Dim Sums: Agricultural Markets in China

The founding of the China Apple Industry Association was celebrated in Beijing on January 8. This   boring and seemingly innocuous news item  and others from Shanxi and Gansu Provinces illustrate the government-industry partnership and technology-import strategies that are behind the Chinese "socialist market economy" growth model. China produces half of the world's apples, has accounted for all recent growth in world apple output, and its apple juice concentrate industry dominates the world market . The apple industry association was set up to facilitate the transformation from a big producer of apples  to a strong apple industry . Re-molding a nation of subsistence farmers into an "industry" entails moving from localized varieties, entrenched habits and minimum investment to planting standardized improved varieties, profit maximization and investment in fixed assets. In turn, this implies moving from a web of farmers to an "industry chain" that i...

More cracks are appearing in China's rock-bottom-price-export juggernaut. Apple juice, which came out of nowhere to dominate the world market during the last decade, is losing its competitiveness due to a surge in apple prices. The Consumers Daily reported the story about rising apple costs on October 25. According to the article, the price of apples used for making juice is up to 1400 yuan (US$220) per ton, which translates to a raw material cost of US$1430. (It takes 6.5 tons of apples to make 1 ton of apple juice concentrate for export.) Adding the cost processing, fuel, transportation and steel drums there is no room for profit at the current FOB export price for juice concentrate of US$ 1850 per ton. "Processors would rather stop production than lose money." One processor said the raw material price went up to 1600 yuan (US$250) per ton in the last couple of days. The break-even price for juice is US$2200 per ton with this level of raw material cost. Chinese juice is...

In the fall of 2010 prices of nearly all agricultural commodities in China were surging upward. But now prices are starting to crash downward. One of the most prominent examples is given by an article about the apple market in Yantai of Shandong which describes the bursting of an "apple bubble." Describing the frenzy after last fall's harvest, the head of an apple association in Yantai said, "Seemingly overnight traders came from all over the country calling out for Yantai apples." The head of an apple company described it as "unbelievable," and prices reached levels he had never seen before in 20 years. Others described the prices as "outrageous." In the fall of 2010 it seemed inevitable that apple prices would keep rising. There was a general inflationary trend, and a drought in apple-growing areas of China's northwest had reduced the quality of the crop in that region. Everyone was getting into the apple business, including people who...

An early November article from the Pingyin County price bureau in Shandong Province reports that prices for local apples have been rising quickly since about October 20. Like a number of other commodities, a weather-related supply disruption in combination with the current inflationary climate have lured traders and speculators and prices are spiraling upward. In Hongyuanchi Town, the October retail price for “Fuji” apples is 4.4 yuan/kg, up 22.2% from September and up 37.5% year-on-year. The report offers five reasons for climbing prices. The first reason is a drop in production in the northwest. There was a late spring and hail in apple-producing areas of Gansu and Shaanxi earlier this year. This affected apple blossoms and reduced production. The report says the amount of apples coming into the area from other regions has dropped a lot. Second, the purchase price of apples was up to 0.4 yuan this year and costs of transportation, storage and other services have risen. Third, there ...

It's not easy to do business and make money. The dialogue below from a Baidu.com electronic bulletin board about an idea to make money selling apples shows the market economy in action. If there was money to be made, someone would have made it already. The posting is over 3 years old, but the grizzled veteran's advice is still true. The respondent is sarcastic, but in the end he takes time to give the inquirer some practical and specific suggestions. This posting illustrates (1) the vast number of people looking for ways to make a buck in China, (2) the hyper-competitiveness of the market, (3) and the efficiency of the market. There is no easy money to be made. Question posted December 4, 2006: I’m a third-year student at South China Normal University. I have a classmate who is in Hebei Province who told me apples there are very cheap—the price is 1 kuai per jin sold in bulk. Around our school (in Guangzhou) apples sell for 2.5 yuan per jin, so I’d like to buy some apples from...

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 Chinaprice.gov.cn, 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 o...