Feb 18, 2020

China move has little impact on specialty crops

Heads of state and captains of industry have been working to mend U.S.-China trade relations, but recent efforts may not have much effect on specialty crop markets, according to Daniel Sumner, director of the University of California’s Agricultural Issues Center.

A “Phase One” trade agreement avoids additional tariffs that had been planned by the Chinese government on may U.S. exports, including specialty crops. The trade deal between the U.S. and China was announced by both countries in December and signed by President Donald Trump and Chinese Vice Premier Liu He in January. The deal was touted by the president as an improvement to trade relations that have smoldered for about a year and a half, with Trump saying China “agreed to reform of its intellectual property practices, and agreed to massive purchases of agricultural products.”

Specific commodities could be substantially impacted. For instance, U.S. vegetable exports to China and Hong Kong in 2018 included $21 million in frozen sweet corn.

A trade deal would seem to be good news in California, a leading producer of specialty crops including winegrapes, nuts and strawberries. But Sumner, an agricultural economist, said in January he wasn’t too excited.

“I’ve been surprised that the popular press and the financial press made a big deal about how we’re coming to an agreement with the Chinese,” he said. “The only thing we’ve done is not made it worse, that’s the good news. … Whatever downward pressure this trade turmoil has been putting on prices, it’s still there.”

Sumner tried to be positive on the trade agreement.

“Maybe it’ll help somebody,” he said. “It’s not getting worse, I suppose. And maybe there’s the argument that maybe the Chinese agreed to some intellectual property stuff. The agriculture point is, we’re a big exporter to China and they’re a big market for us.”

U.S. goods are seen by the Chinese as trustworthy, even premium products, he said. That creates a demand for them, especially as the country becomes richer.

“There’s a problem in China with playing by the rules,” Sumner said. “Chinese customers in China don’t like that because they know they can’t quite trust their own products. It’s why you get a big price premium if you import stuff, because they trust imports more than they trust their own stuff. And intellectual property and sort of not playing by the rules is a problem for them, and the richer they get it’s more of a problem for them. One of the advantages we have shipping stuff out of the U.S. is people trust U.S. suppliers. Our problem these days is we’re often not the low-end supplier, but we sell with a certain amount of trust into the market.”

As long as the Chinese economy prospers, there’s more money for premium products, Sumner said. His own view is that tariffs are bad for the world economy.

“I remember years ago, when we were talking about NAFTA (North American Free Trade Agreement), and I said, ‘The most important thing about NAFTA is, make sure it’s good for Mexico,’” Sumner said. “And it was, and it is, and (Mexico has) become a big customer for our stuff because the economy’s done better there than it has before. So, in general, that’s why economists like trade, because it’s so good for keeping the whole economy in the world growing.”

Trump has been consistent in his view of tariffs, declaring as far back as December 2018 that “I am a Tariff Man.”

“When people or countries come in to raid the great wealth of our nation, I want them to pay for the privilege of doing so,” he wrote on Twitter. “It will always be the best way to max out our economic power.” More recently, the Trump administration has also sought to ease growers’ economic burden through trade mitigation purchases and other support.

But Sumner said there are other costs, including U.S. tariffs on Chinese goods that growers use for production or processing.

“If you’re growing table grapes and you’re putting trellis on, you have to pay for the steel posts and everything, and they’re a lot more expensive now than they were a couple of years ago because of putting tariffs on steel and aluminum and everything,” he said. Cans for produce processing have also become more expensive.

“None of that’s going away,” Sumner said. “The good news is it hasn’t gotten worse, and that maybe we’ve turned the corner, and over the next little while we can reduce tariffs.”

Much, of course, remains uncertain. Trade’s bottom line for growers is the impact on prices. Sales of commodities hit with Chinese tariffs could shift to other countries such as Japan which last year signed an agreement immediately eliminating tariffs for almonds, walnuts, blueberries, cranberries, sweet corn and broccoli. Japan also agreed to staged tariff elimination for products that included wine, frozen potatoes, oranges, fresh cherries and tomato paste, the office of the U.S. trade representative said.

A leading uncertainty is always agricultural production itself.

“Everybody in agriculture knows this: There are lots of things that happen on supply and demand,” Sumner said. “It just so happened last year, we had big tree nut crops, but (leading pistachio country) Iran had no exports at all to speak of. They just had a terrible crop.”

That led to some unexpected good news for the California pistachio growers in terms of exports.

“Maybe we’ve turned the corner, but it’s not obvious,” Sumner said.

— Stephen Kloosterman, associate editor