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Published 3:17 am Thursday, March 23, 2017
Two years ago, after decades of sparring through negotiations, the U.S. and China fully opened their doors to each other’s apples.
What has happened since then was expected in terms of Washington’s apple shipments to China, but the rapid growth of China’s shipments to the U.S. has surprised some in the industry even though it still represents only a sliver of the market.
For Washington apple companies, the trade deal has had the desired effect. They have shipped about 1.3 million, 40-pound boxes of apples to China in each of the past two years.
That’s worth about $26 million a year, and though the Chinese economy has slowed, Washington apple shippers still hope the most populous nation in the world will one day grow into a 10 million-box, $200 million market. China has a large and growing middle class that likes high-quality Washington apples.
At the same time, however, Chinese apple exports to the U.S. increased by more than 30 fold, from 6,149, 40-pound boxes in the 2014-2015 sales season to 192,258 boxes in 2015-2016, according to the USDA Foreign Agricultural Service.
That’s still less than 2 percent of U.S. apple imports and about one-quarter of 1 percent of overall Chinese apple exports in 2016, says Desmond O’Rourke, an apple market analyst and retired Washington State University agricultural economist who studies China.
But is it reason for alarm? Could China flood the U.S. with its cheap Fuji apples, as U.S. apple producers feared years ago?
The answer appears to be no, but O’Rourke says it’s well worth watching because of China’s ability to rapidly ramp up its exports. China could “easily double” its apple exports to the U.S. this year because it is such a tiny portion of its total exports, he said.
“Being able to sell in high-quality markets like Europe, Canada and the U.S. is a matter of pride for them,” O’Rourke said.
“They have a lot of apples. They doubled exports to Southeast Asia in one year. Their quality has been improving. We don’t know how much quality they have or will want to ship a long distance and take more risk with,” he said.
He points to several possible reasons Chinese apple exports to the U.S. increased so much in one year.
One reason might be that it took China time to meet U.S. phytosanitary requirements. Another is that China is trying to offset its slowing economy.
Years ago, China pushed exports of numerous goods but then backed off after Europe, Japan and the U.S. objected to their markets being flooded, O’Rourke said.
China concentrated on building its domestic market and put less focus on exports for awhile, but with its economy slowing it has in the past year begun pushing exports again, he said.
The export effort involves manufactured and other goods. With fruit, China is selling heavily into Asia, Russia and the Middle East, O’Rourke said.
China is exempt from the Russian embargo that bans Western produce, and Southeast Asia and India are close to home. China is also improving the quality of its export Fuji and is selling in the same price range in the U.S. as domestic apples, he said.
China grows 43.8 million metric tons — the equivalent of 24.1 billion 40-pound boxes — of apples annually, most of which are consumed domestically. That’s half the world’s apple production.
By comparison, the U.S. produces 4.6 million metric tons of apples — the equivalent of 253 million 40-pound boxes — leaving it a distant second place in world production.
In 2016, China exported 114,620 metric tons of apples to Russia, up from 85,660 metric tons in 2015, O’Rourke said.
In Southeast Asia, Chinese apple sales increased from 393,999 to 615,392 metric tons, and in India and Bangladesh sales increased from 202,953 to 406,801 metric tons.
“It’s the markets nearer to them. Their cheaper apples are going into those places. Their better apples go to Canada and the U.S.,” O’Rourke said.
China leap-frogged from total apple exports of 800,000 metric tons in 2015 to 1.5 million metric tons in 2106, said Todd Fryhover, president of the Washington Apple Commission.
“They are pushing everywhere,” he said.
“I’m surprised at the volume (of U.S. uptick), that there’s demand for them. None of our (Washington) shippers are bringing them in that I’ve heard of,” said Tom Riggan, general manager of Chelan Fresh Marketing.
“None of our customers have asked if we have Chinese product. I’ve seen more and more Ya pears come in from China in Los Angeles markets, but not Chinese Fuji,” he said.
Riggan said he’s eaten Chinese Fuji in China, India and Germany and that it doesn’t have the sugar level and dessert quality of Washington-grown Fuji.
Steve Yeoh, export director and co-owner of Agri-Pacific International Trading Corp. in Arcadia, Calif., has been importing and exporting fruit in Southern California for 25 years. He mostly exports citrus fruit, apples and table grapes.
Importers who buy Chinese Fuji sell them to Asian markets in Chinatowns in major cities such as Los Angeles, San Francisco, Seattle, Chicago and New York, said Yeoh, who is Chinese.
Premium Chinese Fuji look better than U.S. Fuji because they are grown in bags to give them better color and clean skin with no scratches or blemishes, he said.
But he’s never thought they would become big in the U.S. because they lack consistent quality and China doesn’t have the facilities to pack and grade apples like U.S. packers do, he said.
“Chinese Fuji target Chinatowns. I don’t think it will grow a lot more. Fuji is becoming a lesser variety because Americans are going for newer club varieties like Envy and Pacific Rose,” Yeoh said.
Price is key, he said.
Chinese Fuji sell into the U.S. at an average of $26 per 40-pound box, which is similar to U.S. apple domestic prices, “so they are not undercutting us,” O’Rourke said.
Price undercutting was a fear that for years caused the U.S. apple industry to oppose Chinese imports.
In 1998, China caused severe damage to the U.S. apple juice industry by flooding the world market with cheap, government-subsidized apple juice.
After that, apple producers in Washington, New York and Michigan feared boatloads of Chinese Fuji apples arriving on U.S. shores and taking a big bite out of the fresh apple market.
The U.S. industry used pest and disease protocols as roadblocks to China’s request, also in 1998, for its fresh apples to be allowed in.
But in the late 1990s and early 2000s, with the Washington apple industry hurting from low prices and not enough varietal diversification, the appeal of China’s large population as a potential market began to grow.
Red and Golden Delicious apples from Washington, Oregon and Idaho were allowed into China in 1993 but were banned from August 2012 to November 2014, after disease was found in some shipments. When shipments resumed they were immediately hindered by work slowdowns at West Coast ports.
In the meantime, Washington producers increasingly wanted access to China for all apple varieties and, as a tradeoff, began thinking of ending their opposition to Chinese apples coming into the U.S.
The Washington Apple Commission hired O’Rourke to evaluate the potential impact of Chinese apples coming into the U.S. O’Rourke concluded that the perceived threat of Chinese apples flooding U.S. markets was overblown. China only grew Fuji, which was less than 10 percent of the U.S. market, and the quality was inferior, he said.
“We looked at Canada, where China made a big surge (in 2003 and 2004) that fizzled, and the same in Europe. China’s natural export markets are in those big Asia markets closer to home,” O’Rourke said.
O’Rourke remembers some big shippers muttering their disagreement when he presented his study to the Apple Commission.
Two large shippers were opposed but most of the opposition came from East Coast growers hit hard by the juice competition, Fryhover said.
It took several years to get the industry unified to end its opposition to Chinese imports and more time for U.S.-Chinese negotiations, in which the Northwest Horticultural Council in Yakima played a big role, Fryhover said.
The Apple Commission passed a motion Dec. 5, 2012, recommending Chinese apple access to the U.S. in exchange for full varietal U.S. access to China. Pest and disease concerns were addressed.
The two governments reached an agreement in early 2015 and later that year all apple varieties were allowed to flow both directions for the first time.
In the 2014-2015 sales season, Washington shipped 1.35 million boxes of apples to China. That dropped to 1.27 million in 2015-2016.
The drop was caused by a variety of factors, according to an assessment by the Apple Commission released at its March 14 meeting. They included overproduction and a drop in prices in China, more shipments into China from Chile and New Zealand, a slowdown of China’s economy, a strong U.S. dollar and high Washington prices due to a smaller 2015 crop,
China’s middle and upper class population increased from 30 million in 2011 to 109 million in 2015 and is expected to grow 25 to 30 percent in each of the next five years, the assessment states.
That middle-income population growth, its increasing online purchasing, its concern for food safety and Washington’s high quality all bode well for future exports to China, the commission said in the assessment.
When the Chinese economy rebounds, the commission concluded, that growing middle-income class will be “willing to try new varieties and with the increased number of new apples that Washington apple growers continue to offer, we can expect an increase in demand of Washington apples as a whole.”