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China is open to Red Delicious apples from Washington. Whereas Red Delicious can be shipped direct to major markets in China, Gala and Granny Smith apples reach China through the gray market via Hong Kong.

China is open to Red Delicious apples from Washington. Whereas Red Delicious can be shipped direct to major markets in China, Gala and Granny Smith apples reach China through the gray market via Hong Kong.

Gala and Granny Smith apples grown in Washington State remain officially excluded from China. The market is open only for Washington Red and Golden Delicious apples, and for years our industry has struggled with requesting full access to China for all Washington apple varieties due to possible repercussion from the unpredictable Chinese government.

China and Hong Kong combined are the fourth-largest export market for ­Washington apples. In the 2008–2009 marketing season, Washington exported 1.9 ­million cartons of apples into China (605,187) and Hong Kong (1,300,525). Between 70 and 80 percent of all Washington imports to Hong Kong move through “gray” market channels to Guangzhou, China, putting our shipment volume into China at approximately 1.5 million cartons. These include Washington Gala (458,003) and Granny Smith (224,941) apples, which are very popular with Chinese consumers and are seen at every retail outlet.

U.S. consumption is stable or decreasing, while Washington’s apple volume is increasing, as evidenced by the record crop in 2008. Export markets are, and will continue to be, critical to maintaining and improving grower returns by moving excess production overseas. China is a critical component to Washington’s continued export success. The Apple Commission foresees few new export markets—certainly none with the potential of 500,000 cartons or more—and so maintaining and increasing existing markets is priority number one.

The realistic potential for China, with full market access, is estimated at more than 3 million cartons. The commission’s future emphasis is to move promotions to secondary cities with populations between 2 and 8 million, where the middle class is expanding. The U.S. Agricultural Trade Officer in Beijing estimates that, by 2015, 50 ­percent of the Chinese population will be middle class. However, the commission cannot support Gala and Granny Smith with promotional activities because they are contraband. With full access, we could increase our marketing efforts to build demand and brand ­recognition for those varieties.

Benefits of access

Increased volumes: Importers in Beijing, Shanghai, Dalian, Shenzhen, and Guangzhou have told us they think that Washington export volumes could increase by 30 to 100 percent if direct shipments were allowed into China. Even Guangzhou importers are supportive, despite the fact that they stand to lose from direct purchasing by northern China importers. The people who will lose the most from full access are the inland truckers and the capitalistic customs authorities in Hong Kong and Guangzhou.

Lower costs: The gray market channel from Hong Kong to Guangzhou costs importers approximately $8,641 to $9,227 (including import duty) per container. The official import taxes are a 10 percent import duty and 13 percent value-added tax, but the values used to set the duty are subject to the whims of the customs authorities. Duties typically increase at special holidays when import volumes increase, but they seldom decrease. All Washington Gala and Granny Smith move from Hong Kong to Guangzhou and then are reloaded on trucks to markets within China. Inland freight costs $0.75 per carton from Guangzhou to Shanghai and $1.50 to Beijing or Dalian. Importers estimate that if direct access were allowed, the cost for Gala and Granny Smith would decrease by $3.00 to $5.00 per carton. This saving would make Washington more competitive and could increase returns to growers. It would also put ­Washington on a par with Chile, which has full access to China.

Better quality: Direct access would improve the cold chain, resulting in better quality for consumers. Importers would receive shipments directly from Washington’s packers rather than having to use the Hong Kong to Guangzhou channel, which involves double handling. The cold chain in China is in its infancy; ­maintaining our apples in the original container to final destination would improve quality and the consumers’ eating experience.

Mixed loads: As in the United States, only the largest users of Washington apples purchase one variety per container. Few retailers in China have distribution centers, so they rely on importers to provide this function, at a high cost. The ability to mix varieties within containers could increase volumes to China by 50 percent.

Direct link to retailers: Major retailers in China are unwilling or unable to work directly with the Washington industry due to the contraband status of Gala and Granny Smith. Full varietal access would encourage direct relationships between our growers/packers and retail. This could result in lower costs and better quality, and, ultimately, better grower returns.

Support

We spoke with over a dozen importers and five major retailers currently using Washington apples, and without exception, all supported full varietal access for Washington’s Gala and Granny Smith. Several importers expressed willingness to push our agenda from their side to the proper authorities.

Full varietal access to the most populous country in the world is a necessity and on the surface seems ­simplistic, but that’s far from the truth. China wants access to the U.S. market for its apples and is putting pressure on our government. Politics play a huge role in this access game, and if U.S. producers aren’t careful, apples could get traded off for numerous other products with little warning or input. In my opinion, as we progress towards a one-world economy, it is inevitable that China will gain access to the U.S market. When is the only question.

Access to China for all varieties of Washington apples warrants further industry consideration—risk versus reward. It’s clear that our export markets play an integral role in grower returns, and we must research every ­existing market opportunity, no matter how small or politically sensitive.