U.S. Corn Exports to China: Significant Impact from New Chinese Ag and Trade Policies
By Sampath Jayasinghe and Preston Lyman
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322
Agricultural exports are critical to the U.S. farm economy. China was the top value market for U.S. agricultural products in 2016. Overall, the value of 2016 U.S. agricultural exports to China was approximately 16 percent of 2016 U.S. total agricultural exports in value, according to a recent DIS analysis. This month’s report focuses on the U.S. corn exports to China while giving special attention to new Chinese agricultural trade and commodities policies.
U.S. Corn Exports to China
Figure 1 shows U.S. corn exports to China from the 2011/12 marketing year (MY) to the 2015/16 MY. Figure 1 also displays a comparison of the months of September to April for the 2015/16 MY to the most recently available months of the 2016/17 MY. During the past five MYs, U.S. corn exports to China have fallen drastically from 5.1 million metric tons (MMT) in 2011/12 MY to 0.321 MMT in 2015/16 MY. The most recent data, comprising September 2016 to April 2017, shows that the United States exported 32,000 metric tons of corn to China, an 88 percent decline, compared to the same time period in the previous MY (Sep.-Apr. 2015/16).
Currently, China stands ranks 23rd in U.S. corn export destinations. China was among the top six U.S. corn export destinations during the 2011/12 MY-2013/14 MY. Then China dropped to 13th in the ranking of the top U.S. corn export destinations during the 2014/15 MY.
U.S. Dried Distillers Grains Exports to China
Figure 2 shows U.S. Exports of Dried Distillers Grains (DDGs) to China from the 2011/12 MY to the 2015/16 MY. Figure 2 also displays a comparison of the months of September to April for the 2015/16 MY to the most recently available months of the 2016/17 MY. U.S. exports of DDGs to China increased to a record 6.183 MMT during the 2013/14 MY from 2.228 MMT in the 2011/12 MY. Then U.S. exports of DDGs dropped to 5.366 MMT and 3.372 MMT during the 2014/15 MY and 2015/16 MY, respectively. Looking at the most recent data, U.S. exports declined to 0.668 MMT during the Sep-Apr 2016/17, compared to 2.08MMT during the Sep-Apr 2015/16, a significant decrease of 68 percent. Decreases in DDGs exports to China are a result of anti-dumping tariffs imposed on the United States in early 2016 (Anderson-Sprecher and Ji, 2016).
Major Ag and Trade Policies Influencing U.S. Corn and DDG's Exports to China
There are many reasons behind the significant decline in U.S. corn and DDGs exports to China. China had established a minimum price guarantee for corn since the 2002-2004 time period. The main purpose of that policy was to protect domestic corn producers and increase domestic corn production. As expected, the record corn production in China has been achieved and has created excess corn stocks in the domestic market. As shown in Figure 2, Chinese corn production reached a record level 224.63 MMT in 2015/16 MY. The corn ending stocks in China has soared to 110.77 MMT during 2015/16 MY.
Figure 3: Chinese Corn Production and Ending Stocks
The Chinese domestic corn price support program that set high corn prices compared to the world market was removed in March 2016. Since then, the Chinese government has implemented policies to address excessive corn stocks by aggressively promoting domestic corn consumption. Very recently, the domestic corn price has fallen with the release of excess stocks. The Chinese domestic corn price has now become more competitive with the international market. Falling corn prices in the Chinese domestic market made imports less attractive and China’s corn imports decreased from 2015 to 2016. This is the main reason behind significant declines in U.S. corn exports to China in Sep-Apr 2016/17.
What are the reasons behind the significant decline in U.S. corn exports to China from the 2013/14 MY to the 2015/16 MY? The main reason is non-tariff barriers (NTBs). Chinese ad hoc trade barriers have a significantly negative impact on U.S. market access. Since 2013, China adopted zero-tolerance trade policy on some of the U.S. genetically modified (GM) corn varieties. The Chinese regulatory trade policy acted as an artificial trade barrier to U.S. corn exports since the 2013/14 marketing year. Unwarranted quarantine testing, delays in cargo discharge, deferrals, and cargo rejections have been very common occurrences at ports in China.
The main issue is whether the Chinese disapproval of U.S. corn is science-based. The concerns over public opinion on GM products and the strength of the Chinese domestic seed industry have been the two major reasons for the rejection of U.S. GM corn imports. The U.S. government, as well as commodity groups, have continued to put pressure on the Chinese government to follow a science-based trade policy on biotechnology approvals. However, the approval process for U.S. corn and DDGs imports has become progressively slower and unpredictable.
U.S. corn exports also face strong international competition. According to Hansen et al., (2017), China and Ukraine signed a loan-for-crops bilateral policy agreement in 2012. It turns out that China has promised credit to Ukraine in exchange for corn. Since 2014, Ukraine has become the top corn exporter to China. Hansen et al., (2017) also pointed out China’s new interest in revitalizing trade with Europe and Southeast Asian countries to diversify its import suppliers.
While U.S. exports of corn and DDGs have declined over the last few years, U.S. exports of sorghum to China have increased dramatically through 2015. Figure 4 shows U.S. sorghum exports to China from 2013 to 2016 (Calendar year). Figure 4 also shows total exports of the first four months in 2017, compared to the same period in 2016. U.S. exports of sorghum to China increased to 6.37 MMT in 2015, compared to 0.44 MMT in 2013. In 2015, U.S. sorghum exports to Chine rose to a record 9.09 MMT and then dropped to 5.34 MMT in 2016. U.S. sorghum has become a competitive feed substitute for corn in China.
According to USDA’s Global Agricultural Information Network reports, China maintains tariff rate quotas (TRQs) for corn to induce domestic corn consumption. China imposes higher tariffs on imports above certain quantities. China has set 7.2 MMT of TRQ volume for corn in 2017 (Kim, 2017). In-quota duty is set at one percent level and out-of-quota duty is 65 percent (Kim, 2017).
Early in this decade, U.S. corn exports to China were competitive with the major export destinations. As China has continued to do various changes in agricultural trade and commodities policies, corn trade has decreased to the point that China has dropped to the 23rd ranked country for U.S. corn exports in 2015/16 MY. Ad hoc non-tariff barriers have been the main reason for the decline in U.S. exports. Current excess corn stocks in China (after abandoning the guarantee price support policy in March 2016) have also contributed to the decline in U.S. exports. As pointed out by Hejazi and Marchant (2017), when corn stocks in China decline in the years to come, U.S. exports to China will likely increase again. Evolving changes in Chinese agricultural and trade policies should be closely observed by U.S. corn growers. Changes in agricultural policies in China will likely have significant implications for U.S. agriculture.
Anderson-Sprecher, A., J. Wei, and C. Liwen. 2015. China Grain and Feed Annual. Washington, D.C. U.S. Department of Agriculture, Foreign Agricultural Service, GAIN Report CH15014, May.
Hejazi, M., and M. A. Marchant. 2017. “China’s Evolving Agricultural Support Polices”, Choices, 32(2).
Hansen, J., M. A. Marchant, F. Tuan, A. Somwaru. 2017. “U.S. Agricultural Exports to China Increased Rapidly making China the Number One Market”, Choices, 32(2).
G. Kim. 2017. China Grain and Feed Annual. Washington, D.C. U.S. Department of Agriculture, Foreign Agricultural Service, GAIN Report CH17017, April.
FAPRI-MU (Food and Agricultural Policy Research Institute at the University of Missouri), 2017. 10-year International Agriculture Baseline.