China deal and cotton

United States-China trade deal (Phase-1) signed raises hopes for the cotton sector. On the day when the United States-China trade deal (Phase 1) was signed in Washington, DC, cotton growers gathered for the Plains Cotton Growers’ Board meeting, to talk about 2019 crop, trade situation and the cotton market.

Reece Langley, vice president operations at Memphis-based National Cotton Council presented information about the trade situation. I had an opportunity to talk with Langley on the sidelines of the meeting about the trade deal signed and its impact on the United States’ cotton sector.

With the signing of the deal, China’s import of United States’ agricultural products would reach at least $40 billion per year. Potential is there for $50 billion/year. Langley stated that commodity wise itemisation is not known yet. United States’ cotton sales to China during the 2017 calendar year were 2.5 million bales (480 lbs. each) worth about $1 billion. The sales of agricultural products in that year to China were about $24 billion. The trade deal is expected to enhance this value by $16 billion.

Langley hoped that the US cotton’s market share in China would at least reach the pre-tariff era. The tariff regime has brought down the share to about 18 per cent last year. Producing and delivering high quality and clean cotton will help to regain the market share. Dahlen Hancock, Lynn county farmer in the High Plains for 39 years stated, “We have to keep striving to provide superior quality as the world needs quality cotton.”

Regional and international trade pacts such as the United States-Mexico-Canada agreement (USMCA), which is expected to be passed by the U.S. Senate this week, provides certainty for the existing marketing condition, stated Langley.

“The recently signed Phase 1of the China trade agreement has the potential to provide resumption of access to an important market for Texas cotton producers.  Confirmation of that will be actual sales to China, and we hope that comes to fruition soon,” stated Steve Verett, chief executive officer of Lubbock-based Plains Cotton Growers, Inc. The mechanism by which China is going to enable this trade deal to fruition will be interesting watch – may be by providing tariff exemption to imports to achieve the target.

By: Seshadri Ramkumar, Professor, Texas Tech University, USA