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China imposes high import tariffs on U.S. DDGS

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Chinese tariffs on U.S. ethanol have increased from 5 percent to 30-40 percent. (Photo: Joseph Murphy/Iowa Soybean Association)

By Jane Li

Recently, China’s Ministry of Commerce announced an increase in its distillers dried grains (DDGS) anti-dumping duty from its preliminary decision made on Sep 23, 2016 of 33.8 percent to the current 42.2-53.7 percent. Its DDGS countervailing duty was also increased to 11.2-12 percent. Additionally, the tariffs on U.S. ethanol have increased from 5 percent to 30-40 percent. The duties and tariffs applied will be in effect for five years starting January 2017.

China originally launched an investigation into U.S. DDGS a year ago after a petition was filed by the China Alcohol Drinks Association against the U.S. China has grown to be the top export market for U.S. DDGS over the past decade, as many feed millers have incorporated DDGS as a cost-effective feed ingredient for livestock. China imports almost all its DDGS from the U.S. In 2015, the U.S. exported 6.5 MMT of DDGS to China, worth $1.6 billion, and accounting for over 50 percent of total U.S. DDGS exports. U.S. DDGS exports dropped over 60 percent in 2016 as a result of rising import tariffs. Many feed millers in China report no longer buying DDGS from the U.S., and have turned to domestic DDGS, soymeal and rapemeal.

Observers believe that punitive tariffs on U.S. DDGS are an approach by the Chinese government to cut its high domestic corn inventory. While celebrating the massive 43 percent increase in grain production achieved from 2003 to 2016, China’s grain industry is suffering from one of the biggest mismatches of supply and demand. Corn and rice are in excess supply, while the nation has a shortage of high and low gluten types of wheat. China also has a soybean deficiency. For corn, the Chinese government is facing challenges related to high inventories, high costs for domestic production, and high import levels. Industry insiders estimate that China’s grain distribution cost is twice as much as that of developed countries.

Disposing of excess corn reserves equivalent to almost a year’s supply seems likely to be the top priority for China’s grain industry in 2017. Specific measures by the government include expanding fuel ethanol production and more support for corn processors. In a recent meeting held by China’s Ministry of Agriculture (MOA) regarding preparation for spring planting, officials called for a 667,000 ha reduction of corn planting, about 1.8 percent of the area planted in 2016.

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