September, 1998
September, 1998
by Matt McCallum
No one has to tell U.S. apple growers what effect China’s exporting of cheap apple juice concentrate is having on them. Processors are paying record low prices for juice apples in a year filled with wind storms and hail.
“At three-and-a-half cents it’s real border line to pick up drops,” said Steve Thome of Thome Farms in Comstock Park, Mich. “If it hits 3 cents I’m not picking them up.”
Eastern processors will be paying about 3.5 cents a pound or $1.40 per bushel and out west the price is a laughable 1 cent a pound or 40 cents a bushel. And with many cider makers not using apples that have touched the ground because of the E. coli scare, there isn’t much of a market for drops. In an average year about 8% to 9% of the apples fall on the ground, Thome said. That means millions of bushels of apples could stay in the orchards this year if growers decide it’s just not worth the hassle.
The U.S. Apple Association has formed a task force to explore the potential to file an anti-dumping complaint against foreign apple juice suppliers. Michigan apple grower Ed Wittenbach is chairman of the task force.
The task force is looking at all countries selling concentrate into the U.S., not just China, because countries like Chile, Argentina, Germany, Turkey and Austria have also greatly reduced prices in recent years.
USApple has determined that through the end of last month China has increased its volume of apple juice concentrate exports to the U.S. 997% with a corresponding 52% decrease in price over the last three years.
Other countries have also increased volume and decreased prices, including Hungary whose sales into the U.S. are up 254% and prices are down 53%.
“It seems they are responding to loss of market share to China by dropping prices to try and maintain their share,” said USApple President Kraig Naasz. “And there is more to come. China has yet another record apple crop. The country’s production is up 100% since 1994 and in the last two years have put up 18 new processing plants.”
Chinese apple juice concentrate has been getting cheaper all year. In June it was selling in the U.S. for $3.50 a gallon, the lowest level ever. Before the Chinese entered the market two years ago the lowest juice concentrate had ever been sold in the U.S. on average for a year was $5.20 in 1994 when there was a record U.S. apple crop, according to The Food Institute.
Average prices in the last four years have been: $10 in 1995; $9.43 in 1996; $6.44 in 1997, and $4.80 in the first six months of 1998.
Making a case
The anti-dumping task force is gathering facts and a legal analysis of the potential success of a case, Naasz said. There are three key questions that must be answered including who could file the lawsuit, what segment of the industry do you look to to demonstrate injury and who is willing and capable to fund the $1- to $1.5-million cost of the case.
Apple growers couldn’t bring the case under the trade laws because only companies producing “like” goods can file such a case, Naasz said. The task force has a legal firm looking into whether a U.S. concentrator, juice processor or grower-owned cooperative could sue.
To win the case it must be proven that a country is selling a product below what it is sold for in the producing country’s market or sold at a price that fails to cover the cost of production plus a reasonable profit.
The next part of the case would be to prove that the producers of like goods are being negatively effected.
“We need to define what is the relevant industry,” Naasz said. “Who do we look to? Concentrators who in turn may be importers of this product? Concentrators and processors? Or concentrators, processors and grower-owned cooperatives? There are many who may share an interest in an anti-dumping suit.”
If it is proven that China or another country is dumping apple juice concentrate, then the U.S. can slap them with a tariff that will equal the price it should be selling for.
Two agricultural industries have won anti-dumping suits against China in recent years. Canned mushroom producers have won a preliminary decision and a 180% tariff has been slapped on any product being exported into the U.S. Honey also won a similar suit several years ago.
“About half of the anti-dumping suits brought lose,” Naasz said. “But that means we have a 50% chance of winning.”
Everyone is losing
Even though juice processors are buying foreign apple juice concentrate at record low levels, some are expressing concern that it is cutting into their profits.
“The current levels of pricing are unhealthy for the industry as a whole and they aren’t producing margins for anyone,” said Jack Hartog, vice president of Hartog Rahal Foods, a New York-based juice concentrator. “There aren’t any dry butts in a sinking ship.”
Tom Stokes, president of the Consumer Packaging Goods Division of Tree Top in Selah, Wash. said the only one who wins with cheap apple juice concentrate is the consumer because they pay less at the store. Everyone in the industry loses.
“The grower will wonder if it’s worth them to pick the apples up,” he said. “Processors are losers because their margins drop, the brokers are losers because they work on a percentage and the retailer is a loser because their dollar margins are reduced.”
Apple juice prices at the consumer level started dropping in late 1997 and have now flattened out. In the first quarter of this year consumption is up 20% and in the second quarter is up 10%, Stokes said. Most of this growth has come in the private label product, with branded product sales decreasing at an accelerated pace.
“We aren’t going to see much more growth in apple juice consumption because we’ve already drawn who we can,” Stokes said.
The poor profit margins could spell trouble for apple juice makers, Hartog said.
“I’ve been in this business 16 years and I’ve never seen anything like this with such a potential for having a major impact,” he said. “There will be a major cleansing cycle.” _
The
Great Lakes Fruit Growers News