Required Report - public distribution

**Date:** 8/20/2005

**GAIN Report Number:** CH5062

CH5062

**China, Peoples Republic of**

**Tree Nuts**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Maurice House

U.S. Embassy Beijing, Office of Agricultural Affairs

**Prepared by:**

Kevin Latner and Wu Bugang

**Report Highlights:**

China's walnut production in MY 2005 is forecast at 388,000 MT, up 8
percent from the previous year, attributed to favorable weather and
increased crop area. Production and consumption of other nuts is up
slightly. Consumption of nuts is also up slightly. Walnut exports are
increasing. The import volume of nuts is growing, but sensitive to world
prices.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 3](#production)

[Consumption 4](#consumption)

[Trade 4](#trade)

[Prices 5](#prices)

[Policy 5](#policy)

[Marketing 5](#marketing)

[Tables 6](#tables)

[Walnuts Wholesale Market Prices in Selected Regions
6](#walnuts-wholesale-market-prices-in-selected-regions)

[Walnut Production, Supply and Demand (PSD) table
7](#walnut-production-supply-and-demand-psd-table)

# Executive Summary

Walnuts are the principle tree nuts produced in China and production is
forecast at 388,000 MT for the 2005/06 marketing year, up nearly 8
percent from the previous year as a result of favorable weather and
increased acreage.

The continued strong market has contributed to the growing number of
walnut plantations. In addition, the Chinese government soil
conservation objectives have encouraged farmers to convert land into
forests, orchards and grasslands and plant trees, including walnuts.
Provincial governments in some major producing regions, such as Yunnan,
Xinjiang and Shanxi, are also encouraging walnut production in their
localities.

Almonds are doing well in western Xinjiang and acreage has grown, albeit
from a small base. Current production is about 1,200 MT, mostly consumed
locally.

Consumption of tree nuts, especially walnuts, is growing. Walnuts are
considered a healthy food. As Chinese people earn more, they become more
concerned about their health and have begun to look at walnuts as a
healthy addition to their diet. Other nuts are mostly considered "snack
foods." Nut consumption is centered mainly in more developed urban areas
and is often seasonal around traditional holidays like Chinese New Year.

Increased world demand has sparked increased exports of walnuts. Walnuts
imports are small but increasing. The few exports of other nuts are
mainly for processing. Imports of other nuts are increasing steadily
along with income growth.

# Production

China's walnut production is forecast at 388,000 MT in MY 2005, with the
harvest beginning in October, due to generally favorable weather
conditions in major producing areas and prior years plantings beginning
to bear fruit. Walnut production is estimated at about 360,000 MT in MY
2004, up from Post's previous estimate of 350,000 MT and in line with
current industry expectations. The MY 2003 production has also been
revised slightly to reflect the actual situation. While the State
Statistical Bureau has put their preliminary estimate for the 2004 MY
crop at over 414,000 MT, current high market prices do not seem to
support their estimate.

Official data on walnut acreage is unavailable. Walnuts account for an
estimated 1,009,800 hectares in MY 2005, up about 8 percent from the
previous year. Increased plantings reflect the attractiveness of
historically high prices. While walnuts are grown across China,
principle-producing provinces are Yunnan, Sichuan, Xinjiang, Shanxi,
Shaanxi, and Hebei. Northern China experienced good rains this season,
which is expected to bring a good harvest. While southern Yunnan
production was down due to an unusual drought, overall production is
forecast higher as acreage has increasing about 10 percent each year for
the last several years.

Planted acreage is expanding in Xinjiang, where large tracts of land are
dry and not suitable for other crops. In Xinjiang, an estimated 66,000
hectares of new plantings are being added each year. This trend will
making Xinjiang the largest walnut producing area in China within five
years.

Given current strong market prices, revenue from walnuts can generate
more income than crops like grains and fruits. As a result, farmers are
gradually adding more area this crop. But the available land for
conversion is limited, as small-scale farmers need to plant some
traditional crops like corn and vegetables for on-farm consumption.

Walnuts are harvested by hand, husked and sun-dried from late August
till mid-September in most producing areas. In places like Shanxi, most
plantations are older, accounting for approximately 90 percent of
production. These older trees are difficult to harvest and do not
produce well, producing between 3-5 kilos of in-shell walnuts per year,
but the trees have few pests and diseases and are drought-resistant. New
plantings, usually through grafting, thought infrequent, introduce new
varieties that are shorter, have thinner shells, and start bearing fruit
in 3-4 years.

Production volume of other nuts is quite small, and except for almonds,
data is unavailable and planting-area is either very small or
non-existent. Almonds are planted mainly in southern Xinjiang, with
annual production reaching 1,200 MT in MY 2004. Expansion projects for
almonds continue with production areas expected to reach 66,000 hectares
by 2010. Almonds produced in Xinjiang are mainly for local consumption
and a poor transportation infrastructure in Xinjiang limits export
opportunities, except to neighboring central European countries.
Experimental almond orchards in Shanxi and Shandong did not adapt to
local conditions.

# Consumption

Aside from walnuts, the Chinese do not have a strong tradition of eating
nuts. Nut consumption, even for walnuts, is quite seasonal, dropping to
almost zero during the summer months and extremely high around holidays
traditionally associated with nut consumption, like Chinese New Year.
Salted nuts are preferred.

Because of the relative high cost of nuts, domestic consumption of tree
nuts is rising concurrently with income and consumption is concentrated
in urban areas, particularly the larger cities in the more developed
regions.

Chinese consumers responded to media reports that walnuts are a
"nutritional" food, which has accelerated the increase in walnut
consumption and lead to the introduction walnut products like walnut
drinks and walnut powder. Other nuts, like almonds, are still considered
snack foods.

## 

# Trade

Chinese walnut products are mainly exported to Europe and Japan. Post's
revised estimates for the MY 2003 and MY 2004 walnut exports are 25,268
MT and 32,980 MT, respectively, based on official customs data. Exports
are likely to continue to increase in MY 2005; world demand for walnuts
is expected to remain strong and production is expected to increase. The
appreciation of local currency by 2 percent in July is unlikely to
affect China's walnut exports.

Significant gray market imports of nuts make official import numbers
unreliable. China's import of nuts continues growing, despite mostly
higher prices. While current import volume of walnuts to China is
relatively small, the U.S. is the largest supplier with 97 percent of
the total imports share in 2004. Imports of shelled almonds, also mostly
from the U.S., grew, with volume increasing from 581 MT in 2003 to 778
MT in 2004. In-shell almonds imports dropped to 418 MT in 2004 from
1,243 MT in 2003.

China processes and re-packs imported nuts, such as pistachios and
macadamia nuts, for re-export to the United States and Europe. Imports
of pistachios, mainly from Iran and United States, dropped in 2004 due
to higher world market prices. Macadamia nuts, however, saw their import
volume doubled from 6,772 MT in 2003 to 13,139 MT in 2004 due to a
larger crop in Australia.

# Prices

Domestic walnut prices increased again on continued domestic demand and
export opportunities. Record high farm gate prices in MY 2004 ranged
from 15 to 18 RMB per kilo. Domestic prices during Chinese New Year were
up more than 60 percent over the same period of the previous year.

Walnut processors also reported that export prices have been rising.
Given current market demand, walnut prices are expected to remain high
in MY 2005 despite a good harvest.

The import prices of almost all nuts increased dramatically in MY 2004
on tight world supply. For example, the average import price of in-shell
almonds doubled in 2004 to reach US\$2.59 per kilo from US\$1.29 in
2003, according to China Customs statistics.

# Policy

Central and provincial governments are supporting agriculture, including
tree nuts, with a variety of programs, including research, extension
services, conservation, direct payments and tax relief.

The most significant policy effort on tree nuts is the central
government subsidies for converting cropland on slopes in western China
to forests, orchards and grassland for conservation purposes. While no
more than 20 percent of land using this program may be converted to
economically beneficial agriculture, good returns on walnut trees make
them preferred by farmers. Under this program, farmers receive cash
subsidies ranging from 160 to 230 RMB per mu (1 ha = 15 mu), depending
on the region.

Among the provincial governments' support of crop development, the most
significant for tree nuts is the Yunnan provincial government's
allocation of 10 million RMB each year to facilitate walnut farming in
the province.

This year China completed its WTO implementation of its tariff
concessions on nuts. Tariffs range from 10 to 24 percent and then are
subject to a 13-17 percent value added tax.

# Marketing

After walnuts are harvested, wholesalers or middlemen come to collect
walnuts at farms and take them to either wholesale markets or processors
for cleaning and grading. This is especially the case where individual
farmers are producing walnuts on small acreage.

Domestically produced walnuts, both shelled and in-shell, can be found
in wholesale markets and supermarkets in bulk. Salted or sweetened
walnut meats in packages are available in local supermarkets. Walnuts
for export, mostly shelled but unprocessed, are packed in plastic
containers in halves, quarters, and meats.

Walnut processors used to go to trade shows to market their products
overseas, but international buyers now coming directly to Chinese
processing plants to source product. Despite efforts to expanding their
production capacity by building additional production lines, local
processors are not meeting the increased supply of raw product or demand
for shelled walnuts.

# Tables

## Walnuts Wholesale Market Prices in Selected Regions

+---------------+------+---------+------+-----+---------+----+-----+
| Region        | N    | No      | Cen  | So  | So      | We | Ch  |
|               | orth | rtheast | tral | uth | uthwest | st | ina |
+---------------+------+---------+------+-----+---------+----+-----+
| Time          | Mon  |         |      |     |         |    |     |
|               | thly |         |      |     |         |    |     |
|               | and  |         |      |     |         |    |     |
|               | q    |         |      |     |         |    |     |
|               | uart |         |      |     |         |    |     |
|               | erly |         |      |     |         |    |     |
|               | ave  |         |      |     |         |    |     |
|               | rage |         |      |     |         |    |     |
|               | pr   |         |      |     |         |    |     |
|               | ices |         |      |     |         |    |     |
|               | in   |         |      |     |         |    |     |
|               | USD  |         |      |     |         |    |     |
|               | per  |         |      |     |         |    |     |
|               | kilo |         |      |     |         |    |     |
|               | gram |         |      |     |         |    |     |
|               |      |         |      |     |         |    |     |
|               | RMB  |         |      |     |         |    |     |
|               | 8    |         |      |     |         |    |     |
|               | .265 |         |      |     |         |    |     |
|               | = US |         |      |     |         |    |     |
|               | \$1) |         |      |     |         |    |     |
+---------------+------+---------+------+-----+---------+----+-----+
| January 2004  | 0.96 | 1.11    | 1.03 | N/A | 1.57    | 1. | 1   |
|               |      |         |      |     |         | 09 | .04 |
+---------------+------+---------+------+-----+---------+----+-----+
| February 2004 | 1.01 | 1.37    | 1.51 | N/A | 1.39    | N  | 1   |
|               |      |         |      |     |         | /A | .23 |
+---------------+------+---------+------+-----+---------+----+-----+
| March 2004    | 1.12 | 1.23    | 1.07 | N/A | 1.15    | N  | 1   |
|               |      |         |      |     |         | /A | .13 |
+---------------+------+---------+------+-----+---------+----+-----+
| Avg Q1 2004   | 1.03 | 1.24    | 1.20 | N/A | 1.33    | 1. | 1   |
|               |      |         |      |     |         | 09 | .13 |
+---------------+------+---------+------+-----+---------+----+-----+
| April 2004    | 1.03 | 1.26    | 10.5 | N/A | 1.94    | N  | 1   |
|               |      |         |      |     |         | /A | .13 |
+---------------+------+---------+------+-----+---------+----+-----+
| May 2004      | 1.02 | 1.21    | 1.09 | N/A | 1.94    | N  | 1   |
|               |      |         |      |     |         | /A | .19 |
+---------------+------+---------+------+-----+---------+----+-----+
| June 2004     | 1.09 | 0.97    | 1.09 | N/A | 1.94    | N  | 1   |
|               |      |         |      |     |         | /A | .14 |
+---------------+------+---------+------+-----+---------+----+-----+
| Avg Q2 2004   | 1.05 | 1.19    | 1.07 | N/A | 1.94    | N  | 1   |
|               |      |         |      |     |         | /A | .15 |
+---------------+------+---------+------+-----+---------+----+-----+
| July 2004     | 1.09 | 1.45    | 1.09 | N/A | 2.06    | N  | 1   |
|               |      |         |      |     |         | /A | .32 |
+---------------+------+---------+------+-----+---------+----+-----+
| August 2004   | 1.11 | 1.15    | 1.09 | N/A | 1.94    | 0. | 1   |
|               |      |         |      |     |         | 32 | .15 |
+---------------+------+---------+------+-----+---------+----+-----+
| September     | 1.00 | 1.36    | 1.06 | N/A | 1.94    | 0. | 1   |
| 2004          |      |         |      |     |         | 43 | .08 |
+---------------+------+---------+------+-----+---------+----+-----+
| Avg Q3 2004   | 1.06 | 1.32    | 1.08 | N/A | 1.97    | 0. | 1   |
|               |      |         |      |     |         | 40 | .17 |
+---------------+------+---------+------+-----+---------+----+-----+
| October 2004  | 1.26 | 1.14    | 1.09 | 2   | 1.81    | 0. | 1   |
|               |      |         |      | .42 |         | 44 | .24 |
+---------------+------+---------+------+-----+---------+----+-----+
| November 2004 | 1.24 | 1.25    | 1.29 | N/A | 1.39    | N  | 1   |
|               |      |         |      |     |         | /A | .26 |
+---------------+------+---------+------+-----+---------+----+-----+
| December 2004 | 1.19 | N/A     | 1.27 | 1   | 1.45    | N  | 1   |
|               |      |         |      | .45 |         | /A | .26 |
+---------------+------+---------+------+-----+---------+----+-----+
| Avg Q4 2004   | 1.23 | 1.21    | 1.23 | 1   | 1.50    | 0. | 1   |
|               |      |         |      | .94 |         | 44 | .26 |
+---------------+------+---------+------+-----+---------+----+-----+
| Avg 2004      | 1.10 | 1.24    | 1.14 | 1   | 1.69    | 0. | 1   |
|               |      |         |      | .94 |         | 51 | .18 |
+---------------+------+---------+------+-----+---------+----+-----+
| January 2005  | 1.39 | 1.45    | 1.23 | N/A | N/A     | N  | 1   |
|               |      |         |      |     |         | /A | .37 |
+---------------+------+---------+------+-----+---------+----+-----+
| February 2005 | 1.56 | 1.45    | 1.27 | 9   | 1.94    | N  | 2   |
|               |      |         |      | .62 |         | /A | .76 |
+---------------+------+---------+------+-----+---------+----+-----+
| March 2005    | 1.34 | 1.33    | 1.27 | N/A | 1.94    | N  | 1   |
|               |      |         |      |     |         | /A | .38 |
+---------------+------+---------+------+-----+---------+----+-----+
| Avg Q1 2005   | 1.43 | 1.41    | 1.26 | 9   | 1.94    | N  | 1   |
|               |      |         |      | .62 |         | /A | .84 |
+---------------+------+---------+------+-----+---------+----+-----+
| April 2005    | 1.32 | N/A     | 1.45 | 1   | 1.94    | N  | 1   |
|               |      |         |      | .94 |         | /A | .53 |
+---------------+------+---------+------+-----+---------+----+-----+
| May 2005      | 1.48 | N/A     | 1.51 | N/A | 1.94    | N  | 1   |
|               |      |         |      |     |         | /A | .52 |
+---------------+------+---------+------+-----+---------+----+-----+
| June 2005     | 1.40 | 1.21    | 1.09 | N/A | N/A     | N  | 1   |
|               |      |         |      |     |         | /A | .30 |
+---------------+------+---------+------+-----+---------+----+-----+
| Avg Q2 2005   | 1.40 | 1.21    | 1.40 | 1   | 1.94    | N  | 1   |
|               |      |         |      | .94 |         | /A | .48 |
+---------------+------+---------+------+-----+---------+----+-----+
| Avg 2005 to   | 1.42 | 1.38    | 1.32 | 7   | 1.94    | N  | 1   |
| date          |      |         |      | .06 |         | /A | .67 |
+---------------+------+---------+------+-----+---------+----+-----+

Note: Future prices will use an exchange rate of RMB 8.10 = US\$1 since
China appreciated RMB in July 2005.

## Walnut Production, Supply and Demand (PSD) table

+-------------------+-------+-------+-------+-------+-------+-------+
| **PSD Table**     |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| **Country**       | ####  |       |       |       |       |       |
|                   | ### C |       |       |       |       |       |
|                   | hina, |       |       |       |       |       |
|                   |  Peop |       |       |       |       |       |
|                   | les R |       |       |       |       |       |
|                   | epubl |       |       |       |       |       |
|                   | ic of |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| **Commodity**     | **Wal |       |       |       | (HA)  |       |
|                   | nuts, |       |       |       | (1000 |       |
|                   | In    |       |       |       | TREES |       |
|                   | shell |       |       |       | )(MT) |       |
|                   | Ba    |       |       |       |       |       |
|                   | sis** |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
|                   | 2003  | Re    | 2004  | Est   | 2005  | For   |
|                   |       | vised |       | imate |       | ecast |
+-------------------+-------+-------+-------+-------+-------+-------+
|                   | USDA  | Post  | USDA  | Post  | USDA  | Post  |
|                   | Off   | Est   | Off   | Est   | Off   | Est   |
|                   | icial | imate | icial | imate | icial | imate |
|                   | \[    | \[    | \[    | \[    | \[    | \[    |
|                   | Old\] | New\] | Old\] | New\] | Old\] | New\] |
+-------------------+-------+-------+-------+-------+-------+-------+
| **Market Year     |       | 10    |       | 10    |       | 10    |
| Begin**           |       | /2003 |       | /2004 |       | /2005 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Area Planted      | 9     | 9     | 9     | 9     | 0     | 10    |
|                   | 16750 | 16750 | 35000 | 35000 |       | 09800 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Area Harvested    | 7     | 7     | 7     | 7     | 0     | 8     |
|                   | 79000 | 79000 | 90000 | 90000 |       | 58000 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Bearing Trees     | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Non-Bearing Trees | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Total Trees       | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Beginning Stocks  | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Production        | 3     | 3     | 3     | 3     | 0     | 3     |
|                   | 20000 | 25000 | 50000 | 60000 |       | 88000 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Imports           | 1782  | 2360  | 1500  | 2438  | 0     | 2800  |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL SUPPLY      | 3     | 3     | 3     | 3     | 0     | 3     |
|                   | 21782 | 27360 | 51500 | 62438 |       | 90800 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Exports           | 21000 | 25268 | 23000 | 32980 | 0     | 39500 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Domestic          | 3     | 3     | 3     | 3     | 0     | 3     |
| Consumption       | 00782 | 02092 | 28500 | 29458 |       | 51300 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Ending Stocks     | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL             | 3     | 3     | 3     | 3     | 0     | 3     |
| DISTRIBUTION      | 21782 | 27360 | 51500 | 62438 |       | 90800 |
+-------------------+-------+-------+-------+-------+-------+-------+

  -------------------- -------------- ----------------- ------------------
  **Export Trade                                        
  Matrix**                                              

  **Country**          China, Peoples                   
                       Republic of                      

  **Commodity**        Walnuts,                         
                       Inshell Basis                    

  Time Period                         Units:            MT

  Exports for:         2003                             **2004**

  U.S.                 28             U.S.              18

  Others                              Others            

  U.K.                 4775           U.K.              7346

  Japan                4075           Japan             5569

  Germany              3213           Canada            2253

  Canada               2700           Germany           2296

  N. Korea             2211           Vietnam           1373

  Hong Kong            1614           N. Korea          1273

  Australia            1270           Australia         1050

  France               833            Hong Kong         962

  Saudi Arabia         638            U.A.E             800

  Taiwan               508            Taiwan            725

  Total for Others     21837                            23647

  Others not Listed    2801                             3959

  Grand Total          24666                            27624
  -------------------- -------------- ----------------- ------------------

Note: Export numbers of walnut products have been converted into
in-shell basis using a ratio between in-shell and shelled of 1: 0.4.

+------------------+----------------+--------------+------------------+
| ###### Imp       |                |              |                  |
| ort Trade Matrix |                |              |                  |
+------------------+----------------+--------------+------------------+
| **Country**      | China, Peoples |              |                  |
|                  | Republic of    |              |                  |
+------------------+----------------+--------------+------------------+
| **Commodity**    | Walnuts,       |              |                  |
|                  | Inshell Basis  |              |                  |
+------------------+----------------+--------------+------------------+
| Time Period      |                | Units:       | MT               |
+------------------+----------------+--------------+------------------+
| Imports for:     | 2003           |              | **2004**         |
+------------------+----------------+--------------+------------------+
| U.S.             | 1398           | U.S.         | 2588             |
+------------------+----------------+--------------+------------------+
| Others           |                | Others       |                  |
+------------------+----------------+--------------+------------------+
| Russia           | 47             | Bulgaria     | 25               |
+------------------+----------------+--------------+------------------+
| South Africa     | 8              | Laos         | 23               |
+------------------+----------------+--------------+------------------+
| Japan            | 9              | Japan        | 9                |
+------------------+----------------+--------------+------------------+
| Peru             | 4              | North Korea  | 8                |
+------------------+----------------+--------------+------------------+
| China            | 2              | South Africa | 6                |
+------------------+----------------+--------------+------------------+
|                  |                | Australia    | 5                |
+------------------+----------------+--------------+------------------+
|                  |                | China        | 5                |
+------------------+----------------+--------------+------------------+
|                  |                |              |                  |
+------------------+----------------+--------------+------------------+
| Total for Others | 70             |              | 81               |
+------------------+----------------+--------------+------------------+
| Others not       | 0              |              | 0                |
| Listed           |                |              |                  |
+------------------+----------------+--------------+------------------+
| Grand Total      | 1468           |              | 2669             |
+------------------+----------------+--------------+------------------+

Note: Import numbers of walnut products have been converted into
in-shell basis using a ratio between in-shell and shelled of 1: 0.4.