China dragging its feet on phase one deal promise to reduce tariffs on ethanol and DDGS.

Jacqui Fatka, Policy editor

January 27, 2021

4 Min Read
IRFA Branstad LeGrand.jpg

Since September, China returned to the U.S. market buying higher amounts of corn, soybeans, beef, pork and chicken. However, they still haven’t fulfilled commitments in rolling back tariffs on ethanol and dried distillers grains, says Terry Branstad, former China ambassador during the Trump administration and former Iowa governor.

“I’m optimistic that’s going to happen in the not too distant future. It’s in their interest as well as our interest,” Branstad explains during a panel discussion Jan. 26 of the Iowa Renewable Fuels Association’s virtual annual convention.

Branstad says the phase one trade agreement with China requires major purchases of U.S. agricultural products, but they’ve not fulfilled their commitments to reduce retaliatory tariffs on ethanol and DDGs within that agreement. He continued to press the subject in his last days in China, and he’s hopeful it will happen especially if the Biden administration continues to push the matter.

Ryan LeGrand, CEO of the U.S. Grains Council, says ethanol exports are beginning to pick up with a string of ethanol vessel sales in November and December. In 2017, China’s government dramatically increased tariffs on imported U.S. ethanol from 5 to 30%, stripping its most favored nation status for the U.S. At the same time China’s Ministry of Commerce subjected U.S. distiller’s dried grains with solubles to anti-dumping and countervailing duties.  

“If we can get that back to 5%, it would help tremendously,” LeGrand says in increasing ethanol exports to China.

During an investor call Tuesday, ADM was reported saying particularly in the area of ethanol, it sees “green shoots of recovery in 2021.” Ray Young, ADM executive vice president and chief financial officer, notes that China actually has been buying U.S. ethanol.

“That’s something that they have not been doing over the past couple of years, and we believe that they’ve already made commitments already in the first half of the year for U.S. ethanol equal to the previous all-time high for the calendar year, roughly 200 million gallons,” Young says. “We’ll have to see where China ends up in the calendar year in terms of imports of U.S. ethanol.”

Related: ADM delivers record earnings

In 2016, the United States shipped 179.2 million gallons, almost one-fifth of the total U.S. ethanol exports to China during that period. If the 200 million gallon level is reached, it could bring a record year of exports.

Branstad says the purchases are overdue and there are a lot of reasons why it should happen. “We need to hold their feet to the fire and keep the pressure on.” He says China’s domestic corn crop was very disappointing, however, he has “every reason to believe they’re back in the market to purchase both ethanol and DDGS.”

DDGS offer a preferred economical feed for their livestock, Branstad adds. When looking at recent corn purchases, Branstad was optimistic China could surpass its previous 2015 record levels of DDGs purchases.

LeGrand notes that despite the antidumping and countervailing case against distillers grains, demand is there for additional feed rations to rebuild China’s swine herd experiencing a slow but sure recovery from African swine fever. Domestically China also increased poultry and beef production when they lost their swine herd. This represents new demand requiring feed rations that wasn’t there before but is there to stay, LeGrand explains. In addition, China banned the use of food waste in feed rations which also must be replaced by corn and soybean meal.

“Hopefully they’ll be buying distillers grains here real soon,” LeGrand notes.

In the 2019/2020 marketing year, the United States exported 1.36 billion gallons of ethanol or 482 million bushels in corn equivalent.

Additional markets

Canada represents a consistent and neighboring market that also has the ability to expand as provinces expand their low carbon standard goals. Hagan Rose, accounts manager of U.S. and Canada for Eco-Energy, says he expects as those low carbon regulations are finalized over the next nine to 12 months that it will improve the relationship of the biofuels industry with Canada and he expects more E10 markets to expand in Canada.

LeGrand adds the Grains Council is excited to see the provincial goals of E10 and up to E15, and he hopes Canada can reach those goals. There has been some indication in Canada to expand its own production domestically of ethanol, which LeGrand also welcomes.

He says local production creates greater acceptance and overall pushes up total ethanol acceptance. “Ethanol only has 2% of the gas tank globally. There’s room for everybody to compete and produce in the global fuel supply.”

LeGrand says other Southeast Asia markets such as Indonesia and Vietnam offer additional ethanol export market potential. Indonesia recently lifted its band on pre-blended gasoline with ethanol. Vietnam reduced its ethanol tariff and also looks to increase their overall blend rate.

About the Author(s)

Jacqui Fatka

Policy editor, Farm Futures

Jacqui Fatka grew up on a diversified livestock and grain farm in southwest Iowa and graduated from Iowa State University with a bachelor’s degree in journalism and mass communications, with a minor in agriculture education, in 2003. She’s been writing for agricultural audiences ever since. In college, she interned with Wallaces Farmer and cultivated her love of ag policy during an internship with the Iowa Pork Producers Association, working in Sen. Chuck Grassley’s Capitol Hill press office. In 2003, she started full time for Farm Progress companies’ state and regional publications as the e-content editor, and became Farm Futures’ policy editor in 2004. A few years later, she began covering grain and biofuels markets for the weekly newspaper Feedstuffs. As the current policy editor for Farm Progress, she covers the ongoing developments in ag policy, trade, regulations and court rulings. Fatka also serves as the interim executive secretary-treasurer for the North American Agricultural Journalists. She lives on a small acreage in central Ohio with her husband and three children.

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