U.S. Orange Trade With China Sour and Sweet

For years, one of Hong Kong’s claims to uniqueness has been its prodigious appetite for cellular phones, Mercedes-Benz autos and Sunkist oranges.

The statistics insist that the average Hong Kong resident consumes a whopping 64 pounds of oranges a year, nearly four times as much as an American.

But that is one of Hong Kong’s little secrets: As many as 40% of those oranges--about $30 million worth--aren’t consumed here at all. They find their way across the border into China, where U.S. oranges are (wink wink) illegal.

For a long time, nobody worried much about what was a win-win-win situation. California growers sold millions of extra oranges, Hong Kong middlemen collected a healthy fee for getting them across the border, and affluent Chinese consumers got their sweet, juicy fruit at a premium.

But as this illicit traffic in oranges has ballooned in recent years because of increasing Chinese affluence, California growers have begun worrying that their reputation is being sullied by damaged or inferior fruit being pawned off as high-priced U.S. products. Nor can they aggressively market their fruit, since they are not legitimately even in business in China.

Oranges are hardly the only fruit that has gone this route. As much as 95% of China’s fresh fruit--with a value of more than $700 million--comes in through “unofficial channels,” according to sources cited by the U.S. Agriculture Department. But because of its visibility and profitability, U.S. trade negotiators have pushed citrus near the top of their list of trade concerns to be resolved before China will be allowed to join the World Trade Organization.

“The good news is the stuff is getting in anyhow,” said a U.S. Agriculture Department official in China. “The bad news is only a small part is going through legal channels. It doesn’t help California if the stuff gets smuggled in in the back of a truck without refrigeration or the stuff gets mislabeled.”

The widespread availability of Sunkist oranges, real or wannabe, on the streets of Guangzhou is a vivid illustration of the “Through the Looking Glass” quality of doing business in China--where very little is as it appears to be.

In Guangzhou, the booming southern river port formerly known as Canton, it is difficult to find a shop owner or fruit vendor who doesn’t claim to be selling Sunkist oranges, with or without the familiar label.

Triple the Local Price

The Sunkists--better-tasting than the domestic juice oranges best suited to China’s growing conditions--cost about $1 a pound on Guangzhou’s streets, or three times the going price for local oranges.

On a recent morning, one young fruit vendor, who wore a Puma T-shirt and called himself Mr. Li, said his “Sunkist” oranges were very tasty and popular. “Of course, the Japanese Sunkist oranges--they are even better. And they come cheaper these days.”

The only trouble is, Sunkist doesn’t grow oranges in Japan.

“We don’t like a system where people are encouraged to break the law,” said the Agriculture Department official.

The stated reason for China’s ban on U.S. oranges is fear of a pest infestation. The government clings to that position despite the huge number of California oranges already being sold inside its borders.

“You’ve got them saying, ‘No, you can’t bring it in because it’s a threat to us,’ when they well know that if the threat was real, they would already have the problem,” said a frustrated Bill Quarles, vice president of corporate relations for Sunkist Growers Inc. in Van Nuys, the citrus marketing cooperative that shipped 6 million 40-pound cartons of oranges to Hong Kong last year, much of which ended up across the border.

California growers consider China’s complaints part of a ploy to protect their domestic agriculture industry. The few U.S. farm products that are allowed into China--including Washington apples and California grapes--face duties and taxes of up to 80%.

“This is more a political issue than anything,” said Dan Kass, vice president of export sales and marketing for Dole Food Co. in Bakersfield, which counts Hong Kong as its third-largest foreign market.

China, which is a major producer of tangerines, mandarins, tangelos and oranges, primarily juice varieties, harbors ambitions to become a global player in the citrus industry and is already exporting tangerines to Southeast Asia and the former Soviet bloc. In rural parts of Sichuan, Hebei and Hunan provinces, the government has launched programs to promote orange growing as a way of keeping people from migrating to the crowded cities for work.

There is a coals-to-Newcastle flavor to this global trade battle, since citrus fruit originated in China. When Marco Polo visited China in the 13th century, he reportedly collected varieties of tangerines and mandarin oranges and took them to the Mediterranean region, which became a huge producer of citrus, according to Quarles. The Spanish then brought citrus fruit to North America.

“Now, we’re just trying to complete the circle by taking California oranges back to China,” Quarles said.

A small portion of the millions of boxes of California oranges that entered China last year was legal, as the government has given hotels and restaurants special importing privileges. But most of the fruit came in illegally, often with the assistance of Chinese customs, police and military, according to knowledgeable sources.

The American sellers of these contraband products are in no danger of prosecution because they are insulated by Hong Kong middlemen who get the fruit into China and collect the payment. Occasionally, the Chinese government will throw a few smugglers in jail, but it offers little deterrent to a gray market trade that is so huge and profitable.

Entry by the Backdoor

Typically, the fruit is loaded onto small boats in Hong Kong Harbor and delivered to small ports in southern China where the customs enforcement is less stringent than elsewhere in the country. Sometimes, the oranges are simply mislabeled as a type of fruit that can be legitimately imported. Other times, “special fees” are imposed that allow the products across the border without an inspection.

Hong Kong fruit traders monitor the border as closely as the weather, knowing that a surly customs official can turn a container load of high-priced fruit into rotten garbage. One broker said he avoids shipping fruit across the border for several weeks after a switch in customs officials, to give them time to loosen up.

The transportation and other costs of bringing a 40-foot container of fresh fruit from Hong Kong to southern China range from $4,000 to $6,000, according to a U.S. government report. That is less than it would cost to bring in a legal fruit and pay the tariffs on it.

From ports in southern China, the fruit is trucked to places such as the Nanhai City Le An Fruit & Vegetable Wholesale Market near Guangzhou, where it is sold to wholesalers, fruit vendors and store owners from all over China.

On a recent evening, the employees of Kingson Trading Co. loaded a dozen boxes of Sunkist oranges into the back of a truck at the Nanhai market.

The 30-year-old owner of Kingson, who identified herself as Miss Yun, said she imports dozens of containers of fruit a day during the peak season, including Washington apples, California oranges and grapes, Japanese pears, and exotic fruit from Southeast Asia.

Like other fruit importers interviewed in China, Yun claimed ignorance when asked how a fruit such as the California orange could be brought into China when it is officially banned.

She said she buys her fruit from a middleman in Hong Kong who takes care of all the paperwork and arranges for the fruit to be shipped to a small port nearby.

“There are a bunch of people who are only in private transportation who pick up the fruit from my Hong Kong contacts and who are really familiar with customs officials,” she said. “They make it official.” Yun said the California oranges, the navel and Valencia, are popular because they have a reputation for being sweet and juicy and cannot be grown in China. They are also available year-round, while the domestic oranges are on the market for only a few months.

The unpredictability of supply makes the fresh fruit business in Hong Kong a risky occupation. An unexpected crackdown at the border, as occurred just before the July 1 hand-over of the territory from British to Chinese rule, will cause a glut of fruit in Hong Kong and a shortage on the mainland. The demand for oranges is also hard to gauge, since they are a luxury item.

“It’s kind of like gambling,” explained one of Yun’s employees, a Mr. Zhang, who like others would only partially identify himself to a foreign reporter. “You can make money quickly, but you can also lose.”

In a small stall on the other side of the giant Nanhai market, Chen Hanliang, 31, sat at a desk surrounded by cartons of his best-selling items: Washington apples, California table grapes and Sunkist oranges. Above his head was a trapdoor leading to the tiny apartment where he and his family live, making it easier for him to work from dawn to long after dusk.

Chen said his boss, a Hong Kong businessman, paid a middleman an “administrative fee” of $40 to $80 a box to get the fruit into China.

If California citrus won clearance to enter the country legally, it would be Sunkist’s second official foray into the China market. When Sunkist began exporting its oranges in the 1920s, it developed a sizable market in Shanghai, then a cosmopolitan trading city. But World War II and the Communist takeover of the mainland closed that door, forcing Sunkist to retreat to Hong Kong.

Today, for California growers facing expanded production at home and increased competition abroad, China is the proverbial pot of gold, a developing country whose wealthy are said by marketing experts to consume more fruit per capita than anyone in the world.

In the past six months, half a dozen California citrus groups have visited China trying to figure out the best way to get a foothold in that market if and when U.S. trade officials are successful in removing the official barriers.

“A lot of these people cannot afford oranges now, but there is money there,” said Tom Roberts, president of Suntreat Packing & Shipping Co. of Lindsay, Calif., who visited China earlier this year. “The key is finding out who the players are truly going to be.”

Middlemen in Middle

It is the Hong Kong middlemen, legitimate and otherwise--who have been able to charge a premium to U.S. companies trying to break into the China market--who have the most to lose if the United States is allowed to ship produce directly into China.

Wilson Wu, director of Alliance Produce Agencies, is one of Hong Kong’s largest fruit wholesalers. To ensure his future in the business, Wu is spending more time on the mainland, figuring out who the players are and how the market is developing. He figures it will be those contacts who will give him the edge in finding customers, negotiating prices and volume, and ensuring that the U.S. exporter gets paid.

“There will always be a need for a middleman,” he said.

Min Lee of The Times’ Hong Kong Bureau contributed to this report.