Understanding the Chinese fruit market (Part 2)

In recent years, there has been a dramatic increase in the number Chinese port facilities and airports through which imported fruit enters its markets. However, southern China is the most active zone, especially Guangzhou, which is a city containing an entire system of more ports of various sizes.
 
Normally, fruit shipments from Chile take 30-35 days to arrive in Guangzhou. This is because fruit must be transferred from Hong Kong to Guangzhou via barge, if by sea, or via land routes.

There are several places to wholesale fruit in Guangzhou; however, the Jiangnan wholesale market is notable for the volume of transactions. Fruit from these major hubs is distributed via truck to markets throughout China.

During 2006, Jiangnan, which is a major wholesaling and distribution hub, handled 5 million tons of imported and domestic fruit and vegetables. This represented $2 billion in sales. Jiangnan consists of a group of buildings that stretches across 400,000 square meters. 160,000 are devoted to vegetables, 150,000 to fruit. It has 420 stalls, with a cold storage capacity of 1000 tons. The market also has 50,000 square meters of parking, in addition to offices, food stalls and suppliers of materials and packaging, not to mention all the transportation services.

It is worth mentioning the infamous, and illegal, "grey channel" sales route. Fruit comes into China through Hong Kong or Vietnam, thereby skirting import duty and VAT, which ranges from 13%-17%. This illegal network includes products of dubious origin, highly dangerous pesticides and counterfeited trademarks and packaging.
 
In reviewing the distribution network of fruit, one notices there is a widespread lack of reliable cold-chain operators. Even when the premises do have advanced technology, the operation and scheduled maintenance of equipment is quite poor.

A recurrent scenario in China is to observe the shipments on flat bed trucks, which obviously lack insulation, on trips that can last up to several days.

China is a very large country. Despite its huge investment in roads, ports, airports and rail lines, its lack of efficient operational management limits the possibility of timely arrival of Chile’s fresh produce to the rest of China. The interior which is full of potential, but needs to be educated in the consumption of highly nutritious food products such as fruits and vegetables.
 
Price sensitivity
 
Fresh fruit is a commodity which has high price sensitivity. The price of domestic fruit is often lower than imported; though not necessarily lower in quality. Retail prices of imported fruit are often double those of their domestic counterparts.
 
This market offers both potential for healthy profits and devastating losses. In general, there is a 15%-30% mark-up between wholesale retail prices. In turn, retailers tack on another 50% to that of the wholesaler. Thus, the retail price of imported fruit can reach up to double the CIF price.

Import tariffs
 
Import tariffs vary from 0-100%, depending on fruit type and country of origin. ASEAN countries (Thailand, Vietnam and the Philippines) and Chile have lower rates than the United States.
 
Chile, as a result of its 2006 FTA with China, has preferred rates that result in substantial savings, which result in prices which are much lower than those of most favored nations like the United States.
 
The calculation of the import tariff is based on the type of fruit and the price. This produces tariff adjustments if prices do not reflect current market value.

Tips for the wholesaling Chilean fruit in China:
 
To succeed in China, visits are indispensable. Meeting face to face is vital in China. It raises your probability of doing business and you will also more fully understand all the different markets and points of sale. You should allot time for unforeseen events and schedule changes.
 
The average Chinese person favors a closer trade relationship developed in a context of a shared friendship.

Some additional tips include:

• Focusing your efforts on the coastal and higher income areas of China. Also focus on areas where demand is highest for fruit.
• Waste no opportunity to let the Chinese show you what they wish to. This often leads to unforeseen opportunity.
• Select reliable business partners. This includes logistics and retail items.
• Offer training programs to Chinese personnel in the areas of fresh produce and perishables handling.
• Plan promotion strategies, focusing on your product’s high quality, safety and health benefits, as compared to other suppliers.
• Get to know and categorize market preferences according to geographical areas, whereas there are marked differences, thereby increasing sales opportunities.
• Note that in certain holidays, consumption of fruit increases. Please identify and capitalize upon these crucial dates.
• Do what you can to promote the intellectual property rights.
• Keep aware of any fairs, seminars or trade delegations/trips to China.