China becomes apple of industry's eye
Overseas apple sales increasingly vital to Washington's tree fruit industry
By DAN WHEAT
WENATCHEE, Wash. -- With the Washington apple industry entering a new era of record-setting crops, marketers are looking overseas to sell an increasing share of the harvest.
Industry representatives view China, with its population of 1.3 billion, as the market with the greatest potential, so when Chinese officials last August closed their border to U.S. apples, it caused a wave of concern.
China cut off U.S. apples, saying it found postharvest diseases that it wants to keep out of its own apples. As industry and trade officials work to pry open the Chinese market in time for this fall's apple crop, the Washington Apple Commission has offered a new lever -- opening the U.S. to Chinese apples in exchange for full access of U.S. apple varieties into China.
Only Red and Golden Delicious were previously allowed into China. Some members of the industry say they are dubious of that move even though Chinese apples have not overtaken the markets in Canada and Europe, where they've been allowed for more than a decade.
"Some are more concerned than others," said Rob Dresker, international sales and marketing director of Borton & Sons Inc., Yakima. "Only time will tell."
The year 2012, with its record 129.5-million-box apple crop, provided a preview of a future of what Washington apple industry predicts will be crops 8 to 18 percent larger than the old norm prior to last year.
Apples are Washington's No. 1 agricultural commodity with a farmgate value of $1.8 billion on a 108.7-million-box crop in 2011, according to the National Agricultural Statistics Service. Of that, 37.4 percent was exported.
A key factor has helped Washington marketers sell more apples into other countries relatively easily this season. Light apple crops -- caused by weather-related problems in Europe, Canada, Mexico, the U.S. East Coast and in the Midwest -- made for less competition.
But with larger apple crops anticipated in those regions this fall, selling Washington apples overseas becomes more vital.
Offsetting the loss of 1 million to 3 million boxes of apples barred from China coupled with finding a home for 10 million boxes of greater than past normal production, is a real challenge, industry representatives said.
Compounding competition for future markets is increased apple tree plantings in New York, Michigan and California, said Todd Fryhover, president of the Washington Apple Commission in Wenatchee.
Michigan is talking about doubling its production to 40 million boxes in the next four to five years, he said.
But even before that, if Michigan, New York, Ontario, Europe and Mexico return to normal-size crops this fall and Washington stays at 120 million boxes or more, oversupply and tumbling prices are likely, Fryhover said.
India and Indonesia are growth markets, but they have trade issues and competitors in Chile and New Zealand also export there, said Desmond O'Rourke, a retired Washington State University agricultural economist and apple industry observer.
Washington shipments to India slowed this season due to a 20 percent devaluation of its currency and a 50 percent tariff that remains.
Indonesia has been restricting imports to protect itself from Chinese products and as a result its imports of Washington apples fell 44 percent to 573,000 boxes as of March 1.
Russia and Brazil have large enough populations to pick up the slack, but Russia is hard to ship to and Brazil is protectionist, O'Rourke said.
Another negative for exports, he said, is the U.S. dollar is strengthening against many overseas currencies.
Reopening the door
China suspended U.S. apple imports Aug. 9 and sent inspectors to visit Washington apple packers Dec. 10-14. On Jan. 15, China proposed reopening the market if the U.S. agreed to incubate apples for 20 days in packing sheds before shipping them to China and to change orchard practices.
"We were not able to agree. We put together a counterproposal and submitted it two weeks ago. We're waiting for reaction to it. The market remains closed," Jim Archer, manager of Northwest Fruit Exporters, Yakima, said March 13.
The counterproposal went to China's Administration of Quality Supervision Inspection and Quarantine from USDA's Animal and Plant Health Inspection Service with consultation by NFE.
Incubation -- holding the fruit followed by lab analysis to see if disease is present -- would be "ineffective and impractical," Archer said.
China wanted certain pruning requirements and asked that fallen leaves be picked up, he said.
"I don't know if we were to take the picking up fallen leaves literally but it's not the sort of thing we could not agree to," Archer said. "There were a number of conditions we felt were not justified nor practical."
In 2010, China found bull's-eye rot in Washington apples, Mike Willett, vice president of scientific affairs of the Northwest Horticultural Council, Yakima, has said. In addition, speck rot and sphaeropsis rot have been detected, he said.
The counterproposal includes recommended use of postharvest fungicides but "we don't want a situation where pre- and postharvest fungicides and pesticides are dictated by government," Archer said. "We want best management practices left to the discretion of the producer. That's what we're trying to accomplish here."
It could be weeks, if not months, before China responds, he said.
Full varietal access
While China has accepted only U.S. Red and Golden Delicious, other varieties have been smuggled in from Hong Kong. The so-called "gray market" shipments combined with direct shipments to China amounted to 2.5 million boxes of Washington apples in 2011 and 2.9 million in 2010. So far, with the shutdown this season, sales total 16,344 boxes directly into China before Aug. 9 compared with 126,885 boxes by March 1 a year ago.
Hong Kong imported 1.4 million boxes versus 1.6 million a year ago. The gray market from Hong Kong into China tightened through the fall but now seems to be opening a bit more again, Fryhover said.
With full varietal access, China could easily become a 5 million box market within a couple of years with the potential for much greater growth given the size of its burgeoning middle class with the ability to pay higher prices for Washington quality, Fryhover said.
The apple commission passed a motion Dec. 5 recommending Chinese apple access to the U.S. in exchange for full access for all U.S. apple varieties into China, including mitigation of pest and disease concerns.
Fryhover said the motion went to NFE for consideration to send it on to USDA.
NFE has not adopted the motion and it doesn't have to go through NFE, Archer said. NFE has asked for full varietal access to China without Chinese access to the U.S., he said.
Archer acknowledged he received a letter from USDA Secretary Tom Vilsack in December 2010 saying the USDA must be able to demonstrate progress on China's access to the U.S. for the U.S. to gain full access to China.
It doesn't help that the Obama administration and congressional Democrats have been slow to push for free trade because of labor union opposition, O'Rourke said. Many Republican members of Congress are leery of increased free trade as well, he said.
In 1998, China did severe damage to the U.S. apple juice industry by flooding the world market with cheap, government-subsidized apple juice, O'Rourke said. A long-held fear has been that cheap Chinese Fuji apples could have a similar impact on the U.S. fresh apple market. O'Rourke shared that concern 10 years ago when the first Chinese Fuji arrived in Canada. But now he, Fryhover and others believe the threat is lessened because of the increasing cost of the Chinese Fuji and its inferior quality to Washington apples.
China has been asking for apple access to the United States since 1998. It has been denied while the U.S. identified and prioritized more than 1,000 pest concerns.
Dresker, of Borton & Sons, said it's inevitable China will prevail because it's been working on it for years and is meeting all the phytosanitary requirements for approval.
"It's better if they don't come in. Any competition is competition," he said. "Our advantage is we have the best apples."
Borton & Sons sold 40,000 boxes of Red Delicious directly to China last season and about 15,000 to Hong Kong. No one in the industry sells many Goldens to China but the closure is a big concern for Reds, he said.
The decline of Chinese apples in Canada and Europe are a good indicator they wouldn't be a huge competitor in the U.S., O'Rourke said.
Increasing labor, packing and shipping costs have made it less attractive for China to ship apples to Canada and Europe and it has turned to markets closer to home in Southeast Asia, said Chris Scott, export trade specialist at the apple commission.
China, by far the world's largest producer of apples, ships apples to 122 countries, Scott said. Total Chinese apple exports rose from 39 million boxes in 2004 to 67 million in 2010 but declined to 54 million in 2012, he said. China's average price per box went from $6.30 in 2004 to $16.92 in 2012, he said.
"With Washington apples at $22 a box an importer doesn't want to take on the risk of lesser quality from China when the prices are that close," Scott said.
Canada is working on a food safety act and when that passes it will make it even harder for Chinese apples to do well there, he said.
China's exports peaked at 334,879 boxes of apples to Canada in 2008 and dropped to 119,600 in 2011 but rose to 184,249 in 2012 according to China Customs Statistics, O'Rourke said. Its exports to Europe peaked at 1,171,469 boxes in 2009 and dropped to 975,879 in 2012, he said.
If China is concentrating now on markets closer to home, why does it even care anymore about gaining U.S. access?
"I think it's a face-saving issue. They've been requesting access for 15 years. It's there No. 1 agricultural commodity export concern," Fryhover said. "If we had a market close to us with 300 million consumers, we'd be pushing hard, too."