by Fred Gale
U.S. Agricultural Trading Relationship With China Grows
U.S. agricultural exports to China doubled from 2008 to 2012, growing to more than $25 billion in annual sales. China surpassed Japan, Mexico, and Canada to become the top export market for U.S. farm products. The share of U.S. agricultural exports destined for China rose from about 2-3 percent in the 1990s to 16-18 percent during 2012-14.
As a land-abundant country with highly productive farms, the United States is a natural trading partner for China, a country with limited per-capita supplies of cropland and water resources. A number of land-abundant countries export agricultural products to China, but the United States is the top supplier of China’s growing menu of agricultural imports, with a 24-percent share during 2012-13. The United States is China’s top supplier of imported soybeans, cotton, meat, cereal grains, cattle hides, distillers dried grains, and hay.
Soybeans, Grains, and Cotton Dominate China’s Agricultural Imports
Two decades ago, China was a net exporter of soybeans, but it now accounts for over 60 percent of global soybean imports. The United States supplies more than 40 percent of those soybeans in most years. The surge in Chinese soybean imports began after China cut tariffs and eliminated import quotas on soybeans.
After China joined the World Trade Organization (WTO) in 2001, it set tariff rate quotas on imports of cereal grains and focused domestic farm-support policies on production of wheat, rice, and corn. China increased grain output each year during 2004-14, an unprecedented string of increases that China’s Minister of Agriculture attributed to strong policy support. Nevertheless, China emerged as an importer of grains.
Other major exports to China—cotton and animal hides—supply raw materials for the manufacture of garments, shoes, handbags, and other industries that grew rapidly after China’s WTO accession. Growth in factory jobs helped absorb under-employed rural labor. Since then, China’s industrial base has expanded and the outflow of workers from rural areas has accelerated. Concerns about rural labor shortages have now supplanted concerns about rural underemployment.
In recent years, China’s menu of agricultural imports has broadened to include meat and dairy products. Its complementary consumer preferences have created a U.S. export market for byproducts like chicken feet and pork kidneys that have low value in the U.S. market. China now imports cheese and wine, products that were virtually unknown in the country during the 1990s.
China’s rapidly growing livestock sector has stimulated a growing demand for feed and forage. The country has emerged as the largest overseas buyer for distillers dried grains—the byproduct of corn ethanol production; it is also a major buyer of sorghum and alfalfa. Imported breeding animals and poultry are the foundation of a livestock sector that converts feed to meat more efficiently than in the past.
Agricultural trade with China is expected to grow further, but export growth stalled during 2013-14. China has entered a key period of transition in which economic growth is slowing at the same time Chinese leaders are pursuing numerous economic reforms, a period they describe as the “new normal.” During this period, consumption patterns and China’s approaches to policy and regulatory enforcement are undergoing changes that could influence the further development of the U.S.-China agricultural trading relationship.
Crackdown on Corruption Dampens Import Demand for Wine and Other Luxury Goods
Some patterns of demand in China are changing. One of the Chinese leadership’s most visible reform efforts is a crackdown on corruption and waste that began with a decree issued in December 2012 ordering government officials to reduce travel, banquets, and other expenditures viewed as excessive. The decree slowed business for restaurants and hotels and crimped demand for many food and beverage items. The effects of the decree combined with slower economic growth to reduce demand for many commodities.
A recent structural shift in China’s wine imports illustrates these changes. During China’s years of rapid growth, demand for luxury items like liquor and wine was linked to banquets held by government officials and business leaders for potential customers and business associates. An ERS study found that China’s imports of French wine grew especially fast and gained a dominant share of the country’s wine imports during 2002-11, even though wines from France had relatively high prices. The authors interpreted this finding as a reflection of the reputation of French wine and a strong preference for European wines.
This pattern of imports reversed during 2013-14, as slower economic growth and the anti-corruption campaign combined to stall growth in demand for premium wines and other luxury items. China’s wine imports fell 4 percent during 2013 after having doubled during 2009-12. Imports of French and Italian wine declined during 2013, while less expensive wine from Chile regained market share and imports of U.S. wine remained stable.
The slowdown in China’s wine imports is indicative of slower growth in demand for many commodities during 2013-14 due to the combined effects of slower economic growth and government crackdowns on luxury spending by officials. In his remarks at a meeting on priorities for economic policy in 2015, China’s President Xi Jinping emphasized that the anti-corruption campaign would continue. The apparent shift in composition of wine imports suggests that more price-conscious consumers are gaining importance as drivers of import demand, but it is unclear whether this will be a temporary or permanent change.
Image Credit: (center) Fred Gale, USDA/ERS photo