Still Talking About Apple Juice From China

In my online seminar I use an article from the 1990s on int’l trade wars with apple juice and China as an example of the senselessness of these disputes.  They are still talking about that episode, in relation to fresh apple imports from China into USA.  

Chinese agricultural officials are close to allowing Washington state's Red and Golden Delicious apples back into China next month after a two-year ban. It is unclear if that will also open up the US import of apples from China, which produces half the world's apples.

Like automobiles, although China is a huge producer, not a single fresh apple has been imported from China into USA.  Ans when it begins, what will happen to the domestic crop?

US apple sellers are concerned what that might mean for home-grown apples, noting that the import of apple juice to the US from China begun in the 1990s has contributed to Chinese apple juice brands now dominating the US market.

China is Northern Hemisphere, so we have the strange event where Fall crop apples in USA are shipped ot China, the world's #2 supplier of apples.  Now the imports into China are limited to Golden and Red Delicious, which generally taste pretty bad because nature hates consistency, and those are a very old strain of apple.  So like wine, USA is shipping our worst into that market.  And like wine, is our brand being defamed by trade practices?  (We spent at least a decade dumping wine in China, to the present ill-effect.)

The two brands were the only US apples allowed in China. They began being imported in 1993, with about 500,000 boxes shipped annually.

It is a variety not a brand, but no matter.

I was consulting with a company in the mid-90s exporting their apples ot China.  It was a revelation into the fresh fruit trade.

With a surplus forecast of 15 million bushels of apples in Washington over the next few years because of increased plantings, Washington growers hope to cash in on the growing Chinese market even as the potential opening of the US market will possibly have them competing with Chinese brands at home.

Increased plantings are compliments of cheap credit since it takes about $10,000 an acre to create an orchard, and a few years for it begin to pay. I watched a 30 acre grower lose his land to the banks for his acceptance of the offer and the price fall on the crop.

What will happen to 15 million surplus bushels when Chinese apples come in.  Why, whole lotta small farmers will not get projected returns, and the banks will transfer the small orchards, what's left of them, to the Big Ag orchardists.  Get big or get out.

There is a solution for the small grower, but let’s go on.

Right now, apples from China are duty free.  Expect politics to change that, so that apples from China, become dutiable.  This will be sold by the politicians as help to small growers.  But in fact, it will be a help to big business who avoid taxes by laundering crops internationally.  Expect the duty drawback scam in wine to be brought to apples.

Lets look at current hard data in apple trade.  First the HTS number...

So the first one, 0808100030, less than 22c a kilo, ten cents a pound?  That is pretty cheap.  Indeed, running the analysis of the raw trade data, the 0808100030 there is only four countries and about a half million dollars a year of trade in this item, so obviously some sort of trash apple.  Never mind this number.

How about organic apples, 0808100045?

Raw data shows a new description in 2011 so no five year trend.  It is possible in 2010 and back they tracked organic apples under another number, but for my purposes although there is a 115% increase yoy, with only 5 countries exporting to USA and $12 million in trade, not so interested right now.

So that leaves 0808100065, not organic but higher priced apples.  Here again only two years, but enough info to analyze....

Source data usitc.gov, by John Wiley Spiers

So we had $150 million in apple imports in 2012, about a 20% increase over 2011, with Chile the big seller with more than half of what we import, and at less than 80 cents per pound.  Canada and New Zealand are the next big players at about $1.20 a pound.   So there is the present competition, and no doubt the get good prices in USA.  What will happen to them when China comes into the USA market?

This study could be enhanced by running the numbers as well for exports of apples... but to my point:

The Chinese are holding back until, based on their experience selling apples everywhere else in the world, producing and exporting for them is old hat (same strategy as in cars).    And when they come in, it will be overwhelming, like juice. 

Now the big boys know this, and are ready.  So the question is how to be ready at the small grower level?

1. Sell upscale varieties of apples, especially new designs.  Compete on design.

2. Avoid CA storage at all costs.  Sell it fresh.  A box of pink ladys stores nicely on a back porch in the northern states in November and December.   ("CA storage is a non-chemical process. Oxygen levels in the sealed rooms are reduced, usually by the infusion of nitrogen gas."  Nitrogen is not a chemical?)  CA storage offers a remarkable storage life, but you are paying for later uncertainty as to the market, against the certainty of fresh competition against your CA.  And face it, people can taste the difference of CA vs fresh shortly after the apples leave CA.

3. Get into thebusiness of importing and distributing apples in the USA off season, the Southern Hemisphere Chilean crops.  Whatever customers you have for your crop, supply them year round.  This necessarily means you will not be importing chinese aples, since they are the same season as yours.

4. Watch the trade data trends to spot changes and adjust accordingly. 

The big boys can be beat.

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