With huge volumes and an increasingly sophisticated post-harvest system, China will emerge as the major player in the international fresh apple sector over the next few years. This will put added pressure on other hard-pressed established suppliers in both the northern and southern hemispheres.
Many have not noticed that China has already assumed second place behind France in terms of international trade, and this is a sign of things to come. As global production over the last 10 years has increased from just over 48 million tonnes to over 57mt, China has become by far the most significant producer, and now accounts for some 35 per cent of all apples produced in the world. This puts China in a very strong position to strengthen its grip on international agri-food markets. If anyone doubts that this is the case, they only need look at what has happened in the Chinese processed sector, as well as other agri-food commodities, to see what the end result might look like.
Over the last 10 years, China has seen apple production increase from 11mt to some 21mt, representing a CAGR of seven per cent. This far outstrips any of the established producers in the rest of the world, most of whom have seen either very modest increases or in some cases declines in overall production. And this has been achieved with a very low yield rate of just seven to 11t per hectare. Without any overall increase in the production area per se, if yields were to reach even the still relatively modest levels of, for example, Poland and Iran, production would increase significantly - and could double to over 40mt. This would potentially have a massive impact on the established trade between key producers and international markets such as the EU as well as the rapidly developing domestic market within China itself.
The key production areas are Shandong, Shaanxi, Henan, Hebei, Shanxi and Liaoning. Between them, in 2003 they accounted for around 18mt of the 21mt (85 per cent). To give an idea of the scale of the sector in China, Shandong on its own produces more apples than the US and France put together. The main variety grown is Red Fuji, which accounts for 60 per cent of the crop.
In terms of overall market breakdown, some 2.8mt goes to the processing sector. Per capita domestic consumption of fruit has also been rapidly increasing in China over the last 10 years, and has now reached some 56kg per annum, which represents an increase of 37 per cent. Fresh exports are increasing significantly, and have now risen to over 700,000t. The majority of this volume currently goes to Russia, FSU and other Asian markets, but markets in the EU and the Middle East will increasingly be targeted. China will emerge as the major international supplier to the fresh market over the next five years. The USDA estimates that by 2008, exports will increase to around 1.2mt, which will see China well ahead of other established international suppliers such as France, the US, Italy and those in the southern hemisphere. The export supply base will be stimulated by a combination of ongoing investment at all stages of the supply chain and also the fact that the premium for export quality fruit is massive compared to the processing sector and local fresh markets. The fruit sector is much less regulated that other areas of the agri-food economy in China, and farmers are responding more readily to market signals from international customers.
One only has to look at what has happened in the processed trade to see what sort of impact China might have over the next few years. In the apple juice concentrate (AJC) sector, global exports now exceed 1mt, with China accounting for some 465,000t. Around 10 years ago, the Chinese figure was virtually nil. As such, China has made huge inroads into the international market at the expense of other established suppliers, especially those with relatively high cost structures.
The US industry has suffered as much as any, which helped spark a major (but now resolved) trade dispute between the US and China. The Chinese sector is beginning to actively look to strengthen its position in other key markets such as Russia, the EU, Japan and Australia. International prices in AJC have traditionally followed a classic four-year cycle. In the last few years China has emerged as a major player in the broader international market rather than being just focused on the US.
With a greater involvement in the international market, and the Chinese sector acting as “price maker”, this will produce less fluctuation in international price trends. Having said this, prices are not set by supply countries alone. Major players in the AJC supply chain are only just getting used to the fact that China is now in such a dominant position in the global market. As a result, key end users might not be able to dictate commercial and technical terms as they have in the past. If all this has happened in just a few years in the AJC sector, it gives an indication of what might happen in international fresh markets when the Chinese really begin to flex their muscles in this sector as well.
Farm management skills across the agri-food sector in China are still often poorly developed, but these will improve over the next five to 10 years. This is widely recognised, and a key feature of government agri-support policy. This improvement will also be driven by ongoing investment from both international and indigenous funding sources which will focus on improvements to the physical infrastructure in terms of post-harvest cooling, storage and packing. The AJC sector has shown its willingness to invest heavily in state of the art processing facilities and management systems such as ISO and HACCP. There is no reason why the fresh sector, in its hunger to access international markets, will not do the same. Added to this is the fact that local labour in rural areas, despite the ongoing drift to major urban centres, is still in most cases readily available, and very competitively priced at $2-2.5 per day. Key crop diseases found in China are also quite common in most major producing countries, but the extent to which they exist in China is almost certainly higher than in other key sources. However, all can be treated to a greater or lesser extent by the more careful use of a combination of agri-chemicals and better farm management techniques.
China is still developing its fresh fruit export sector, but has already made significant inroads into international markets around the world. The lessons from the AJC sector are that well established suppliers such as the US, Poland and Argentina will come under huge pressure over what might be a relatively short period of time. China has plenty of fruit available to supply both its fast-growing domestic market and the processing sector, as well as the fresh export sector. And it is likely to have more - and of better quality - in the future. Farm management and post harvest standards will only improve over the next few years, and inward investment to assist with better agronomic standards, traceability, due diligence and management control systems will continue to flow.
Attention will be moved from existing fresh markets to higher value targets in the EU and Middle East, and links with international handlers of fresh produce cemented. The big challenge for the Chinese apple sector will be whether it can move away from being excellent traders in commodity foods to dealing with more sophisticated and higher added value markets around the world. This might take time, but the evidence from the AJC sector is that the Chinese can hold their own with even the biggest and most aggressive international players in the food and drink processing sector.
This all makes the future for the Chinese apple sector very exciting and full of potential, but others around the world might find life not so comfortable. This will all come together to mean that overall level of competitive pressure in international fresh fruit markets will only be heightened over the next five to 10 years and beyond. And China is in an increasingly strong position to compete with the best of them.
No comments yet