China at the Core of U.S. Apple Growers’ Woes

What Mark Lewis saw in the fruit markets during his last trip to Singapore and Thailand was troubling: red, glossy Fuji apples from China. And they were being sold for 30% to 40% less than the ones he grew back home.

To Lewis, a third-generation California apple grower, those Chinese apples represented a competitive jolt--an early warning sign that a flood of low-cost, high-quality fruit could one day be heading his way.

“The numbers are mind-boggling--what [China has] in the way of production and future production,” said the vice president of Sierra Hills Packing Inc. in Stockton, which grows, packs and sells Fuji, Granny Smith and Gala apples around the world. “It doesn’t take much to disrupt a market.”

From central Washington to California’s Central Valley, apple growers facing abundant harvests and slumping prices are readjusting their thinking about the Asian giant and focusing greater attention on markets closer to home.

“With China as a competitor, it’s going to be tough sledding in the Pacific Rim,” said Kenton Kidd, president of the California Apple Commission. “We’re going to have to take a stronger look at expanding our business in North America.”

Once bedazzled by the prospect of 1.3 billion potential apple eaters, U.S. growers are now confronted by China as a global competitor--set loose by the Communist government’s free market reforms and sustained by a large, low-cost labor force.

And apples aren’t the only U.S. farm products at stake as a new China ramps up.

Emboldened by the late paramount leader Deng Xiaoping’s exhortation, “To get rich is glorious,” Chinese farmers are switching from grains to high-value export crops aimed at lucrative markets in Japan, Korea, Hong Kong and Southeast Asia. Already, Chinese farmers are challenging U.S. farmers in a number of lucrative agriculture markets including mushrooms, garlic, walnuts and ginseng.

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Last year, China nudged ahead of California to become the world’s top walnut grower, producing 44% of the world’s crop. In the past, California walnut growers, whose crops were worth $322 million last year, have not competed directly with the inferior Chinese nuts.

But Californians are watching China’s growth warily because they depend on overseas markets for 40% of their sales. Japan and Australia are top California walnut customers.

“In general, we’re focusing too much on China as a market,” said Colin Carter, a professor of agricultural and resource economics at UC Davis. “What about [China] as a competitor?”

This is an especially sobering thought for California apple growers, who credit overseas markets with having saved their faltering industry two decades ago. California is the nation’s fourth-largest apple producer, behind Washington, New York and Michigan. Last year, the state produced about 450,000 tons of apples, worth $144 million. Four of the state’s five largest apple export markets are China’s neighbors in Asia.

China’s apples are not expected to be a serious competitor in the United States in the near future because its fruit still lags in quality and the costs of shipping its product would price it out of the market.

But China’s apples are improving in quality, and the country is starting to sell its best fruit to its neighbors in Japan and Southeast Asia--regions that have proven lucrative for U.S. growers.

Last year, U.S. wholesalers began seeing higher-quality Chinese apples in Southeast Asia, one of their primary targets for expansion. In 1996, China’s apple sales to the Philippines more than doubled over the previous year.

Dick Rider, a California farmer who grows organic products, fears it may be only a matter of time before the impact of this agrarian revolution halfway around the world reaches his farm near Watsonville.

“Maybe in the future we’ll be all wearing Chinese clothes and eating Chinese apples,” said Rider, who sells his fruit only in the United States.

Until now, California apple growers, who export 40% of their fruit, have benefited handsomely from the political and economic freeze between Taiwan and China. Taiwan is this state’s biggest foreign customer, buying 30% of California’s apple exports.

But in recent years, the two governments have begun allowing limited economic contacts across the Taiwan Straits, and mainland Chinese products are already slipping into Taiwan indirectly, often through Hong Kong.

The combination of an economic detente between the two longtime enemies and an export-hungry Chinese apple industry could spell big trouble for U.S. agriculture.

“The biggest concern we have is the impact China would have on Taiwan,” said Lewis, who sells 75% to 80% of his Fuji apples there.

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China’s transformation has been dramatic. In 1990, the United States produced 4 million metric tons of apples and China produced 4.3 million metric tons. Since then, U.S. apple production has expanded by just 1 million metric tons and Chinese production has skyrocketed to an estimated 18.5 million metric tons this year, according to Desmond O’Rourke, director of the Impact Center at Washington State University.

“The Washington apple industry is very concerned, and the people I deal with in Australia and New Zealand have the same concern,” he said. “China could, with the right direction, become quite a force.”

By last year, China ranked among the world’s top 10 apple exporters, with overseas sales of 165,000 metric tons of apples and plenty of room for growth: That represented a mere 1% of its production. And the vast majority of the new apples being planted in China are varieties that compete directly with U.S. exports.

American farmers are particularly frustrated because China continues to resist U.S. pressure to relax the cumbersome health and sanitary restrictions and high tariffs that keep imported apples and other fruit out of its huge market.

In 1994, after years of negotiations, the Chinese government agreed to allow Washington apples into its market, lifting pest restrictions and lowering the tariffs from 80% to 40%.

But by then, the apples from Washington were confronted by improved domestic Red Fujis. Sales of U.S. apples have been slow. Fruit sellers at Guangzhou’s largest fresh fruit market blamed the poor sales on high prices compared with the newly competitive local fruit.

Though China lags far behind the developed world in agriculture technology, such as modern irrigation systems and cold storage, it is particularly competitive in labor-intensive crops such as apples, pears and citrus fruit, according to Kate Zhou, a University of Hawaii professor. These crops are also attracting foreign investment from Hong Kong, Taiwan and Japan.

“In terms of grain, China will be a big importer for a while, but in terms of other commercial products, it’s my prediction that China will dominate the East Asia market,” said Zhou, author of the new book, “How the Farmer Changed China.”

In the past, much of China’s fruit rotted before getting to market. But the percentage of fruit and vegetables reaching the marketplace has jumped from 20% of production to more than 60% in just five years because of improvements in transportation and storage, according to Tom Wahl, an agricultural economist at Washington State University.

Markets in Beijing and Shanghai are now filled with fruit trucked overnight from the major fresh fruit wholesale markets near Guangzhou in southern China. But most fruit in China is still stored in cellars or caves without refrigeration, limiting their selling season to the winter months.

That gives U.S. apple growers--whose cold-storage facilities allow them to ship fresh product year-round--a window of opportunity to sell their products into China in the spring and summer months, according to Wahl.

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U.S. apple growers hope to exploit their geographic and technological advantage, advertising their ability to ship farm-fresh fruit to Asia during the off-season. They are also targeting the high end of the market, producing apples with the bright red color that is favored for gift-giving.

“We’re going after the consumers in China [who] can afford, and prefer, high-quality imported fruit and other world brands,” said Jim Thomas, communications director for the Washington Apple Commission. “They are the same guys that would buy Levi’s and other brand names.”

American farmers are hardly novices to international trade. They were monitoring global weather patterns and political unrest long before Pacific Rim trade became a business buzzword.

Three years ago, Doyle Fleming, an apple grower living on the banks of Washington’s Columbia River, visited China’s Shandong Province, the country’s largest apple-producing region. He said the Chinese farmers were working hard to meet the demands of their export customers, even placing individual bags around the apples to protect the high-quality fruit prized by the Japanese.

After discovering Shandong Province’s plans to expand its apple production acreage by an amount equal to all of Washington’s, he became convinced that China will soon dominate the Asian markets, squeezing out even the most efficient U.S. producers.

“I think we’re going to see our major markets being the Americas,” he said.

Fleming, who works his 180-acre farm with his wife and son, is hoping to carve out a niche as a specialty producer of varieties that appeal to upscale consumers, such as the Cameo, Braeburn and Gingergolds. He has also expanded into the nursery business and is focusing more attention on selling to Latin America.

“We’re doing everything we can to position ourselves as survivors,” he said.