12 CapitalPress.com
January 27, 2017
Experts disagree about degree of risk facing U.S. ag
CHINA from Page 1
U.S. commodities have
mixed experiences in China
down domestic crop prices,
experts say.
This scenario would be
particularly dangerous if a
crumbling Chinese economy
were to coincide with a polit-
ically motivated trade dispute
between the Chinese and U.S.
governments.
By DAN WHEAT
and TIM HEARDEN
Capital Press
Ag bears brunt
“Ag does end up bearing
the brunt, particularly the ini-
tial blows, of any of these kinds
of trade disruptions,” said Bob
Young, chief economist for the
American Farm Bureau Feder-
ation.
Given the Chinese econom-
ic system’s lack of transparency
and the unpredictability of the
Trump administration’s trade
stance toward the country, ex-
perts disagree about the degree
of risk facing U.S. agriculture.
Jim Budzynski is a pessi-
mist.
As managing principal of
Macrogain Partners, a compa-
ny that advises on agricultural
investment, Budzynski is trou-
bled by the trillions of dollars in
debt that China’s government
and corporations have taken out
to keep the economy growing.
“It’s going to be very dif-
ficult to unwind,” he said.
“They’re in a very precarious
situation.”
The current state of affairs
in China is similar to the U.S.
before the housing-induced fi-
nancial crisis nearly a decade
ago, Budzynski said.
Chinese banks are dis-
guising loans as investments
in “wealth management” en-
tities, circumventing govern-
ment limits on debt, he said.
The Chinese government
tolerates this deception be-
cause it needs to pump money
into the economy to keep it
growing, Budzyski said.
As with the U.S. finan-
cial crisis, the danger is that
eventually these entities will
become insolvent and fail to
repay debts, sending ripples
through the entire Chinese fi-
nancial system, he said.
Such unraveling could re-
sult in a worse global finan-
cial catastrophe than seen in
2008, since off-balance sheet
debt has mounted since then,
Budzynski said.
“At some point, you have
to stop digging” deeper into
debt, he said. “We keep dig-
ging.”
Exactly how quickly such
pressures could reach a break-
Associated Press
A cargo ship loaded with containers calls on the Port of Qingdao in China. About $20 billion in U.S.
agricultural goods were sold to China last year.
ing point is tough to forecast,
said Desmond O’Rourke, a re-
tired Washington State Univer-
sity agriculture economist and
world apple market analyst.
“Certainly the system could
collapse. However, like our
housing bubble, bubbles can
continue for a long time and it
is difficult to predict when they
might burst,” said O’Rourke.
China is borrowing 250
percent of its annual gross do-
mestic product compared to
100 percent for the U.S., he
said. Anything over 50 to 60
percent is considered unsafe.
Flight of capital
Experts are also worried
by wealthy Chinese compa-
nies and individuals who are
trying to get their money out
of the country — both be-
cause it signals internal eco-
nomic anxiety and because it
can lead to further weakening
of the financial system.
“There is the potential for
a huge looming crisis to oc-
cur,” said Piegza of Stifel Fi-
nancial Corp.
Such flight of capital has
another impact. When inves-
tors take their money out of
China, they must convert the
Chinese yuan into U.S. dol-
lars or another foreign curren-
cy, said Fred Gale, a USDA
economist who studies China.
Quickly selling a large
amount of currency has the
same effect as unloading large
quantities of any other com-
modity. The sudden surplus
drives its value down, he said.
In effect, the Chinese yuan
is devalued by capital flight,
which is bad for U.S. farmers
because their crops become
more expensive in that coun-
try as the dollar strengthens,
Gale said.
The dynamic also under-
mines the resiliency of Chi-
nese banks.
“If you have lots of peo-
ple doing the same thing, the
currency reserves of the Chi-
nese banks go down,” he said.
“That means they have less
cash on hand to back their li-
abilities. It puts them in a per-
ilous state.”
However, the Chinese gov-
ernment can counteract the
devaluing of the yuan by sell-
ing its reserves of foreign cur-
rency, said Piegza. By trading
foreign currency for yuan,
China buys its own currency
to boost its value.
Ultimately, China must re-
assure investors about the sta-
bility of its economic system
to avoid volatility in financial
markets, which could cause
the flow of credit to freeze,
Piegza said. That would cur-
tail global spending on com-
modities, hurting crop prices.
“How do you invest in
something if you don’t know
what’s happening there?” she
said of the Chinese financial
market.
Reassurances
For some analysts, recent
history provides some reas-
surances.
Dan Kowalski, research
director at the agricultural
lender CoBank, said China
is in for “a bumpy ride,” but
the previous financial crisis
showed it’s equipped to deal
with volatility.
The Chinese government
then injected roughly $600
billion in capital into the
economy, but the situation is
less severe now — roughly
$200 billion to $300 billion
would suffice, he said.
“They’re going to do what-
ever is necessary to shore the
system up,” Kowalski said. “I
don’t think a major crisis is
coming.”
Some experts say that
friction between the Trump
administration and Chinese
leaders is perhaps a greater
concern for agriculture than
its slowed economic growth.
“It’s to be expected that
China is not going to go back
to growing at 10 percent (a
year). Are they still going to
grow? Probably. Are they still
going to buy stuff? Yeah,”
said Daniel Sumner, direc-
tor of the Agricultural Issues
Center at the University of
California-Davis.
President Donald Trump
made getting tough on China
a key point in his campaign,
but former President Barack
Obama’s administration also
took several steps that could
complicate relations, Sumner
said.
The U.S. recently filed a
World Trade Organization
complaint against China over
its aluminum subsidies, while
outgoing USDA Secretary
Tom Vilsack criticized the
pace at which China has ap-
proved genetically modified
crops.
Capital Press reporters
Tim Hearden, Matthew Weav-
er and Dan Wheat contribut-
ed to this story.
Two years ago, when the
U.S. apple industry gained
full varietal access to China,
economist
Desmond
O’Rourke
warned that
the
Asian
nation might
not be the
O’Rourke
panacea it
appeared
for apples, citrus, nuts and
other commodities.
O’Rourke called China
“extremely unreliable” for
its ability to cut off trade, as
it had for all U.S apples for
two years on phytosanitary
grounds.
In time, Washington ap-
ple exporters hoped China
would grow from a 3 mil-
lion-box, $60 million annual
market to a 10 million-box
market worth $200 million.
After the ban was lifted,
Washington sold 2.9 million
boxes of apples to China and
Hong Kong from the 2014
crop. But sales dropped to
1.9 million boxes from the
2015 crop and, as of Jan. 3,
were 1.2 million boxes this
season.
The drop in 2015 was
caused by China’s economic
troubles, more high-quality
Chinese Fuji apples com-
peting against Washington
apples and Washington’s
supply being lower and pric-
es higher, said Lindsey Hu-
ber, international marketing
specialist at the Washington
Apple Commission.
California
farmers
shipped more than $2 billion
in agricultural goods to Chi-
na and Hong Kong in 2014,
according to the California
Department of Food and
Agriculture.
Almonds were the lead-
ing commodity at $402.2
million, followed by pis-
tachios at $362.8 million,
dairy products at $239.1
million and walnuts at
$181.9 million, according to
the CDFA.
While overall exports to
China have been trending
downward since 2013, Cal-
ifornia commodity groups
aren’t very concerned — at
least yet.
“It still remains strong
for us,” said Michelle Mc-
Neil Connelly, the Califor-
nia Walnut Commission’s
chief executive officer.
“Year to date, we’re down
just slightly ... but de-
mand has been strong. ...
The Chinese New Year is
just around the corner, and
that’s a peak consumption
season for us.”
In the 2016-17 fiscal
year, almond shipments to
China are up 49 percent
from this point last year,
making China the largest
export market for California
almonds, followed by India
and Spain, said Julie Ad-
ams, the Almond Board of
California’s vice president
of global, technical and reg-
ulatory affairs.
“The China government
has expressed the priori-
ty of maintaining stability
for 2017, which would be
important for continued de-
mand for imports such as
almonds,” Adams said in an
email.
For pistachios, China is
the No. 1 export market. In
the current fiscal year that
started in September, Chi-
na is buying as much as
what the U.S. is shipping
to the rest of the world and
consuming
domestically
combined, said Richard Ma-
toian, executive director of
the Fresno-based American
Pistachio Growers.
“It’s pretty incredible,”
Matoian said. “China just
seems to be going like gang-
busters for us.”
Fruit producers are also
optimistic that China will
remain a key market. For
citrus fruit, China and Hong
Kong combined were the
No. 3 destination behind
South Korea and Japan in
2015 with about $130 mil-
lion in purchases, said Bob
Blakely, vice president of
California Citrus Mutual.
“Citrus is something that
they really like and actually,
their buying power has in-
creased,” Blakely said. “We
haven’t seen an indication
that that’s being affected.”
Even without TPP, wheat industry has traded with other countries
TPP from Page 1
ensuring we do not lose the
ground gained — whether in
the Asia-Pacific, North Ameri-
ca, Europe or other parts of the
world.”
Any renegotiation of
NAFTA must assure that U.S.
agriculture trade with Canada
and Mexico remains strong,
Duvall said.
The U.S. wheat industry
also supported the TPP, say-
ing it would have provided
a level playing field and re-
duced tariffs imposed on U.S.
wheat.
The National Associa-
tion of Wheat Growers and
U.S. Wheat Associates is-
sued a joint statement calling
Trump’s decision “inevita-
ble.”
“It is disappointing, how-
ever, that until an alternative
trade policy is established, ex-
port opportunities in the prom-
ising Pacific Rim markets that
could help U.S. wheat farm-
ers at a time when they need
it most are very much at risk,”
the statement says.
Trans-Pacific Partnership Free Trade Agreement partners
TPP partners
Alaska
(U.S.)
Canada
U.S.
Hawaii (U.S.)
Mexico
Peru
Japan
China
Thailand
Cambodia
Malaysia/
Singapore
Vietnam
Brunei-Darussalam
Australia
Chile
New Zealand
Source: aflcio.org
Alan Kenaga/EO Media Group
Wheat prices have been
low the past year.
“Without TPP or alterna-
tive agreements, U.S. farmers
will be forced to the sidelines
of trade while losing market
share to competitors, including
Australia, Canada, Russia and
the European Union, which
have current agreements or
are negotiating new ones with
countries outside the network
of existing U.S. trade agree-
ments,” said NAWG president
Gordon Stoner, an Outlook,
Mont., wheat farmer.
“Obviously, we’re sup-
portive of trade,” said Glen
Squires, CEO of the Wash-
ington Grain Commission.
Roughly 85 to 90 percent of
wheat produced in Washington
is exported. “Moving forward,
we’re still going to be support-
ive of trade.”
Even without TPP, the
wheat industry has traded with
other countries, Squires said.
“If it’s not there, we still
have to try to compete the best
we can in all markets,” he said.
Others in agriculture wel-
comed the news.
National Farmers Union
president Roger Johnson said
in a statement that he was
pleased by Trump’s decision.
“For too long, our nation’s
trade negotiators have prior-
itized a free trade over fair
trade agenda, leading to a mas-
sive $531 billion trade deficit,
lost jobs and lowered wages
in rural communities across
America,” Johnson said. “It’s
time our country refocuses the
trade agenda to prioritize bal-
anced trade, U.S. sovereign-
ty and U.S. family farmers,
ranchers and rural communi-
ties.”
Shawna Morris, vice pres-
ident of trade policy for the
National Milk Producers Fed-
eration and U.S. Dairy Export
Council, said the TPP had valu-
able gains, but wasn’t a perfect
agreement for dairy producers,
particularly for market access.
Dairy
producers
see
Trump’s decision as an op-
portunity to directly engage
key Asian markets and estab-
lish export advances in Japan,
Vietnam and Southeast Asia,
Morris said.
“Certainly what we can’t
see is a situation where the
U.S. effectively sits back
now and lets our competitors
run the board in Asia by sew-
ing up all of their own trade
agreements without us being
at that table,” Morris said.
Tracy Brunner, president
of the National Cattlemen’s
Beef Association, criticized
the withdrawal.
“Fact is, American cattle
producers are already los-
ing out on $400,000 in sales
every day because we don’t
have TPP, and since NAFTA
was implemented, exports of
American-produced beef to
Mexico have grown by more
than 750 percent,” Brunner
said in a prepared statement.
“Sparking a trade war with
Canada, Mexico, and Asia
will only lead to higher pric-
es for American-produced
beef in those markets and put
our American producers at a
much steeper competitive dis-
advantage.”
R-CALF USA, an inde-
pendent ranchers’ group, ap-
plauded Trump’s order, say-
ing TPP would have put U.S.
livestock producers at a disad-
vantage.
“It’s really a huge relief
that now the president of the
United States is saying exact-
ly what we’ve been saying for
20 years,” said Bill Bullard,
CEO of the organization.
Agreements require Scotts to provide technical assistance to affected farmers
SCOTTS from Page 1
lays out the company’s con-
tinued responsibilities for help-
ing control the bentgrass.
As part of the agreement,
the company has agreed not to
commercialize the plant, which
was being developed for use on
golf courses.
Jim King, senior vice pres-
ident of corporate affairs for
Scotts, said the golf course
industry has changed dramati-
cally since the company started
developing the plant and the
marketplace for that product is
no longer viable and shrinking.
“Economically, it makes no
sense to commercialize it,” he
said.
The company opted to con-
tinue to pursue deregulation
because it felt it needed an an-
swer from USDA on whether a
product Scotts invested tens of
millions of dollars in should be
approved, King said.
USDA has a regulatory road
map that allow companies such
as Scotts that are in the busi-
ness of innovation to know if
a certain product should be ap-
proved, he said.
“We had a legitimate pe-
tition in front of USDA, we
wanted an answer and they fi-
nally provided the answer,” he
said.
Lori Ann Burd, director of
the Center for Biological Di-
versity’s environmental health
program, said the decision to
deregulate the bentgrass means
the agreements covering the
control of the escaped crop are
no longer valid.
She pointed out that the
word “regulated” appears be-
fore “glyphosate tolerant creep-
ing bentgrass” each time Scotts
responsibilities are laid out in
the agreements.
The responsibilities “apply
exclusively to regulated (bent-
grass),” she said.
But even if that’s not the
case, she said, the agreements
only require Scotts to take min-
imal action.
Burd said USDA’s decision
leaves her group no choice
but to explore legal options to
challenge it. The agreements
require the company in 2017
and 2018 to provide technical
assistance to affected farmers
and irrigation districts and pro-
vide incentives for the adoption
of best management practices
to control the grass.
Scotts will pull back a
little after that but still con-
tinue to analyze the situa-
tion, educate growers and
provide technical assistance.
Coker said the agreements
“remain in effect regardless of
the deregulated status of (the
grass) because the compliance
incidents predated the deregu-
lation.”
King said Scotts will honor
the agreements “and, if we have
to, we’ll do more. We consid-
er those to be documents that
were negotiated in good faith ...
and we have every intention of
living up to everything we said
we were going to do.”