FAS China

U.S. Agriculture’s Advocate in the Middle Kingdom

Economic Overview

Economic Overview

 World’s Second Largest Economy (PPP)    GDP Growth 2006: 2007 Forecast: 11.1 % 11.5 % World Bank estimated 2007 GDP per capita $9,800 (PPP) Unemployment: 4.2% (2006, official)

Source: CIA Fact book, EIU, 2007

Economic Overview

Slightly Smaller Area than the United States Total: 9,596,960 sq km Source: www.flora.huh.harvard.edu/china/images/floramap.gif

Economic Overview

    

Only a third of economy is state controlled

  Accounts for just 17% of gross industrial output value Excludes many state-controlled firms such as joint ventures with foreign capital high enough for the company to be classified as a "foreign-funded"

Joined WTO in December, 2001 $1.3 trillion in foreign exchange reserves Unprecedented migration

 150 million people moving to cities

Increasing inequality

 Promotion of “Harmonious Society”

Source: EIU, 2007

U.S. – China Trade Overview

   

Fourth largest market for U.S. exports

 Expected to overtake Japan in 3 rd place in 2007

The United States exported $55.2 billion in goods and services to China The United States imported $287.8 billion in goods and services from China U.S. trade deficit at $232.6 billion in 2006, the deficit with China is our largest

 Expected to rise to $270 billion in 2007

Source: CY 2006 Data, Census Bureau, Post Forecast, 2007

U.S.-China Trade Overview

U.S. Total Exports, China Forecast to Overtake Japan in 3 rd in 2007

Billion $U.S.

240 210 180 150 120 90 60 30 0 2002 2003 2004 2005 2006 Mexico Japan China UK

Source: USITC 2008 Data

Canada

U.S.-China Trade Overview

U.S. Total Imports, 2007 Deficit with China Forecast at $270 Billion

Billion $U.S.

300 250 200 150 100 50 0 2002 Canada

Source: USITC 2008 Data

2003 China 2004 Mexico Japan 2005 Germany 2006

Total Exports from China

China’s Exports Continue to Grow Rapidly

1800 1600 1400 1200 1000 800 600 400 200 0 1998

Source: Census Bureau, 2007

2000 2002 Years China Exports 2004 2006

Inflation: Retail Food Price Increases

Especially for Staple Consumer Goods in China Product Avg. Price 2006 Avg. Price 2007 Increase

Rice (Jan. –Oct.) Corn (Jan.-Nov) Wheat (Jan. Nov.) Soybean (Jan.-Oct.) Beef (Jan. –Nov.) Pork (Jan.-Nov.) Poultry (Jan.-Nov.) Eggs (Jan.-Nov.) $0.14

$0.08

$0.08

$0.15

$0.16

$0.09

$0.09

$0.19

$0.93

$0.64

$0.45

$0.28

$1.04

$0.97

$0.59

$0.35

Prices in $U.S./Pound 13% 20% 14% 30% 11% 52% 31% 28%

Source: MOA and industry data

China’s Agriculture

From Self-Sufficiency to Global Integration

China’s Agriculture in Context

  

Agriculture contributes 11.9 percent of GDP

  Industry (48.1 percent) Services (40.0 percent)

Agriculture employs 45 percent of labor force

 340 million people

10 persons to feed per hectare of arable land, more than twice the world average of 4.4

Source: CIA, USDA/ERS, 2007

China’s Agriculture in Context

Annual GDP

Agriculture 12% Services

40%

vs

.

Breakdown of the Labor Force

Services 31

%

Agriculture

45%

Industry 48% Industry

24 %

Source: CIA, USDA/ERS , 2007

China’s Agriculture

 

World’s largest ag producer by volume

 Planted area and total production in decline   Increasing environmental pressures Improving yields will not match domestic demand

Increased demand for higher value products for processors and domestic consumers

 Growth in cash crops, livestock, and fisheries sectors and other labor intensive crops unlikely to match consumer demand

Source: CIA, USDA/ERS, 2007

China’s Land Use

Most of China’s Land is Non-Arable Desert, Dry Savanna & Mountains

Arable Land 15% Perm Crops 1%

Source: CIA Fact book, 2007

Other 84%

China’s Grain Production Stagnant

Million Tons

450 400 350 300 250 200 150 100 50 0 2001 2002 2003 Rice 2004 Wheat 2005 Maize 2006 2007

Source: China Statistical Handbook, 2007 and FAS Beijing forecasts

China’s Meat Production Growing

Million Tons

70 60 50 40 30 20 10 0 2001 2002 2003 Pork 2004 Beef 2005 2006 Mutton 2007 2008

Source: China Statistical Handbook, 2007 and FAS Beijing forecasts

China: World’s #1 Aquatic Producer

Production growth driven by strong domestic consumption

Million Tons

120 100 80 60 40 20 0 18.9

2.4

21.3

12.5

14.3

26.9

20.1

2.6

22.6

13.2

14.5

27.7

20.1

2.6

22.6

13.8

14.5

28.4

21.5

2.5

24 14.5

14.4

28.9

22.7

2.5

25.2

15.1

14.4

29.5

2003 Sewater Production 2004 Freshwater Production 2005 Seawater Catch Freshwater Catch 2006 Seawater Culture Freshwater Culture 2007*

Source: MOA China Agriculture Statistics Report; * estimated by FAS Beijing

China: Top World Producer of…

Apples Peanuts 33% 52% 5% 10% Pears 6% 5% 18% 71% China United States Poland Rest of World China United States Italy Rest of World 32% 43% 19% 6% Pork 16% 23% 10% 51% China United States India Rest of World China United States EU-27 Rest of World

Source: USDA PS&D Data

China: Top World Producer of…

Cotton Rice 27% 37% 18% 18% China India

Source: USDA PS&D Data

United States Rest of World 39% 31% 8% 22% China Indonesia India Rest of World

China’s Agricultural Production

China is World’s #2 Producer of:

 Poultry (17%), second to U.S. (26%)  Corn (19%), second to U.S. (41%)  Wheat (16%), second to the EU-27 (21%)  Citrus (19%), second to Brazil (24%)  Rapeseed (27%), second to the EU-27 (34%)

Source: USDA PS&D Data

Million Tons

60

China’s Soybean Market

Production Slightly Declining, but Demand Increasing

50 40 30 20 10 0 2002-03 2003-04 2004-05

Production Imports

2005-06 2006-07

Imports from U.S.

2007-08*

Source: FAS Beijing PS&D data by MY, 2007-08 forecast

Million tons

30 20 10 0 70 60 50 40

China’s Consumption

China Broiler Consumption Grows Strong Amid Slow Recovery in Pork

10.37

51.47

11.01

46.69

11.57

47.7

2006 2007 Pork Broiler 2008

Source: FAS Office of Global Analysis

China’s Agricultural Investment



Improved agriculture mechanization, post harvest treatment, & distribution



Upgraded agriculture processing & manufacturing facilities



Large domestic investment in biotechnology & other research

China’s Agricultural Future



China as a Competitor

    High-value products (fresh and processed horticultural products, meat/poultry, etc) Rapid quality improvements and distribution infrastructure are major factors Large scale investment in export-oriented agricultural production suggests increased threat to U.S. growers Can China continue to boost agricultural production enough to satisfy a booming domestic market and still increase exports?

China’s Agricultural Future



China as a Market

     Despite challenges, no market matches China’s potential, especially for high-value products China has been our best performing export market recently - led by oilseeds, cotton, hides, meats, and grains Continued rapid economic growth will create unprecedented expansion in China's food demand Over next 15 years, as incomes expand, product mix of China’s agricultural imports should become more diversified How will water supply and energy demand affect the outlook?

Agricultural Trade

The World’s Most Dynamic Market

Agricultural Trade with China



Imported $30.6 billion in 2006

 World’s sixth largest food importer 

Exported $20.9 Billion in 2006

 World’s 11th largest food exporter 

In 2006, $7.2 billion U.S. Ag Exports

 In 2007, expected over $8 billion 

30 years of 10 percent Avg. Ann. Growth

Source: FAO, FAS Beijing, USDA/ERS, 2007

World Trade with China

In 2006, China was a $9 Billion Net Importer

35 30 China Imports 25 20 15 10 5 0 1992 1994 1996

Source: FAS Beijing, USDA/ERS, 2007

China WTO Accession China Exports 1998 2000 2002 2004 2006

U.S. Trade with China

Rapid Rise in U.S. Exports after WTO Accession China is now Fourth Largest Market for U.S. Ag Exports

4 3 2 1 7 6 5 0 1997 1998

China WTO Accession

1999

Source: FAS Beijing, USDA/ERS, 2007

2000 2001 2002

U.S. Exports U.S. Imports

2003 2004 2005 2006

U.S. Agricultural Exports to China

Total 2006 Exports were $6.7 Billion Total 2007 Exports Forecast at $7.1 Billion

4 3 2 7 6 5 China’s WTO Accession 1 0 1995 1997 Bulk

Source: FAS Beijing, USDA/ERS, 2007

1999 Intermediate 2001 2003 Consumer-Oriented 2005

U.S. Agricultural Exports to China

Economic Growth & Enhanced Processing Capacity: Soybeans, cotton, and hides and skins are leading exports

Soybeans

46

Cotton Hides/Skins

137

Forest Products Meat/Poultry 0

70 265 395 547 790

1000

1012 Source: U.S. DoC, Census Bureau, 2007

Million $ U.S.

2000

2066 2532

2001 2006 3000

U.S. Agricultural Exports to China

China’s Beef Imports – Impact of Market Closure

1,000 $U.S.

16,000 12,000

United States

8,000 4,000

Brazil

0 2002 2003

Source: World Trade Atlas, China Customs

2004

Australia New Zealand

2005 2006

China’s Trade in Soy Complex

China’s Rising Soybean Imports have Changed the Balance of Trade

10 -5 -10 5 0 -15 -20 -25 -30 -35 -40 Soymeal Soy Oil Soybeans 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Source: FAS PS&D Tables

U.S. Hardwood Lumber Exports

China’s Imports Rapidly Increase

Million $U.S.

300 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006

Source: U.S. Trade, DoC, U.S. Census Bureau

China’s Agricultural Exports

China’s Total Agricultural Exports

Million $U.S.

40000 35000 30000 25000 20000 15000 10000 5000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 World United States

Source: Census Bureau, 2007

China’s Ag Exports to the United States

Horticultural Products have Shown the Greatest Growth

508 Processed F&V Juices Snack foods Nuts Fresh Vegetables Spices Tea Fresh Fruit 0 34 37 4 8 20 75 12 27 49 23 65 88 100 133 165 171 200 300 400 FY 2006 FY 2001 500 600

Source: Census Bureau, 2007

China’s Apple Juice Exports

China is the World’s Largest Producer and Exporter of CAJ

Million $ U.S.

1200 1000 World United States 800 600 400 200 0 2002

Source: China Customs Data 2007

2003 2004 2005 2006 2007

(Jan.-Nov.)

Policy Issues

Market Access for U.S. Agriculture

Opportunities and Challenges

  

Importance of China’s WTO Accession U.S.-China Bilateral Relationship

   Policy (especially related to Food Safety) Market Development Capacity Building

Evolving Agricultural Trade Environment

 Consumption and import growth potential  China as a competitor

China’s WTO Accession



By joining the WTO, China committed to Trade Liberalization. It agreed to:

      Lower tariffs (lowered by 17% by 2004) Abide by International Standard Setting Bodies (IPPC, OIE, CODEX) Weaken state trading monopolies Increase license and quota transparency Base SPS measures on science Notify and allow comment on new regulations

Bilateral Trade Issues

 

Mainly SPS-Related

  Beef trade has not yet resumed, pending negotiation of a protocol Pathogen and drug residue standards threaten to disrupt pork/poultry trade  Numerous plant health issues

Biotechnology

  Slow review of applications Soy and corn trade at risk

Bilateral Trade Issues

  

Export Subsidies

 China believed to subsidize corn exports, but may soon become a net importer. In 2006, first major U.S. shipment to China in ten years

Quarantine Inspection Permits (QIP)

  Required of any product needing inspection Used as a de facto import licensing system

Tariff-rate Quotas (TRQ)

  Trade is flowing TRQ distribution system not transparent

Bilateral Trade Issues

 

Intellectual Property Rights (IPR)

 Rampant problems with trademark infringement involving western brands (e.g. Wisconsin Ginseng), creating financial, legal, and food safety concerns

Value Added Tax

  Refund for local producers Possible national treatment issue

SPS Issues



Non Science-based restrictions on trade

 Lack of notification/transparency  Lack of risk analysis  Lack of adherence to international standards  Use of trade as bargaining chip 

Affects many products including

 Beef, poultry, pork, and horticultural products

Biotechnology Issues

 Registration difficult  No opportunity for foreign direct investment  Regulators’ research branches involved in commercial research and development  Technical/Political discussion driven by U.S. regulators have had limited results

Biotechnology & Seed IPR Issues

        Synchronized registration Stacked trait policy Detection methods Revision of bio-safety regulations Application window period Patentability Genetic source material Plant variety protection

WTO Compliance: Issues



Import Licensing

 QIP  Import reporting system for soybeans  Poultry Automatic Registration Form (ARF) 

TRQ

 Lack of transparency affecting quota fill

IPR: The Problem

IPR Issues

   Foreign companies lose 20% of the value of all sales in China to counterfeits 20% of all consumer products are counterfeits, including well known brands, e.g., Gucci, Rolex, P&G, Kraft, Sunkist, Wisconsin Ginseng, etc By some estimates, U.S. industry lost $84 billion in value in 2006

IPR Issues

 Of the 35 cooperators operating in China 9 are registered properly and 4 have pending trademarks  12 are registered in the U.S. but are not registered in China, nor have they applied  9 are registered neither in the U.S. nor China  Informal surveys of tradeshows indicate approximately 30% of companies are trademarking their brands

IPR: Marketing

 

Marketing in China

 Market Analysis   Market Development Branding

Protecting Your Brand

  Trademark/Patent Using the Regulatory/Enforcement Infrastructure

Value Added Tax: The Problem

 Domestic farm products pay reduced VAT  Most purchasers of domestic farm products pay no VAT  Most purchasers of imported farm products pay VAT  Some exporters of domestic farm products get a VAT rebate (for VAT not paid!)

VAT: Next Steps

   

Detail of Chinese Law Investigative Research

   6 + Commodities, including processed products Against GOC interest – expect interference Identify the difference between law and practice

Review of WTO law

 GATT Article III   Subsidies Ag Agreement-AMS

GBI Sponsored by USWA

Moving Forward

From Engagement to Results

USDA Policy Engagement

 We have an obligation to hold China to its bilateral and multilateral commitments  U.S.-China Joint Commission Meeting on Science and Technological Cooperation (JCM)  U.S.-China Strategic Economic Dialogue (SED)  State-NDRC Dialogue on Rural Development  U.S.-China Joint Commission on Commerce and Trade (JCCT)   Agricultural Working Group (AWG) SPS Working Group (SPSWG)

USDA Policy Engagement

 USDA-MOA Joint Committee on Cooperation in Agriculture (JCCA)    U.S.-China High Level Joint Biotech Working Group (BWG) Animal and Plant Health Working Group Scientific Cooperative Research & Exchange  WTO     Transitional Review Mechanism (TRM) – China-specific Trade Policy Review Mechanism (TPRM) SPS and TBT Committees Committee on Agriculture (COA)

Engagement Works

     Avian influenza ban on U.S. poultry lifted in 2005 (ban retained in 7 states) China extended quarantine inspection permit validity from 90 days to 6 months Market access for California plums and new Florida counties approved to export citrus Access to port of Shenzhen for U.S. horticultural products Re-certified expiring biotechnology events

Looking Ahead

China’s Future

Consumption: The Known

 29 years of 8-12% growth  At least 1.5% rural to urban migration  At least 1% growth in population  Approaching 20% middle income consumers and above

Consumer Expenditures

4500 4000 3500 3000 2500 2000 1500 1000 500 0 Average Shanghai Beijing Guangdong Vegetables Meat & Poultry Aquatic Liquor & Beverages Fruit & Nuts Dairy Dining Out

Source: China Statistical Yearbook, 2006

  

Consumption: The Unknowns

Food away from home

 Estimates are one-quarter of the middle income food budget is spent outside the home

Individual demographic data

 Current research does not differentiate age, education, individual income, job type, or work schedule

Specific attributes

 Current research regarding differentiation of consumer demand on the basis of quality, safety, convenience, nutritional, branding, and certification is lacking

Expected Growth in China’s Food Expenditures

Opportunities for U.S. exports

700 600 500 400 300 200 100 0 19 90 92 94

WTO Accession

96 98 20 00 02 04 06 08 20 10 12 14 16 18 20 20

Source: Global Insight’s Global Consumer Markets Service

China's Middle Class

Expanding Rapidly

250 200 150 100 50 WTO Accession 0

19 90 92 94 96 98 20 00 02 04 06 08 20 10 12 14 16 18 20 20

Source: Global Insight’s Global Consumer Markets Service

Biofuels Development

 5 MMT of production  3.5 MMT of food ethanol  Over 1 MMT of corn based ethanol production  Fluid use of inputs based on relative costs  Double total production over the next 5 years

Biofuels: Fuel Production and Input Sources

 Expanded corn production  China, U.S., Brazil…  China’s domestic demand for feedstock  Pork, beef, and poultry production forecasts  Production limitations  Land and water resources and competition  Limited adoption of biotechnology

Market Development Programs

    More than 50 Cooperators/Participants currently active Promoted products range from apples to wheat Total funding for 2007 program year is about $27 million Product-specific strategies vary, but common themes:    Increase product familiarity Improve understanding of food safety issues Expand awareness of healthy eating guidelines     Enhance trade capacity through tech training/trade servicing Provide critical support on trade policy/market access issues Strengthen rules on IPR and copyright Extend market development efforts to Emerging City Markets

Market Development

 ATOs develop markets and identify market access issues for Ag Affairs Office  Key tools include trade shows, promotions, & sector reports

USDA Resources

The Department’s Commitment to U.S. Farmers in China

USDA Presence in China

   USDA has 45 employees (13 Americans and 32 local staff) in China -- our largest overseas presence FAS Agricultural Trade Offices in China’s three largest cities—Beijing, Shanghai, and Guangzhou. Chengdu opened in 2007 and Shenyang opening in 2008 Animal & Plant Health Inspection Service (APHIS) office in Beijing to focus on SPS-related bilateral market access issues



ATO Responsibilities

Identify market opportunities & support private sector trade facilitation in expanding U.S. high-value agricultural exports to China.

 All FAS China Coordination: Responsible for ‘One FAS China Voice’ Reporting, CSS, and Cooperator Reviews (MAP, FMD, EMP and CPR).

 Advisor to the Agricultural Minister-Counselor for market development in the China market.

 Sharing Market Expertise: Actively assess, analyze, and report China’s agricultural market and trade trends in support of trade policy goals and objectives including market access, intelligence and development efforts.



ATO Responsibilities

Identify/turn ‘on the ground’ market information into user friendly market reporting in support of USDA/FAS China trade facilitation advocacy.

 Advance the image of U.S. products via relationship building with importers, distributors, retailers, food service operators, the media and consumers to establish and reinforce positive perceptions of food and agricultural products from the United States.

 ATOs support bilateral trade by connecting traders on both sides of the Pacific; grow and maintain network of contacts; build support for economic realities in local terms (Chinese language, customs, culture) that support U.S.-China agricultural trade.

ATO Activities

Works with USDA Cooperators and State and Regional Trade Groups to Promote U.S. Food Products. Activities Include:

Multi-Level Campaigns Chef Seminars In-store promotions Trade Shows Menu Promotions

China Government Bodies

Ministry of Commerce (MOFCOM) - formerly MOFTEC

General Administration of Quality Supervision, Inspection and

Quarantine (AQSIQ) – formerly part of MOA, negotiates market access for plant

and animal products

Ministry of Agriculture (MOA) – biotechnology, pathogen and drug residue standards,

domestic animal and plant disease surveillance

Ministry of Health (MOH) – pathogen and drug residue standards State Food and Drug Administration (SFDA) – new State Environmental Protection Administration (SEPA) – new

Source: Chinese Government Yearbook, 2007

    

FAS China Contacts

Office of Agricultural Affairs

 Tel: (86-10) 6532-1953 email: [email protected]

ATO Beijing

 Tel: (86-10) 8529-6418 email: [email protected]

ATO Shanghai

 Tel: (86-21) 6279-8194 email: [email protected]

ATO Guangzhou

 Tel: (86-20) 8666-0821 email: [email protected]

ATO Chengdu

 Tel: (86-28) 8526-8668 email: [email protected]