Agriculture Industry Update - June 22, 2018

Dear members following agriculture and food safety,
 
This update is a bit lengthy since a lot has happened in the US-China agriculture space over the past month and change. It begins with an update on how developments in US-China trade are affecting agriculture, followed by summaries of a variety of recent agriculture and food safety-related issues.
 
US-China Agricultural Trade Update: Deal to Increase US Exports to China Appears Unlikely as Both Sides Prepare to Implement Massive Tariffs 
A deal with China to increase purchases of US agricultural products was canceled by Beijing after the Trump administration announced on June 15 that it would be implementing 25 percent tariffs on $50 billion in Chinese imports. A couple of weeks ago a deal seemed hopeful, but with this most recent escalation in the trade war, it appears more likely that we will be caught in a vicious cycle of retaliatory tariffs with US agriculture products square in China’s crosshairs.
 
Tariffs Set to Go Into Effect
US tariffs on $34 billion in Chinese imports, resulting from a Section 301 investigation in China’s intellectual property and tech transfer policies, are set to go into effect on July 6, with tariffs on an additional $16 billion in imports subject to a public comment period before implementation.
 
Just hours after the US announcement, China’s Ministry of Finance announcedtwo lists of retaliatory tariffs—one on $34 billion in US imports to be implemented July 6, and another on $16 billion in goods to be implemented at a later date, presumably when the US implements its tariffs. The first list includes US agricultural products such as soybeans, beef, pork, fruit, nuts, tobacco, and seafood. USCBC has completed an unofficial translation of both lists.
 
China previously implemented additional tariffs on some of the items included on the new list in retaliation for the administration’s Section 232 tariffs on steel and aluminum back on April 2. These include a 25 percent tariff on many pork products and 15 percent tariffs on a range of fruits and nuts. The 25 percent tariffs from the new list appear to be cumulative.
 
Days later on June 18, the White House directed the US Trade Representative to identify another $200 to $400 billion worth of Chinese goods for tariffs. China’s Ministry of Commerce (MOFCOM) announced that it would respond “quantitatively and qualitatively” to these additional tariffs. Because China only imports around $150 billion in US goods per year, this likely means that China will pursue non-tariff measures against US companies such as increased regulatory scrutiny, increased customs inspections, delayed licensing procedures, or other enforcement efforts.
 
Efforts to Reach a Deal
Before the most recent escalations, the US and China were in talks to negotiate a deal to increase Chinese imports of US goods, with the goal of reducing the bilateral trade deficit. This would have likely included significant quantities of US agricultural products, as well as energy products and manufactured goods.
 
Chinese Vice Premier Liu He traveled to Washington, DC in mid-May to discuss a deal to reduce the bilateral trade deficit, and two weeks later on June 2-3, US Secretary of Commerce Wilbur Ross took a delegation to Beijing to continue talks. In late May, Trump tweeted that China had agreed to buy “massive amounts” of additional agricultural products. Following Ross’ trip, the Wall Street Journal reported that China had offered to purchase nearly $70 billion in US agricultural, energy, and manufacturing products in the first year of a deal.
 
It is unlikely that Chinese demand for agricultural products will grow by such a dramatic amount in the short term—in 2017, total US agricultural exports to Chinawere only $19.6 billion. This means that to significantly increase exports to China, US products would have to either displace imports from other countries, or China would have to increase market opening. USCBC sources indicate that on Ross’ trade mission to Beijing, the US side brought up many longstanding market access issues for US agricultural products including biotech import approvals and sanitary and phytosanitary measures, indicating that the US side has been making efforts to further open the Chinese market to agricultural imports while negotiating a deal to increase imports.
 
While there were initially positive signs that the two sides might reach a deal to increase US exports to China, the Chinese statement following Secretary Ross’ visit was very clear: any deals negotiated would become invalid if the US implements tariffs. USCBC has not received confirmation of any government to government dialogue attempting to stave off tariff implementation as of this writing.
 
Some Tariffs Lifted, Others Bite Hard
Outside of the tariffs resulting from the Section 301 case, other US agricultural products have been caught up in Chinese tariffs, with some lifted as a result of negotiations, and others remaining in place. On May 17, China terminated anti-dumping and anti-subsidy investigations into US sorghum. China’s Commerce Ministry had initiated 179 percent tariffs on US sorghum as the result of its initial investigation. MOFCOM’s official explanation for terminating the investigation was that it was not in the interest of Chinese consumers, but given the timing of the announcement during Liu He’s visit to Washington, it was likely a sign of good will in the ongoing trade negotiations.
 
Back in early April, China put 25 percent tariffs on US pork and 15 percent tariffs on a range of other agricultural goods including fruit and nuts in retaliation for US tariffs on steel and aluminum under Section 232. With the addition of new tariffs rising the cumulative rate of additional tariffs to 50 percent and with Mexico announcing it will add 20 percent tariffs on US pork, US pork producers face steep tariffs in their two largest export markets. Because the Chinese tariffs on pork, fruit and nuts are linked to the Section 232 tariffs, they are unlikely to go away without the US lifting its tariffs on steel and aluminum.
 
We are interested in hearing how you anticipate the tariffs both from the US and Chinese will affect your business—if there is anything we can support you on please don’t hesitate to reach out by email at [email protected].
 
Please see below for the recent policy and news developments covered in this update:
 
Agriculture

Trade

• China Cuts Tariffs on 1,449 Items, Including Certain Agricultural Products
• Chinese State Media Emphasizes Benefits of Expanding Imports of US Agricultural Products
• Chinese Cotton Futures Purchases Up Amidst Announcement of Increased Import Quotas
• China Imposes Duties on Brazilian Chicken as US Pushes to Open Market
• US Pork Producers Face Steep Tariffs from Both China and Mexico; China Increases Inspections of US Pork
• US Deputy Secretary of Agriculture Ted McKinney Meets Chinese Agriculture and Market Regulatory Officials

Domestic Agricultural Policy

• China Encourages Farmers to Plant More Soybeans as it Threatens Tariffs on US Imports
• MOFCOM Issues Notice on Improving Logistics for Agricultural Products
• China to Use Green Pest Control Methods in Over 40 Percent of Applications by 2021

International Agricultural Policy

• MARA International Cooperation Meeting Emphasizes Deepening Open-up to Build Competitiveness

Biotechnology

• US Pushes China to Approve More Biotech Crops for Import; Slow Chinese Approvals Cost US Billions
• Chinese Advances in Gene Editing Technology Raise Concerns in the United States

 
Food Safety

• State Council’s Food Safety Office Meets to Promote Advancements in Rectifying Food Fraud and False Advertising
• Yangtze River Delta Area Developing Food Safety Traceability Platform Allowing Consumers to Access Information with QR Codes
• State Council Issues Opinions on Improving the Quality of Domestic Dairy Products
• Interpretation of Opinions on Promoting the Development of the Green Food Industry
• National Health Commission Solicits Comments on Four Food Safety Standards

 
Below please find English summaries and related links for the listed developments. If you have any questions on these or other developments, please do not hesitate to be in touch.
 
If you find this update useful, please forward it to your colleagues and encourage them to subscribe! If there are any major developments that we missed or issues you follow that we did not include, please let us know so that we can continue to improve our industry updates.
 
Best,

Agriculture
 
Trade
 
China Cuts Tariffs on 1,449 Items, Including Certain Agricultural Products
Starting July 1, China will cut most-favored nation tariffs on 1,449 categories of imported consumer goods coming into China from an average of 15.7 percent to 6.9 percent, an average overall decrease of 55.9 percent for a wide range of consumer products including cosmetics, sports equipment, appliances, food, and clothing. The tariffs include 338 food and agriculture-related products such as seafood, processed meat, processed vegetables, sauces, and snack foods.
MOF: 国务院关税税则委员会关于降低日用消费品进口关税的公告
USCBC: China Decreases Tariffs on Wide Range of Consumer Goods
USCBC: Unofficial Translation of Tariff Reduction List
USDA GAINS: China to Cut Tariffs on Agricultural Products
 
Chinese State Media Emphasizes Benefits of Expanding Imports of US Agricultural Products 
Chinese state media ran reports promoting the benefits of increasing US agricultural imports in what appeared to be an effort to build popular support for a deal. A May 24 article in the People’s Daily said that expanding import of US agricultural products will provide more varieties for domestic consumers and will help enhance the quality of the agriculture industry. It highlights several benefits of expanding imports of US agricultural products such as helping to relieve resource restraints, protecting the environment, and meeting domestic consumption demand.
 
A May 23 piece in the nationalist Global Times blasting Australia for its “arrogant” attitude toward China even declared that “it is reasonable to cut a few imports from Australia to implement the China-US trade agreement.” The report suggested that China should replace imports of beef and wine from Australia with products from the US, although this sentence was deleted from later versions of the article.
People’s Daily: 扩大美国农产品进口符合中方利益（打开对外开放新局面）
Guangming Daily: 促进农产品进口健康发展
Xinhua: 扩大农产品进口 满足多元消费需求——聚焦扩大开放系列述评之九
Dim Sums: China Says Ag Imports from US Are Now Good
Global Times: Time for China to Cool Sino-Australian Ties
MOFCOM: 商务部新闻发言人应询就扩大自美进口发表谈话
 
Chinese Cotton Futures Purchases Up Amidst Announcement of Increased Import Quotas
On June 4, the China Cotton Association announced that China will issue additional import quotas to cotton mills in a move to expand imports. At the same time, the Wall Street Journal reported that China has purchased futures contracts on 361,000 bales of US cotton, driving cotton prices up.
 
China began stockpiling cotton around 2010, driving prices up worldwide. According to some analysts, at one point China held 67 million bales of cotton in storage, which was enough to meet its needs for two years. This caused speculators to be reluctant to return to the cotton market because China could unleash its stockpile at any time, causing prices to fall. China began auctioning off its cotton stockpiles in 2013 due to shortages, and has kept imports low to reduce stockpiles in recent years. Analysts now believe China’s stockpiles are running low, and that China will reemerge as a major cotton importer. Increased Chinese cotton imports could also be related to ongoing US-China trade negotiations, since the US is a major producer of cotton.
Reuters: China to Issue More Cotton Import Quotas Amid US Trade Talks
WSJ: China Bought Enough American Cotton Futures to Make 400 Million T-Shirts
Reuters: China Cotton Imports to Reach Up to 3 Million Tons by 2019/20: Trader
USDA GAIN: China: Cotton and Products Annual
 
China Imposes Duties on Brazilian Chicken as US Pushes to Open Market
Reuters sources reported that the US is pushing China to drop the ban on US poultry in trade talks, which could open a potential $600 million market for chicken. China has banned US poultry imports since January 2015 over avian influenza concerns. At the same time, the Chinese Ministry of Commerce announced that beginning June 9, it would begin collecting 18.8-38.4 percent tariffs on Brazilian broiler chicken imports in an initial decision on an anti-dumping case. These tariffs could create space for US imports to regain market share if the US and China are able to reach a deal allowing the resumption of US poultry imports.
Reuters: Exclusive: Poultry Push: US Seeks End to China Import Ban - Sources
Reuters: China Slaps Anti-Dumping Deposit on Brazilian Chicken
MOFCOM: 商务部公告2018年第46号 关于原产于巴西的进口白羽肉鸡反倾销调查初步裁定的公告
 
US Pork Producers Face Steep Tariffs from Both China and Mexico; China Increases Inspections of US Pork
Back in early April, China imposed 25 percent tariffs on US pork in retaliation for US tariffs on steel and aluminum under Section 232. The new tariffs to go into effect July 6 will raise the cumulative rate of additional tariffs to 50 percent.  Mexico has also begun raising tariffs on US pork in retaliation for the Section 232 tariffs. Mexico began levying a 10 percent tariff on US pork beginning June 5, which will raise to 20 percent on July 5. This means US pork producers are facing increasingly steep tariffs in their two largest export markets. At the same time, US pork is facing ramped up inspections from China’s customs authorities.
Reuters: Double Whammy: US Pork, Fruit Producers Brace for Second Wave of Chinese Tariffs
Reuters: China’s Customs Says Has Stepped Up Inspections of US Pork Imports
FT: Knives Out for US Pork in Tariffs War
NBC: Mexico Will Impose 20 Percent Tariffs on US Pork
 
MOFCOM Terminates Anti-Dumping and Anti-Subsidy Investigations into US Sorghum
On May 18, China’s Ministry of Commerce (MOFCOM) announced its decision to terminate the anti-dumping and anti-subsidy investigation into imported sorghum from the US and to refund any temporary anti-dumping deposits collected. MOFCOM’s preliminary decision on the anti-dumping investigation required importers to pay 179 percent deposits starting from April 18. According to the notice, MOFCOM decided to terminate the investigation because the temporary measures do not accord with the interest of Chinese consumers. However, their timing aligned with Chinese Vice Premier Liu He’s visit to Washington, DC, indicating that the termination of the investigations could have been a concession in ongoing trade discussions.
MOFCOM: 商务部公告2018年第44号 关于终止对原产于美国的进口高粱反倾销反补贴调查的公告
CNBC: China Drops US Sorghum Dumping Probe amid Signs of Trade Thaw
CGTN: Customs Data Reveals China’s April Sorghum Imports Surged Ahead of Dumping Tariffs
USDA GAINS: MOFCOM Drops AD and CVD Investigations on Imports of US Sorghum
Reuters: Chinese Buyers Find Tight US Sorghum Supply After Trade Spat
 
US Deputy Secretary of Agriculture Ted McKinney Meets Chinese Agriculture and Market Regulatory Officials
On May 17, US Department of Agriculture Under Secretary for Trade and Foreign Agricultural Affairs Ted McKinney met with China’s Chief Veterinary Medical Officer Zhang Zhongqiu in Beijing. They discussed Chinese seafood and poultry product exports to the US, Chinese cooked poultry exports, and US GMO import approvals. The following day, McKinney met with State Administration for Market Regulation Deputy Director Sun Meijun. They both agreed to deepen cooperation under the framework of the US-China MOU on food safety. Topics of discussion included the US Food Safety Modernization Act, the drafting of China’s Food Safety Law Implementing Measures, and the situation of infant formula registration.
MARA: 张仲秋会见美国农业部副部长泰德•麦金尼
SAMR: 孙梅君会见美国农业部副部长泰德·麦肯尼
 
Domestic Agricultural Policy
 
China Encourages Farmers to Plant More Soybeans as it Threatens Tariffs on US Imports
Several Chinese provinces have ordered farmers to plant more soybeans this year. The northeastern provinces of Jilin and Heilongjiang issued “emergency” notices to expand soybean planting, and the central province of Henan ordered farmers to more than double their soybean acreage. On May 10, the Chinese agricultural ministry predicted that Chinese soybean imports in the upcoming crop year would decline for the first time in 15 years. In April, China threatened to levy 25 percent tariffs on US soybean imports if the US implemented tariffs on $50 billion in Chinese goods under Section 301. However, China has also been attempting to shift crop acreage from corn to other crops, including soybeans, for multiple years now under a “supply side adjustment” program to decrease its huge corn stockpile. Low soybean prices and higher corn prices this year are creating challenges for this initiative, although the government has increased subsidies for soybean planting as well.  
Economic Observer: 东北紧急发文扩种大豆背后
Dim Sums: China Soybean Planting “Emergency” Declared
Reuters: China Set to Trim 2018/19 Soybean Imports as Trade Row Boosts Prices
Going It Alone: China Government Orders Farmers to Increase Soybean Acreage
 
MOFCOM Issues Notice on Improving Logistics for Agricultural Products 
On May 24, the Chinese Ministry of Commerce (MOFCOM) issued the Notice on Promoting the Interconnection of Agriculture and Commerce in Facilitating Rural Rejuvenation. The notice proposed key tasks that include building a stable mechanism that connects production and markets and strengthening the construction of infrastructure for agricultural products transportation. It aims to connect enterprises in agricultural products logistics and new agriculture operation entities to build a long-term and stable relationships that facilitate agriculture modernization. Moving forwards, MOFCOM will prioritize the support for connecting agriculture and business in impoverished counties, organizing e-commerce and chain stores to build production and marketing relationships to relieve poverty. Qualified businesses include wholesale markets of agricultural products, large chain stores for fresh agricultural products, wholesale and retail enterprises, and e-commerce enterprises that meet certain criteria. This notice applies nationwide and it particularly encourages conducting business in impoverished counties.
MOFCOM: 商务部关于推进农商互联助力乡村振兴的通知
MOFCOM: 商务部召开例行新闻发布会（2018年5月24日）
 
China to Use Green Pest Control Methods in Over 40 Percent of Applications by 2021
On May 14, dean of the Academy of Agricultural Sciences said that China will aim to use green pest control methods in over 40 percent of applications by the end of the 13^th Five-Year Plan period. He made this comment in the First International Conference on Organism Prevention and Control. According to the dean, China has made rapid progress in biological pest control with breakthroughs in the invention of effective biopesticides to contribute to the green development.
The Paper: 农科院院长：十三五期间要将有害生物绿色防控率提至四成以上
 
International Chinese Agriculture Policy
 
MARA International Cooperation Meeting Emphasizes Deepening Open-up to Build Competitiveness
On May 8, Ministry of Agriculture and Rural Affairs (MARA) Minister Han Changfu made remarks about China’s international agricultural policy in a changing domestic and international environment.  He emphasizes that international cooperation in agriculture must serve the rural rejuvenation strategy, Belt and Road Initiative (BRI), and China’s diplomacy. He points out that the government will improve the public service and policy support system, guide goods to flow to BRI key regions through foreign direct investment and technology cooperation, and promote international competitiveness of agricultural enterprises. He also advocated for accelerating the development of Chinese international grain traders and actively participating in negotiations on international trade and investment rules. Han’s remarks were made at the Fifth Interministerial Meeting on Agriculture International Cooperation.
MARA: 农业对外合作部际联席会议第五次全体会议强调构建农业对外开放新格局不断提高我国农业国际竞争力
Dim Sums: China Adjusts “Go Global” Agriculture Program
Dim Sums: China’s Vision for Ag Science Cooperation
 
Biotechnology
 
US Pushes China to Approve More Biotech Crops for Import; Slow Chinese Approvals Cost US Billions
Reuters reported on May 23 that the US was pushing China to grant better access for US genetically modified crops as part of a larger trade deal under discussion. China’s approval of biotech crops for import has been a longstanding issue between the countries. Because it is easy for GMO and non-GMO grains to become mixed as they travel through the supply chain, China’s delayed approvals for GMO crops impact the ability of US companies to commercialize new GMO traits worldwide. While China does not allow the planting of GMO food crops, it imports GMO grains for animal feed. A May 2018 report sponsored by the industry group CropLife International estimates that delays in Chinese approvals of GMO crops cut US GDP by about $7 billion over five years.
Reuters: US Wants China to Approve More Biotech Crops Under Trade Deal – Sources
CropLife International: The Impact of Delays in Chinese Approvals of Biotech Crops
Reuters: China’s Slow Approvals of Biotech Crops Cost US $7 Billion, Says Industry Group
 
Chinese Advances in Gene Editing Technology Raise Concerns in the United States
China developments in new gene editing technology have led to concerns that the United States will become increasingly reliant on Chinese agricultural technology. These new technologies allow scientists to make changes without adding foreign DNA like traditional transgenic genetically modified organisms (GMOs). Many analysts predict that these new technologies will not be regulated as stringently as traditional GMOs, and could be a chance for China to leapfrog past Western countries in an area they have traditionally lagged. China’s public-sector investment in agricultural research surpassed the US in 2008 and was more than double the US total by 2013. China also has a major global player in biotechnology with the state-owned ChemChina’s purchase of Syngenta. Syngenta is currently building a hub in Beijing to develop new gene editing technologies, giving it access to research being conducted by Chinese universities and a large talent pool of Chinese researchers.
WSJ: Scientists in China Race to Edit Crop Genes, Sowing Unease in US
 
Food Safety
 
State Council’s Food Safety Office Meets to Promote Advancements in Rectifying Food Fraud and False Advertising
On June 15, the State Council’s Food Safety Office met with leaders and liaison officers on food fraud and false propaganda in Beijing. Deputy director of the State Administration for Market Supervision (SAMR), Sun Meiju presided over the meeting and highlighted food fraud enforcement achievements since July 2017. These achievements include the investigation and resolution of 24,000 cases of fraudulent and falsely advertised foods, and the detention of more than 7,800 criminal suspects. Sun urged continued progress and strengthened supervision of illegal advertisements, illegal marketing and promotion, fraudulent sales, and suspected illegal claims.
SAMR: 国务院食品安全办召开食品保健食品欺诈和虚假宣传整治工作推进会
 
Yangtze River Delta Area Developing Food Safety Traceability Platform Allowing Consumers to Access Information with QR Codes
At a June 13 conference, the Shanghai Food and Drug Administration reported that Shanghai, Jiangsu, Zhejiang, and Anhui are researching and developing strategic cooperation in food safety information to create a unified data information system. This platform would allow consumers in the Yangtze River Delta to scan QR codes of meals to find information on the product, including supplier and source information and inspection reports. More than 40,000 enterprises have registered for the Shanghai Food Safety Information Traceability Platform with 1 billion traceable data queries.
Xinhua: 扫码知“身世”　长三角打造食品安全信息追溯“一张网”
 
State Council Issues Opinions on Improving the Quality of Domestic Dairy Products
On June 11, the General Office of State Council released the Opinions on the Revitalization of the Dairy Industry to improve the quality of domestic dairy products. The Opinions say the industry should increase production capacity while considering ecological development. According to the Opinions, progress should be made in building a modernized milk industry by 2020 and the entire milk industry should be revitalized by 2025. To achieve the goals, the Opinionsclarify main tasks, including strengthening the construction of milk source bases, improving processing and circulation systems for dairy products, strengthening the safety supervision of dairy products, and strengthening guidance for dairy consumption. In particular, the document mentions the strict implementation of related laws to further promote the quality of domestic infant formula. Moreover, the Opinions emphasize the importance of coordination among different departments.
Xinhua: 国务院办公厅印发《关于推进奶业振兴保障乳品质量安全的意见》
 
Interpretation of Opinions on Promoting the Development of the Green Food Industry
Ministry of Commerce (MOFCOM), the Office of the Civilization Committee of the Central Party Committee, and seven other departments issued an interpretation of Several Opinions on Promoting the Development of the Greed Food Industryon June 5. The Opinions were announced to implement related decisions from the 19^th Party Congress. The major characteristics of this document include focusing on the green development of the whole industrial chain from procurement to waste disposal, and the coordination of multiple departments in promoting green development. The Opinions state that the standards system for this industry must be improved, a public green food service system must be built, the industrialization of green food developments must be facilitated, green food business entities must be fostered, and the green development concept must be advocated. Moreover, the Opinions propose four supporting measures, which include increasing policy support from such organizations as banking and insurance institutions. Regarding implementation, the Opinions require local governments to strengthen communication with enterprises to collect input in a timely manner.
MOFCOM: 商务部服贸司负责人解读《商务部等9部门关于推动绿色餐饮发展的若干意见》
 
National Health Commission Solicits Comments on Four Food Safety Standards
The National Health Commission announced that it would be soliciting comments on four food safety standards on May 9:

• Food Safety Standard – Seasoned Flour Products
• Food Safety Standard – Edible Animal Blood Products
• Food Safety Standard – Composite Food Contact Materials and Products
• Food Safety Standard – Food Contact Starch-Based Plastic Materials and Products

Comments are due July 10 and can be submitted via the food safety national standards information platform at http://bz.cfsa.net.cn/cfsa_aiguo.
NHC: 关于征求《食品安全国家标准 调味面制品》等4项食品安全国家标准（征求意见稿）意见的函
PackagingLaw.com: China Publishes Draft Standards for Food Contact Materials