Iowa's Trade Mission to China and South Korea

For fifteen minutes on Thursday, the Iowa delegation led by Lieutenant Governor Kim Reynolds, Secretary of Agriculture Bill Northey, Iowa Department of Economic Development Director Debi Durham and others spoke and answered reporter questions on a conference call about their trade mission to South Korea and China. Speaking in Beijing, the focus was on China and Iowa’s sister state of Hebei Province. The delegation is returning with a Memorandum of Understanding regarding trade, so something positive was accomplished. Blog for Iowa is appreciative of the Branstad Administration for making access to the call available to the general public.

If Iowa seeks trade with other nations, it must necessarily begin with who we know. Governor Branstad had traveled previously to China and the hosts in Hebei recalled that visit. Additionally, Iowa companies have been doing business in China for some time. Vermeer and Pioneer Hi-Bred were both on the itinerary, but Bandag, Hon Industries and others have had a substantial China footprint. The delegation came to the conference call within an hour of a reception with 100 people in attendance, all with Iowa connections. There was discussion of a Chinese visit to Iowa in the fall, and future trade missions. Without this type of work there would be less foreign trade growth.

Director Durham referred to the Chinese five year plan and said it is important to be knowledgeable of it, so Iowa could determine where we might fit in as a trading partner. There was a discussion about corn and soybeans, which many Iowans view as a key export commodity. While China is interested in buying soybeans, “China is seeking to be self-sufficient in grain.” One speaker said, “they were not excited about buying more corn, but didn’t say they wouldn’t.” Doesn’t sound like grain exports resulting from the trade mission would be sustainable, but China is such a large market that even in their quest for self-sufficiency, they could be a substantial buyer of Iowa field crops from time to time.

There was a discussion of biotechnology. “Pioneer 335 has
dramatically changed China’s farming,” said one speaker during the call.

In typical fashion for US investment in China, Pioneer Hi-Bred International entered into a partnership with Shandong Denghai Seeds Co. Ltd. Shandong Denghai holds a 51% stake in the company and  Pioneer 335 is known as “Xianyu No.335” in China. The company reports the product has a gross profit rate of 68%. According to the China Business Intelligence web site,

The summer maize seed of Xianyu No.335 is marketed by its unit of Shandong Denghai-Pioneer Seeds Co., Ltd., whose marketing strategy totally differs from other domestic companies. Shandong Denghai-Pioneer Seeds Co. promotes the monoseeding concept and sells the bagged seed based on the amount of seed needed per mu, equal to 1/15 hectare. The selling price of the bagged seed is three times homegrown seeds and its gross profit margin has risen to 68% compared with 30% of homegrown seeds. Before that, domestic farmers used to plant seeds by 3-4 times the amount actually needed. The market share of the summer maize seed of Xianyu No.335 was less than 7% in 2007, so there still is big space for the growth of its market share.

We can see that Xianyu No.335 has already become the key profit source of the company. However, as the ownership of Xianyu No.335 is in the hands of the joint venture company, so Shandong Denghai has to pay huge for the seed use right. Therefore, though the profit of the joint venture totaled CNY38 million in 2007, Shandong Denghai only got net profit of CNY7.24 million from it, still resulting in a rise of its profit in 2007 by 26.85% year on year.

A 68% gross margin, of which Pioneer keeps 81%, is a pretty good deal, maybe for both companies in the joint venture. Hebei Province can be expected to start looking more like Iowa.

What does this trade mission mean for progressives? It means more of the same Iowa companies sourcing additional labor and manufacturing in China. It means expansion of GMOs and monoculture in China. It means glomming onto a communist five year plan, looking for how we fit in, instead of developing our own plan for a sustainable economy and being a leader. It means more of the Branstad effect.

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2 Responses to Iowa's Trade Mission to China and South Korea

  1. Anonymous says:

    Mr. Deaton, while your blog does provide some insight into the results of the trade mission, your comments regarding Vermeer outsourcing labor and manufacturing to China is misleading. Your comments seem to suggest that manufacturing is being done in China and shipped back to the U.S. and this is incorrect. No Iowa jobs are being outsourced by Vermeer to China, rather, Vermeer is fulfilling regional sales opportunities by manufacturing where customers want to buy. Currently, Vermeer has over 100 IOWA job openings, proving that Vermeer's investment in Iowa jobs is strong and NOT being shipped overseas as you suggested.


  2. Anonymous says:

    I double checked my live blog from the press conference and the delegation did not say that Vermeer was outsourcing US jobs to China. What they said was the Vermeer was considering expanding the use of Chinese labor to manufacture goods. This practice is similar to what Hon Industries is doing in creating production capacity in China to serve foreign markets.
    I changed the post to reflect more accurately what I am trying to say. Vermeer itself is not relevant to the point I am making and I do not seek to discredit what Vermeer is doing regarding manufacturing in Iowa.
    The more appropriate question is whether absent Chinese production capacity, could some or all of these jobs be located in Iowa? If Vermeer currently has 100 Iowa job openings, then perhaps there is an inadequate labor supply in Iowa despite the large number of unemployed Iowans. This is problematic for business development in the state, if true.
    Paul Deaton
    Weekend Editor


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