Required Report - public distribution

**Date:** 8/20/2004

**GAIN Report Number:** CH4030

CH4030

**China, Peoples Republic of**

**Tree Nuts**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Casey Bean

U.S. Embassy, Beijing

**Prepared by:**

Wu Bugang

**Report Highlights:**

China\'s tree nut production decreased in 2003 due to a down year in
production cycle, even if the acreage continued to increase. The 2004
production is expected to reach new high with walnut production reaching
around 350,000 MT. Demand for tree nuts remains strong, yet high market
prices restrict imports and consumption. Efforts are needed to change
people\'s perception of tree nuts as a snack food to a health food.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 3](#production)

[Consumption 5](#consumption)

[Prices 6](#prices)

[Trade 7](#trade)

[Trade tables 8](#trade-tables)

[Policy 11](#policy)

[Marketing 12](#marketing)

# Executive Summary

Tree nut planting acreage continues expanding as driven by an existing
national program for converting cropland into forest as well as a
government support policy for planting economic crops to generate
farmers' income. Official statistics on tree nut planted area are not
available, but China estimates to produce around 320,000 MT of walnuts
in 2003. Production of other tree nuts (almonds, pistachios, cashews,
hazelnuts) is very limited.

With improved breeding and grafting technologies, China was able to
export higher quality walnuts to the world. Other tree nut production
has not reached commercial volume for exports. Chinese importers and
processors import nuts, including walnuts, to accommodate the domestic
needs or to re-export after processing.

The world market prices for tree nuts have been at high levels this
marketing year that began in October 2003. This has made Chinese
importers reduce their purchase amount, as Chinese consumers remain
price conscious, particularly when tree nuts are often times viewed as
snack foods rather than staple foods or health foods.

Although being price sensitive, Chinese consumers are paying more
attention to health and food safety. If education is made to promote
tree nuts as a health food, the consumption is expected to increase.
Encouragement and training of using tree nuts in a more variety of foods
seems to be another effective tool to boost consumption. Tree nuts are
consumed mainly in coastal and large cities. Efforts could also be made
to target markets in less developed areas in northeast, northwest, and
southwest, when disposable income grows there.

Although China will continue lowering tree nut tariffs slowly and
marginally after the duties reach the final bound rate in 2004 as
committed to in China's WTO accession document, in-shell tariff for some
tree nuts remain much higher than shelled. The U.S. industry people
believed that removal of such difference would boost the import of
in-shell nuts like almonds. Some importers complain the China Customs
determine taxable prices for tree nuts based on individual assessment
rather than contracts.

# Production

+-------+------+------+------+------+------+------+------+------+
| W     |      |      |      |      |      |      |      |      |
| alnut |      |      |      |      |      |      |      |      |
| Produ |      |      |      |      |      |      |      |      |
| ction |      |      |      |      |      |      |      |      |
| by    |      |      |      |      |      |      |      |      |
| Prov  |      |      |      |      |      |      |      |      |
| ince, |      |      |      |      |      |      |      |      |
| 1996  |      |      |      |      |      |      |      |      |
| -2003 |      |      |      |      |      |      |      |      |
| (Vo   |      |      |      |      |      |      |      |      |
| lume: |      |      |      |      |      |      |      |      |
| M     |      |      |      |      |      |      |      |      |
| etric |      |      |      |      |      |      |      |      |
| Tons) |      |      |      |      |      |      |      |      |
+-------+------+------+------+------+------+------+------+------+
| Pro   | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 20   |
| vince |      |      |      |      |      |      |      | 03\* |
+-------+------+------+------+------+------+------+------+------+
| Y     | 55   | 58   | 57   | 60   | 68   | 68   | 74   | 61   |
| unnan | ,448 | ,709 | ,168 | ,452 | ,788 | ,568 | ,664 | ,200 |
+-------+------+------+------+------+------+------+------+------+
| S     | 34   | 37   | 40   | 39   | 46   | 40   | 39   | 38   |
| hanxi | ,236 | ,376 | ,365 | ,724 | ,988 | ,215 | ,382 | ,400 |
+-------+------+------+------+------+------+------+------+------+
| Si    | 27   | 23   | 28   | 23   | 32   | 32   | 70   | 65   |
| chuan | ,720 | ,409 | ,711 | ,842 | ,095 | ,744 | ,534 | ,000 |
+-------+------+------+------+------+------+------+------+------+
| Hebei | 21   | 27   | 29   | 30   | 30   | 28   | 30   | 30   |
|       | ,742 | ,905 | ,441 | ,365 | ,102 | ,761 | ,613 | ,200 |
+-------+------+------+------+------+------+------+------+------+
| Henan | 13   | 12   | 12   | 13   | 17   | 13   | 15   | 13   |
|       | ,534 | ,898 | ,248 | ,428 | ,143 | ,387 | ,271 | ,000 |
+-------+------+------+------+------+------+------+------+------+
| Xin   | 6    | 7    | 8    | 15   | 11   | 11   | 12   | 11   |
| jiang | ,695 | ,213 | ,362 | ,779 | ,523 | ,727 | ,987 | ,800 |
+-------+------+------+------+------+------+------+------+------+
| Sh    | 30   | 26   | 32   | 33   | 34   | 10   | 34   | 33   |
| aanxi | ,433 | ,222 | ,519 | ,340 | ,498 | ,596 | ,779 | ,300 |
+-------+------+------+------+------+------+------+------+------+
| O     | 20   | 27   | 27   | 37   | 37   | 46   | 61   | 67   |
| thers | ,025 | ,517 | ,481 | ,230 | ,777 | ,349 | ,944 | ,100 |
+-------+------+------+------+------+------+------+------+------+
| Total | 237  | 249  | 265  | 274  | 309  | 252  | 340  | 320  |
|       | ,989 | ,834 | ,121 | ,246 | ,875 | ,347 | ,174 | ,000 |
+-------+------+------+------+------+------+------+------+------+
| \     |      |      |      |      |      |      |      |      |
| *2003 |      |      |      |      |      |      |      |      |
| Provi |      |      |      |      |      |      |      |      |
| ncial |      |      |      |      |      |      |      |      |
| and   |      |      |      |      |      |      |      |      |
| nat   |      |      |      |      |      |      |      |      |
| ional |      |      |      |      |      |      |      |      |
| produ |      |      |      |      |      |      |      |      |
| ction |      |      |      |      |      |      |      |      |
| esti  |      |      |      |      |      |      |      |      |
| mated |      |      |      |      |      |      |      |      |
| by    |      |      |      |      |      |      |      |      |
| Ag.   |      |      |      |      |      |      |      |      |
| Af    |      |      |      |      |      |      |      |      |
| fairs |      |      |      |      |      |      |      |      |
| O     |      |      |      |      |      |      |      |      |
| ffice |      |      |      |      |      |      |      |      |
|       |      |      |      |      |      |      |      |      |
| 1996  |      |      |      |      |      |      |      |      |
| -2002 |      |      |      |      |      |      |      |      |
| So    |      |      |      |      |      |      |      |      |
| urce: |      |      |      |      |      |      |      |      |
| Nat   |      |      |      |      |      |      |      |      |
| ional |      |      |      |      |      |      |      |      |
| Stati |      |      |      |      |      |      |      |      |
| stics |      |      |      |      |      |      |      |      |
| B     |      |      |      |      |      |      |      |      |
| ureau |      |      |      |      |      |      |      |      |
+-------+------+------+------+------+------+------+------+------+

China's 2004 walnut production is forecast at around 350,000 MT under
this year's normal weather conditions. Preliminary estimates for 2003
walnut production released by the State Statistics Bureau put production
at 391,000 MT. Industry sources, however, estimate China's commercial
production of walnuts would not exceed 300,000 MT. Given the high prices
of walnuts throughout the current marketing year and an expected down
year in the production cycle, this office estimates 2003 walnut
production is around 320,000 MT. Official statistics indicate 2002
production reached 340,170 MT. With more walnuts trees planted and
improved tree management and grafting techniques, the production is
expected to increase year by year, keeping China's share of world walnut
production greater than 40 percent.

Collection of production data in China is not an easy task as many
walnut trees are planted on sloped lands or around farmers' houses,
except in northern China's relatively plain areas, such as Shanxi,
Shaanxi and Hebei, where large scale commercial groves are found.
Chinese authorities never released official data on walnut acreage. It
is believed that the planted area of walnuts has been increasing year by
year through a national program of conversion of cropland into forest,
and walnut trees are among such forest.

Specialists also attribute the increase of walnut plantation to
government supportive policy of planting economic crops (fruit and tree
nuts) to generate more income for farmers. In Yunnan, the top walnut
producing province in China, walnut acreage increased from 307,000
hectares in 2001 to 400,000 hectares in 2003, a jump of around 30%.
Another major producer, Xinjiang, in northwestern China projects total
provincial walnut area of 160,000 hectares by 2020, while current
planted area is 107,000 hectares.

China has a long history of planting walnuts and, except for Guangdong,
Jiangxi, and some cold areas in northern China, walnut trees are grown
throughout the country. Over the past 50 years, Chinese farmers and
scientists have successfully developed techniques in seed selection,
variety introduction, breeding, grafting and yield-increasing, thus
significantly enhancing walnut production and quality. Planting walnut
trees in between other crops, such as grains or vegetables, has become a
common practice in many places. Yunnan leads the country in walnut
production in terms of quantity and quality. Other key walnut producing
provinces include Sichuan, Shaanxi, Shanxi, and Hebei.

Northern walnut varieties belong to Regia type and southern walnuts are
from traditional black walnut type (Sigillata). Scientists have
developed many new varieties through crossbreeding the north and south
varieties to fit in local ecological or economical conditions. The
crossbred varieties feature high yields, thin shells, pest resistance,
and some other desirable traits. Research continues for new varieties
such as lower trunks that allow for denser plantation and easier picking
and varieties that can be used for timber, as well.

Harvest, depending on the different climate and walnut variety, normally
begins in mid-August to mid-September. Nearly all walnut harvest is
conducted by hand as machines are not suitable or necessary for
gathering nuts on mountains/hills and across scattered plantations.
Individual farm/grove yields are low, as well, due to a lack of
management/treatment of walnut groves and therefore do not necessitate
machine harvesting.

Other official tree nut production data does not exist and most other
production volumes are minor. These nuts are only consumed domestically
and in most cases in the production area. Industry sources estimate
China's 2003 commercial almond production was a mere 150 MT in Xinjiang
province. Xinjiang Forestry Bureau officials indicate almond acreage
reached 10,000 hectares and many trees are bearing fruit. The provincial
authority is targeting some 20,000 hectares by 2020. Cashews are grown
in southern China's Hainan province with a production of 2,500 MT per
year. China does produce hazelnuts and Macadamia nuts but the quantity
is very limited. Industry estimates stood at 200 MT and 300 MT,
respectively, in 2003. Pistachio production data is unavailable, but a
Xinjiang forestry official claims there were over 3,000 hectares of
pistachios being planted in the region. Pecan production is in
experimental stages and academics in Yunnan showed great interest in
facilitating pecan plantation in the province, which they believe would
have a great market potential. The Yunnan academics are seeking
assistance from U.S. researchers for improvements in planting
techniques.

# Consumption

In China, walnuts have long been considered a health/nutrition food.
Among some particular groups, such as the elderly and students, or in
some places like Shanghai, walnuts are particularly favored, as
consumers believe the food would benefit their brain/hair and health in
general. As people pay more attention to their health as income rises,
they are willing and able to invest more in health/nutritional foods
such as walnuts.

Because of their relatively short history of introduction, and higher
prices than that of walnuts, other tree nuts, including almonds,
pistachios, hazelnuts, and, lately macadamia nuts, are consumed as snack
foods rather than health foods. People, particularly urban residents,
would like to take such high-end snack foods in addition to traditional
snack foods such as peanuts and melon/sunflower seeds. Tree nuts are
mainly consumed in major cities like Beijing, Shanghai, and Guangzhou.

Chinese people have a tradition of eating snack food during festivals
such as Chinese Lunar New Year (Spring Festival). They also tend not to
eat much nut products in hot summer time due to health concern.
Therefore, tree nuts peak consumption season is from the Mid-Autumn
Festival to the Spring Festival (September to February). Consumption
during this period is twice as much as that consumed in other months.

Consumers prefer in-shell nuts, as they believe they are more sanitary
and cheaper. Chinese consumers are very price-sensitive about tree nuts.
Because tree nuts are considered more of a snack food, people can always
look to other choices when prices are beyond their expectations.
Additionally, volume sold in bulk form is much larger than sold in
packages due to price factors.

Tree nuts are also consumed by confectionary and beverage sectors. An
increasing number of bakers, confectionary and beverage plants are using
tree nuts as an ingredient in their products such as breads, cakes,
chocolate, and drinks. However, except for large hotels and fancy
restaurants, manufacturers tend to use cheaper materials (e.g. walnuts
and peanuts), in their food products to lower the cost.

Again as people's income grows and, especially in western regions, and
the concept of viewing tree nuts as a health food takes root,
consumption is expected to increase. Availability of more types of nut
products (more flavors and application in more food varieties as an
ingredient) would help boost the nut consumption as well.

# Prices

(USD 1 equals RMB 8.265)

For 2003 marketing year, walnuts prices, particularly in southern
producing areas, have remained strong due to a smaller crop last year.
This is reflected by the wholesale market prices published on China's
Ministry of Agriculture web site
([http://www.agri.gov.cn](http://www.agri.gov.cn/)). As a result, export
prices edged up over the levels of the previous year. The following
table provides price trends of in-shell walnuts at wholesale markets in
different provinces. Also included are import and export prices of
walnuts over this marketing year.

Wholesale prices for in-shell walnuts

  -------------- ------- ------- ------- ------- ------- ------- ------- -------- ------- -------
  Walnuts        2003    2003    2003    2004    2004    2004    2004    2004     2004    2004
  (RMB/kg)                                                                                

  Market         Oct.8   Nov.3   Dec.2   Jan.2   Feb.2   Mar.2   Apr.2   Apr.30   Jun.1   Jul.1

  Beijing        10      9                       12      12              9.4      9.4     9.4

  Tianjin        10      10      10      8.8     8.8     9.8     9.8     9.8      9.8     9.8

  Shandong       11      11              11      11      12      12      12       13      13

  Hubei          7.6     8       10      10      10      10                               

  Heilongjiang   6.5     6.2     10      10              10      10      9                10

  Hebei                          8.4     9               9       11      11               

  Jiangsu                                8       22      8       8       9        9       9

  Guizhou                                        11.5    9.5             16       16      16

  Source:                                                                                 
  Ministry of                                                                             
  Agriculture                                                                             
  -------------- ------- ------- ------- ------- ------- ------- ------- -------- ------- -------

Export prices of walnuts

  ----------------------------------- ---------------- --------- ---------------- ---------
  Exports (Volume: Metric Tons,       10/2002-6/2003             10/2003-6/2004   
  Value: USD/kg)                                                                  

  Description                         Quantity         Avg Price Quantity         Avg Price

  Walnuts, fresh or dried, in shell   1,703            1.18      766              1.24

  Walnuts, fresh or dried, shelled    7,504            3.02      8,284            2.99

  Walnut meat, prepd, in airtight     777              4.33      585              3.98
  containers                                                                      

  Source: China Customs                                                           
  ----------------------------------- ---------------- --------- ---------------- ---------

Import prices for walnuts

  ----------------------------------- ---------------- --------- ---------------- ---------
  Imports (Volume: Metric Tons,       10/2002-6/2003             10/2003-6/2004   
  Value: USD/kg)                                                                  

  Description                         Quantity         Avg Price Quantity         Avg Price

  Walnuts, fresh or dried, in shell   462              1.27      160              1.03

  Walnuts, fresh or dried, shelled    301              2.13      601              2.43

  Walnut meat, prepd, in airtight     0                0.0       0                0.0
  containers                                                                      

  Source: China Customs                                                           
  ----------------------------------- ---------------- --------- ---------------- ---------

# Trade

China only exports walnuts that are produced locally. In addition, the
country imports walnuts for domestic consumption. For other nuts, as
discussed earlier, it will probably take years before China is able to
reach commercially viable volumes for exports. The export data of these
other tree nuts reflected in the trade tables mainly demonstrates
China's re-export of processed nuts.

Imported walnuts and almonds mainly accommodate the domestic markets,
while a significant amount of pistachios are imported for processing and
re-export. As an emerging market, although the demand of tree nuts is
growing, Chinese consumers are very sensitive about prices, particularly
when it comes to such high-end snack foods as tree nuts. The world
market prices for tree nuts have been standing at high levels for this
marketing year, and as a result, Chinese importers had cut their imports
for most nuts.

Some places in China, such as Yunnan, produce high quality walnuts. The
country exports around 10,000 MT of walnuts each year. The export
markets are Europe (e.g. the U.K. and Germany), Canada, Australia,
neighboring countries (Japan, N. Korea, etc.) and the Middle East. The
United States dominates China's walnuts imports (nearly 95%). Traders
indicate that U.S. walnuts sizes are more uniform and look smoother than
Chinese nuts. Unlike Chinese walnuts, which taste a bit astringent, the
U.S. walnuts taste better. It appears that China's imports of shelled
walnuts in the marketing year up to June were increasing and in-shell
walnut imports were decreasing, likely because the tariff for shelled
walnuts (20%) had been cut further compared with in-shell walnuts (25%)
beginning in 2004.

The United States again is the largest supplier of almonds to China (902
MT out of 1,079 MT in the first three quarters of the marketing year). A
minor quantity was imported from central Asia and Pakistan. The import
volume of almonds dropped by more than 50% in the marketing year up to
June over the same period of last year. As mentioned earlier, Chinese
consumers are price-sensitive. When prices go up, especially for snack
foods, they stop buying or choose alternates. It seems traders tend to
shift imports of almonds from in-shell to shelled, possibly due to
higher duties for in-shell (24%) than shelled (10%) almonds.

Vietnam remains the single largest exporter of cashews to China.
However, China sharply reduced its cashew imports for Vietnam by 90%
this year. Some Chinese importers are mulling to shift imports from
Vietnam to other countries, such as Thailand. Even though these
countries produce lower quality cashews, but they offer better prices.

Iran outnumbers the U.S. on market share of imported pistachios in China
for the past two years due to cheaper prices. In the first three
quarters of this marketing year, Iran exported 5,817 MT (72%) of
pistachios to China, and the U.S. shipped 2,153 MT (27%).

Turkish companies promoted its hazelnuts to the China market, yet their
exports to China declined to 196 MT in this marketing year until June,
down sharply from the same period of last year (991 MT). The U.S.
regained the top seat in hazelnut exports to China with 505 MT (71%) in
this marketing year. One trader indicated that the U.S. hazelnuts tasted
a lot better than Turkish hazelnuts that are imported mainly for making
chocolates.

Unlike other tree nuts, China imported much more macadamia nuts this
marketing year until June (5,012 MT) than the corresponding period of
last year (3,041). Australia (2,886 MT) remained the top exporter of
macadamia nuts to China in the first three quarters of the marketing
year, but Kenya is quickly catching up (1,861 MT) as their product is
priced lower than Australia.

A majority of tree nuts are shipped to southern China, Guangdong in
particular, as many processors are located in this area where imported
nuts are processed, packaged and distributed to other countries or other
parts of China.

China Customs statistics do not reflect the actual import volume as a
fair amount of nuts may be moved into China through one way or another.

# Trade tables

Walnut Trade by Marketing Years (Volume: MT, Value: Million USD)

  ---------- --------------------- ------------ ------- ------------ ------- ------- ------------ -------
  Imports                          10/00-9/01           10/01-9/02                   10/02-9/03   
  from world                                                                                      

                                   Volume       Value   Volume               Value   Volume       Value

  080231     Walnuts, fresh or     332          0.25    879                  0.58    485          0.63
             dried, in-shell                                                                      

  080232     Walnuts, fresh or     35           0.04    27                   0.05    420          0.89
             dried, shelled                                                                       

  20081910   Walnut meats, prepd,  0.07         0.001   0.0                  0.00    0.0          0.00
             in airtight                                                                          
             containers                                                                           

  Exports to                       10/00-9/01           10/01-9/02                   10/02-9/03   
  the world                                                                                       

                                   Volume       Value   Volume       Value           Volume       Value

  080231     Walnuts, fresh or     1,411        1.66    1,146        1.26            1,703        2.00
             dried, in-shell                                                                      

  080232     Walnuts, fresh or     9,855        27.81   6,021        17.47           8,069        24.42
             dried, shelled                                                                       

  20081910   Walnut meats, prepd,  700          2.70    643          2.86            982          4.14
             in airtight                                                                          
             containers                                                                           

  Source:                                                                                         
  China                                                                                           
  Customs                                                                                         
  ---------- --------------------- ------------ ------- ------------ ------- ------- ------------ -------

Walnut Trade by Marketing Year to Date (Volume: MT, Value: Million USD)

  ---------- --------------------------------- ------------ ------- ------------ -------
  Imports                                      10/02-6/03           10/03-6/04   
  from world                                                                     

                                               Volume       Value   Volume       Value

  080231     Walnuts, fresh or dried, in-shell 462          0.59    160          0.16

  080232     Walnuts, fresh or dried, shelled  301          0.64    601          1.46

  20081910   Walnut meats, prepd, in airtight  0.0          0.0     0.0          0.0
             containers                                                          

  Exports to                                   10/02-6/03           10/03-6/04   
  world                                                                          

                                               Volume       Value   Volume       Value

  080231     Walnuts, fresh or dried, in-shell 1,703        2.0     766          0.95

  080232     Walnuts, fresh or dried, shelled  7,504        22.67   8,284        24.75

  20081910   Walnut meats, prepd, in airtight  777          3.37    585          2.33
             containers                                                          

  Source:                                                                        
  China                                                                          
  Customs                                                                        
  ---------- --------------------------------- ------------ ------- ------------ -------

  ---------- ---------------------- ------------ ------- ------------ ------- ------- ------------ -------
  Tree nuts                                                                                        
  imports                                                                                          
  and                                                                                              
  exports                                                                                          
  (volume:                                                                                         
  MT, value:                                                                                       
  Million                                                                                          
  USD                                                                                              

                                    10/00-9/01           10/01-9/02                   10/02-9/03   

  Imports                           Volume       Value   Volume       Value           Volume       Value

  080131     Cashew nuts, fresh or  397          0.26    204          0.07            48           0.10
             dried, in-shell                                                                       

  080132     Cashew nuts, fresh or  3,399        6.09    6,824        12.43           5,878        9.14
             dried, shelled                                                                        

  080211     Almonds, fresh or      2,869        1.82    2,989        1.79            2,159        2.15
             dried, in-shell                                                                       

  080212     Almonds, fresh or      815          0.90    2,368        1.84            549          1.55
             dried, shelled                                                                        

  080221     Hazelnuts/Filberts,    3,637        1.76    8,534        4.17            1,542        1.46
             fresh or dried,                                                                       
             in-shell                                                                              

  080222     Hazelnuts/Filberts,    101          0.26    162          0.41            417          1.10
             fresh or dried,                                                                       
             shelled                                                                               

  080250     Pistachios, fresh or   11,388       7.28    9,461        6.96            9,982        11.86
             dried, shelled or not                                                                 

  08029049   Hawaiian nuts excl.    7,516        2.40    6,782        2.00            5,878        4.41
             seed, fresh or dried                                                                  

                                    10/00-9/01           10/01-9/02                   10/02-9/03   

  Exports                           Volume       Value   Volume               Value   Volume       Value

  080131     Cashew nuts, fresh or  1            0.001   10                   0.01    0            0.00
             dried, in-shell                                                                       

  080132     Cashew nuts, fresh or  144          0.34    74                   0.16    17           0.03
             dried, shelled                                                                        

  080211     Almonds, fresh or      0.5          0.00    0                    0.00    0            0.00
             dried, in-shell                                                                       

  080212     Almonds, fresh or      180          0.16    502                  0.45    71           0.07
             dried, shelled                                                                        

  080221     Hazelnuts/Filberts,    3            0.01    90                   0.11    90           0.07
             fresh or dried,                                                                       
             in-shell                                                                              

  080222     Hazelnuts/Filberts,    10           0.03    0                    0.00    11           0.01
             fresh or dried,                                                                       
             shelled                                                                               

  080250     Pistachios, fresh or   1,266        1.21    2,075                1.87    1,370        2.27
             dried, shelled or not                                                                 

  08029041   Hawaiian nuts seed,    20           0.01    0                    0.00    0            0.00
             fresh or dried                                                                        

  08029049   Hawaiian nuts excl.    1,197        1.82    886                  0.97    825          1.40
             seed, fresh or dried                                                                  

  Source of                                                                                        
  data:                                                                                            
  China                                                                                            
  Customs                                                                                          
  ---------- ---------------------- ------------ ------- ------------ ------- ------- ------------ -------

  ---------- ----------------------- ------------ ------- -------- ------------ ------- -------
  Tree nuts                                                                             
  imports                                                                               
  and                                                                                   
  exports                                                                               
  (volume:                                                                              
  MT, value:                                                                            
  Million                                                                               
  USD)                                                                                  

                                     10/02-6/03                    10/03-6/04           

  Imports                            Volume               Value    Volume               Value

  080131     Cashew nuts, fresh or   40                   0.08     80                   0.01
             dried, in-shell                                                            

  080132     Cashew nuts, fresh or   5,258                7.96     560                  1.15
             dried, shelled                                                             

  080211     Almonds, fresh or       2,028                1.97     448                  0.92
             dried, in-shell                                                            

  080212     Almonds, fresh or       451                  1.17     631                  2.16
             dried, shelled                                                             

  080221     Hazelnuts/Filberts,     1,493                1.37     573                  1.50
             fresh or dried,                                                            
             in-shell                                                                   

  080222     Hazelnuts/Filberts,     324                  0.82     143                  0.56
             fresh or dried, shelled                                                    

  080250     Pistachios, fresh or    7,789                8.64     8,098                13.99
             dried, shelled or not                                                      

  08029049   Hawaiian nuts excl.     3,041                1.58     5,012                3.58
             seed, fresh or dried                                                       

                                     10/02-6/03                    10/03-6/04           

  Exports                            Volume       Value            Volume       Value   

  080131     Cashew nuts, fresh or   0.0          0.0              0.0          0.0     
             dried, in-shell                                                            

  080132     Cashew nuts, fresh or   15           0.02             10           0.02    
             dried, shelled                                                             

  080211     Almonds, fresh or       0.0          0.0              0.0          0.0     
             dried, in-shell                                                            

  080212     Almonds, fresh or       71           0.07             0.0          0.0     
             dried, shelled                                                             

  080221     Hazelnuts/Filberts,     83           0.06             64           0.05    
             fresh or dried,                                                            
             in-shell                                                                   

  080222     Hazelnuts/Filberts,     11           0.01             0.0          0.0     
             fresh or dried, shelled                                                    

  080250     Pistachios, fresh or    772          1.39             2,848        3.96    
             dried, shelled or not                                                      

  08029041   Hawaiian nuts seed,     0.0          0.0              0.0          0.0     
             fresh or dried                                                             

  08029049   Hawaiian nuts seed,     491          0.50             432          1.51    
             fresh or dried                                                             

  Source:                                                                               
  China                                                                                 
  Customs                                                                               
  ---------- ----------------------- ------------ ------- -------- ------------ ------- -------

# Policy

Beginning in 1999 China launched the Program for Conversion of Cropland
to Forest (also translated as Sloped Land Conversion Program) in the
upper reaches of the Yellow and Yangtze rivers (western China) to
improve ecology, encourage economic prosperity and increase the
long-term welfare of rural residents. The central government provides
grain, cash, and seedlings to farmers to convert their cropland into
forest or plant new trees on barren mountains or wasted land. By the end
of 2002, the program had seen a total of 6.5 million ha of trees/grass
planted. If ecologically and economically appropriate, economic trees
(fruit or nut) can be planted. Because of easier management and high
economic returns, walnuts are one of the economic forest crops welcomed
by farmers. In Yunnan, the government provides 2,700 yuan per hectare to
farmers for planting walnuts. Although an official data breakdown is not
available, it is believed that a certain number of nut trees have been
planted each year through this program. In an effort to encourage
farmers to grow more economic tree crops, the government announced its
intention to eliminate the specialty agricultural tax in the next three
years.

China's import tariff for tree nuts reached the final bound rate in 2004
as committed to in its tariff reduction schedule of the WTO accession
protocol, except for shelled cashew nuts that will see its import tariff
cut to 10.0% in 2005 from 13.3% in 2004. A China Customs official
indicated, however, that China would further reduce its tariff for
imported nuts after 2004, but slowly and marginally. The trade community
complains that China maintains a higher tariff for in-shell almonds
(24%) than shelled ones (10%). The U.S. almond industry claims the
reduction of import duties for in-shell almonds would greatly boost
imports of U.S. almonds. The customs official admitted that the tariff
basis for some products, such as almonds, might not have been determined
rationally in the first place due to historical factors. Unless a strong
justification is provided to show otherwise, the tariff rate will be
adjusted according to schedule. Unlike the U.S., China still regards
duties as an important source of revenue, the customs official added.
Aside from tariffs, importers need to pay 13%-17% VAT after having paid
the tariff (see 2003 Tree Nuts Annual Report for tariff and VAT
details).

Chinese importers pointed out the main obstacle to nut imports was the
fact that customs officials determine taxable prices on the basis of
their own assessment instead of contractual prices, which often times
result in importers having to pay more taxes even though the tariff
levels are declining. Some importers therefore delivered shipments to
their customers in Hong Kong. Industry people indicated that a fair
amount of nuts had crossed the border through "gray channels." Chinese
authorities tightened management on customs clearance this year in a bid
to crack down on smuggling. Some processors even stopped importing nuts
due to high import duties. Traders express interest that China Customs
practices would become more transparent by adopting uniform and
reasonable taxable prices for imported nuts so that people would not
take the risk of smuggling.

Other trade impacts include Chinese banks refusal to grant loans for
processors lacking credit. Bonded trade, i.e., processing for re-export,
processors have to pay a deposit equivalent or larger than the combined
import duties and VAT until the processed products are exported. This
requirement creates a financial burden for the enterprise and hence
limits their import amount.

# Marketing

After farmers' harvest, husk, and sun-dry tree nuts, mainly walnuts,
traders and processors come to collect the nuts. Wholesalers and
processors normally grade, sort and, if necessary, shell. There are
three grades for walnuts based on size, color, and oil content. Locally
produced tree nuts are mainly sold in-shell on wet markets without
packaging due to the small production scale.

Walnuts, both in-shell and shelled, can be found at local wet markets,
wholesale markets, and super markets in larger cities. Sources indicate
about 80% of walnuts and imported nuts in bulk or small packages are
distributed through chain stores and hypermarkets in urban areas. By the
end of 2004, as the retail sector opens wilder under China's WTO
accession commitment, more foreign retailers are expected to enter
China, which would further boost nut sales in the country.

Tree nuts are consumed mainly in more developed areas such as Beijing,
Shanghai, and Guangzhou. Aside from TV commercials and other media
advertisements, the more frequently used marketing tool is promotion
activity within supermarkets and hypermarkets. In addition to
traditional processed nuts like salted and honeyed walnut kernels,
processors are exploring nut products with more flavors to boost their
sales in both domestic and international markets. They also plan to
target markets in northeast, northwest and southwest China.

U.S. tree nuts are normally considered high quality products; labeling
lower quality nuts as U.S. products or using symbols similar to U.S.
products is another practice adopted by small packaging plants. Some
processors even use heavy packaging materials to generate more profits.

Some sources indicate if more efforts were made to promote tree nuts as
a health/nutrition food (e.g. almonds benefit cardiovascular disease),
rather than a snack food, consumption would be boosted.

Tree nuts products should follow the following national standards that
were formulated by the Ministry of Health: GB16325-1996 Hygienic
Standard of Dried Fruit, GB16326-1996 Hygienic Standard of Nuts, and GB
2760-1996 Hygienic Standard for Use of Food Additives. For imported nut
products, if no national standards are in place, specifications stated
in the contract should apply.

Dried fruit and nut standards have been revised by the Chinese health
department and notified to the WTO in April 2004 (see USDA GAIN reports
CH3084 and CH3087) and will soon be put into force. The food additive
standard is also available on USDA web site under GAIN report CH1046.

Although the Ministry of Health drafted a Hygienic Standard for Roasted
Nuts in late 2002 (see USDA GAIN report CH3039), China has yet to notify
the WTO of this new standard before implementation.

Main items to be looked at by the Chinese quarantine authorities (AQSIQ)
are acid value, Peroxide, and Aflatoxin B1. Industry people do not see
problems in complying with these standards.

#  

  -------------------- ------------ ---------- ---------- ---------- ------------ ----------
  **PSD Table**                                                                   

  **Country**          **China,                                                   
                       Peoples                                                    
                       Republic                                                   
                       of**                                                       

  **Commodity**        **Walnuts,                                    (HA)(1000    
                       Inshell                                       TREES)(MT)   
                       Basis**                                                    

                       2002         Revised    2003       Estimate   2004         Forecast

                       USDA         Post       USDA       Post       USDA         Post
                       Official     Estimate   Official   Estimate   Official     Estimate
                       \[Old\]      \[New\]    \[Old\]    \[New\]    \[Old\]      \[New\]

  **Market Year                     10/2002               10/2003                 10/2004
  Begin**                                                                         

  Area Planted         890000       890000     900000     916750     0            935000

  Area Harvested       750000       750000     765000     779000     0            790000

  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           340000       340174     350000     320000     0            350000

  Imports              887          1409       1250       1782       0            1500

  TOTAL SUPPLY         340887       341583     351250     321782     0            351500

  Exports              15202        21906      22000      21000      0            23000

  Domestic Consumption 325685       319677     329250     300782     0            328500

  Ending Stocks        0            0          0          0          0            0

  TOTAL DISTRIBUTION   340887       341583     351250     321782     0            351500
  -------------------- ------------ ---------- ---------- ---------- ------------ ----------