We are continuing our new summer series spotlighting our Vanguard leaders in different global markets. For the second check-in, we sat down with Timothy Li, Manager of our Vanguard China office located in Shanghai to learn more about the current state of the industry in China.
What is the current state of the fresh produce industry in China?
Timothy: Currently, the market price is frustrating as sales have been slow on top of the arrival of larger volumes. This is primarily due to weaker demand from Chinese consumers following the COVID-19 pandemic. Many Chinese companies are facing challenging financial situations following the pandemic and plan to change their employee structure to reduce costs. Consequently, many people are at risk of losing their jobs or experiencing income reductions, leading them to spend less money on imported produce. The slow sales are most noticeable in Tier 2 and 3 markets, which in turn affects the sales in Tier 1 markets such as Shanghai and Guangzhou. High-end consumers, on the other hand, continue to seek premium-grade produce, causing buyers to be more selective about quality. Good and premium quality produce maintain strong selling rates, while normal and low grade seem to be facing greater challenges.
Another factor we’ve seen is that people have become less concerned about consuming produce for health reasons, following the heightened demand during the pandemic. It appears that people would now prefer to spend their disposable income on travelling and other activities rather than on premium produce.
What has been the biggest change in the exports/important overall market in the last few years (post covid or in this currently economic makeup)?
Timothy: Overall, exporting Chinese produce has proven to be very challenging in the last few years. The costs of labor, growing costs, and logistics costs continue to rise, resulting in a much higher FOB price compared to other areas such as from South Africa and India. While the Southeast Asia market remains the primary market for Chinese fruits, these markets are still in the process of recovery themselves as well. The options for affluent consumers have greatly increased, and many are opting to purchase cheaper domestically grown Chinese fruits.
Chinese Growers are being forced to change their strategies to enhance quality and focus on the domestic Chinese market. By prioritizing domestic sales and improving packaging and grading to meet the demands of high-end Chinese consumers, growers and packers are finding that they can achieve better cash flow. Furthermore, the quality improvement and lower pricing offered by Chinese fruit suppliers are starting to impact imported fruits in China, leading major market players to invest in Chinese fruit plantation.
What is the current overall economic health of the region currently and how has that evolved during and through COVID and to present day?
Timothy: China is currently grappling with a population that is worried about job and income loss, leading them to refrain from spending money. Overall, the economy is weak, prompting the Chinese Government to initiate a trend to reduce bank interest rates in order to support economic growth. However, people remain concerned about their short-term financial situations. I believe that China needs another year to assess the impact of lower interest rates on achieving better economic growth. Additionally, the lower interest rates weaken the RMB to the USD, resulting in higher costs for imported products.
What is proving the biggest challenge in your region for the industry?
Timothy: The primary challenge is the population’s confidence in the economy. Middle-class families, which constitute the largest consumer group, used to purchase imported goods in China. However, due to concerns about jobs and income, they have significantly reduced spending. With this lack of spending, the economy growth in China will require more time.
What other global markets are you most impacted by?
Timothy: While I don’t believe that any specific market is solely impacting China, the overall global changes, including the strength of the USD, are all having a significant impact. Pricing has become more challenging not only in China but also in other regions, and global growers are chasing markets with better selling prices as they should. For example, Peruvian avocados had a very good selling price in China in March and April due to the minimal arrival volumes. However, in May and June we saw double or triple the volume shipped by Peruvian growers, causing a very low market price. With the strength of the USD, any global market can be easily under pressure as most produce is paid in USD. To put it simply, the instability of any global market has a significant impact on China. Uncertainties and the inability to predict future market trends make purchasing decisions very difficult.
What are your future predictions?
Timothy: I anticipate that good-quality Chinese produce will become more popular within the China market. This is mainly because it is less impacted by the strong USD, and middle-class consumers will consider it a good option to replace imported produce. With that said, I expect major global industry players to get involved as most Chinese growers are not focused on creating their own brands. Some even copy famous imported brands for packing domestic products, which confuses the consumer and raises concerns about damage to the brands’ reputation for the original brand owners typically resulting in IP infringement lawsuits.
The effective management of Chinese plantations and brand protection will be crucial, as Chinese investors will likely see this as an opportunity to invest more money in Chinese production to build up their brands. On the other hand, growers without investors will likely utilize platforms like TikTok for live broadcasting, selling their produce directly to consumers. Chinese consumers are picky about quality, but they also want to have the best value. Hence, they believe what they can see during live broadcasts, often opting for a cheaper price compared to Supermarket purchases.
Stay tuned as we continue to hop across the globe this summer to speak with more of Vanguard’s key produce leaders.