Cherries, apples, wheat: U.S.-China trade war could wilt growth in Washington farm exports

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SEATTLE TIMES – DEREK HALL – The Pacific Northwest’s cherry farmers are in a particularly vulnerable position as months of warnings lobbed back and forth between the U.S. and China harden into a growing trade war.

President Donald Trump’s 25 percent tariff on $34 billion of Chinese imports — imposed to punish China for its alleged predatory tactics toward American technology companies — went into effect July 6.  China swiftly responded with retaliatory tariffs against a list of U.S. exports that includes top agricultural products in Washington state.

Thousands of Washington farmers who grow apples, cherries, pears and wheat now find themselves on the front lines of a battle between the two largest economies in the world.

The state’s agricultural industry exports about 30 percent of its products, said Hector Castro, communications director for the state Department of Agriculture, and some crops are even more dependent on exports.

“The bottom line is that overseas markets are very important to many of our farmers, ranchers and food-processing businesses,” he said.

Washington-grown cherries are among the most affected.

Friday’s opening salvos between the U.S. and China hit Northwest cherry growers in the middle of their season, which runs from early June through August. What’s more, China is the top export market for sweet cherries grown in the state.

Approximately $130 million worth of Pacific Northwest cherries went to China last year, accounting for 11 percent of the total crop and a third of export sales, said Mark Powers, president of the Northwest Horticultural Council. The 25 percent tariff increase that China has now levied on U.S. cherries is an unexpected twist for 1,400 growers in Washington and another 1,100 elsewhere in the Pacific Northwest.

Powers said this newest obstacle to trade with China follows “phenomenal” growth last year, with exports to the nation rising by roughly 60 percent, thanks to the rising incomes of China’s middle class.

Powers said cherry growers experienced an exceptional crop this year, but he added that it’s too early to tell how damaging China’s newly imposed tariffs will be.

“When you talk about an additional 25 percent tariff, we’re talking about a significant increase in price” for fruit reaching the Chinese consumer, Powers said. “Most of this cost is going to be paid and borne by growers.”

He said the best outcome is that growers will simply earn less profit on those sales. But in the worst-case scenario, some growers may choose to skip the harvest.

“We’re not there yet, but looking into the future, it’s possible that could end up happening,” Powers said. “The cherry industry is such a rapid market that these decisions are made hour-to-hour … based on what the sales guys are telling their growers.”

While the news may be bleak for farmers, there is a potential upside for American fruit consumers. Powers said he anticipates that a larger volume of cherries will be available to American buyers at cheaper prices, as the industry turns to the domestic market to offset any loss of demand from China.

Steve Reinholt, export manager for Wenatchee-based Oneonta Starr Ranch Growers, said the biggest expense in farming cherries is harvesting the crop.

Reinholt, chairman of the Northwest Horticultural Council’s Foreign Trade Committee, said some farmers could choose not to harvest crops in the future if the cost of labor outweighs any potential profits. But he doesn’t expect that to happen this year thanks to a strong domestic market.

Reinholt said many of his customers in China temporarily stopped buying last week ahead of the tariffs, as they waited for the situation to become clearer.

“Some of them are telling me that as soon as it’s in place … they’re going to step in and buy at reduced volume, and they will expect us to lower our prices,” he said. “It’s really hard to gauge, but it wouldn’t surprise me if the volume going to China is off by 25 to 30 percent.”

Keith Hu, director of international operations for Northwest Cherry Growers, said China levied an earlier 15 percent tariff on cherries in April, and the “industry weathered it pretty well.”

That increase, on a list of U.S. exports, was a response to the Trump administration’s levies on steel and aluminum imports from several of America’s biggest trading partners, not just China.

A 10 percent base tariff was in place even before these recent trade disputes, and Friday’s decision brings China’s total tariff on agricultural products to 50 percent.

Hu said the industry’s ability to adequately manage the additional 25 percent imposed Friday will depend on strong domestic sales in the U.S.

Canada’s cherry harvest reaches the market in July, competing for shelf space in that country, and Northwest growers typically look to back-up markets like China.

“If we don’t have a relief valve, then that could put a lot of pressure on price,” Hu said in an interview, adding that the industry was still shipping a large amount to China as of Thursday.

Hu also said that Washington apples, facing the same tariff increases as cherries, could prove to be a bigger problem because they are on the market longer, typically nine months out of the year.

The apple market has already taken a hit thanks to increased production in China and retaliatory tariffs imposed by Mexico, which is the No. 2 export market for Washington apples.

According to Powers, the full effect of China’s recent tariff increases on apples won’t be known until the fall harvest.

Wheat growers in the Pacific Northwest have also been hit hard by the trade dispute with China, said Washington Grain Commission CEO Glen Squires.

“Last year, China bought 300,000 metric tons of soft wheat from the Pacific Northwest, worth about $60 million,” Squires said. “As soon as the threat of tariffs surfaced, they stopped buying.”

Other top items included in the state’s agricultural exports targeted by China include fish and seafood, hay, dairy products, seeds and fishmeal.

As Washington farmers absorb the first retaliatory strikes from President Trump’s trade moves, views among growers and industry experts on the President’s approach are mixed.

Squires said the Washington Grain Commission wants “free and open fair trade on a level playing field.”

“We feel that nobody really wins in a trade war,” Squires said. “Clearly, the administration is trying to address intellectual property. We’re not saying that’s bad, but this is going to be a hit to agriculture.”

Reinholt of Oneonta Starr Ranch Growers said he agrees with the Trump administration’s goals, but he’s not sure it’s using “the best vehicle to accomplish it.”

“I understand having a hard line, and I support what they’re trying to do. I just hate it that we’re the ones stuck right in the middle of it,” he said.

Powers said the horticultural council is advocating for the administration to find a quick resolution to the dispute.

“We understand that there are national issues here that the president is addressing, but when does it end?” he said. “The longer these tariffs are in effect, the more it will impact the grower community.”

Posted by: Derek Hall, Seattle Times, July 7, 2018 at 6:00 am Updated July 7, 2018 at 2:21 pm

Picture: Bettina Hansen – The Seattle Times: Washington cherries are a target of retaliatory Chinese tariffs.

 

 

Source: WSFB