561 million for the same period in 2017, a 10% increase.

Poultry

U.S. farmers exported nearly $436 million in poultry meat to China on pace to a record year.

Alfalfa

U.S. alfalfa hay exports to China totaled $270 million from January through August 2020, up from $236 million during the same period in 2017.

Corn

The last week of July U.S. corn exporters sold 1.94 million metric tons of corn to China, the largest daily sales total to China ever, and the third largest single U.S. corn sale on record.

Beef

Total 2020 exports of U.S. beef and beef products to China through August are up 118% compared with the same period in 2019 and are already more than triple the total for U.S. beef exports to China in all of 2017.

Nuts

U.S. pecan exports to China totaled $23 million from January through August 2020, which represented an 84% increase from the same period last year. U.S. peanut exports to China totaled over $168 million from January through August 2020, compared with just $30 million during the same period in 2017.

Pet food

U.S. pet food exports to China totaled more than $20 million, nearly doubling the previous annual record.

Dairy

Exports of U.S. dairy products to China rose 38% from January through August 2020 compared with the same period in 2019.

The larger picture

Measuring results for U.S. farmers depends on where you begin to see the larger picture.

To counter the negative impact of tariffs in the trade war with China, American farmers received tens of billions of dollars in federal subsidies in 2018, 2019 and 2020, according to Brown.

“It took until September for farm exports to reach pre-trade war levels again,” he said on the PIIE website. “China will need to import 62% of the total farm commitment in October, November, and December if it is to meet the 2020 target.”

The view from China

A planned six-month Phase One review by the two countries, originally scheduled for Aug. 15, was pushed back by the pandemic and turned into a phone call Tuesday morning, Beijing time, on Aug. 25 for the benefit of Chinese Vice Premier Liu He.

Speaking to their Chinese counterparts Monday with the 12-hour time difference was Treasury Secretary Steven Mnuchin and Lighthizer, who followed up with a statement from the Office of the U.S. Trade Representative:

“The parties addressed steps that China has taken to effectuate structural changes called for by the Agreement that will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer.”

The official Chinese government statement spoke more broadly about a “constructive dialogue on such issues as strengthening bilateral coordination of macroeconomic policies.”

It added that both sides “agreed to create conditions and atmosphere to continue to promote the implementation of the first phase of the China-U.S. economic and trade agreement.”

The dark clouds around U.S.-China relations cannot be darker than news coverage these days in China. That’s why a bright China Daily story popped out Sept. 2 with the headline: “China stresses win-win for Chinese, U.S. firms.”

Pang Chaoran, a researcher at the Chinese Academy of International Trade and Economic Cooperation under China’s Ministry of Commerce, struck an optimistic note about the future:

“With the help of Chinese government’s effective measures to contain the pandemic, the pent-up consumption potential will be gradually released, and China will see rising demand for U.S. products. By then, we will also see a stable growth in China-U.S. trade.”

Parting praise for farmers

“We are optimistic that the Chinese will meet their Phase One projections and this will lead to greater opportunities for the American farmer,” said Quarles, elected in 2019 as president of the Southern Association of State Departments of Agriculture.

“At the end of the day, all American agriculture wants is access to foreign markets as the U.S. farmer is part of the safest, most abundant food supply in the world.”

About the author: Journalism professor Buck Ryan, director of the Citizen Kentucky Project on civic engagement at the University of Kentucky, is conducting a case study of the Chatham News + Record, which he considers a model community newspaper here and abroad.

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