Recent announcements suggest U.S. is gaining a huge advantage in the market for agriculture commodities
In March, the United States announced that Chinese buyers had bought 340,000 tonnes of hard red winter wheat.
Then, later in the month, the U.S. Department of Agriculture and the Office of the U.S. Trade Representative, announced “continued progress” in the U.S.-China Phase One trade agreement. The progress includes new rules for American chicken producers and more access for U.S. beef, pork and animal feed exporters.
The announcements suggest the U.S. is gaining a huge advantage in the Chinese market for agriculture commodities and agri-food, says a former deputy chief economist with Canada’s Department of Foreign Affairs and International Trade.
If Canada doesn’t respond, quickly, the U.S. could push Canada out of the market, said Dan Ciuriak, a senior fellow with the Centre for International Governance Innovation and the principal behind Ciuriak Consulting.
“The Chinese are playing a self-interest game. The Americans are playing are playing a self-interested game. The Boy Scouts on the block, us, are being sideswiped,” he said.
“We do have to recognize that we’re in a very different (trading) world than we used to be.”
The Phase One progress includes new rules for American chicken producers and more access for U.S. beef, pork and animal feed exporters.
For instance, nearly 1,000 beef and pork facilities in America can now ship product to China.
“China (has) published an updated list of 938 U.S. beef and pork establishments eligible to export to China,” the USDA and USTR said. “The USDA Food Safety and Inspection Service export library has been updated to reflect these changes.”
The U.S. is getting concessions from China and gaining ground in the world’s largest market for agricultural imports, thanks to the Phase-One deal. In January, China agreed to ramp up purchases of U.S agricultural commodities, possibly buying $32 billion more in the next two years (2020 and 2021).
Critics have described the deal as managed trade, where China buys from the Americans regardless of market prices. For instance, maybe China could have purchased spring wheat from Canada at a cheaper price because the loonie is valued at US70 cents.
“Are the Chinese buying from the Americans, (even though) there are better deals available from Canada, Brazil or elsewhere?” said Ciuriak.
Since the Phase One deal could distort market-based competition, Canada needs to respond to this new reality, Ciuriak said.
“Given that the U.S. has done a Phase One deal, should (Canada) go ahead and open up negotiations with China for a free trade deal?” he said from his office in Ottawa.
“The Americans are doing something … and they are basically capturing markets through managed-trade arrangements.”
Having more beef and pork facilities, with approval to sell into China, isn’t the only advantage for American protein producers.
The Chinese have also removed the age restrictions on American beef, for cattle aged 30 months and older.
“(The) USDA estimates that American cattlemen could export up to $1 billion per year (to China) under this improved trading environment,” the USDA said.
The removal of such non-tariff barriers to trade, for America’s ag industry, is worrisome for Canadian agri-food exporters.
“The Americans have taken 15 years of being frustrated with non-tariff barriers … and the manipulation of rules, by China, and have applied that learning to constrain China. And to keep China from doing that to American exporters,” said Carlo Dade, a director of the Trade & Investment Centre with the Canada West Foundation.
Other analysts think China will continue to purchase huge quantities of meat, from countries like Canada, because they have no choice.
In the last year, or so, African swine fever has devastated China’s hog herd, as 40 percent of the country’s sow herd may be gone.
“They will continue to be very, very short of pork,” said Brett Stuart, president of Global AgriTrends, at the Banff Pork Seminar in January.
“With a market of this scale, any reduction in self-sufficiency means imports are going to be huge for years and years to come.”
African swine fever should protect Canadian protein exports to China, in the short term.
But there’s no guarantee that China will buy Canadian agri-foods, over the long run, if the Americans and other countries have a structural advantage.
Unfortunately, it’s not an opportune time to initiate a free trade agreement because Canada and China have been involved in a diplomatic battle for 16 months.
China is frustrated that Canada detained Meng Wanzhou, an executive with Huawei, a Chinese telecommunications firm. The U.S. is trying to have her extradited, where she faces charges of violating international sanctions on Iran.
The Chinese responded by jailing two Canadian citizens and banning imports of canola seed from Canada.
Such behaviour could continue, even if Canada reaches a free trade deal with China. But achieving free trade with China might be worth the risk.
“We’re in a very different (trade) world…. Now it’s a power-based, bilateral system,” Ciuriak said. “The Americans have gone for a trade deal with China, regardless of whether they believe China is an honourable player.”