MIR 162: How Chinese Feed Grain Imports Have Changed Since Trade Disruption

In November 2013, China began enforcing a zero-tolerance policy for the presence of Syngenta North America Inc.’s Agrisure Viptera™ MIR 162 biotechnology-enhanced trait in corn imports. When MIR 162 subsequently was reported as being detected in U.S shipments of corn and Dried Distillers Grains with Solubles (DDGS), a series of trade disruptions occurred for shipments of U.S. commodities, including corn, DDGS and soybeans.

Subsequently, U.S. corn shipments were subject to expansive and intensive enforcement, which included testing; delays in vessel discharge; and deferrals, diversion and rejections of cargoes. As a result, U.S. corn has been almost completely shutout of China’s feed grain import market, which previously had largely been supplied by the United States.

Meanwhile, trade of DDGS resumed near the end of 2013 after the initial disruption. However, in June 2014, China began more rigorous testing for MIR 162 in DDGS and stopped issuing import permits. Then, in a communication received on July 23 China’s agency responsible for inspection of imported products – the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) – notified the U.S. Department of Agriculture’s Foreign Agricultural Service (FAS) of their findings of the unapproved biotech trait MIR 162 in 963 batches of U.S. DDGS imports, totaling 425,600 tons. AQSIQ further informed FAS of its enforcement actions and intentions, and requested a “GMO test report with official stamp for each and every DDGS shipment destined to China, to certify the shipment is free from MIR162.”

These latest developments have resulted in a new round of adverse trade impacts tied to the presence of MIR 162 in U.S. farm products exported to China.

On April 16 the NGFA and the North American Export Grain Association (NAEGA) published analyses that assessed the economic impact on the corn value chain of China’s rejection of U.S. corn shipments containing MIR 162. Those analyses also measured the potential economic impact of commercialization of Syngenta North America Inc.’s Agrisure Duracade 5307, which Syngenta commercialized in the United States for the 2014 planting season.

The analyses estimated that the total economic damage to U.S. sellers of corn, DDGS and soybeans from Syngenta’s commercialization of Viptera MIR 162 before Chinese import approval – and the trade disruptions that ensued after China detected MIR 162 and rejected shipments under its zero-tolerance policy – ranged from $1 billion to $2.9 billion for the 2013/14 marketing year and would range from $1.2 billion to $3.5 billion for the 2014/15 marketing year if U.S. corn continued to be subject to inspection for the presence of MIR 162 and possibly Duracade 5307. Using a mathematical model that forecasts the national average corn price based on U.S. corn ending stocks, the NGFA/NAEGA analysis estimated that the trade disruption depressed U.S. corn prices by 11 cents per bushel and had a similarly proportional impact on U.S. DDGS and soybean prices.

Recently, NGFA/NAEGA updated the analysis to provide an assessment of China’s feed grain import decisions in the months following the initial rejections of U.S. corn shipments containing MIR 162. Also included in the update is new information related to the recent DDGS trade disruption between the United States and China. Key findings in this update are that:

1. China subsequently did not stop importing feed grains from other countries or U.S. grain sorghum; and
2. The alternative imports sourced by China were more costly than the U.S. corn sales that were canceled, or U.S. shipments that were rejected or diverted.

These findings contradict speculation by some that the Chinese government’s decision to test for MIR 162 and reject U.S. shipments if the trait was detected was spurred by either: 1) the existence of adequate or surplus domestic feed grain supplies; or 2) financial motivation to replace previously negotiated U.S. corn contracts with lower-priced ones. To the contrary, this analysis found that China’s importers have taken costly actions to source alternative feed grains and corn from other suppliers given the lack of Chinese import approval of MIR 162.

Due to testing for MIR 162 that severely restricted access to U.S. corn, China began purchasing large quantities of Australian barley and wheat, U.S. grain sorghum and Canadian barley, as well as feed grains from numerous other suppliers (Figure 1).

During the current U.S. corn marketing year, China’s monthly cumulative feed grain imports – both before and after the import ban of MIR 162 – have ranged from 1 million to 2 million metric tons (Table 1). These monthly quantities of replacement feed grain imports roughly equals the amount of U.S. corn that had been purchased by China before its import ban of corn containing MIR 162. The U.S. corn share of China’s feed grain imports averaged 41 percent from November 2013 through January 2014, and decreased to an average of 2 percent from March through June 2014. During the same time periods, the Chinese feed grain import shares for Australian barley and U.S. grain sorghum climbed from 3 percent and 5 percent, respectively, to 33 percent for each.

Further, as displayed in Table 2, China’s most economical feed grain purchases in 2013/14 have been U.S. corn. The average price paid by Chinese importers in 2013/14 for U.S. corn is $279.36 per metric ton. However, the impact of the MIR 162-related disruption on imports of larger quantities of U.S. corn in recent months has resulted in Chinese importers importing more costly alternative feed grains. The costs of the replacement feed grains have ranged from a low of $281.16 per metric ton for U.S. grain sorghum to a high of $341.38 per metric ton for Canadian barley.

As of June 2014, U.S. DDGS had been the primary feed ingredient imported by China for the 2013/14 corn marketing year (Table 3). However, AQSIQ suspended issuing permits for the import of U.S. DDGS as of June 6, 2014 because it said U.S. DDGS shipments frequently contained MIR 162. AQSIQ followed with a July 23 announcement that shipments of U.S. DDGS will require official certification that they do not contain MIR 162. This announcement is anticipated to derail DDGS trade between the United States and China.

In the aftermath of the MIR 162-induced rejections of U.S. corn that began in mid-November 2013, corn trade between the United States and China has almost ground to a halt, while the formerly brisk DDGS trade now also appears to be coming to an end.

As demonstrated by the trade data reported in this analysis, China’s actions since the rejections to replace U.S. feed grains with products from suppliers in other countries – and to do so at higher prices – appear to discredit the view that China was using MIR 162 as an excuse to avoid honoring contracts for U.S. corn so as to rely exclusively on its own corn supplies. Thus, China’s rationale for prohibiting the import of corn and DDGS containing MIR 162 does not appear to be financially driven, but rather a reflection of China’s AQSIQ proceeding to enforce China’s customs laws that ban the import of unapproved biotech traits.