The Hindu : Opinion / News Analysis : China upsets U.S. apple cart

Online edition of India's National Newspaper
Thursday, Jun 02, 2005

Opinion

Opinion - News Analysis

China upsets U.S. apple cart

Devinder Sharma

In 15 years, the Asian giant has made a remarkable leap to become the world's largest producer of apples.

CHINA HAS flooded the United States market with not only textiles and garments but also apple juice concentrate. China is now seeking quarantine approvals from the U.S. Department of Agriculture (USDA) for the export of fresh apples. A red tide of apples is therefore expected to sweep America.

Scouting for cover, the U.S. apple industry is now demanding protection for domestic producers. At the same time, it is planning to find a market for apples in countries such as India.

Asking India to open up for apples in return for mango exports to America, the U.S. is dangling the swap agreement. Interestingly, China too is trying to convince India to accept the same proposition.

In India, despite domestic apple production being high, nearly half a million boxes (20 kg each) were imported in the last two years, 30 per cent of it from Washington. In Chennai, for instance, more than 70 per cent of the apples available in retail are sourced from America.

Such has been the surge in the import of apple concentrate that American growers lost an estimated $135 million in 2002 alone. Despite the imposition of anti-dumping duty to the tune of 51.74 per cent on Chinese apple concentrate beginning May 2000, imports continue to pour in. In the last five years, the share of Chinese apple concentrate in the U.S. apple juice market has risen to 45 per cent. The industry is now crying for help.

Remarkable turnaround

China has clearly upset the U.S. apple cart. Its turnaround in apple production is a remarkable success story which defies the textbook understanding of demand and supply. China was a major importer of Washington apples in the 1980s. It was around that time that the Government decided to plant apple trees to create orchards in the northwestern provinces.

From being a country with practically zero production to become the world's biggest producer of apples in the next 12 to 15 years is spectacular by any yardstick. So much so that China not only tops the world's apple production chart but its total output surpasses the combined production of the next ten top producing countries, including India. The U.S. has been relegated to the second position. China now accounts for 50 per cent of the world's production.

Barely 15 years after it started planting apple trees, China's exports of apple concentrate to the U.S. increased by 1,200 per cent. With the rise in exports, the price slid from $7.65 a gallon in 1995 to $3.57 a gallon in 1998. While the apple producers and the industry cried aloud, the consumers were happy. Supermarket chains such as Wal-Mart procured the concentrates at rock bottom prices, packed them into cans and bottles, but did not pass on the price benefit to the consumers in the same ratio as they gained from the reduction in import prices. That the Chinese apple concentrate could still be cheaper after the imposition of anti-dumping duties tells us how low the cost of production has been.

The U.S. apple industry is crying foul. As usual, it cites lack of social standards and environmental protection among the reasons for stalling further imports. It is true that at 25 cents an hour, Chinese labour can out-price any U.S. effort to compete in the price war.

Moreover, U.S. producers claim that the Chinese cultivation practices require heavy intake of pesticides and are therefore unhealthy. But the fact that U.S. consumers are not complaining has put a damper on the industry claims.

The USDA has provided a list of 300 insects and diseases that it fears will come along with fresh apple imports. China has already replied, and awaits clearance. Already USDA officials have had discussions with Chinese horticulture and pathology experts. Indications are that the U.S. will soon allow imports of Chinese apples. Once this happens, U.S. producers will have to shift from apple production given the high production costs.

By penetrating the American "apple pie", China has demonstrated that American consumers stand to gain immensely if the huge domestic agricultural subsidies are removed. Not only fruits, American consumers will also find the prices of other food items falling further.

Aggressive marketing

Meanwhile, the U.S. apple industry is getting into an aggressive marketing mode. It has urged Congress to provide an additional $200 million for 2006 under the market access programme (MAP), the level authorised under the (notorious) Farm Bill 2004. Since 1986, the industry has been receiving $3.1 million every year as export development funds under MAP.

These export enhancement expenditures are also part of the massive farm subsidies the U.S. doles out every year. Europe, on the other hand, had provided apple growers with the equivalent of $2 billion in subsidies in 1998-99.

It will now be the turn of the apple growers in Himachal Pradesh and Jammu and Kashmir to be at the receiving end. With both China and America eyeing the Indian market, the warning bells are loud and clear.

(The writer is a New Delhi-based food and trade policy analyst.)

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