Orange Growers on Both Sides Get Squeezed

The mud huts inhabited by the 1,400 or so people here are not much more sophisticated than the nests built by the area’s swallows. People generally eat what they grow, and they probably will die where they are born. Most share the same name, Peng, which is so widespread that in English this is the Peng Family Village.

Much remains the same as it has been for centuries, yet change has become inevitable, if unpredictable. After he was elected village chief, Peng Hongguo made good on his campaign promise to widen a rocky footpath that spirals down the mountain into the nearest town. It brought better access to the rest of the world, which people knew as only shadowy images on television or disembodied voices on the telephone. It also brought a new economy and decisions for farmers such as the Pengs, who face life and death choices because of China’s expected entry into the World Trade Organization.

“I am very worried about WTO,” said Peng, 51, whose mountain village in central China’s Three Gorges area specializes in growing navel oranges. “My country is not ready. My village is not ready. But I support it because we need the shock treatment to wake up and reprogram our minds.”

Change probably will accelerate when China enters the WTO, but nowhere will the impact be greater than on the nation’s 900 million peasants. For most, WTO membership means tariffs will fall, making it easier for foreign companies to compete with local growers. In a country of peasants, anything that hurts farmers raises worries in the highest circles.

The unequal struggle over competition underscores the chasm between China’s First World aspirations and its Third World realities.

A widening gap between the rich and poor has led to growing unrest in both the city and the countryside, threatening to undermine the legitimacy of the Communist government. One reason the final negotiations on WTO entry took so long was Beijing’s insistence on a safety net in the form of larger subsidies to protect the peasants.

China got a glimpse of one possible future when it relaxed import restrictions last year as part of a U.S.-China agreement on citrus. In the spring, the first 1,800 cartons of American oranges arrived in Shanghai supermarkets, touching off a feeding frenzy. They sold out in two hours.

Sixteen tons touched down in Dalian and were snatched up in three days, even though foreign citrus sometimes costs two or three times as much as the home-grown variety. Fruit became the latest must-have fad when yuppies splurged, just as they did when Big Mac and Coca-Cola made their debuts in the Middle Kingdom.

‘Our Fruits Are Like Country Bumpkins’

After China joins the WTO, probably by the end of the year, foreign fruit, or yang guozi, will flood the market. That could mean the kiss of death for domestic growers, who have difficulty competing because they lack the technology and marketing skills. The sad truth is that foreign fruit is better, and that fuels local growers’ inferiority complexes.

“Sunkist oranges are like sophisticated ladies from the city,” said one commentator on the Internet. “Our fruits are like country bumpkins.”

Marco Polo first introduced the orange to Europe after bringing it from China. Over the centuries, the West cultivated and improved it, turning the fruit into a staple.

More than 70% of China’s current citrus crop is the smaller and cheaper mandarin orange, which has thick and easy-to-peel skin. Very few places in China are suitable for growing the larger, more profitable variety.

In one of the ironies that flavor life, it was another European who noticed in the 1980s that the soil in the Peng village was perfect for the bigger fruit. Villagers were so sheltered that they had no idea about the value of the golden fruit that is so popular in California, Florida and Brazil. Once they found out, it took a few years to transform nearly all the rice terraces into orchards of orange trees.

The homes also were changed; brick houses began to sprout from the mud. Shiny bathroom tile walls, long associated with coastal boom towns, began to appear. For the first time, the village was making a profit and average annual personal income exploded to $300 from a mere $3.

With wealth beginning to flow, the gold rush was on. More and more Chinese growers began to saturate the market with substandard fruits at wildly fluctuating prices. Low productivity and poor quality continued to make domestic oranges a weak rival for the American super fruit.

“We have no product advantage,” said Qi Chunjie, a board member with the Chinese Citrus Assn. in Wuhan. Because China does not produce enough quality oranges to satisfy a huge domestic appetite, the door was left wide open for foreigners.

The Pengjia farmers can feel the draft as foreigners rush through.

“The skin on the foreign orange is thin and smooth, like a young girl’s face. Even I prefer them over my own oranges, which are rough, thick and often scarred.” said Peng Nianjun, 19, a farmer and distant relative of the chief, as he sat in an old mud house built by his grandparents.

To Chinese eyes, the California fruit is on par with the finest automobile to roll down the assembly line. It has a brand identity backed by a powerful agribusiness of which the Chinese can only dream. It has marketing and distribution capabilities to make the fruit loved and bought around the world. Computers and other high technology are utilized to efficiently grow fruit. The oranges are uniform in size, dependable in quality and, more important, available year-round.

Chinese farmers have none of that. Their oranges are available for only a few months in the winter. Most of the time, there is no storage, no refrigeration, no marketing. Except for rare occasions when mandarin oranges are prepared for export, there is no packaging or waxing, no separation for size or quality. They are tossed into a basket, thrown onto the back of a truck and sold as is. To do more would needlessly drive up expenses.

Chinese farmers till tiny plots that often are dispersed across the village. This is particularly bad for the labor-intensive Chinese orange industry in which everything is done by hand. The trees are planted so close together that they can’t help knocking and bruising each other. Even if the farmers could afford a tractor or spraying machine, there is no room for them in the crowded fields. And mechanization would displace too many workers who count on the job to eat.

The rural population accounts for only 3% of the total in the United States but 70% in China. Although the rural population has doubled in the last 50 years, arable land has shrunk by almost half. Productivity suffers accordingly. While it takes the Chinese about 58 days to produce one ton of rice, it takes an American less than a day and a half. Chinese farm products, from rice to grains to beans, can cost as much as 40% to 80% more than on the international market.

“Agriculture is China’s weakest link,” said Zhong Dajun, director of the Beijing Dajun Economic Research Center, a private consulting firm. “Lots of peasants will go bankrupt. It’s a very severe situation that requires systemwide reforms.”

Agriculture is in such dire straits because Beijing has devoted most of its resources to urban economies, a kind of robbing Peter to pay Paul phenomenon, Zhong said. Farm income continues to drop, while cities experience an unprecedented boom. Millions of peasants have already abandoned unprofitable farmlands to flock to the city for work.

“Our biggest problem is too many people, too little land,” said the teenage Peng.

Chief Peng wishes at least 400 more villagers would go away, so the rest could achieve economies of scale and sustainable wealth.

“But we have oranges everywhere and no one wants to leave,” the chief said, shaking his head as he surveys his picture-perfect hometown and says hello to villagers plucking flowers from the orange groves. The sweet, jasmine-like fragrance of flowering orange trees hovers in the air, making Pengjia seem even more idyllic.

Villagers should be learning and exploring new options, not just waiting for the market to come to them, said chief Peng. Right now, he is the village’s entire marketing department. During the off-season, he makes phone calls and sends faxes to potential wholesalers. At harvest time they come and take away the crop. If they don’t come, then the fruit doesn’t sell.

The Only Remedy Is Painful Reforms

To change this passive relationship with the market, some brave young villagers are taking their harvest on the road. Bypassing the middleman has been a costly experiment, but a valuable lesson on the whims of the market.

The younger Peng rented a truck, loaded it with 7,700 pounds of freshly picked oranges and headed for the provincial capital of Wuhan. He didn’t know that the market prefers larger, better-looking oranges that are good enough to give as gifts. Everything on his truck was too small and unpresentable. Then it rained for three days. Everything rotted. The trip cost his family 25% of its annual income.

Chief Peng’s son also lost money on the road, but for a different reason. His fruit was too big. The market wanted cheaper, smaller fruit. He figured that out by the time he arrived at the market in a snowstorm. Most of his crop froze. This a typical problem faced by inland farmers, said Qi Chunjie, agricultural professor at Huazhong Agricultural College in Wuhan.

One way to overcome the problems in quality is through innovation, said farmer Ye Changjun, 38. Ye said he is the only person in the village experimenting with a new kind of orange that ripens in the off-season, so he could go head-to-head with the likes of a Sunkist or Ocean Spray.

“We need to think of the orange not as a fruit but as a consumer product, like a pack of cigarettes,” said Ye, a chain smoker in a Western suit, the uniform for the modern Chinese farmer.

Unfortunately, the Chinese are far behind in one of the most profitable segments of the industry--juice processing. That leaves them highly vulnerable to foreign competition. In the U.S., nearly 77% of the oranges are turned into juice. In China, only 5% receive any value-added treatment, and most of it is canning.

Most small-time entrepreneurs cannot afford to produce juice because it is capital intensive and requires sophisticated technology. Chinese oranges are not available year-round, and juice factories couldn’t afford to sit idle for months at a time. Sugar and other additives often are thrown in, hurting rather than helping marketability. “When orange prices hit bottom, it’s much better to turn [them] into juice. But who’s going to invest in it, especially if they are already losing money,” said Zhu Jianfei, manager at a farm collective on a small island near Shanghai. It rents land to orange growers and helps them with distribution and marketing. It is a new trend in the countryside that attempts to reverse the traditional land distribution patterns that put peasants at a severe disadvantage in a competitive market place.

Meanwhile, some multinationals are investing millions of dollars to turn parts of the Three Gorges region into China’s orange juice capital. If they are successful in moving more agribusiness to China, just the way shoe and toy makers moved their factories here, then local farmers could lose the few advantages they hold: proximity to the marketplace and low labor costs.

“The population is going up, prices are going down. If all we do is plant oranges, in five years’ time we will all be poor again,” said chief Peng.

The only remedy, it seems, is more painful reforms. The WTO could hasten the process.

“What the economy needs is a bone marrow transplant,” said Zhong, the Beijing economist. “It’s definitely going to hurt. We can scream and cry. But it’s the only way to restore our health.”

ABOUT THIS SERIES

This is one of an occasional series on the impact of China’s entry into the World Trade Organization. It will examine social and political issues in California and China, as well as key industries such as agriculture and telecommunications.

Previous: China’s impending WTO entry will mean greater clout, golden opportunities--and the loss of millions of jobs.

Today: California growers worry how to earn a profit while doing business in China. Meanwhile, Chinese farmers worry they will have difficulty competing with foreign growers.