In June, traders received word of significant new restrictions on imports of distiller’s dried grains with solubles (DDGS) into China. While a formal statement from the government in China was not forthcoming, conversations with officials in China indicated that China would begin to more strictly test incoming shipments for the presence of biotech events not yet approved in China. It was also reported that China was considering a moratorium on new DDGS import permits, although existing permits would continue to be valid.

These changes have major implications for both U.S. exporters and end-users in China, as China was the leading export market for U.S. DDGS in 2012 and 2013, and was on a similar pace through the first half of 2014. The potential for disruption produced a vigorous response at all levels from traders, end-users in China, the U.S. Grains Council and the U.S. government. The situation continues to evolve rapidly.

Current Situation Update

Existing import permits continue to be valid, contracts are still being written, and DDGS continue to arrive in China, where they are subject to inspection. Shipments that pass inspection continue to enter China. Based on trade reports and recent discussions with government officials in China it seems that approximately 200,000 metric tons of U.S. DDGS have failed inspection and are stranded in ports in China. The re-export of these shipments to other markets that accept the traits in question is a high priority. The Council is hard at work on the ground in China with traders and government officials to facilitate this process.

Current reports also indicate that new import permits will be issued to companies that either have no report of unapproved biotechnology in their imports over the last year or that have dealt with (i.e. re-exported or destroyed) any previously rejected cargos within two months. These traders must also obtain certification that any new imports will not contain any unapproved traits. Since the inadvertent presence of such events at trace levels is difficult to avoid, and since testing can often yield false positives, the exact nature of the testing protocols are important. Policy and practice continue to evolve in these areas, which has produced ongoing uncertainty and increased commercial risk. This is expensive both for traders and Chinese buyers, end users, and consumers – a situation that highlights once again the importance of achieving greater synchronicity in the biotech approval process and a workable protocol on low level presence of unapproved events.

Opportunities for DDGS Importers throughout the World

Since China is currently the leading export destination for U.S. DDGS, any disruption of trade with China will create new buying opportunities in other importing countries.

Chinese export sales accounted for 46 percent of total U.S. DDGS sales in 2013, leading to concerns that China would crowd out other buyers if they continued purchasing on this scale. However, the current disruption is slowing trade, making more U.S. DDGS available to other importers.

“China’s massive purchasing has led to concerns about availability in a number of other countries,” said Julius Schaaf, USGC chairman. “We want a quick resolution to the situation in China — but we also know that any disruption of exports to China will create opportunities for other buyers.”

The current disruption in trade is costly for all concerned. The costs, however, will be felt most by consumers in China, who will be forced to incur higher prices caused by more expensive feed ingredients.