Terry Branstad, new ambassador, sent in to smooth over Chinese ethanol crisis

Source: By Ben Wolfgang, The Washington Times • Posted: Tuesday, May 30, 2017

Seeking to boost its own renewable fuel production and achieve energy independence, China has declared war on the U.S. ethanol industry by instituting harsh tariffs on American products — and the Trump administration is sending to Beijing the man best positioned to broker peace between the two sides.

Newly minted U.S. Ambassador to China Terry Branstad, the former governor of Iowa with longstanding ties to Chinese President Xi Jinping, has become perhaps the nation’s most prominent ethanol advocate over the past two decades.

The industry is an irreplaceable component of his state’s economy, and Mr. Branstadknows more about U.S. ethanol and can better explain its benefits than virtually any other politician in the country, according to political analysts and industry insiders.

“I think he is absolutely uniquely qualified to have a conversation with the Chinese. It’s hard for me to think of anybody else who could go to China with the understanding of agriculture and ethanol than Terry Branstad,” said Bob Dinneen, president and CEO of the Renewable Fuels Association, the ethanol industry’s leading trade group. “We’re not expecting anything. But we are hopeful just because of his background that if anybody can get through to the Chinese on why these issues are so important, it would be Terry Branstad.”

But Mr. Branstad, a Republican with two stints as Iowa governor under his belt, appears to have his work cut out for him.

China hopes to double its own ethanol production by 2020, jumping from the current level of about 2 billion gallons per year to 4 billion. While China faces an uphill climb to meet such an ambitious target, the country already has taken the first key step: freezing out U.S. imports in order to eliminate competition.

Last year, China implemented an anti-dumping duty on dried distillers grains (DDGS), animal feed produced by the ethanol industry. Just a few years ago, Chinaaccounted for about 50 percent of all U.S. DDGS exports; today, it’s down to “virtually nothing,” Mr. Dinneen said.

China also upped its tariffs on U.S. ethanol from 5 percent to 30 percent to 40 percent — potentially closing off the country to American exports. The nation is the third-largest export market for U.S. ethanol, but that’s expected to drop as a result of the tariffs put in place last year.

The moves have had serious repercussions for the ethanol sector. Ethanol prices have dropped by about 15 percent since the end of 2016, while DDGS prices have fallen by 40 percent, according to industry figures.

While crushing for the American ethanol sector, specialists say those steps are necessary if China hopes to ramp up its own production at home. Right now it’s virtually impossible for the country to produce fuel that’s financially competitive with ethanol produced in the U.S.

“The reason they were importing such a large amount from the U.S. is because their own production just can’t compete, and it’s largely due to corn prices,” said Yuan-Sheng Yu, a senior analyst at Lux Research, an international research firm that tracks renewable energy and biofuels markets.

“Part of this play is to make sure they can protect and grow their own domestic production,” he added.

Moving forward, part of Mr. Branstad’s task will be to convince Chinese officials that the plan hurts its own people.

“If feed users in China have to pay more for their surplus grain that may not be as high in protein or as high a quality their consumers are going to have to pay for that,” Mr. Dinneen said.

But Mr. Branstad is hardly headed to China with a singular mission of addressing the American ethanol industry’s wish list. The Trump administration has a host of concerns regarding trade with China, and it’s unclear whether the White House is willing to go to war over ethanol.

While Mr. Branstad would be especially qualified to lead such a fight, he’ll do so only under direct orders from the White House.

“The question is what is the U.S. government’s position? Because he’s not the kind of guy to not follow the program,” said David Yepsen, a longtime political editor and columnist at The Des Moines Register who covered Mr. Branstad for decades.

Branstad is not likely to be out there going rogue on what he’d like to do to help the ethanol industry. He’s going to be doing what the Trump administration wants to do. How much hell he raises is going to be contingent on what those other, larger pieces are,” said Mr. Yepsen, now the director of the Paul Simon Public Policy Institute at Southern Illinois University in Carbondale.

For his part, President Trump has been highly supportive of the ethanol industry and the federal government’s biofuels mandate, known as the Renewable Fuel Standard. His position should be at least partly credited to Mr. Branstad, who for years made the not-so-subtle case to presidential candidates that support for ethanol was crucial to doing well in the Iowa caucuses.

Mr. Trump finished a close second in the 2016 Iowa GOP primary behind Sen. Ted Cruz of Texas. He carried the state easily over Democrat Hillary Clinton in the general election.

“The thing that Branstad always did with presidential candidates if you’re coming to Iowa, you’ve just got to pay homage at the alter of ethanol,” Mr. Yepsen said.