Basic economics in China provide significant sales opportunities for agricultural producers in the U.S. and other countries, Iowa State University says in a new report. But there are no guarantees, the report emphasizes, given the competition and important complications that Americans need to understand.
It’s crucial for our country to successfully navigate our trade relations with China, since Nebraska ag producers have suffered losses of about $1 billion so far from trade conflicts with China and the European Union, the Nebraska Farm Bureau says, using methodology developed by Iowa State economists. The figure for Iowa is about $2 billion.
The author of the new report is Wendong Zhang, an assistant economics professor at Iowa State University. He is a native of China who writes extensively about China’s agricultural sector. His report outlines a set of key points; here are some examples:
» Agriculture is not China’s “comparative advantage.” In other words, other countries that are more efficient or more productive in their agricultural output in general could find significant export opportunities in China, given its 1.3 billion population.
The U.S. has 3.2 million farmers and China has 270 million, but U.S. ag productivity is far greater. The average 2015 soybean yield in China was more than 45 percent lower than in the U.S.: 48 bushels per acre here, but 26 bushels per acre in China. China’s farm sector at present can meet only 15 percent of the country’s demand for soybeans and related products.
The average corn yield in China’s farming regions is no higher than 60 percent of the figure in Iowa, and in many areas it is much lower. China has set ambitious goals for ethanol use, which the U.S., as the world’s major producer, is well positioned to meet. The U.S. in 2016 accounted for about 70 percent of China’s ethanol import market, the Iowa State report says.
» The trade war gives China strategic incentives to further diversify away from U.S. producers. Brazil has overtaken the U.S. as the No. 1 soybean supplier to China. Chinese authorities recently increased government subsidies to the country’s soybean producers to try to boost domestic production. China has shifted a large share of its pork imports to non-U.S. producers in recent years. Our country currently accounts for about 13 percent of the country’s pork imports.
» China is a country of rapid change, with growing American-style demands and expectations from urban residents. In 1992, the gross domestic product per capita in the United States was 20.2 times that in China. In 2016, the figure had fallen to 3.7 times that in China. China’s demand for beef is on a steady upward climb, offering export opportunities for the U.S. — but also for its beef competitors such as Australia and New Zealand. “Urban Chinese prefer to travel, stay connected, buy protein-rich food, durable goods and recreation,” Zhang writes.
Stabilizing U.S. trade relations is a vital need at the moment for Midlands agricultural producers. But for the long term, successfully navigating the market in China will require understanding, and appropriately acting on, the important data and conclusions in this new Iowa State report.