Wheat sales could skyrocket

China is changing the way it administers its wheat tariff rate quota, and that should result in millions of tonnes of additional sales for exporters in Canada and the United States, say industry associations.

“It would be significantly beneficial,” said Cam Dahl, president of Cereals Canada.

When China joined the World Trade Organization it committed to an annual TRQ of 9.64 million tonnes of wheat to be imported at a one percent duty.

Ninety percent of that quota is reserved for state trading entities (STEs) with the remaining 10 percent allocated to private sector importers.

U.S. Wheat Associates (USW) recently submitted a report on trade barriers to the U.S. Trade Representative where it outlined how STEs have not been using their share of the quota while private importers have been because foreign wheat is cheaper and of better quality than heavily subsidized Chinese wheat.

China’s STEs are supposed to reallocate their unused TRQ to private importers but they haven’t been doing that.

That prompted the United States to launch a WTO dispute against China for improper administration of the TRQ, which the U.S. won in April 2019.

USW said that case should transform the global wheat trade.

“China has agreed to not appeal the (WTO) decision and in October of 2019 proposed new rules that, if implemented properly, should result in substantially more sales of U.S. wheat,” stated the report.

Dahl said this is the first time he has heard of this development. He figures the changes would have similar ramifications for Canadian wheat exporters.

“If in fact the way that the quotas are administered is improved and we actually see much more of the TRQ filled, it would be of significant benefit,” he said.

Canada typically exported about 500,000 to 700,000 tonnes of wheat to China until last year when everything changed.

The trade war between the U.S. and China caused Canadian exports to leap to 1.75 million tonnes in 2018. Sales have reached 1.16 million tonnes through the first nine months of 2019.

Dahl said those elevated volumes could be the new norm if China changes the way it administers the TRQ to be in line with its WTO obligations.

USW estimates that if China’s TRQ is fully utilized its exports would rise to 3.5 million tonnes per year, well above the 10-year average of 900,000 tonnes.

That is based on the U.S. capturing its traditional 36 percent market share. That would amount to an additional US$800 million in annual exports.

Dahl hopes that winning the WTO dispute will help convince the U.S. to stop blocking the appointment of WTO appellate judges.

As of Dec. 10, there won’t be enough judges to hear WTO appeals.

“The WTO process is going to come to a grinding halt,” he said.

“I would hope the U.S. has seen the value of this process and is going to allow appellate judges to be appointed and we won’t see a breakdown in the system.”

Dahl is cautiously optimistic about the changes China has promised to make on how it administers its wheat TRQ. He is taking a wait-and-see approach because lately politics have trumped trade rules.

Non-tariff trade barriers have been on the rise in places like China, India, Italy and Vietnam.

Thailand could be the latest market to throw a wrench into the system.

“There are concerns that that market will be blocked because they’re talking about banning pesticides like glyphosate as of Dec. 1, said Dahl.

Thailand has purchased 291,855 tonnes of Canadian wheat through the first nine months of 2019.

USW is also concerned about escalating trade barriers in India. It estimates that India’s market price supports for wheat have ranged between 60 and 80 percent of the value of production the last five years, which is well above its WTO commitment of 10 percent.

That is providing Indian farmers with an artificial incentive to plant wheat. A country that should be importing wheat is in some years producing so much of the crop that the government is providing export subsidies to ship it out of the country.

USW estimates that eliminating trade-distorting wheat subsidies in India would increase exports by 771,000 tonnes or $358 million annually.

Dahl said Canada doesn’t sell much wheat to India. He thinks the U.S. faces an uphill battle getting India to comply with its WTO obligations.

“I don’t expect India to move away from the protection of their agriculture industry,” he said.

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