California vegetables face China inroads on Pacific Rim

China's accession to the World Trade Organization heralded more equitable conditions and new market potentials, but its competition with vegetables and other California crops in Pacific Rim markets is also expected to increase, both in volume and quality.

That's one conclusion by Mechel Paggi, director of the Center for Agricultural Business at California State University, Fresno.

Paggi, a seminar presenter at the recent World Ag Expo at Tulare, predicted “Competition with California products will intensify in markets such as Japan, South Korea, and Malaysia, where we have already seen that sort of pattern develop.”

That will be particularly true for labor-intensive crops destined for Japan, where high quality Chinese produce, at presently low volume, is appearing and is expected to expand.

This competition is aside from existing issues of Chinese garlic, apple juice concentrate, and other exports causing serious concern among U.S. producers who have seen their domestic markets collapse.

Those in the U.S. who want to do business with China, Paggi said, should think in terms of niche-window markets in developing their strategies. “This could be where production in the U.S. is seasonal and you can see yourself sourcing product out of China to fill that window.”

General Mills example

One case of how multi-national corporations are moving into China is General Mills' agreement with the Chinese to supply training and cannery facilities to set up an asparagus growing and processing industry to capture markets throughout Asia.

“It took six years to do it, but now General Mills sources all its asparagus for Asia from that operation. It's the model we're seeing everywhere, and the speed at which it is occurring will make your head swim.

“It will be fairly difficult to maintain competition in these sorts of niche markets that are developing models of foreign investment in China. A lot of them will compete directly with California,” he said.

Paggi, whose former assignments include agricultural analyst with the Congressional Budget Office and senior economist with the United Nation's Food and Agricultural Organization, offered another bit a caution for prospective trading partners with China.

“Remember that the focus on everything, worldwide, is quality and safety. One of the things we see from the foreign investment models is complete control of all inputs of production and processing from dirt to can. Quality and food safety are keys to profitability.”

In profiling China as a market for U.S. products, Paggi said China operates on a relatively small arable-land base of 52.6 million acres and 1.3 billion in population, in contrast to 70.4 million acres and 282 million persons in the U.S.

Irrigation projects

“However,” he said, “there is some effort to increase arable land through introduction of massive water projects to bring irrigation to acreage currently unable to grow crops.”

The Chinese population is concentrated in the south central and south coastal regions, while the northeast and western portions are vast land masses populated by nomadic tribes.

The importance of agriculture is dramatized by the 47 percent of the Chinese population involved in agriculture, compared to only 2 percent in the U.S. Chinese productivity relies on very intensive use of hand labor, irrigation, chemicals, and fertilizers.

The disparity of its urban regions earning a per capita income more than double that of rural areas is one of China's most formidable problems, he said. “Most rural people, especially the young, are trying desperately to migrate into the urban areas. One way the Chinese government is trying to close the gap is by attracting foreign investment in agriculture.”

Paggi said China, given its land mass and population, is often inaccurately considered a major player in world trade. In agricultural trade, for example, its role is minor, at about 5 percent, or about one-third that of the U.S.

That does not preclude, however, the need for western observers to monitor the slow but steady growth of China's trade with the world. “Things are always changing there, but now we think the overall trend is toward trade products that involve processing or labor and away from commodities that are land-intensive. While bulk grains are being imported, vegetables are being exported.”

Paggi reminded that when China does import or export certain commodities, such as corn or cotton, it has huge effect on world markets. “In corn, for example, in the last four years they have replaced the U.S. as a major supplier to the three of our key Asian markets: South Korea, Malaysia, and Japan.”

Although China's exports may not be alarming in the aggregate, when it comes to specific products, there is much concern by American producers. Among those are garlic, mushrooms, carrots, and apple juice concentrate.

Exports of California farm products, such as fresh and processed vegetables, nuts, citrus, wine, and beer, are presently viewed as expanding markets as the Chinese work toward higher incomes, but the Chinese are developing their own industries in those products.

The Chinese diet, Paggi said, now relies more on rice and cabbage and is less robust in meats, sugar, fresh fruits, and oils than typical Western diets. “Their emphasis on development of fruits, nuts, and vegetables that are competitive with California is something we cannot ignore.”

Although the they are planting some 13,000 acres of walnuts each year as part of a long-range reforestation program, Paggi said the Chinese have yet to approach the success of the California almond and pistachio industries.

California, with its high reliance on mechanization, now has a productive edge on China in processing tomatoes. That will not likely be the case for long, he added, since mechanization, although modest, is taking hold and replacing human labor.

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