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China pledges removal of tax on U.S. DDGS exports

WASHINGTON, D.C. — Thanks to growing livestock feed needs, Canada, Turkey and New Zealand are among countries topping the list that have significantly boosted the amount of U.S. distillers dried grains with solubles they have purchased during the past six months.

The increase was sorely needed because decreases in sales to the top two importers of DDGS, China and Vietnam, have kept overall exports from the United States on an even pace.

But that dynamic probably will change after news broke last week that China – the longtime top buyer of U.S. DDGS – announced it will soon remove the 11 percent value-added tax (VAT) it started imposing on U.S. exports in January.

“It’s really great news,” said Tom Sleight, president and CEO of the U.S. Grains Council. “We’ve been working on this issue of the VAT for months now, and we were hopeful it would come up during President Trump’s visit to China, but we weren’t sure whether it would.”

It did, and late last week the Chinese foreign ministry released a statement saying the country would soon eliminate the VAT, leading U.S. grain officials to believe that DDGS export numbers would steadily climb back into record territory.

“We can create interest for DDGS anywhere we operate because once countries become more aware and familiar with the product, they realize the value that is has,” Sleight said. “Around the world, we’re continuing to see the interest grow and grow.”

It’s been somewhat slow-going the past 18 months, though, particularly when China imposed the VAT as well as additional punitive tariff measures that remain in effect, according to the foreign ministry’s statement. China claimed the U.S. was undercutting its country’s own fledgling ethanol byproduct on price and implemented the measures.

Announcement of the VAT elimination, following meetings between Trump and China President Xi Jinping, is an important step in the direction of easing other regulations as a result of China’s anti-dumping claims, Sleight said.

During the past 18 months, China’s total import of U.S. DDGS dipped from 6.7 million tons during 2015 to about 2.3 million during 2016 and, through August 2017, to just 329,831 tons – an 83 percent drop from the same eight-month period in 2016.

At that rate, China would finish the year barely in the top 10 of DDGS importers, when for five years it was in the No. 1 spot. Vietnam’s total also nosedived, to about 6,000 tons so far this year compared to about 667,000 tons for the same period last year.

All totaled, exports of the nutrient-rich byproduct of dry-milled ethanol was about 11.3 million tons during calendar year 2016. For the first eight months of 2017, exports of DDGS totaled 7.3 million tons, compared to 7.5 million for the same period in 2016, a dip of about 3 percent.

Buying much more DDGS during the past year has been Turkey, up 111 percent to 1.09 million tons for the first eight months of 2017; Canada, up 49 percent to 490,435 tons; Israel, up 59 percent to nearly 198,000 tons; and New Zealand, up 292 percent to nearly 107,000 tons.

Canada, meanwhile, is seen by the U.S. Grains Council as a country primed to become an importer of up to 4 million tons a year. Spain also has boosted its purchases, climbing 157 percent during the first eight months of 2017 to about 229,000 tons.