A report by Rabobank states that export losses due to tariffs imposed by China on oranges and other U.S. agricultural goods may be offset by higher demand for those goods in other parts of the world.

published on September 28, 2018 - 7:00 AM
Written by David Castellon

The tariff war between the United States and China certainly will hurt the exports of some Central Valley crops, but those effects may not be as bad as some worried.

That according to a report issued last week by RaboResearch, a division of Rabobank, on how China’s tariffs on a dozen U.S. agricultural goods – 10 of them primarily grown in California – might affect their sales in China and Hong Kong.

Those tariffs on lemons, walnuts, pistachios, almonds, nuts, pears, peaches, grapes, oranges, mandarins, raisins and apples began in April, after President Donald Trump announced planned tariffs on steel and aluminum coming from China, with the president claiming the existing trade agreement between the two counties favors China and him demanding a new, fairer agreement be negotiated.

That hasn’t happened yet, and in the interim both countries have initiated or announced added tariffs against the other.

“With these measures, most U.S. fresh fruit and tree nuts currently face tariffs between 50 percent and 60 percent,” compared to the 5 to 20 percent tariffs that existed before the two increases the Chinese government imposed in April and July.

Higher tariffs result in higher prices for U.S. goods paid by Chinese consumers, which is cooling the demand for those products that was growing before the tariff war, thanks to the expansion of China’s middle class and a resultant demand on higher-quality ag products than what is grown in that country and for products not grown there.

That demand for California commodities is likely to help bolster the demand for them in China as the tariffs continue, according to the Rabobank report, and “We expect the mildest effect on almonds and pistachios, while the impacts are likely to be highest for grapes and cherries.”

California grows nearly all U.S. commercial almonds and about 80 percent of the world’s supply. And while pistachios from Iran are available to be purchased, many Chinese prefer those from California, which makes China particularly dependent on the U.S. for both these nuts and is why the demand will not go down as much as demand for other U.S. crops that China – the largest fruit producer in the world – can grow itself or can more readily import from other countries, said David Magaña, vice president and senior analyst for RaboResearch Food & Agribusiness.

Still, Magaña, who co-authored the report, noted that through the end of July of next year, China’s demand for U.S. almonds is expected to drop 6-9 percent and 9-14 percent for pistachios.

Of the dozen crops analyzed, the two expected to face the harshest declining demand from Chinese consumers over the same period – if the added tariffs aren’t lifted by then – are cherries and grapes, for which Rabobank forecasts export declines of 24-31 percent and 23-30 percent, respectively.

“Those are more luxury goods, so their own price elasticity of demand is higher,” meaning that as prices for the two U.S. fruits go up, Chinese consumers are likely to buy less of them, because China grows grapes and cherries and is a big importer of those fruits from Chile and Australia.

Currently, it appears neither the U.S. nor China appear to be backing off in the trade conflict, so the tariffs appear likely to stay in effect for some time. And Magaña noted that the findings of his research could alter if China imposes more tariffs.

Prior to all of this, only about 5 percent of the more than $7 billion in U.S. fruit and nut exports went to China and Hong Kong, growing at a rate four times faster than the U.S. exports to any other country.

While the growth of Chinese demand for U.S. farm goods likely will lose momentum while the tariffs are in place, “the good news is that we still expect the total demand for U.S. products is still going to grow for nine of the 12 commodities” in trading over the next year with other countries, Magaña said.

That could offset the losses in Chinese exports, the report states.

The U.S. crops expected to decline in worldwide exports are raisins, pears and peaches, while mandarins should see the highest rise in worldwide demand, by a little more than 7 percent, the report states.

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