January 1, 2017

U.S. Cheese Losing Ground in China

 |  By: Mike Opperman

Trade agreements are part of contentious debate among U.S. policy makers. Agriculture interests look to trade as a way to soak up supply not taken by domestic markets. Manufacturers value trade as well, but not at the expense of lost jobs.

China remains a huge export market for a number of U.S. products, especially ag products. USDA’s Economic Research Service reports the value of U.S. dairy exports more than quadrupled between 2004 and 2014, with the U.S. surging to the number three dairy exporter in the world behind Australia and New Zealand.

But 2015 wasn’t quite as good. U.S. dairy global exports fell to $4.9 billion, a 24% drop from 2014 and larger than the 11% drop in total ag exports. Part of the drop is attributed to weak or slower growth in global demand, especially in China.

While reforms in China have made the country more open to American dairy exports, as a Wall Street Journal article reports, the ongoing manufacturing-centric debate over trade with China has hampered trade for ag products, especially cheese. As the countries debate trade policy, other countries have stepped in to establish free trade agreements that benefit their own agricultural products.

Australia’s free trade agreement with China reduced taxes levied on Australian cheese from 12% to 9.6%. The U.S. tax remains at 12%. In contrast, New Zealand can export some cheese to the country tax-free. New Zealand controls about half of China’s imported cheese market and that share is growing. Australia controlled about 18% of the cheese market in 2015, and in the 10 months after the new trade agreement their share rose by nearly 1 percentage point. Over that time period the U.S. share contracted by more than six percentage points.

That drop in market share translates to real dollars. Compared to a year earlier, the amount of cheese China imported from the U.S. fell 28% in terms of volume and value. This as China’s total imports of cheese rose 29%.

Chinese demand for Western products is expected to grow along with its middle class. Although the country imports relatively little cheese for its size, USDA reports that volume could grow 7% annually through 2025 creating a significant market opportunity for U.S. cheese.

On the bright side, in areas where New Zealand and Australia aren’t significant players the U.S. dairy sector is benefitting from the increased demand. China’s imports of U.S. whey rose 24% in the first 10 months of 2016.