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US farmers are losing patience with their administration’s trade conflict with China.
They want a resolution to stand-off, as they face the prospect of slowly building up new markets, container by container, while their rivals in other exporting nations send their perishables by the boatload to China.
The most recent escalation of the conflict has brought tariff increases of up to 25% on more than 5,000 US goods worth $60bn, including farm products – a primary target of Chinese officials – like chicken, turkey, peanuts and almonds. In all more than 300 agriculture products from the US worth $3bn are affected.
The introduction of tariffs last year has already caused a severe slump in US agriculture exports to China, with the picture most dramatic for US soybean producers, who used to send more than half of their exports to China.
In the week ending May 2, accumulated US soybean exports to the Middle Kingdom for the 12-month period stood at 5.9m tons, down 20m tons a year earlier. Overall, US soybean exports were down 11m tons, thanks to increased shipments to other countries.
US pork farmers, China’s third-largest import source, also suffered, as Beijing raised tariffs by 50%.
As negotiations reportedly made progress earlier in the year, there was growing optimism in this sector, fuelled by the rapid escalation of the African swine fever epidemic in China that ravaged pig stocks. By some estimates, more than 100m pigs will have to be culled out of a total head count of some 440m.
China’s pork production is expected to fall by as much as 30% this year, with cataclysmic repercussions for pork prices, not only in China but worldwide. One forecast sees the country’s pork imports soar 41% to 2.2m tonnes.
This is still well short of China’s pork consumption, which augurs for a long-term supply shortage and a corresponding need to buy from all possible supply sources. However, hopes that Beijing might take a softer line on pork were dashed on May 16, when the US Department of Agriculture (USDA) announced that Chinese buyers had just cancelled a major order for US pork. By mid-April ,only one-third of 150,000 tonnes of US pork commitments to China had been shipped.
Beijing also blocked imports from two major Canadian producers in a political move over the arrest of a senior Huawei executive in Canada.
“The biggest exporters are monitoring the situation, but as of now the market is closed. We have seen a lot of [pork] exports to east Asia, Europe and Russia,” reported Ron Buschman, owner and managing director of Canadian charter broker and GSA Aerodyne Cargo Services.
Faced with the recent set-backs, US exporters are losing hope for a resumption of their China business. Chris Connell, senior vice-president, perishables North America, at Commodity Forwarders, said tariffs were not the only hurdle for US perishables shipments to China. Reports of slower clearance are also prompting shippers to reconsider.
“There are a lot of fragmented conversations, which are adding to confusion and doubts,” he said. “People stop shipping because of concerns.”
Every perishables exporter he knows has been looking at alternative markets, but there is no instant fix.
“There are not too many new markets out there, so in many ways these growers are re–targeting the likes of Korea, South east Asia, Japan and Australia, but also working to set programmes up with domestic retailers to move crop,” he said.
US soybean shippers have been exploring markets like Argentina, Thailand and Indonesia. None of these have the heft of China, but the idea is to build up a market by working with farmers and introducing crushed soybean as a high-protein livestock feed, which is how the China market took off years ago.
Clearly this will take years. For the most part, these new streams are moved in containers, as the volumes are not enough for bulk carriers.
The near future looks bleak for a large number of US farmers. Washington issued a $12bn relief package last year and has announced plans for a $15bn package this year. Last year’s handout brought some relief for some, like growers of soybeans, cherries and almonds, but producers of wheat, corn and seafood lost out.
On May 20 Republican Senator Jerry Moran of Kansas called on the US government to resolve the trade dispute, in a letter to FDA secretary Perdue. He pointed out that farm income had fallen by 50% since 2013 and the trade war had brought many farmers to the verge of collapse.
Noting that last year’s relief amounted on average to 37% of net farm income last year, he stressed that reliance on such measures was unsustainable and that farmers needed to be able to sell their produce to make a living.
Mr Connell believes that the boat may have already departed for some commodities: for its soybean needs, China has already moved to other sources and it is looking to shift cherry imports to Spain and Turkey, he noted.
For airlines that had counted on moving large quantities of cherries from the west coast to China, this is bad news. However, a spell of cold and rainy weather has damaged California’s cherry crop and undermined its viability for export, Mr Connell added.