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Estimating the Impact of America's New 25% Import Tariff on US feed mills, Chinese Feed Additive Suppliers and Their Foreign Competitors
This is the second time the trade war has boosted the production cost of US feed mills. The first time being when the 10% import tariff was imposed a year ago. Hiking their import tariff to 25% increases their cost by another 15%.
While US feed mills seek to minimize their input costs, foreign, non-Chinese suppliers of these supplements may hike their own prices to take advantage of the situation.
We assume that for American feed mills to successfully source an additive without importing it from China and paying a 25% import tax, at least 40% of its production must be done outside China (see graph).
Out of these 16 supplements, only vitamin A (60%), D3 (43%), niacin (62%) and methionine (77%) have at least 40% of their production capacity outside China.
ii) How much supplementation the feed ingredients being used require.
i) For the 12 supplements with at least 60% of their production capacity in China, the raising of import duties from 10% to 25% will boost their price by approximately 11% to 15% from current levels, with 13.6% being the average (some Chinese suppliers may absorb part of the 15% tariff rate increase so as to not lose business to foreign competitors).
iii) For supplements that have less than 60% of their production capacity outside China, we can expect non-Chinese supplement producers will take advantage of the import tariff's 15% price increase to boost prices of vitamin A, D3, niacin, methionine and possibly vitamin E by 9% to 12%, with 10% being the average amount.
From this, we roughly estimate this will raise US feed additive costs an average of 13%.
This follows last year's 10% import tariff on China-made supplements, which boosted feed supplement costs by approximately 5%
In all, the 25% tariff will probably increase US feed supplement costs by 18% to 22% from what they were before the first 10% tariffs were imposed a year ago.
While this may only increase the unit cost of making feed by 2% to 6% (depending on the livestock type, supplements used, etc.), feed is a high-volume/thin-profit-margin industry. An increase in feed supplement costs of several percent without a corresponding rise in feed prices could substantially impact the profitability of some US feed producers.
Finally, African Swine Fever can play a "wild card" role: If China's 25% to 35% hog herd die-off results in lower domestic feed demand, this could depress domestic Chinese volumes of various feed supplements. At that point, producers could attempt to "export" their way to higher sales by cutting feed additive prices by an amount comparable to the imposed US import tariff.