By Cheryl Anderson
DTN Staff Reporter
OMAHA (DTN) -- The U.S. Grains Council and members of the ethanol industry said this week they stand ready to mount a cooperative defense against an anti-dumping investigation against U.S. dried distillers grains exports to China.
China's Ministry of Commerce on Tuesday announced it has initiated anti-dumping and countervailing duty investigations of U.S. dried distillers grains with solubles exports to China.
U.S. Grains Council President and Chief Executive Officer Thomas N. Sleight said the council was disappointed to see the initiation of the investigation. He called the allegations by Chinese petitioners "unwarranted and unhelpful," and said the investigation could have negative effects on U.S. ethanol and DDGS producers, as well as Chinese consumers, for many years.
The basis of the investigation is that China's Ministry of Commerce will be studying whether U.S. agricultural policies in some ways create unfair competition. Sleight added that there is a long list of U.S. ag programs that China will be investigating to see if they are trade distorting.
According to a formal declaration from China's MOC, the investigation will focus on the subsidies of U.S.-produced distillers dried grains with or without solubles (DDGS). The document shows that the Ministry of Commerce consulted with the China Alcoholic Drinks Association and contains a list of more than 42 U.S. subsidy programs that allegedly increased U.S. DDGS exports and harmed local industries.
At the top of the list is the U.S. crop insurance program, something Sleight said is categorized as an "Amber Box" by the World Trade Organization and is not considered trade distorting. The WTO identifies subsidies by boxes given colors of traffic lights: green (permitted), amber (slow down/be reduced), red (forbidden). Amber box support measures are those which support prices or subsidies related to production quantities and are subject to limits.
Sleight added that some of the U.S. ag programs on the list for the investigation do not exist any longer.
The time period for the subsidies in question is from Oct. 1, 2014, to Sept. 30, 2015. The investigation will be completed on Jan. 12, 2017, but could be extended to July 12, 2017, if the government feels it needs more time.
HISTORY OF TRADE DISRUPTIONS
Since 2010, China has consistently made demands and allegations against the U.S. that have resulted in trade disruption and turmoil.
China's first DDGS anti-dumping investigation against the U.S. in 2010-2011 was announced on Dec. 28, 2010, when four Chinese ethanol producers claimed the U.S. dumped its DDGS into Chinese markets cheaper than they could produce it domestically. Chinese importers immediately suspended all purchases of U.S. DDGS, and the Grains Council coordinated an industry-wide registration process for U.S. companies.
Although DDGS trade with China did not come to a complete standstill, the sudden shutdown of the Chinese DDGS market was a tremendous loss for U.S. ethanol producers, as China is the largest buyer of U.S. DDGS. The investigation was later dropped in mid-2012.
Since the 2010-11 anti-dumping investigation, trade with China continued to be volatile.
Much of 2014 was spent in trade issues with China when its government began rejecting shipments of U.S. corn and DDGS that contained the Agrisure Viptera (MIR 162) biotech trait produced by Syngenta Ag. The move brought exports of DDGS to China to a halt, causing a glut in supply and prices plummeting to the lowest levels in two years.
Much of 2014 was spent battling trade issues with China, first an announcement it would stop issuing permits for U.S.-produced DDGS that caused prices to take a nosedive, then an unsuccessful demand by China that all U.S. DDGS shipments be certified as MIR 162-free.
China finally approved the MIR 162 trait in December 2014. Although trade stabilized for some time, rumors of the new anti-dumping investigation began to surface in October 2015.
U.S. INDUSTRY WARY, BUT PREPARED
China has been a vital DDGS export market for the U.S. ethanol industry in recent years.
According to statistics from the USDA's Foreign Agricultural Service, in the first 11 months of 2015, China imported more than 6 million metric tons of DDGS at a value of $1.5 billion. Mexico was the second-largest buyer with about 1.5 tons of DDGS worth $315 million, followed by Vietnam with 594,000 tons at $141 million, South Korea with 533,000 tons at $119 million, and Canada with 446,000 tons at $83 million.
The history of trade volatility in recent years has left the industry wary, and resulted in a push to find new destinations for U.S. DDGS and efforts to expand existing markets. The announcement of China's decision Tuesday left the industry wondering what kind of market disruptions the investigation will cause this time around.
Those efforts have left the industry in a better position to deal with the latest crisis.
Sleight said the U.S. is better prepared for the anti-dumping investigation, as the industry has been anticipating this latest trade issue and has been working toward greater market diversification.
"The Grains Council has been working pretty vigorously for quite some time now to find alternative markets," he said. "There are a lot of buyers out there -- like Canada, Mexico, Japan, Korea and Southeast Asia -- who are poised to start buying. They know there is good product out there that is competitively priced."
EFFECT OF INVESTIGATION LESS DRAMATIC
"It's important to remember that the only thing that happened Tuesday is that China's Ministry of Commerce said they will begin the investigation," Sleight said. "That process will take at least six to eight months."
While Sleight said he expects trade with China to slow down, he believes DDGS exports to China will continue for the immediate future, at least for those shipments already on the books.
Still, Sleight said that investigation will likely cause some disruption in trade, something he finds unproductive.
"When you have this kind of disruption, it's not going to be good for anyone," he said. "Anti-dumping actions disrupt trade, and it's going to have negative repercussions. It's not in anyone's best interest."
The DTN Weekly DDGS Spot Price Average remained unchanged since last week at $126 per ton, a relatively low price compared to some highs seen in recent years caused by trade issues with China.
Most of merchandisers DTN contacted on Thursday said they have seen little reaction in the market to China's announcement. Some expected prices to drift a little lower in coming weeks, but from plants trying to catch up from the holidays and needing to bring in some new sales.
Andy Lindsay, territory sales manager at Poet Nutrition in Sioux Falls, South Dakota, said since the industry was expecting the news, the announcement had little effect on the market.
"I wouldn't expect too much out of it as far as any downward push to the market," Lindsay said. "I think everyone pretty much had it factored in."
COUNCIL/INDUSTRY TO COOPERATE
The council stands ready to put together a cooperative defense to the investigation and organize the industry in response to the investigation, along with the ethanol/DDGS industry, merchandisers, etc.
Sleight said the council is confident that U.S. trading practices for DDGS, ethanol and all coarse grains and related products are fair throughout the world and that the council and its members will work vigorously in coming months to demonstrate the allegations being investigated are false.
"We stand ready to cooperate fully with these investigations and will be working closely with our members to coordinate the U.S. industry response," he said. "We will be answering all their questions, and I think the answers will hopefully put the issue to rest," he said. "But we're a long way away from that happening right now."
He said it will be especially important that the industry meet deadlines for the investigation.
"There are very specifically prescribed deadlines in these cases, so we want to make sure those deadlines are met, that the questionnaires are filled out and filled out well," Sleight said.
Cheryl Anderson can be reached at cheryl.anderson@dtn.com.
(AG\SK)
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