Tag Archives: Product Safety

US Farmers Will Struggle To Fulfil Trump’s Deal With China

A farm seen alongside US Rte 322 in 2018. Photo credit: Mike Procario. Licenced under Creative Commons CC BY-ND 2.0.

THE DEEPER ONE peers into the phase one trade agreement announced with the United States on December 14, the more opaque it becomes. Neither side appears to agree on what they have agreed.

To say the devil will be in the details is not the half of it. A big-figure dollar target for Chinese purchases of US agricultural products, energy and services makes for easily digested headlines. However, for producers, especially farmers who by their nature have to plant a season in advance, it will be the categories and volumes that matter.

For now, those remain unknown, and, we hazard, still not finalised. Take farm produce. We can guess that soybeans, the largest US agricultural export to China by far in the past, and hogs, much needed to compensate for the domestic African swine fever epidemic, will feature prominently in the buying, but not much more than that.

What of other US agricultural products such as beef and poultry, both recently unbanned by China and, one assumes, about to have retaliatory tariffs removed but still facing non-tariff barriers such as regulations on hormone use? Or rice, corn and wheat, which have not significantly figured in the bilateral trade and of which China has had reasonably abundant harvests this year, according to the UN’s Food and Agriculture Organization?

Related, will the energy sales be of crude oil products or ethanol, which in the United States is produced from corn and is a crucial government price-setting mechanism for the crop? And what of cotton, which although covered by import quotas, could be converted in China into more of the millions of T-shirts that Americans buy yearly? China’s textile manufacturers need higher grade cotton to stay competitive in international export markets where low-cost Asian producers are undercutting them.

China’s US farm imports in 2017, the baseline year being used in the phase one agreement and the last full year before the tariffs war started, totalled just over $24 billion (see the table below for a breakdown.) To lift them by the nearly $16 billion necessary to meet the target the United States says has been agreed of $40 billion a year for the next two years — a two-thirds increase — will not be easy.

China’s agricultural imports from US, 2017

$m

Oil seeds, inc soya, and oleaginous fruits

14,560

Cereals

1,510

Fish

1,315

Hides

1,199

Meats

1,187

Cotton

1,073

Fruit and nuts

766

Fodder and forage

522

Misc prepared food

442

Dairy

428

Prepared vegetables and fruits

272

Tobacco

170

Animal and vegetable fats

139

Beverages

138

Prepared cereals and flours

120

Misc animal products

112

Sugar and confectionary

79

Vegetables

45

Fur skins

41

Cocoa

29

Malts and starches

24

Gums and resiins

21

Coffee, tea and spices

18

Wool

17

Animals

16

Misc vegetable products

9

Prepared meats and fish

5

Plants

4

Silk

<1

Source: UN Comtrade

Total: $24.3 billion

To put the task in some sort of context, in recent years total US exports of corn, soya beans, beef and pork have averaged the $40 billion a year China alone is now meant to be buying. This raises the question not only of China’s capacity to absorb imports on that scale but also that of US farmers and ranchers to produce them in the near term without disruptively switching their exports from other markets. China, too, has concerns about not disrupting broader geopolitical relationships with import partners such as Argentina and Brazil, and with staying compliant with its World Trade Organization commitments.

Next year’s US soya crop will have to go into the ground in the spring (around the time of the first party primaries to select the nominees for next year’s US presidential election.) The 2020 corp is forecast to be the fourth largest on record based on planned expansions of acreage. But even that would only likely let US farmers get back to the little more than their 2017 export levels to China (32.8 tonnes, worth $13.9 billion) unless they were to cut into their domestic sales.

However, the demand for soya in China has fallen. Its two main uses in China are as oil and meal for pig feed. China’s herds have more than halved because of African swine flu. That opens possibilities for more pork exports as well as for other meats, once China removes the tariffs on US meats, so they are competitive with Australian, Brazilian and European exports. Even then, the issues over non-tariff barriers will persist; the flow of new red tape on both produce and proceed foods in the name of food safety has been incessant.

US pork exports to China were worth $286 million in 2017. US estimates of the potential market for US pork in China have ranged from $8 billion a year upwards. Last year, China’s total pork imports were worth barely $2 billion, which seems a more realistic short term target for US pork producers (the largest of which is Chinese owned). Similarly for beef, of which China imported $4.6 billion worth last year. US ranchers and meatpacking companies lay great store on the hope that a more prosperous China will be a beef-eating China. US poultry producers, whose products were banned until November on health concerns, also see a market potentially worth $2 billion a year to them.

Dairy products are also a promising category, riding on the back of Chinese middle-class consumers’ preference for foreign foods, ingredients and nurishment for children perceived as safer than domestic varieties. Overall dairy consumption is stable, but changing in composition as consumers, especially young professionals in the tier one cities, turn to higher-end products such as fresh UHT milk and yoghurts. Similarly, with nuts, where imports such as almonds, pistachios, pecans, and macadamias are increasingly vying with domestic walnuts as a health food. Regulation of e-commerce channels in China that let consumers buy directly from abroad is a point fo trade friction waiting to happen.

China’s farm sector is modernizing and consolidating, turning what was a vast patchwork of smallholdings into regionally or vertically integrated agribusinesses that span farming to food processing and distribution. These will potentially be formidable competitive barriers for US exporters.

One point of entry into these supply chains is animal feeds. The demand for imported high-quality fodder and forage, such as alfalfa for dairy herds, is expected to increase. The drive to upgrade domestic animal husbandry will require nutritional and efficient feed that China cannot currently produce itself in quantity..

In the same vein, getting market access to second- and third-tier cities will be critical to US agricultural exporters. These are largely untapped markets for them. Up until now, most US food imports have not ventured far from from the ports near first-tier cities, with their large populations. Improvements in the ‘cold chain’ and logistics along with the rise of e-commerce means this no longer needs to be so.

Putting together all these opportunities still leaves adding $16 billion a year in US farm exports looking a stretch over the next couple of years, short of authorities buying for purely political reasons. Given the repeated references in state media to buying US farm products at competitive prices, there will be no free lunches, so to speak.

There are, however, two ways the numbers could be massaged. One is that higher prices could boost the dollar sales numbers. Global farm commodity prices are at cyclical lows with an upswing having been stalled for more than a year by the US-China trade dispute. Some increase would be in the natural order of things. When the US exported a record $29.6 billion in agricultural goods to China in 2013, the soya bean price, for example, was more than $14 a bushel; it is currently $9. For much of 2017, the price was below $10 a bushel.

The other is to include forestry products in the grand total. In 2017, US wood, pulp and paperboard exports to China were worth $8.3 billion. Adding in those would raise the baseline to $33 billion, making $40 billion appear a lot more achievable.

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More Melamine Problems Pop Up

The melamine-tainted food scandal has taken a couple of bizarre twists.

First,  Britain’s Food Standards Agency said late last week that a Chinese-made novelty food product sold in U.K. sex shops has been taken off the shelves after being found to be contaminated with melamine. A FSA spokesperson said: “This is a first. We’ve never had to put out an alert before on “willy spread” – chocolate-flavoured or otherwise.” I think that is what is the known as British understatement.

Second, 1,500 dogs being bred for their fur have died after eating contaminated feed. The deaths are thought to have occurred over the past two months on a raccoon dog farm in Liaoning. The AP quotes Zhang Wenkui, a veterinary professor at Shenyang Agriculture University and who performed autopsies on a dozen of the dogs, as saying, “First, we found melamine in the dogs’ feed, and second, I found that 25 percent of the stones in the dogs’ kidneys were made up of melamine.”

Last year, dozens of dogs and cats in the U.S. died after eating melamine-tainted pet food and this year  a lion cub and two baby orangutans developed kidney stones after being fed with milk powder made by the Sanlu Group, which is at the center of the tainted diary products crisis that has left four people dead and hospitalized more than 50,000 children.

The two incidents only raise more questions about how far melamine has penetrated the food chain and whether the effort to regulate it is being overwhelmed.

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A Primer On Food Safety

The Council on Foreign Relations has a backgrounder on China’s food safety regime that provides a useful summary of the current situation, China’s Troubled Food and Drug Trade. Four sentences stand out.

Of the nearly one million food processing factories, 70 percent are food workshops with fewer than ten employees.

This degree of fragmentation of the industry would make it a nightmare to regulate anywhere.

In the United States, food safety is also enforced through a variety of other means, including a punitive torts system, independent media, and vigorous civil society organizations. These institutions in China are not nearly as powerful…

Some see signs of change here, notably in the media’s role in exposing the melamine-tainted dairy products scandal. But the jury is still out.

… a common belief in China is that the “ultra-competitive business environment” means companies cannot survive without breaking the rules. Companies that do use good business practices are seen to be at an economic disadvantage…

Consumers and regulators have to make sure there are no wages of sin, and that means consumers having reliable information so they can vote with their wallets (as they have been doing with dairy products) and regulators not being too cozy or, worse, in cahoots with the regulated (see sentence 2 above).

….food from India is more likely to fail (U.S. safety inspections) than food from China. Illnesses from food in the United States more often originate domestically…

The U.S. doesn’t allow meat and poultry imports from China because U.S. law requires importers to meet the same standards as U.S. producers, so that may skew the comparisons in China’s favor but the broad point is that China is not alone in having food safety standard issues. Not that that doesn’t make dealing with them necessary and urgent.

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Medicinal Ginseng Recall Expanded

Wandashan Pharmaceutical recalled all its products taken by injection on Friday, following three deaths of users of its medicinal gingseng. The move was announced by the State Food and Drug Administration today. Sales and use of Wandashan’s ginseng products had already been stopped.

We noted earlier that the deaths, which occurred at the beginning of October, might turn into another product safety issue on the heels of the melamine-tainted dairy products scandal (See: “New Figures For Melamine-Related Illness“). The pharmaceutical industry is highly lucrative but, like the dairy industry, poorly regulated, and rife with counterfeit or shoddily made medicines. Bacteria contamination is thought to be the cause of the deaths in question.

Xinhua says the injection, based on a type of Siberian ginseng, is often used to treat thrombosis and is also believed to be a helpful remedy for coronary heart disease.

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Toymaking Is No Child’s Play As Business Failures Soar

Made in China toys seem ubiquitous in the West. China is the world’s largest toy exporter. But these are tough times for the industry.

Half of China’s toy exporters have gone out of business so far this year. A rising yuan,  more expensive raw materials, slowing market growth and tougher quality standards have taken a fearful toll, Xinhua reports. More than 3,600 toy exporters or 53% of the industry have shuttered, mostly small producers exporting less than $100,000 worth of toys a year. Of those 600 had their licenses revoked for quality reasons.

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The Economics Of Tainting Milk With Melamine

Chemistry World puts some numbers on the cost of adding melamine to milk (here via the Royal Society of Chemistry site). It is a profitable business:

Industrial melamine costs about 12,000 yuan (US$1765) per tonne, much higher than the price of milk – 1200-1800 yuan per tonne. But the practice of adding melamine to milk is profitable because just one gram of melamine per kg of milk is enough to lift the apparent protein content of milk from less than 27 grams of protein per kilogram (the cheapest grade of milk in China) to greater than 31 grams per kilogram – the most expensive grade.

So for 0.012 yuan (0.0018 US cents), producers can illegally boost the price of a litre of milk from 1.2 yuan (17.6 US cents) to 1.8 yuan (26.5 US cents) per kilogram. If the milk is diluted, the resulting profits can be even greater.

Chemistry World also quotes Chinese media reports saying some milk collection stations may have also heated milk and added citric acid to increase the amount of melamine they could dissolve. Melamine is only slightly soluble in water at room temperature, more so at 100°C. The citric acid may help keep the melamine from coming out of the solution when the milk cools down, the magazine says.

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Ripples From Tainted Dairy Products Scandal Spread Wider

It is less than 48 hours since a senior official said the problems with tainted dairy products were under control. Since then the E.U., India, France and South Korea have joined the ranks of those imposing restrictions on Chinese milk and dairy related imports, the maker of White Rabbit candy has issued a product recall, Japan’s Lotte Group has removed its popular chocolate-filled Koala-shaped cookies, which are made in Macau, from Hong Kong supermarket shelves, and there have been reports of baby zoo animals developing kidney stones after being fed melamine contaminated milk.

China’s exports of dairy products are modest, worth $232 million last year, but the danger to Chinese exporters lies in collateral damage to all food exports on the grounds that the lax health and safety standards uncovered in the dairy industry will be thought to be widespread. Government-to-government negotiations to allow cooked chicken exports to the U.S. for the first time are likely to be stalled because of the milk scandal.

Meanwhile, the scandal has brought down its first government minister, but in Taiwan. Lin Fang-yue, the island’s health minister, said he would resign in face of public outrage that the government would allow sales of Chinese milk products with low levels of melamine.

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Tainted Baby Formula Scandal Widens

The scope of the melamine-contaminated baby milk scandal continues to widen. Batches of tainted formula have now been found produced by 22 companies across China, according to TV reports, here via AFP.

This will shift the focus from Sanlu Group, which has been criticised for being slow to recall the affected products, to the milk brokers who buy from farmers to sell to agribusinesses like Sanlu and who are thought to have been the ones adding the melamine so their milk appears to have a higher protein content. It will also put a spotlight on more local and provincial health authorities.

Meanwhile, Xinhua is reporting that Sanlu’s chairwoman and general manager Tian Wenhua has been sacked from both her day job and as secretary of the Party’s corporation committee.

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Tainted Baby Milk Powder Recalled

Product safety standards are back in the news with the recall of tainted baby milk. Melamine has been added to milk powder that has been linked to kidney stones in more than 400 infants. Nineteen people have been detained in connection with the incidents and a wide ranging investigation is underway. The dairy involved, Sanlu Group, has been ordered to stop production by the Health Ministry. Some of the tainted milk powder was exported to Taiwan, but to no other foreign markets.

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Lawyers Sink Their Teeth Into Tainted Pet Food

The lawyers have at last got involved in last year’s product safety scare.

Two Chinese businesses and a U.S. company have been indicted by the U.S. attorney’s office in Kansas City in connection with tainted pet food incidents that killed dozens of animals last year, triggering the scare. These are criminal not civil indictments — serious stuff.

Xuzhou Anying Biologic Technology Development Co., a Chinese processor of plant proteins based in Jiangsu province, and Suzhou Textiles, Silk, Light Industrial Products, Arts and Crafts I/E Co., an export broker, were charged in two separate but related indictments on 13 counts of introducing adulterated food into interstate commerce and 13 counts of introducing misbranded food into interstate commerce.

The indictment also names Mao Linzhun, Xuzhou Anying Biologic’s owner, and Chen Zhen Hao, president of Suzhou Textiles.

Sally Quing Miller, a Chinese national, and her husband, Stephen S. Miller, the owners of Las Vegas-based ChemNutra, were charged with 13 counts of introducing of adulterated food into interstate commerce, 13 counts of introduction of misbranded food into interstate commerce and one count of conspiracy to commit wire fraud.

According to the Associated Press report:

The indictments allege that Suzhou Textiles, an export broker, mislabeled 800 metric tons of wheat gluten tainted with the toxic chemical melamine to avoid inspection in China. Xuzhou then did not properly declare the contaminated product it shipped to the U.S. as a material to be used in food, the indictment says. It also says the shipment was falsely declared to the Chinese government in a way that would avoid a mandatory inspection of the company’s plants.

According to the indictment, ChemNutra picked up the melamine-tainted product at a port of entry in Kansas City (which is why the case is being heard there), then sold it to makers of various brands of pet foods. The indictment alleges that the melamine was added to make the gluten meet the required standard for protein content specified in the contract between Suzhou and ChemNutra.

Pet food manufacturers recalled more than 150 brands of dog and cat food across North America in 2007, following reports of thousands of cats and dogs suffering kidney failure or other illness after eating tainted products. Canada’s Menu Foods was hardest hit, recalling 60 million packages of pet food. Consumer reports received by the FDA suggested that about 1,950 cats and 2,200 dogs died after eating contaminated pet food, according to the U.S. Justice Department.

Dan Harris, over at the China Law Blog, has made an early stab at what the test of criminal liability might be in these cases. It remains to be seen who will get a day in court, but ChemNutra’s Millers seem a fair bet. Whether the Chinese companies’ executives show up will largely depend on whether Beijing decides it is in its interests to hunker down (the form bet) or make a show of being a good global citizen (the long shot).

Either way, it promises to paint an ugly picture of the China trade for China-bashers in the U.S. to glom onto.

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