Market Insights – China

By Wayne Prowse – Export Consultant

China is the world’s most populous nation and the world’s second largest economy. With a growth rate of 7.7 per cent (2013) it is set to exceed the USA before the end of this decade.

While Australia’s pears currently can’t be exported to China because of trade restrictions – in the long term there may be opportunities.

While Australia’s pears currently can’t be exported to China because of trade restrictions – in the long term there may be opportunities.

By any measures China is a massive market with an enormous influence on both the regional and global economies. Since the 1970s, China has forged ahead with structural reforms that have modernised its economy and opened it to the world. China is now the world’s largest exporter of goods and services and the second largest importer after the United States. They are also the world’s largest producer of fresh produce including 38 million tonnes of apples and 16 million tonnes of pears (FAO 2012).

With these production numbers the significance of imported apples and pears are barely a blip. The status of high quality imported produce however is important to high end consumers, creating a market niche being filled by a few motivated suppliers. Chile and New Zealand delivered over 90 per cent of the imported apples in 2013/14 giving consumers a fresh counter seasonal supply, albeit less than one per cent of the local production. Australia exported our first small consignments to China in 2014.

Apple consumption in China, based on raw production figures, is around 29 kg apples per capita, which is more than double Australia’s consumption. However research suggests that less than 40 per cent of apples are likely to reach consumers due to production losses and juice production. Even so, this is a large number and the volume of apples reaching consumers may increase with improvements in distribution systems that reduce waste and improve safety and productivity. For this reason, any expectation of large scale apple trade to China should be viewed with caution and with an understanding that there needs to be a clear point of difference and a supply chain pathway in place.

Trade

Market insights Apples to ChinaChina is a regulated market with tariff and quarantine barriers that restrict trade. The current tariff on Australian apples is 11 per cent and quarantine access is open only from Tasmania. Access is prohibited for pears from Australia.

This means that it is very difficult to supply apples and pears to China. Mainland apples are listed as a priority for market access negotiations however this is a slow process as China negotiates one product at a time per country and completing a protocol for nectarines remains a priority ahead of apples.

Chile and New Zealand are the major suppliers of imported apples to China. Imports from the United States opened again at the beginning of 2015 with volumes expected to increase significantly as access has now been granted to a wider selection of varieties (previously limited to Red Delicious). The Washington State Apple Commission plans to conduct significant promotions. For European pears the United States is the main supplier however the overall volume at 5,000 tonnes is negligible in the market though has significant growth potential.

The China market

Market insights Pears to ChinaImported fruit normally arrives in China via the key ports in Guangzhou, Shanghai or Dalian (near Beijing), where it is distributed to wholesalers and retailers in these major markets and increasingly on-sold to markets in China’s tier two cities of which there are over 90 with populations of more than one million. These cities include Nanjing, Hanghzou, Qindao, Xian, Wuhan and many more – most of which are now connected by high speed trains and multi-lane freeways. China’s fifth five-year plan has economic development of tier two cities as a key strategy and with this should flow economic growth in these areas, higher incomes and propensity to purchase higher priced imported fruit.

As modern retailers from foreign owned, joint ventures and local businesses increase, the demand for high quality fruit increases. Food safety is developing as a critical strategy for retailers to gain consumer confidence and shift consumers away from purchasing at wet markets. Imported fruit from countries renowned for safe food such as Australia, New Zealand and the United States can command significantly higher prices than local fruit although realistically not high volumes. Poor cold chain and transport infrastructure have been a challenge for fresh fruit distributors although this is improving with the development of state-of-the-art cold stores and the road system allowing for faster transit times, particularly between Guangzhou and markets several thousand kilometres north.

Outlook

Over the long term, China could offer opportunities for Australian apple growers, though these need to be kept in perspective of the size of the local production and the current trade restrictions. More detailed research is needed to identify the real opportunities for marketable varieties in niche segments and in targeted cities rather than to view China as one large market.

The China market for European pears is interesting given Australia’s greater competitive advantage in our season and the differentiation to Chinese pears. The demand is clearly niche, however, given the supply growth from the United States, Australia could tap similar supply chains during the southern season. New Zealand is not a strong competitor for pears and South Africa along with Australia does not have access to the market. However, access for Australian pears is currently not a priority for the government’s market access negotiations.

As with all Asian markets, developing relationships with buyers and supply chain customers is fundamental and can take many years with little actual trade advancing. Growth should come from breaking into and increasing market share in the high end niche sectors, possibly in a targeted selection of tier two cities and their associated supply chains. Long term commitment is of course vital, which will take many years.

APAL support

A strong relationship built over time between Chinese fruit importer Loren Zhao, FruitDay (lt) and Tasmanian fruit exporter Howard Hansen (rt) led to the first shipment of Australian apples to mainland China in 2014.

A strong relationship built over time between Chinese fruit importer Loren Zhao, FruitDay (lt) and Tasmanian fruit exporter Howard Hansen (rt) led to the first shipment of Australian apples to mainland China in 2014.

In April 2014, the first shipment of Australian apples were sent to China from Tasmania’s Hansen Orchards. The Royal Gala apples were air-frighted to online and television shopping retailer, Fruit Day, in Shanghai for China-Australia Business Week. Hansen Orchards worked in close collaboration with APAL, Fruit Growers Tasmania and the Australian, Victorian and Tasmanian governments, to facilitate this export of apples including via the APAL and Victorian Government Asian buyer importer missions in April 2013 and 2014.

It is encouraging to build a presence in the Chinese market as Tasmania is the only Australian state that can export apples due to its fruit fly free status. It also highlights the importance of importer tours to facilitate buyer appreciation of Australian apples and pears and increase the likelihood of confidence and purchase by understanding firsthand that premium Australian products will command a stronger retail price in Asia.

APAL’s Industry Services Manager Annie Farrow works closely with the Australian Department of Agriculture and Chinese office to advance market access for mainland Australian apples. The possibility of putting a case to the Office of Horticultural Market Access to prioritise an application for Australian pears will be assessed against the apple and pear export strategic plan, which is expected to be released in coming weeks. APAL and the Victorian Government also continue to engage with importers and retailers to develop greater market knowledge and to strengthen business relationships. The horticulture trade and market access division has recently appointed Mr Bin Lu, an Australian National to a position in Shanghai to enhance this work.

About the author

Wayne Prowse is an Export Consultant at Fresh Intelligence Consulting. For more information contact Wayne at wayne@myfreshintelligence.com.

By |April 29th, 2015|Exporting, Market insights|

About the Author:

Principal and Senior Analyst, Fresh Intelligence Consulting
wayne.prowse@bigpond.com