apple study

8/2/2019 Apple Study

http://slidepdf.com/reader/full/apple-study 1/7

MARKETApple

core

for

BY B ILL D IBENEDE TTO

Each season, apple producers are faced witha

major challenge: How to negotiate the mazeof

trade andphytosanitary banniens they face in

getting their fruit to major export markets

It's a yearly movable feast and question. Which country will he thehiggest prohlem when it conies to selling and shipping the mountain of

apples produced in the U.S.? Major export markets include Canada,

Mexico and Taiwan, in addition to hoped-for emergingor expanding markets in Japan, South Korea, India and Vietnam.



LCARGOES

MexicoMexico is the No. 1 export market for

Washington's apples, but it's a roller coaster ride.Since 1997. Mexico has accused U.S. producersof dumping, or unfairly selling apples in Mexicoat below-U.S.-market levels. Stiff anti-dumping

duties apply to shipments of Red Delicious andGolden Delicious apples, the main varietiesexported to the Mexican market. State growerssay they lose $110 million to tariffs each yearon apples because of the preliminary duty of44.7 percent that Mexico imposes on them.Mexican growers eounter their livelihoods wouldbe destroyed if Washington apples were allowedto flood the market.

Unless the Mexican government and court systemundergoes a sudden sea change, the duty systemlikely will remain in place. Northwest growers are

working to get the preliminary duty reduced.Apple producers in the Pacific Northwest supply

most of the apples exported to Mexico under theNorthwest Fruit Exporters umbrella. The nonprolugroup, based in Yakima, Wash., manages apple andcherry export programs for more than 80 packersand shippers in Washington, Oregon and Idaho.

After about two years of negotiations,the group reached a five-year

agreement in 2005 to elimi-nate the duties in favor of

a minimum per-carton

price. But it wasblocked by a

Mexican court.That case is

still underappeal, saidJim Archer,NFEmanager.

Earlierthis year,the NFEfiled adraft pro-posal with

Mexico'sSecretariat

o f the

Economy tosuspend the

preliminary anti-dumping duties

applicable to the two

Northwest apple vari-eties. Archer said a decisionfrom the Mexican government

was due in May. "We're waiting for the Ministryof Economy to make a determination on theduty rate, but there's no indication when it willcome."

Archer said there is ''nothing in the works on apricing agreement or settlement. We simply can't

come to any agreement with the Mexican appleindustry We have not come to term s at all."So it appears the duty will stick around, but at

what level is anyone's guess. "I've got no readingon what the duty will be. If they follow the datawe've submitted, it should be well below the cur-rent level," Archer said.

ln addition to the duty, Mexico imposes strictcold-storage and packing requirements for pestcontrol.

Taiwan

Taiwan, the third-largest importer of U.S.apples after Mexico and Canada, monitors appleimports under a threc-strikes-and-you're-out phy-tosanitary "work plan." The plan revolves arounddetection of codling moth larvae in shipments ofFuji apples.

Last November, a second case oi ' codling mothwas discovered in a shipment out of Oregon, trig-gering a process that could have resulted in thesuspension of all Fuji exports to Taiwan if a thirdcase was discovered during the 2005-2006 market-ing season.

"This is a critical market for us." said MarkPowers, vice president of the NorthwestHorticultural Council. He explained that Taiwanconsumers prefer the Fuji variety, which comprisesabout 12 percent of the total Pacific Northwestcrop. Approximately 20 percent of the region's Fujicrop goes to Taiwan in any given year. Last year,2.8 million 42-pound cartons went to Taiwan, a40 percent increase over the previous year.

"The Taiwan work plan for apples is still ineffect," Powers said. "It's still a three-detectiontype penalty system, but each season we start witha clean slate." In other words, there's no carry-overof last season's two strikes. "Hopefully, we'll beable to ship apples to Taiwan all year" withoutrestrictions. Powers said.

After the first codling moth detection last year,Taiwan's Council of Agriculture ordered1.029 cartons of apples to be returned to theU.S. or destroyed, and tightened controls onU.S. apples. Also, the council doubled the level ofU.S. apples checked for pests from 2 to 4 percent.If a pest is found a second time, Taiwan doubles

the percentage of sampled apples to 8 percent:and if a pest is found a third time, apple importsfrom the U.S. are banned.



Canada

Last year, Canada's apple growers pressed for

safeguard m easures on impo rts of U.S. apples,

most of which come from Washington. Citing

low market prices, the growers sought govern-

ment ac t ion under Canada 's Specia l Import

Measures Act. legislation that covers that coun-

try 's counterva i l ing and ant i -dumping laws.

Canada appl ied ant i -dumping dut ies to some

U.S. apples in the late 1980s and again in the

mid-1990s. The Canadian Interna t ional T rade

Tribunal rescinded a1995 anti- du mp ing finding

in February 2000; since then shippers have

expor ted Red Del ic ious apples to Canada with

no unt i -dumping duty.

This year, a potential phytosanitary issue

emerged when the Canadian Food Inspection

Agency detected apple maggot in several locations,

all within the Abbotsford. British Columbia, area.It was the first detection of this relatively common

pest in British Coiumbia.

The apple m aggot (Rh agoletis pom onella) is a fly

that, in its larval stage, damages apples and other

fruit by tunneling through them. The principal hosts

of apple maggot are apple, crabapple and hawthorn

trees, but it also occasionally attacks plum, cherry,

peach and pear trees. It poses no threat to human

health.

Apple maggot is a quarantin e pest in C ana da,

and. until the recent findings. British Columbia

was free of the pest. It is found throughout therest of Canada (except Newfoundland), however,

and is widespread in the U.S. as well.

The Canadian Pood Inspection Agency expand-

ed its survey for appie maggot in British Columbia

for the rest of the apple growing season. The

agency is also consulting with the province of

British Columbia, affected stakeholders and

industry groups to determine the most appropriate

response measures to prevent the spread of the

pest into the rest of British Columbia.

South KoreaApple tarilTs are a discussion topic under the

current negotiations for a free-trade agreement

between the U.S. and Sou th Korea. Pow ers said

the FTA talks are focu.sed on the tariff i.ssue,

namely reducing o r eliminating the current 45 p er-

eent tariff on U.S. apples and pears, but there are

also phytosanitary issues that need to be resolved

before full access to the South Korea market is

given. "That's a different negotiation" that was not

discussed during the third round of FTA talks

recently in Seattle, he said.

U.S. apples and pears are not allowed entry into

South Korea because of concerns regarding plant

pests and disease, mainly codling moth and fire

blight. The Northwest Horticultural Council

maintains that the risk from pests of concem to

South Korea can be successfully mitigated and

commercial shipments of fruit would not pose a

problem to that nation's plant health. "A free-

trade agreement with South Korea is of little use

to Pacific Northwest apple and pear producers if

the U.S. government is unable to obtain meaning -

ful access for their fruit." the council said.

"It takes many years to resolve these issues,"

Powers said, especially when there are two sepa-

rate negotiation tracks involved. At the moment,

the council is focusing on gaining duty-free access

for apples, pears and cherries, he said.

Vietnam

Vietnam is a growth market. Powers said, but

the barrier h ere "is not a ph ytos anitary issue, justa tariff." Th e curren t tariff is 25 percent for app les

and pears.

He said the Northwest Hortieultural Council

supports Vietnam's accession to the World Trade

Organization and the granting of permanent nor-

mal trade relations to Vietnam by the LUiited States.

Un der the terms of its WT O accession, the Vietnam

tarilT would come down to 10 percent within five

years after joining the W TO . "which is reasonable,"

Powers said.

It's a two-step process, he explained. Vietnam

has to enter the WTO and then Congress has toact- "If U .S. ex po rter s are to benefit from

Vietnam's accession to the WTO. Congress must

grant Vie tnam the PNTR."

Vietnam "is an imp ortan t future market for

our fruit." said Christian Schlect. president of

Northwest Fruit Exporters, in recent testimony

before Congress supporting permanent normal

trade relations legislation for Vietnam. "It will

eventually join such strong existing Asian markets

as Hon g K ong, Taiwan and S ingapore as an impor-

tant destination for the fruit of our orchards."

There are no existing phytosanitary barrierspreventing the export of Northwest apples, pears

or cherries to Vietnam.

During the 2005 season, apple exports to

Vietnam totaled 116.000 carton s worth abou t

SI.75 million. Schlect said that upon accession to

the WTO and approval of permanent normal

trade relations, importers in Vietnam expect U.S.

apple shipments to jum p 40 percent.

India

India is another emerging market for apples, and

Powers said the industry "has been working through

the technical p rocess" to get the nation to change its



ILCAROOES

apple waxing regulations and accept the waxing

standards used by the U.S. and globally to preserve

quality, extend shelf life and improve the appear-

ance of many fruits and vegetables. NontarilT

import regulations, including phytosanitary require-

ments, pesticide residue and food safety rules are

potential barriers to Indian apple imports. The regu-lations so far have not led to any significant apple

trade disruptions. There are no current major issues

with India's plant quarantine and pesticide residue

regulations, but divergences among its maximum

residue level stand ards cou ld emerge as a potential

trade barrier, the USDA said.

India eliminated quantitative import restrictions

on apples in 1999, when imports of apples and

other fruit were opened to private trading.

Imports are sold at significantly higher prices

than India's domestically produced apples, but are

nonetheless increasing rapidly. Imports remainsmall compared to domestic production, however.

A USDA Economic Research Service report earlier

this year said Indian apple demand should contin-

ue to expand because of the country's strong eco-

nomic growth. "But the high cost of domestic and

imported apples compared with other Indian fruit

is likely to limit consumption to higher-income

consum ers," the report said.

U.S. apples, mainly Red Delicious from

Washington, have accounted for most of India's

imports, but there is increasing competition from

lower-cost Chinese apples.While India has a high tariff on imported apples

^ 50 percent — dome stic trader m argins add a

much larger share to consumer apple prices than

import prices, tariffs or marketing costs, the report

said. The 50 percent tariff is the highest among all

major apple-producing and -consuming countries,

except Turkey. Imported apples do not compete

with domestic apples as close substitutes, however.

"Indian apple producers appear not to have

been adversely affected by imports because the rel-

atively high quality and price of imported apples

make them imperfect substitutes for domestic

apples." the USDA said.

There 's a good market ing oppor tuni ty for U.S.

apple expor ters because of two factors : India

has a shor t apple harves t per iod that is com-

bined with rapid deterioration in quality because

of limited use of cold storage. "Im po rted apples

maintain their quality largely because of

a super ior cold chain," the USDA repor t said.

The apples remain in refrigerated containers

unt i l they reach their major urban des t inat ions

— M um ba i . Delhi , Chen nai or Kolk ata. Because

of their high value, they are then held in cold

storage until they are sold to a wholesaler.

"Just as progress in improving marketing

efficiency and reducing retail prices is likely to

be a key to future growth in apple consumption,

price competitiveness is l ikely to be a key deter-

minant of future shares of India's apple

impo rts ." the USDA repor t con cluded.

Japan

Japan has been a huge potent ial market for

apples for more than three decades, but i t has

never qui te mater ial ized because of phytosani-

tary restrictions. . lapan officially opened its appl

ma rket in 1971, but its l is t of qu ara nti ne pests,

such as the codl ing moth, kept U.S. apples out

of that m arke t. The n its atten tion shifted to

fire blight.

U.S. app les have effectively bee n ban ne d from

the Japanese market for about 20 years, largely

because of Japan's f ire blight restrictions andrelated phy tosa nita ry pro toco ls. Fire blight is a

disease unique to certain fruit trees, causing

flowers, shoots, twigs and sometimes the host

plant i tself to wither and die.

In 1995. U.S. growers shipped just 8.106 tons

of apples to Japan, valued at $14.8 million,

and that was the high point. Over the next two

years, U.S. exp orts fell dramatic ally to ma rginal

am ou nts ; in 1998 no U.S. growers registered for

the Japan expor t program. Expor ts have been

virtually nonexistent since then because the cost

to par t icipate in the expor t program and complywith the phytosani tary program exceeds ant ici -

pated benefits .

Last year, the U.S. apple industry a ppla ude d the

news that Japan would comply with a World Trade

Organization panel decision against Japan's restric

tions. The decision could ultimately allow U.S.

apples back into Japan, following a long dispute

process at the WTO over the fire blight restrictions

The U.S. has won several WTO proceedings

against the Japan ese restrictions, and last year chal-

lenged Japan 's attem pts to b ring its restrictions into

conformity with the WTO Agreement on the

Application of Sanitary and Phytosanitary

Measures (the SPS Agreement). The restrictions on

expo rted U.S. apples included a 33-foot or cha rd

buffer zone, orchard inspections and chlorine treat-

ment of ex ported fruit. The U.S. argued tha t these

restric tion s were not based on sufficient scientific

evidence or on a risk assessment, and were therefore

inconsistent with Japan's obligations under the SPS

Agreement. The panel agreed with the U.S. position

and affirmed a U.S. argument that any hypothetical

concerns regarding th e spread of fire blight disease

could be addressed by restricting exports of apple

fruit to mature, symptomless fruit.



CAROOES

If Japan fails to comply with the latest recom-

mendations and rulings of the WTO, the U.S. said

it would move forward with its request for WTO

authorization to impose S143.4 million a year in

trade sanctions. This figure would be subject to

arbitration at the WTO.

At this point, apple exports remain a significantopportunity for growers, not a reality. The USDA

said elimination of the fire blight protocol could

mean that over the long run, Japan might import

more than 190,000 tons of Fuji and other apples.

But it could take more than a decade to achieve

that market growth.

China

China is the largest apple producer in the world,

The U.S. is the world's largest apple exporter, but

China is competing strongly in export markets,

including attempts to gain access to the U.S. mar-ket. China and the U .S. directiy com pete in fresh

apple exports. Since 1999. for example. China hiis

surpassed the U.S. as the leading apple supplier to

the ASEAN nations — Indonesia, Malaysia, the

Philippines, Singapore and Thailand.

The No rthwest Ho rticultu ral Council is closely

monitoring China's increased apple production

and exports, "which is driving changes in market-

ing and sales worldwide," it said.

The total export value of China's

fruits a nd vegetables —-

including fresh fruit,

fresh vegetables.

processed fruit and vegetables, fruit and vegetable

juices, pulses and tree nuts — more than doubled

between 1992-94 and 2002-04 to $5.\ billion, the

USDA said. Currently, China's fruit and vegetable

exports are mainly processed products, about

60 percent of the total value of its fruit and

vegetable exports in 2002-04. Fresh fruit account-ed for 8 percent of C hin a's fruit and ve getable

exports, with apples the primary fruit export.

"China has become a leading exporter in some

ma rkets w here its presence was negligible 10 years

ago." the USDA said. The exports mainly go to

Asian countries, which also are major markets for

U.S. exports. "A sharp decline in U.S. market

share has coincided with the surge in Chinese

exports in a number of markets.

But China's looming challenge to the U.S.

industry is offset som ewhat by its high m arketin g

costs, uneven product quality and chemicalresidues on its fruits and vegetables.

"In the final analysis. China's rising global

presence remains a long-run factor, and China's

recent investments in the quality and marketing

of its fruit and vegetable exports and in upgrad-

ing its port facilities point to increasing competi

tion for U.S. fruit and vegetable industries," the

USDA report concluded, ct

apple study

Documents