China is a major customer for the bounty of U.S. farmers and agribusinesses, but the market there for U.S. ethanol and distillers’ dried grains with solubles (DDGS) has been effectively halted by recent policy moves by the Chinese government.
With anti-dumping duties, countervailing duties and substantial tariffs, these actions have caused injury and concern in the U.S. ethanol industry and challenged a partnership between the U.S. grains industry and Chinese buyers built in the past three decades.
As recently as 2006, China didn’t import any DDGS from the U.S. But China was the top market for U.S. DDGS in 2015, importing 6.5 million metric tons worth $1.6 billion, accounting for 51% of total U.S. DDGS exports.
Early in 2016, and for the second time in six years, China’s Ministry of Commerce began investigations against U.S. practices, alleging dumping and unfair subsidization of trade. In September 2016, after a nine-month investigation, China imposed a preliminary anti-dumping duty of 33.8% against U.S. DDGS and a countervailing duty of 10% to 10.7%.
In a final ruling in January, China increased its DDGS anti-dumping duty to 42.2% to 53.7% and its DDGS countervailing duty to 11.2% to 12%.
These duties were implemented despite the fact China’s investigation rejected evidence that disproved any dumping or injury to domestic industries by U.S. producers.
Meanwhile, U.S. ethanol exports to China were robust. The country began importing U.S. ethanol in 2015 as part of an effort to complement domestic alcohol production and increase the use of cleaner burning renewable fuels. Air pollution has become a concern in many cities across China.
In 2016, Chinese buyers purchased $300 million worth of ethanol. That equalled nearly 200 million gallons and represented nearly 20% of total U.S. ethanol exports as the industry’s third-largest export market.
Yet at the first of the year, the Chinese increased tariffs on this product from 5% to 30% to 40%, which is legal under the country’s World Trade Organization commitments.
These moves mean the Chinese have effectively shut out U.S. ethanol and DDGS, steeply curtailing a growing source of demand for products made with U.S. corn and affecting prices for both products.
Chinese buyers have already canceled orders for U.S. ethanol imports made prior to the tariff being raised, contributing to a drop of 15% in ethanol prices since mid-December.
DDGS prices have fallen steadily since the summer of 2016 and are now approximately 40% lower than they were this past June.
The loss of this market is a deeply disappointing departure from a robust relationship the U.S. Grains Council (USGC) and our members have had with China’s government, and China’s feed and livestock industries, since opening an office there 35 years ago.
These actions have and will hurt the U.S. industry. They also impact Chinese farmers and feed industry members we have worked with for years, to say nothing about consumers who ultimately pay the cost.
These short-sighted trade barriers, instituted without merit, are limiting overall demand, negatively influencing price and jeopardizing the substantial investments made by American agriculture in developing this important market.
USGC, our sister associations in the corn and ethanol industries and our members are urging the new leaders in the Trump administration to engage fully with China on trade. China is a critical market for U.S. agriculture; they need us and we need them.