Prunes could follow California nut boom in China

The largest demographic shift in history could provide the opportunity for California prune growers to break out of the boom-bust cycle.

Greg Thompson, general manager of the Prune Bargaining Association (PBA), said that the growth of the middle class in Asia, China in particular, the likes of which in size and rate of growth "has never been seen before in world history, presents huge potential for California specialty crops."

According to Wikinvest, estimates of the Chinese middle class range from 100 million to 247 million, and China could have more than 600 million middle-class citizens by 2015. This is compared to a total US population of 315 million.

"In an emerging middle class, when people get a little extra income, the first thing they improve is diet," said Thompson. "And it takes a lot more land to produce protein rather than carbohydrates, but China doesn't have the land."

China had 122 million hectares of arable land in 2012 and needs 120 million hectares for basic food requirements, according to seekingalpha.com, "so they don't have much leeway," Thompson said. This means the Chinese have had to turn overseas to fulfill food requirements.

"They're looking for food safety, which they don't have in China, and they will reward quality," said Thompson, referring the various scandals in which food and other products have been tainted, causing illness and deaths. "The Chinese like US products."

He cited the success of the Almond Board of California in marketing to China, as well as the demand for California pecans, pistachios and walnuts, using the latter as an example.

"Over the last 25, 30 years, walnut production in California has gone from about 150,000 tons to more than 400,000 tons now," he said. "There's a high value on return per acre, but there's been an up-and-down cycle since 1920."

He said California walnut exports to China have been significant in the last several years, increasing from about 2,000 metric tons in 2007 to 48,000 metric tons in the first four months of 2012 alone.

The PBA head believes this new demand from China may break the walnut cycle for the next 20 to 30 years and could become applicable to prunes. "It's all about marketing," he said. "To be successful as an industry, you have to market. Chile planted prunes but didn't market them, creating an oversupply that ruined it for everyone."

US prune exports to China rose from 2,250 metric tons in 2008 to almost 9,000 tons in 2012, according to a presentation that Thompson gave Wednesday at the Colusa Farm Show. The value per ton of California prunes exported to China rose 60 percent over the 10 years to 2012.

Thompson said the Yuba City-based PBA started exporting to China three years ago, but the industry has been doing so for more than 20 years. He's been on two trade missions to China, observing the huge dried-food sections in supermarkets and "they like to chew on pits" — both of which are good news for the prune industry.

He added that 90 percent of the California prunes sent to China are in bulk; the Chinese process and package the prunes under their own brands. About 5 percent of prunes exported to China are packed and branded by US companies such Sunsweet, Mariani and Del Monte.

Besides a lack of market penetration, there are other obstacles to overcome. For example, Thompson said, US prune imports into China are subject to a 25 percent tariff, plus a 13 percent value-added tax, for a total tax burden of 41.25 percent. By contrast, prune imports from Chile into China face no duties due to a free-trade agreement between those two countries.

Despite an outlook filled with potential, he warned that there is a danger in being heavily dependent on one foreign market — international political problems and changes in exchange rates can hurt international trade.

"Growers can have a taskmaster here (in the form of packing companies) or in Beijing," Thompson added.

To protect themselves, prune farmers need to form growers groups, cooperatives, bargaining associations and marketing boards, which can conduct trade missions, provide market information to growers, establish business relationships, increase bargaining power, apply pressure to lower tariffs, and create a marketing front.