Though tremendous opportunity for agricultural trade with China exists, it comes with high risk due to China’s evolving policies.
To shed light on these policies and determine what opportunities are ahead for U.S. producers, experts from the Virginia Tech Department of Agricultural and Applied Economics were awarded nearly $500,000 in June 2014 under a highly competitive grant from the United States Department of Agriculture – National Institute of Food and Agriculture.
The project, titled “Expanding U.S. Market Access in China’s Evolving Agricultural and Trade Policy Environment,” is aimed at promoting U.S. trade with China by increasing the understanding of Chinese agricultural trade policies and how they affect U.S. agribusiness ventures in China.
“The agricultural and trade climate in China has significant implications for U.S. farmers as a historically expanding market for agricultural exports,” said Mary Marchant, professor at Virginia Tech and Lead Project Director. “While China’s economy has decelerated in recent years, it was previously the number one destination for U.S. agricultural exports and we must continue to stay abreast of their policy changes and events impacting trade relations.”
Marchant is working on the project in partnership with Francis Tuan, former Senior Economist at the United States Department of Agriculture - Economic Research Service (USDA-ERS), and James Hansen, senior economist at USDA-ERS. Other contributing team members include Agapi Somwaru, former USDA-ERS Senior Economist; Virginia Tech graduate students Mina Hejazi and Wei Zhang; and Chinese collaborators Funing Zhong, Crystal Jing Zhu, and visiting graduate student fellow Jue Zhu from Nanjing Agricultural University.
Over the past few years, the team has uncovered various Chinese trade policies and run policy scenarios for potential trade distortions, as well as identified success stories U.S. producers have had in trading with China.
As part of the discovery phase, team members travelled to China and Washington, D.C. to interview agribusiness leaders, government officials, and academics. These interviews gave project members insight into China’s challenges, policies, and their overall perspective.
One important finding from the discovery phase was the identification of a price wedge. Researchers found that China’s domestic prices were significantly higher than world agricultural markets. This price wedge came as a result of China’s policy reforms, issued out of concern for domestic food security, and a commitment to improving farmers’ incomes.
“China’s agricultural and development goals have directed their policy decisions,” said Mina Hejazi, a graduate student from Iran studying agricultural and applied economics at Virginia Tech. “And these policies are among the most important factors influencing trade in world commodity markets.”
China’s high price of feed combined with limits they placed on U.S. corn imports (in an effort to protect their domestic producers) precipitated an increase in feed substitute imports such as sorghum, barley and distillers’ grains from the U.S. and other countries.
While U.S. grain producers benefited from this uptick in feed substitute exports, China’s import trends have shifted as of late due to recent changes in China’s corn support price policy, and demand for imported feed substitutes in the short term has declined.
Marchant’s research specifically seeks to answer the question, “how do China’s policies concerning poultry imports impact U.S. exports?”
Out of fear raised by outbreaks of Avian Influenza, China banned all poultry imports from the U.S. in January 2015, causing U.S. poultry producers to look at other markets. This despite growing demand for poultry products in China and the fact that the illness was discovered only in specific regions of the country.
The team’s findings to-date will be published as a series of papers in Choices which will be released spring 2017.
The team still has plans to examine additional policy scenarios to discover how each may impact U.S. and world markets in the future.
“U.S. producers face numerous uncertainties,” Jim Hansen of the ERS said, addressing the future of U.S. trade with China. “Non-transparent trade policies, joint ownership of 49% of firms in China, and a lack of clarity between central and provincial policy and enforcement, among other things, all affect what U.S. producers export. While top commodities have been soybeans, cereal grains and related products such as distillers dried grains (DDGs), cotton, meat, and hides and skins, there is still room for additional U.S. exports, particularly in niche markets.”