Food Fight!

Saturday, December 23, 2006 9:29

When people here that China is the World’s factory, this is typically in reference to lighters, auto parts, squeaky toys, and a few million other items.

However in the past few years, China has also been very successful in exporting its fruits and vegetables to foreign markets, and may at some point be known as the bread basket of the world.

This has recently been highlighted in the WSJ, Freshplaza, NY Times, however as Washington state apple producers and Californian garlic and avocado producers will tell you, this is trend that they has already affected them.

And it is not just limited to fruit and vegetables. In the southern parts of the United States, the cost of Chinese shrimp is less than that of Gulf Shrimp, and this has significantly impacted the ability of U.S. shrimp farmers to sell in the U.S. and in other markets.

In general, there are three models that are taking shape in this area. they are not all that unlike traditional manufacturing models, yet unlike manufacturing models the speed by which Chinese products go from having penetration rates of a few percentage points to market leader are much faster:

1) Foreign Products in China:
American exports of agricultural products into China have done very well in several categories: Washington Cherries, cotton, soybeans, and other goods. China does have domestic production in each of these areas, however the imported products are typically at the high end and are sold into the market at much higher prices.

As highlighted in the Agricultural section of the USTR report, there are still some barriers to entry found, but overall the agricultural product sector is growing fast for those looking to export to China.

2) Chinese products into U.S.:
As highlighted above, this is a trend that has only recently started with garlic, apples, shrimp, and a few other categories seeing a significant competitive threat to U.S. producers in the U.S. market. No doubt, more is to come, but the ability of Chinese farmers to match the quality constraints of the U.S. are just not there yet, no matter what the price.

To understand what the threat of Chinese products are to home markets, U.S./. E.U. producers should look to understand the production trends are in China as well as what the market trends are in third markets.

3) U.S./ E.U. vs. Chinese producers in third markets:
What is typically the first to go, and often the least planned for, is when Chinese producers begin sending lower quality/ lower cost items to their markets in South America, Africa, and other developing regions.As these markets are not the home markets, nor the primary markets, for many in the U.S./ E.U. this typically occurs with little warning as market intelligence in these markets may be very weak, and relationships may be agent only relationships.

However, these markets are in many cases the most important as they offer high volumes of low/ medium quality goods. These profits can then be used to improve local technologies to then produce the higher quality items to be sold into E.U. and U.S. markets.

Wrap up:
For many thinking of where Chinese products are competing in the world market, agricultural items are not the first on the list. But they should be

The U.S. market for U.S. producers is obviously the most important one, however for several clients who exported their products to other markets India, South America, and Africa, Chinese products were the single largest issue when it came to selling into those markets.

In the case of beans, even though Chinese beans are of a lower quality and the purity of orders are less, the price is so low that many markets are willing to accept these products over U.S. products (typically higher in quality and price). For garlic producers around the world (Korean and California in particular), the cost and quality of Chinese garlic have literally wiped them out in a matter of years, and the options available to them are not good ones.

No doubt this food fight is going to continue, and farmers need to understand what is going on in China’s agricultural sector as there is a threat to their markets coming soon to a wet market near them.

to learn more about agrictulture in China (the free stuff), go to the U.S.D.A. Foreign Agriculutre Office, Food Processing, OECD, or China’s Ministry of Agriculture

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