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Agricultural Exports

Taiwan: The Disappearing Kingdom of Fruit

Taiwan: The Disappearing Kingdom of Fruit

Source:CW

Politicians hope China will help Taiwan regain its status as the "kingdom of fruit," but in visits to Chinese fruit markets, CommonWealth Magazine discovered they will likely be disappointed.

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Taiwan: The Disappearing Kingdom of Fruit

By Sherry Lee
From CommonWealth Magazine (vol. 452 )

Early morning 2 a.m. in southwestern Beijing. A long line of 20-foot and 40-foot containers has formed, waiting to store their cargo in China's biggest wholesale fruit and vegetable market – the Xinfadi Agricultural Products Wholesale Market – which sells 9 billion kilograms of produce a year.

Buyers from secondary wholesalers, supermarkets and traditional markets from Beijing, Shenyang, Dalian and Shijiazhuang crowd into the market and zero in on the fruit on offer from around the world. These buyers vie for produce by raising their hands and calling out prices, paying with one hand and grabbing their merchandise with the other, as countless red 100 renminbi notes fly around in the dark night.

This massive gathering point for produce does more than 30 billion renminbi in business every year, but there is little trace of fruit from Taiwan.

Heavy Losses

As daybreak arrives, the Xinfadi store with a "Taiwanese fruit" sign that exclusively sells fruit imported from Taiwan shows none of the bustle and noise typical of the busy wholesale market. Only a dog and a chair grace the quiet storefront, in stark contrast to the multitudes of people and cars constantly crowding the entrances of nearby vendors.

The owner of the store is Kuo Hsiu-ming, president of the Taiwan-based Pengyun Laide Produce Company, who, typical of many Taiwanese, works hard and shoots straight. He explains that he only restocks produce once a week, and only one-tenth of a container at a time, because of low demand and weak turnover.   

A different scene emerges at the other end of the marketing spectrum. City and county chiefs across partisan lines make repeated trips to China with a wax apple in one hand and a pineapple in the other, aggressively promoting Taiwan's fruit with considerable success. Lu Zushan, the governor of China's Zhejiang Province who was recently in Taiwan, bought nine containers of fruit that were gobbled up by consumers who braved pouring rain. Spokesman for the Taiwan Affairs Office of China's State Council often announces that China has bought Taiwan's fruit, creating a sense that Taiwan's fruit is a hot commodity there.

Of the two contrasting images – the weak sales at Xinfadi market or the official "Taiwanese fruit fever" – which one reflects the true competitiveness of Taiwan's fruit in China's market? Is fruit one of Taiwan's golden sectors or a declining industry? And can the signing of the economic cooperative framework agreement (ECFA) with China really boost fruit exports to China as the government claims? 

Great Flavor, No International Markets

A team of CommonWealth Magazine reporters spoke with trading companies and agricultural producers in search of an explanation for the apparent contradiction confounding Taiwan's fruit sellers: most people say Taiwan's fruit tastes great, but they often give it a pass at the market.

The quality and sweetness of Taiwanese fruit, and the prowess of the island's fruit breeding technology, are all considered outstanding, yet the country's fruit is facing an increasingly challenging sell in international markets. Its competitiveness has declined markedly at home and abroad over the past five years.

Fruit exports fell from 73,000 tons in 2003 to less than 30,000 tons last year, a fall of over 50 percent in seven years. Japan has traditionally been Taiwan's biggest export market, but demand there for the country's fruit is also on the wane.

Chao Chih-ping, a researcher at the Taiwan Banana Research Institute, has studied bananas his entire life and has never felt so despondent. He has seen Taiwan's share of Japan's imported banana market fall progressively from 10 percent to 1 percent to 0.7 percent today, a historical low.

The only place where Taiwanese fruit is gaining market share is China, but much of that can be attributed to selling off surplus fruit at low prices and policy-motivated purchases at the government level. China bought 1,600 tons of oranges from Taiwan last year, and this year plans to buy 3,000 tons of Taiwan's surplus fruit by October. Paul M.H. Sun, the 73-year-old former chairman of Taiwan's Council of Agriculture (COA), believes that exporting surplus fruit at steep discounts has seriously affected the product's image.

The competitiveness of Taiwan's fruit has not only suffered internationally but has also been squeezed by imported fruit at home. Over the past five years, Taiwan's fruit imports have remained steady at roughly 300,000 tons per year, but their value has doubled, an indication that imported fruit has grown increasingly competitive.

"Our competitiveness receded from export markets and only held its ground in the domestic market. Then imports began attacking domestic fruit, and now even the domestic market share is in decline," Sun laments.

So should Taiwan's fruit and agricultural sectors still pursue an export strategy? And what would be a suitable export percentage for Taiwan?

Becoming a "Street-vendor" Business

Another former Council of Agriculture chairman, Peng Tso-kwei, said Taiwan's accession to the World Trade Organization in 2002 changed the logic of agricultural competition, which is strongly dependent on land. Because Taiwan's production costs are high, its international competitiveness fell.

"If Taiwan's agricultural sector cannot operate at a global level and become more business-like and international, it will always remain nothing more than a "street-vendor" business," says Peng, who has studied Taiwan's agricultural sector his entire career.

Today, most countries are striving to improve export competitiveness and gain a foothold in the international market. Some compete on brand, while others compete on price. One of the best examples of a successful brand campaign is New Zealand's Zespri kiwis.

Fifteen years ago, Zespri International, which markets the brand, concentrated its attention on building the brand in China, and it now sells roughly 8 million cartons of kiwi fruit there a year, with sales doubling annually.

Chen Yujan, a Taiwanese who is Zespri International's general manager for the Asia-Pacific region, says the company accurately foresaw China's potential at the time and its yearning for quality.

"Even Chinese distrust their own domestic products. They know what they are doing, injecting hormones to save a renminbi or even a tenth of a renminbi. So consumers are willing to pay a little more to eat safe fruit," Chen says.

There are also many countries that rely on low prices to sell their products, the Philippines being one of the most obvious examples.

In the 1970s, Dole Food Company invested in the Philippines and Central and South America and used a group cultivation model to lower costs.

To this day, Filipino banana plantations average between 30 and 50 hectares (the average in Taiwan is one hectare) and are mechanically harvested and scientifically processed to guarantee quality consistency.

Those characteristics have enabled the country to become Japan's biggest banana supplier in the past 10 years. In China, bananas from the Philippines sell for about 6 renminbi a kilogram, but the production cost alone is twice that in Taiwan. Filipino bananas have a 74-percent share of China's market, compared to Taiwan's 3-percent share.

Because Taiwan's agricultural industry lacks a global logistics system and an integrated production and marketing mechanism, its fruit has little visibility on the international market and is gradually being marginalized.

The Global Push to Enter China

At 10 a.m. one morning, Kevin Lu, the head of Beijing Chunlin Agricultural Products Co., is riveted to his computer checking the day's wholesale prices for cherries from different areas. The computer shows that a carton of California Tulare cherries is selling for 480 renminbi (equal to NT$2,200). Lu says with a laugh that the price is NT$400 more than the price in Taiwan.

Lu's company is Xinfadi market's most important fruit importer. California cherry vendors are well aware of Lu's influence in China's northern wholesale market and have not only signed a contract with him but also jointly designed the brand Skyline to boost sales. After the company orders cherries from California's farmers, the cherries are harvested and packed according to different classes of quality for Lu to sell in China. California cherry growers sell 50,000 to 100,000 cartons to China through Lu per year.

Embassies and agricultural representatives from Australia, Chile, South Africa and Peru all have expressed an interest in selling their products through Lu's company, which earns about 300 million renminbi a year.

Ironically, this robust trading platform that attracts companies from around the world got its start in Taiwan. Lu's family runs Taiwan's biggest fresh-cut fruit business, which supplies 5,500 7-Eleven convenience stores on a daily basis and caterers at Taiwan's two main international airports in Taoyuan and Kaohsiung. Lu's older brother, Stephen Lu is the head of Yunlin County's Agriculture Department. Before entering government service, he also spent much of his time in Beijing, helping his family's company become the first wholesaler to be approved to import fruit.

When the two brothers began their business in Beijing, they were bursting with enthusiasm over the idea of making Taiwanese fruit the mainstay of their product line. In 2003, Stephen Lu bought oranges from farmers in Jiayi and Yunlin counties, accounting for 68 of the 72 tons of oranges Taiwan exported that year.

But Taiwanese fruit quickly faced major obstacles – supply was unsteady, and Chinese consumers were unfamiliar with the product. That led the brothers to incur deep losses, and company employees responsible for selling the produce would repeatedly ask: "Can we not sell Taiwanese fruit?"

Kevin Lu later gave up on Taiwanese fruit, opting instead to import top-of-the-line fruit from other countries to drive growth. But reflecting on Taiwan, there exists in his voice a certain helplessness and disappointment that Taiwan has not been able to find a way to improve. 

Stephen Lu, who has experience in selling fruit on the front lines, has repeatedly urged at meetings with high-level Taiwanese agricultural officials that the COA establish a nationwide marketing company, but his plea has been ignored.

Neighboring countries, however, have made successful forays into branding. Korea has aggressively promoted its pears and apples in the high-end markets of Japan and Taiwan. Even within China there is a growing brand consciousness. One of the most famous brands is "Golden Sunlight" navel oranges from Jiangxi Province. The company selling the oranges is now publicly listed. In contrast to the ambition of these countries, Taiwan's export strategy is clearly inadequate.

In trying to gain a presence in China's growing market, Taiwan faces another special problem, that of "bandit" fruit usurping the Taiwan brand.

Undermining Taiwan's Image

In the late 1980s and early 1990s, many groups of Taiwanese farmers and developers poured into China's Hainan Island and Guangxi and Fujian provinces – all of which share the same latitude as Taiwan – to gobble up land and plant fruit. As a result, Taiwanese fruit varieties have taken root in China, and they can be produced and sold for about half as much as similar varieties cultivated in Taiwan.

When former COA chief Peng was in Guangxi in 2006, he saw a large fruit plantation covered with Taiwanese "Chiin Hwang" mangoes, the same variety Peng formally honored farmer Huang Chiin-hwang for cultivating in Taiwan a decade before while he still served as COA chief.

Peng recalls that what he saw shocked him. "My God, they are exactly the same as Taiwan's Chiin Hwang variety," he remembers thinking at the time.

Sun believes that the Taiwanese fruit varieties grown in China should be classified as Taiwanese rather than "bandit" varieties and be part of the Taiwan brand. But these inconsistent fruit types have indeed seriously influenced how the market sees Taiwanese fruit. Kuo, the Xinfadi market fruit seller who has held on against the odds in continuing to import fruit grown in Taiwan, says he has faced complaints from consumers because of this in the past.

"People who had eaten ‘Taiwanese fruit' thought it wasn't very good," Kuo says. "Everything from customs quarantine certificates and certificates of origin to the cartons and packaging can all be faked. Taiwanese fruit has been counterfeited to death."

Meeting the Market Challenge

On hot summer days in Taipei, people crowd outside fruit stands to buy homegrown pineapples and mangoes. Zespri's Chen, who has marketed imported fruit for years and flies to Japan and China every month, speaks from the heart when he says that Taiwanese fruit "is really good." He acknowledges that during the intense heat of summer, even the volume of New Zealand kiwi fruit he sells takes a dive, unable to compete with fruit cultivated in Taiwan.

Taiwan has nurtured two main competitive strengths in the fruit sector over the past 60 years: a wealth of varieties and outstanding technology. But today it faces a completely new type of competition on a global scale, and it needs to respond with a new strategy and a new mindset.

Relying on ECFA's tariff reductions and China's policy-motivated purchases cannot guarantee a bright future for Taiwan's agricultural sector. It is how the country's agricultural produce fares in the marketplace that will ultimately determine if it succeeds or fails.

Transalted from the Chinese by Luke Sabatier

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