Since the trade war started, soybeans have made a lot of headlines. I’m guessing you don’t care about soybeans and you might even be wondering why this is such a big topic for U.S.-Chinese relations. Here’s a quick crash course.
According to the United States Department of Agriculture, China last year imported 31.7 million tonnes of U.S. soybeans, nearly 60 percent of U.S. export shipments, in deals valued at $12.25 billion. China is the world’s largest importer of soybeans, importing nearly 100% of its soybean needs. China has a growing animal agriculture industry, specifically pork, and they need soybeans to feed their hogs. The relationship works well, the United States grows a lot of soybeans and China eats a lot of them.
Tariffs
When the trade war started, it was obvious that Beijing was going to place additional tariffs on U.S. soybeans in response to U.S. tariffs on Chinese goods. An import tax on U.S. soybeans makes it harder for Chinese farmers to buy U.S. soybeans. Instead, farmers would buy Brazilian and Argentine soybeans because comparatively, they are cheaper. This hurts U.S. soybean growers because they can’t sell their soybeans and they have to pay to store their soybeans until someone wants them, generally for a much lower price.
Tariffs on soybeans had an added bonus of negatively impacting states and districts that heavily supported Trump in the 2016 election. Beijing hoped that U.S. farmers would pressure Trump to remove tariffs to reopen their markets. Trump was worried about blowback of tariffs from the farm community. He authorized a $12 billion aid package to help farmers getting hurt by the trade war. No other industry has been offered an aid package yet. In a strange twist of events, the payments are delayed because the U.S. Department of Agriculture is closed during the government shutdown.
Purchases
In December, Trump and Chinese President Xi agreed to a trade truce: no new tariffs until March 2019. During that time, the two sides would talk and try to resolve their differences. Almost immediately China agreed to purchase soybeans, as well as liquefied natural gas, from the United States. U.S. soybean exports have fallen by more than 90 percent since the trade war started. There are a lot of soybeans looking for customers.
By now, China is running out of other soybeans to buy instead of U.S. soybeans. They bought all the South American soybeans that were available. Soybeans are harvested in the fall. Brazil is in the Southern Hemisphere, so their fall is our spring. By October Brazil is out of soybeans. Normally, the United States harvests soybeans in October and starts selling them to China. This year that didn’t happen. China bought as many soybeans from other countries as possible, but they are probably still short.
It’s January and China really needs soybeans. The government has taken significant steps to lower soybean demand. They are high in protein; the government reduced the protein feeding requirement for hogs, so hog farmers needed fewer soybeans. But fewer soybeans is still more than no soybeans.
The government doesn’t want to charge Chinese farmers a tax to buy soybeans. It will hurt farmers and make pork more expensive. A larger meat-based diet is a sign of China’s growing wealth. Reversing this trend will reflect poorly on the government. China is looking for a way to get more soybeans without giving into Western demands and if possible make Trump feel like he is winning the trade war, without giving Washington more than it needs to. China wins in this case, but so does the United States.
Biotechnology Approvals
In the first full week of 2019, trade representatives from the United States and China met to work on a trade deal. During the meetings, Beijing approved five new biotechnology events in industry speak or new GMOs in normal speak. China has been reviewing some of these products for six years. The Chinese review starts after the U.S. Department of Agriculture, the U.S. Environmental Protection Agency, and the U.S. Food and Drug Administration have all said the products are safe for the environment and consumption.
U.S. farmers really want Chinese approvals, because until a GMO is approved in China, it can’t be planted in the United States. China is a huge grain (corn and soybeans) market. Before the grain gets to China it might be mixed with grain from other countries.
When U.S. farmers plant their soybeans no one knows where that soybean will end up. If a GMO that is not approved for the Chinese market ends up in China, China has and will continue to reject the entire shipment. This devastates the supply chain. There was a major lawsuit on this topic a few years ago. Syngenta sold a new corn seed (MIR162) that was not approved in China. The shipments were rejected. Corn farmers lost a lot of money and they sued Syngenta. The farmers won a $1.51 billion settlement against Syngenta. After that, no seed company will commercialize a seed before it is approved by China.
With no new biotech approvals, the pipeline for innovation gets stunted. Farmers are using older technology on their farms and not benefiting from the investments seed companies have made. By approving five new traits, farmers gain access to a lot of new options from several different seed companies. They rejoiced at the news.
It’s not really time to celebrate
The problem is, this is another short-term fix that didn’t cost China anything and potentially gives them leverage in the trade war discussions. Approvals might sound like a significant win, but they are not. A win would have been if China changed it’s painfully opaque biotech approval process, which the United States has been demanding for years. If China would tell companies what data are required by the National Biotechnology Committee and not add new requirements while products are being reviewed. If China provided a schedule of when the committee meets and actually holds the meetings. Or if companies could submit audited data instead of basing the reviews on Chinese government-run tests. But none of those changes were made. A few products magically came out of the review process with no rhyme or reason.
Restoring the Status Quo, Not Improving It
Soybeans are important because American farmers grow a lot of them and Chinese consumers eat a lot of pork, which eat soybeans. Plus, a lot of farmers voted for Trump and the Chinese have decided that Trump will want to please his base instead of dragging out this trade war. China is hoping to buy Trump off with a few strategically placed wins instead of the major overhaul Trump initially lobbied for.
Comments