13 December, 2007 - Chinese citrus production is due to leap 10 pct in 2007 to 17.6 million tones (MT) as a result of good weather and the increased plantings from 2002. Fruit quality is improving and strong growth is forecast in the industry as a whole over the next decade. Plentiful supplies will offset higher production costs leading to falling prices. But new food safety policies could hit Chinese exports to South East Asia and Russia
Production Facts and Trends
Favourable weather after the drought of 2006 coupled with increased planting are expected to yield bumper crops across the Chinese citrus industry.
Market year (MY) 2007 forecasts stand as follows:
Orange production - 5.5 million MT, up 14 pct from last year.
Tangerine production – 9.7 million MT, a rise of 8 pct on 2006 due to better yields.
Pomelo (Chinese grapefruit) – 2.2 million MT, up 10 pct.
Lemon – 0.2 million MT, up 50 pct.
Citrus production, in particularly in oranges, is predicted to grow strongly over the next five to 10 years because of the Government push to expand planting areas that began in 2002. In Jiangxi Province, production is due to increase 30 pct year on year until 2010-2012.
Planting Increases in MY 2007
Oranges – up 5 pct to 660,000 hectares (HA)
Tangerines – up slightly to 775,000 HA from 767,000 HA
More Investment in Citrus Production
Quality is improving as both farmers and private companies invest more cash in the industry. Farmers are using better management methods and increasing use of pesticides and fertilizers.
Private companies are building more packing houses and processing plants that source citrus from contracted orchards where support technologies are provided by the companies to ensure product safety and quality.
Processing
High Prices Push Frozen Concentrated Orange Juice (FCOJ) Production Up
FCOJ production is forecast to double this year to 20,000 MT because of high world market prices and the increased availability of domestic juicing oranges.
But domestic supply of juicing oranges is insufficient to supply China’s processing capacity. .Although world FCOJ prices have dropped to US$ 2,100-2,200 per MT from a peak level of $2,700 in 2005, producing FCOJ from local oranges is still profitable. For example, farm gate prices for locally-produced oranges in Chongqing are quoted at around US$ 120 per MT. Since 13 MT of oranges are required to produce one MT of FCOJ, the total input cost is only $1,560 per MT.
Government policy is actively encouraging orange production. Juicing companies and local governments have also worked together to encourage farmers to grow oranges through the provision of free or subsidized seedlings and other technical services.
Industry sources indicate Chongqing’s orange acreage will increase by 6,700 hectares in each of the next five years because of such government programs. Domestic processing companies have built several large juicing facilities in Chongqing, Hubei, and Fujian and it is hoped the extra planting will mean these facilities will run at full capacity within the next five to 10 years.
An Emerging Market for Not-from-Concentrate (NFC) Juice in China
Domestic and international producers have seen strong growth potential in the NFC sector. One NFC juice facility built in Chongqing has an annual production capacity of 50,000 MT. Even though it processed just 3,000 MT last year, production is forecast to triple in 2007.
Also, industry sources have said a US company has embarked on a joint venture with Zhongxian County Government of Chongqing to invest US$150 million in a new site by 2010 with annual production capacity of 150,000 MT.
Major international companies are also said to be considering building juice facilities in China, although US Government sources said finding a sustainable supply of raw fruit may be the most difficult challenge.
Canned Citrus Production
Canned citrus production is forecast to remain stagnant at 400,000 MT in MY 2007. However, some local canneries that export mainly to EU countries may reduce production in anticipation of a negative finding after the European Commission launched an anti-dumping investigation into China’s canning industry on October 20, 2007.
While the outcome of the EC’s investigation may not be known until the beginning of 2009, industry sources predict the results will probably limit China’s canned citrus exports to the EU countries.
Because of consumer preference for fresh fruit over canned fruit, China’s canning industry is heavily dependent on the world market for exports. While the export volume of canned citrus is forecast at 300,000 MT in MY 2007, down from 330,000 in MY 2006, industry sources indicate total consumption in the domestic market will remain stable at between 50,000 and 100,000 MT.
Prices
The purchase price of citrus is expected to decrease even though production costs have gone up.
According to the State Statistic Bureau, the cost of citrus production in 2006 increased by 7.1 percent from the previous year thanks mainly to rises in overheads such as labour and pesticides.
But prices are still lower because bumper harvests have increased supplies across the country.
Consumption
Higher incomes in urban areas is fuelling increased citrus consumption from an average of 41 kg in 1990 to 60 kg in 2006. Consumers are seeking higher quality fruit, industry sources said.
Although there is a growing trend to buy from supermarkets; most consumers still purchase from cheaper wet markets.
Juice and Juice Drink Consumption Increase in Popularity
While juice consumption continues to grow, industry sources believe its pace is slower than that of juice drinks.
A recent survey about juice consumption showed only 35 percent of China’s urban households drink 100 pct juice. However, there has been significant growth in a few large cities like Shanghai and Beijing, because consumers are more aware of the nutritional benefits.
The study stated that juice consumption in Shanghai is growing by 40 percent annually. Juice is not a traditional Chinese beverage and many consumers remain unaware of its nutritional value, believing juice is too sweet and that fresh fruit is healthier. It also found that per capita consumption of juice is less than 1 liter per year, and 54 percent of China’s juice consumers drink juice after dinner, unlike Western consumers who normally drink juice at breakfast.
Consumption of juice beverages is also increasing rapidly. Chinese beverage factories produced a total of seven million MT of juice drinks in January-August, 2007, up 21 pct from the same period in 2006, when juice drinks accounted for nearly 80 percent of the total volume of juice and juice drinks.
Much of the orange juice consumed in China is still made from imported concentrate and then reconstituted into juice drinks. Orange juice is still the dominant, favoured by 58 percent of consumers.
Industry sources predict that consumer preferences will move toward higher fruit content beverages as consumers become more familiar with the product and its nutritional value.
Canned Citrus
Consumption of canned citrus has grown slowly because Chinese consumers believe canned fruit contains preservatives that are harmful to health. Consequently, Chinese canneries have always focused their attention on the international market.
A few processors, however, have introduced new packaging materials that make canned fruit easier to carry and open than the traditional glass jars. They hope this “package revolution” may help boost the volume of canned fruit sales in the domestic market.
Trade
Imports
Lower World Prices and Recovery in California Lead to Increase in Orange Imports
China’s imports of fresh oranges are forecast at 60,000 MT in MY 2007, up 67 percent from 36,000 MT in 2006. This increase represented a recovery of U.S. orange exports to China that fell sharply by 45 pct to 28,000 MT between October 2006 to September 2007 after weather problems in California hit production and exports.
This triggered higher world orange prices, that in turn dampened Chinese imports. With increased production and improved quality, Chinese oranges are posing a greater challenge to US oranges, especially between November and February. U.S. oranges become more popular beginning in March but compete with cheaper South African oranges, which enter China’s market beginning in June.
Low Quality Australian Tangerines Result in Fewer Imports Overall
MY 2007 tangerine imports are forecast at 20,000 MT, down 26 percent from the previous year. Traders are expected to import fewer Australian tangerines because last season’s quality was lower than usual.
Australian tangerine exports to China in MY 2006 have more than tripled since gaining access to China’s market in MY 2005. Imported tangerines are available during the off-season from May to October and are very popular during the Mid-Autumn Festival in September. Chinese customs figures also show a dramatic increase of New Zealand tangerine imports in MY 2006
Increased Domestic Production and High Prices Reduce Imports of FCOJ
Imports of FCOJ are forecast at 50,000 MT, down 12 percent from the revised MY 2006 figure of 56,991 MT. This due to high world market prices and increased domestic production.
World FCOJ prices are currently quoted at US$2,100-2,200, higher than domestically produced juice, which is priced at nearly US$ 1,900.
Chinese juicing companies are expected to double FCOJ production this year given increased production of fresh oranges, but the quantity of juicing oranges is still insufficient to supply China’s current processing capacity. This will also limit further production expansion.
Exports
Bumper Citrus Harvest, but Only Moderate Export Growth
China is only expected to see moderate growth in MY 2007 citrus exports despite the bumper harvest. This is because China’s quarantine agency, AQSIQ, issued a new directive requiring all exported fruit be sourced from registered packing houses and orchards.
Tangerine and orange export volumes are forecast at 390,000 MT and 85,000 MT, up five percent and eight percent, respectively, from MY 2006.
China exported 371,000 MT of tangerines and 79,000 MT of oranges in MY 2006, up 10 percent and 55 percent from MY 2005.
Exports of pomelos are forecast to more than double in MY 2007 to 110,000 MT, because exports to Europe and Hong Kong already follow AQSIQ’s new export requirements.
Policy
Direct Support from Provincial or Municipal Governments
While the central government provides guidance for citrus planting, direct support for citrus production occurs at the provincial or lower levels of government.
Law on Specialized Farmer Cooperatives
China recently passed a new Law on Specialized Farmer Cooperatives to support the establishment and operation of these groups. The new law, effective July 2007, allows various levels of government to provide financial support for farming and marketing to these organizations. Policies on tax privileges and other financial support to farmer cooperatives are also being developed.
Food Safety Concerns Increase Regulation of Exported Citrus
In a bid to ensure export fruit safety, China’s inspection and quarantine authority, AQSIQ, recently issued a directive to its local branches (CIQs) requiring that all export fruit originate from CIQ-registered orchards and packing houses as of November 1, 2007.
The new policy is likely to affect Chinese citrus exports in the near term. This is because
citrus previously sent to China’s main export destinations of Southeast Asia and Russia, were sold through different types of packing houses or agents not registered at CIQs.
Registration requires stringent inspection and review by CIQ officials on agro-chemical use and pest control. Many smaller packing houses and orchards are unlikely to meet the criteria, at least in the short term.
Currently, fruit exports to the US, Canada, Australia, New Zealand, Japan, South Korea, Hong Kong, and Macau are already sourced from CIQ-registered packing houses and orchards as requested by the importing countries. The directive also requires local CIQ’s to step up inspection on imported fruit.
Inadequate Cold Chain Still a Challenge
Despite growing demand and improved distribution channels, China’s inadequate cold chain – issues including storage facilities, poor handling - is still a challenge for US exports.
Fluctuating temperatures in some regions affect produce as it moved from the port coupled with a lack of know-how often means imported fruit deteriorates before it reached the consumer. A US Government source said “The lack of quality controls in the cold chain will continue to affect domestic citrus supplies and restrict additional opportunities for imports.”
As one of the world’s major citrus producers and exporters, domestic citrus dominates China’s market and is the primary competition for citrus suppliers in the market.
The US Government estimates local citrus production will influence the future of imported citrus growth as well as citrus market prices.
However, domestic fresh citrus is virtually absent in the market from April to August. The main competitors for U.S. citrus during this off-season are Australia, New Zealand, South Africa, and Chile.
Additionally, citrus products from ASEAN countries have a price advantage over US exports because of lower production costs.
The following graph shows the break-down of China’s citrus imports from the United States and competitor suppliers in terms of value:
