D.卡尔顿 罗西
D. Carlton Rossi

Sorghum Tariffs


            The Impact of Chinese Sorghum Tariffs

Sorghum is a cereal grain which is used primarily for livestock feed and ethanol output. In the past five years, U.S. producers have increased shipments to China in order to meet its animal feed requirements. China though has imposed 179% tariffs on its imports of U.S. sorghum as a result of an escalating trade war with the United States. However, the impact of these tariffs on the Dawu Group whose main business is animal feed seems to be positive.

Basically speaking, its animal feed business is based on corn. Dawu City is surrounded by corn which is harvested by combines in the fall. On the author's last visit to the area he helped a family harvest and process its crop by hand. It is anticipated that if a Chinese tariff is imposed on sorghum that corn prices will rise; although, the increase may be stemmed should China release supplies from its strategic inventory.

At the end of 2017 the Dawu Group established a sophisticated animal feed operation. It introduced a full set of production equipment from the Swiss company Buhler with an annual output of 100,000 tons of automatic premixed production lines. Through a strategic cooperation with China Agricultural University and co-operative research of the industry, the Jinfeng series of high-quality hens, Jinlong series of high-end pig premixes and beef cattle as well as young sheep premixes were successfully launched. While the price of corn may rise one may anticipate that prices of premixes will at least keep pace if not exceed increasing corn prices since they are higher end products.

Recently, the author has published the success of Dawu Group's wholly-owned liquor subsidiary in its defence of trademark at the level of the Supreme Court. You may recall that the case dealt with the term "five grains". There are various combinations of five grains employed in the production of clear liquor known as baijiu (白酒).Incidentally, the reader will see a mention of baijiu in the poem called "Lazarus Resurrected". If a toast to your health with baijiu doesn't prolong your life then nothing will. One of the five grains which are used to make baijiu is sorghum.

While the author is unaware of the proportions of five grains or its constitution in Dawu liquor which is a proprietary secret; nevertheless, he will make a general comment. The most popular type of baijiu in China is Strong Aroma (浓香) which may be made with one or multiple grains. On the other hand, in northern China such as Hebei Province where Dawu City is located it is Light Aroma (清香) which is most common. It is distilled using sorghum and rice husks and fermented in ceramic jars. Barley and peas are also used to produce a mild sweetness.

One might suspect that if sorghum imports are restriced then it will impact both the price and availability of Dawu baijiu. Its premier product takes four years to ferment and costs about $150 Cdn a bottle. The problem seems to lie with new production, the uncertainty regarding how long the tariffs will be imposed and if other international markets can be accessed for sorghum.

China is turning to Australia to see if it can supply sorghum. It may be guessed that it is primarily interested in sorghum to be used in distillation of baijiu rather than as livestock feed. It could encourage a switch from sorghum to corn for livestock feed because it can supply the market at higher prices from its inventory. Therefore, sorghum for distillation purposes becomes the main problem.

It is unlikely that China will try to access Canadian supplies of sorghum. The reason is that Canada is having difficulty moving grain such as canola through a rail bottleneck. As a matter of fact, a labour strike may be imminent.

It is ironic that Minister Chrystia Freeland made concessions in exploratory free-trade talks to overcome potential restrictions imposed by the Chinese on canola sales due to dockage issues. You will recall how it was the author's opinion that the Chinese equated the difficulty of reducing dockage with the problem of bettering human rights without exactly expressing the relationship explicitly or overtly. It is too bad that the one billion dollars invested with the Asian Infrastructure Investment Bank by the Canadian government was not applied to rail infrastructure in order to facilitate transportation of canola and other grains which languish in silos waiting their shipment to China.

Instead, a leading Canadian company called Aecon has been taken over by a Chinese firm. One can't blame Aecon for seeking to do business on building the Chinese dream of One Belt One Road when quality infrastructure projects such as rail or pipeline in Canada are not supported by the government. Canadians do not forget that the creation of jobs through infrastructure was a core promise of the Liberal Party with progressive characteristics. Now, the jobs will be created outside of Canada for Asians.

The author cannot say whether or not sorghum supply is an issue with Dawu Group in terms of its liquor business nor does he represent them. In the short run, Dawu Group will probably benefit by increased liquor and premix prices. However, if Australian sorghum suppliers were interested in extending their market share in China then there would be no better place to start than opening talks with Dawu Group to act as a market agent.

D. Carlton Rossi