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U.S. exporters seeing increased opportunities in China

by Tim Linden | June 04, 2009
With Mexico slapping a 45 percent tariff on U.S. grapes this year, China could become a very important market for the California grape industry.

China already is the top overseas market for California grapes, trailing only Canada and Mexico (which both hold an advantage geographically) with regard to grape imports. In 2008, China imported almost 24,000 metric tons of grapes from the United States, which equates to about 2.8 million cartons. That is about half of what went to Mexico and about one-quarter of the shipments to Canada, but it is more than any other offshore market and is very significant to the grower-packers.

And experts say that it is difficult to know exactly what ends up in China because some products destined for China get there via other entry points. For example, for many years Hong Kong was the point of entry for China. Today, Hong Kong is still an important entry point but more product is being shipped directly to Shanghai, Beijing and other points. U.S. statistics on shipments to China list the country separately from Hong Kong.

Jon Zaninovich, vice president of Jasmine Vineyards in Delano, CA, said that the Chinese market is very significant for California grape growers. While the total volume to that market hasn't grown much since the market was opened more than a decade ago, he said that the nature of the shipments has changed dramatically.

"[It] used to be a low-end market, but now they want quality," Mr. Zaninovich said. "We ship as good a quality there as anywhere else."

Susan Day, vice president of international marketing for the California Table Grape Commission, based in Fresno, said that the numbers bear that out. A decade ago, California exporters sent about 26,000 metric tons of grapes with a value of $31 million to China. Last year's 24,000 metric tons shipped there represent a small decline in the 10-year average with regard to volume, but the value of those shipments was up 50 percent, to $46.3 million.

Mr. Zaninovich said that China produces a lot of its own table grapes now, so domestic production has taken over the low-end market. But it is the high- end demographic that is growing at an astounding rate -- despite a setback because of current economic conditions -- and in the long term, there is optimism that the high-end market will grow in volume as well as value.

Washington apple and cherry shippers can tell a similar story. Mark Powers, vice president of the Northwest Horticultural Council in Yakima, WA, said that in the early 1990s, China allowed Red Delicious and Golden Delicious apples in from the United States, but no other varieties. In the late 1990s, China opened its doors to U.S. cherries.

A look at the numbers shows that apple imports are increasing. The average for the past six years shows that about 530,000 cartons are shipped annually to China from Washington. But the average for the past three years is more than 800,000 cartons per year, with 2007-08 showing more than 1 million cartons shipped. This year, shipments have been down a bit from last year's high number, but they are still very respectable, and the final figures should be somewhere around that 800,000-carton figure

While cherry volume is much smaller, Washington cherry growers still sent about $13 million worth of fruit to China last year, making it the industry's fifth largest export market, according to Mr. Powers.

Domex Superfresh Growers in Yakima, WA, is one of the grower-shippers that has taken advantage of the growing Chinese market for apples. Loren Queen, marketing communications manager, did not want to underplay or overplay the size of the Chinese market. He said that Domex sells some product to Chinese importers and that other sales go through U.S. exporters or importers from Hong Kong, who then sell it into China.

"It is a fair amount of business," Mr. Queen said, stating that it represents a couple of containers per week, which equates to about 1 percent of the company's total business and about 4-5 percent of its international sales.

He said that Chinese customers demand a premium product and the price they pay for it pencils out, considering the risk involved. Of course, most of the risk revolves around the long transit times of trans-oceanic voyages. Another product with significant shipments to China is California Navel oranges.

According to U.S. Department of Commerce foreign trade statistics, the value of oranges shipped to China and Hong Kong (two separate categories) surpasses any other fresh commodity. In 2008, the value of those shipments topped $61 million. Hong Kong orange shipments have remained fairly steady over the past half dozen years, while shipments in the China category have grown significantly. In 2008, $21 million worth of oranges went from the United States to China, which represented about a 25 percent increase over the previous four years' average.

John Galvan, sales manager of Fruit Royale Inc. in Delano, CA, said that he has participated in sales of Navel oranges to China for the past five years, and called it a "growth market." He noted that Chinese customers take "all fancy - the best of the best - and they pay a premium for it."

He said that for the most part, the sales have gone very well with very few problems. "It's definitely one of our top-three export markets," he said rattling off some of the other destination points for the company's Navels, such as Malaysia, Russia, Singapore and Dubai.

Mr. Galvan began working with Kelton, PA-based I Love Produce on his Chinese shipments this year, shipping about two to three loads per week. "This year it has been very simple. We were just getting our feet wet getting to know everyone, and next year we expect to ship a lot more."

Jim Provost, a founding partner of I Love Produce, is a veteran of doing business with China. He has been importing garlic and ginger from that country for several years and is now involved in both importing from China and exporting to that country. In fact, he is partnering with the same Chinese contacts that provide him with garlic and ginger to arrange sales of U.S. apples, citrus and grapes to China.

"They help me source garlic and ginger from China, and I help them source fruit from the United States," said Mr. Provost.

The company with which Mr. Provost is aligned is Lantao, which is headquartered in Shanghai and has Chinese offices in Beijing and Guangzhou. It also has two produce-specific retail stores in Shanghai and is on the verge of opening others in China.

Mr. Provost is the company's vice president of procurement and works from his Pennsylvania office. Also on staff is Tia Nicholson, who spent 17 years with the Loblaws chain in Canada, mostly in produce procurement. She is wearing the same hat for Lantao and currently is operating out of Canada, but she will soon move to Hong Kong to open and manage the firm's Hong Kong office.

Mr. Provost and Ms. Nicholson have already sourced scores of loads of apples, grapes, citrus and kiwifruit from the United States, Chile and New Zealand. "We expect to do 300-600 containers in this calendar year," said Ms. Nicholson, adding that they are well on their way to meeting that goal.

While most of the product is sold to Chinese produce wholesalers, some is also sold directly from Lantao's retail operations. Mr. Provost said that those stores are located in upscale neighborhoods, as fruit from the United States and other foreign countries tends to have a premium price and is targeted to China's upper-middle class. He said that the Chinese people often give gifts of fruit when visiting one another, and giving apples or grapes from the United States is a sign of status.

Mr. Provost believes that China will make an excellent market for U.S. fruit for years to come because the upper and middle classes are growing by leaps and bounds. Although those who occupy that status are still only a small percentage of the total Chinese population, it is a large number nonetheless.