California rice growers stand to prosper from China deal

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For all of the angst concerning trade deficits with China, the United States has something China increasingly needs: rice.

That’s right: Our top economic rival needs America to help provide its national food staple.

The Trump administration recently announced it struck a deal with China that for the first time will allow U.S. farmers to export rice to that country. The agreement is particularly important to California, the nation’s second-largest producer of rice, most of it grown in the Sacramento Valley.

“Looking forward, this opportunity is significant,” said Tim Johnson, president and CEO of the California Rice Commission.

Until recently, China was a net exporter of rice, and it still sends some overseas. But imports now account for 3 percent of the 144 million metric tons consumed last year, according to the U.S. Department of Agriculture, and have been growing.

For many people, California’s status as a rice-producing juggernaut might come as a surprise. Most of the country’s crop originates in the warm, humid South, particularly Arkansas, Louisiana, Texas and Missouri. But the biggest shocker might be why China, the world’s largest producer of rice, needs to buy our stock in the first place.

The answer, like most questions about international trade, is complicated. Despite populist anger over a system that critics see as costing American jobs, global trade is a two-way system in which both sides benefit. Those benefits, along with pitfalls, are never static; they are driven by ever-changing economics, demographics and cultural mores.

U.S. companies may have shifted manufacturing to lower-wage countries like China. But China’s march to an industrialized economy also means there are fewer rice farmers to feed the country’s enormous population. Since a depleted labor force normally means an industry needs to offer higher wages to attract workers, it makes more economic sense for China to import the food than grow it themselves.

“People still need to eat,” said Giacomo Santangelo, a professor of economics at Fordham University in New York. “Someone has got to be growing the food. You’re filling a gap.”

So if U.S. companies have outsourced manufacturing jobs to China, then China has outsourced agricultural production to the United States, where farming is highly mechanized.

The United States runs a large trade deficit: $502.3 billion in 2016, according to government data. But America actually enjoys a sizable surplus in agriculture: U.S. farmers exported $133 billion of food in 2015, about $19.5 billion more than we imported.

A lot of those exports go to developing countries with big populations and rapidly growing economies like China and India.

There’s a tragic historical irony to China’s rice imports. In the late 1950s, less than a decade after defeating the Nationalists in the Chinese Civil War, Communist Party Chairman Mao Zedong launched the “Great Leap Forward,” a program to rapidly industrialize the mostly agrarian country.

But Mao’s radical economic policies, combined with a drought, led to a severe famine that reportedly killed 30 million people over a three-year period. Scholars later blamed Mao for exacerbating the famine by refusing to accept food donations from other countries and even exporting rice to the Soviet Union.

Michael Rue, above, checks out this season’s rice crop, left, by inspecting one of the first stalks to mature at his Rue and Forsman Ranch in Olivehurst (Yuba County). Photo: Paul Chinn, The Chronicle

Photo: Paul Chinn, The Chronicle

Michael Rue, above, checks out this season’s rice crop, left, by inspecting one of the first stalks to mature at his Rue and Forsman Ranch in Olivehurst (Yuba County).

In the 1980s, leader Deng Xiaoping began to modernize China’s economy by opening the country to foreign investment, thus unleashing a period of massive economic growth that continues to this day. A major part of the reforms was to move hundreds of millions of people from the countryside to the cities so they could staff China’s booming factories.

China’s transformation of its labor force is striking. In 1990, about 60 percent of China’s workers toiled in agriculture, compared with 20 percent for both industry and services, according to the International Labour Office, an arm of the United Nations. Nearly 30 years later, agriculture and industry each employ roughly 30 percent of workers, with service attracting about 42 percent.

Though China’s economy is still rapidly growing, the country’s labor pool is shrinking. In 2016, about 71 percent of people ages 15 and older were working, compared with 79 percent in 1990, according to the International Labour Office.

“Where are people in China going to get their food from?” Santangelo of Fordham said.

Unlike U.S. workers, who are highly productive, China’s labor force is very inefficient: 30 percent of people work in agriculture, but the industry generates only 9 percent of the national income, Santangelo said. Inefficiencies mean higher costs, so the country must import food like rice more cheaply produced from other countries.

Hence the opportunity for California rice growers.

Thanks to international trade deals like the General Agreement on Tariffs and Trade and the creation of the World Trade Organization in 1995, the state has been able to significantly boost rice exports over the years.

From 2005 to 2015, California’s rice exports have more than doubled from $320 million to $746 million, according to state data. California now accounts for nearly 40 percent of all U.S. rice exports.

The rice industry’s proximity to West Coast ports like Oakland and West Sacramento has allowed Northern California’s farmers to ship rice to Asia, most notably Japan, South Korea and Taiwan.

Exporting rice has been “great for jobs, great for rural economies,” Johnson of the Rice Commission said. “It really made us up our game.”

Rice farmer Michael Rue stands with grain combines that sit idle until the autumn harvest gets under way at his Rue and Forsman Ranch in Yuba County. Photo: Paul Chinn, The Chronicle

Photo: Paul Chinn, The Chronicle

Rice farmer Michael Rue stands with grain combines that sit idle until the autumn harvest gets under way at his Rue and Forsman Ranch in Yuba County.

But, until now, China, with its 1.4 billion-person market, has been out of reach. The recent agreement was actually the result of a decade’s worth of protracted negotiations between the two countries.

Given President Trump’s tough words on trade, especially with China, there was considerable skepticism on whether a deal could be reached, Johnson said.

The rhetoric “made everyone wonder whether the agreement would be delayed or even scrapped,” he said.

But even with the agreement in place, there’s still a long way to go.

China needs to send inspectors to U.S. rice mills; like most countries that import food, China wants to make sure the rice meets its quality and safety standards. It especially wants to make sure the rice won’t introduce new pests or diseases to the country.

Johnson thinks the first rice exports could arrive in China in small quantities by early 2018.

Should things go well, rice farmers in the Sacramento Valley won’t be the only people to benefit from the deal.

So will Oakland freight workers.

From January to May this year, the Port of Oakland handled $223.5 million of rice exports, according to port statistics. Not one grain went to China, otherwise one of its largest trading partners.

It won’t take supplying all the rice in China to make a difference. Even a small scoop of the market will do.

by Thomas Lee
San Francisco Chronicle

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