China Experience Proves Local Producers Can Thrive as Imports Rise

By Philip Shull

A frequent refrain from frustrated exporters to tough destinations is: “This is a market of great potential. … And it always will be!”

Philip Shull

With its huge population, rapidly growing economy, massive protein deficit, high tariffs and impossibly strict phytosanitary requirements, India has been in this category for decades. Despite promising trade missions, pressure from U.S. Department of Agriculture and U.S. Trade Representative over the years, and ready demand for our products among local processors, the India market has remained closed to U.S. Identity Preserved soy.

But this could soon change. Thanks to the initiative and strong advocacy of India’s Soy Food Promotion and Welfare Association (SFPWA, an industry group comprised of Indian processors of soy foods), access for U.S. IP soy to this long-closed market has never been closer.

Rising economic demand for protein among India’s 1.4 billion consumers has led to a sharp increase in domestic food prices. In response to this worrying development, the Indian government took the historic step in May 2021 of suspending its ban on pulse imports. This was a major development in a country where pulses are a foundational protein source and where self-sufficiency in pulses has long been a pillar of India’s agricultural policy.

Leveraging this unprecedented market opening, SFPWA wrote a letter to the Indian government requesting a 50,000-ton tariff rate quota (TRQ) for food quality soybeans. (Governments use TRQs to allow a certain amount of a given product to enter the country at a reduced tariff.)

Among other things, the letter explained that imports of IP soy would not harm Indian soy farmers because India has a large soy deficit and the characteristics and uniformity that U.S. specialty soy provides and that Indian processors need are unavailable in the domestic market.

In contrast to past market-opening efforts, SFPWA’s letter was met with an immediate and positive response from the Indian media. Dozens of articles appeared in support of the request. These media reports indicate that SFPWA’s ability to show how a TRQ could help Indian soybean farmers, as well as consumers, have led key ministries to meet with SFPWA leadership to discuss the issue. While much remains to be done and market access is not yet assured, progress toward this goal appears to be unprecedented.

SFPWA’s position is that opening the Indian market to soybeans will not harm Indian soybean farmers, and the experience of China supports this assertion. China’s decision in the 1990s to open its market to soybeans led to explosive growth in Chinese soy production, along with the historic growth in imports and consumption.

China is an especially apt case study for India because the countries share key characteristics.  Both are rapidly growing emerging markets with similar-sized populations, limited arable land and a history of strong import restrictions on soybeans. Just as importantly, both countries have experienced widespread protein deficits that harmed quality of life for their people. SFPWA believes that a TRQ for Identity Preserved soy will help improve diets throughout India. The Specialty Soya and Grains Alliance and the U.S. Soybean Export Council agree.

USDA data show that Chinese soy production rose, even as imports grew.  Today, China’s soy production (20 million tons) and imports (103 million tons) are both at or near-record levels. Meanwhile, Chinese soybean consumption rocketed from roughly 7 million tons in the 1970s to almost 120 million tons estimated in 2021 (v. 0 to 11.2 mmt for India). Consumption of soy for food rose from 6 million tons to 15 million tons during this period. This combined increase in soy consumption has contributed enormously to improvements in Chinese nutrition and quality of life during this period.

Charts linked here compare Indian and Chinese soybean imports (India, China), production (India, China), consumption (India, China), food-use consumption (India, China) and exports (India, China) over the past 50 years.

Per capita income in China and India was roughly equivalent at $500 in 2000. However, since China opened its market to soybeans, there has been a sharp divergence. While income in both countries grew strongly, India’s per capita income reached roughly $2,000 per capita in 2020, China’s grew to almost $10,000.

Bottom Line:  India remains a market of immense potential for U.S. specialty soya, and gaining access is a priority for SSGA. Given the similarities in the agricultural and consumer profiles between China and India, it is clear that Indian consumers and producers of poultry, dairy, aquaculture and soy-based foods could benefit greatly from greater access to imported soy without harm to India’s soybean farmers.

For years, SSGA and USSEC have worked intensively with the Indian soy food and feed industries to demonstrate how U.S. soy can improve diets and incomes throughout the country. We value this cooperation and applaud SFPWA for its historic initiative and unprecedented effort.

As President John Quincy Adams said, “Perseverance has a magical effect, before which difficulties disappear and obstacles vanish.”

Philip Shull is an SSGA Technical Adviser for South Asia. For 31 years he served in USDA’s Foreign Agricultural Service (FAS), opening markets for U.S. agricultural products.  He was stationed in China and greater China for 11 years (1987-92, 2006-2010, 2014-2016).

The big news this week on the container shipping front is the introduction of the bipartisan Ocean Shipping Reform Act of 2021, which aims to beef up the authority and oversight actions of the U.S. Federal Maritime Commission (FMC) with the intent to fix persistent problems in global container shipping that are harming U.S. exporters and importers.

Some steps are already underway:

FMC launches investigation into pricing practices of eight ocean carriers

While rates for export shipments from SSGA exporters have gone up 30-50% and more over recent months, the rates ocean carriers are charging U.S. importers of high-value products from Asia have risen to record levels. Moreover, importers complain that, while container bookings are often not available for the head haul to the U.S., the carriers are offering various surcharges and premium rates for more guaranteed service that are far above skyrocketing spot rates.

In response to complaints, the FMC last week announced it is launching an expedited investigation into the pricing practices of eight global container carriers: CMA CGM, Hapag-Lloyd, HMM, Matson, MSC, OOCL, SM Line, and Zim. Each carrier was identified as having recently implemented or announced congestion or related surcharges. FMC will examine the timing and legal sufficiency of the charges in light of rate filing requirements. More detailed coverage is available here.

Major importer files complaint to FMC alleging collusion by ocean carriers

Another new development worth watching is an action taken last week by a major U.S. home goods importing company from Pennsylvania, MCS Industries. MCS filled a formal complaint to FMC alleging that Cosco Shipping and Mediterranean Shipping Company (MSC) were colluding in ways that violate service contracts for regular service to capitalize on current record Trans-Pacific container spot rates.

MCS accused the two ocean carriers, which actually operate in two different alliances, of working in “parallel and seemingly coordinated fashion” to not honor their service contracts at rates and volumes agreed upon, only to sell the space “to the highest bidder.” Go here for more details reported by the Journal of Commerce (JOC).

Carrier MSC, in response, said it was “shocked” by the allegations and denied the charges made in the complaint, which was published by the FMC on August 3. Go here for more details of MSC’s response.

Formal complaints to the FMC are rare to nonexistent, because it’s been widely reported that shippers fear retaliation in some form. The World Shipping Council representing ocean carriers and MSC, in this case, deny that retaliation by carriers occurs. The complaint and FMC findings bear watching in terms of acceptance by international regulatory bodies of consolidation among the largest ocean carriers, who now see the 10 largest global carriers operating in just three major vessel sharing alliances.

South Korea backslide?

Meanwhile in South Korea, some lawmakers want to take steps to turn back regulations there barring collusion. The legislators reportedly want to amend the nation’s Monopoly Regulation and Fair Trade Act to exempt the shipping industry from jurisdiction by the Korea Fair Trade Commission (KFTC) as part of the effort to turn back some heavy fines leveled by the agency. KFTC imposed fines totaling $613 million on 23 ocean shipping lines. A dozen South Korean companies were fined, including ocean container lines HMM and SM Line, plus 11 foreign carriers. Go here for more detailed coverage.

Steamship line profits keep on rolling ahead

While service, reliability and congestion issues continue to plague the container shipping industry, ocean carriers continue to enjoy record profits. According to news reports out last week, Maersk, the largest ocean carrier, boosted its profit forecast for the year of 2021 by a whopping $5 billion. Go here for details.

Ocean Network Express (ONE), the big consolidated ocean container line made up of three previously independent Japanese major carriers, announced, despite congestion in the system, it cleared in excess of $2.5 billion in its first quarter fiscal year that ended June 30. Go here for details.

Compiled by Bruce Abbe, SSGA Strategic Adviser for Trade and Transportation

The Specialty Soya and Grains Alliance recently offered comments to the U.S. Department of Agriculture Agricultural Marketing Service’s Federal Grain Inspection Service (FGIS), endorsing the reauthorization of an exemption for high-quality grains from weighing and inspection.

SSGA, which represents the U.S. identity preserved (IP) industry, emphasized in its comments that IP field crops are traded above mandated standards – they’re truly “above the grade” – and IP companies take great care to adhere to quality assurance protocols and maintain records.

“Reauthorizing the exemption and its reporting requirements is an important step to maintain and grow this grain segment,” SSGA commented. FGIS is in the process of requesting a three-year extension and revision of a currently approved information collection for “Export Inspection and Weighing Waiver for High Quality Specialty Grain Transported in Containers” and sought and accepted comments through July 26.

SSGA continues to remind its members and others in the IP industry to make sure they are holding up their end of the bargain by registering with FGIS and keeping thorough and accurate records. SSGA is assisting its members in registering, when necessary.

“U.S. exporters need to remember to register properly with the Federal Grain Inspection Service and maintain records as indicated by this announcement,” said Eric Wenberg, SSGA executive director. “Most identity preserved shipments move above the grain grades, and we need to maintain our industry reputation for quality. Great record keeping is essential to the high-quality grains programs our buyers rely on. We need to keep the high-quality grain segment with this exemption.”

SSGA continues to work with FGIS and the USDA’s Animal and Plant Health Inspection Service (APHIS) to ease certification burdens for IP exporters.

To register with FGIS as a recognized exporter go here. For registered companies, instructions for exemptions can be found in FGIS Directive 9020.1, Section 4. Exporters will need to email FGISQACD@usda.gov with all necessary information required for an exemption.

For questions or more information, please write to SSGA at info@soyagrainsalliance.org.

In show of bipartisan support for U.S. agriculture, 24 U.S. senators on Tuesday pushed for a swift resolution to the container shipping crisis, signing on to a letter to the Federal Maritime Commission, expressing support for the FMC’s investigation into reports of unreasonable practices by ocean carriers that are posing challenges for ag exporters.

“The need is urgent,” the letter said.

Led by Sens. Amy Klobuchar (D-Minn.) and John Thune (R-S.D.) – both of whom are members of the Senate agriculture and commerce committees – the letter urges the FMC to take appropriate action under the Shipping Act to halt any potential violations of the Act by the carriers.

“If the reports are true, such practices would be unreasonable and would hurt millions of producers across the nation by preventing them from competing in overseas markets,” the senators wrote.

With ports experiencing unprecedented congestion, U.S. agricultural exporters’ access to international markets is being jeopardized by the dysfunction and rising costs of ocean transportation services, which includes unreasonable and unjust practices such as the rejection of U.S. agricultural cargo by ocean carriers who are shipping empty containers back overseas to keep up with the high demand for U.S.-bound imported goods.

In October, SSGA was one of the first national agricultural associations to shine a light on the disruption of the food supply chain and other critical problems facing containerized ag exports after members began to be informed that some ocean carriers were suspending containerized and other overseas ag shipments. 

Read the senators’ letter here.

Earlier this month, SSGA representatives had the opportunity to give testimony to the FMC, along with other national ag organizations, and last week, signed on to a letter to President Biden, urging intervention from his administration.