John Hey

Is cheap Chinese produce set to become a thing of the past? Is the country losing its competitive advantage as an exporter? Certainly, a sharp increase in the country’s fresh produce prices over the past year has led people to wonder.

The farm-gate price of Chinese Fuji apples, which have come to symbolise the country’s rapid rise as a produce exporter, is up by around 30 per this year. When combined with a jump in seafreight costs, this is leading to market prices in Europe that are 50 per cent higher than last year, and resulting in limited demand. While a drop in this season's apple production partly explains the price hike, there are other forces at work here, and apples are not an isolated case.

Soaring food prices drove Chinese inflation to its highest level in more than a decade in October, with fresh vegetable prices leaping 30 per cent from a year earlier. As the consumer price index keeps climbing, suppliers note that the cost of everything is going up in China, including that of key inputs like fertilisers and packaging. In particular, the cost of labour is rising at double-digit rates. The appreciation of the Chinese currency, the yuan, and sharp increases in shipping costs are further eroding the country’s competitive edge in export markets, while the government’s move to tighten quarantine export controls has caused complications for shippers. At the same time, domestic demand is taking off as Chinese incomes rise. And speculation among traders is only bumping up prices as they store fruit in anticipation of a hot local market for the upcoming Olympic games.

So what does this all mean for China's role as a fresh produce exporter? While a slowdown in growth rates appears inevitable, the country's supply role is also changing. China has made inroads into export markets on a low-cost strategy, often gaining "share of throat" without increasing "share of wallet". But recent figures show that total fruit export volumes plateaued in 2006, while values increased 22 per cent, reflecting rising costs and a greater focus on quality and value-adding.

From the perspective of fruit imports to China, the rising cost of domestic fruit should have a positive impact in maintaining overall market prices at high levels. However, this is likely to spur more Chinese producers to explore the domestic market and to raise their quality standards, ultimately intensifying competition. As a result, we can expect to see a hardening of the trend whereby imported fruit boasting outstanding quality commands a handsome premium, but any product that is slightly "off-top" takes a big step down on price, as many suppliers have found out to their cost over recent months.

John Hey

TURN to our kiwifruit feature this month and you will read about some of the new varieties that are generating excitement in the category. Zespri Gold excepted, the global kiwifruit market has been something of a ‘monoculture’ up until today, with green-fleshed Hayward by far the dominant variety. But the sector looks set for a burst of innovation and major diversification over the next decade as new varieties with gold/yellow, red and other coloured flesh emerge onto the scene to rival or compliment Hayward.

Many of these varieties are originating from China, where multiple strains grow naturally in the mountains and are brought to horticultural institutes for development. Major foreign interest and investment in nurturing and commercialising such cultivars is now beginning to produce results with the launch of varieties bearing interesting points of difference to those currently on the market, whether it be a striking appearance when cut open, higher sugar levels or enhanced health benefits.

While they still only account for a fraction of total production, the big commercialisation plans for these varieties mean it will be interesting to see what influence they have on the global market. In China itself, securing adequate protection of privately-owned varieties to ensure controlled market development is always going to be a challenge, particularly where cultivars have already been accessible to growers before plant variety rights were secured. On a broader scale, such new varieties must also live up to expectation levels in the competitive international market, especially in terms of factors such as shelf life.
As Zespri notes, the investment in research, development and commercialisation of a new variety is hefty. Indeed, it took several years for the New Zealand kiwifruit marketer to come up with Zespri Gold. Despite rumours that it is well on its way to developing a red kiwifruit variety, Zespri remains conspicuously quiet on its plans, and it may be waiting for the right time to launch such a cultivar while Gold continues to ride high in the marketplace.

Zespri does, however, sound a note of concern that there will be new varieties that do not have the characteristics to satisfy the trade or consumers in the short-term. While the recent burst of innovation should expand the kiwifruit category, it could also destabilise it. After all, variable eating quality remains one of the key hurdles to realising the great growth potential that exists for kiwifruit consumption. Before Hayward is branded a tired, commodity variety, we should also take heed of the distinct quality grades within the Hayward market, the difficulties consumers have discerning them when fruit ‘looks’ so similar, and the room for improvement that this reveals.

John Hey

ONE of my personal highlights from the recent ASIA FRUIT LOGISTICA trade fair in Bangkok was sampling the delectable array of fruits in the Japanese pavilion. Not only did these items look amazing, they set the taste buds racing, whether it be muskmelons with a melting sweetness or purplish-black, perfectly-formed Pione grapes bursting with a rich flavour. If only all fruits tasted this good, I thought, the industry might not be facing such a challenge to boost global consumption! I was even more blown away, however, when told that the melon I was munching would cost me upwards of US$100 in Japan, or the pretty peach US$10 each. Makes five-a-day a bit of a challenge!

Those Japanese fruits are notoriously expensive, largely due to the extraordinary lengths that growers go to in nurturing their crops. Back in the conference room, the issues of price and quality kept cropping up at the Asiafruit Congress. Will Japanese consumers still pay a premium for fresh produce? Some thought so; others not. Are the expanding supermarket retailers in Asia prepared to share in the cost of programmes to promote socially responsible management practices or food safety by paying more for the produce they buy? Has China’s method of winning market share on low price forced it into a commodity trap or is it shifting to more value addition? And what is more important to the Asian consumer: quality or price?

“Price, price, price” was the answer from one respondent in a survey of Asia’s fresh produce business conducted by Asiafruit Magazine, the results of which were presented at the Asiafruit Congress by Rabobank. But some delegates countered that Asian consumers are actually value-conscious in general, which is not surprising when they often have an abundance of inexpensive, good quality local fruits at their disposal.

Delegates could find an answer to this question of price or quality in Bangkok itself on a tour of the city’s diverse range of retail outlets. At the upmarket Central Food Hall visited by delegates, there were premium-quality fruits selling at prices to match. And while this store obviously appeals to the top tier of society, it nevertheless reflects the segmentation that is increasingly being seen in Asian markets as affluence grows in the region. Thailand is a market where low-priced, “acceptable” quality Chinese fruit has made major inroads, but it is also one where high-quality fruits from sources worldwide are finding favour by offering new flavours to the aspiring consumer.

John Hey

‘Fast moving’ and ‘fast growing’ are terms often used to describe the Asian fresh produce market, and the news and developments that pack the pages of this bumper edition of Asiafruit Magazine bear testimony to such rapid evolution. With so much of the world’s population and economic growth concentrated in Asia, the region’s consumer market is set to become the largest in the world. China and India may be the drivers of this development, but other countries such as Vietnam (see p140-145) are also emerging fast.

Meanwhile, a wave of consolidation is sweeping the produce trade in Australia and New Zealand (see p62-83), which has recently witnessed a flurry of mergers and acquisitions as well as the rise of production initiatives with a focus on scale and efficiency. Such consolidation is being driven by the demands of the local retail chains. But it also reflects a push to compete more effectively in export markets amid difficult trading conditions characterised by strong currencies. At production level, Australasia has seen a growth in corporate farming, while major marketers are partnering with private equity firms to fund strategic growth.

China’s food safety record has hit the headlines globally over recent months, following a string of health scares (see p120-121). The most high-profile cases involved tainted food exports to the US, where media reaction has been somewhat sensational, but there is no doubt that food safety is a thorny issue for many Asian countries. Certainly, Asian consumers are becoming more concerned about food safety and responsive to branding. Our Organics Asia special (p117-128) shows that shoppers are warming to the concept that once left them cold. However, the organic sector still faces many hurdles in Asia, ranging from a lack of genuine supply to poor certification systems.These issues are linked to the broader problems of regulating production and achieving food safety assurances in Asia, which in turn stem from the fragmented supply base and a lack of supply chain management. However, the development of initiatives such as ThaiGAP (see p30-34) and Metro’s sourcing project in Vietnam (see p144-145) are helping to tackle such issues.

Indeed, growing interest among international companies in Asia’s fresh produce sector is set to inject impetus to the bid to address these problems. As this year’s wide-ranging Asiafruit Congress programme reveals, big-brand fruit marketers, multinational retailers, major market research companies and world-leading breeding and R&D organisations are all stepping up their focus on the region. The launch of ASIA FRUIT LOGISTICA, Asia’s first produce trade fair, this year provides the platform to bring the world trade together and promote further progress.

John Hey

On a recent world trip, I visited a UK basking in its warmest April on record and a New York nipped by cold wind and rain (no spring in sight), before returning to a drought-stricken Australia via Beijing, which was enjoying the earliest arrival of summer in 35 years. While ‘global warming’ is all too easily cited today when we experience weird weather patterns, there is a growing body of evidence to link the unsettling meteorological scenes of the modern age with climate change.

The fresh produce trade in Asia has been affected by a series of extreme weather events in recent years, ranging from a record number of typhoons in Japan in 2004 to the hard freezes that hit citrus growers in Australia and California in 2006/07.
While such weather events look set to strike more frequently as the world gets warmer, another mounting issue facing farmers is that of water shortages. Australia’s devastating drought now heralds a crisis for its fresh produce growers, who may not have water to irrigate their crops in the coming months (see p8). Such dry conditions, while part of an El Niño weather pattern, are set to become more common with global warming – and other countries should pay heed. China’s Yangtze River is running at record-low levels for instance, with drought hitting the country’s citrus crop in 2006/07. Indeed, a recent major Chinese government report on climate change predicts that the Yellow and Yangtze rivers, which support the country’s richest agricultural regions ,will initially experience floods and then drought as the Tibetan glaciers melt over this century. It adds that water scarcity and extreme weather events are likely to slash national crop production in the decades ahead. Despite these dire warnings, the Chinese government has declared that economic growth must take priority over cuts in its huge greenhouse gas emissions. China’s economic growth is keenly watched by produce suppliers worldwide, and some may be encouraged by the government’s priorities, eyeing the rise of a huge market with a shortage of domestic crops. But there may be no China market left in the long-term, if, as looks possible, cities like Shanghai and Beijing are submerged by a one-metre rise in sea levels caused by the melting of parts of Antarctica!

Climate change is becoming a very real issue for the global fresh produce trade. Growers must address the threat to their existing production systems, adopt greener practices and lobby their governments on the issue. As the environment becomes an increasingly important factor in consumers’ purchasing decisions, marketers also need to adapt – not only to meet increased demand for organic produce, but to correct misinformation and misconceptions about ‘food miles’ and the impact of global fresh produce sourcing on the environment.