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Exporting Fresh Fruit to China: Risky but Profitable
By Eve Wong and John Rutledge
Trying to gain an accurate count of fresh fruit imported into China is a challenge almost equal to understanding the cultures and languages of this diverse and vast land.
The statistics may be hazy, but in a marketplace that feeds more than one billion people, the profits for U.S. fresh fruit exporters ring up loud and clear.
Southern China Holds
the Ticket
Much of China's imported fruit products enter southern Guangdong Province through the Hong Kong gateway, spreading from there to all of China.
Rigid trade restrictions on fresh fruit, imposed by China in the forms of phytosanitary barriers and high tariffs, have led to longstanding practices along the southern Chinese border, involving unrecorded shipments, under-invoicing and misdeclarations.
This unofficial traffic distorts China's official trade statistics, resulting in gross under-reporting. Some sources estimate that China's unofficial imports total over 95 percent of the total fresh fruit imports into the country.
To illustrate: Official U.S. trade statistics show a total of $180.5 million worth of U.S. fresh fruit as sold in the China/Hong Kong markets in 1996.
Official Hong Kong statistics for U.S. fruit re-exports to China for 1996, at $59 million, or 46,900 tons, are much higher than China's version reported at $1 million, or 3,100 tons.
Liberally Looking Forward
Hong Kong's more liberal trade policies led to its gateway role for South China. This mutually beneficial arrangement is expected to remain in effect now that Hong Kong has reverted to China.
In Guangdong Province, 30 private trading companies, which import most of the region's fresh fruit, have replaced most of the old state-run import agencies. These companies buy larger volumes and respond to market changes faster than their predecessors. Some also are willing to skirt officialdom, risking an occasional lost shipment.
Fortunately for U.S. exporters, many importers have knowledge of U.S. supplies, seasonality, proper handling and storage and price differentials between grades. And brands matter to these importers, who are very conscious of the quality of their product.
Apples and Cherries Enter Officially
Apples and cherries from Washington State and grapes from approved regions in California are the only varieties of U.S. fresh fruit officially allowed to enter China. Fruit from other U.S. States is still barred due to alleged phytosanitary problems.
As with many legal strictures, there are loopholes. Trading companies that claim to supply hotels and restaurants are allowed to import restricted fruit, provided they have a phytosanitary certificate from a China Animal and Plant Quarantine (CAPQ) Bureau. (However, note that hotels, restaurants and other institutional customers buy limited amounts of imported fruit, preferring domestic varieties.) Trading companies tend to apply to the more lenient local CAPQ Bureaus for these certificates. But there is a price to pay for this unhassled passage through customs. Effective tariff rates range from 41.3 to 81.4 percent.
Wet Markets Eclipse Larger Retailers
Chinese consumers still prefer purchasing their fresh fruit at wet markets (street markets that sell fresh and dried foods). These markets accounted for most of the 1,800 containers of Washington State apples legitimately sold in China in 1995.
Though large retailers now enjoy only 5 percent of the fresh fruit market, the recent proliferation of supermarkets and hypermarkets, which put fresh fruit on their shelves, may make inroads in wet market sales. Some stores that carry fresh fruit include Wal-Mart, Jusco, Makro and Park'n Shop.
Northern Buyers Look South
In 1996, Chinese fruit import markets outside Guangdong Province showed remarkable 25- to 50-percent overall sales increases from the prior year. Guangdong is the major supplier for these markets because the extra shipment costs from South China are cheaper than paying full tariffs exacted at other entry points.
Guangdong's largest imported fresh fruit wholesale markets are in Guangzhou, Shenzhen, Huadu and Nanhai. Wholesalers often have outlets in more than one city.
Imports Popular Despite Higher Cost
Although imported fruit costs about twice as much as domestic fruit, imports are still within the budget of many urban consumers. In June 1996 in the Pearl River Delta area, Washington Red Delicious apples averaged $0.72-1.60 per Chinese jin (500 grams, or 1.1 pounds), while best- grade domestic Fuji apples were $0.60-1.20 per Chinese jin.
With the high procurement expenses, profit margins are small for handlers, ranging from 5 to 6 percent for importers and 2 to 3 percent for retailers.
At this time, overt promotional and market-entry activities for many U.S. products are prohibited under Chinese phytosanitary restrictions. Once these restrictions are lifted, point-of-purchase materials and in-store promotions should be effective tools for enhancing local demand. Timing is important for U.S. exporters. Gift fruit items sell particularly well during holidays, especially Chinese Lunar New Year (January-February) and Mid-Autumn Festival (September), followed by National Day (October 1) and Children's Day (June 1).
Washington State apples, U.S. red table grapes and oranges top the list of China's imported fruit, based on their popularity as gifts during these major holidays.
Other countries provide stiff seasonal competition, but China itself remains the biggest U.S. competitor.
During the 1996 crop year, China produced an estimated 17 million tons of apples, enough to bury the 17,000 tons of apples imported from the United States.
Despite the low prices of these vast domestic supplies, U.S. exporters enjoy a competitive edge over the typical small farm domestic producer. For now, poor handling and storage techniques, combined with a lack of transportation infrastructure and producers' limited marketing and management skills, have conspired to increase the U.S. market share.
USDA Sources
For a copy of the complete market report from which this article was prepared, contact:
Trade Assistance and Promotion Office
AgBox 1052
AGX/FAS/USDA
1400 Independence Ave., SW.
Washington, DC 20250-1052
Tel.: (202) 720-7420
Fax: (202) 690-4374
E-mail: FASInfo@fas.usda.gov
For supplier lists and foreign buyer lists:
Ag Export Connections
AgBox 1052
AGX/FAS/USDA
1400 Independence Ave., SW.
Washington, DC 20250-1052
Tel.: (202) 720-7103
Fax: (202) 690-4374
E-mail: FASInfo@fas.usda.gov
Eve Wong is a researcher and John Rutledge is a marketing specialist at FAS' Agricultural Trade Office in Guangzhou, China. Tel.: (011-8620) 8666-7553; Fax: (011-8620) 8666-0703.
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