The U.S.-China trade war, African swine fever (ASF) and now the coronavirus have all shaped China’s imports, domestic agricultural production and consumer purchases.
In the U.S.-China phase one trade agreement, China agreed to purchase no less than $12.5 billion of U.S. agricultural products in calendar year 2020. According to the American Farm Bureau Federation, 2020 year-to-date purchases total $3.1 billion.
The likelihood of China meeting phase one purchases and the dynamic factors that may affect it were discussed in a recent University of Illinois farmdoc webinar.
“Definitely one of the coronavirus impacts is that this created significant delays (in purchases) that we argue ... will be somewhat debatable,” explained Wendong Zhang, Iowa State University Agricultural Economics assistant professor. “One of the key points ... is that China buys a lot of products from our competitors. So, China does have a lot of capacity to do these trade diversions to make things happen. Unfortunately, when we’re looking at the actual data, except for pork, the progress and the gross are not necessarily there in the data yet.”
Zhang isn’t expecting dramatic increases in U.S. soybean exports to China either, due to the effects of ASF. Before ASF, China produced 97% of its pork domestically but has since lost about 40% of its hog population. This decreases the need for soybeans.
“I think that the ... groups that we’ll see significant increase in terms of ... a gross in U.S. agricultural export would be the proteins, mainly pork, beef and poultry,” said Zhang. “But also, the consumer-oriented products from vegetables to fruits to wine and beer and infant formula. So, it’s not necessarily benefiting all Midwest states, but hopefully this will be a more balanced portfolio.”
Not only are many Chinese citizens earning more income and changing their buying habits, but they are also changing their mode of purchasing. Currently more than 500 million consumers shop on mobile phones and 800 million shop via online platforms. Zhang predicts this number will only increase after the coronavirus.
China continues to modernize and expand its infrastructure, especially through the Belt and Road Initiative, or BRI. The BRI is a vast train network that stretches to western Europe. Products that took three months to travel by water around the continent of Africa now only take three weeks by rail. This opens new global trade market opportunities for China.
As far as the U.S.-China trade relationship and prospects of a phase two agreement, it continues to be a bumpy road.
“Through the trade war and through the coronavirus and the public spat between the diplomats in both countries regarding the origins of the virus, the public opinion among both countries has shifted significantly,” said Zhang. “One of the things even since the trade war is the Chinese political and business leadership relationship are expecting a bumpy relationship between the two countries regardless of who goes to the (U.S.) White House next year.”
Currently, about 20% of U.S. agricultural products get sold overseas, but the global market will become increasingly important for U.S. producers.
“When you’re thinking about where the next billion middle class will be in the world, 88% of the next billion entrants in the middle class will be in Asia,” noted Zhang. Overall, global trade relations and agreements will continue to be vital for U.S. agriculture.