Virus outbreak in China affects trade missions

Issue Date: February 12, 2020
By Ching Lee

Concerns about the coronavirus outbreak in China have led some California farm groups to halt trade missions to the country while others brace for further market impacts from China's already-slowing economy.

Travel plans made months ago to take a delegation of growers to China and Hong Kong in April to promote California prunes have been postponed, confirmed Donn Zea, executive director of the California Prune Board.

He said the board made the decision to cancel the trip even before the U.S. State Department issued its advisory last week warning Americans not to travel to China due to the public health threat posed by the coronavirus. The board's market representatives in Shanghai and Hong Kong first advised against the trip, Zea said, as "what they were seeing was a little bit more alarming than what we were hearing here."

"We had a lot of the itinerary details already planned. People were getting excited," he said. And though the board took the warnings of those in China seriously, he added, "we told them we were going to wait and see how it evolved, but they ended up being very right."

With major commercial airlines in the U.S. and elsewhere reducing or suspending routes to and from China, Jock O'Connell, international trade advisor for Los Angeles-based Beacon Economics, said people whose normal business is to meet with prospective buyers in person to cement deals will have a hard time getting to China, and those would-be customers will probably have an even harder time coming here.

"You may be able to do some of this by teleconferencing, but that might not always be a viable way of conducting a business deal when you're talking about technical inspections of products," O'Connell said.

For the Prune Board, its trade mission was meant to allow trading partners to "connect with people who grow the food and enjoy a meal together," Zea said, adding that there were also planned media and consumer activities to promote the product. Such human interaction is needed, he said, to maintain relationships and "the confidence of the trade that we're with them through all of this and on the other side of it when things are better."

China has been an important market for California prunes, he said, but trade disputes and the 75% tariff placed on U.S. prunes "significantly reduced" shipments to China, which turned to buying prunes from Chile and Argentina. Even so, Zea noted that prune exports to China started to recover last year as market prices dropped and Chinese importers faced quality problems with the South American product.

"We don't see the market going away," he said. "We've held on tight through all of these tariff battles. The coronavirus has obviously made things even more challenging for so many reasons."

Zea said the board will conduct a trade mission to Japan as planned and will make the trip to China "as soon as everything's back to normal."

Though he continues to monitor the situation in China, Fred Klose, executive director of the California Agricultural Export Council, said there are no plans at this time to postpone or cancel any activities the group will be doing in China in March. Most of those activities relate to training food manufacturers on use of dried fruits and nuts in consumer goods, he noted.

Klose said he may need to revisit his decision in a couple of weeks, but for now, "we have faith in the ability of the health professionals to start dealing with this issue." More concerning, he said, are the Chinese retaliatory tariffs on California agricultural products that remain in place despite completion last month of a U.S.-China Phase 1 trade agreement, which he noted does not benefit the dried fruits and nuts that encompass the bulk of his current work.

Even though some of the council's work can be done remotely, Klose said "it definitely helps to have boots on the ground" when trying to introduce California farm products to China's less-mature markets, which are the focus of most of the council's current work.

"What's going on right now we feel is temporary," Klose said. "We have partners and close business acquaintances in China and we're not going anywhere. We're in it for the long haul. The last thing you want is to be seen as a fair-weather friend."

China's efforts to contain the public health crisis also calls into question whether it will be able to meet its obligations under the Phase 1 trade agreement. Under the deal, which takes effect Feb. 14, China agreed to buy at least $40 billion worth of U.S. food and agricultural products annually. China also promised to finalize phytosanitary protocols for certain U.S. farm products such as California Hass avocados, blueberries and nectarines within three months of the deal's effective date.

With its preoccupation with curbing the spread of the coronavirus, O'Connell said China may be "setting a pretext for backing away" from some of the commitments made in the accord, at least in the short term.

"It's going to have an effect on economic growth and the spread of wealth within the country. That in itself tends to dampen demand," he said, noting that in negotiating the agreement, China made a point of saying purchasing decisions would be based upon market conditions and prices.

Should China fall short on its commitments, he said, the concern then is whether President Trump would react by restoring tariffs and even erecting new ones, "creating a further division between the two countries."

With millions of Chinese residents on lockdown and a large segment of the country's economy shutting down, O'Connell said supply chains that depend on output from China will begin to experience shortages, as fewer goods are available for shipment. This will lead to fewer shipping containers coming from China, which will affect the cost of backhauls, typically discounted to U.S. exporters shipping goods to China.

"If you're looking to find containers to ship your soybeans or wheat or what-have-you, it's going to be more difficult, and whoever owns (the containers) is going to charge you a premium," O'Connell said.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.




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