WORLD APPLE SITUATION
The 1997/98 U.S. apple production forecast is revised down to 4.6 million tons, 2 percent below the 1996/97 harvest. Decreased production in Washington state offset increases in New York, California, and Michigan. Apple production in Washington state is down 11 percent from last season's output, due primarily to smaller-sized fruit. On the other hand, Michigan's apple production is up 50 percent from the 1996/97 drought-reduced crop. Washington is the largest U.S. apple producing state, accounting for about 50 percent of the total U.S. annual apple crop. New York, California, and Michigan account for about 30 percent.
U.S. apple exports in 1997/98 are forecast at 510,000 tons, 24 percent below last season's shipments. Apple exports this season are being adversely impacted by the stronger U.S. dollar vis-a-vis other countries' currencies (particularly in Southeast Asian countries), a smaller Washington state apple crop (primarily for export), reduced supplies of good quality fruit, and the implementation of Mexico's 101 percent antidumping duty on U.S. Red and Golden delicious apples.
The currency crisis is affecting all the Asian export markets. Industry data as of January 30, 1998, show that U.S. apple exports to the region are down sharply (an average of 40 percent) compared to the same period last year. Exports to the largest Asian market, Taiwan, are down 18 percent compared with the same period last year. Other major apple markets in Asia are similarly affected, such as Indonesia (down 64 percent), Thailand (down 70 percent), and the Philippines (down 54 percent).
However, the currency devaluation crisis is not the only factor behind expected lower U.S. apple shipments. Other factors adversely affecting U.S. apple export are a lower Washington apple crop (down 11 percent) and reduced supplies of good quality exportable fruit (damaged by hail storms in summer). Further compounding the U.S. apple industry's export woes is Mexico's September 1997 decision to impose an antidumping duty of 101.1 percent on imports of U.S. Golden and Red Delicious apples.
Washington state is the largest U.S. apple exporting state, selling about a third of its crop to international markets. Mexico, Taiwan, Indonesia, and Canada represent some of Washington state's biggest customers. Moreover, Mexico accounts for about 15 percent of Washington state foreign sales.
Mexico's government has apparently imposed new import controls that also threaten to hamper access for U.S. apples. Mexican Customs inspectors at the border reportedly are misapplying the antidumping duty to apple varieties other than Red and Golden Delicious. Some shipment of U.S. Red Rome and Jonagold apples were held up at the Mexican border in Laredo because Mexican Customs officials were claiming that they should be assessed the 101.1 percent antidumping duty. These officials have suggested that the additional duty is applicable to Red and Golden Delicious and their mutations. However, Rome and Jonagold apple variety are not "mutations," but rather are distinctly different (i.e., genetically unique) from the Red and Golden Delicious varieties. The U.S. Agricultural Minister-Counselor's office in Mexico City is working with SECOFI in trying to get the Mexican government to define exactly which varieties of apples can be imported into Mexico without being assessed the punitive duty.
Mexico's government is also requiring prospective apple importers to register their intent to import, with only a limited number receiving subsequent approval to proceed, according to reports from the trade and the U.S. Agricultural Minister-Counselor's office in Mexico City. However, the details surrounding this situation remain sketchy at this time and efforts are underway to obtain clarification.
Mexico is an important market for U.S. apples. Exports grew from $6 million in MY 1991/92 to more than $80 million in MY 1994/95 before the peso devaluation and subsequently recovered to $44 million in MY 1996/97. Red and Golden Delicious apples comprise approximately 75-80 percent of total U.S. apple exports to Mexico. Moreover, Mexico is Washington state's number one export market for apples, with some 4.5 million boxes (about 85,000 metric tons) shipped in 1996/97 (July-June).
Mexico's apple production forecast for 1997/98 (August-July) has been raised to 520,000 tons, 22 percent above the previous year's crop. Apple production this season was larger in the main producing region of Chihuahua.
The Mexican economy has been recovering from the financial crisis it suffered in 1995 and early 1996. The Mexican Gross Domestic Product (GDP) is expected to increase 5 percent in 1998, while the domestic inflation rate is expected to decrease from 15.7 percent in 1997 to about 12 percent forecast in the current year. Consequently, the consumer purchasing power will likely improve in 1998.
As part of the ongoing antidumping investigation on apples from the United States, Mexico's Secretariat of Commerce and Industrial Development (SECOFI) held a public hearing on Wednesday, January 14 in Mexico City. In advance of that public hearing, apple industry representatives from the two countries met in an attempt to reach a settlement agreement. Unfortunately, while progress was made, the talks ultimately failed to produce an accord.
The purpose of the January 14 SECOFI hearing was to receive testimony from domestic producers, exporters, and importers on the extent to which any alleged dumping may have caused economic injury to Mexico's apple industry. Representatives from the U.S. apple industry participated fully in the public hearing. The hearing concludes the evidence gathering phase of SECOFI'S antidumping investigation. A final determination in this case is expected by late February or early March. In the meantime, the 101.1 percent temporary antidumping duty imposed by Mexico on U.S. apple imports back on September 1, 1997 remains in effect. The extremely high duty has significantly limited sales to what had been a leading export market for Pacific Northwest apple shipments.
China's fruit production, especially apples, continues to increase. Apple production in 1997/98 is forecast at 8.5 million tons, up 21 percent from last season's output. However, serious drought conditions during the late summer of 1997 in the major producing province of Shandong have impacted fruit quality and size.
Fruit production ranks as China's third largest agricultural sector in value terms, behind grains and vegetables. Most deciduous fruit in China is grown by individual farmers on small parcels of land. Large commercial orchards are a rarity.
Chinese apple exports in 1997/98 are forecast at 180,000 tons, 11 percent above 1996/97 shipments. Russia and Southeast Asian countries are China's major apple customers. China's apple exports, however, are currently hampered by poor post-harvest handling procedures and the lack of adequate infrastructure. After harvesting, most of the fruit is stored on the farm, either underground or under straw. This storage method limits the marketing season to three or four months and the quality of fruit drops sharply at season's end (spoilage of fruit ranges from 15 to 25 percent of production). Compounding the problem is the limited and poor transportation infrastructure in China's rural areas where nearly all of the apples are grown. Limited or non-existent cold storage transportation facilities have caused shipment losses and quality degradation.
Overseas investments, however, are occurring in China's apple industry, although at a slow pace. Most foreign investment is directed to the juice processing sector.
Chilean apple production in 1997/98 is forecast at 950,000 tons, 3 percent above the 1996/97 output. An increase in the number of bearing trees combined with the end of some very dry seasons have boosted Chile's apple production in recent years. Green apple varieties have had excellent weather during blooming and significant increases in production are expected for these varieties. On the other hand, red apple varieties were affected in some areas by rain during blooming. Red apple varieties account for about 70 percent of total output and are mainly for the European and Middle East markets. The principal green variety, Granny Smith, is used both for the fresh export (mainly Europe and the United States) as well as for concentrated apple juice production.
Chile's apple exports in 1997/98 are forecast at 415,000 tons, up 6 percent from last season. A larger apple crop is expected to improve Chile's apple export performance in 1997/98. A deficient apple crop last year, both in quantity and quality, led to a fall in apple exports in 1996/97.
Red apple varieties account for about two thirds of Chile's apple sales overseas, although sweet/sour varieties are increasing their share. This trend is becoming more evident every year as shipments of new varieties, such as Fuji, are increasing significantly.
Chilean apple producers and exporters continue their attempts to implement a mandatory quality control program. Despite almost a universal consensus between industry and government representatives on the need to reinforce Chile's quality control measures, the status of quality control has not changed for several years. In 1997/98, the fruit sector will maintain the voluntary fruit export quality program for apples and other fruits shipped to the United States and Europe.
Since there are no mandatory quality controls, Chilean apple exporters concentrate their efforts on promotional campaigns, diversifying export markets and trade liberalization. Chile has free trade agreements with Canada, Mexico, Colombia, Venezuela, and Ecuador. Chile has also made progress in establishing phytosanitary agreements and protocols with several countries, including Japan, South Korea, Hong Kong, China, the Philippines, Malaysia, New Zealand, Venezuela, Colombia, and Mexico. The Chilean apple industry recently gained official access to the Chinese market.
After many years of efforts on the part of USDA/APHIS/FAS and the U.S. industry to overcome its plant quarantine restrictions, Chile issued permits for the importation of apples from the United States. The first 43 boxes of Washington State Red and Golden Delicious apples arrived in Santiago on December 4, 1997. Following a temporary delay at port due to a quarantine-related concern, the apples were released and the bulk of the 43 carton shipment was subsequently delivered to Jumbo Supermarket, the largest supermarket chain in Santiago. The public acceptance was reported to be excellent, with favorable accompanying media coverage.
Apple production in New Zealand in 1997/98 is forecast at 581,000 tons, slightly above last season's output. Weather conditions have been favorable with only a few minor hail problems in December 1997. Last season's apple crop was hit hard by repeated hail storms and unfavorable weather conditions, resulting in crop losses, small fruit size, and color problems. In general, the quality of New Zealand's 1996/97 apple crop was poorer than in previous years.
New Zealand's apple exports in 1997/98 are forecast at 315,000 tons, up 8 percent from shipments in 1996/97. Increased production of good quality fruit has boosted export prospects in 1997/98. Moreover, the impact of the financial troubles in Southeast Asia is not expected to affect overall apple exports this season because of the low level of shipments to that region compared to exports to America and Europe. The United States, Canada, and the EU are New Zealand's major apple customers.
Faced with last season's poor apple crop and increasingly competitive international markets, New Zealand's Apple and Pear Marketing Board (APMB) implemented a plan to increase New Zealand's competitive advantage overseas. Part of the plan is to set up strict grade standards, which will be enforced by the APMB for the first time in 1997/98. The new grade standards encourage growers to respond to market signals for larger, well-colored fruit. Moreover, APMB is reassessing its quality approach to European Union (EU) markets, following a disastrous 1996/97 marketing season. Last year, fruit quality problems adversely affected an estimated 40 percent of the apples shipped to the United Kingdom, New Zealand's largest single market.
Also, APMB is combining marketing strategies with Zespri International (the marketing arm of the restructured New Zealand Kiwifruit Marketing Board) by merging their sales and marketing operations in the United Kingdom. The merged sales and marketing operations mean that key business partners will have a single point of contact for New Zealand apples, pears, and kiwifruit in the United Kingdom.
Argentine apple production in 1997/98 is forecast at 1.4 million tons, 3 percent above the 1996/97 output. Decreased production prospects in Mendoza, due to hail storms during October, were offset by new plantations in Rio Negro and Neuquen coming into production this season. Argentina's apple production is located in Rio Negro (75 percent), Neuquen (15 percent), and Mendoza (10 percent).
Apple exports from Argentina in 1997/98 are forecast at 240,000 tons, up slightly above 1996/97 shipments. The apple export season is from February to December, with the months of heaviest export flow being March, April, and May. Brazil is Argentina's main apple customer, followed by the Netherlands, Belgium, and Norway.
(For further information on production and trade, contact Samuel Rosa at 202-720-6086. For information on marketing, contact James Carlson at 202-720-7931)