Dalian New Century Food Co.,Ltd

Voluntary Report - public distribution

Date: 6/8/2007

GAIN Report Number: CH7610

CH7610

China, Peoples Republic of

Market Development Reports

South China, Vibrant Gateway for Chinas Imported Fruit

2007

Approved by:
Joani Dong, Director
U.S. Agricultural Trade Office Guangzhou

Prepared by:
Evid Liu, Agricultural Marketing Specialist

Report Highlights:

Chinas vast market for domestic and foreign fruit growers rests on a population of 1.3 billion
and a strong economy. In CY 2006, imported fruit was valued US$ 510 million, and U.S.
exports to China - mostly grapes, oranges and apples - accounted for US$ 69 million or 14
percent. South China plays a special role with its robust economy. It is where the most
imported fruit is consumed because consumers from the south value good quality and can
afford it. Its array of wholesale markets, chief among them, the Jiangnan Produce Wholesale
Market in Guangzhou, serves as vibrant gateway for practically all of Chinas fruit that enter -
- by official as well as unofficial means.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Guangzhou [CH3]

[CH]

USDA Foreign Agricultural Service

GAIN Report

Global Agriculture Information Network

Template Version 2.09

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Table of Content

China grows a lot of fruit .............................................................................3

II.

Imported fruits have a niche ........................................................................3

III.

U.S. fruits have opportunities, but face challenges .....................................4

IV.

Import & Distribution ..................................................................................7

Price Sensitivity ..........................................................................................8

VI.

Import Tariffs .............................................................................................9

VII.

Tips on Marketing U.S. Fruit ......................................................................9

Recent USDA / Foreign Agricultural Service “GAIN Reports” About Fruit in China . 10

Post Contact Information................................................................................... 11

Representative Offices of U.S. Fruit Cooperators in China .................................... 12

Appendix 1. China’s Import of Edible Fruit and Nuts............................................ 13

Appendix 2. Chinas Import of Edible Fruit and Nuts from All Countries................ 13

Appendix 3. U.S. Fresh Fruit Export to Mainland China ........................................ 14

Appendix 4. Seasonal Availability of Selected Fruit in the South China Market* .... 15

Appendix 5. Importing Ports in China for Edible Fruit and Nuts............................ 16

Appendix 6. Flow of U.S. Fruit Export to China .................................................... 17

Appendix 7. Average Fruit Wholesale Prices in China .......................................... 17

Appendix 8. Referential Fruit Retail Prices .......................................................... 18

Appendix 9. China Import Tariff on Fresh Fruit (as of CY 2007) .......................... 18

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Chinas vast market for both domestic and foreign fruit growers rests on a population of 1.3 billion
and a strong economy. In CY 2006

, the value of imported fruit was US$ 510 million, and U.S.

exports

to China – mostly grapes, oranges and apples - accounted for US$ 69 million or about

14 percent. South China plays a special role. Its unprecedented rise of disposable income
sparks demand for high quality fruit. Its array of wholesale markets, chief among them, the
Jiangnan Produce Wholesale Market in Guangzhou, serves as vibrant gateway for practically all
of China’s fruit that enter via both official and unofficial means.

China grows a lot of fruit

Fruit production in 2005

increased 5 percent from the

previous year and reached 88 million tons (Figure 1), primarily

apples (27 percent - mostly Fuji’s), followed by citrus (10
percent – mostly oranges, mandarins and pomelos), pears (7
percent - only Oriental type species, including Dangshan Su
Pear and Ya pears, which are crunchy and juicy), bananas (4
percent) and grapes (4 percent – mostly Jufeng grapes, but
Red Globes and seedless varieties are getting popular), not to
mention peaches, kiwis, litchis, coconuts, mangos and other
sub-tropical fruits. Main growing provinces include:

Apples: Shandong, Shanxi, Henan and Hebei;

Citrus: Fujian, Hunan, Sichuan, Guangdong, Guangxi
and Jiangxi;

Pears: Hebei and Shandong;

Bananas: Guangdong, Guangxi, Hainan and Fujian;

Grapes: Xinjiang, Shandong, Hebei, Liaoning and

Yunnan;

Cherries: mostly in Shandong and Liaoning

For many years, China’s production could not
match the quality of imported counterparts
due to post harvest handling, storage,
packing and transportation issues. However,
in recent years, quality has markedly
improved, especially for Chinese apples,

citrus and table grapes. Coupled with
cheaper prices, this makes Chinese fruits
attractive to most consumers as well as
fierce competitor of imported fruit. Chinese
growers are a force to reckon with as they
market aggressively.

II.

Imported fruits have a niche

Nevertheless, imported fruit will still be the first choice for consumers who prefer supreme quality,
appearance and taste. In addition, some prefer imported fruit for gift giving, due to its cache.

Data source: total value of China’s fresh fruit import derived from China Customs’ import data

Data source: U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Statistics

Data source: China Agriculture Yearbook 2006. 2005 is the most recent year with full year data.

Christmas promotion of Washington

apples to Chinese consumers

durinChristmas

Figure 1. 2005 China Fruit Production

Citris

18%

Pears

13%

Bananas

Pineapples

Grapes

Others

27%

Apples

27%

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Demand for high quality fruit in China’s wealthier regions, especially in south China, has brought
about a steady increase of imported fruit in recent years. In CY 2006

, China imported US$ 510

million of fresh fruit (Figure 2), including:

bananas (23%)

longan (17%)

table grapes (14%)

citrus (11%)

durian (11%)

melons and papayas (5%)

apples (5%)

mangosteens (5%)

dragon fruit (3%)

and kiwis (2%).

Imported plums, peaches, cherries
and other stone fruit have an
extremely small niche mainly in
affluent regions. Together, they
share less than one percent of total
imported value. Among the countries
exporting fruit to China, Thailand

has the largest portion (mostly
durian, mangos and mangosteens),
contributing 23 percent to China’s
import value, followed by:

the Philippines (15% - mostly bananas)

the United States (14% - mostly table grapes, oranges, apples, plums and cherries)

Vietnam (12% - mostly longan, water melons and dragon fruit)

Chile (7% - mostly table grapes, apples and cherries)

New Zealand (3% - mostly kiwis, Gala apples and pears) and

other countries. (Refer to Appendix 1 and Appendix 2 for more details.)

III.

U.S. fruits have opportunities, but face challenges

As one of the largest suppliers to China, the United States exported fresh fruit worth US$ 69
million to mainland China in CY 2006

, including:

grapes (51 percent of total U.S. exports of fruits to China – mostly Red Globes,

Thompson Seedless and Crimson)

oranges (28% - mostly Valencia and Navels)

apples (13% - mostly Red Delicious, Granny Smiths and Galas)

plums (mostly Angeleno and Fortune)

lemons (Eureka, Lisbon and other varieties)

cherries (mostly Bings, Lapin and Sweet Hearts)

Plums, lemons and cherries accounted for less than a 1-3 percent share. (Refer to Appendix 3).

Data source: total value of fresh fruit import derived from China Customs’ import data

Data source: U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Statistics

Figure 2. 2006 China Fruit Import

Longan

17%

Table

grapes

14%

Citrus

11%

Durian

11%

Melon &

Papayas

Apples

Bananas

23%

Others

Kiwis

Mango-

steens

Dragon

fruit

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This year, China has reopened the market to California cherries grown in five counties, i.e.,
Fresno, Kern, Kings, San Joaquin and Tulare. Granny Smith and Gala apples as well as fresh
blueberries from the United States are not officially allowed to enter. However, they are available
via gray channels.

U.S. fruits enjoy a leading share in China’s import fruit market. Take CY 2006

for example. U.S.

grapes accounted for 43 percent of grape imports, second largest portion after Chile or a 53

percent share; U.S. apples held a 37 percent share of apple imports, second after Chile at 47
percent. Moreover, the United States was the largest exporter of oranges (76 percent) to China,
plums (81 percent) and cherries (86 percent). Many consumers in south China pay premium
prices, having enjoyed the high quality and reputation of Washington apples, California table
grapes and Sunkist oranges for more than twenty years.

Thus, for U.S. fruit, competition comes from Chinese
domestic fruit and/or imported fruit from other countries.

Both China and the United States are in the northern
hemisphere. Therefore both countries share similar seasons
with fruit entering the market concurrently. This makes
selling higher priced U.S. fruit more difficult in this price-
sensitive market.

Take table grapes as an example. During the Chinese mid-

autumn festival (also called “moon festival” and normally falls
in September) when high value fruits are popular for gift
giving, Chinese grown table grapes enter the market at more
competitive prices, thus, limiting the price of California table
grapes. Another example is the Chinese Spring Festival (also
called the Chinese Lunar New Year), the busiest retail
season of the year (normally falls in the second half of
January or first half of February). During this time, fruit from

countries in the southern hemisphere entering China can
easily be sold at favorable prices because of lack of

availability of similar types of fruit from countries in the northern hemisphere, including the United
States. (Appendix 4

illustrates the seasonal availability fruits in the south China market.)

For U.S. oranges, competition in China is also price related but not for southern hemisphere
counterparts. U.S. oranges are available in China from late November through the following

June, while Chinese oranges come to the market in November and will last until the following
April. During most of the season, U.S. fruit has to compete with the lower-priced Chinese
oranges. However, U.S. oranges do not encounter much competition from southern hemisphere
oranges since they don’t share harvest seasons.

U.S. apples, available all year round in the China market, face competition from both the Chinese
apples and those from the southern hemisphere. Chinese apples, also available in the market

year round, are sold at less than half of those for U.S. apples. From March to September, U.S.
apples also have to face challenges from apples imported from Chile and New Zealand that are
priced at similar U.S. levels.

U.S. fruit cooperators have representatives in China for the California Cherry Advisory Board,
California Table Grape Commission, California Tree Fruit Agreement, U.S. Northwest Cherry

Data source: China Customs

Many South China consumers are

willing to pay premium prices because
of high reputation and quality of Sunkist

oranges, California table grapes and
Washington apples.

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Growers, Sunkist Growers and Washington Apple Commission (Refer to contact information of
cooperator representative offices in China available at the end of this report). They organize
market promotion activities that include in-store promotions, menu promotions, media events and
ad campaigns.

The best time to promote U.S. fruits in supermarkets when most fruits (table grapes, apples,
cherries and plums) are in season runs between late August through early September which falls

just before the moon festival. November to January or even February is also a prime period to
promote U.S. fruits when most Chinese fruit supply seasons have finished, and few fruit from
Australia and Chile are available in the market. Moreover, as previously mentioned, the Chinese
Spring Festival, the busiest retail season in a year, normally falls on the second half of January or
early February.

Chinese consumers consider color, taste, flavor and size when they buy fruit. Preference varies
by region. For example:

Red Delicious apples and Red Globe table grapes are popular gifts during festival
seasons because red implies good luck and fortune in Chinese culture;

Consumers in south China prefer
sweet taste and fragrance over tart so
table grapes, apples, cherries are
more popular than limes or grapefruit;

Most grapefruit goes to east China,
especially Shanghai and Beijing,
where consumers tend to enjoy the tart
taste;

Southern Chinese prefer medium sized
Sunkist oranges while northerners
prefer larger-sized ones;

In developed city markets, e.g.,

Guangzhou or Shenzhen, with greater
exposure to imports, cherries with dark
red skin are more popular than lighter
fresh red skinned ones, because
consumers believe that darker-skinned cherries are sweeter and stronger flavored. On
the other hand, northern cities or secondary cities with less familiarity with imported
cherries prefer fresh red cherries.

The success of U.S. fruit in this market is restricted by consumers’ not being able to tell the
difference between U.S. fruits and other fruits – both domestic and imported. Traders know when
U.S. fruits are in season, but consumers generally don’t. Educating them via in-store promotions
and the media is an effective way to better differentiate high quality U.S. fruit. However, imported
fruits resemble domestic fruits, e.g., California Red Globe vs. Chinese Red Globes which makes
it easy for Chinese grapes to assume an American identity through counterfeit labeling. The

same is said of California plums. However the distinct appearance of, say, Washington Red
Delicious apples or big, deep red U.S. cherry varieties give these fruits instant recognition.

U.S. fruit companies are therefore strongly encouraged to take steps to protect their logos or
brand names, because counterfeiting and infringement of intellectual property rights (IPR) is
rampant in China. Exporters can contact FAS’ IPR office in Beijing for information (Refer to Post
Contact Information at the end of this report). (For more information of IPR protection in China,

Jiangnan Produce Wholesale Market in Guangzhou is the

largest distribution hub in China for imported fruit and offers
the most variety from all channels, both official and gray.

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please refer to GAIN 7023, 7027, 7028, and 7030, respectively dated on March 22, April 10, April
9, and April 24, 2007)

IV.

Import & Distribution

Southern China, especially Guangdong province, has been home to serious consumers of
imported fruit for many years as well as China’s gateway for imported fruits. Most imports utilize a
limited number of ports, e.g., Guangzhou (the river ports of Lanshi, Huadu or Huangpu or the
deep-water seaport of Nansha), Shenzhen (seaports of Yantian and Shekou), but rapid

development of ports in the north (Tianjin and Qingdao), east (Shanghai), northeast (Dalian) and
south (Xiamen) have witnessed increasing traffic of imported fruit there. However, import
volumes via these ports are still much lower than that via Guangzhou. (Refer to Appendix 5 for
respective import values at various ports and Appendix 6 for the flow of U.S. fruit imports into
China. Also refer to GAIN Report Number CH7609 “Bustling Ports in South China”, dated May
15, 2007)

As the largest port of imported fruit, Guangzhou (which
is referred to as one entity but in fact consists of many
ports) serves as distribution hub to allow such fruit to
enter the rest of China. Normally most U.S. fruit takes
two weeks to arrive in Hong Kong, one day to reach
Guangzhou ports by barge, transported by truck on the
same day to Jiangnan Market, gets sold, then trucked to
the rest of the country. In CY 2006

, Guangzhou handled

86 percent of China’s grape import in terms of value, 49
percent of orange imports, 33 percent of apple imports,
and 71 percent of cherries and plums.

There are a number of well-equipped large wholesale fruit markets (for both domestic and
imported fruit) in Guangzhou and the surrounding cities, including Jiangnan Produce Wholesale
Market in Guangzhou, Jintao Wholesale Market in Zhongshan, Peace Ag Products Wholesale

Market in Zhuhai, Senox International Agricultural Center in Dongguan, and Buji Agricultural
Market in Shenzhen. Among them, Jiangnan Market, with an area of 4.3 million square feet, is
the largest produce wholesale market in China and functions as a trading and distribution hub of

most of China’s imported fruit to different parts of the
country while the other wholesale markets only serve
local areas. According to the statistics issued by
Jiangnan Market, it handled 5 million tons of fruit and

vegetables (both domestic and imported) valued US $2
billion in CY 2006.

A few years ago, the Lishui market near the port of
Lanshi used to be China’s biggest wholesale fruit
market for domestic and imported fruit. However,
Jiangnan Market became the dominant wholesale
market helped by strong support by the Guangzhou

municipal government. There are other wholesale
markets in the surrounding area that intend to grab a
lucrative share of the Jiangnan Market for imported

Source: import data from China customs.

U.S. apples for sale at Jiangnan Market

Trading imported fruit in Jiangnan Market

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fruits, but many traders believe there will be no serious contender within the next five years, not
only because Jiangnan Market is so well-established with a logistics network that spans the
country, but also because it offers an unparalleled range of varieties imported through both
official and gray channels.

Historically, gray channel trading of fruit imports figures prominently whereby imported fruit enters
the country via Hong Kong or Vietnam and bypasses customs and import inspection, to evade

import duty and Value Added Tax (VAT, usually at a rate of 13 or 17 percent). The gray channel is
illegal and discouraged. Fruit trade using the gray channel is highly risky, due to operator lack of
concern with quality handling and anti-smuggling enforcement. Non-U.S. products being
deliberately “mislabeled” as U.S. products can also be found in wholesale and retail outlets.
Lowered import tariffs by China, narrows the gap between legal and the gray channels costs so
less fruit enters south China through the back door.

Despite continuous robust growth of the imported fruit

business in China, the development of its distribution
system, especially the cold chain system, has not yet kept
pace with growth. Most cold storage facilities in China are
small and in poor condition. Along the supply chain from
importers to wholesalers and retailers, it is common to see
perishable high-priced fruit placed outside of temperature-
controlled areas due to lack of awareness or lack of cold

storage. The limits in the cold chain system have resulted in
significant lost to both domestic and imported produce.
Consequently, it can affect the quality of imported U.S. fruit
before it is delivered to the consumer. China is a
geographically large country. In the long term, the shortage
of cold storage facilities and management expertise in smaller cities restricts further expansion of
U.S. fruit to the markets outside of principal cities, i.e., Guangzhou, Shenzhen, Shanghai and
Beijing.

Price Sensitivity

Fresh fruit is price-sensitive food for most Chinese consumers. Prices for domestic fruit are
cheaper compared to imported counterparts, though the quality of domestic fruit is not
necessarily lower. Retail prices for imported fruit can be as twice the price of domestic fruit.
(Refer to Appendix 7, which lists the average wholesale price of some types of fruit during the
first half of 2005, while Appendix 8 compares the prices of imported fruit with the first class

Chinese varieties.)

An example of the price impact is Taiwan fruit entry into China. Since August 2005, import tariff
rates on fifteen types of fruit from Taiwan, including pineapple, papaya, peach, coconut and star
fruit, have been eliminated from previous rates otherwise ranging from 10 to 25 percent.
However, the market share for the duty-free fruit imported from Taiwan has not yet been
significantly increased, as the prices for Taiwan fruit are still at least three times more expensive

than locally produced counterparts.

Prices of imported fruit in China fluctuate widely which creates opportunity for lucrative profit as
well as huge losses. For example, early in the season, the CIF price for a 5 kg case of cherries
can be up to US$78 (RMB 600); wholesale price first tier wholesalers about US$ 131 (RMB
1,000); and retail price up to US$ 209 – 235 (RMB 1,600 – 1,800). In the middle of the cherry

Cold chain development has not kept

pace with the rapid growth of the

imported fruit business.

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season, the CIF price will drop down to US$ 46 (RMB 350); wholesale price to US$ 59 (RMB
450); and retail price at US$ 78 – 92 (RMB 600 – 700). In general, there is a gross markup of 15
– 30 percent on the price from importer to wholesaler and to retailers. Retailers mark at least 50
percent above wholesale price when the fruit is sold to consumers. Therefore, the retail price of
imported fruit can be as much as twice the CIF price.

VI.

Import Tariffs

Tariff rates on imported fruits vary widely, ranging from zero to 100 percent, depending on the
fruit and the country of origin. U.S. fruit receives the Most Favorable Nation (MFN) status, with

tariff rates ranging from 10 - 30 percent. Fruit from countries of the Association of Southeast
Asian Nations (ASEAN) and Chile enjoy much lower tariff rates than U.S. products. Fruits from
ASEAN countries, including Thailand, Vietnam and the Philippines, enjoy zero tariffs, and,
therefore, are more price competitive in the market. As a result of the China–Chile Free Trade
Agreement (FTA) effective on October 2006, Chilean fruit are granted preferential tariff rates that
are much lower than the MFN rates. Compared with the MFN tariff rates, rates on Chilean citrus,
grapes and apples are 20 percent lower, and cherries, peaches and plums are 40 percent lower.
In the continuous free-trade dialogue between China and Chile, Chile may be granted further

favorable tariff treatment on fruit exported to China, including free duty for Chilean plums,
cherries and peaches in five years, for apples and table grapes in 10 years. Such tariff treatment
will further strengthen Chilean fruit’s competitiveness in the price-sensitive China market.
(Appendix 9

details the tariff rates on some types of fresh fruit.)

The calculation of import tariff is based on the tariff rate of a particular type of fruit and the price
of the transaction. Customs officials in the port of entry compare the transaction price declared by

importers or their agencies to the reference price that is regularly updated on the basis of the
market price by the customs’ valuation center. The reference price thus reflects the market price
and prevails if the declared transaction price is lower than the reference one. For example, the
declared price for a shipment of apples is only US$ 0.2 / kg, obviously much lower than market
prices. In this case, the import duty for this shipment will be calculated on the basis of the
customs’ reference price, instead of the declared price US$ 0.2 / kg.

VII.

Tips on Marketing U.S. Fruit

To succeed in the China market, visits are essential. Trips to China will not only help exporters
understand differing markets in various parts of China, but also create opportunities to meet with
potential and current Chinese traders to establish and maintain good relationships.

Tips when marketing U.S. fruit in China:

1. Target high income earners in coastal industrialized regions where high quality fruit is in

great demand;

2. Select reliable Chinese partners, including importers, logistics providers, and retailers to

work with;

3. Assist and educate Chinese partners on how to properly handle products;
4. Provide ideas for promotional activities relating to high quality, healthy benefits and food

safety of U.S. fruits;

5. Understand consumers’ preferences which can differ from region to region;
6. Take advantage of high fruit consumption during major holidays and festivals

Enhance the image of U.S. fruit to differentiate them from other fruit

Protect the IPR (Intellectual Property Rights) of U.S. fruit