The official who negotiated the Phase 1 trade deal calls Chinese compliance with the agreement’s targets a ‘no-brainer’
There is still plenty of skepticism about China meeting its Phase 1 commitments in 2020, but not for the man who negotiated the trade deal.
The pact calls for an increase in China’s annual agricultural imports to US$40 billion in 2020 and 2021, up from the previous high of $24 billion in 2017.
That 2020 target is going to be a “no-brainer,” according to Gregg Doud, chief agricultural negotiator for the U.S. Trade Representative.
Exports of a variety of U.S. agricultural goods to China have been picking up in recent weeks and months and that has ignited commodity markets.
Many analysts remain unconvinced that China will fully live up to its commitments. Even U.S. Agriculture Secretary Sonny Perdue said on Oct. 2 that he’s not sure they will make it.
But during a recent Ag Outlook Forum hosted by the Agribusiness Council of Kansas City and Agri-Pulse, Doud said a lot can happen in the last few months of the year.
He noted that China bought $12 billion of U.S. soybeans in 2017 and $10 billion of that business occurred in the last quarter of the year.
He also mentioned that too many analysts are solely focused on soybean trade and are forgetting the structural changes that have occurred to facilitate trade in commodities like meat and dairy.
Doud said China agreed to make 57 structural changes in the Phase 1 agreement.
“I’m here to report to you today 50 of those are done,” he said.
“This was a massive undertaking on the part of the Chinese government and the part of our government.”
Prior to the agreement there were 1,500 agricultural facilities eligible to export products to China. Today there are over 4,000 and that is why trade is starting to flow.
Rich Nelson, chief strategist with Allendale Inc., thinks there is a 50 percent chance China completely fulfills its Phase 1 commitments for 2020. That is up from his 30 percent estimate in early-August.
When the deal was announced there was no breakdown of commodity specific targets. Allendale thinks China would need to import 40 million tonnes of U.S. soybeans and 15 million tonnes of U.S. corn.
Those targets once looked impossible but he now thinks China will meet the soybean goal and exceed the corn target by five million tonnes. Nelson is not sure about other commodities though.
He estimates the country has already imported about 36.7 million tonnes of old and new crop soybeans in 2020 and another 15.8 million tonnes of corn.
U.S. soybeans are about $20 per tonne cheaper than Brazilian soybeans but that won’t be the case in November and December when Brazil is harvesting its crop.
If China meets Allendale’s 40 million tonne soybean target that could push nearby soybean futures to $11 per bushel. It could also drag canola prices up another 10 percent or so, said Nelson.
Doud said U.S. negotiators are still in weekly and sometimes daily contact with their Chinese counterparts. There is a new spirit of co-operation between the two countries.
One example is when a March 16 deadline was looming to eliminate barriers to trade for products like potatoes, barley and alfalfa.
China still needed to audit a bunch of facilities but it couldn’t send its auditors to the United States because of COVID-19 travel restrictions.
The U.S. Animal and Plant Health Inspection Service volunteered to conduct videotaped audits on behalf of China.
“Lo and behold it worked. China looked at the video and said, ‘you’re open,’” said Doud.
“To me that’s unbelievable and it speaks volumes as to how our relationship has changed.”
Another turning point in the negotiations occurred when the U.S. was trying to convince China to get rid of its “arcane process” for approving new dairy facilities and products.
After hours of negotiations, Ted McKinney, U.S. undersecretary of agriculture, went to a nearby 7-Eleven during one lunchtime break and purchased $17 of Fairlife milk, a brand of ultrafiltered milk distributed by The Coca-Cola Company.
He handed the product out to the Chinese delegation.
“They were like, ‘wow, this is pretty good. This would really sell in China.’ We were like, ‘we know. (But) we can’t get it into the country. You don’t have a regulation to allow this to happen,’” said Doud.
U.S. dairy sales to China are up 27 percent through July. Beef and pork sales are setting records. Cotton exports are up 63 percent, while hay sales have risen 74 percent.
The new crop year for soybeans began on Sept. 1 and already there is an all-time record sales program on the books with more than 60 percent of the new crop sold.
Doud is excited about continued strong corn and soybean sales because China has banned the feeding of swill or table scraps to hogs in the wake of African swine fever.
Swill was fed to half of China’s hog herd, so that has enormous implications for future corn and soybean demand.
He said there are still some unresolved issues with China surrounding ractopamine, biotechnology and two World Trade Organization challenges involving wheat.
Doud said next on the list is a free trade deal with the United Kingdom. The country imports $4.5 billion of beef, pork and poultry from the European Union annually.
“I’d kind of like to have a shot at some of that,” he said.
Doud admonished the EU for its recently announced Farm-to-Fork strategy, saying it should be renamed the Farm-to-Empty Fork strategy.
“They are abandoning the use of technology in agriculture,” he said.
“It won’t work and I don’t understand for the life of me why they think this is the future of agriculture in the world. It just isn’t.”
He added that U.K. Prime Minister Boris Johnson has vowed to “liberate” U.K. farming from the EU’s anti-GM rules.