Effects of Tariffs and the Exchange Rate on U.S. Chicken Feet Exports to China and Hong Kong

Summary

Exports of U.S. chicken feet to Hong Kong and Mainland China have been inconsistent with announced policies of a controlled floating exchange rate between the U.S. and Chinese currencies and a Chinese tariff on U.S. poultry imports. Our analysis reveals that the effect of the exchange rate policy is being lessened by a diversion of imports from mainland ports to Hong Kong and that the reduced exports to the combined China/Hong Kong market are more consistent with an unannounced quota policy than a tariff policy.

Situation

China has allowed its currency to gradually weaken against the U.S. dollar since 2007. This policy should have put downward pressure on the Chinese consumer price of U.S. chicken feet and increased the demand for imports. China also imposed a tariff on U.S. poultry imports in February 2010 and this policy should have decreased the U.S. producer price, quantity and revenue for feet exports to China and Hong Kong. Previous analyses of wing and leg exports to China/Hong Kong were generally consistent with these expectations, but data on U.S. feet exports to China and Hong Kong are not.

Response

Traditional export models could not explain the changes in the U.S./China feet market so we focused our analysis on the relationship between the Mainland China and Hong Kong markets and on identifying a policy that is consistent with the data. Trade statistics show that the quantity of feet exports to mainland China dropped by about 80% from 2008/2009 to 2010/2011 but initially small exports of feet to Hong Kong increased by about 2 ½ times so the total drop in feet exports to the combined markets was about 40%. The average annual U.S. free alongside ship price of feet to each market approximately doubled from the 2008-09 period to 2010-11, however, resulting in a 37% increase in the combined value of feet exports to both markets It appears that expected exchange rate effect was eliminated by diverting imports from mainland China with its floating exchange rate to Hong Kong whose currency is still pegged to the U.S. dollar. It also appears that the overall reduction of imports to China and Hong Kong is more consistent with an unannounced quota policy rather than a tariff and that the quota is being administered in a way that allows U.S. producers to capture the higher consumer price caused by the quota.

Impact

The China/ Hong Kong market is extremely important to U.S. agricultural producers but economic conditions and the policy environment are ever changing. It is easy to be misled by announced policies or a focus on a narrow set of impacts. This study demonstrates that the market for U.S. chicken feet exports is quite different than the market for other chicken parts and emphasizes the extra complexity associated with the special characteristics of the China/ Hong Kong market.

State Issue

Agricultural Profitability and Sustainability

Details

• Year: 2012
• Geographic Scope: International
• County: Clarke
• Program Areas:
  • Agriculture & Natural Resources