Pulling back the curtain on Chinese tariffs

China filled its wheat tariff quota last year for the first time since joining the World Trade Organization in 2001.

The country bought 9.72 million tonnes of the crop, which is slightly above its tariff rate quota of 9.64 million tonnes.

Wheat imported under the TRQ is subject to a 1% duty. Anything above this volume is subject to a 65% tariff, which essentially eliminates all non-quota trade.

Imports over the past decade have generally been between three and five million tonnes, but jumped to 8.4 million tonnes in 2020 and then to 9.72 million tonnes last year.

Australia and the United States were China’s main suppliers, each shipping around 2.7 million tonnes to the Asian giant. Canada was third with sales of 2.54 million tonnes.

“China has become our number one market and has held that position for a few years,” said Daniel Ramage, director of market access and trade policy at Cereals Canada.

“We have seen continued growth in demand from China.”

He attributes this in large part to China’s growing recognition and understanding of the quality of Canadian cultures.

China is the world’s largest wheat producer and uses high-protein Canadian wheat to complement the quality profile of its national crop.

“We have worked closely with COFCO and engaged with them to promote Canadian quality and provide insight into the value Canada can offer,” Ramage said.

There have also been policy changes to how China administers its wheat TRQ that have been helpful, he said.

Fred Gale, Senior Economist in the Economic Research Service of the United States Department of Agriculture, dwelt on China’s TRQ program in a recent article posted on the ERS website.

He noted that China’s growing imports still only account for a tiny fraction of the country’s total wheat utilization, which stands at 145 million tonnes.

Gale attributed the surge in imports in 2021 to another market factor. Chinese demand for feed and residual wheat increased by 21 to 22 million tonnes in 2020-2021.

Feed demand was largely met by sales of government wheat reserves, while imported wheat was mainly used by flour mills and food processors.

Wheat flour is used in many Chinese staples such as steamed bread, noodles, pancakes with green onion filling, fried dough and dumplings.

China lifted its government monopoly on imports when it joined the WTO, but 90% of wheat imported under the TRQ is reserved for users who must import through COFCO, the same state-trading enterprise that operated the old monopoly, Gale said.

Companies interested in importing wheat must apply for the quota in September of the year preceding their intention to import. A central government agency selects successful applicants and distributes quota certificates by January.

China began publishing lists of quota applicants in 2015, although it does not publish the quantity of quota requested or received.

The number of applicants varied from a low of 347 in 2020 to a high of 475 in 2017. The applicants are flour millers, food processors, traders and a handful of flour mills.

“Most of the wheat quota applicants are private mills that were set up decades ago to grind local wheat,” he said.

The applicants have a combined machining capacity of over 100 million tons, which is half of China’s total.

At least 25 public enterprises have applied for a tariff quota, including COFCO and its subsidiaries. Many are trading companies run by local governments that supply cities or provinces.

Ninety percent of China’s flour milling capacity is in the country’s wheat-producing provinces.

These provinces account for about three-quarters of all TRQ applications, but customs data indicate that they represent on average only 10% of wheat imports.

By contrast, Beijing-based companies account for 69% of imports, reflecting the dominance of COFCO, which is headquartered in the capital.

That number rose to 87% of all imports in 2020, even though companies in Beijing accounted for just six of the 362 TRQ applications submitted that year.

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