MSG Business in Deep Water

　　Dwindling domestic demand and anti-dumping claims are decimating China’s monosodium glutamate industry

　　Monosodium glutamate (MSG)， a flavor enhancer， is the latest target in China’s ongoing trade wars. On October 24， the U.S. Department of Commerce announced an anti-dumping and countervailing investigation into imports of MSG from China and Indonesia， requested by Ajinomoto North America Inc.， the U.S. unit of Japan’s Ajinomoto Corp.

　　The Illinois-based company claimed that MSG from China and Indonesia was sold in the United States at less than fair value， with dumping margins ranging from 64.8 percent to 204.7 percent， and 50.3 percent to 58.7 percent respectively， and that manufacturers in these two countries had received improper government subsidies.

　　“There is a reasonable indication that a U.S. industry is materially injured by reason of imports of monosodium glutamate from China and Indonesia that are allegedly subsidized and sold in the United States at less than fair value，” said all six commissioners of the U.S. International Trade Commission (USITC) on November 15.

　　It was the third such case in September， following the U.S. Department of Commerce’s final decision to slap anti-dumping and countervailing duties on imports of hardwood， plywood and a statement to probe imports of trichloroisocyanuric acid from China.

　　The U.S. Department of Commerce will continue its investigations and make preliminary anti-dumping and countervailing duties determinations on December 27， 2013 and March 12， 2014 separately.

　　Accusations rebuffed

　　China has been the leading manufacturer of MSG since 1992. From 2002 to 2010， the sector expanded at an annual growth rate of 11.1 percent. According to statistics by the U.S. Department of Commerce， China exported MSG worth $36.9 million to the United States， slightly declining from that in 2011， but still double the volume in 2010.

　　Xu Zheng， a lawyer from Jincheng Tongda and Neal Law Firm， told International Business Daily that the main stakeholders in this case were Meihua Group， Lotus MSG， Linghua Group and Fufeng Group.

　　Meihua， the largest of the four， exports 100，000 tons of MSG to overseas markets each year， with 20，000 tons being sold in the U.S. market. Its big customers include Nestle and Unilever. Since MSG makes up a very small part of their production costs， these bulk buyers are not sensitive to price increases.

　　Yet， things are different for Lotus MSG. According to its bi-annual report in the first half year， overseas market contributed 306 million yuan ($50.21 million) to its revenue of 1.14 billion yuan ($185.36 million)， accounting for 27.71 percent.

　　Ma Wenfeng， an agricultural analyst from Beijing Orient Agribusiness Consultants told International Finance News that low-cost labor in combination with low-priced American corn were the major reasons why Chinese-made MSG was more competitive in pricing.

　　Ma said that China had been a big buyer of American-produced corn which had been exported to China for some time， at a price lower than that in its homeland market. Even so， the Chinese Government didn’t initiate an anti-dumping probe.

　　Although Chinese-made MSG is much cheaper than products from other countries， Chinese producers can earn profits， said the MSG branch of China Fermentation Industry Association.

　　“It’s ridiculous for the United States to make a false countercharge，” said Ma， who said different countries were confronted with different situations， and the government should not interfere in free international trade.

　　Aside from that， Lotus MSG was accused of receiving government subsidies to keep it running. Reviewing its development course， Lotus MSG indeed won a 2-million-yuan ($328，200) government subsidy， but it was mainly used to pay debts and support its restructuring， rather than igniting unfair competition， said the association.

　　Shi Zujian， Board Secretary of Lotus MSG， suggested that once anti-dumping and countervailing duties were imposed， the company would find food flavoring factories in Southeast Asia to undertake its production and re-export its products to the U.S. market.

　　In 1989， Wu Yunchu established Tianchu Sodium Glutamat Factory in Shanghai， breaking the monopoly of China’s food flavoring industry by Ajinomoto Corp.

　　However， as people’s dietary habits has kept changing over the past two decades， the once indispensable condiment has lost favor with Chinese housewives.

　　“Now， chicken powder is my first choice， because it makes the food more delicious and will not generate hazardous substance under high temperature，” said Hu Yumei， a housewife in Beijing， who claimed that she had quit MSG for years.

　　Industry challenged

　　Chen Yingying， an analyst of the MSG sector， noted that the food additive industry had contracted by 30 percent as a result of restraining the three public expenses.

　　As Henan Lotus Flower Gourmet Powder Co. Ltd. explained that constantly improving living standard spurred the emergence of new condiments， which had stolen a large slice of the traditional food flavoring market.

　　According to the Ministry of Industry and Information Technology， among the 19 industries which have to close down outdated production facilities in 2013， the MSG sector saw production capacity increase by 142，000 tons， up 99.3 percent.

　　Squeezed by a disadvantageous overseas trade environment and sluggish domestic demand， many small MSG factories have been driven to the brink of bankruptcy. According to Sublime China Information Co. Ltd.， a portal for commodities information， most small manufacturers south of Yangtze River have been shut down， and less than 50 percent of producers in Shandong Province is in operation.

　　In the trade， the major cost factors are corn and coal. It needs 2.5 tons of coal and 2.5 tons of corn to produce 1 ton of MSG. “To survive， manufacturers tend to locate their production bases in areas of abundant grain and energy resources to reduce production and transportation costs，” said food processing analyst Liao Liang.

　　As main grain-producing areas are not located in east China， hordes of MSG factories have moved to the western region.

　　In addition， food flavoring factories also face challenges from environmental pollution. As early as 1997， Lotus MSG spent 150 million yuan ($24.62 million) in controlling pollution， but little has changed.

　　According to Liao， there were more than 200 food-flavoring manufacturers in the 1990s， but only a dozen of them are still running now.

　　“It will cost manufacturers an arm and a leg to purchase a set of high-quality waste water treatment equipment， which can reach environmental requirements. In the context of cutting backward production capacity， small and medium-sized producers， most of which are depressed by a tight budget， are the first to bear the brunt，” said Liao.

　　Aside from domestic challenges， China’s food-flavoring industry is also threatened by a converging attack. Xu noted that the European Union had begun to levy an anti-dumping duty on imports of food-flavoring powders from China in 2008.

　　“With the anti-dumping and countervailing measures taken by the United States， other countries may follow suit.”