“At a time when both US ethanol producers and farmers are facing serious economic challenges, it is estimated that China’s actions have already resulted in distillers grains losing $30-35/ton in value,” said Bob Dinneen, president and CEO of the Renewable Fuels Association (RFA) and Tom Buis, CEO of Growth Energy, in a joint letter to Obama.
They want the US administration to file a complaint with the WTO.
“On behalf of the nation’s two largest associations representing the US ethanol and distiller’s grains industries, we urge you to direct the Office of the US Trade Representative, Department of Commerce, and Department of Agriculture to challenge both the process and preliminary determinations made by China’s investigating authority through comments to MOFCOM and through the World Trade Organization (WTO),” they wrote.
In addition, the trade groups want the US administration to work closely with the US distiller’s grain industry to mount an aggressive defense of its access to the Chinese livestock feed market during the probe.
The investigations were announced in January by the Chinese Ministry of Commerce (MOFCOM) against the US dried distillers grains (DDGs) industry and have already caused a financial downturn in the US DDG market, said Dinneen and Buis.
Prices for the grain have dropped more than 25% since last summer, while prices for corn and other grains have remained stable or increased, they said.
If the downturn in prices continues, it could mean an annual aggregate loss of $1.2 to $1.6b for ethanol producers in the US, warned the trade groups.
“DDGs are a highly nutritious, globally competitive livestock feed that are co-product of ethanol production,” their letter continued. “In 2015, China was the largest foreign buyer of US produced DDGs and represented 50% of all US DDG exports.”
Additionally, if the antidumping and countervailing duty actions eventually result in restricted access for US DDGS producers to the Chinese livestock market, it could mean losses of up to $50 or $60 per ton or $2bn overall, according to the communication.
Process challenges
Both organizations are requesting support in challenging the process being used by the Chinese authorities as many of the producers responding to questions on the topic have had their answers discounted, said Dinneen and Buis in the letter.
MOFCOM has requested that US DDGS industry members involved in the investigations complete a long and complex questionnaire, they said. Chinese officials said they would select a sample of companies from that group to take part in the full investigations.
About 20 companies offered individual responses to the questions, they said.
“An additional 50 to 60 companies filed a joint response to the questionnaire because they were unable to provide specific data related to DDG exports to China,” they wrote. “These transactions were facilitated through third party traders or exporters, making it impossible for producers to trace the final destination.”
In preliminary move, China has picked three companies to take part in the investigations, but is not recognizing producers in the group that filed jointly, they said.
“Those companies that participated in a joint response to the questionnaire were determined by MOFCOM to have not submitted the necessary information requested in the questionnaire within the specified time and are thus subject to punitive duty rates should China determine the facts support the imposition of antidumping and/or countervailing duties on US DDG exports,” said Dinneen and Buis. “Comments concerning the sampling methodology and the preliminary decisions resulting from MOFCOM’s review of the questionnaires must be submitted to MOFCOM by March 7.”
Background to probe
The announcement was disappointing, but not a surprise as there has been speculation regarding an anti-dumping investigation for the past several months, said Thomas Sleight, president and CEO of the US Grains Council. The council is a non-profit organization that works to develop grain export markets.
However, he said, it is expected to put a damper on sales of the feed ingredient.
“We are trying to do anything we can to develop alternative markets,” he told Feed Navigator back in January. “So buyers on the sidelines may start to jump into that now.”
The council supports current US DDGS trading practices, and there is no dumping taking place, he said. “We’re a fair trader,” he added.
A petition for the investigation was brought to the ministry by the China Alcoholic Drinks Association, and suggested that the US was selling the feed ingredient below market prices, said Sleight.
“There is a distorted internal price of corn in China,” he said. “Alcohol producers in China are at a disadvantage as they’re not able to sell DDGS at a competitive price because of the internal supply and demand politics.”
This is the second time that China has started an investigation of DDGS trade against the US, said Sleight. The first one started in 2010 and ran into 2012.
That investigation ended up being withdrawn, to not damage the competitive pricing of feed ingredients he said. “Maybe that could happen this time, but I don’t want to be too optimistic,” he added.
“We’ll be able to learn from the last one to guide our actions this time,” he said. “The most important thing is to be fully cooperative. That’s the first priority.”