Washington Insider-- Thursday

US, China Trade Ties Strong Despite Tensions

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

USTR Formally Announces Action on Canada Dairy TRQs

U.S. Trade Representative (USTR) Robert Lighthizer formally announced the U.S. is exercising its rights under the U.S.-Mexico-Canada Agreement (USMCA) to address measures adopted by the Government of Canada that are contrary to the provisions of the agreement and harm U.S. dairy farmers.

Specifically, the United States is challenging Canada's allocation of dairy tariff-rate quotas (TRQs). By setting aside and reserving a percentage of each dairy TRQ exclusively for processors, USTR said, “Canada has undermined the ability of American dairy farmers and producers to utilize the agreed-upon TRQs and sell a wide range of dairy products to Canadian consumers.”

Lighthizer said the measures undertaken by Canada “violate its commitments” under USMCA. “We are disappointed that Canada's policies have made this first ever enforcement action under the USMCA necessary to ensure compliance with the agreement,” Lighthizer said in a statement.

The notice to Canada was given to Canada's Minister of Small Business, Export Promotion and International Trade Mary Ng via a letter.

If the two sides cannot resolve the issue via consultations, USTR said the U.S. “may request the establishment of a USMCA dispute settlement panel to examine the matter.”

USDA Food Box Program Running Out Of Funds Early

USDA's Farmers to Families Food Box program was scheduled to run through December 31, but the effort has already run out of funds or will soon be depleted in several areas of the country, according to a report in the Washington Post.

The $4.5 billion program was run in four installments—$1.2 billion in the first round, $1.76 billion in the second round, $1 billion in the third round and the final round totaled $500 million. The final round for November and December did result in some non-profits being unable to participate or they received fewer food box deliveries.

The effort was launched in May and provided foods to families including fresh vegetables, meat, cheese/dairy products, and other items. It is not clear that the effort will be resurrected via either additional congressional funding or by the incoming Biden administration.

The Trump administration had previously proposed a food box effort in its budget submissions to Congress relative to food and nutrition program efforts, a concept that many Democrats derided at the time.

But the track record for the program could bring a rethink of the effort as it more directly links consumers and farmers, utilizing non-profits to distribute the boxes. The effort has received mixed reviews in the food industry.


Washington Insider: US, China Trade Ties Strong Despite Tensions

Bloomberg is reporting this week that “measured by the bushel, the U.S.-China relationship has never been stronger.” Through the trade war and open hostilities at the highest political levels, hog farmers in China and crop farmers in the U.S. have become increasingly interdependent.

Already America's biggest customer of soybeans and sorghum, China has recently bought an unprecedented 11.2 million metric tons of corn, up nearly 1,300% compared with pre-trade-war purchases.

The American imports have helped China feed its hog herd, which is recovering faster than expected after the African swine fever outbreak that created shortages of the country's most staple protein. Meanwhile, U.S. farm incomes are at a seven-year high, riding China's demand and additional support from federal aid.

Still, the current “deeper reliance” may be tenuous. As the trade war showed, markets can quickly evaporate any number of geopolitical events–an incident in the South China Sea, for example, or further activity in Hong Kong–could end with another chill on Chinese imports.

Even Tom Vilsack, who is expected to be the next ag secretary and who also held that post from 2009 to 2017 and is an ex-governor of Iowa, is emphasizing the risks. He warns that “American agriculture has to be careful of putting too many eggs in the China basket. He thinks that the lesson that should be learned from the last couple of years is the need for American agriculture to continue to diversify so there's always somewhere else the products can go, other than the storage bins.”

For now, purchases are so big that traders are even drawing parallels with the Soviet era's “Great Grain Robbery” and the U.S. has nearly exhausted its export capacity, according to Gregg Doud, the U.S. Trade Representative's chief negotiator for agriculture. “North of 95% of what can possibly be done in 2020 is already booked, and a huge chunk of that is soybeans to China.”

The farm belt, which voted overwhelmingly for the re-election of President Donald Trump, is waiting to see how President-elect Joe Biden will approach the next negotiations with China. The past North American and Chinese trade deals, plus COVID-linked farm aid, have “sustained the agricultural economy,” said Jim Putnam, who grows corn and soy in Minnesota. “I was never a big Trump fan but he did get the Chinese attention with Phase 1,” Putnam said. “I hope that the Biden administration can keep things going.”

Even if relations do strengthen, China's appetite for American crops reflects a combination of factors that won't remain static: the strength of China's post-COVID economy, the unanticipated consequences of the African swine fever recovery, and the limitations on the country's own corn production.

When the disease killed roughly half the country's herd in 2018 and later, traders projected a five-year timeline for recovery. It's been far faster. The herd is now at 80% of its pre-disease levels.

Also, the industry has changed, Bloomberg says. Multi-story “hog hotels” and large industrial producers have replaced the backyard farms where pigs were fed table scraps. The more professional operations mean hogs are eating more corn, soybean meal and other feed grains.

“Everybody focuses on soybean trade, but as the Chinese livestock industry is professionalizing their feeding practices, it means not only the soybean meal demand will grow, but that the corn demand will grow as well,” Greg Morris, president of Archer-Daniels-Midland Co.'s Ag Services and Oilseeds unit said.

Others are skeptical about the influence of the trade growth and strong sales projections that likely are guiding U.S. farmers as they decide how to allocate their land for the 2021 growing season. And, American executives worry that “only China's state-owned enterprises understand the full scale of the country's demand.”

In China, an important goal is self-sufficiency, according to Xu Weiping, a chief analyst with the agriculture ministry. The country is reallocating land from non-grain crops to corn and plans to use genetically modified crops and other technologies to achieve greater self-sufficiency. It also has been developing its global supply chain. As part of its Belt-and-Road Initiative, it has heavily invested in Brazil, the world's top producer of soybeans, and in the Black Sea region.

In addition, scars of the recent trade war remain. Tariffs are still in place and will be a challenge the Biden administration will eventually have to deal with, said Joseph Glauber, a former USDA chief economist. The new president will also have to tackle issues such as intellectual property and business practices, which remain on the table.

“The issue has never really been about agricultural trade,” said Glauber. “The bigger issues have been outside of agriculture, and I think those are going to be the tough ones.

So, we will see. Vilsack was generally regarded as a successful ag secretary with strong links to the industry built up over the years. However, the agency now has much stronger social goals that also will be challenging and increasingly important. The new administration's efforts across a range of issues should be watched closely by producers as they emerge, Washington Insider believes.

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