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Hay export’s changing dynamics

Progressive Forage Grower Editor Lynn Jaynes Published on 31 December 2014
exporting hay

Hay export dynamics are changing in an increasingly global marketplace. During the ’70s and ’80s, the Japanese valued visual quality and small bales. Foreign buyers during that era liked the “coziness” of seeing the hay, smelling and touching it before buying.

According to John Szczepanski, director of the U.S. Forage Export Council at the 2014 California Alfalfa, Forage and Grains Symposium in Long Beach, the Japanese model for hay assessment that built a multi-billion dollar hay export industry was discontinued in favor of distant and dispassionate business practices.

Szczepanski said, “We’re dealing increasingly with markets and with middlemen in those markets whom we’re not familiar with.”

One significant shift on the hay export scene has come in volume percentages by destination. In 2007, Japan and Korea represented 91 percent of all forage exports. By 2013, the market had shifted, with those two countries representing just 51 percent of exports. Exports are expected to further decline as these governments encourage greater consumption of domestic forage through subsidy programs.

As Japan and Korea have drawn down import demands, China and Middle Eastern countries have become bigger players, requiring different marketing and negotiating tools from U.S. exporters. Casual contracts and handshake deals have dwindled and new services are required.

“Today’s forage export market is driving the need for new services, including credit reporting, third-party certification and insurance programs such as liability coverage. These reflect an international market where buyer and seller are less familiar with each other,” Szczepanski said.

Credit reporting protects the exporter, who needs information about who he is dealing with. Third-party certification helps the customer by providing verification and assurance that the product being shipped is what it was purported to be. Liability insurance protects both importer and exporter because when things go wrong in newer markets where people are less familiar with each other, the coverage can protect both interests. The challenge is that these services drive up the cost of forage products, which is a concern to exporters.

Domestic issues also hinder exports. Szczepanski cited problems that impede export of U.S. forages, including transportation issues involving the ongoing longshoreman contract negotiations currently threatening cargo-handling processes at West Coast ports. Szczepanski said even if the contract issues were resolved, the impact from the crippling slowdown at U.S. ports will last for months. When animals in other countries need to be fed, then quality is not the only issue considered, but also reliability and consistency of supply.

Szczepanski emphasized that other countries are waiting in line to take the place of the U.S. in export markets if we’re unable to meet demand, and those countries will gladly step in. Once those U.S. contracts are lost, the larger issue will be trying to regain them.

A second and lesser concern has been the presence of unapproved GMO alfalfa in China. To mitigate the issue, Szczepanski recommended the hay industry return to former U.S. President Ronald Regan’s guiding principle of “trust but verify.” This motto addresses common-sense elements of knowing what you’re buying, knowing from whom you’re buying and testing what you buy. He recommended that growers buy seed from reputable sources and then test it before planting, as well as having exporters buy hay from known and reputable sources and then test the hay before shipping.

Complicating the process has been GMO testing methods. Until recently, U.S. hay exporters used a “strip” test that can detect hay containing more than 5 percent biotech material. When China began testing U.S. hay imports over the past summer, it used a more sensitive chemical DNA test capable of detecting 0.1 percent biotech material, and rejected hay based on that test. When product is rejected by China, it is not returned to the seller but is destroyed. U.S. hay industry leaders indicated a true “zero” reading for GMO testing will be difficult to meet. Further, Szczepanski said a change, for instance, in sampling for one market can complicate business in all markets.

This testing method has dramatically influenced West Coast alfalfa hay exports to China. Hay exports increased from a high point of 65,000 metric tons in August of 2013 to 75,000 metric tons in March 2014; however, exports dropped significantly to just over 50,000 metric tons in October 2014.

Rejection of GMO product leads to market expulsion. Expulsion from exports in foreign markets can occur after a three-strikes policy. Essentially, if a product is identified as inadmissible through GMO detection by a country three times, then the receiving foreign government can pull the importing country’s export registrations.

What impact does the export market have on the overall hay industry? Szczepanski explained: “There are people who want to emphasize that forage exports as a whole from the United States represent just 4 percent, and that is true. But that discounts the fact that this is a billion-dollar industry. There are those who say that if we increase the challenges that growers have to supply product because we’re asking of growers additional requirements – for the UAE market, you have to test for this; for the Chinese market, you have to test for this – there is concern amongst the export community that the more we ask of growers, the less likely growers are going to want to sell to exporters.”

While some may argue that hay unable to meet export regulations will simply be channeled through domestic dairies and later exported through milk products, Szczepanski said hay sellers should be concerned that a slowdown in exports results in one less bid for hay products and reduces competition, in turn affecting price.

While the GMO issue is important to the export scene, Szczepanski said it needs to be put into context with other factors influencing exports to China. Influencing factors include the possibility that China may not be importing as much hay due to their own internal issues. Communication with buyers has also been challenging for hay exporters working to develop various markets.

Szczepanski said, “There's a healthy skepticism of dealing through middlemen who understand neither hay nor horse. In that gap of knowledge, problems happen that hurt the whole industry – product gets misrepresented or misused.”

He advocates everyone – growers, buyers and exporters alike – must share the burden of “trust but verify.”

The Japanese hay-buying model built the U.S. hay export industry with a cozy, personal connection, but we certainly moved away from that model. Szczepanski said that in light of present day issues, maybe it’s time we return to that model as it would certainly seem more pertinent now than ever.  FG

See how hay is compressed and prepared for export at the Port of Long Beach. Watch the video.

Hay supplies await shipment at the Aldahra ACX Global export warehouse in Wilmington, California. Photo by Lynn Jaynes.