Impact on Trade
China’s Growing Demand for Apples
China’s consumption of apples and apple products exceeded 30 pounds per person in 2004 compared to U.S. consumption of 40 to 50 pounds per person (see Figure 1). Apple consumption in other Asian countries ranges from less than one pound per person in Indonesia to over 60 pounds per person in North Korea, according to statistics from the Food and Agriculture Organization of the United Nations.
China’s total fresh and processed apple production was equivalent to nearly 1.2 billion 40-pound boxes in 2004 compared to Washington’s production of approximately 135 million boxes. China’s apple consumption was just over 1.1 billion boxes, resulting in net exports
of the equivalent of nearly 60 million boxes of fresh and processed apples.
The sheer size of Chinese apple production is daunting, particularly since the Chinese apple industry has grown to over 12 times the size of Washington’s industry. However, China’s consumption of apples has kept pace with production. China is its own largest market for apples, by a sizeable margin.
China’s middle class is also growing and becoming more affluent. There are 50 million Chinese whose incomes would be considered middle class by U.S. standards and 300 million Chinese who live as well as middle-class Americans. By 2030, China’s population is projected to grow by another 150 million people. Currently, China’s middle-class market is as large as the total U.S. market.
Looking forward, what are the implications of China’s growing income and population?
As economies develop and consumers go from subsistence to surviving to thriving, their consumption patterns change. At a subsistence level, getting enough to eat is the goal. However, as consumers climb the economic ladder, their consumption patterns change from low-cost, high-calorie staples to more higher quality food, including fruits and vegetables.
How does increased fruit consumption translate into demand for apples?
It depends, which is always a good economist’s answer. Actually,
for apples, it does depend upon the prices of other fruits such as pears, berries, or even oranges, as well as income. Depending on prices, consumers will purchase more apples, or oranges, or other fruits which suit their preferences.
So much for the economics lecture.
This means it is likely that as income goes up, and if apples do not get too expensive relative to oranges or other fruits, Chinese consumers will buy more apples. The number of consumers buying apples will also increase. These factors mean demand for apples in China will increase in the future.
Even if apple consumption per person does not increase in the future, total demand for apples will increase because of the growing population. In 2005, Chinese domestic use of apples was approximately 40 pounds per person (production less net trade), which includes retail use as well as any waste beyond the farm gate. The projected increase in population, at constant per-person consumption, will drive a boost in demand, which follows population growth projections. However, if per-person consumption increases to 44 pounds, which is similar to recent U.S. consumption and could reflect China’s growing incomes, demand would increase significantly.
The implications for trade in either scenario depend upon projections for China’s apple production. If production remains at levels of approximately 25 million metric tons, demand will exceed supply by 2010. Arguments could be made that with given trends and advances in technology, it is more likely production will continue to increase. Arguments could also be made to suggest production increases will be limited because of restricted water supplies, encroaching cities, and subsidies for competing crops.
Nevertheless, it is clear that China is China’s best market for apples, and it is likely, barring any dramatic increases in productivity, that China’s apple exports will not increase significantly, and possibly will decrease in response to higher domestic demand. While the supply-and-demand situation for apples in China may ultimately depend upon technology adoption, weather, and other factors beyond the control of producers, it is encouraging for U.S. producers that China is not likely to dramatically increase its apple exports in the future.