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Trade and the Impact on Imports and Exports in 2020

trade

Trade and the Impact on Imports and Exports in 2020

Significant and sustained increases in the world trade index (an index measuring the number of times the word uncertainty or its variants are mentioned in Economist Intelligence Unit (EIU) reports at a country level) should be a worry for many as “the increase in trade uncertainty observed in the first quarter could be enough to reduce global growth by up to 0.75 percentage points in 2019”[1]

In August, the US Institute for supply management[2] latest report shows a contraction in production, purchasing, and employment indices.

Ahir, H, N Bloom, and D Furceri (2019), “The global economy hit by higher uncertainty”, VoxEU.org. https://voxeu.org/article/trade-uncertainty-rising-and-can-harm-global-economy

 

Uncertainty generated from Brexit, the US-China trade war, Japan – South Korea trade wars, and general discontentment with global trend towards widening income inequality is creating a toxic mix for politicians to deal with. The irony is the conventional approach of blaming your trading partners for your problems is only likely to exacerbate a general lack of confidence and increase further uncertainty.

The current round of the G7 summit in Biarritz concluded with support “to overhaul the WTO to improve effectiveness with regard to intellectual property protection, to settle disputes more swiftly and to eliminate unfair trade practices.” In essence, it’s signaling a need to strengthen the capabilities of the WTO to act faster and more decisively in resolving disputes that are even more political than structural in nature, requiring a more multi-faceted engagement approach. Whilst this may help in the long-run, in reality, companies will have to contend with uncertainty in global trade for some time to come as well as the impacts on the real economy from these disputes.

And all of this is happening as IMO 2020 approaches, the January 1, 2020, date by which the International Maritime Organization mandates a switch to lower sulfur fuels in order to achieve an 80% reduction in sulfur emissions leading to significant cost increases in the shipping goods via ocean freight (initial estimates between 180USD – 420 USD per TEU dependent on routing, base fuel costs, carrier).

So given the significant uncertainty around global trade agreements, the increasing use of trade as a political football, the increasing costs to trade and the shortening of product lifecycles as customers want faster, newer more differentiated offerings. Is it still worth it?

Of course this is very much dependent on what industry you are in. Whether you’re a global manufacturer or a wholesaler sourcing goods, your perspectives may be different based on investments made, sensitivity to current trade/tariff measures, customer demands, your markets, and the degree to which you are exposed to political debate and targeting.

However, I would offer that the benefits of specialization, economies of scale and unique factors of production that have underpinned global trade still exist as Adam Smith put it in 1776:

“By means of glasses, hotbeds, and hot walls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?”[1]

Today this simple analogy still holds true in skills, competences, capabilities, and access to markets and insights so that over time the expectation is that trade will prevail.

While the recent outlook has been gloomy, opportunities for 2020 include a resolution to a number of ongoing disputes and a final settlement on Brexit (we hope). Additionally, the maturation in technologies such as blockchain, process automation, forecasting and demand management solutions can also offset costs associated with IMO and support greater agility in the uncertain supply-chain world that we currently live in.

Indeed, if 2019 was the year of trade uncertainty, 2020 could be a restorative year in our ability to execute global trade.

Partnering with an experienced supply chain leader will be essential to minimizing cost increases while ensuring the efficient flow of your company’s goods and services.

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[1] World Economic Forum:https://www.weforum.org/agenda/2019/07/how-trade-uncertainty-is-impacting-the-global-economy/

[2]https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm?SSO=1

[3]Adam Smith: Wealth of nations 1776

Neil Wheeldon is the Vice Presidents Solutions, BDP International.

China

Amid US-China Trade Battle, Here is how America can Remain the World’s Strongest Economy

The Communist Party of China has laid plans for a century of unlimited Chinese power and, with it, the end of the American era. However, we still can — and must — bet big on the future of American economic power. The best antidote to China’s ambitions is to ensure America’s continued economic and technological preeminence.

Far too many strategists, investors, and policymakers accept China’s economic preeminence as an inevitable outcome, given the country’s enormous population and potential for growth.

As the business community looks toward a “partial trade deal” to unwind tariffs and reduce trade hostility between the world’s two largest economies, we must understand that non-negotiable problems in U.S.-China relations will accelerate if China closes the gap with the United States in terms of economic and technological power. With the right strategic mindset and a focus on domestic productivity, America can not only win the economic and technological contest but also turn the tide in the U.S.-China competition for global power.

China’s bid for global power is built on its economic ascendency, which is based on engagement with the United States and our allies. Chinese companies are capturing global markets and climbing the ranks of the Fortune Global 500 by taking advantage of stolen or coerced foreign intellectual property and state-orchestrated market distortions. The Communist Party is converting China’s technological power into a dystopian surveillance state and a military that is focusing its capabilities on the United States and our partners.

Chairman Xi Jinping calls regularly for Chinese forces to “prepare to fight and win wars,” while converting civilian industrial technology into military power through “civil-military fusion.” Meanwhile, China’s current account surplus is employed for global influence, buying “strategic partners” with intercontinental projects like the “Belt and Road Initiative” and state-backed acquisitions of foreign firms.

U.S.-China competition is likely to be the hardest geopolitical contest in generations — but it is a contest that the United States can win if we focus on the right objectives.

The People’s Republic of China is a challenge to America’s values and concept of world order. U.S.-China competition is likely to be the hardest geopolitical contest in generations — but it is a contest that the United States can win if we focus on the right objectives. So, where do we go from here?

Focus on GDP

The first step must be a focus on accelerating U.S. productivity growth. U.S. productivity growth need only increase from 1.3 percent a year to 2.5 percent for U.S. GDP to remain ahead of China’s for the entirety of the 2020s, the decade in which many expect China’s economy to surpass America’s.

By 2030, economic leadership will be easier to maintain as China’s demographic problems set in. Such a productivity increase is realistic, given that productivity growth from 1995 to 2008 was higher than 2.5 percent.

Protect America’s edge

The second step is to preserve our edge in advanced and emerging technologies. America must remain ahead of Communist China, not only in hard sciences, but also in the actual production of advanced goods and services.

If America competes against China only through soybean and oil production, we will fail to counter China in advanced industries such as robotics, semiconductors, aerospace and biopharmaceuticals. China is gaining in these and other technologies and industries and could eventually have a decisive advantage over the United States.

As Alexander Hamilton warned 200 years ago, America can’t be great if it is a “hewer of wood and drawer of water.” We must out-invent and outproduce China in advanced technology and industrial goods.

Maintaining U.S. advantage will require collaboration between government and corporations towards national goals in science, engineering and industry. This approach has long served our nation in times of international struggle and led to lasting commercial and national security breakthroughs.

New and Big

In order to attain these goals, Washington must think new and big. New in the sense of a bipartisan consensus that productivity growth and technological competitiveness must be national priorities.

Big in the sense of big and bold proposals. Here are three: First, implement a robust research, development and investment tax credit that will stimulate innovation and investment on American soil. Second, establish a series of well-funded “moonshot” goals to ensure American leadership in emerging industries such as advanced robotics and quantum computing. Third, develop a national productivity strategy that will take the best ideas of government and industry and focus on building the next $10 trillion in annual U.S. GDP by 2030.

Half a century ago, under the leadership of President John F. Kennedy, America faced a Communist superpower that believed that it would “bury” the United States, much as Chinese Communist leaders today believe that the 21st century belongs to China. Kennedy reminded us then that America would “bear any burden” and “meet any hardship” to prevail in that consequential time.

In the end, it was the power of the American economy, the power of American technology, and the power of American industry that brought victory over our ambitious foe. We must unleash these forces once again, wrestle them into national service, and build on toward the greater good — an American era that can and must prevail.

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Dr. Jonathan D.T. Ward is the author of “China’s Vision of Victory” and founder of Atlas Organization, a strategy consultancy on US-China global competition. Follow him on Twitter @jonathandtward

Dr. Robert D. Atkinson is the president of the Information Technology and Innovation Foundation and the author of “Big is Beautiful: Debunking the Mythology of Small Business.” Follow him on Twitter @robatkinsonITIF..

This article originally appeared on FoxBusiness.com. Republished with permission. 

phase one

The Phase One Deal: How We Got Here And What Is Next

President Trump announced that the United States and China had reached a partial “Phase One” trade deal in mid-October, signaling a pause in the trade tensions that have steadily grown over the past two and half years.  While the precise goals of the President’s trade action against China have always been vague, there was an unquestionable desire to change certain structural issues of the Chinese economy, particularly with the country’s intellectual property and forced technology practices.  

To put the proposed Phase One deal in its proper context, this article breaks down (1) the various stages of escalation since President Trump took office, (2) what’s known about the contents of agreement, and (3) the potential risks that could derail the deal from being signed.  

The Escalation of the Trade War

The President’s most high-profile actions against China have been his use of long-thought-defunct trade authority, Section 301 of the Trade Act of 1974 (“Section 301”).  Section 301 grants the President the authority to impose tariffs on countries if it determines that the acts, policies, or practices of a country are unjustifiable and burden or restrict U.S. commerce.  

Following a lengthy investigation, the Office of the U.S. Trade Representative (“USTR”) officially determined in March 2018 that China’s policies result in harm to the U.S. economy.  Simultaneously, President Trump signed a Presidential Memorandum outlining a series of remedies that his Administration would take in response to these findings, most notably the imposition of tariffs.  

President Trump’s Section 301 tariffs currently cover most products imported from China, after having been rolled out in four different lists:  

-List 1 of the Section 301 tariffs went into effect July 2018 and imposes a 25 percent tariff on $34 billion worth of goods from China.  

-List 2 went into effect August 2018 and imposes a 25 percent tariff on $16 billion worth of goods.  

-Following China’s retaliatory tariffs on Lists 1 and 2, the United States announced List 3, which began imposing a 10 percent tariff on $200 billion of Chinese products in September 2018.  The List 3 tariffs were increased to 25 percent after negotiations between the two countries fell apart.

-List 4 could hit almost $300 billion more of Chinese products.  Part of the list (“List 4a”) went into effect on September 1 and imposes 15 percent tariffs on $112 billion of Chinese products.  The U.S. is scheduled to impose 15 percent tariffs on the remaining $160 billion of the list (“List 4b”) starting December 15.  

The Trump Administration has taken aggressive action to increase pressure on China that goes well beyond the Section 301 tariffs.  Since President Trump took office, he has targeted China’s steel and aluminum industries through global tariffs on these products. He has (at least temporarily) sanctioned major Chinese tech firms or restricted their ability to do business with the United States.  He has sanctioned Chinese individuals and entities connected to North Korea and others related to the treatment of the Uighurs in western China. He signed into law a major expansion of authority for the Committee on Foreign Investment in the United States (“CFIUS”), which has immediate and future implications for Chinese investment in the United States. 

Additionally, the Administration has moved closer to Taiwan. President Trump has authorized significant military sales to Taiwan, and as President-elect, he took a call from Taiwan’s leader Tsai Ing-wen, the first such call by a U.S. President or President-elect since the 1970s. The Administration has either directly or indirectly made clear that these restrictions, sanctions, and geopolitical relationships can be used as points of leverage in the trade negotiations.  

The Phase One Deal

Many details about what is included in the Phase One deal remain unknown.  In announcing the deal, President Trump said “We have a great deal. We’re papering it now.  Over the next three or four or five weeks, hopefully, it’ll get finished. A tremendous benefit to our farmers, technology, and many other things — the banking industry, financial services.”  As the two sides “paper” the agreement into finalized text, what is known about the deal has come largely from statements made by both sides. We know that as part of the deal, the United States will not pursue plans to increase the List 1-3 tariffs from 25 percent to 30 percent. We also know China plans to make large purchases of U.S. agricultural products.  

There are reports the Phase One deal could also delay or cancel the planned List 4b tariffs. Other reports suggest that China is seeking additional eliminations or reductions of the Section 301 tariffs.  

As for the structural changes to the Chinese economy sought by the Trump Administration, it seems as though they could be mentioned in the Phase One deal, but the real work will be addressed in subsequent phases.  

What Comes Next

The stars were aligning for President Trump and President Xi to sign the Phase One deal at the Asia-Pacific Economic Cooperation (“APEC”) meetings in Santiago, Chile this week.  Unfortunately, the APEC meetings were unexpectedly cancelled due to protests in the country, highlighting that a few weeks can feel like an eternity for sensitive trade talks.  

Assuming the U.S. and China can find another location, there are still risks out there that could prevent the deal’s signing.  

One big risk to the deal is the events unfolding in Hong Kong. The Trump Administration has been notably quiet on the protests, outside of President Trump expressing his faith in President Xi to satisfactorily resolve the situation.  The strongest statement from the Administration came from Vice President Pence, who recently said, “[T]he United States will continue to urge China to show restraint, to honor its commitments, and respect the people of Hong Kong.  And to the millions in Hong Kong who have been peacefully demonstrating to protect your rights these past months, we stand with you.”

According to multiple reports, President Trump pledged to Chinese President Xi Jinping that his Administration would remain quiet on the Hong Kong protests throughout the trade talks.  However, the Administration’s hand could be forced if the protests escalate into more sustained violence or if, as is expected, Congress passes legislation in support of Hong Kong with veto-proof majorities.  

Another risk is more vocal opposition from so-called “China hawks” that are dissatisfied that Phase One doesn’t get to the heart of the problems they have with China’s economic practices.  Senate Minority Leader Chuck Schumer (D-NY) cautioned the President that he “shouldn’t be giving in to China unless we get something big in return.” Senator Marco Rubio (R-FL) doubted China’s commitment to the deal long-term, saying, “I do believe that [China] will agree to things they don’t intend to comply with.” There are reports that China hawks within the White House are also pushing the President to reject the deal, notably Director of the Office of Trade and Manufacturing Policy Peter Navarro.  

A deal to end or pause the trade tensions between the United States and China would provide the private sector with more certainty as they make decisions about 2020 and beyond.  The Phase One deal looks to provide at least a pause, but geopolitical actions or domestic opposition could still derail the agreement before it is signed.   

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Rory Murphy is an Associate at Squire Patton Boggs, where his practice focuses on providing US public policy guidance, global cultural and business diplomacy advice that helps US and foreign governments and entities with doing business around the globe.

plantain

Africa’s Plantain Market to Reach Over 30M Tonnes by 2025

IndexBox has just published a new report: ‘Africa – Plantains – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

Consumption By Country in Africa

The countries with the highest volumes of plantain consumption in 2018 were Democratic Republic of the Congo (5.5M tonnes), Cameroon (4.8M tonnes) and Ghana (4.1M tonnes), together comprising 59% of total consumption.

From 2007 to 2018, the most notable rate of growth in terms of plantain consumption, amongst the main consuming countries, was attained by Democratic Republic of the Congo, while the other leaders experienced more modest paces of growth.

The countries with the highest levels of plantain per capita consumption in 2018 were Cameroon (197 kg per person), Ghana (141 kg per person) and Uganda (68 kg per person).

From 2007 to 2018, the most notable rate of growth in terms of plantain per capita consumption, amongst the main consuming countries, was attained by Democratic Republic of the Congo, while the other leaders experienced mixed trends in the per capita consumption figures.

Market Forecast 2019-2025

Driven by increasing demand for plantain in Africa, the market is expected to continue an upward consumption trend over the next seven years. Market performance is forecast to retain its current trend pattern, expanding with an anticipated CAGR of +2.9% for the seven-year period from 2018 to 2025, which is projected to bring the market volume to 30M tonnes by the end of 2025.

Production in Africa

The plantain production stood at 25M tonnes in 2018, picking up by 3.6% against the previous year. The total output volume increased at an average annual rate of +3.0% from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded throughout the analyzed period. The pace of growth appeared the most rapid in 2010 when production volume increased by 12% against the previous year. Over the period under review, plantain production attained its peak figure volume in 2018 and is likely to see steady growth in the near future. The general positive trend in terms of plantain output was largely conditioned by a conspicuous increase of the harvested area and a relatively flat trend pattern in yield figures.

Production By Country in Africa

The countries with the highest volumes of plantain production in 2018 were Democratic Republic of the Congo (5.5M tonnes), Cameroon (4.8M tonnes) and Ghana (4.1M tonnes), together comprising 59% of total production.

From 2007 to 2018, the most notable rate of growth in terms of plantain production, amongst the main producing countries, was attained by Democratic Republic of the Congo, while the other leaders experienced more modest paces of growth.

Harvested Area in Africa

The plantain harvested area amounted to 4.2M ha in 2018, growing by 3.7% against the previous year. The harvested area increased at an average annual rate of +2.9% over the period from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded throughout the analyzed period. The growth pace was the most rapid in 2010 with an increase of 14% against the previous year. Over the period under review, the harvested area dedicated to plantain production reached its peak figure at 4.3M ha in 2015; however, from 2016 to 2018, harvested area stood at a somewhat lower figure.

Yield in Africa

The average plantain yield amounted to 5.8 tonne per ha in 2018, approximately equating the previous year. In general, the plantain yield, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2016 when yield increased by 1.6% y-o-y. The level of plantain yield peaked at 5.8 tonne per ha in 2009; however, from 2010 to 2018, yield stood at a somewhat lower figure.

Exports in Africa

The exports totaled 99K tonnes in 2018, dropping by -5.8% against the previous year. Overall, plantain exports continue to indicate an abrupt decrease. The growth pace was the most rapid in 2013 when exports increased by 27% year-to-year. The volume of exports peaked at 181K tonnes in 2007; however, from 2008 to 2018, exports remained at a lower figure.

In value terms, plantain exports amounted to $45M (IndexBox estimates) in 2018. Over the period under review, plantain exports continue to indicate a drastic descent. The pace of growth appeared the most rapid in 2014 when exports increased by 13% year-to-year. The level of exports peaked at $85M in 2007; however, from 2008 to 2018, exports failed to regain their momentum.

Exports by Country

In 2018, Mozambique (38K tonnes) and Cote d’Ivoire (26K tonnes) were the main exporters of plantains in Africa, together making up 65% of total exports. It was distantly followed by Sudan (14K tonnes) and South Africa (12K tonnes), together committing a 27% share of total exports. The following exporters – Cameroon (3.2K tonnes) and Ghana (2.9K tonnes) – each accounted for a 6.1% share of total exports.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by Cote d’Ivoire, while the other leaders experienced more modest paces of growth.

In value terms, the largest plantain markets in Africa were Cote d’Ivoire ($12M), Sudan ($11M) and Mozambique ($11M), together accounting for 76% of total exports.

Sudan experienced the highest rates of growth with regard to exports, among the main exporting countries over the last eleven-year period, while the other leaders experienced mixed trends in the exports figures.

Export Prices by Country

In 2018, the plantain export price in Africa amounted to $454 per tonne, growing by 4.8% against the previous year. Overall, the plantain export price, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2015 an increase of 11% year-to-year. Over the period under review, the export prices for plantains attained their maximum at $485 per tonne in 2012; however, from 2013 to 2018, export prices failed to regain their momentum.

Prices varied noticeably by the country of origin; the country with the highest price was Cameroon ($850 per tonne), while Ghana ($203 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Cameroon, while the other leaders experienced mixed trends in the export price figures.

Imports in Africa

The imports totaled 179K tonnes in 2018, picking up by 11% against the previous year. The total imports indicated a prominent expansion from 2007 to 2018: its volume increased at an average annual rate of +5.5% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, plantain imports increased by +20.7% against 2014 indices. The pace of growth appeared the most rapid in 2013 with an increase of 19% year-to-year. Over the period under review, plantain imports reached their peak figure in 2018 and are likely to continue its growth in the immediate term.

In value terms, plantain imports totaled $51M (IndexBox estimates) in 2018. The total import value increased at an average annual rate of +1.8% from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded over the period under review. The pace of growth was the most pronounced in 2017 with an increase of 11% y-o-y. Over the period under review, plantain imports reached their maximum in 2018 and are expected to retain its growth in the near future.

Imports by Country

South Africa was the key importing country with an import of about 119K tonnes, which resulted at 66% of total imports. Senegal (29K tonnes) held the second position in the ranking, followed by Mali (17K tonnes). All these countries together took approx. 26% share of total imports. Botswana (5.1K tonnes) and Algeria (3.1K tonnes) occupied a little share of total imports.

Imports into South Africa increased at an average annual rate of +11.5% from 2007 to 2018. At the same time, Senegal (+19.5%) and Mali (+6.1%) displayed positive paces of growth. Moreover, Senegal emerged as the fastest-growing importer in Africa, with a CAGR of +19.5% from 2007-2018. By contrast, Botswana (-2.5%) and Algeria (-16.8%) illustrated a downward trend over the same period. From 2007 to 2018, the share of South Africa, Senegal and Mali increased by +46%, +14% and +4.6% percentage points, while Algeria (-11.4 p.p.) saw their share reduced. The shares of the other countries remained relatively stable throughout the analyzed period.

In value terms, South Africa ($27M) constitutes the largest market for imported plantains in Africa, comprising 53% of total plantain imports. The second position in the ranking was occupied by Senegal ($13M), with a 25% share of total imports. It was followed by Botswana, with a 6.4% share.

From 2007 to 2018, the average annual rate of growth in terms of value in South Africa totaled +9.2%. The remaining importing countries recorded the following average annual rates of imports growth: Senegal (+22.9% per year) and Botswana (-3.2% per year).

Import Prices by Country

In 2018, the plantain import price in Africa amounted to $284 per tonne, coming down by -1.9% against the previous year. Overall, the plantain import price continues to indicate a perceptible setback. The growth pace was the most rapid in 2015 when the import price increased by 12% year-to-year. The level of import price peaked at $421 per tonne in 2007; however, from 2008 to 2018, import prices failed to regain their momentum.

Prices varied noticeably by the country of destination; the country with the highest price was Algeria ($1,017 per tonne), while Mali ($64 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Algeria, while the other leaders experienced mixed trends in the import price figures.

Source: IndexBox AI Platform

kiwi

Global Kiwi Fruit Market 2019 – New Zealand and Italy are the Leading Exporters of Kiwi Fruits

IndexBox has just published a new report: ‘World – Kiwi Fruits – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The global kiwi fruit market revenue amounted to $7.6B in 2018. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price).

Consumption By Country

China (2.3M tonnes) constituted the country with the largest volume of kiwi fruit consumption, comprising approx. 51% of total consumption. Moreover, kiwi fruit consumption in China exceeded the figures recorded by the world’s second-largest consumer, Italy (314K tonnes), sevenfold. The third position in this ranking was occupied by Iran (248K tonnes), with a 5.5% share.

From 2007 to 2018, the average annual growth rate of volume in China amounted to +6.1%. In the other countries, the average annual rates were as follows: Italy (+8.8% per year) and Iran (+7.8% per year).

In value terms, China ($3.9B) led the market, alone. The second position in the ranking was occupied by Italy ($529M). It was followed by Spain.

Market Forecast 2019-2025

Driven by increasing demand for kiwi fruit worldwide, the market is expected to continue an upward consumption trend over the next seven-year period. Market performance is forecast to decelerate, expanding with an anticipated CAGR of +3.9% for the seven-year period from 2018 to 2025, which is projected to bring the market volume to 5.9M tonnes by the end of 2025.

Production 2007-2018

In 2018, approx. 4.3M tonnes of kiwi fruit were produced worldwide; increasing by 4.4% against the previous year. Overall, the total output indicated a prominent increase from 2007 to 2018: its volume increased at an average annual rate of +4.8% over the last eleven-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, kiwi fruit production decreased by -5.1% against 2016 indices. The pace of growth appeared the most rapid in 2015 when production volume increased by 15% against the previous year. The global kiwi fruit production peaked at 4.5M tonnes in 2016; however, from 2017 to 2018, production failed to regain its momentum. The general positive trend in terms of kiwi fruit output was largely conditioned by a strong expansion of the harvested area and a relatively flat trend pattern in yield figures.

In value terms, kiwi fruit production stood at $7.5B in 2018 estimated in export prices. Over the period under review, kiwi fruit production continues to indicate a prominent expansion. The most prominent rate of growth was recorded in 2008 when production volume increased by 30% against the previous year. The global kiwi fruit production peaked in 2018 and is expected to retain its growth in the near future.

Production By Country

China (2.1M tonnes) constituted the country with the largest volume of kiwi fruit production, accounting for 50% of total production. Moreover, kiwi fruit production in China exceeded the figures recorded by the world’s second-largest producer, Italy (555K tonnes), fourfold. New Zealand (437K tonnes) ranked third in terms of total production with a 10% share.

In China, kiwi fruit production expanded at an average annual rate of +5.4% over the period from 2007-2018. The remaining producing countries recorded the following average annual rates of production growth: Italy (+2.6% per year) and New Zealand (+1.1% per year).

Harvested Area 2007-2018

In 2018, the global harvested area of kiwi fruit stood at 260K ha, increasing by 5.1% against the previous year. In general, the total harvested area indicated a resilient expansion from 2007 to 2018: its figure increased at an average annual rate of +4.7% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, kiwi fruit harvested area decreased by -6.7% against 2016 indices. The pace of growth was the most pronounced in 2013 when harvested area increased by 29% year-to-year. Over the period under review, the harvested area dedicated to kiwi fruit production reached its maximum at 279K ha in 2016; however, from 2017 to 2018, harvested area stood at a somewhat lower figure.

Yield 2007-2018

Global average kiwi fruit yield totaled 16 tonne per ha in 2018, stabilizing at the previous year. Over the period under review, the kiwi fruit yield, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2014 with an increase of 11% y-o-y. Over the period under review, the average kiwi fruit yield reached its peak figure level at 17 tonne per ha in 2008; however, from 2009 to 2018, yield failed to regain its momentum.

Exports 2007-2018

In 2018, the global exports of kiwi fruit stood at 1.4M tonnes, waning by -2.4% against the previous year. The total export volume increased at an average annual rate of +1.7% from 2007 to 2018; the trend pattern remained relatively stable, with only minor fluctuations being observed over the period under review. The pace of growth appeared the most rapid in 2015 when exports increased by 22% against the previous year. The global exports peaked at 1.7M tonnes in 2016; however, from 2017 to 2018, exports remained at a lower figure.

In value terms, kiwi fruit exports amounted to $2.8B (IndexBox estimates) in 2018. In general, the total exports indicated a remarkable expansion from 2007 to 2018: its value increased at an average annual rate of +1.7% over the last eleven-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, kiwi fruit exports increased by +34.1% against 2014 indices. The pace of growth appeared the most rapid in 2008 with an increase of 26% y-o-y. The global exports peaked in 2018 and are expected to retain its growth in the near future.

Exports by Country

New Zealand (417K tonnes) and Italy (289K tonnes) were the key exporters of kiwi fruit in 2018, resulting at near 29% and 20% of total exports, respectively. Chile (183K tonnes) held the next position in the ranking, followed by Greece (135K tonnes), Belgium (109K tonnes) and Iran (93K tonnes). All these countries together took near 36% share of total exports. Germany (31K tonnes) followed a long way behind the leaders.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by Iran, while the other global leaders experienced more modest paces of growth.

In value terms, New Zealand ($1.2B) remains the largest kiwi fruit supplier worldwide, comprising 42% of global exports. The second position in the ranking was occupied by Italy ($518M), with a 18% share of global exports. It was followed by Belgium, with a 11% share.

From 2007 to 2018, the average annual rate of growth in terms of value in New Zealand stood at +7.0%. In the other countries, the average annual rates were as follows: Italy (+2.3% per year) and Belgium (+2.2% per year).

Export Prices by Country

The average kiwi fruit export price stood at $1,994 per tonne in 2018, growing by 3.8% against the previous year. Over the last eleven years, it increased at an average annual rate of +3.2%. The most prominent rate of growth was recorded in 2014 when the average export price increased by 22% y-o-y. Over the period under review, the average export prices for kiwi fruit attained their maximum in 2018 and is likely to see steady growth in the immediate term.

There were significant differences in the average prices amongst the major exporting countries. In 2018, the country with the highest price was New Zealand ($2,885 per tonne), while Iran ($1,015 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Iran, while the other global leaders experienced more modest paces of growth.

Imports 2007-2018

In 2018, the amount of kiwi fruit imported worldwide totaled 1.7M tonnes, picking up by 3.9% against the previous year. The total import volume increased at an average annual rate of +3.6% over the period from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded over the period under review. The pace of growth appeared the most rapid in 2015 with an increase of 17% year-to-year. The global imports peaked in 2018 and are likely to continue its growth in the near future.

In value terms, kiwi fruit imports stood at $3B (IndexBox estimates) in 2018. In general, the total imports indicated a buoyant increase from 2007 to 2018: its value increased at an average annual rate of +3.6% over the last eleven-year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, kiwi fruit imports increased by +47.9% against 2013 indices. The most prominent rate of growth was recorded in 2008 when imports increased by 23% year-to-year. The global imports peaked in 2018 and are likely to continue its growth in the immediate term.

Imports by Country

Spain (221K tonnes), China (182K tonnes), Belgium (156K tonnes), Japan (106K tonnes), Germany (96K tonnes), the Netherlands (79K tonnes), France (78K tonnes), Russia (72K tonnes), the U.S. (69K tonnes), Italy (48K tonnes), Taiwan, Chinese (42K tonnes) and South Korea (33K tonnes) represented roughly 72% of total imports of kiwi fruit in 2018.

From 2007 to 2018, the most notable rate of growth in terms of imports, amongst the main importing countries, was attained by China, while the other global leaders experienced more modest paces of growth.

In value terms, Japan ($371M), China ($369M) and Spain ($285M) were the countries with the highest levels of imports in 2018, together accounting for 34% of global imports.

Among the main importing countries, China experienced the highest growth rate of imports, over the last eleven-year period, while the other global leaders experienced more modest paces of growth.

Import Prices by Country

The average kiwi fruit import price stood at $1,806 per tonne in 2018, picking up by 4.3% against the previous year. Over the period from 2007 to 2018, it increased at an average annual rate of +2.1%. The pace of growth appeared the most rapid in 2008 when the average import price increased by 18% against the previous year. The global import price peaked at $1,875 per tonne in 2014; however, from 2015 to 2018, import prices stood at a somewhat lower figure.

There were significant differences in the average prices amongst the major importing countries. In 2018, the country with the highest price was Japan ($3,493 per tonne), while Russia ($1,070 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Taiwan, Chinese, while the other global leaders experienced more modest paces of growth.

Source: IndexBox AI Platform

brazil

Comparative Advantage Revealed: What the U.S. Could Gain from an FTA with Brazil

Olá Brasil!

President Trump and Brazilian President Jair Bolsonaro announced their desire to “build a new partnership” after meeting in August, potentially through a bilateral free trade agreement. For the time being, the United States and Brazil are starting with some pragmatic approaches, for example by streamlining customs procedures, agreeing on safety standards for Brazil to import U.S. pork and beef, increased imports of U.S. ethanol, and possible ways to expand energy trade.

But Brazil would be a good target for a full U.S. free trade agreement. It is by far the largest South American economy. With total two-way trade reaching $103.9 billion in 2018, Brazil is our ninth-largest export market. Beyond any political merits or challenges, the potential commercial benefits can be shown through textbook economics.

Two-way trade between the US and brazil totaled 103.9 billion in 2018

“Revealed” Comparative Advantage

In a 1965 paper entitled Trade Liberalisation and “Revealed” Comparative Advantage, economist Bela Balassa developed an index for identifying where the comparative advantage of industrial countries lay in regard to their trade with one another.

Comparative advantage basically means one country can produce a particular good at a lower opportunity cost than another, which doesn’t necessarily mean at a lower absolute cost. The revealed comparative advantage (RCA) index is a useful tool that cuts out the laborious work of trying to assess all the factors that might determine comparative advantage but still captures relative costs and differences in non-price factors. Here’s how it works.

The Power of One

A country’s RCA in a certain class of goods is calculated by dividing the proportion of the country’s exports in that class by the proportion of world exports in that class. If the resulting RCA is greater than one, then a comparative advantage has been discovered. If it is less than one, the country is said to have a comparative disadvantage in that class of good.

The RCA is therefore useful in identifying areas where large gains from trade are possible but currently untapped. If one country’s RCA in a product is below one and another’s is above one this may be a potentially lucrative pairing.

Furthermore, if the country whose RCA is below one has either tariff or non-tariff barriers on that good and is importing from an inefficient source or producing for its own consumption, there is even greater potential for benefit.

The U.S.-Brazil Trade Relationship Revealed

Applying the RCA method to the U.S.-Brazil trading relationship in 20 sectors, the relative strengths and weaknesses of the United States and Brazil are complementary in 11 of them. There are only three categories in which both countries have RCAs higher than one, in which they would compete head to head.

For Brazil, export gains could be made in minerals, animals, food products, hides and skins, metals and raw materials such as alloys and iron ores, all sectors where Brazil has a high revealed comparative advantage compared to the United States. The United States has a revealed comparative advantage in exporting capital goods, chemicals, miscellaneous goods, plastics, rubber and transportation.

US-Brazil revealed competitive advantage RCA

Classic Trade: More Sales and More Savings

When it comes to importing raw materials from Brazil, the United States already has zero or low tariff rates in most categories, but there are some products where demand is high, but tariffs remain, creating opportunities for savings for U.S. consumers. For example, U.S. tariffs on building materials such as cut stone and shaped wood range from 3.2 to 4.9 percent. The United States does not have a comparative advantage in these materials and currently imports 24 percent of its building stone and 30 percent of its shaped wood needs from Brazil.

Tariff savings may also shift consumer purchases in Brazil’s favour. For example, Brazil enjoys a comparative advantage over the United States in coffee (we don’t produce it except some specialty in Hawaii). At present, 50 percent of U.S. imported coffee comes from countries we have an FTA with including Colombia and Guatemala, so Brazil would be well poised to increase its share of U.S. coffee imports under an FTA.

The products the United States has a revealed comparative advantage in compared to Brazil are more diverse, from capital goods to chemicals. Brazil’s lowest weighted average tariff among the good represented on the chart is 6.24 percent for chemicals; the highest is 21.01 percent in transportation. Reducing tariffs on U.S. industrial and agricultural goods would benefit both Brazilian importers and U.S. exporters.

A U.S.-Brazil FTA Could Be Positive

Overall, these numbers suggest a high complementarity in revealed comparative advantages between the United States and Brazil such that removing barriers to cross border trade in goods and services between the United States and Brazil has the potential yield gains for both sides, with increased trade flows both ways.

If only negotiating a trade agreement were as easy as following the numbers. The United States has a number of pension and tax reforms it would like Brazil to enact before getting serious about an FTA, and Brazil is a member of MERCOSUR, a South American trading bloc that precludes members from negotiating tariffs on an individual country basis. And so, the two countries will continue to nibble at the margins of an agreement, achieving “free-er” trade where possible, but when they are ready, the comparative advantages are now revealed.

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Alice Calder

Alice Calder is a program manager at the Mercatus Center at George Mason University. Prior to this she worked as a graduate research assistant while pursuing her MA in Applied Economics at GMU. Originally from the UK, where she received her BA in Philosophy and Political Economy from the University of Exeter, living and working internationally sparked her interest in trade issues as well as the intersection of economics and culture.

This article originally appeared on TradeVistas.org. Republished with permission.

Worried about trade wars’ impact on your supply chain? Here are three ways to manage risks.

Companies live in a world now where a tweet about tariffs and trade wars can rattle markets, prompt uncertainty, and question whether supply chains and global operations are positioned to handle the speed, unpredictability, and interconnectedness of the global economy.  The prevalence and threat of trade wars generate pervasive uncertainty across the globe- carrying wide-reaching implications for overall global growth. Increased cost of goods sold from upstream suppliers are squeezing margins and forcing global supply chains to adapt and react mid-stream. Despite a robust US economy, and general stability across global markets, the escalating trade war is increasing prices and making raw materials harder to obtain – threatening the positive trajectory of domestic and international economic activity.

How is this playing out in real time? Let’s look at an example: An automaker may have its engine manufactured in Germany, its transmission in Mexico and its GPS from South Korea with final assembly in the US. Tariffs could force automakers to move production, reducing economies of scale and increasing prices for the end consumer. Processing the resulting number of variables, scenarios, and decision matrices brought on by the trade war is a daunting challenge, to say the least.

Despite these marketplace, competitor and regulatory challenges, digital technologies, such as data analysis, machine learning and artificial intelligence (AI) provides companies with the resources and insights to manage risk and anticipate events. Today’s leading supply chains run on data, monitoring for risk and opportunity, and blend human and digital strategies to make decisions in real time. This is called the cognitive supply chain. It is interconnected, self-learning, predictive, adaptive and intelligent, and it can help leaders react faster to risks outside of their control. As such, here are three approaches that can help leaders manage, anticipate, and address supply chain disruptions.

Leveraging predictive analytics

Data has always been at the center of the supply chain and helps leaders make decisions. With internet of things and the growing number of connected devices, organizations can be more proactive in how they use data to enable insights.

The expanse of datasets, and increasing ease to obtain them, allows proactive organizations to leverage data to help drive their decision structure. The resulting variety of perspectives creates an opportunity to align against broader company goals. For example, how does the planned production schedule of a Swiss supplier affect my organization’s market position in Asia this holiday season? What are the potential risks, and how can they be mitigated? Data availability opens the door to these solutions. Enablers from digital technology provide:

-Digital linkage – integrated sales, production and delivery processes which have seamless flow of information.

-Control tower –visibility of all processes across the internal and external supply chain.

-Centralized collaborative e-hub – a connected ecosystem where all partners interact seamlessly with improved flow of information.

-Integrated lean logistics – applying lean principles to eliminate waste, errors and defects, minimizes lead-time and materials impacted by tariffs.

-Virtual logistics – enable on the fly deployment decisions with new logistics models.

Creating the digital twin

Today’s supply chains have growing complexities with an international network of suppliers and service markets. Efforts to integrate with external partners has led to complicated systems and processes, overwhelming supply chain leaders with data and metrics. Add in the variability of demand, and a supply chain is pushed back on its heels, reacting to demand variability. One uniquely positioned solution is called a “digital twin”.

A digital twin is a model of the supply chain. The foundation is a transparent supply chain strategy, comprised of rules on how to absorb and refine costs, or pass through to customers downstream. A digital twin uses the multi-tier supply chain data to rely upon predictive outcomes and sensory response. Uncertainties such as pending tariffs can be run through “what if” scenarios to understand the service, cost, and risk implications of changes, decisions and unexpected market conditions.

These examples are not intended to be definitive outcomes; alternatively, they allow internal and external supply chain groups the opportunity to setup a plan of action which mitigates service risk while optimizing the collective cost. Organizations must learn the discipline of using “what if” scenarios for their analysis and guide the implementation of both short term and long-term strategies and events.

For example, what is the correct level of holiday inventory investment that should be imported into the United States from China, given the potential tariff increase in the coming months? Which alternatives provide lower risk? Successful organizations will use their digital twin to move up the supplier tiers of a supply chain, and anticipate disruption, and arrange alternative routes and suppliers.

Consider managed services

Continuous investment in technology and talent with the skill and knowledge to use it can be expensive. The process engineering required to maximize ROI, along with the associating change management inevitably strains an organization’s resources. As a result, many organizations have found relief in managed services of their supply chains. It enables companies to focus on their core competencies of products and services, while contracting out the outcome: the best customer service at the optimal cost.

The consolidation of supply chain expertise into a vendor eases the necessary people, process, and technology investment. It allows organizations to shed the strain of daily variability, while maintaining the ability to make decisions and focus on the long term growth of the company. With the increasing pressure on tariffs, organizations will look to these partners to leverage their digital tools and technologies to limit the downstream effect across the supply chain.

Creating a cognitive supply chain is essential for answering the threat trade wars present. International supply chains will continue to become more expensive to maintain and manage. Businesses that are successful in meeting these complexities and adopting digital capabilities will be best equipped for the uncertainty that lies ahead.

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Mike Landry is the supply chain service line leader at Genpact, a global professional services focused on delivering digital transformation.

SMEs

HOW TO EXPORT TO THE UNITED STATES: 6 SIMPLE STEPS FOR SMEs

According to the Organization for Economic Cooperation and Development, International Trade Statistics 1, participation in exports remains largely led by large enterprises (250 or more employees) in industrialized countries. In developing countries, the story is the same, and only a small percentage of small and medium sized businesses export at all. The World Trade Organization (WTO) reports that SMEs in developing countries make up roughly 45%, on average, of a country’s Gross Domestic Product (WTO, 2016), but SMEs’ exports represent on average 7.6 per cent of total manufacturing sales, compared to 14.1 per cent in the case of large manufacturing firms (WTO, 2016).

If you want your small or medium-sized business to get a piece of the export pie, according to the OECD Trade Committee, there are a number of challenges to be overcome. These include everything from limited access to credit, insufficient use of technology, and lack of export experience, to border controls. The most significant challenge posed, remains learning the ins and outs of getting your product from your country to foreign markets in a cost effective manner. These tips can help your small business become better equipped to enter the exciting world of exports.

The first stage in export planning is to investigate the market and identify your reasons for exporting to customers.
First, determine demand. You need to know where in the U.S. your product is needed. If you sell bathing suits, better export to Florida and California than to Nebraska or Alaska.

Second, you’ll need access to buyers. Start with researching buyers on the Internet, use your local U.S. Chamber of Commerce as a first resource, followed by the Economic Officer in the U.S. Embassy or Consulate in your country. Then, watch for upcoming trade shows where your goods could be featured.

Next, either start selling directly on your own ecommerce platform (secure payment and delivery systems should be integrated), or build a relationship with an international trade agent, whom you trust to help you navigate state and city markets, regulations, and opportunities for you to sell your goods in the U.S. , either to wholesale distributors, or directly to retailers. Improved logistics channels, eCommerce, and free trade agreements make that possible.

Third, find out what, if any, tariffs or exemptions exist for your goods. If there are no trade agreements between your country and the U.S., exempting your goods from tariffs, you’ll need the help of a U.S. licensed Customs Broker. A U.S. Customs Broker will be familiar with the Harmonized Tariff Schedule of the United States (“HTSUS”), and help you classify your goods and determine the tariffs you’ll have to pay to the U.S. Customs and Border Patrol, before your goods can enter the United States.

The National Customs Brokers and Freight Forwarders Association of America can easily provide brokers in the state or region you’re targeting.

Fourth, once you’ve got a better understanding of your profit margin to determine how you’ll sell your goods in the export market, you may wish to consider how to potentially mitigate any risks that can occur while your goods are being shipped, or once your goods arrive at their destination and are with the buyer(s). There are payment risks, damage or destruction of goods risks, documentary risks with customs, and many others.

You may have access to a good trade and customs attorney in the originating country, but he or she may not be thoroughly familiar with U.S. trade compliance requirements. In that case, you may benefit from consulting with a U.S. international trade lawyer to learn how they can help you mitigate risks in exporting by intervening with customs on your behalf, managing disputes through a properly drafted contract, and putting you in touch with relevant agents for information on U.S. trade insurance and compliance with government regulations.

In the U.S., generally, a phone or email consultation with a reputable lawyer would be free. If they want you to pay to talk with them for a few minutes about your problem and find out if they can help you, then hang up and call another lawyer.

Fifth, you need to build a relationship with a reputable freight forwarder or consolidator, who will help you decide: whether to ship by air or by sea; what documents are required for the country you are exporting to; how to pack your products for shipment; label them, and insure them. Normally, the freight forwarder will take care of it all, for a premium, but beware of INCOTERMS (regulations that define the responsibilities of buyers and sellers involved in commercial trade).

You must have at least a basic understanding of them to comprehend the shipping documents your freight forwarder will have you sign, and to protect your rights and limit liability.

Sixth, yes exporting is exciting, but it’s also risky doing business across oceans and continents with buyers you don’t know and may never see. To that end, there are many export resources in the originating country that companies, small and large, can benefit from. Usually Chambers of Commerce are a good starting point. There are associations of American Chambers of Commerce in every region of the world; just check the American Chamber of Commerce online directory for the specific one in your region or country.

Your own government’s resources can usually also offer invaluable information and global networks, including relevant contacts in the U.S. This is particularly helpful if you have a problem that can be fixed by your government seeking the intervention of commercial or economic officers at the local U.S. embassy in your country (keep in mind though that the Embassy is meant to assist U.S. citizens and residents, not foreigners).

Further, your local manufacturers association(s) may have members who have exported in the past, and can share their expertise. Lastly, commercial banks and local Export-Import Banks can guide you on how to leverage export financing, and minimize your financial exposure, when transacting business with foreign buyers.

Against this backdrop, you can reduce the external challenges SMEs face in trading, and better manage the uncertainty inherent in doing business internationally, all while making a healthy profit and expanding to new markets.

Magda Theodate is an international trade attorney and Director of Global Executive Trade Consulting Ltd. She works as a senior consultant for international development agencies in lower and middle income countries, resolving project execution challenges affecting trade, procurement and governance. To learn more, please visit: www.globalexecutivetrade.com

soybean

Soybean Prices are a Proxy for How the Trade War is Going

Soybeans are in your cereal, candles, crayons and car seats

Soybeans have more far uses than most of us realize. After harvesting, soybeans are dehulled and rolled into flakes as its oil is extracted. Soybean oil has become an ingredient ubiquitous in dressings, cooking oils and many foods, but is also sold for biodiesel production and other industrial uses.

Soy flours feature prominently in commercial baking. Soy hulls are part of fiber bran cereals, breads and snacks. Soybeans are even part of building materials, replacing wood in furniture, flooring and countertops. They are in carpets, auto upholstery and paints. Soybean candles are popular because they burn longer with less smoke. Soy crayons are non-toxic for children. And – because soybeans are high in protein – they are a major ingredient in livestock feed, which provides much of the impetus for globally traded soybeans.

Bean counting

Given this panoply of applications, it should be no surprise that global demand for soybeans is growing, but it’s mostly animal mouths we are feeding. Demand for soybean meal for livestock feed drives two-thirds of the export value of traded soybeans.

According to the Agricultural Market Information System, three countries produce 80 percent of the world’s soybeans to fill this demand: the United States, Brazil and Argentina.

At 123.7 million metric tons produced in 2018, U.S. farmers accounted for 34 percent of world production. Brazil’s farmers yielded 117 million metric tons, accounting for 32 percent of world production, but Brazil exported larger volumes than the United States.

Rounding out the top three, Argentina accounts for 15 percent of world production but exported just 6.3 million metric tons in 2018. China is fourth, producing 15.9 million metric tons in 2018 – just four percent of world production.

America’s second largest crop

Grown on more than 303,000 farms across the United States, soybeans are the second largest cash crop for American farmers. Conventional soybeans are grown in 45 U.S. states while high oleic soybeans are grown in 10 states. Though output varies each year, at 4.54 billion bushels in 2018, U.S. growers are so productive they can now yield twice as many bushels of soybeans as two decades ago. (At SoyConnection.com, you can click on this map to see the number of farms, acres, and bushels produced in each state.)

Three countries produce 80 percent of the world's soybean

China’s insatiable appetite

China cannot get enough soybeans. When China entered the WTO in 2001, the country was already consuming 15 percent of the world’s soybeans, driving 19 percent of global trade in soybeans. By 2018, China’s appetite had grown 815 percent according to the U.S. Farm Bureau, which says China’s demand now supports 62 percent of world trade in soybeans.

According to the Farm Bureau’s calculations, China consumes one-third of every acre harvested in the world – an amount equivalent to or more than total U.S. soybean acreage. Around 60 percent of U.S. yields were sold to China in 2017, which means there was a lot at risk for U.S. farmers caught in the crosshairs of the trade war that unfolded in 2018.

A pawn in the trade war

In July 2018, the United States fired the first tariff shot in its efforts to seek redress for the intellectual property theft cited in its Section 301 investigation into China’s practices, by imposing tariffs on $34 billion worth of China’s imports. China responded with 25 percent tariffs on an equivalent amount, including on soybeans from the United States. The tariff has remained in place as leverage in the trade war – a proxy for whether China perceives progress is being made or not in the negotiations.

In intermittent gestures of goodwill, China agrees to make purchases but has often not fulfilled orders for the promised amounts. When President Trump angrily tweeted on August 23 this year that China was not negotiating in good faith and that U.S. tariffs would cover more imports from China, China responded in part by adding five percent to its tariffs on soybeans.

A factor in price fluctuations

The Food and Agricultural Policy Research Institute at the University of Missouri recently offered a gloomy forecast for lower prices for soybeans: $8.43 per bushel for 2019-20, dropping further to $7.94 per bushel for the 2020-21 marketing years. They say lower prices are resulting from a combination of adverse weather, African swine fever disease that is decimating herd inventories throughout Asia and therefore weakening demand for feed – and the ongoing trade dispute.

On May 13 this year, coincident with some fiery presidential tweets expressing frustration with China, soybean prices reached a 10-year low. USDA estimates that, at 4.54 billion bushels produced last year, a drop in average price per bushel from $9.33 in 2017 to $8.60 in 2018 translates to losses for U.S. soybean farmers of $3.3 billion.

Soybean Prices react to China trade war

Bait and switching

Adding to the strain of lower prices, China has drastically pared back its soybean orders from the United States. In 2016, the United States shipped 36.1 million metric tons of soybeans to China. In 2018, sales dropped to just 8.2 million metric tons.

The Chinese government is able to avoid its own tariffs by directly purchasing U.S. soybeans which it then sells to private users in China. The government has also granted tariff exemptions to Chinese soybean crushers. Just this week, the government granted an exemption to state-owned, private and international companies to import 10 million metric tons of U.S. soybeans tariff-free. Overall, the quantities purchased through these mechanisms is not nearly enough to make up for the vast shortfall in supply from the United States.

So, China is buying more from Paraguay, Uruguay, Argentina, Canada and in particular from Brazil, which has moved in to supply 75 percent of China’s total imports. For U.S. soybean exporters, lower prices per bushel have attracted new buyers from Europe, Mexico and elsewhere, but those sales are not enough to replace lost sales in China.

Plummeting U.S. Soybean Exports to China

Homegrown

China is hedging its bets by rejiggering the incentives it provides to its own farmers. Upon releasing a new white paper, the head of the National Food and Strategic Reserves Administration said that even though China’s food production and reserves are strong, “We must hold the rice bowl firmly in our hands, and fill it with even more Chinese food.”

In addition to directly investing in agricultural infrastructure in Brazil, neighboring Russia, and other suppliers, the Chinese government has set a goal to increase domestic soybean production in five years from 16 million to 24 million metric tons, according to the U.S. Soybean Export Council.

News China reported in January that Chinese farmers in Heilongjiang, China’s main grain producing province, are being provided incentives to switch from wheat and corn to planting more soybeans. For years, the Chinese government has offered price supports for corn. Under new policies, crop rotation can earn Chinese farmers $322 per hectare in subsidies in addition to subsidies of between $373 and $430 per hectare offered by provincial authorities.

The Ministry of Science and Technology is also supporting trials of hybrid soybean seeds that are more weather-resistant and could more than triple the average yield for soybeans grown in China.

China's Soybean Journey

Long term disruptions

It’s possible the United States and China will ink a partial deal in the coming weeks that provides relief for American soybean farmers.

The American Soybean Association says it is “hopeful this ‘Phase 1’ agreement will signal a de-escalation in the ongoing U.S.-China trade war… rescinding the tariffs and helping restore certainty and stability to the soy industry.”

China has reportedly promised to purchase $40 billion to $50 billion in U.S. agricultural goods, which would be scaled up annually. That would be double the $24 billion China spent on American farm goods in 2017.

When seeds are in the ground, the acreage is committed, but as American farmers wait and watch the trade war, they are surely thinking about how to plant around these disruptions in outer growing years.

Over the last year, some reliable overseas customers are buying up stocks of U.S. soybeans that would otherwise have gone to China and some new customer relationships are being forged in emerging markets such as Egypt, Bangladesh, Pakistan and Southeast Asia.

When the tariffs are permanently removed, it will remain to be seen whether trading patterns will also have permanently shifted.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

Japan

Japan Mini-Deal A Victory for U.S. Agriculture?

Many American farmers and ranchers breathed a sigh of relief when the United States and Japan formally signed a U.S.-Japan Trade Agreement in September. Billed as the first phase of a more comprehensive trade deal, the Agreement establishes standards to promote digital trade and provides Japanese exporters with improved market access for certain industrial products. In return, Japan agreed to slash tariffs on a wide range of food and agriculture exports – a key outcome for the U.S. agriculture community.

For U.S. agriculture producers struggling with a weak farm economy and uncertainty in global markets, implementation of the Agreement cannot come soon enough. Japan consistently ranks as one of the top export markets for agriculture and food, soaking up over $14.5 billion worth of goods in 2018. But farm groups have been ringing alarm bells ever since the United States withdrew from the Trans-Pacific Partnership (TPP) that would have provided them access to the Japanese market sooner.

Japan top market for U.S. beef

U.S. competitors get a head start

Walking away from the TPP meant that U.S. producers were not eligible to enjoy the tariff cuts Japan adopted under that agreement. Instead, the benefits of improved market access flowed to key U.S. competitors, including from Canada, Australia and New Zealand, as those countries remained under the TPP framework. On top of that, the European Union (EU) landed its own trade deal with Japan that provided European farmers and ranchers with favorable export terms. Taken together, these various agreements put the United States at a serious disadvantage. While Japanese tariffs on foreign agricultural products continued to fall, the United States was stuck paying higher tariff rates, raising the overall cost of U.S. exports relative to competitors.

The U.S. Department of Agriculture captured this dynamic in a report it released late last year on beef exports to Japan. Without a trade agreement, U.S. beef exporters were forced to pay the “Most Favored Nation (MFN)” applied tariff rate of 38.5 percent. Not only were the tariffs paid by European beef exporters (“JAEPA” in the chart below) and by members of the TPP (“CPTPP” in the chart) considerably lower, the tariffs are scheduled to continue dropping over the next 15 years. The widening gap would render U.S. products even less attractive with each passing year.

Japan tariff reduction schedule for beef chart

U.S. strikes a “mini-deal” to catch up

Recognizing the dangers for beef and other U.S. agricultural commodities facing a similar future, the Trump Administration moved to strike a partial free trade agreement with Japan that would level the playing field for U.S. products. Stage one of the U.S.-Japan Trade Agreement mostly achieves that goal by lowering the tariff rates Japan applies to over 90 percent of U.S. agricultural goods, seeking to match Japan’s commitments under TPP.

However, U.S. agricultural producers are not completely out of the woods. That is because the TPP – like most modern trade agreements – included more than just tariff reductions. It also covered a broad range of regulations impacting agricultural trade including customs procedures and product safety approvals. The United States and Japan did not address these so-called “technical barriers to trade” in the first phase of their bilateral agreement.

Awaiting “stage two”

Both U.S. President Trump and Japanese Prime Minister Shinzo Abe have committed to working towards a more comprehensive agreement. The Administration’s U.S.-Japan bilateral negotiating objectives outline goals for every sector of the economy. That should give hope to U.S. agriculture groups, especially rice growers and dairy producers who are still seeking improved market access to Japan. U.S. industrial goods manufacturers, many of whom are eyeing the Japanese market, will be just as eager to see a comprehensive deal in the near future.

U.S. agricultural products left out of Japan mini-deal

The obvious risk is that a comprehensive deal never materializes. The annals of history (and recent memories) are filled with examples of derailed international negotiations. A pending U.S. decision on whether to impose tariffs on Japanese automobiles and parts, for example, could easily send the trade winds blowing in another direction. In addition to disappointing U.S. business groups, failure to land a full agreement could run afoul of World Trade Organization (WTO) rules, which plainly state that trade agreements must cover “substantially all trade.”

Nonetheless, after the year farmers have had, the initial U.S.-Japan Trade Agreement is still a deal worth celebrating.

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Max Moncaster is an Associate Director at the National Association of State Departments of Agriculture, where he focuses on trade and natural resource issues. He has served in trade policy and advocacy roles for public and private sector organizations since 2014.

This article originally appeared on TradeVistas.org. Republished with permission.