U.S. rice farmers are still waiting for China to begin importing U.S. rice, and optimism is strong despite years of disappointments.
The optimism comes primarily from the fact that China pledged to buy U.S. rice when both countries signed the U.S.-China Economic and Trade Agreement, but trepidation persists after years of China backing away from actual trade and the rising political animosity between the two countries over COVID-19 and Hong Kong.
Still, Beijing has so far been following through with most of what the Chinese promised to do under the trade pact — also known as “phase one” — and that is fueling the belief that in the coming months China will actually become a buyer of U.S. rice.
China lifted trade restrictions on U.S. beef and pork, removed bans on U.S. barley, blueberries and avocados, and increased the pace of imports of soybeans, corn and wheat. These actions all provide evidence that China is trying to make "phase one" work.
On Thursday, Chinese importers committed to buy 202,000 metric tons of U.S. corn and 126,000 tons of U.S. soybeans for delivery in the 2020-21 marketing year. That same day, USDA’s Foreign Agricultural Service released its latest weekly data for June 19-25, showing physical exports of 144,300 tons of corn and 125,400 tons of sorghum to China. Chinese importers also contracted to buy 76,800 tons of sorghum and 594,000 tons of soybeans.
On Tuesday, FAS reported export sales of 264,000 metric tons of soybeans for delivery to China during the 2019/2020 marketing year and export sales of 204,000 metric tons of corn for delivery to China during the 2020/2021 marketing year.
There were no net sales or exports reported for rice, but those could come soon, said says Peter Bachmann, vice president of international trade policy for the USA Rice Federation.
“In the ‘phase one’ agreement, they committed to purchasing U.S. rice,” Bachmann told Agri-Pulse. “They didn’t say whether that was going to be through state trading enterprises or private importers, but we assume and hope that it will be a mix of both at some point. We want to make sure they follow through on that commitment.”
Exactly how much rice China committed to buy in the trade pact is unknown. Neither country has let slip the amounts of any of the commodities that China has agreed to purchase under “phase one.”
But before that happens, U.S. rice farmers are looking for more signs that China is serious about its commitments. The country has already lifted its ban on U.S. rice and approved milling and storage facilities, technically throwing open its border to U.S. rice, but the trade just isn’t happening.
The first sign U.S. rice farmers are now waiting for is confirmation that China has scrapped its subsidies for domestic rice and wheat farmers. That won’t make it easier to sell rice to China, but it is expected to remove unfair Chinese competition from the international and even domestic markets in the U.S.
China promised major reforms to the WTO as well as the U.S. directly in “phase one,” but it’s still unclear if that has happened. China presented its reforms to setting floor prices for domestic producers to the WTO dispute panel on June 29 — the day before the deadline. The U.S. has 20 days to verify China’s claims, and U.S. government officials tell Agri-Pulse that review is taking place.
“It’s distorting the world market when they’re shipping rice so cheaply,” Bachmann said. “They’re only exporting about 3 million metric tons right now, but it’s coming into the U.S. through Puerto Rico. There’s roughly 65,000 tons of milled medium grain rice coming in every year from China at much lower than market prices because of their subsidies.”
China’s subsidies are just as much of a concern to the U.S. wheat sector, says U.S. Wheat Associates spokesman Steve Mercer.
The group “continues to watch for changes to the Chinese government’s minimum wheat procurement prices,” Mercer said. “We do not think that the policy changes they announced … put the government in compliance with their WTO obligations yet, and the resulting supply pressure on U.S. wheat prices continues to cost our farmers hundreds of millions of dollars each year.”
The second big breakthrough U.S. rice farmers are watching for is China to follow through with its promise to transform its tariff rate quota process. The Chinese pledged nearly 20 years ago as part of their deal to join the World Trade Organization to buy massive amounts of foreign rice through TRQs, but the country has been manipulating the opaque process for years.
China has until early October to change the way it runs its rice TRQ by preventing big government-owned companies from hoarding the quota allocations.
“If they don’t reallocate and let the private guys bring in rice, then there’s very little opportunity,” Bachmann said. “That’s how (China) has gotten around bringing in rice from a variety of origins they don’t want to do business with.”
But China does import a lot of rice, and the primary route of entry for U.S. rice is expected to be expensive hotels and restaurants that cater to customers who are willing to pay more for quality, according to an analysis by FAS officials in Guangzhou.
The primary channel for selling U.S. rice "is initially expected to be through medium- to high-end restaurants, especially Japanese style restaurants and niche grocery retailers looking to capitalize on the cachet of U.S. rice,” according to the FAS report. “Pending a favorable consumer response, U.S. rice could expand its presence into more mainstream retail and online platforms. Imports of U.S. rice are expected to come packaged for both retail and (hotel, restaurant, and institutional) use.”
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But before that happens, private Chinese rice buyers need be assured Beijing is OK with them buying from the U.S. Possibly the best evidence of that is a sale last year that was paused after political tensions flared up between the U.S. and China.
The privately owned Chinese company Shenzen Yintuo agreed last summer to buy medium-grain, Calrose rice, from the California-based Sun Valley Rice, but the sale was never finalized and the rice never sent.
“The sale was agreed upon,” Sun Valley CEO and owner Ken LaGrande told Agri-Pulse, “but then it was pending for import permission that never materialized. Technically, I guess you could say we still have an order on the books, but I’m not holding my breath.”
It turned out that it was poor timing for the sale. Just a month later, the trade talks between the U.S. and China unraveled, followed by both sides hitting each other with new tariffs.
It’s been months since the U.S. and China signed off on the “phase one” deal in January and implementation in February, but there’s still no rice trade, and there likely won’t be until Beijing gives the final nod.
“We could sell at any point,” Bachmann said. “It’s really a matter of when the government makes the first purchase. They’ve got to take the first step before private importers are going to import rice. They’re probably waiting for our new crop rice to be available. They want to see what pricing looks like this fall and hoping prices come down from where they are right now.”
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