What will the China Trade Agreement do for Milk Producers?

John Geuss

John Geuss

On January 15, 2020, the U.S./China Trade agreement was signed.  This is what is popularly known as Phase-one, implying that other phases are coming.  There are many general topics that cover all import and export issues and there are sections covering specific areas, like dairy.  This post will cover the general topics briefly and then cover the specific items for dairy.

THE GENERAL ISSUES

The areas covered are listed below:  There are enforcement measures defined for these categories.

  1. General obligations of intellectual property rights
  2. Trade secrets and confidential business information
  3. Patent protection
  4. Piracy and counterfeit goods
  5. Trademark rights and copyright protection
  6. Technology transfer

There are two phrases repeated many times in the trade agreement.

The term “China shall” is repeated 88 times.  This is used in sentences like “China shall require”,  “China shall establish”, “China shall permit”, etc.  All of these sentences imply that China does not have in place policies and procedures to control many of the items listed above.

The term “The United States affirms” that existing U.S. measures afford treatment equivalent to that provided for in this agreement, is used 27 times.  This suggests that binding policies and procedures are currently in place in the U.S.

SPECIFIC ITEMS FOR DAIRY

In all cases, dairy products exported by the U.S, must be manufactured in a facility listed by the FDA and carry a sanitary certificate issued by the Agriculture Marketing Service (AMS).   The U.S. will provide a list of these facilities and update them regularly.   China will allow imports of U.S. Dairy products that meet this criterion.

Specific dairy products included in the agreement are listed below:

  1. Extended shelf life milk
  2. Fortified milk
  3. Ultra-filtered milk
  4. Dairy permeate powder
  5. Infant formula
The first three items listed are approved for importation in China and will be labeled as pasteurized milk conforming to China’s “National Food Safety Standard”.  They must be manufactured in facilities listed by the FDA and AMS as stated above.
Dairy permeate powder is specifically listed. China has in the past imported whey permeate primarily for their swine industry.  Dairy permeate is very similar to whey permeate.  Both products are primarily lactose with trace minerals and ash.  Whey permeate is essentially whey from cheese manufacturing with the proteins removed.  Dairy permeate is a co-product of ultra-filtration and contains a similar profile to whey permeate.  Both are low value co-products of milk processing for cheese and ultra-filtration separation of solids. The ultra-filtered milk is typically used in cheese manufacturing.
The dairy permeate listed in the trade agreement must be approved for human consumption.  As more cheese is made from ultra-filtered milk, more dairy permeate is available.  Specifically listing this in the trade agreement will hopefully provide an export market for dairy permeate.  However, like whey permeate, dairy permeate is a co-product that is removed from the milk used for cheese manufacturing and does not increase the overall demand for U.S. producer milk.
Infant formula has been a major issue in China since the Chinese production of infant formula was manufactured with added melamine. Melamine was added to provide a higher nitrogen value which is typically used to measure protein.  Melamine was never intended as a food ingredient. Unfortunately, many Chinese children were killed by drinking formulas with melamine.  There is a need for infant formulas with high safety standards that comes from a trusted supplier.  While this agreement will hopefully bring additional exports for infant formula from the U.S., infant formula is a small category in the overall use of the U.S. milk.
THE BOTTOM LINE

It is doubtful that any of these products covered in the U.S./China trade agreement will bring a significant increase in U.S. milk demand.  The first three items listed above are niche fluid milk products.  The fourth product listed, dairy permeate, is a fractionated element of milk components and is primarily lactose that is left over from ultra-filtered milk prepared for cheese production.  Infant formula, the last dairy product covered in the agreement, is a relatively small volume item in the long list of dairy products.

It is difficult to quantify the impact of the general items listed at the top of this blog.  However, they are certainly a step in the right direction for improving equable trade with China.

The agreement brought no major reductions in tariffs as a result of the signing of the trade agreement.  However, some threatened tariff increases were postponed, and a few reductions were made prior to the signing as a “good will” gesture.   Hopefully more tariff reduction will occur as U.S./China relations improve.  The recent outbreak of the Coronavirus will no doubt slow the implementation of the agreement.

Editor’s Note:  John Geuss is a dairy consultant based in Florida. This information appears in his Milk Price blog column sponsored by Addiseo and is published here with permission.  He may be contacted at [email protected]

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