Apr 06, 2022

China Diversifies Ag Imports, U.S. Gets Smaller Piece

China has become the largest importer of food and agricultural products globally

Between tariff disputes and a global pandemic, trade with China has been on a roller coaster ride the past few years.

During USDA’s Agricultural Outlook Forum that took place in February, Dr. Jason Grant, professor and director of the College of Agricultural and Life Sciences’ Center for Agricultural Trade at Virginia Tech, noted that the recovery in agriculture and commodity trade in 2021 was due to China's massive purchases of agricultural products.

The People's Republic of China (PRC) has a strong political desire to make sure that they are food secure. While they are investing heavily in domestic agriculture policy, they turn to the global market when they need to address feed demand requirements or diversify their diets.

Fortunately, with the large population in China, that creates a huge demand for imports.

“We have to remember food security is a critical policy goal in China,” says Grant. “The well-known Chinese idiom ‘bread comes first’ highlights the value their citizens place on food security.

“China’s urbanization, fast-growing economy, increasing household income, and shifting diets, as well as the simple fact that it's home to 20% of the world's population, creates an imbalance between agricultural resources — availability and its demand for agricultural products and any uncertainty in production-related events,” he notes.

Some examples of uncertainty for China include African swine fever, which was estimated to have reduced the country's hog herd by 40% to 50%, the COVID pandemic and an increasing variable climate.

For these reasons, Grant notes, China has become the largest importer of food and agricultural products globally.

China agricultural imports have risen 12.3 billion to over 200 billion in 2021, which is an annual growth rate around 16% on average. China's share of global agricultural imports increased from 11% in 2012 to 17% in 2021.

U.S. - China trade

Grant says China remains a difficult and unpredictable market for U.S. ag exports largely because of inconsistent enforcement and regulations and selective intervention by China's Regulatory Authorities.

After the strained years of 2018-19, which saw both countries elevate tariffs on each other, the Phase 1 trade agreement was signed in January 2020.

Grant notes while there was a lot of noise about China’s purchase targets falling short, the bright spot was that the Phase 1 agreement addressed a number of long-standing nontariff measures.

Where do we stand now with China? The previous year, 2021, was a record year of values but not necessarily volumes, says Grant.

“For 2021, it was a year of high commodity prices and high agricultural export values but not always volumes going to China,” he says

With Phase 1, China relaxed some of the nontariff issues that were an important access gain for beef and poultry. Corn set new corn export volume records.

“Stronger exports, tighter supplies, and rebuilding of China's hog herd and feed conversions led to a surge in commodity prices,” says Grant.

Bigger pie, but less of it

While China's purchases of U.S. products increased substantially in 2021, numbers show China increased purchases from all countries, not just the U.S.

China is the number one market for agricultural exports for many countries, not just the U.S., including Brazil, Australia, New Zealand, Uruguay and Ukraine. And it’s the number two market for the EU, Canada and Argentina.

Grant says it looks like there is an aggregate demand shift going on. “China is diversifying its portfolio of export suppliers,” he notes.

While U.S. exports are experiencing higher trade with China, there is a declining market share for pork, wheat, grain, sorghum, feed and fodder categories, cotton and to a lesser extent soybeans, dairy and tree nuts.

“The key takeaway message is the size of China's agricultural import pie, the overall pie, grew,” says Grant. “But the U.S. got a bit smaller slice of this pie as China continues to diversify its portfolio of export suppliers.”

The U.S.-China trade relationship is complicated and multi-faceted, says Grant. “U.S. producers depend on the Chinese market for the sale of their output just as Chinese consumers depend on U.S. imports,” he concludes.

“It's a symbiotic relationship reflective of each country's comparative advantages and disadvantages.” ■

Where is China on Phase 1 Purchases?

U.S. goods exports to China fell in December, showing a massive shortfall in Beijing's two-year purchase commitments under former President Trump’s Phase 1 trade deal, which launched mid-February 2020 and halted a threatened escalation of tariffs between the two countries.

The U.S. Census Bureau said in February that the U.S.’s 2021 goods trade deficit with China rose by $45 billion, or 14.5%, to $355.3 billion, the largest since a 2018 record of $418.2 billion.

The data showed China missed — by a lot — its commitments to purchase an additional $200 billion worth of U.S. farm and manufactured goods, energy and services above 2017 levels.

An analysis of final 2021 census trade data compiled by Economist Chad Bown of the Peterson Institute for International Economics, showed China met just 57% of its full two-year goods and services targets.

Beijing's purchases of the goods, energy and services targeted in the Phase 1 agreement were not even enough to return to China's baseline 2017 level
of purchases of U.S. imports after retaliatory tariffs had eroded them in 2018 and 2019, Bown said.

In the end, Bown said in his analysis, China bought none of the additional $200 billion of exports Trump's deal had promised.

Lisa Cleaver

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