By Lucas Blaustein*
U.S. agricultural exports to China have increased by 120% since 2008, to nearly 28.9 billion dollars in 2013. Agriculture now accounts for nearly 24% of US-China trade .
Since China’s admittance to the World Trade Organization (WTO), China and the United States have increasingly traded their comparative advantages. Daily, Chinese made iPads, Lenovo computers, Nike sneakers, and other material trappings of American consumerism arrive in U.S. ports, where they are unloaded and then returned filled with U.S. grain products like soybeans and corn. But in November 2013 the system began to break down, as corn exports to China came to a halt.
What caused this halt was the discovery by China’s Inspection and Quarantine Services (CIQS) of an unapproved genetically modified corn varietal called MIR-162 in imported shipments. Import permits began to be denied, and US corn exports to China gradually decreased to nothing. Grain merchandisers and U.S. farmers were horrified, as the fastest growing market for U.S. corn closed its doors.
Agribusiness companies and Chinese importers were quick to react, replacing corn grain as the number one U.S. export to China with a corn based ethanol byproduct called distiller dried grain with solubles (DDGs). For a time it seemed that American grain merchandisers had found a solution to China’s ban on U.S. corn with DDGs, but this “solution” was short-lived. In the spring of this year China stopped returning import permits for DDGs. After months of confusion, the U.S. Embassy in Beijing on July 24 received a short message stating that “U.S. DDGs imports must now be tested at origination for the unapproved gene MIR-162.” In the space of a day, traded corn prices dropped by more than half.
Shortly thereafter the USDA issued a statement asserting that there is no reliable, affordable method of testing for MIR-162 in DDGs, nor is there even a regulatory body in the United States with the manpower or funding to conduct such a test, even if one existed. In other words, what China did on July 24 was to ban importation of all U.S. corn based products.
Why did China do this?
Sino-U.S. relations are at one of their lowest points since before China’s period of great opening up. In light of recent events involving Apple, Microsoft, GSK, Cisco, KFC, Starbucks and many other American businesses in China, it would not be out of bounds to view China’s ban on U.S. corn imports as punishment for worsening relations. The National Grain and Feed Association (NGFA) estimates that China’s ban has cost U.S. farmers and agribusiness firms nearly three billion dollars. U.S. farmers could be hit especially hard during the upcoming year, with larger than average corn yields anticipated, and more new unapproved GMO varietals in the ground.
But what is often lost from the punitive argument is the Chinese side of this story.
In 2,500 years of historical records, famines were observed in at least one Chinese province every year up until the mid-20th century. While in modern times greetings like, “你吃饭了吗”？, or “have you eaten?” have become a signal of a person’s rural upbringing, they are still indicative of the powerful impact of food insecurity on Chinese psychology. It is this history that leads China continue to emphasize food security in its annual No. 1 Document, which this year made clear that “China should take good control of its own bowl,” by “intensifying support and protection for [domestic] agriculture.” There are three parts to China’s food security policy: 1) invest in modern agricultural practices and grain storage capacity; 2) develop local GMO varietals to increase crop yields; and 3) protect local grain farmers.
Through investments in modern agricultural practices, total corn production in China has risen rapidly from 165 to 205 million metric tons, a near a 25% increase from 2008 to 2012. China has also built an enormous network of modern computerized grain storage facilities, with nearly 300 million metric tons of storage available. China was a net corn exporter from 2002 to 2006.
China knows GMO technology is critical to increasing crop yields, so investment in GMO technology has surged, despite public fears over negative health effects. Chinese officials are wary of becoming overly reliant on genetically modified seeds from the Western world. Within the last six months eight Chinese Americans and nationals have been arrested on accusations of corporate espionage and theft of American seeds. MIR-162 grain imports may not be allowed into China, but China desperately wants access to the technology that produced the MIR-162 strain.
With lower input costs and better technology, world corn prices have been lower than China’s domestic corn prices for years. For this reason, Chinese companies have imported significant amounts of corn. The easiest way for China to protect local farmers is to force the purchasing of Chinese corn by limiting the amount of foreign corn that enters the Chinese market.
Protection for local farmers, fear of reliance on foreign GMOs, and investments in agriculture are all part of China’s broader food security strategy. Banning U.S. corn for food security reasons is probably as strong an argument for why China banned U.S. corn as punishment for worsening relations.
With Sino-U.S. relations still very poor, another record corn crop this year in China, as well as Ukrainian, Brazilian, and Argentinian corn imports approved, no matter which reason you favor for the ban on American corn products, there is little reason to believe China will lift that import ban any time soon Every day it becomes more likely that only a significant and public response from the United States government, or litigation in the World Trade Organization, will open China back up to US corn product imports.
* Lucas Blaustein is the Container/Feed Ingredient Sales and Marketing Manager for CGB Enterprises. He has a Masters of Agribusiness degree from Texas A&M, and a Bachelors of Economics and Chinese Studies from the University of Houston. Lucas has worked in business and academia domestically and in China with major agribusiness companies like PepsiCo and John Deere and he is fluent in spoken and written Mandarin.