China’s massive 2020 wheat import program was not a flash in the pan, according to a senior American wheat industry executive.
China is estimated to have bought 8.5 million tonnes of wheat last year, the highest volume in 25 years. It has rapidly become the world’s third largest importer behind Egypt and Indonesia.
The surge had a lot more to do with a shift in agricultural policy than it did with market dynamics, said Dalton Henry, vice-president of policy with U.S. Wheat Associates.
That is a good thing because it means there should be sustained strong demand from the Asian giant in years to come, he said.
Henry said the increased demand stems from a World Trade Organization case that the United States launched in 2015 and won in mid-2019.
The WTO panel found that China had not been properly administering its tariff rate quota (TRQ) program for wheat, corn and rice.
China’s WTO commitment is to allow 9.6 million tonnes of wheat into the country at a one percent duty.
The country had been assigning 90 percent of that TRQ allotment to its state-trading enterprises (STEs) with the remaining 10 percent going to private importers.
The problem was that the STEs were not using their allotment and were not reallocating it back to private importers, who most certainly would have used it.
“The private importer piece filled every year for the last 10 to 15 years just like clockwork,” said Henry.
Imported wheat is popular because it is much cheaper than China’s domestic wheat and offers millers a broader range of quality and classes than they can get at home.
In response to the WTO ruling, China drafted new TRQ rules and implemented them in 2020. Henry said they appear to be working.
China’s 2020 imports are almost double their previous TRQ purchase high and Henry believes those kind of volumes will continue for years to come.
“If market conditions stay where they are and they continue to import something close to the TRQ, they’re pretty consistently going to be a top-five world wheat importer,” he said.
Henry stressed that the import volume is a drop in the bucket for a country that consumes 135 million tonnes of the product annually. So it is not a threat to China’s food security.
Canada has been the biggest beneficiary of the new TRQ rules. It shipped 2.44 million tonnes of wheat to China during the first 11 months of 2020, making it Canada’s top customer.
Sales from the U.S. were slightly less than two million tonnes for the entire year, said Henry.
He said part of the reason Canada shipped more was because the U.S. was immersed in a trade war with China for the first few months of 2020.
U.S. sales to China picked up after the two countries implemented the Phase 1 agreement. An entire section of that agreement reinforces the WTO ruling about how China needs to properly administer its TRQ program.
“It was an added bonus that made sure those TRQ rules really took effect,” said Henry.
There has also been a market incentive for China to import wheat.
China’s hog production has rebounded from African swine fever faster than many analysts predicted.
And there has been a dramatic shift away from backyard operations to commercial hog production facilities. Those facilities consume more soybean meal and corn than the backyard operations.
That has led to a surge in feed demand in China, which is being met by imports of soybeans, corn, barley, sorghum and wheat.
But Henry said there have been similar surges in feed demand in the past with nowhere near the same magnitude of wheat imports.
He thinks there is a powerful argument to be made that China’s new TRQ rules are responsible for the massive increase in imports, creating a whole new market for wheat.
U.S. officials have until the end of March to determine whether China has indeed been complying with the WTO ruling.
The U.S. also won a second WTO case against China in 2019 when a dispute panel ruled that Chinese government payment to wheat farmers exceed the country’s WTO commitments.
Henry said there doesn’t appear to be much compliance with that ruling because the price China pays its farmers still far exceeds world wheat prices.