Required Report - public distribution

**Date:** 2005/9/23

**GAIN Report Number:** TW5034

TW0000

**Taiwan**

**Fresh Deciduous Fruit**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Scott Sindelar, Chief, Agricultural Affairs

American Institute in Taiwan

**Prepared by:**

Jeff Miller, Agricultural Marketing and Reporting Specialist

**Report Highlights:**

MY2004 was yet again a difficult year for US suppliers. While continuing
to comprise a plurality of Taiwan apple imports and to consistently earn
the highest marks for taste and quality from domestic consumers, codling
moth detections shut US suppliers out of the market for four crucial
months (Dec '04 -- April '05). However, the fact that the US retained a
42% market share (49K mt) despite the 4 month hiatus, speaks well for
continuing US competitiveness and prospects in the market. Given
reasonable prices and access to market sales through the season, US
apples should regain their "normal" post-WTO market share of 50%+.
Expanding market share through 60% is possible given thoughtful and
well-organized US industry efforts to cultivate and maintain
relationships with the Taiwan trade.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Taipei ATO \[TW2\]

\[TW\]

Executive Summary

While the apple remains by far the most important item in Taiwan's fruit
import profile, it faces plateauing demand as economic conditions hold
back liberal consumer spending and an increasing variety of fruits (both
imported and domestic) pry consumer dollars away from the traditional
stand-bys. While there continues to be a general preference among Taiwan
importers for US apples (best taste, good appearance, stable quality),
importers are more than ready to shift orders to other suppliers if it
is more profitable. Improving supplier capabilities worldwide,
particularly in the southern hemisphere, promises to pressure US
suppliers with increasing crop volumes and improved cold storage
capabilities.

MY 2004 was another tough year for US exporters. Codling moth detections
in imported fruit closed the market down to US imports for 4 critical
months, between 21 December 2004 and 27 April 2005.

US apple sales only managed to hold steady during this past year (rising
3 percent), while the market for imports grew by a sluggish 4%. However,
given good US crop conditions (i.e., sufficient export volume with
competitive pricing) and phytosanitary compliance, it is not
inconceivable that the US can regain sales worth 60% of the apple market
(75\~80K mt) over the coming several years.

Production

Local growers benefited from an optimal growing season during late 2004
to turn in a bumper crop during MY2004. Climatic conditions are expected
to be similar to last year. As long as Taiwan is free of late season
typhoons, like that which hit production areas last year, the MY2005
crop is set to approximate that of MY2004. At its best, however, local
production is currently able to supply only some 5% of domestic demand,
making the impact of annual fluctuations in local crop yields on imports
insignificant. The industry is likely to continue slowly contracting due
to high production costs and labor retention problems.

Local production is principally the *Star King* variety. Eighty-percent
of commercially-grown local apples are estimated as sold for fresh
consumption, with the remainder being used in prepared foods \--
processed typically not very far from the orchard.

While this year's crop was profitable due to growing conditions and late
season restrictions on US apple imports, Taiwan's apple growers find it
difficult to earn a sustainable profit from crop production. Continued
contraction of field acreage used for commercial production defines the
long-term trend for the industry. However, current sustained economic
difficulties in the economy at large will likely mitigate the move out
of the industry in the short term and the area harvested is not expected
to change significantly over the next 1\~2 years. Historically high
unemployment rates of 5 percent or more have resulted in a boost to
agricultural employment.

**Marketing**

Market demand for apples rose slightly (6%) to 122K mt in MY2004. The
apple remains relatively resilient in terms of consumption, even with
the encroachment of different fruits and varieties seen since Taiwan
entered the WTO in 2002. In terms of imports, apples continue to hold
steady at between 30\~35% of all HS category 08 imports (fruits and
nuts) by volume and between 25\~30% by value. This is not expected to
change significantly over the coming 2\~3 year period.

Again, given stable prices and the reliable presence of US suppliers in
the market during the fall and early winter months, Taiwan is expected
to continue to raise its apple consumption to 130-thousand mt
consumption level by MY2006.

The apple is, far and away, the most heavily consumed imported fruit in
Taiwan. Only oranges, 96% of which are grown domestically, are consumed
in greater quantity. However, in terms of real growth, the apple is
losing ground to a host of other imported fruits, including grapes,
nectarines, cherries, and berries. If the Taiwan economy is able to get
on track with growth rates of 3\~5% apples should see a healthy boost in
demand, with the addition of another 10\~20 thousand mt per year in
imports certainly reasonable. However, due to the variety of imported
and domestic fruits now available, consumption of apples is not expected
to reach the highs seen in the late 1990s without some new factor or
factors changing the competitive picture (e.g., such as new positive
findings regarding the health benefits of apples).

Nearly all fresh fruit imports, apples included, are consumed as fresh
produce. Taiwan's consumers value both convenience and freshness. This
helps channel about half of all fresh apple sales through traditional /
neighborhood wet markets. Of the remainder, around 20% are sold in small
fruit shops and 10% by traveling vendors, with the rest absorbed by
grocery stores, hypermarkets and large hotel and restaurant accounts.
Warehouse grocers (hypermarkets) reportedly now account for close to 11%
of domestic fresh apple sales. Their increasing market share has been
gained principally at the expense of supermarket / grocery chains,
although hypermarkets are increasingly eating into neighborhood wet
markets as the convenience and pricing offered in hypermarkets is
winning business from Taiwan's small-scale retailer communities
(particularly in the Taipei metropolitan area) which traditionally
purchased produce in wet markets.

Fuji, with its sweet taste and firm texture, remains the overwhelmingly
favored variety - retaining slightly better than 80% of total retail
apple sales. The remainder is comprised largely of Gala, Pacific Rose,
Red Delicious, and Granny Smith. The former two are principally used to
fill gaps in supply of Fujis experienced during late season months.

Lacking the Western penchant for sweet snacks & desserts and blessed
with a rich variety of native fruits, the vast majority of Taiwanese
view fruit as an important part of the daily diet. Fruit is frequently
eaten as a snack as well as dessert and is the most common food prepared
to serve to visitors in the home or office.

The Taiwan consumers' preference for the apple over other fruit is
grounded in a number of factors, including appreciation of
nutritive/health benefits, relatively low price, a strong quality image,
attractive appearance, and relatively long shelf life. Furthermore, the
year-round availability of the apple is attractive to retailers, because
point-of-sale formats need not be rotated - as is necessary for fruits
available only at certain times of the year.

***Good \"Face Value\"***

> Two of the apple's popularity factors noted above, attractive
> appearance (red, round, shiny) and quality image, reflect consumer
> priorities that tend to be more uniquely Taiwanese (or Chinese) than
> others mentioned (which tend to be more universal). Unless bought
> solely for personal consumption, the color, size, and general
> appearance of fruit is typically quite important to the retail
> customer. Serving good-looking fruit to family, friends, or clients
> intimates good manners, generosity, and warmth. The \"best-looking\"
> fruit, often specially presented on store shelves or sold in gift
> packaging, fetches the highest prices. The most expensive apples on
> the market, Japan-grown Fujis, sell well at premiums of 100% or more
> over slightly smaller rivals because of their size and consumers'
> quality perceptions.

While countries like the United States, Chile and New Zealand continue
to focus on supplying the Taiwan market with traditional (read "Fuji")
varieties, Japan is having some success at introducing less common
varieties into the market to maintain its "premium" image and justify
higher prices to consumers.

**[Seasonal Preferences]{.underline}**

While eaten year round, Taiwan consumers purchase significantly more
apples during the autumn and winter months - the prime production months
for northern hemisphere growers. Reasons for this include general
perception of the apple as a \"cool weather\" fruit and the
incorporation of apples into the many festivals held during this time of
the year.

The chart below illustrates the higher-than-average apple imports during
Taiwan's autumn & winter months recorded over the past two and a half
years.

![](media/image2.wmf){width="7.111111111111111in"
height="3.111111111111111in"}Chart 1. Source: Taiwan Customs

**Trade**

Trade in MY2005 is expected to remain relatively stable at 115\~125K mt,
reflecting stability in supply and demand factors. US suppliers are, at
present, somewhat disadvantaged because of recent years' experiences
with coddling moth detections in imported fruit and the resultant
temporary closing of the market to all US fresh apple supplies. This has
encouraged importers to diversify their supplies away from the United
States (despite the quality factors). Winners in this have included
Japan and, remarkably, Canada, which has historically had a difficult
time selling into Taiwan due to both sizing and taste issues.

A resolution of codling moth concerns among the trade can increase the
US share of the market relatively easily by another 25\~35K mt. US
market share would, in the main, be earned away from other country
suppliers rather than by corresponding increase in the overall size of
the market.

Trade volumes are still well off the peak reached in MY1998 -- when a
combined economic boom and limited imported fruit supplies channeled
significant consumer buying power into apples. Today, Taiwan's
consumption of apples, in the 115 -- 130K mt range, likely represents a
"floor" demand that will continue to hold unless significant consumer
preference changes (either for or against apples) occur.

With the Taiwan fresh apple consumption "pie" looking set to remain at
about the same size for the coming few years and the market open to all
major producers (with the important exception of China), importers have
a broad choice of suppliers and countries from which to choose. How the
"pie" is divvied up from year to year may vary significantly based on
supplier prices, seasonal product quality, and availability.

In general, while Taiwan buyers *do* express a continued preference for
U.S.-origin Fuji apples due to factors including long-term
relationships, responsive suppliers, and stable, high product quality,
as *return on investment* remains the top priority for fruit buyers,
apple importers have shown themselves more than willing to shift
purchase orders to other competing supplier countries when cost factors
run against U.S. exporters. High relative U.S. crop prices in recent
years have opened the door to sales from other northern hemisphere
growers (mostly in Japan). At the consumer level, Japanese apples have
received mixed to positive reviews (generally good taste, relatively
small size, average appearance, competitive price), although the strong
marketing value of "made in Japan" should ensure that country a growing
share of overall consumption through the coming several years. Korean
apples, while typically priced at a discount to U.S. and Japanese apples
have, to date, been supplied with inconsistent quality and average
appearance and sweetness. Therefore, growth of the market share for
Korean suppliers has fallen behind other competitors.

In terms of northern hemisphere suppliers, the U.S. is expected to
remain the dominant player through the coming years with a total market
share of between 50 and 60%. Japan will probably hold steady with a
14\~16% market share over the coming two years. Other northern
hemisphere suppliers, including Korea, Canada and France, can either add
to or lose market share depending on relative strength of US supplies in
terms of quality, price, and availability.

![](media/image3.wmf){width="7.666666666666667in" height="5.125in"}Chart
2. Source: Taiwan Customs

Taiwan's 2002 entry into the WTO eliminated previous quota restrictions
on all countries formerly approved to export to the island under quota
(Chile, New Zealand, Australia, Japan, South Africa, Argentina, and the
European Union) and removed a previous ban on apple imports from South
Korea. China remains prohibited from exporting fresh apples to Taiwan.

Taiwan currently applies a 20% tariff on apple imports, down
significantly from the 50% tariff applied prior to January 2002. Taiwan
Customs assesses tariff due on a shipment based on a region-specific
reference price rather than invoiced value.

**[Phytosanitary and Food Safety Requirements]{.underline}**

Phytosanitary certificate (PC) is required for apple imports. US apples
must have the additional declaration (AD) on PC that \"The fruit has
been thoroughly inspected and found free from codling moth, apple
maggot, plum curculio, fire blight and western flower thrips.\"

In August 2003, the U.S. and Taiwan agreed on a new systems approach
quarantine work plan for apples that requires strengthened mitigation
practices, while also putting in place a system of graduated penalties
for detection of codling moth.

Due to codling moth concerns during MY2004, US suppliers were not
allowed to ship fresh apples to Taiwan from late December to late April.
This closure hit apple producers in the Northwest particularly hard as
they were not far into their harvest and shipping seasons.

**Food Safety**

Taiwan defines maximum residue levels (MRLs) for around 60 chemicals.
Shipments are checked on a random basis. Taiwan's Department of Health
(DOH) is currently reviewing current permitted chemicals and MRLs for
each. The Agricultural Affairs Section at the American Institute in
Taiwan and U.S. industry have worked to ensure that all pesticide and
other chemicals of concern to U.S. industry are permitted under
temporary arrangement during the review period as well as to see that
chemicals and residue levels will be defined in such a way as to not
become a trade barrier to U.S. suppliers. The DOH review process is
expected to run several years during which formal announcement of new
MRLs will be made.

**[The China Factor in Competition in the Taiwan Apple
Market]{.underline}**

Private investment has been flowing from Taiwan into China to develop
Fuji apple production - particularly into Shandong province, China's
major deciduous fruit farming area. As the world's largest producer of
apples, China, and its potential to export large quantities of cheap,
good quality apples to Taiwan now that both are in the WTO, is of
concern to many apple exporters.

The entry of Chinese apples into Taiwan presently hinges on Taiwan's
certification of China's phytosanitary controls in apple growing areas
and handling processes. Certification will not happen until the two
sides agree to negotiate how such certification is to be done. Continued
uneasy political relations between the two sides of the Taiwan Strait
give no indication as to when such negotiations may start. Therefore,
industry believes it highly unlikely that Chinese apples will arrive in
the market before 2006. However, presuming that Chinese apple imports
will eventually be permitted, some industry representatives believe that
the United States can still retain its position as leading apple
supplier to the island. Factors in support of this opinion include:

\(1\) ***Quality***. While China has cultivated apples for centuries,
the Fuji apple - in greatest demand and still fetching premiums in
international markets - is a relative newcomer. Experience and time is
required to develop not only the technical infrastructure (such as
proper storage, handling/packing, & transportation facilities) but also
the expertise to cultivate, select, grade, package, and deliver the
premium Fuji apples in the manner which Taiwan distributors and
consumers expect. Apples from China smuggled into Taiwan and sold on the
market in 1997 & 1998 elicited significant curiosity from consumers but
reportedly failed to impress with their appearance, taste, or price.

\(2\) ***Price***. Industry watchers report that, when China exports its
highest quality apples, quoted prices have not been significantly
different from those quoted by U.S. suppliers. Factors for such may
include continued limited high-quality supply from growers, high
non-labor-related production costs, and the fact that investment in new
Fuji cultivation in China comes principally from small-scale domestic,
Taiwan, and other investors interested (at least in the near term) to
\"meet\" market prices in order to recoup investment costs.

\(3\) ***Season***. China's apple season is similar to that of
Washington State. Apples from other growing regions in the U.S., such as
California, should face less direct competition in Taiwan from China
growers.

\(4\) ***Domestic Consumption***. China's own blossoming domestic demand
for high quality apples may meet or even exceed domestic production
capacity, leaving less for export - even as production volume expands.
Also, Taiwan investors in Chinese orchards are reportedly most
interested to develop domestic PRC market sales.

\(5\) ***Phytosanitary Controls.*** Taiwan's strict controls on codling
moth in apples will likely be difficult for Chinese growers and packers
to meet. Even if the two quarantine services can eventually reach
agreement on a quarantine work plan, there is some doubt as to China's
capability to ship pest-free fruit.

**Prices & Marketing**

Since 1998, the apple industry in Taiwan has faced pressure on prices as
stagnant or decreasing demand has been met by increasing volumes
available for import. With most producing countries supplying apples
here, Taiwan continues to be a \"buyers' market\" with demand influenced
significantly by supplier marketing and pricing strategies. Prices
between and within apple varieties vary greatly based on seasonal
consumption variations, supplier country-of-origin, supplier pricing
competition, and so on. The current market bears little resemblance to
that of a decade ago, when Fuji apples were available in extremely
limited quantities and suppliers could demand, and receive, high
premiums on sales.

As mentioned earlier in this report, the apple symbolizes many positive
things to the Taiwan consumer. When purchased as a gift or to serve to
others, the country of origin, size, appearance, and taste remain as
important as price in the consumer's decision to buy. Therefore, to
maintain its dominant position - particularly against \"new\"
competitors such as Japan, Korea and (eventually) China - U.S. suppliers
are recommended to continue working closely with Taiwan importers,
distributors, and retailers to reinforce the strong positive image that
U.S. apples presently enjoy in Taiwan to ensure continued consumer
loyalty to U.S.-origin apples.

**Statistics**

![](media/image4.wmf){width="3.66875in" height="3.71875in"}

![](media/image7.wmf){width="7.583464566929134in"
height="2.777165354330709in"}![](media/image8.wmf){width="3.722047244094488in"
height="3.175196850393701in"}![](media/image9.wmf){width="3.7437007874015746in"
height="3.175196850393701in"}