Activities Funded in Part by the Minnesota Wheat Checkoff

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Prairie Grains is the official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain Growers Association,
South Dakota Wheat, Inc., and the Minnesota Barley Growers Association.

The United States and China reached a historic agreement this spring that resolves a long-standing wheat trade barrier and dramatically reduces a restrictive tariff on U.S. wheat exports to China.

China is the single largest wheat market in the world. Unfortunately, it has maintained a non-tariff trade barrier on U.S. wheat exported from Pacific Northwest ports since 1973, and from Gulf ports since June of 1996, due to the perceived presence of Tilletia controversa kuhn (TCK) smut, a fungal disease which occasionally develops in winter wheat crops in many parts of the world.

However, TCK occurs under limited environmental conditions, causes little economic damage, and won’t harm humans or animals. The scientific community and U.S. Wheat Associates (USW) have long argued that Chinese concerns were not based on sound science. Most recently, a U.S. Department of Agriculture pest risk analysis conducted last year found that the risk of TCK being established in China’s wheat production regions, as a result of wheat imports, was "statistically insignificant."

The breakthrough on the TCK issue follows more than 20 years of work and discussions between the two countries. An agreement was announced during Chinese Prime Minister Zhu Rongji’s recent visit to the U.S., during which he reportedly hopes to gain U.S. support for China’s entry into the World Trade Organization (WTO). An easing of the zero tolerance TCK restrictions along with the resolution of other long-standing trade disputes are often said to be conditions for U.S. support of China’s entry into the WTO.

Under the agreement, China will allow imports of U.S. wheat from any state or U.S. port to enter any Chinese port. The agreement allows wheat imports that do not exceed a tolerance level of 30,000 TCK spores per 50 gram sample, a level that can easily be met by U.S. wheat exporters. The agreement is for one year, with provisions for it to continue beyond that time.

New agreement means access to world’s top wheat buyer
Another important aspect of the new agreement with China is a dramatically reduced tariff on U.S. wheat. Until now, wheat the U.S. could export to China faced a 20% tariff when it crossed the border. Under the new agreement, 7.3 million tons a year of U.S. wheat will be eligible for a tariff of 1%.

"This agreement is significant to the growth potential of U.S. wheat exports," says Bruce Hamnes, a Stephen, Minn. wheat producer and secretary-treasurer of USW. "To have meaningful access to the world’s top wheat customer, accounting for one fifth of the world’s consumers, is great news for U.S. wheat producers at a time when promising news is greatly needed." Hamnes is also chairman of the Minnesota Wheat Research and Promotion Council, which oversees Minnesota’s checkoff for U.S. wheat export promotion through USW.

With the lifting of the trade restrictions, the U.S. must now strongly support China’s membership in the WTO, urged Hamnes, in a letter to President Clinton, top U.S. trade officials and Minnesota’s Congressional delegation. "China’s smooth transition into the WTO will help U.S. wheat producers realize the full potential of the Chinese market," Hamnes said.

Chinese wheat imports have steadily increased over the years, but have varied each year depending upon China’s own production and other factors. In 1997/98, China imported 1.9 million metric tons of wheat, which was relatively low given record wheat production in China. During the 1990s, China has imported as much as 15 million metric tons a year. Canada and Australia have been the primary suppliers.

In the past, China has purchased hard red winter, soft red winter and hard red spring wheat from the U.S. The near-term potential of the new agreement will likely depend on the severity of the current drought situation in China, which could limit Chinese wheat production in 1999.

In the long-term, liberalization of China’s import policies is expected to reveal demand for higher quality wheat of as much as 8 million metric tons. While the U.S. supplies from 50 % to 80 % of the milling wheat needs of neighboring East Asian countries, the U.S. would have been excluded from competing effectively for a share of China’s business without resolution of the TCK issue.

Former USW administrator dies
Winston Wilson, former president of U.S.Wheat Associates, died May 11 from an apparent heart attack. He was 55. "Winston made an important contribution to American agriculture and especially to the U.S. wheat industry through his work, and he was a friend to a great many people around the world. He will be missed," says Alan Tracy, Wilson’s successor as USW president.

Agweek editor Rona Johnson remembered Wilson as "a great diplomat" for wheat. In 1996, Wilson and other USW leaders accompanied Johnson and another farm journalist to Egypt and Morocco, to help the journalists learn more about the workings of U.S. wheat export promotion.

"During the days and into the nights, we attended one meeting after another gathering information about wheat buyers, millers and researchers in Egypt and Morocco. Every time we walked into a meeting, Winston would be greeted warmly and with great respect."

Wheat Groups Applaud Changes in U.S. Sanctions Policy
Wheat grower groups are applauding President Clinton’s announcement this spring to alter U.S. economic sanctions policy, which will ease restrictions on the sale of food and medicine to Iran, Libya and Sudan.

Hamnes says the announcement is an important step in the overall U.S. sanctions policy, which have kept U.S. wheat growers out of a significant share of the world wheat market.

"It’s been estimated that such sanctions have shut U.S. wheat growers out of about 10 percent of the world wheat market. So this news is a positive step forward in U.S. export policy and our wheat market development efforts," says Hamnes.

The announcement does not alter sanctions on sales to North Korea, Iraq or Cuba. U.S. sales of wheat to Iraq have been allowed for the last few years only through the United Nations Oil for Food program. Changes in the long-standing economic embargo against Cuba would require Congressional action.

USW leaders say the announcement will allow sales to be made on a case-by-case basis and requires companies wishing to sell food or medicine to apply for a sales license. However, it is not clear how the continued licensing requirements will work in practice. USW leaders hope that licenses will be readily available and easy to obtain. "In fact, we see no reason for this licensing requirement to be continued at all," says Hamnes.

The announcement could pave the way for some significant sales of U.S. wheat. Iran, Libya and Sudan collectively imported approximately six million metric tons of wheat in 1997. Prior to the issuing of sanctions against Iran, the country was one of the U.S.’ largest wheat customers.

Hope for future sanctions changes
U.S. wheat growers along with other agricultural organizations have long argued that unilateral economic sanctions imposed by the U.S. have not achieved their desired effect and have adversely impacted U.S. commodity exports.

Hamnes says he hopes the White House announcement will lead to more sanction changes in the future. "For example, one of the longest-standing sanctions, that against Cuba, still remains in place. It’s another example of how sanctions fail to influence political policies. Cuba imports approximately 900,000 tons of wheat and flour each year, much of it from Canada. It’s a strong potential market in our own backyard. But it remains off limits to us," says Hamnes.

European durum wheat buyers visit Minnesota
The arrival of summer also means the arrival of trade teams from around the world, who visit the U.S. to learn more about the U.S. wheat production and marketing system.

One of the first teams to visit this year was from Europe, a delegation of officials from leading milling and pasta manufacturing companies from Italy, Spain, Germany and France. In Minnesota, the team toured the Minneapolis Grain Exchange and met with grain merchandisers based in Minneapolis.

The group, hosted by the Minnesota Wheat Research and Promotion Council, met with grain merchandisers from AGP Grain, Cargill and Cenex-Harvest States. The European Union is an important market for U.S. wheat producers: The EU is the top importer of U.S. durum wheat, second leading importer of U.S. spring wheat, and the fifth leading destination for all U.S. wheat exports.

In 1999, it is estimated that the EU will import about 1.5 million metric tons of wheat from the U.S. "This import volume caps a steady, seven-year growth trend, where successive changes in the EU Common Agricultural Policy (CAP) and the consistent efforts of Minnesota wheat checkoff-funded market development programs have led to a demand for high quality milling, blending and durum wheat varieties in the EU," says David Torgerson, executive director of the MWRPC, based in Red Lake Falls, MN.

Europe often a cash wheat buyer
The European market often buys wheat on a cash, rather than a credit or government-program supported basis, Torgerson points out. "Europe is largely a cash-paying customer. That makes market development efforts here, to maintain and build these markets, important for U.S. wheat producers," he says.

The wheat export market development program in the United States is conducted on behalf of wheat producers by USW, funded in part by the wheat checkoff in 18 wheat-producing states, including Minnesota. USW for years has maintained a regional market development office in Rotterdam, The Netherlands. The European durum trade team was sponsored by the USW Rotterdam office.

In addition to its visit in Minnesota, the European durum trade team made several stops in North Dakota, the nation’s top durum producing state. The team also visited the durum-producing region of California and Arizona.

WHEAT WORLD is brought to you by the checkoff funded Minnesota Wheat Research and Promotion Council.