American ginseng squeezed by US-China tariff war
Paul Hsu is retiring after 44 years of building the largest ginseng company in the United States by sales. The Taiwanese-born entrepreneur is leaving the business, Hsu’s Ginseng Enterprises, to his son Will.
But during the transition, his company may be facing its hardest challenge yet due to the intensified trade war between the world’s two largest economies.
“The way I see it, the situation now is more difficult than when I started the business over 40 years ago,” Hsu, 76, told Nikkei Asian Review earlier this month.
The trade spat between the US and China is not just about high tech and manufacturing. It has also reached agriculture, with both countries wanting to protect their own farmers.
On April 1, Beijing announced plans to slap tariffs of up to 25% on 128 US agricultural exports worth a total of US$3 billion. Fruits, wine and pork are on the list, and so is ginseng. The move was retaliation for Washington’s imposition of tariffs on Chinese steel and aluminium.
Chinese tariffs on US ginseng have risen to 22.8% from 7.8% earlier, and Hsu’s Ginseng, which commands a 40% market share in the US and 10% in China, is feeling the pressure.
“China’s move is a precise hit on us. The surging cost is going to weaken our already struggling competitiveness and market share in China,” Hsu said during a tour of five of his 14 farms, covering 400 hectares in rural Wausau.
US ginseng, which takes at least five years from seed cultivation to harvest, is considered a super-premium product and tops the average selling price in the industry, as the soils in some areas of Marathon County in Wisconsin are rich in minerals as the result of glacial retreat.
The price of four-year-old American ginseng roots can range from $6,000 to $7,000 per barrel, 50% higher than for Canadian ginseng and even more expensive than the Chinese product.
China, with more than 2,000 years of history of eating ginseng roots, is the world’s largest market. US ginseng once accounted for 90% of global market share, with annual production of 1.1 million to 1.4 million kilogrammes in the 1980s, but China and Canada have expanded their production capacity since the late 1980s.
Global ginseng production is now between 4.5 million and 5.9 million kilogrammes per year, while US ginseng has fallen to about 500,000kg. Last year, US ginseng exports were valued at about $30 million, with China the biggest buyer.
Marathon County used to have more than 1,300 ginseng growers back in the 1980s, but now there are only around 150 left, Hsu said.
“I am worried that the new tariffs would hurt exports and eventually employment at the farms in the longer term,” he said.
Will Hsu said the average selling prices of US ginseng were at least 15% higher in the Chinese market after the tariff increase. “Imagine how much more room that would give for Chinese ginseng to stretch their market share in the Chinese market?” he said, worrying that consumers would turn to cheaper substitutes.
Knowing that competing on price with Chinese and Canadian products is not the solution, the company is developing new ginseng-infused products and aiming at a specific customer profile in China, those that only look for the best ginseng goods.
Collaboration with Hon Hai Precision Industry, also known as Foxconn Technology Group, could also be a big help in regaining US ginseng’s market share in Asia.
Foxconn, the world’s largest contract manufacturer, announced a $10-billion investment agreement in July 2017 to build a high tech manufacturing complex in Wisconsin. The Taiwanese company said the project would create 13,000 jobs, with an average annual salary of $54,000, and change the economic landscape of Wisconsin.
Foxconn has approached local ginseng growers, including Hsu’s Ginseng, as it is looking for opportunities to export other US products. “Terry Gou said he’s really interested in American ginseng after talking with my father for just five or six minutes,” the younger Hsu said of the Foxconn chairman.
The tech manufacturer established a brand, Hong Seng, to sell premium ginseng products in Asian markets supplied by members of the Ginseng Board of Wisconsin, including Hsu’s Ginseng.
Gou is an effective brand ambassador for US ginseng products, ranging from ginseng roots, slices, tea bags and ginseng essence, to ginseng-infused spirits and beer. He has publicly said many times that he and his family have been consumers of US ginseng for a long time.