China’s Agricultural Imports under the Phase One Deal: Is Success Possible?

Xi He, Dermot J. Hayes, Wendong Zhang
November 2020  [20-PB 29] (Revised)

This version updates the September 2020 version of CARD policy brief 20-PB 29 using monthly data until September 2020, weekly data until October 29, 2020, and daily export sales notices until November 9, 2020.

We examine China’s committed agricultural purchases under the phase one trade deal and whether it can fulfill those commitments. We review China’s agricultural imports from the United States up to the third quarter of 2020 and use prior seasonal patterns and advanced sales of key commodities to predict China’s agricultural imports from the United States for the rest of 2020 and its remaining trade deal obligations. We focus on corn, soybeans, cotton, sorghum, pork, beef, poultry, and ethanol. We also examine China’s agricultural imports from non-US countries, compare the FOB and CIF prices of major agricultural commodities from the United States and its major competitors, and review tariffs charged on US products to understand the competitiveness of US agricultural exports to China.

US monthly export data show China imported $13.84 billion worth of agricultural and related products from the United States in the first three quarters of 2020, which is around 52.2% of the first-year trade deal obligation of $36.5 billion. US weekly export data until October 29, 2020, show that overall, China’s purchases of US corn, soybeans, pork, beef, poultry, sorghum, and cotton are making good progress. Specifically, for corn, as of October 29, 2020, China had imported a record 2.11 million metric tons for the 2019/20 marketing year and 2.199 million metric tons for the 2020/21 marketing year to date, and has an outstanding 8.56 million metric tons for delivery in the 2020/21 marketing year, resulting in a minimum 10.76 million metric ton commitment for delivery for the 2020/21 marketing year, far exceeding the 357,500 metric tons for the 2017/18 marketing year. US weekly export data show that China has imported 16.26 million metric tons of US soybeans for the 2019/20 marketing year and 12.12 million metric tons for the 2020/21 marketing year to date, and has an outstanding 14.68 million metric tons for delivery in the 2020/21 marketing year, resulting in a minimum 26.8 million metric tons of soybeans committed for delivery for the 2020/21 marketing year, close to the 27.68 million metric tons for the 2017/18 marketing year. For meat products, China imported a record 596,079 metric tons of US pork and 24,332 metric tons of US beef in the first 44 weeks of 2020—much higher than 56,208 metric tons of US pork and 2,089 metric tons of US beef in the full 2017 marketing year. The upward trend we find seems likely to continue due to China’s strong demand for meat.

China’s corn imports from all sources reached 6.67 million metric tons of corn in the first three quarters of 2020 (GACC, 2020). Given that China has imported 2.2 million metric tons from US in the current marketing year starting from September to the week of October 29, with an outstanding 8.56 million metric tons for delivery, it’s quite likely that China’s corn imports will exceed its TRQ. Although China has not made an official announcement that it will expand its corn TRQ of 7.2 million metric tons, China National Grain and Oils Information Center reports that China has almost used up its tariff rate quota of 7.2 million metric tons for this year, and is considering granting an additional import quota of 5 million metric tons.

We use linear extrapolation that accounts for seasonality and trend to predict China’s total US and non-US agricultural imports based on 2017 seasonal patterns and China’s most recent US agricultural purchases, which includes advanced corn and soybeans sales until October 29, 2020. Specifically, we assume that the advanced corn and soybean sales will be delivered in the first year of the trade deal. We find that China is on track to import $31.15 billion in agricultural products from the United States in the first year of the trade deal (February 15, 2020, to February 14, 2021).

In the first three quarters of 2020, China’s total agricultural imports reached $124.4 billion, a 32% increase from the $93.9 billion in the first three quarters of 2017. However, China sourced 89% of its agricultural imports from non-US sources in the first three quarters of 2020, which, in part, reflects a continued diversification away from US agricultural imports before and during the trade war. Specifically, in the first three quarters of 2020, China imported 74% of its corn from Ukraine and 75% of its soybeans from Brazil. However, this indicates there is still a lot of room for US corn and soybean exports to China in the following months. While the United States accounted for 95% of China’s sorghum imports as of September 2020, US meat products face strong competition from the EU, Brazil, Australia, and Argentina. In the first three quarters of 2020, the EU accounted for 58% of China’s pork imports, and Brazil, Australia, and Argentina accounted for 74% of China’s beef imports.

We also analyze monthly FOB and CIF prices of China’s agricultural imports from the United States and its major competitors and find that the FOB prices of US corn, soybeans, and pork are comparable to that of Ukraine corn, Brazil soybeans, and EU pork. However, the CIF prices of US corn and soybeans are higher than the CIF prices of Ukraine corn and Brazil soybeans due to higher transportation costs and retaliatory tariffs that China imposed on the United States. In addition, the recent depreciation of the Brazil real coupled with the strengthening of the US dollar significantly boosted the price competitiveness of Brazil soybeans. Due to the tariff exemptions since March 2020, the gap between US corn and soybeans and Ukraine corn and Brazil soybeans have been dwindling, creating more room for China to import US corn and soybeans in the following months. In addition, since the beginning of 2020, US pork CIF prices have been lower than those of EU pork, indicating that US pork is gaining competitiveness over EU pork. However, the FOB price of US beef is much higher than that of Brazil beef, in part because US beef is grain fed.

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