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China will eventually become net importer

NEW ORLEANS -- Though China is the world's top producer of both fruits and vegetables, and it is a formidable competitor in many different commodities, it will eventually become a net importer of fresh produce as its middle class continues to increase in size and demands higher value items.

That was the theme of a workshop session during the Produce Marketing Association Fresh Summit convention, held here.

Two experts discussed the world's largest country's economic situation, while two produce industry members discussed the practical nature of both importing and exporting produce with Chinese partners.

Eric Trachtenberg, who is the director of the food and agriculture sector for McLarty Associates, an international strategic advisory firm, said that while China's rate of economic growth has declined a bit, it is still a robust 7.8 percent. It is what he called a "middle income country" that is in the midst of tremendous urban migration.

Over the past 20 years, Chinese people have been moving from rural China to the cities in search of better jobs and more income. Tratchtenberg said the migration will continue, and within about 20 years, 70 percent of its residents will live in cities.

With the higher income comes increased demand for higher value foods. Only about 14 percent of China's land is suitable for cultivation, meaning it does not have the ability to feed itself as the demand increases. He said China's middle class currently numbers 300 million and that is expected to double by 2020.

China is adjusting to the tremendous economic growth rate that the government has encouraged and facilitated for the past generation. This growth-first mentality has led to pollution and other problems that the government is just now addressing.

Trachtenberg said China continues to take retaliatory measures against the importing of agricultural products when it gets in trade disputes with other nations. This currently hampers imports, but in the long run, he said, "China cannot effectively feed itself, which will lead to increased imports."

Patrick Vizzone, who has lived in China for many years and is an agribusiness specialist for the Hong Kong Branch of the National Australian Bank, agreed that China's economy will continue to grow.

He echoed Trachtenberg's comments, stating that investment will continue to grow and specifically said the fresh produce sector will experience very strong growth rates. He added that the demand picture for fruits and vegetables looks very bright and will surely outdistance domestic supplies.

"China will have to rely more on international investment and supplies for its food," he said. He predicted that companies from the United States and Australia will be the top suppliers of this food.

Speaking from an industry perspective were John Wang, president of Lantao, and Jim Provost, president of I Love Produce. The two men and companies work together on both the import and export side. They started working together more than a decade ago exporting fresh garlic from China into the United States.

While they continue importing garlic, ginger and other items into the United States , they have also found great success exporting many U.S. fruit crops, including cherries and citrus, over the last several years.

As the importing company in China, Lantao also brings in fruits from other countries, such as Chile and Mexico.

Wang expressed some of the frustrations involved when negotiations between China and the importing country result in the closing of a market.

For example, after several successful years, China closed the market for Red Delicious apples coming from the United States and it has not yet reopened. On the other hand, the company enjoyed tremendous success this year bringing in Northwest cherries to China. He expect imports of fresh produce to China to continue to increase, but the respective governments have to solve the trade issues.

Provost opined that the Chinese people have an affinity for well-known brands. The local suppliers want only the top brands from the United States, regardless if the quality of the product in a lesser known brand is just as good.

He said the scrutiny of produce going into China with regard to food safety has increased tremendously recently.

In discussing what other companies can do to capitalize on this growing market, Wang advised would-be exporters to go to China and get a firsthand look at what the people want and need.

Provost said one must be prepared to spend a good deal of capital and not get a great return for the first year or two.

Vizzone advised potential suppliers to pick a Chinese partner and work directly with the top person at that company. He said that is how the Chinese do business.