Trump’s US$50 billion China farm deal ‘not possible’ after trade war market shift

Finbarr Bermingham

US President Donald Trump’s insistence that China buy US$50 billion worth of American agricultural goods may help drum up electoral support across the Farm Belt, but is “not really possible” in practice, industry insiders have said.

The figure has been repeatedly cited by Trump and his supporters as a condition of a trade deal that would see China get some tariff relief, with Iowa Senator Chuck Grassley even tweeting overnight that China best not renege on a “promise made in Oval Office to buy $50-60B of ag products”.

China has never confirmed this figure and has pushed back on committing to any fixed number, stating repeatedly that it would only buy in accordance with market conditions. Agricultural analysts have said that even if China agreed to such a massive purchase, it would be extremely difficult to make it work in reality.

China imported US$137 billion in agricultural goods in 2018, but it has never bought more than US$25.9 billion from the United States, which it did in 2012. That figure shrank to US$9.2 billion last year, as tariffs weighed heavily on the bilateral farm trade.

With the African swine fever, there's just not much demand for the stuff that the US has to offer in terms of corn or soybeans to feed pigs – because we just do not have any pigs

Darin Friedrichs

Since then, African swine fever has helped wipe out up to half of China’s pig population, Rabobank research showed, meaning that both demand and the price for China’s number one agricultural import – soybeans used mostly in livestock feed – has dissipated.

“With the African swine fever, there's just not much demand for the stuff that the US has to offer in terms of corn or soybeans to feed pigs – because we just do not have any pigs. We’ve lost half of them!” said Darin Friedrichs, senior Asia commodity analyst at trading house INTL FCStone in Shanghai.

The crisis has driven soybean prices from US$13 per bushel two years ago to just US$9 today. “So even if they bought the same amount they did before the trade war, it's just not going to make the same dollar value,” Friedrichs added.

Trump may look to make up the difference through higher value goods, such as pork, chicken, beef, fruit and vegetables. With a collapse in China’s pork market – the country’s most popular meat – consumers are desperate for protein replacements.

Indeed, China on Thursday removed a ban on US poultry products, keen to arrest the exponential rise in prices of chicken, the pork alternative of choice in many Chinese households. American agricultural negotiators are also keen to reopen China’s giant consumer market to American beef, pork and other meat products, many of which have been banned due to the use of hormones.

“It seems like a strange thing to be holding up the deal,” said Darci Vetter, chief agriculture negotiator for the Office of the US Trade Representative under former president Barack Obama, referring to the haggling over farm purchases. “Those things [market access] are much more valuable in the long term. And frankly, might be more valuable to China as it tries to deal with protein shortages.”

However, supply of these products typically takes longer to establish. Farm inspections need to be undertaken, approvals made, while private purchases are often locked in far in advance. And even if these are fast-tracked, both Chinese buyers and US sellers of meat products have intentionally diversified their markets in recent years in an effort to avoid the sort of volatility that has characterised the trade-in the Trump era.

“There seems to be a disconnect between the political and economic realities here,” said Nick Marro, trade lead at the Economist Intelligence Unit in Hong Kong. “China has made real efforts to diversify its meat sourcing in recent months, signing export deals with France and Brazil. From the US too, diversification has been the order of the day. So in theory while state purchasers could buy a huge amount to make up that US$50 billion, there’s even a question of whether the US could meet the demand.”

Chinese buyers, meanwhile, have been busy touring soybean plantations across Brazil and Argentina, while also hoovering up European, South American, Australian and New Zealand pork, beef and dairy, in an effort to fill its supply gaps.

In the cattle ranches of rural Queensland in Australia, Chinese buyers have become a regular fixture, with China officially becoming the biggest buyer of Australian beef in July, surging past Japan and the US. The trade war, combined with the African swine fever crisis, has led to a huge payday for Australian cattle farmers, which export 70 per cent of the beef they rear.

“We’ve gone from virtually no beef going to China in 2012 to it being our biggest market now. There’s 30 to 40 years of hard graft in developing the premium name, so we are very vulnerable to any fluctuation in the trade policy related to tariffs,” said John Reeve, director at Agree Commodities, an agribusiness consultancy.

With the US potentially returning to the Chinese market, “I expect more volatility in the future in beef export prices,” Reeve said. “The Australian industry needs to get it’s house to manage these risks.”

For now though, most are happy to make hay while the sun shines – aware that even if US meat was to return to Chinese shelves, the market is large enough to accommodate them all.

“We’ll be keeping an eye on what’s going on the negotiations over morning coffee,” said Sam Marriott, export sales manager at Australian meat exporting house Samex. “When the Yanks come into play, we’ll see what effect is has on prices, but for our customers, it has not been on the agenda.”

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