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China Missed Mark on Ag Purchases
By Chris Clayton
Thursday, January 20, 2022 3:21PM CST

OMAHA (DTN) -- China fell about $16 billion short in meeting its commitments for agricultural purchases under the phase-one trade agreement and the Biden administration is looking for China to continue buying more agricultural products, U.S. Agriculture Secretary Tom Vilsack told lawmakers Thursday.

"We are giving China, we are putting them on notice, we want them to live up to the phase-one agreement," Vilsack told members of the House Agriculture Committee.

The secretary testified before the committee for four hours Thursday with lawmakers questioning Vilsack about an array of topics, though some major themes emerged over trade, supply chains, input prices and biofuels. Congressmen also touched repeatedly on funds for packing plants, disaster aid and dairy programs.

On China, Vilsack said, "We obviously have some unfinished business," when it comes to the two-year phase-one deal, which officially ended on Jan. 1. Over those two years, China vaulted back to being the No. 1 customer for U.S. agricultural products, but the totals still did not hit China's commitments. China had committed to buy an average of $40 billion per year in agricultural products. Vilsack said China fell $13 billion below that total for 2020 ($27 billion) and will come in $3 billion short for 2021 ($37 billion).

Vilsack said China also had yet to revise import rules for crop biotechnology approvals, distillers dried grains, ethanol purchases, ractopamine acceptance levels in pork, and growth hormones for beef cattle.

"We're pushing on both of those aspects, more purchases and completing the sanitary and phytosanitary requirements of that agreement," Vilsack said.

Multiple lawmakers quizzed Vilsack on trade and the phase-one deal, asking what the Biden administration intends to do.

"It feels like China sold America a bill of goods and the Biden administration has made no effort to rectify the situation," said Rep. Tracey Mann, R-Kan.

U.S. Trade Representative Katherina Tai is taking the lead to convince China to meet its obligations under the phase-one deal, Vilsack said. The secretary added, though, that the administration is figuring out ways to "walk a fine line" with China, given that the country is the top destination for agricultural products again.

"It's not correct to suggest we haven't done anything. It is indeed correct to suggest that we have asked the Chinese to increase more," Vilsack said. He noted the trade war under the Trump administration caused commodity prices to decline. "We've seen better commodity prices in the last year, which is good news for farmers."

Overall, agricultural exports for fiscal year 2021 (Oct. 1, 2020, through Sept. 30, 2021) saw exports hit a record $172.2 billion, up 23% from fiscal year 2020. On a calendar basis, Vilsack said, preliminary numbers for 2021 forecast a record as well.

SUPPLY CHAINS

Compounding some of the lower-than-expected sales to China are the continuing problems with port congestion and shippers repeatedly willing to return to China with empty containers rather than load them with U.S. products. That has slowed down at least some potential export sales to China.

"That's a real problem because our products need to be going on those ships back somehow to bring some semblance of balance of trade," said Rep. Doug LaMalfa, R-Calif. "Our almond growers and our walnut growers are just getting killed as stuff sitting on the docs and in storage and it's going to carry over" with continued pricing challenges.

Vilsack highlighted that the Biden administration has been pushing shippers to take agricultural products on containers. The administration also started working with the Port of Oakland, California, which Vilsack said is "underutilized" to help move more agricultural products by creating terminal space dedicated to agricultural commodities. See "Oakland Port Offers Ag Export Solutions" here: https://www.dtnpf.com/….

FERTILIZER CHALLENGES

Responding to multiple questions about fertilizer prices, Vilsack said there's "no silver bullet" and U.S. agriculture needs to look for ways to become less dependent on foreign sources of fertilizer. That includes providing more information and technology, including relying on precision technology, to reduce fertilizer usage.

Rep. Cindy Axne, D-Iowa, said she has heard farmers were considering planting less corn this spring because of the high fertilizer prices. Prices are higher because of high demand and import restrictions from other countries.

"Part of the reason is strong global demand and domestic demand," Vilsack said. "Part of the reason is we are reliant on outside sources for some of the fertilizer that we use, and those outside sources have made the decision to impose export controls, which makes it difficult for us to get the supply into the U.S."

One way to offset higher prices is through more investment in precision agriculture, Vilsack said. He cited an Iowa State University program using sensors that indicated potentially 30% of Iowa corn acres probably don't need as much or any fertilizer.

"So, I think encouraging additional precision agriculture so that our inputs are wisely done," Vilsack said, suggesting farmers and their agronomists will start looking at ways to "more accurately understand precisely where and how to utilize fertilizer, we could potentially lower those input costs,"

Rep. Tracey Mann, R-Kan., pushed back on the suggestion farmers may need to reduce fertilizer usage. "That's not going to cut it for my producers who have had plans in place and crop rotations for years," Mann said.

Vilsack countered that precision agriculture is going to become more important as farmers learn to "produce more with less." He pointed to the need to apply fertilizer "at the right place, right time and right amount."

Rep. Julie Letlow, R-La., talked about the concerns facing rice farmers with higher fertilizer prices given that rice prices have remained static and haven't increased similar to other commodities. Letlow cited the fertilizer study released last week by Texas A&M University when pointing to the cost increases facing rice. See "Tariffs Could Raise Fertilizer Prices" at https://www.dtnpf.com/….

"It's a challenge. There's no question about it," Vilsack said, adding, "There's no silver bullet. I wish there were, and if there were, we would certainly be on top of it."

Among ways to reduce fertilizer usage, Vilsack pointed to USDA's new insurance option for producers who split-apply nitrogen. (https://www.dtnpf.com/…)

BIOFUELS

Vilsack took umbrage at repeated Republican suggestions that the Biden administration doesn't support biofuels for the sake of expanding electric vehicles. He noted EPA's proposed blend levels for 2021 and 2022 would be the highest in the history of the program. Vilsack also said EPA is committed not to undercutting its RFS blend volumes and rejected 65 requests by refiners for small-refinery exemptions.

"It's an honest set of numbers, as opposed to what happened in the previous administration, where numbers were said then waivers were granted that undercut those numbers," Vilsack said.

Further, USDA is providing $700 million in direct aid to ethanol producers from pandemic losses and added another $100 million to expand blender pumps.

The Department of Energy is also investing in the "Sustainable Aviation Fuel Grand Challenge" that could create a 36-billion-gallon market for biofuels.

"I think it is very unfair to suggest this administration has not been supportive of the biofuel industry," Vilsack said.

DISASTER AID, USDA PROGRAMS

Rep. David Scott, D-Ga., chairman of the House Ag Committee, asked Vilsack to help aid cotton merchandisers who have been hit during the pandemic. He said cotton merchandisers are critical to the risk management and liquidity of cotton farmers, and he asked Vilsack to see what funds are available under COVID-19 relief for cotton.

Vilsack said he had been in consultation with the cotton industry, and the Farm Service Agency is drafting a notice of funds available to provide some aid to the industry under the American Rescue Plan or the CARES Act.

Vilsack also told Rep. Austin Scott, R-Ga., that USDA is working on enrollment procedures for the $10 billion in disaster aid that was provided to USDA for crop disasters in 2021 and 2020. USDA is looking to use data from the Livestock Forage Program to make it easier to sign up livestock producers, ideally this spring. On crops, Vilsack said USDA is looking at Risk Management Agency data and data from the Non-insured Crop Disaster Assistance Program (NAP) to also put together a "pre-filled-out application. He expects aid will also go out in two separate tranches with the first payment in the spring.

"The goal here is to try to get these payments out this spring," Vilsack said. "We're trying to simplify the process by using existing data to try to speed up the process."

Other lawmakers had questions about when USDA would be rolling out $150 million in initial funds to expand packing plant capacity in smaller or medium-sized producers. Vilsack said he expects the first details on that program in the coming weeks. This money, which will eventually top about $375 million, will include grants, USDA direct loans and likely loan guarantees.

"It is designed primarily to jumpstart projects that are ready to go -- that are shovel ready," Vilsack said. "They just need a little encouragement. They could be an expansion of an existing facility, or they could be new construction."

Rep. Vicki Hartzler, R-Mo., thanked Vilsack for promoting local meat processing capacity. She noted there are concerns about companies that have already put themselves in debt to start operating, and she hoped they would be eligible for grants or loans.

"Those people who put everything on the line" to start a plant, Hartzler said.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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