China - Agricultural IndustryChina - Agricultural Industry

Overview

The United States Department of Agriculture (USDA), through the Foreign Agricultural Service (FAS), operates six offices in the People‘s Republic of China for the purpose of expanding exports of U.S. agricultural, fishery, and forestry products.  In 2018, China was the fourth largest market for U.S. food and agricultural exports at $13.2 billion, a drop from its second-place status the year before.  This represented a 45% decline from 2017 due to the additional tariffs on U.S. exports imposed by China in mid-2018.  China continues to have a strong appetite for soybeans, cotton, pork and pork variety meats, hides and skins, forestry and fisheries products, and dairy products.  Despite a sharp decrease in U.S. soybean exports to China in 2018, soybeans maintained the number one share of U.S. agricultural and related exports by value at 24%  

Prospects for a rebound in U.S. agricultural exports remain constrained by China’s increasingly opaque and unresponsive legal system and the additional import tariffs China assessed on many U.S. food and agricultural products in response to the United States’ 232 and 301 trade actions.  For more information about the U.S. products affected by these trade actions, see the FAS Global Agricultural Information Network (GAIN) reports in response to the U.S. 232 trade action and U.S. 301 trade action.  Every month China issues new entry requirements – certificates, registration, attestation – that do not necessarily increase product safety but push the onus of ensuring food safety away from Chinese food regulators.  Often these new requirements are not notified to the WTO for public comment and are not announced until implementation is imminent.  China’s erratic rule-making also often subjects U.S. products to scrutiny that is not faced by domestic producers.  China is also extending the scope of its food regulations to cover products traded under new platforms which may begin to dampen prospects for e-commerce traded products.  

U.S. exports of bulk agricultural commodities saw the most dramatic drop in 2018, led by soybeans, which were down 75%.  Sorghum, wheat, and corn shipments were also all sharply lower, while cotton exports were down just 6%.  Intermediate agricultural product exports were also down in 2018 compared to 2017, primarily as a result of reduced hides & skins, hay, and soybean oil exports.  In contrast to bulk and intermediate exports, and despite the increase in tariffs, overall consumer-oriented exports continued to be relatively strong in 2018 and were down just 3%.  Among consumer-ready foods, pork, dairy, and fresh fruit saw the largest declines year to year.  The largest increases were for tree nuts (where a crackdown on border trade resulted in more nuts arriving directly from the United States), prepared food, and beef (due mainly to the fact that U.S. beef had market access for only half of 2017).  Agricultural-related product exports were down slightly in 2018 as a result of smaller forestry and fishery product exports, although shipments of ethanol and distilled spirits increased.  

China is allowing the formation of trade associations.  Since the agricultural reforms of the 1970s, the country has encouraged the privatization of state-owned enterprises and the creation of new companies and services to support the agricultural and manufacturing sectors.  However, attention to the creation of entities capable of independently representing businesses without government oversight has received little support.  Chinese companies have been highly reluctant to voice their opinions regarding new regulations, standards, and incident enforcement.  Now trade associations are beginning to appear at the provincial, regional, and national levels and may begin to play a more active role in food regulation and oversight.  China’s agribusiness is also following a parallel track of consolidating many small holdings and creating companies that are regionally or vertically integrated.  This includes conglomerates that handle animal genetics and feed processing to process animal products and Chinese chain restaurants, bakeries, and coffee shops that span the entire country.  

Consumers continue to exhibit concern for food safety, a driving factor for imports, which are seen as being more heavily inspected and generally safer than local products.  The impact has been particularly strong for dairy products and seafood, and to especially include those products for children and food ingredients as Chinese manufacturers seek to avoid problems with locally sourced ingredients.  Food safety is also driving a portion of e-commerce sales of imported food products.  Many consumers consider imported food products purchased directly from overseas through e-commerce channels to more authentic and safer than those purchased through traditional stores. 

Since 2013, China has embarked on a comprehensive review of its food safety and agricultural standards, including an extensive overhaul of its National Food Safety Law.  Due to the changing regulatory environment in China, U.S. exporters are advised to carefully check import regulations. Individuals and enterprises interested in exporting U.S. agriculture, fishery, and forestry commodities to China should contact the FAS offices (listed below) as well as USDA Cooperator organizations. Exporters of U.S. agricultural commodities should also review the FAS website (http://www.fas.usda.gov), which features general information about trade shows and other promotional venues to showcase agricultural products, FAS-sponsored promotional efforts, export financing and assistance, and a directory of registered suppliers and buyers of agricultural, fishery, and forestry goods in the United States and abroad.

The Animal Plant Health Inspection Service also operates one office in Beijing and the Food Safety Inspection Service is working to establish an office in Beijing. 
           
                   U.S. Exports of Agricultural, Forestry, and Fishery Products to China
                                                                  2015-2019
                                   Cumulative to Date Values in Millions of U.S. Dollars

Source: U.S. Census Bureau Trade Data.  For up to date information, visit https://apps.fas.usda.gov/Gats/default.aspx

Leading Sub-Sectors

China continues to lead global demand for soybeans, which are crushed and used for livestock feed and edible vegetable oil.  However, the advent and spread of African Swine Fever (ASF) in China beginning in 2018 is expected to dampen Chinese demand for soybeans in 2019, as is China’s additional 25% duty on U.S. soybeans.  

Likewise, ASF has already taken a toll on China’s swine and pork production for 2019.  By the end of 2019, the total swine inventory will be down 13% to 374 million head. Pork production will decrease by 5% to 51.4 million metric tons (MT), with the reduced supply only slightly offset by weakened demand.  To cover the domestic supply gap, China will increase pork imports by 33% to 2 million MT.  While U.S. pork products still face retaliatory Chinese tariffs of up to 62% and process verification requirements, if these are removed, U.S. producers could significantly increase exports to China.

Overall dairy consumption in China is stable, with higher-end fresh milk and yogurt products replacing milk-based beverages.  Consumers continue to prefer imported dairy products for quality and food safety reasons, resulting in increased imports across the dairy sector.  Imports of Ultra High Temperature (UHT) Pasteurized milk will continue to rise, albeit at a slower rate than in the past and will further penetrate third- and fourth-tier cities in China.  The vast majority of imports continue to come from the European Union, New Zealand, and Australia which enjoy free trade agreements with China.  The biggest consumption change has been growing Chinese middle-class demand for yogurt products, with producers diverting increasingly large accounts of fluid milk and whole milk powder (WMP) into yogurt production.  The majority of imported UHT milk is ordered through e-commerce channels by young professionals in the larger cities. 

China remains a top market for U.S. whole and processed tree nut exports.  Nuts and seeds are a traditional snack food in China. Walnuts remain the favorite nut among Chinese consumers as walnuts are considered a health food that contributes to overall brain health.  Imported nuts such as almonds, pistachios, pecans, and macadamia nuts are holding an increasingly large market share as a result of rising incomes and enhanced consumer awareness about the nutritional attributes of nuts.  

Opportunities

Animal Feed 
ASF hit China for the first time in mid-2018, and subsequently spread to all of the country’s provinces.  The disease is expected to have a serious impact on China’s swine herd and reduce China’s animal feed consumption in 2019 and beyond.  However, China still holds more than half of the world’s commercial swine, requiring massive imports of animal feed inputs, like soybeans and sorghum.  U.S. alfalfa is expected to remain a major high-quality forage choice for China’s commercial dairy farms.  Additionally, in April 2017, China lowered value-added taxes on primary agricultural products from 13% to 11%.  The country’s animal husbandry industry continues to modernize.  Part of this modernization trend includes importing higher quality feed ingredients, to provide animals with the most nutritional and efficient feed diet.  

Cotton
China’s cotton imports are forecast slightly higher on a strong pace of imports to date and potential expansion of China’s import quota.  This recovering trend is also supported by the Chinese textile industry seeking to source higher-grade cotton from foreign suppliers to stay competitive in export markets.

Dairy Products
U.S. imports are constrained in large part by slow approvals of U.S. dairy facilities and products under China’s new registration regulations. Once resolved, imports of milk-based products are expected to increase. Consumer continue to prefer imported dairy products for their perceived safety and quality advantages over domestic products.  Consumers are increasingly purchasing ready-to-drink yogurts, whey protein, and the hotel restaurant and institutional (HRI) sector is interested in sourcing U.S. cheeses. 

Tree Nuts
Nut consumption, especially for imported nuts, will remain strong.  Chinese consumers are drawn to products with nutrition and health benefits, and nuts are perceived to not only promote health and beauty but are also convenient snacks for working professionals and children.  E-commerce is an important marketing venue for imported tree nuts due to their long shelf life, convenient packaging, and long-distance shipping suitability.

Beef
Beef consumption has been increasing in China as urban consumers gain affluence and gain a taste for new protein sources beside pork.  Furthermore, Chinese consumer concerns about ASF in pork will increase demand for beef and other animal proteins.  With its limited domestic supply, China will increase its beef imports by an estimated 20% in 2019. Notably, in order to diversify the number of beef suppliers, China’s General Administration of Customs (GACC) has granted or restored market access for a number of countries in the last two years, including the United States.  China is still in the process of granting access to U.S. facilities to ship U.S. beef to China, and beef supplies which meet the requirements for market access are relatively low. Subsequently, U.S. beef prices in China have been higher relative to other importing countries. U.S. beef exporters should continue to educate importers, distributors, and consumers about the positive attributes and grading system leading to the high quality and safety of U.S. beef. 

Wood and Wood Products
U.S. wood is recognized in the China market for its sustainable supply, high and consistent quality, and reliable grading system.  However, demand for U.S. wood in 2019 is expected to be negatively impacted by the additional tariffs imposed by China since September 2018.  Moreover, China’s overall demand for wood is projected to be relatively flat in 2019 due to the general slowdown of the economy.  China’s furniture and interior design markets, who are major buyers of imported wood, are impacted by the macro economy downturn. 

Consumer Oriented Products in Second-tier Cities
While imported food products are abundant in China’s largest first-tier cities, second-tier cities offer largely untapped opportunities for U.S. food and agricultural exporters.  In years past, most imported food and agricultural products entered China through ports located at or near first-tier cities.  This was where the cold chain was most advanced, and also nearest to where most potential consumers lived.  However, cold chain and logistics in China have improved dramatically due to technological advances and the rise of e-commerce. Second-tier city importers and distributors are increasingly seeking to make direct connections with U.S. exporters in order to avoid broker fees from first-tier importers and to quickly deliver the freshest and highest quality products to local consumers.  U.S. exporters and industry associations will find that marketing and promotion activities are usually less expensive, and partners are more willing to engage, when compared to first-tier city partners.

U.S. Department of Agriculture Offices:
Agricultural Affairs Office: AgBeijing@usda.gov
Agricultural Trade Office – Beijing: ATOBeijing@usda.gov
Agricultural Trade Office – Guangzhou: ATOGuangzhou@usda.gov
Agricultural Trade Office – Shanghai: ATOShanghai@usda.gov
Agricultural Trade Office – Chengdu: ATOChengdu@usda.gov
Agricultural Trade Office – Shenyang: ATOShenyang@usda.gov
Animal and Plant Health Inspection Service:
https://www.aphis.usda.gov/aphis/ourfocus/internationalservices/offices/contact_us_pages/contact_us_beijing_china
 

Web Resources

FAS Home Page: http://www.fas.usda.gov
FAS Data & Analysis
FAS publishes a wide range of reports on agriculture, agricultural markets and market access issues and regulations. These reports are available on the FAS website:  https://www.fas.usda.gov/data
FAS Offices Overseas
https://apps.fas.usda.gov/overseas_post_directory/index.asp