Voluntary Report - public distribution

**Date:** 11/10/2005

**GAIN Report Number:** CH5811

CH5811

**China, Peoples Republic of**

**Market Development Reports**

**Shanghai Region Fruit and Vegetable Markets**

**2005**

**Approved by:**

![](media/image1.wmf)Ross Kreamer

U.S. Consulate

**Prepared by:**

Cindy Marks/Ralph Bean

**Report Highlights:**

China\'s accession to the WTO opened mainland markets to direct shipment
of many fruits and vegetables. Shanghai has proven to be an outstanding
market for exports direct from the U.S., with a massive consumer base
and a logistics network that provides access to much of the rest of
China.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Shanghai \[CH2\]

\[CH\]

Table of Contents

[Background: Produce Markets in China
3](#background-produce-markets-in-china)

[Focus On Shanghai 3](#focus-on-shanghai)

[*Consumer Base* 3](#consumer-base)

[*More Than Just A City* 4](#more-than-just-a-city)

[*Logistics in the Yangtze River Delta*
4](#logistics-in-the-yangtze-river-delta)

[*The Importance of WTO* 5](#the-importance-of-wto)

[Best Product Prospects 6](#best-product-prospects)

[*Fresh* 6](#fresh)

[Great Grapes 6](#great-grapes)

[Apples Are Back 6](#apples-are-back)

[Cherries Hit the Market 6](#cherries-hit-the-market)

[Citrus/Grapefruit 7](#citrusgrapefruit)

[Organic Produce -- The Wave of the Future?
7](#organic-produce-the-wave-of-the-future)

[*Frozen Vegetables & Fruit* 9](#frozen-vegetables-fruit)

[Sweet Corn Dominates U.S. Frozen Vegetable Sales
9](#sweet-corn-dominates-u.s.-frozen-vegetable-sales)

[Emerging Market in Frozen Blackberries/Raspberries Grows in YRD Cities
9](#emerging-market-in-frozen-blackberriesraspberries-grows-in-yrd-cities)

[Market Development in the Yangtze River Basin
10](#market-development-in-the-yangtze-river-basin)

[ATO Strengthens Product Knowledge
10](#ato-strengthens-product-knowledge)

[ATO Strengthens the Cold Chain 10](#ato-strengthens-the-cold-chain)

[New Regulations for Imported Fruit
10](#new-regulations-for-imported-fruit)

[Outlook for the Future 11](#outlook-for-the-future)

# 

# Background: Produce Markets in China

**Overview:** In a country where superlatives are the norm, China's
fruit and vegetable production is no exception. Growing 50% of the
world's total volume of vegetables and melons[^1], China's 700 million
farmers make it the world's top fruit and vegetable producer. By the
close of MY 2004-5, its farms, mostly small, family-run operations, will
have grown an estimated 68% of the world's pears, 49% of its table
grapes, 48% of its apples[^2], 23% of its potatoes, and 13% of its
citrus. [^3]

![](media/image2.wmf){width="2.90625in"
height="3.654861111111111in"}**Imports:** Despite such formidable
production figures, China's heavily fragmented distribution
infrastructure imposes serious limits. Produce quality and consistency
continue to lag behind that of imported U.S. produce, which has found
niche markets in high-end grocery stores, hotels, and in the
corporate/holiday gift basket sector. In CY 2004 strong marketing
campaigns and improved cold chain networks, combined with China's
growing number of high-income consumers and international businesses,
led to increased sales of U.S. fresh table grapes (\$26.5M), apples
(\$15.2M), oranges (\$22.1M) and other citrus, along with frozen
vegetables (\$12.8M, of which \$12.2M was frozen corn).[^4] Re-exports
of U.S. products to China via Hong Kong accounted for another \$18.0M of
fresh table grapes, \$14.0M of oranges, \$11.2M apples, and \$230,000 of
frozen vegetables (including \$87,000 frozen peas and \$43,000 frozen
corn).[^5]

Overall, China imports very few types of vegetables: 85% of vegetable
imports in 2004 were cassava root (mainly from Thailand), followed by
relatively small quantities of dried legumes (7.5%) and frozen
vegetables (4.5%). U.S. frozen strawberries are imported to Shandong
Province and dehydrated for re-export to U.S. cereal companies.

**Exports:** Chinese fruit and vegetable exports to the U.S. focus
primarily on fresh garlic, with 2004 exports totaling \$37.4M. Other
significant exports to the U.S. in 2004 included: dried vegetables
(\$66.2M, including \$9.7M of dried mushrooms and truffles), frozen
vegetables (\$40.3M), and dried fruit (\$19.8M).[^6] Some of China's
fruit and vegetable exports have encountered problems because of
unacceptably high levels of chemical residues.

# Focus On Shanghai 

###### 

## *Consumer Base*

According to official statistics, Shanghai's 18 million urban residents
have the highest annual per capita disposable income in China (18,501
RMB in 2003). Annual per capita disposable incomes of other urban
residents include: Beijing 17,116 RMB; Zhejiang 15,881 RMB; and
Guangdong 14,053 RMB. (Jiangsu province, to the north of Shanghai ranks
7^th^ at 11,237 RMB). It should be noted that the numbers for Guangdong
and Zhejiang cover entire provinces, and so tend to underrepresent high
income cities like Shenzhen and Guangzhou. In addition, the margin of
error in these statistics (unreported income, for example) can be quite
large.

Shanghai's urban residents' annual per capita spending on vegetables
ranks near the top for all of China (346 RMB), while the urban residents
of Zhejiang Province, just south of Shanghai, rank second (336 RMB).
Shanghai's urban residents also spend more money per capita on dried and
fresh fruit and melons (310 RMB) than any other urban area except
Beijing (330 RMB). Zhejiang Province again follows Shanghai, ranking
third at 281 RMB/capita.

Shanghainese are open to imported products. Based on China Customs data
for 2004, Shanghai imported \$4.5 million in oranges, up 44% from 2003,
as well as \$4.1 million in frozen corn (up 34%), \$620,000 in fresh
table grapes (up 750%), \$390,000 in frozen blackberries/raspberries (up
115%), \$340,000 in apples (up 311%), and \$34,000 in cherries (a
17-fold increase over 2003).[^7] These strong percentage increases in
dollar sales between 2003 and 2004 also reflect Shanghai's rising
importance as an entry point for U.S. produce being shipped onward to
other cities.

###### 

## *More Than Just A City*

Shanghai is a good deal more than just a very, very large city
(population: 20 million). It lies at the center of a web of development
extending into Zhejiang and Jiangsu provinces. These provinces are now
dotted with industrial boomtowns that have sprung up as rising costs in
Shanghai drive manufacturers further afield. Forbes magazine recently
rated two of these cities, Hangzhou and Wuxi, as the best places in
China to do business. Both are within two hours' drive of Shanghai. All
of these cities are bound to Shanghai by a common web of logistics and
distribution infrastructure, and are collectively referred to as the
**Yangtze River Delta (YRD)**. The YRD has a total urban population in
excess of 200 million, with incomes well above China's average and an
economy that accounts for somewhere between one quarter and one third of
China's GDP. The residents of these cities share an exposure to Western
foods, as well as a willingness to spend money on quality products.
Increasingly, produce imports into Shanghai are being driven as much by
demand from the cities of the YRD as by Shanghai itself.

## *Logistics in the Yangtze River Delta*

Shanghai owes its position at the center of the YRD mainly to its
logistics infrastructure. In 2004, Shanghai became the second largest
port in the world in terms of cargo throughput, handling 379 million
metric tons (MMT) of freight, behind only Singapore with 388 MMT.
Shanghai is also the third largest container port in the world (TEU
basis), following Hong Kong and Singapore. The first phase of Shanghai's
Yangshan deepwater port project, under construction since 2002, will
undergo trial operations in late 2005. This phase includes a 1,600-meter
(5,250-foot) -long hydraulic dock, land reclamation, reinforcement of
the foundation and dredging of navigable channels. A 32.5-kilometer
(20-mile) bridge linking Shanghai to the massive Yangshan deepwater port
was completed in May 2005. Phase one will allow the port to handle 2.2
million TEUs of containers a year. When the Yangshan port is completed
in 2020, its annual handling capacity will be 20 million TEUs. Clearly,
Shanghai's logistical infrastructure will be a major factor in future
development of the region. Other major ports in the YRD region include
the Ports of Shanghai, Ningbo, Zhoushan, Zhangjiagang, and Nantong.
![](media/image3.wmf){width="2.6458333333333335in" height="2.6375in"}

Infrastructure projects throughout the YRD highlight the development of
regional distribution beyond the city of Shanghai. Yangzhou (population:
1.1 million) was recently connected to the main rail line that serves
Shanghai and Nanjing (population: 4.9 million), and construction of the
new Nanjing international airport near Yangzhou is underway. A new
bridge being constructed in Yangzhou will decrease the road time to
Shanghai from over 4 hours to less than 2½ hours, as well as connecting
it directly to the port at Zhanjiagang. Another bridge recently now
connects the port at Nantong (population 800,000) directly to Shanghai.
The Hangzhou Bay Bridge project, scheduled for completion in 2009, will
tie in to several major expressways in the YRD. With a total investment
of 11.8 billion RMB (USD \$1.4 billion), the 36-km, 6-lane bridge will
connect Jiaxing and Ningbo, decreasing travel times throughout the YRD.
For example, the bridge will decrease travel time from Ningbo to
Shanghai from five hours to two.

Despite the presence of port facilities throughout the YRD, Shanghai
remains the main entry point for produce, particularly items bound for
retail sale. Distributors from Hangzhou, Jiaxing, Nanjing, Wuxi and
other nearby cities come to Shanghai to purchase fruit. Even major port
cities such as Ningbo source most of their imported food through
Shanghai, mainly because high throughput and the presence of experienced
importer/distributors help to ensure lower cost and better quality. This
is particularly important for high-value, short shelf-life products such
as fresh cherries. Excellent local logistics makes transit from Shanghai
to nearby cities relatively cheap and easy.

The superior logistics and distribution of Shanghai area has also made
it the springboard to cities well beyond the YRD. Most major cities of
the interior now play host to a community of four and five star hotels.
At the same time, international retailers such as Carrefour, Metro,
Lotus, Lianhua, Hualian, Auchan, Wal-Mart and others are rapidly
expanding into these cities, in an effort to establish themselves to
take advantage of the next wave of growth. Hotel demand is proving
particularly important for fresh produce imports, as hoteliers in these
cities place a premium on consistently high quality and are willing to
pay for it. The increased number of both hotels and retailers is
contributing to the development of distributors that specialize in
handling imported and sensitive products.

## *The Importance of WTO*

Historically, Guangzhou was the primary avenue of entry for U.S. fruit
into China, particularly products that face technical barriers to entry
into the mainland. Cargoes were transshipped through Hong Kong, allowing
them to evade technical barriers, as well as other conventions (such as
taxes). Prior to WTO, it was not unusual for fruit transshipped through
Hong Kong to be on sale in markets as far north or even farther than
Beijing. On the downside, this meant that exporters worked through
middlemen, who charged significant fees for their services, and could
not be held accountable for the condition or quality of the product on
arrival in China. A large number of products shipped this way became
subject to adulteration (to cut costs) or counterfeiting. While this
'gray market' channel remains an important avenue for some products,
China's accession to the WTO has reduced many of the barriers faced by
key commodities such as citrus, apples, cherries and grapes.

The impact of these agreements has been a surge in direct imports,
particularly to ports that are closer to consumer markets in East and
North China, such as Shanghai. Direct exports of fruit to mainland China
have jumped from \$2 million in 1999 to over \$56 million in 2004. One
major wholesaler of imported fruit speculates that the port of Shanghai
will surpass Guangzhou in terms of fresh fruit imports in 5 years, in
part due to the high transaction costs of transshipment from Hong Kong.
In addition to extra charges, indirect imports now face tougher scrutiny
at their point of entry. In an effort to address tax evasion and food
safety concerns and halt the "gray" channel trading that goes through
Hong Kong, China's quarantine officials have announced plans to
strengthen checks of country-of-origin certificates and other documents.

##### 

# Best Product Prospects

##### 

## *Fresh*

### [Great Grapes]{.underline}

##### 

Grapes currently dominate U.S. fresh fruit exports to China, vying with
oranges for first place. The past year saw a dramatic jump in imports
from \$6 million to \$21 million, with the current year posting \$20
million in imports through the month of August. Like citrus, grapes were
a major beneficiary of China's entry into the WTO, with imports jumping
from \$1.2 million in 1999 to nearly \$11 million in 2000, before
stabilizing. The most recent jump in imports comes despite tough
competition from domestic grapes and imports from New Zealand and Chile.
Part of this success can be attributed to aggressive marketing on the
part of the California Table Grape Commission and the introduction of
novel new-to-market varieties of grape, to offset growing domestic
production of the popular Red Globe variety. As with apples, the
consistent quality and appearance of the U.S. product has also made it
popular with retailers.

### [Apples Are Back]{.underline}

##### 

Despite China's emergence as a major apple producer and exporter, it
continues to be an important importer of U.S. apples. Direct exports of
U.S. apples to China doubled in 2004 to reach \$5.5 million, and have
already passed \$7.7 million for the first 8 months of 2005. This
comeback represents a near perfect case study in niche marketing in
China. While the domestic apples are cheaper than imports and generally
regarded as good, the quality is highly variable, and the appearance
often leaves something to be desired. As a result, Washington State
apples have been able to stake out a position in the high-end gift
market where price is less of a factor than consistently outstanding
appearance. Gift giving is an important part of doing business in China,
and fruit baskets are given for a wide variety of occasions. As incomes
have continued to rise, Chinese consumers are turning to imports as a
means of adding to the cachet of a gift, in the process creating a good
market for premium imports.

##### 

### [Cherries Hit the Market]{.underline}

Cherries are currently a small niche market, with import statistics
varying wildly as to actual import numbers. World Trade Atlas registers
\$1.5 million in imports of U.S. cherries in 2004 but only \$148,000
through September, 2005, while U.S. Customs data show no U.S. exports to
China in 2004, but \$270,000 in exports in 2005 through August. Some of
the confusion may be attributed to the vagaries of transshipment through
Hong Kong. The reality lays somewhere in between, but the quantity
should certainly be higher in 2005, with imports fueled by a large
number of retail and restaurant that brought U.S. cherries into
completely new markets and venues (see below). Competition for the U.S.
comes primarily from New Zealand (\$700,000 in 2004, up from only
\$5,000 in 2003) and Chile (\$85,000 in 2004, down from \$107,000 in
2003 according to WTA). Sales of New Zealand-grown cherries have gained
quickly in the YRD area because Southern Hemisphere cherries are
harvested around January and February, in time for Chinese Spring
Festival (Lunar New Year). Domestic cherries are available in Shanghai,
but are generally tart varieties, lower in quality than those imported
from the U.S., which are mainly the sweet Bing variety. Recent reports
indicate that domestically-produced sweet cherries are becoming
available, but the quality and quantities available remain unknown.

Imported cherries have found a strong niche as festival/holiday gifts in
YRD cities. U.S.-grown cherries, typically harvested in June and July,
are not available to Chinese consumers during the major Chinese
holidays, suggesting that U.S. cherry growers will not be able to rely
on holiday-related interest to spur sales. Despite this, fresh cherries
have done extraordinarily well during ATO-sponsored activities, such as
the 2004 Mall Promotion. Cherries were the hottest-selling item at that
event, and the supplier had to restock several times before the
promotion ended. All three ATOs in China also launched a major fresh
fruit retail promotion in September, 2005. This event brought Washington
State cherries to 32 stores in 11 cities, many of which had never
carried imported cherries before.

One Chinese wholesaler imported approximately 288 cases of cherries from
Washington State by air in June 2005, followed by a container (2,000
cases) in July 2005. Some of these cherries were intended for a July
2005 promotion at a popular Shanghainese-style chain restaurant. During
the promotion, four new recipes using U.S. cherries were introduced in
all six Shanghai outlets. Another portion of the cherries were sent to
Wenzhou (population: 7.4 million), a famously wealthy city in Zhejiang
Province that has previously shown minimal interest in imports.
Anecdotal evidence from another large wholesaler of imported cherries
suggests that both Wenzhou and Jinhua (population: 4.5 million) in
Zhejiang Province consume a large amount of imported cherries,
highlighting the importance of the emerging cities of the YRD as new
engines for regional growth.

##### 

### [Citrus/Grapefruit]{.underline}

U.S. citrus was one of the first beneficiaries of China's entry into the
WTO, and Shanghai has proven an excellent market, especially for less
familiar products such as grapefruit. Exports to China have slipped in
recent years however, largely as a result of small (storm damaged) U.S.
crops. One-third of all U.S. grape fruit imported into China during 2004
came through Shanghai, with demand driven by international hotels and
large hypermarket chains in the Shanghai area. One wholesaler of
imported fruit explained that Florida grapefruit is preferred by
Shanghai-area hotels because of its high juice content (hotel sales make
up about 80% of his U.S. grapefruit business), whereas California
grapefruit, well-known for its attractive exterior, is used more
frequently for gift baskets. The HRI market is a substantial niche:
Shanghai reportedly attracted a record high of almost 3.9 million
visitors in 2004 (including 3.2 million foreign tourists), up 57% over
its SARS-affected figure for 2003. HRI sales are an increasingly
important element of demand for imported produce.[^8] As with apples,
niche marketing, either in HRI or in the gift markets, has proven to be
the key to market entry.

### [Organic Produce -- The Wave of the Future?]{.underline}

Shanghai's high-income consumers are becoming aware of the attributes of
organic produce, making it a good area for potential growth. Demand is
being driven by two different factors. Expatriates and Chinese returning
from overseas bring a strong awareness of organics and their value. At
the same time, the continuous drumbeat of food safety scandals in the
Chinese press has created an extremely high awareness of food quality
issues, driving health-conscious consumers toward specially certified
products such as organics and green food (see below) as a means of
ensuring that their food meets basic standards of safety.
California-based O-Store recently opened its first store in Shanghai,
with long-term plans extending far beyond retail and into distribution
of organics. China's new rules on production, processing, marketing and
labeling of organic products, which took effect in April 2005, should
help standardize the definition and labeling of organic food, making it
easier for consumers to identify truly organic produce. At the same
time, counterfeit labeling is possible, and enforcement of the new rules
will be critical to maintaining consumer confidence in the organic
certification process.

![](media/image4.png){width="1.4916666666666667in" height="1.5in"}

Many Chinese consumers are already aware of "Green Food," a term that
was coined in China in the 1980s to identify foods grown under
controlled conditions that limit the types and quantities of pesticides
and fertilizers used. Even the highest grades of the Green Food standard
(AA), however, do not meet widely accepted definitions for organic food.
It is not clear if Chinese consumers are aware of the technical
differences between standards for Green Food and organic food, and
consumer education will be important in increasing sales of China's
certified organic produce.

China is producing increasing amounts of its own organic produce both
for export and for domestic consumption. The Nanjing-based Organic Food
Development Center (OFDC), established in 1994 under China's State
Environmental Protection Administration, officially acquired
accreditation status under the International Federation of Organic
Agriculture Movements (IFOAM) in February 2003, giving it the right to
certify farms as organic in line with IFOAM's Basic Standards. Domestic
demand remains small (estimated at 0.1% of total food sales), but is
growing in urban centers where educated middle- and upper-income
consumers have expressed concerns about the high level of chemicals in
food.[^9] The rise of organic farming in China has also been supported
by government initiatives aimed at improving farmers' standards of
living. Organic farms, centered in large-scale gardens along the east
coast (Shandong, Jiangsu and Zhejiang provinces) and more isolated farms
in very poor regions, are often touted more for their income-generating
potential rather than their environmentally friendly aspects. This focus
on economic benefits has led to skepticism about farmers' willingness to
maintain the high standards required of organic farming. Despite these
doubts, U.S. organic products imported into China will have to compete
with locally grown, less expensive organic produce. As with niche
markets in other sectors, prospects for exports of U.S. organic products
are best among high-end urban consumers.

For more information on China's regulations on organic certification,
labeling and other procedures, see GAIN reports CH5012 "Administrative
Measures for Certification of Organic Products" and CH5049
"Implementation Rules for Organic Product Certification."

##### 

## ![](media/image5.wmf)*Frozen Vegetables & Fruit*

##### 

### [Sweet Corn Dominates U.S. Frozen Vegetable Sales]{.underline}

Shanghai was China's second largest importer of frozen vegetables from
the U.S. in 2004 with \$4.5M (Qingdao ranked #1 at \$5.8M). The value of
U.S. frozen vegetable exports to Shanghai jumped by 41% from 2003 to
2004.[^10] Almost 90% of Shanghai's vegetable imports were of U.S.
frozen sweet corn (\$4.1M), with nearby Ningbo (population: 5.5
million), a second-tier city in the YRD, importing another \$1.4M. The
total value of Ningbo's imports of U.S. frozen vegetables increased by
37% to \$1.7M in 2004, making it China's #3 importer of U.S.
product.[^11] Although these are small figures by volume, they are
likely to increase due to the region's rising incomes, improved port
facilities, and a recent decline in vegetable output at Shanghai-area
farms.

# 

Frozen corn is commonly used in *songzi yumi*, a popular Chinese dish
made with stir-fried sweet corn and pine nuts. Typically, the corn is
shipped in bulk and re-packaged with small packets of pine nuts to make
a ready-to-cook meal package. Corn is also often combined with local
vegetables to make mixed-vegetable packages for export. The U.S.
captured 93% of China's imported frozen corn market in 2004, down from
the 2003 level of 96% (Australia gained slightly).[^12]

### [Emerging Market in Frozen Blackberries/Raspberries Grows in YRD Cities]{.underline}

![](media/image6.wmf)[^13] At a June 2005 meeting with the purchasing
manager for imported foods of a large joint-venture hypermarket chain
with 9 stores in the YRD area, Post learned of the chain's interest in
importing frozen and pureed apricots, blueberries, cherries, and
raspberries. This may represent another area for future growth.

##### 

# Market Development in the Yangtze River Basin

##### 

China is a challenging environment for market development, not least
because of the underdeveloped nature of food distribution outside of
heavily urbanized areas like the YRD. The challenges are exponentially
greater for highly sensitive products such as fresh fruit and
vegetables. For example, during a market development activity in
Chengdu, ATO learned that frozen meat was changing ownership as much as
five times before reaching the final seller. ATO's market development
activities are designed to improve product quality by educating
distributors and end users on proper handling.

### [ATO Strengthens Product Knowledge]{.underline}

Projects like ATO Shanghai's "Chef Seminar Series" held in Shenjiamen
(April 2004), Chengdu (September 2004), Suzhou (September 2004), Wuxi
(September 2004), Hangzhou (April 2005), Chongqing (September 2005), and
Wuxi again (October, 2005), have helped to increase knowledge about the
types and handling procedures for imported products, cooking methods,
and provided recipes to chefs at up-scale hotels and restaurants outside
Shanghai. ATO has learned that the success of a new product in China is
often dependent on the way in which it is introduced. Having Chinese
chefs learn about and adapt U.S. products to their own style helps to
raise the profile of the product while ensuring that it is well adapted
to local tastes. Individual cooperators like the U.S. Potato Board and
the U.S. Meat Export Federation have also held their own chef-training
programs in other inland cities. However, the lack of reliable and
efficient distribution channels into interior areas continues to inhibit
expansion of U.S. exports, especially of fresh fruit, into Western
provinces such as Sichuan and Chongqing. A key obstacle is ensuring that
quality is preserved through use of proper cold chain procedures.

### [ATO Strengthens the Cold Chain]{.underline}

Even though cold chain networks are growing across China, the country's
lack of product-specific cold chain facilities has a serious impact on
the quality and availability of imported product in interior markets.
ATO has found that some high-end hotels in West China actually air
freight fresh fruit and vegetables in from other parts of China to
ensure quality. To address this problem, ATO has worked closely with the
Emerging Markets Office on a series of Cold Chain projects. Phase I of
ATO Shanghai's seminar series on cold chain distribution and logistics,
held in June 2004, introduced best practices and information to local
produce contacts. This initial conference was followed by a Phase II
conference in April 2005, where audits of eight key cold logistics
providers helped individual companies to address key weaknesses in their
handling of temperature sensitive products. Further development of cold
chain infrastructure beyond Shanghai will be crucial to expanding
markets for U.S. produce in the more interior regions.

###### 

### [New Regulations for Imported Fruit]{.underline}

New regulations on imported fruit imposed by China's State General
Administration for Quality, Supervision, Inspection, and Quarantine
(AQSIQ) entered into force on July 5, 2005, and may affect short-term
growth of U.S. export markets, as importers and distributors work
through new requirements on obtaining import permits and inspection
certificates. These rules affect mainly imports of fruit that enter
China through gray channels, especially fruit (and specific varieties)
from countries/regions not approved by AQSIQ. Shanghai has a history of
comparatively strict enforcement of entry requirements. One
Shanghai-based importer commented that the new rules should have only
limited impact on fruit imports coming into YRD ports, but a stronger
effect on gray market imports through Hong Kong. Enforcement of the new
regulations by local officials will also determine the impact of the new
requirements. For more information on AQSIQ's regulations that entered
into force on July 5, 2005, see GAIN report CH5004 "AQSIQ 2004 Decree 68
Fruit Entry Requirements Finalized (SPS/80)."

# Outlook for the Future

One large wholesaler in Shanghai recently commented that quality is the
top concern among consumers of imported fruit, with price a close
second. Closely associated with concerns about quality are those related
to food safety. Over the past several years, the Chinese press has
become more open about reporting food safety scandals than in the past.
Papers carry news of new cases of food adulteration or counterfeiting
(with serious health consequences) on a weekly basis. Many consumers,
especially in urban areas where more processed foods are purchased, are
seeking ways to ensure that the food they buy meets the highest safety
standards.

This is good news for U.S. producers, as U.S. growers have the
experience, technology, and control systems required to supply
high-quality produce. Chinese consumers tend to hold imported products
in high regard, in part because they recognize that imports must pass
inspections both in the country of origin and again upon arrival in
China. The quality of China's domestic fruit and vegetables is
improving, however, so U.S. growers must work hard to differentiate
their produce as higher quality and/or unique in order to develop a
niche in China's large produce market. Several individual companies and
U.S. grower associations have conducted trade missions to China to
assess market potential for U.S. exports. Many have noted the increasing
competition posed by China's growers in both third-country and domestic
Chinese markets.

Despite these challenges, there is considerable potential for U.S.
produce in the Shanghai area's retail and HRI sectors, particularly for
fresh fruit. With a taste for fine food and a willingness to spend more
of their growing income on imported goods, the YRD population is already
consuming more U.S. frozen vegetables and fruit, as well as fresh fruit
such as table grapes, citrus, apples, and cherries. Demand for imported
U.S. fresh vegetables is more problematic, in part due to high
transportation costs. At this point the impact of the recent revaluation
of the Chinese Yuan on demand for U.S. produce is unclear. However,
China's phytosanitary restrictions on import-eligible varieties of U.S.
fruit and vegetables will continue to limit the number of different
products that can be exported.

[^1]: GAIN Report CH5016 from FAO Beijing (2/17/2005)

[^2]: PSD Official Statistics from FAS/USDA (as of June 6, 2005)

[^3]: GAIN Report CH5016 from FAO Beijing (2/17/2005)

[^4]: World Trade Atlas (as of June 2005)

[^5]: World Trade Atlas (as of June 2005)

[^6]: World Trade Atlas (as of June 2005)

[^7]: World Trade Atlas (as of June 2005)

[^8]: Shanghai Municipal Tourism Administrative Commission.
    http://lyw.sh.gov.cn/en/sta/sta12.aspx

[^9]: "Green Growth" in The Economist, Vol. XXXI, No. 13, June 20, 2005.

[^10]: World Trade Atlas (as of June 2005)

[^11]: World Trade Atlas (as of June 2005)

[^12]: World Trade Atlas (as of June 2005)

[^13]: World Trade Atlas (as of June 2005)