Sugaronline Editorial - The buck stops here By Meghan Sapp

Published: 05/26/2017, 12:03:00 AM

Don't mess with China.



Don't mess with China.

 


When China wants something, it takes it. When it doesn’t want something, it closes the gates. Easy as that. No negotiation, little if any warning, decision made and policy implemented. Done. That’s what it has done with ethanol, its byproduct DDGS and now with sugar.

So get over your whining already.

The global sugar market knew that China was going to shut its doors to sugar because the writing was on the wall. As far back as September, there were machinations of a sugar “anti-dumping” investigation into Brazilian and other origins so Monday’s edict slapping on another 45% import duty on top of the 50% duty already in place was inevitable.

The investigation was the precursor to auctioning off domestic reserves that had piled up over the years. With legal imports as well as smuggling competing with those reserves, the risk was too great that prices would fall below levels set to support farmers. And that just isn’t on.

On the surface, the investigation is about how imports now account for nearly half of sugar consumption, up from 21% in 2011, and more than half of that comes from Brazil. Thailand, Australia and South Korea also figured in the investigation, but with 10% of the world’s international sugar trade going to China, it’s not surprising that Brazil has its hackles raised at the WTO. But with clear signals a tariff was coming last September, Brazil already had a chat with the folks in Geneva last October.

The point to this exercise, however, is farmer support and the country’s internal control mechanisms for commodities. The same happened last year when China came to the realisation that it had 20 million metric tonnes of spoiled or low quality corn on its hands that must be drawn down or it couldn’t continue to support prices for farmers through purchases.

Good quality corn went out the door, offloading vast quantities of HFCS into Asian markets but the bad corn had to go too, so ethanol and bioplastics became all the rage. Yet that meant no more ethanol imports nor those pesky Dried Distillers Grains and Solubles that are a byproduct of ethanol production, so import tariffs went into place. Back in 2010, the government banned new corn-based ethanol production when it was worried about exporting its corn crop in liquid fashion through ethanol, making prices for animal feed too high for its big farmers. The policy has now reversed and new plants are in the works for 2019.

China had been the US’s main ethanol and DDGS importer, much like it is Brazil’s main sugar importer, and now imports from the US are nearly zilch so Brazil is rightly nervous. The US may need to approach the WTO over China closing its doors as well, but how far they may get is hard to say. Not very far at all could be a good guess, because no one pushes China around.

(What about smuggling, you say? Raising tariffs won’t stop the smuggling? Why, there is no smuggling in China, so no need to bring it up.)

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