Monday, September 21, 2009

Who's dumping?

Officials in China have made noise about the U.S. “dumping” poultry, auto parts, and even soybeans in retaliation for tariffs on tires.

Want to find dumping? We can find it without using any dicey “nonmarket economy” methods (e.g., picking a reference price out of an Indian newspaper). Consider China’s apple exports. Chinese customs statistics show that exported apples had an average price leaving China in July of 68 cents per kg. The average Chinese retail price of apples was 4.44 yuan/500g in mid-July, which works out to $1.30 per kg. Exported apples cost about half what Chinese consumers pay for them. For reference, the average retail price in the United States works out to be $2.60 per kg, but you won't find any Chinese apples in a U.S. supermarket.
Source: calculations based on data from, Jinan Price Information Net, customs statistics, exchange rate from St. Louis Federal Reserve.

Apples are expensive to transport in China. They’re heavy and there’s lots of waste, bruising and spoilage. The price is a lot higher in Guangzhou and Shanghai than in Shandong Province, the main source of exports. But the export price historically has been about equal to the average retail price in Shandong, and right now the Shandong retail price is also way above the export price.

Hello Chinese consumers, you’re over-paying for apples!

Is it costing more to produce apples in China? Wages in rural China have been rising rapidly in the last few years (see chart above, from Chinese cost of production surveys). But it’s still just $3.70 per day (NOT per hour) when converted at the official exchange rate.

Labor cost is only a tiny fraction of the price of Chinese apples. The cost per kilogram shot up in 2007, but the price at the farm level shot up even more. Nearly half of revenue represented net profit. (Demand was strong, China had a bad harvest that year and juice processors bid up prices as they scrambled to grab as many apples as possible.)

China doesn’t “dump” these apples in the United States--the U.S. doesn’t let in Chinese apples due to disease and pest concerns. Chinese officials complain about unfairly being shut out of foreign markets by bogus barriers. But what would happen if China exported even more apples? Increased demand would increase the Chinese price even more. You can see already that the Chinese retail price has roughly doubled since 2005.

While China doesn’t export apples to the United States in fresh form, it exports millions of metric tons in the form of apple juice concentrate. This has been the major demand growth factor in the Chinese apple market. But that’s another story.

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