Distiller’s dried grains with solubles exports to China threatened

Uncertainty affecting trade in the largest US DDGS export market

Exporters recently were rocked by reports that China may suspend the issuance of new import permits for U.S. distiller’s dried grains with solubles (DDGS), and subject currently permitted imports to more stringent testing for the presence of unapproved biotech events.

While no official statement from the government in China has been forthcoming, the resulting uncertainty is roiling trade in what is currently the largest U.S. DDGS export market.

“Such disruptions are costly to U.S. producers and exporters,” said U.S. Grains Council Chairman Julius Schaaf, “and they are costly to end-users in China and, ultimately, consumers in China as well. Unfortunately, this sort of thing has happened before, and it reinforces the need for continued engagement with China to work out solutions. It also reinforces the importance of a diversified global market for DDGS, so that all our eggs aren’t in one basket.”

China edged past Mexico in 2012 to become the largest export destination for U.S. DDGS, and in 2013 it accounted for 46 percent of U.S. export sales.

“China’s massive purchasing has led to concern about availability in a number of other countries,” Schaaf said. “From Mexico to Southeast Asia to North Africa, one of the most frequent questions is whether Chinese demand will crowd out other buyers. We want a quick resolution of the situation in China — but we also know that any disruption of exports to China will create opportunities for other buyers, and the Council’s global staff is already in touch with those contacts to keep them informed.”

The ostensible reason for the rumored Chinese action is the presence of MIR-162, a biotech trait not yet approved in China, in the U.S. DDGS supply chain. MIR-162 has been approved, however, by most other nations including the United States, Argentina and Brazil for production, and Japan, Korea, Taiwan, Canada, Mexico and EU for import. Approval has been pending in China for more than four years, but despite the lack of formal regulatory approval, China has been accepting product with MIR-162 during that period.

The apparent change in China’s regulatory behavior, coupled with the rumored cessation of import permits for DDGS, has fueled speculation about motivation. In the absence of a definitive and credible statement from the government in China, however, uncertainty abounds. Because domestic feed prices in China remain well above world market levels, it is ultimately consumers in China who pay the heaviest penalty for trade disrupting policy decisions.