Current Status of Citrus Fruit Marketing in China
Major Constraints in China's Citrus Fruit Marketing
Since the adoption of China's reform and policy of opening-up, the household responsibility system practised in the rural areas has dramatically promoted farmers' enthusiasm in production. Fruit farmers have been especially activated after the government carried out a set of regulations regarding multi-channel management operations, free market pricing, and free buying and selling activities in 1984. Since then, the citrus industry has entered the phase of rapid development. After the transitional period in mid-1990s, the market of citrus fruit has changed from the seller's to a buyer's market, represented by surplus in stock. Commitment made in the Sino-U.S. Agreement on Agricultural Cooperation and the Sino-U.S. Bilateral Agreement on China's Entry into WTO have brought China's citrus industry into international competition, which means that a vehement competition will emerge between the exotic and Chinese citrus fruit on China's domestic market. Against this background, this paper is to review the evolution of the distribution and marketing system of fruit and its relevant policies, analyze the current status of citrus fruit marketing, discuss the main problems or constraints in the marketing and distribution, give some recommendations in terms of the emphases of future tasks, and look at the future prospects of China's citrus fruit marketing.
Citrus fruit production expanded rapidly in the past 50 years. Statistics show that total citrus fruit output had demonstrated a tremendous increment between 1952 and 1999. Accordingly, per capita production of citrus fruit in 1952, 1978, 1985 was 0.36 kg, 0.40 kg, and 1.71 kg, and up to 8.58 kg in 1999 (shown in Table 1).
China could be divided into six administrative regions, namely North, North-east, East, Central-south, South-west and North-west China. The fruit output and population of relevant regions are shown in Table 2. The data indicates that there is surplus in North-west and East China, and shortage in South-west, North-east and North, so a prevailing fruit distribution flow could be seen from East, West, and Central South towards North and Southwest.
Citrus fruit, the most cultivated and highest value crop in the 18 southern provinces, occupying half of the total fruit production, is the top fruit in South China. And the citrus industry is among the most important in those rural areas (among top two or top three crops in terms of output value, and accounting for half of the agro-GDP in some counties, cities and villages), and one of the major resources of farmers' income and local government revenues. Due to climatic reasons, citrus is not grown in other regions of China. The statistics shows that the citrus production of the top five producing provinces such as Zhejiang, Fujian, Hunan, Sichuan and Guangxi, was 7429,821 tons in 1999, occupying 68.9% of the total. If Hubei and Guangdong added, the seven provinces produce 9,259,414 tons of citrus fruit, accounting for 85.8% of the total (Table 2).
The provinces or municipalities with a higher per capita production than the national average (which is 8.81 kg) include Fujian, Zhejiang, Hunan, Guangxi, Chongqing, and Hubei. Sichuan, Jiangxi, Guangdong and Shanghai also have fairly high per capita production. The national structure of the citrus fruit market could be described as a surplus in Fujian, Zhejiang, Hunan, Guangxi, Chongqing, Hubei, Sichuan, Jiangxi, Guangdong and Shanghai, and a shortage in other parts of China, where citrus fruit must be imported (Table 3).
Chinese consumers prefer fresh fruits. China has experienced a rapid growth of consumption over the past 15 years. Between 1985 and 1998, per capita consumption of fresh fruits swelled from 5.12kg to 47.86kg in urban areas and from 2.0kg to 19.24kg in rural areas, although the latter figure might be underestimated due to the fact that on-farm consumption is not fully taken into account (Table 4). Fruit has become increasingly important in people's daily diet, for the percentage of fruit consumption cost in total food expenditures increased from 3.2% to 6.5% in urban areas and from 2.4% to 5.1% in rural areas during 1985-1998. Citrus is one of the major species of fruits consumed in China, and a rapid increase of consumption of fresh citrus has been quite in line with the production growth.
Many factors have contributed to the significant increase in citrus consumption, in which resident income growth is the most important. From 1985 to 1999, per capita nominal net income of urban residents rose by 555.9%, and 792.0% for rural people, while the real per capita net income in urban and rural areas increased by 224.8% and 176.1% respectively (Table 5). Recent studies show that income-demand elasticity of fruits is between 1.2~1.5, which means that a 1% increase of per capita income will lead to a 1.2%~1.5% increment of consumption.
According to the estimations in a study on agro-products supply and demand in the report China's Agricultural Development Strategy in the Early 21st Century by the State Development Planning Commission, in the year 2005, 2015 and 2030, the annual per capita consumption of citrus fruit will be 10.3 kg, 11.7 kg and 16.0 kg, and the total demand will be 13.150 million tons, 16.990 million tons and 25.650 million tons respectively (Table 6). The same study shows that after the year 2005 there will be a supply shortage which is estimated at 3.28 million tons, 3.73 million tons, and 4.65 million tons in 2005, 2015 and 2030 respectively, accounting for 25.0%, 21.9% and 18.1% of the total consumption, and 33.3%, 28.1% and 22.2% of the total production (Table 7). This estimation is based on China's specific situations: with the growth of population and the reduction of arable land, the opportunity cost of citrus cropping will be increased and the marginal income will be reduced, which will result in the transfer of resources from the citrus sector into other industries, and the increment of demand will overwhelm the growth of output.
With the pace of the reform and the development of the agro-products market, a kind of fruit market system based on fairs/ bazaars in urban and rural areas has been formed in China with wholesale markets as the core, and the purchasing markets and retail markets as the wing.
China's fruit marketing system experienced a long and tortuous evolvement. In the past period of heavily-centralized planned economy, fruits were mainly bought and sold through the state-owned channel. With the reform of rural and urban economic management structures, including marketing systems, the fruit market became wide open. Nowadays, China's fruits marketing system has evolved into a diversified structure with the involvement of the following major players:
For a long time, farmers' products relied on governmental agencies or companies. Sometimes those farmers would rather sell their products in the local markets than go to other places where potential demand exists; to avoid high costs from transportation, etc, despite the harsh competition in the local market due to the limited local demand. Because of their small production scale, individual small producers face some difficulties in the direct sales to processing factories and exporters who are reluctant to take the trouble of haggling with such a mass of individual small producers.
Small private distributors came into being after the mid-1990s, which helps the fruit farmers to get a higher selling price. The small private distributors begin their business activities at the beginning of harvest season, they buy fruits in producing bases and sell the goods in the consuming-based market where there is a great demand for fruits. In China the number of this kind of distributors is about 0.1 million. Competition takes place profit is quite small.
Although new players come into the distribution system, local governmental agencies and companies could not leave the system. Some try to meet the market by improving their services quality and increase purchasing prices from fruit suppliers. Some large-scale buyers still rely on those governmental agencies and companies due to the fact that the latter is still the biggest buyer in remote areas. Nevertheless, governmental agencies and companies only occupy a very small portion of the trade volume, and a larger portion is controlled by private producers and companies. In addition, government should invest in the build-up of fruit related facilities such as wholesale markets, agricultural information networks etc. to assist in the smooth interaction of fruit purchasing and marketing.
Although the citrus production is huge in China, the lack of infrastructure and facilities like transportation, storage and an adequate cool chain have hindered harvesting of high quality fresh citrus. Because the harvest time is very centralized, mainly in November and December, it is hard to secure the supply throughout the whole year, which creates a good opportunity for entry into China's market for overseas citrus fruit.
Fruit is one of China's earliest products to be commercialized, and it is also among the most developed industries in rural China. However, most of the citrus production activities are conducted on the basis of the household responsibility system, which also exists in some large fruit production locations. The acreage of fruit cropping per labourer varies from 0.14-0.3 hm2 , which cannot deal with harsh competition in the market place. In addition, under the generally unfavourable situation of the agricultural sector, the negative impacts from low-levelled commercialization and integration in the sector, as well as those from the immature market economy, individual farmers can not get adequate market signals and credit, nor assistance from powerful enterprises or agro-cooperatives. In the end, citrus farmers are in a disadvantaged position in the market, much profit is lost, which lowers the growth of farmers' income and the competitive capacity of the citrus industry.
Integrated operation in the citrus industry is the foundation of the sector's sustainable development. Agribusiness, the prevailing option in developed countries, plays a vital role in products' imaging and upgrading, marketing information collection, and technology adoption and innovation. Integration of the citrus sector began in the mid-1990's in China, but remains at quite a small scale and a low level. Nowadays, there is no large agribusiness in the sector, and few small and modestly integrated companies perform well.
As far as appearance is concerned, Chinese citrus fruit are of much lower quality than foreign ones in terms of size, trimness, shine, colour, etc., which could be the result of unsound orchard condition, poor orchard management, and low-level commercialized treatment of the products. As for the inner quality, most Chinese citrus fruit equal or even exceed imported products of the same variety. However, because of the fact that the variety-region arrangement ignores favourable and appropriate natural conditions, their intrinsic quality cannot be fully represented. Even though some varieties have good inner quality, the growing technology lags behind, resulting in bad appearance. For instance, even in some places where fruits of top inner quality are produced, only 25% of their products possess top appearance, which negatively impacts on exports of Chinese citrus products.
China's citrus industry has serious structural problems, which can be summarized as "five manys, five fews": many loose-skin mandarin or tangerines, vs. few tense-skinned oranges: many general varieties vs. few famous, good-quality, and special or new ones; many mid-varieties with short market presence, vs. few late varieties or that are available all year round; many fresh fruits, vs. few processed products in marketing; many primary products vs. few in-depth-processed with high value added; many rough products, vs. few high-quality ones with high technological content. It is the unique structural characteristic that leads Chinese citrus into buyer resistance, not only on domestic markets but also on export markets.
China has been inferior in commercial treatment of fruit, especially for citrus. At present, fully processed citrus (graded, washed, waxed, colour-added, and packed in cartons) are rarely available all over the country, let alone product that can stand on the shelves of supermarkets. Most citrus fruit are simply packed in bamboo baskets and some are still in bulk. Such packing is low-levelled and suffers from a high decay rate during transportation. Even if some are packed in cartons, the appearance, specifications and solidity of the cartons has still to be improved. Moreover, elegant and convenient packaging in 2.5 to10 kg size is rarely available.
Storage and transportation after packing doesn't meet actual requirements. First, there are altogether 30,000 cold stores with a total capacity of 6 million tons, and air-conditioned stores of 2 million tons, insufficient to match China's fruit production. Secondly, vehicles carrying fruit as well as vegetables are generally freight carts or trucks without refrigeration or just normal vans with ice. Vehicles equipped with refrigerators or freezers account for only 10%. At present there are over 5,000 refrigerated vans, almost 100 refrigerated ships, and over 57,900 refrigerated freight cars of which more than 5,000 are iced. The status of fruit transportation is no better than storage, the damage during transportation is estimated at a high rate of up to 15 to 30%.
In the past 20 years, China's citrus processing industry hasn't kept pace with citrus production, which is one of major constraining factors in Chinese citrus development. In 1999, China processed about 700,000 tons of citrus fruit, only 5% of total production. Apart from tiny scale, types of processed products are undiversified. Out of the processed products, canned segments occupy quite a high percentage, about 300,000 tons, while orange juice occupies a much lower one. The disadvantage of the undeveloped processing industry is highlighted by the concentrated mature period for most of China's citrus fruit. During the citrus mature period, a lot of fruit crowds into the market, while the processing industry cannot absorb adequate fruit on the market, resulting in oversupply of fruits on the marketplace at further lowered price.
At present, the market mechanism for fruits in China is not sound. Most fruit farmers are now working as both growers and marketers, but with deficient access to market information and inadequate capability to compete. There are insufficient well equipped wholesale markets or key enterprises specialized in marketing, and intermediaries between producers and consumers. Moreover, inferior communication and transport conditions and inadequate financial and information services also contribute to frustrated distribution of fruits. The wholesale markets and fruit companies established in some areas are incapable of promoting fruit distribution due to lack of provision of guidance and services to farmers.
The backward infrastructure conditions such as communications and transport considerably constrains China's citrus export. Since communication and transport, condition is greatly undeveloped, Chinese farmers in inland areas have much difficulty in transporting their products, especially bulk agricultural products to coastal harbours. By comparison, the US government has invested a great deal in transport facilities, which greatly facilitates the conveyance of fruits from production areas to harbours, which is conducive to a large proportion (30%) of total agricultural products for export in the United States. It's safe to say that after China's entry into WTO the impact of trade liberalization of agricultural products is assumed to be concentrated on coastal areas, while most of Chinese agricultural products will still be confined to domestic consumption.
Based on the current situation of citrus production and marketing, the strategy of China's citriculture development is supposed to be: to maintain, develop and enhance the comparative advantage of the citrus industry, further the regionalizational and varietal restructuring, improve yield and quality, intensify commercial treatment and fruit-processing, and accelerate the industrialization of the citrus industry and exploitation of the domestic and international markets, driven by technological advance, centred on profit, aimed at strengthening competitiveness, making citriculture the most competitive industry of agriculture.
After entering WTO, China will open its market to all the members, and vice-versa. China's loose-skin mandarin and tight-skin oranges of Europe and America are largely complementary. The producing centres of the labour-intensive citrus canning industry in the world is being transferred to China. The citrus canning industry should be steadily developed to make China become the largest producer and exporter of canned citrus fruit.
Regional and varietal adjustment based on comparative advantage, regionalized and specialized production in compliance with regional comparative advantage, and biographic characters should be promoted. In the areas most suitable for growing citrus, early and late maturing varieties should be developed; wherever sweet orange can be grown, no loose-skin mandarin should be planted; year-round supply is to be realized in sweet orange producing areas; top quality with special features are required for medium maturing varieties. In respect of varietal structure, production of orange, especially the late varieties of top quality is encouraged, with focus on juice-purpose varieties (Jin orange, Snow orange (Xue Gan), Hamlin, and Valencia oranges). Other varieties are appropriately encouraged, large-scaled planting for commercial purposes for lemon and grape fruit in ecologically suitable areas should be advocated; development of loose-skin mandarin varieties should be restricted, while upgrading or eliminating the rogue varieties like tangerine and some local varieties. Improvement of quality, balanced year-round availability of citrus fruit should be realized by varietal restructuring and introduction of high-quality varieties from abroad. And high quality at low cost should be achieved by reinforcing orchard management and increasing technical supports.
To expedite industrialization based on integration of the sectors before, during and after production. To formulate policies supporting the integration of sectors before, during and after production, establish and develop a socialized service system for the fruit industry; to consolidate unification among farmers, encourage farmers to set up a variety of organizations of their own interest, such as farmers' associations and cooperatives to cut down on cost of fruits and production materials and build up farmers' competence in market development; to instruct, encourage and support the development of industrialized entities like fruit cooperatives, associations, companies, etc.; to encourage and perfect "order fruit industry", to integrate key enterprises or organizations among farmers with interests, leading to large-scaled operation; to popularize and perfect on industrialized organization mode, such as "company+fruit orchard+household", "market+production base+household", "cooperative+enterprise+household", "specialized association+processing enterprise household"; to popularize various integrated profit-sharing mechanisms in forms of contract, cooperation, and share-holding; to establish specialized entities like Sunkist of USA, integrating production and marketing of fruits through capital reorganization.
To help farmers' organizations work together to construct large-scale grading and packing lines; to improve commercial post harvest treatment, promote mechanical fruit selection and packing by different grade, better packing material and packing design; to learn from the EU experience to set up operating funds to aid producers' unions by financing specific projects for the fruit processing industry; to introduce foreign technology and fund and establish joint ventures and cooperative enterprises whose purpose is to renovate existing processing enterprises and enhance technologies for cold storage, refrigerating, packing and processing, leading to large-scale operations.
To develop multiple marketing channels, especially reinforce fruit wholesale market development in production areas; to prepare standard technical procedures before production, during production and after production as soon as possible and draft quality standards and QC system, geared to an international advanced level; to establish high quality fruit certification systems and direct farmers and local organizations to strengthen publicity and sales promotion and to establish local brands; to establish monitoring and alarm system for overbalanced production and supply, and take emergency measures if necessary; to improve the fruit market information network to provide domestic and international market information for farmers; to reinforce infrastructure, such as inland transport and communication to smooth fruit transport/distribution.
To establish funds for agricultural product export aimed to explore international markets and provide credit guarantees to domestic exporters; to draft an export-promotion program of agricultural products to expand the international fruit market; to permit domestic trading enterprises to provide sales credit to foreign importers; to build up international competitiveness by strategies of famous brand, high quality and comparative advantages; to explore multiple export channels with focus on key markets; to found national associations of fruit growers and fruit processing, and standardize export while applying protective prices within the industry, and to steadily expand international market share while actively responding to anti-dumping lawsuits.
Effective import policies should be drafted to protect domestic production and markets. First, tariffs should be shifted from the prevailing ad valorem to a specific duty, as in the USA, or duty varying with seasons as in the EU to prevent foreign fruits from pouring in during off seasons. Second, under special circumstances, for example, when the import price or quantity breaks the preset minimum level, special safeguard action (SSG) may be resorted to. Third, anti-subsidy and anti-dumping action should be drafted against excessive imports of subsidized foreign fruits resulting in oversupply on the market. Fourth, those fruit varieties without comparative advantage, especially some processed products, can be replaced by imported products, which can serve as compensation for market access controls in addition to meeting domestic demands. Fifth, sanitary and phyto-sanitary measures (S.P.S.) should be strengthened, namely, defining the pestilence areas and quarantine targets, and specifying countermeasures with a strict but flexible SPS standard worked out. Also, the State Administration for Import/Export Inspection and Quarantine (SAIQ) should bring agricultural chemicals into quarantine items, and random sampling of imported fruits should be strengthened, and information about pesticide application and residue of exporting countries collected to facilitate quarantine inspection.
China's citrus industry is currently in a period of transitions, i.e., transition from extensive quantity-based to intensive quality-based, from concentration on pure-production to connection of pre-production with post-production, from separated production, supply and market to an integrated one. This means transformation from an inward looking industry to an outward orientation. However, during the course of transition, there exist the following five cardinal problems troubling China's citrus market: a) household production on the super-small scale, low-level industrialization; b) concentrated market presence, poor quality, and irrational structure; c) backward commercial treatment and processing; d) an imperfect market mechanism, unsound distribution system for fruit commodities, and an underdeveloped infrastructure; e) disorderly export trading. With all the above problems solved gradually, China's distribution/marketing system will operate more efficiently thereby increasing the profits for all the stakeholders, i.e., growers, processors and marketers, leading the Chinese citrus industry onto the track of sustainable development. It may well be anticipated that after China enters the WTO, the related enterprises at home and abroad will market and distribute their fruits more freely through the more liberalized market, with China's economy in closer connection with global economy. In the long run, the export of Chinese citrus will rise constantly, whether in fresh fruits or processed products.
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