Two recent Chinese commentaries reveal commonly-held beliefs about American farm subsidies that are behind Chinese antidumping and countervailing duty investigations of U.S. farm products like chicken, distillers grains, sorghum, and maybe soybeans.
A March 7 article, "Influence of U.S. agricultural subsidies on world agricultural trade" from the State-supported Futures Daily was posted on the Ministry of Commerce's WTO information web site and a number of other Chinese sites. The unidentified author asserted that imports of sorghum from the U.S. "receive subsidies from the U.S. government," which allow them to be exported to China at a price lower than the "normal value," and "there is a significant degree of dumping." The implicit assumption is that the Chinese price is the "normal" value, and any price lower than the Chinese price must be abnormal--the "middle kingdom" is the center of the world, after all.
A March 20 article by a commentator with the nationalist Global Times, "Subsidized American Soybean Exports Seriously Pressure China's Soybean Farmers," says "everyone knows" China must impose strong limits on imports of soybeans from countries that give huge subsidies that create an "unfair advantage." This author recites statistics to show that America dominates the world soybean market, has been increasing soybean production, and is responsible for excess supply in the world.
These claims of U.S. dominance contrast with recent American news media reports fretting about loss of soybean market share to Brazil and China's purported preference for Brazilian soybeans.
The sorghum commentator asserts that the U.S. government boosts farm exports using export credit guarantees, "export expansion plans," and "huge subsidies" for fuel, fertilizer and pesticides. The soybean commentary acknowledges that the U.S. government says its subsidies are a small proportion of farmers' income and comply with WTO rules, but he dismisses these claims and accuses the United States of "sabotaging WTO rules."
A logical fallacy common to Chinese findings of "dumping" is to assert that a correlation of two data items proves that one causes the other. The sorghum author explained that "the price continued to decline as large volumes of U.S. sorghum entered the China market." The Ministry of Commerce's announcement of the sorghum investigation correlated declining Chinese sorghum prices with high imports of U.S. sorghum.
A Ministry of Agriculture report on the 2016/17 sorghum market, however, attributed the decline in Chinese sorghum prices to declining Chinese corn prices. This report observed that Chinese farmers planted 32 percent more sorghum in Heilongjiang Province, 15 percent more in Jilin Province, and 22 percent more in Liaoning Province during 2016 compared to the previous year--at the same time the Ministry of Commerce claimed imports of sorghum were depressing profits for Chinese sorghum farmers.
The soybean commentator asserts that imports of U.S. soybeans caused a decline in Chinese soybean production. In fact, the decline in Chinese soybean production was due to Chinese farmers' corn-planting mania generated by a high corn price guaranteed by the Chinese government that made corn much more profitable than soybeans. While the soybean commentator celebrates the long history of soybean-planting in China, under communist authorities soybeans have always been a minor crop because plans and policies favored grains that have higher yields per hectare.
Thirty-eight years ago, a USDA report on China's agricultural market situation commented: "China will again attempt to expand soybean production in 1980, although past efforts have had little success." Stagnant soybean production in China is nothing new.
The sorghum author asserts that the United States became the leading agricultural exporter using a "low price plus high subsidy" strategy. To prove this, the Chinese writer cites USDA estimates of farm production costs and returns for 1975 to 2014 for six major commodities which show that costs exceeded revenues in most years. Although "farmers couldn't make money from the market, they were able to maintain their income by receiving subsidies from the government," the Chinese author concluded.
It's true that farmers in the United States make money in some years and lose money in other years, but the losses are not as pervasive, nor as big as the Chinese author concludes from scanning the USDA estimates. He does not understand that the USDA's cost estimates include a large proportion of imputed "opportunity costs"--the market value of family labor and land owned by the farm family. Cash expenses for many farms are less than the full "economic costs" in the USDA accounts.
USDA estimates of cash income for the farm sector as a whole show that government payments equal about 2-to-3 percent of gross income for farms. The net cash income for U.S. farmers peaked at $135 billion in 2012 and 2013 and is forecast to be just $92 billion in 2018. Direct payments from the government did not make up for the decline in income--in fact, payments from the government fell from $11 in 2013 to an expected $9.2 billion in 2018.
Source: data from https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/data-files-us-and-state-level-farm-income-and-wealth-statistics/
Most U.S. farmers and their spouses work at off-farm jobs to make ends meet and to get health insurance coverage. USDA estimates show that farming families receive about 80 percent of their income from nonfarm sources. Moreover, Chinese critics do not understand that American farmers are business-men and -women who invest and borrow hundreds of thousands or millions of dollars and spend years buying and renting land to build up a viable farming operation.
Chinese critics also implicitly presume that countries should be self-sufficient. The sorghum essayist notes that "commodity surpluses are the main feature of U.S. agriculture, so the industry is extremely reliant on exporting." The soybean commentator criticizes the United States for producing more soybeans than are needed by the U.S. market, creating "surpluses" in the world market. Why wouldn't a country with a large endowment of highly productive farmland export commodities to densely populated countries?
Chinese critics overstate the dominance of U.S. commodities. High world prices during 2007-08 and 2011-12 encouraged farmers all over the world to produce more cotton (India), corn (Ukraine), and soybeans (Brazil). Brazil's expansion of soybean production--mostly to sell to China--is the dominant source of recent growth in soybean supplies. Brazil accounted for nearly half of China's soybean imports last year.
A few Chinese writers understand U.S. farm programs better than most Americans. In a November 2017 Farmers Daily essay, Ke Bingsheng, an agricultural economist and president of China Agriculture University, explained that U.S. farm subsidies are constantly evolving and being revised. Prof. Ke explained that the 2014 Farm Bill had hundreds of pages and is incomprehensible even to those who understand all the English words. He warned readers that they could arrive at erroneous interpretations if they don't understand the historical background of U.S. policies.
Prof. Ke recalls lessons he learned about American farm policy from conversation with USDA officials during a trip to the United States. More open discussion and interaction like Prof. Ke has engaged in would help dispel mistaken presumptions that result in both sides talking past each other on these issues.
A March 7 article, "Influence of U.S. agricultural subsidies on world agricultural trade" from the State-supported Futures Daily was posted on the Ministry of Commerce's WTO information web site and a number of other Chinese sites. The unidentified author asserted that imports of sorghum from the U.S. "receive subsidies from the U.S. government," which allow them to be exported to China at a price lower than the "normal value," and "there is a significant degree of dumping." The implicit assumption is that the Chinese price is the "normal" value, and any price lower than the Chinese price must be abnormal--the "middle kingdom" is the center of the world, after all.
A March 20 article by a commentator with the nationalist Global Times, "Subsidized American Soybean Exports Seriously Pressure China's Soybean Farmers," says "everyone knows" China must impose strong limits on imports of soybeans from countries that give huge subsidies that create an "unfair advantage." This author recites statistics to show that America dominates the world soybean market, has been increasing soybean production, and is responsible for excess supply in the world.
These claims of U.S. dominance contrast with recent American news media reports fretting about loss of soybean market share to Brazil and China's purported preference for Brazilian soybeans.
The sorghum commentator asserts that the U.S. government boosts farm exports using export credit guarantees, "export expansion plans," and "huge subsidies" for fuel, fertilizer and pesticides. The soybean commentary acknowledges that the U.S. government says its subsidies are a small proportion of farmers' income and comply with WTO rules, but he dismisses these claims and accuses the United States of "sabotaging WTO rules."
A logical fallacy common to Chinese findings of "dumping" is to assert that a correlation of two data items proves that one causes the other. The sorghum author explained that "the price continued to decline as large volumes of U.S. sorghum entered the China market." The Ministry of Commerce's announcement of the sorghum investigation correlated declining Chinese sorghum prices with high imports of U.S. sorghum.
A Ministry of Agriculture report on the 2016/17 sorghum market, however, attributed the decline in Chinese sorghum prices to declining Chinese corn prices. This report observed that Chinese farmers planted 32 percent more sorghum in Heilongjiang Province, 15 percent more in Jilin Province, and 22 percent more in Liaoning Province during 2016 compared to the previous year--at the same time the Ministry of Commerce claimed imports of sorghum were depressing profits for Chinese sorghum farmers.
The soybean commentator asserts that imports of U.S. soybeans caused a decline in Chinese soybean production. In fact, the decline in Chinese soybean production was due to Chinese farmers' corn-planting mania generated by a high corn price guaranteed by the Chinese government that made corn much more profitable than soybeans. While the soybean commentator celebrates the long history of soybean-planting in China, under communist authorities soybeans have always been a minor crop because plans and policies favored grains that have higher yields per hectare.
Thirty-eight years ago, a USDA report on China's agricultural market situation commented: "China will again attempt to expand soybean production in 1980, although past efforts have had little success." Stagnant soybean production in China is nothing new.
The sorghum author asserts that the United States became the leading agricultural exporter using a "low price plus high subsidy" strategy. To prove this, the Chinese writer cites USDA estimates of farm production costs and returns for 1975 to 2014 for six major commodities which show that costs exceeded revenues in most years. Although "farmers couldn't make money from the market, they were able to maintain their income by receiving subsidies from the government," the Chinese author concluded.
It's true that farmers in the United States make money in some years and lose money in other years, but the losses are not as pervasive, nor as big as the Chinese author concludes from scanning the USDA estimates. He does not understand that the USDA's cost estimates include a large proportion of imputed "opportunity costs"--the market value of family labor and land owned by the farm family. Cash expenses for many farms are less than the full "economic costs" in the USDA accounts.
USDA estimates of cash income for the farm sector as a whole show that government payments equal about 2-to-3 percent of gross income for farms. The net cash income for U.S. farmers peaked at $135 billion in 2012 and 2013 and is forecast to be just $92 billion in 2018. Direct payments from the government did not make up for the decline in income--in fact, payments from the government fell from $11 in 2013 to an expected $9.2 billion in 2018.
Chinese critics also implicitly presume that countries should be self-sufficient. The sorghum essayist notes that "commodity surpluses are the main feature of U.S. agriculture, so the industry is extremely reliant on exporting." The soybean commentator criticizes the United States for producing more soybeans than are needed by the U.S. market, creating "surpluses" in the world market. Why wouldn't a country with a large endowment of highly productive farmland export commodities to densely populated countries?
Chinese critics overstate the dominance of U.S. commodities. High world prices during 2007-08 and 2011-12 encouraged farmers all over the world to produce more cotton (India), corn (Ukraine), and soybeans (Brazil). Brazil's expansion of soybean production--mostly to sell to China--is the dominant source of recent growth in soybean supplies. Brazil accounted for nearly half of China's soybean imports last year.
A few Chinese writers understand U.S. farm programs better than most Americans. In a November 2017 Farmers Daily essay, Ke Bingsheng, an agricultural economist and president of China Agriculture University, explained that U.S. farm subsidies are constantly evolving and being revised. Prof. Ke explained that the 2014 Farm Bill had hundreds of pages and is incomprehensible even to those who understand all the English words. He warned readers that they could arrive at erroneous interpretations if they don't understand the historical background of U.S. policies.
Prof. Ke recalls lessons he learned about American farm policy from conversation with USDA officials during a trip to the United States. More open discussion and interaction like Prof. Ke has engaged in would help dispel mistaken presumptions that result in both sides talking past each other on these issues.
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