When China’s agricultural exports meet green Barriers

LI YUAN

ON June 25 last year, officials from African countries visited Anqiu City in Shandong Province to inspect the quality and safety management of local agricultural products.

Located in the central Shandong Peninsula, Anqiu has over 86,700 hectares of prime arable land. Its major agricultural products are peanuts, fruits and vegetables. Agricultural exports are the lifeblood of the citys economy.

Entering Foreign Markets

Liu Shili is a farmer in Qianrulinzhuang Village of Linghe Town in Anqiu City. In 1998, he established Weifang Xinsheng Food Co., Ltd., which became the first local enterprise to export processed agricultural produce.

“At that time we only exported fresh vegetables such as ginger and Chinese onion. All the processing we did was to peel the onions and remove the mud from the ginger,” Liu said.

Despite its modest size, Lius company paved the way for local farm produce to reach international markets. It earned coveted foreign exchange for the local government, created employment in job-starved rural towns and bolstered prices for agricultural products in the region.

In 2001, China joined the World Trade Organization (WTO). Though Chinas accession was celebrated nationwide, there was widespread concern about the fate of farmers and agriculture in the face of stiff international competition. Many worried the countrys agricultural industry was insufficiently modernized in terms of production modes, technology and marketing, and that foreign competition could spell ruin for domestic players. Indeed, agriculture was one of the most contended topics in the negotiation process to join the international trade body.

WTO advocates have, however, been justified in their initial optimism over the last decade. According to recent statistics, with Chinas entry to the WTO and the corresponding greater opening up of its domestic market, the countrys total agricultural trade increased from US $27.92 billion in 2001 to US$121.96 billion in 2010, or by a factor of 3.4. Imports shot up from US $11.85 billion to US $72.55 billion – an average annual increase of 22.3 percent - and export earnings grew from US $16.07 billion to US $49.41 billion at an annual pace of 13.3 percent.

According to the Ministry of Agriculture, Chinas exports of farm products are mainly fruits, vegetables and lightly processed food items, whose production is labor intensive. Agricultural imports are largely land-intensive items such as oilseed crops and cotton. Exports have helped boost food processing, which increases the added value on farm goods, haveoptimized the structure of Chinas agricultural industry, and increased rural employment and income for farmers. Greater imports of landintensive products have sated soaring demand and alleviated pressure on domestic resources and the environment.

“Chinas entry to the WTO has direct impact on the structure and volume of Chinas agricultural trade. Imports of landand water-intensive products and exports of labor-intensive products have increased rapidly, and this is in line with Chinas strengths and weaknesses in agriculture. Such a trend was perhaps inevitable, but the WTO has certainly hastened the pace of change,” said Zhong Funing, a professor at Nanjing Agricultural University and a consultant to the United Nations Food and Agriculture Organization.

In 2002, barely a year after China joined the WTO, Liu Shili set up a new factory in Anqiu to meet growing orders from abroad. His company now grows and processes crops on its farms and sells them globally. Liu has 650 permanent employees in addition to 2,500 part-time workers in peak seasons. Its annual production volume tops 40,000 tons, and its products boast accreditation from the Global G.A.P., the Japanese Agriculture Standard, Tesco Natures Choice and the Ethical Trade Initiative. Its products are sold in Japan, the U.S., the E.U., Southeast Asia and a number of other regions around the globe.

opportunities and Challenges

Chinas entry to the WTO has brought not only opportunities to Chinas agricultural development, but also the many challenges that are associated with economic globalization and foreign competition. In 2008 as the financial crisis swept the world, Chinas agricultural exporters like Liu also felt the pinch.

In the wake of the financial crisis, governments of many countries around the world put much effort into bringing the world economy back on track. Owing to the European sovereign debt crisis and the slow recovery in the U.S., however, the world economy has not been recovering as quickly as hoped. In addition, underlying tensions and issues of contention continue to complicate the international trade environment. In order to protect domestic markets and their own domestic interests, many countries have introduced protectionist measures. “Green” barriers to trade started off as a good idea, but now have been hijacked by entrenched interests and strong lobby groups, and constitute a major new form of protectionism. Green barriers are, whats more, inconspicuous and more subtlety implemented in comparison with straight-out tariffs and government subsidies.

As people around the world pay greater attention to environmental protection and food safety, governments, especially those of developed countries, have been exploiting their citizens good intentions by proffering food safety standards that are overly burdensome for developing countries, which lack the technology to implement them. No time frame has been given to allow developing countries to adjust, and imports of farm products from poorer countries to rich ones have been obstructed.

According to WTO statistics, more than 40 percent of notifications on Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures are made by developed countries. The U.S., EU member states and Japan lead the world in terms of food technology and safety management, and WTO rules reflect their world-leading practices without due consideration of the lack of technology on the ground in the rest of the world.

“Since China joined the WTO, developed countries have found it difficult to curb imports from China with quantitative restrictions like tariffs and quotas; they seem to have resorted to the excuse of green barriers where other measures have failed,” says Zhong Funing.

Green barriers have long existed in international trade,and green measures were intensified even before the financial crisis. In May 2006, Japan introduced the Positive List System for Agricultural Chemical Residues in Foods, which posed an unprecedented challenge to Liu Shilis company. The system established provisional Maximum Residue Levels (MRLs) for 758 agricultural chemicals, in addition to existing MRLs, and a uniform limit of 0.01 ppm for residues not on the list. After implementation, foods containing residues exceeding the MRLs on the list, or 0.01 ppm in cases where no standards are established, were prohibited in Japan. The Positive List System is seen as the most rigorous residue standard in the world.

Regulation has become even more stringent in recent years.“The U.S. Food Safety Enhancement Act passed in 2009 stipulated that country of origin must be identified on food labeling. I dont think this piece of regulation is reasonable,” said Fang Pengyu, an exhibitor at the 2011 China Import and Export Fair.“There is scant scientific evidence that shows food quality is related to place of origin. The labeling could mislead consumers, and it serves to spread fear on the back of misplaced country stereotypes.”

Today, green barriers have become a major obstacle to Chinas agricultural exports. According to statistics from the China Chamber of Commerce of Import and Export of Foodstuffs, Native Produce and Animal By-products, in 2009 WTO members issued 1,890 TBT notifications and 1,108 SPS notifications, including around 200 SPS notifications and 160 TBT notifications issued by 48 members directly affecting Chinas agricultural trade. SPS measures could hence cause losses in Chinas agricultural sector of US $10 billion in international trade annually.

Chinas Vice Minister of Commerce Fu Ziying said in a speech at the 2011 China Import and Export Fair: “Agricultural exports have been increasing, but changes in the exchange rate, rises in costs of production and the growing number of technical barriers to international trade will affect the future of Chinas agricultural exports.”

Industry insiders hold that China will become more affected by green barriers as their scope continues to broaden. Nowadays, green barriers directly targeting China are championed by both developed and developing countries.

“The ‘China Threat Theory, fuelled by the countrys strong and steady economic development, is perhaps one underlying reason why foreign countries are setting up so many green barriers,” Zhong Funing said.

Dealing with the Problems

China is a big agricultural country whose imports and exports of farm products play an important role in its foreign trade. Expanding exports of farm products has always been a crucial part of the countrys agricultural policy. At present, China is the fourth largest agricultural exporter in the world and ranks number one among developing countries.

As a developing country, however, China still has a long way to go to become an efficient agricultural exporter. Besides exterior barriers to international trade, there are also lingering domestic issues such as much talked-about low food safety standards.

In 2007, the government of Anqiu took the lead in establishing the countrys first agricultural products safety office, responsible for enhancing cooperation and coordination between the government and producers in monitoring the quality and safety of farm produce.

“The small scale of most operations in China and the fact that farms are relatively dispersed and decentralized undoubtedly contribute to the abuse of agricultural chemicals in direct violation of international regulations. It is necessary to encourage amalgamation and standardization in agribusiness and improve management systems,” Liu Shili said, adding that Chinese enterprises shouldnt evade the challenges, but rather face them head on by actively improving quality.

In response to Japans Positive List System, Liu Shili immediately organized a supervisory team consisting of three agronomists and 14 agricultural technicians. Today, they manage every link of Lius operations, from planting, seed supply, fertilizer supply, pest elimination, plant disease prevention and control right through to food processing. In addition, Liu has hired agricultural experts to provide guidance through the whole process of production. A quality tracing system has also been established on his farms.

Lius company is not the only one to apply such unified management. Huadu Foodstuffs, Chinas largest chicken exporter, has also instituted a “field-to-the-table” supervision process. Every stage of production, from chicken breeding, feed production, broiler chicken raising, slaughtering and processing, through to sales in domestic and international markets, is monitored and controlled for quality.

At the 2011 China Import and Export Fair, Liu Zhengmei, chairman of Blue Lake Group, pointed out that the issue of food safety is here to stay, and rightly so. Chinese enterprises must deal with green barriers honestly by improving the quality of their products.“As long as our products can satisfy the needs and win the trust of our consumers, no barriers can stop us. But to meet standards we have to sacrifice part of our profits,” Liu said.

Another exhibitor, Chen Huihui from Zhejiang Province, said: “At the moment, the Southeast Asian market is relatively stable. Demand from the Middle East and Africa is growing quickly, and African consumers are on the whole very price sensitive. There are new opportunities to expand our business, and we are putting particular emphasis on tapping these burgeoning markets.”

The Chinese government has policies in place that target the needs of the nations agriculturalists. In the next five years, it plans to optimize agriculture operational structure and bring in measures to improve the quality of farm products. Also on the cards is an early-warning system for technical barriers. Government representatives plan to participate more actively in the rule-making process in international agricultural trade organizations to ensure a fair deal for developing countries.

Agricultural exports are an important source of earnings to poorer countries around the world. As long as the playing field is level and barriers dont creep up, world markets for agricultural products can benefit the worlds farmers in years to come.