A World Trade Organization panel has found that China distorts the global wheat trade by increasing subsidies for its farmers through price supports.
“China now holds about half the world’s stocks because they have such high support prices,” said Ben Conner, vice president of policy for U.S. Wheat Associates, the overseas marketing arm of the industry. “Their government just keeps buying and buying.”
When a single nation has huge stocks, it puts downward pressure on world prices, he said.
“We want to see those start to come down and China start having stocks that are more responsive to market needs,” Conner said.
The WTO panel was formed after the U.S. Trade Representative challenged China’s domestic agricultural support programs for wheat, corn and rice. The U.S. entered the dispute settlement process in 2016.
A U.S. Wheat-sponsored study by Iowa State University in 2016 found that China’s domestic market support price at the time — roughly $10 per bushel for wheat — cost U.S. farmers between $650 million and $700 million annually in lost income.
As a member of the WTO, China is limited in how much it can subsidize farmers.
“What we hope will happen now is that China will now take steps to come into compliance,” Conner said. “China talks about how important the WTO rules are to them, and how important it’s been for their economic development, so we certainly hope they’ll respect those rules.”
China could appeal the ruling, he said.
“We don’t think that’s necessary, we think the decision here is clear, it’s an almost black-and-white case,” he said.
The higher domestic prices have forced China to keep lower-priced imported wheat out of the country, Conner said.
U.S. Wheat hopes reform of China’s subsidy programs will create more opportunities for U.S. exports to China. Conner points to “enormous, latent” demand for U.S. wheat classes, including soft white wheat primarily grown in the Pacific Northwest.
“That’s ultimately our hope, to be able to have a strong relationship with the Chinese wheat industry, where they become one of the largest buyers of U.S. wheat,” Conner said.
The WTO dispute panel’s finding won’t have an immediate impact on current U.S. wheat prices, Conner said. Chinese wheat farmers may convert their ground to other crops if they receive lower subsidies for wheat.
“We’ve known all along there’s no single moment where this all changes and we see a big boost,” Conner said. “We see this as a more systemic issue.”
Transparency in China is also a problem, which has led to questions about the actual amount or quality of the country’s wheat stocks, Conner said.
“This case will not get at the precise amount of usable stocks in China, but it does get at the underlying part of the problem,” he said.
In a few months, WTO will likely announce the panel’s decision in a second case challenging how China administers its annual tariff rate quota for imported wheat, rice and corn.