Fruit and vegetable exporters could eventually lose the "gray market" option of shipping to Hong Kong to reach the Chinese mainland, according to I Love Produce president Jim Provost.

Provost, whose associated company Lantao imports fruit such as grapes and apples from around the world, told participants at the Produce Marketing Association's (PMA) Fresh Connections China conference that the move was driven by changes at a government level.

Jim Provost

"There's a big consolidation of the agencies that monitor food safety. There was something like 12 or 13 different agencies that were involved in it and now they've been consolidated or are in the process of being consolidated down to three," he said.

"The new regime is going to be really focused on this, and I think that the gray channel is going to be a thing of the past at some point.

"That channel is being closed down - some products that were gaining access through that channel are no more, like Red Delicious apples for instance from the U.S."

To respond to this change, exporters will need to get to understand the Chinese market better and form closer ties with mainland importers and distributors. This not only means forming ties with partners in major cities on or near the coast like Guangzhou, Shanghai, Ningbo, Beijing and Qingdao, but delving into internal hubs.

Rabobank International's Hong Kong-based managing director Patrick Vizzone told attendees that traditionally poorer areas were playing catch-up in consumption trends, with growth of close to 17% for Inner Mongolia and more than 15% growth for the central province of Henan, while other areas with high growth include Chongqing, Sichuan, Hunan, Shaanxi, Hubei, Liaoning, Jigansu, Shandong.

Lantao is making the most of these trends and set up distributing operations in the cities of Zhengzhou (Henan) and Shenyang (Liaoning), adding to its presence in the hubs of Guangzhou, Beijing and Shanghai.

"Lantao is in two internal markets in China – Zhengzhou, which is the capital of Henan province, which is the third most populous province in China with about 94 million people, and Shenyang which is northeast," Provost said.

"Zhengzhou recently opened a brand new market, this is going back about a year, and that market’s going to serve all different things – fish, meat, oils, produce – and the key to this central location, it’s kind of a cross roads between north-south, east-west rail and roads.

"The neighboring provinces’ population along with Henan is about 600 million people, so the access from this market is key to gaining the whole population base in central China."

PMA Australia-New Zealand president Michael Worthington told www.freshfruitportal.com this trend needed to be understood by exporters and could actually be a positive in their favor.

"For decades we have been shipping product out of Australia and New Zealand into Hong Kong through the “gray channel” into China, and people have had no control or understanding of how the channel to market has worked out for them," he said.

"Now the direct export or import into China for products in Australia it’s citrus, table grapes and now cherries, it gives our exporters an opportunity to see the transparent channel to market and build relationships with the importers and with the retailers, and that is fundamentally a change that our industry needs for them to feel that they can get into China as a long term strategic market as opposed to a short term spot market."

At www.freshfruitportal.com we will be providing further updates and information about the produce industry in China. If you have any China-related questions or ideas you would like to raise with us, please contact our editor Matthew Ogg on mogg@freshfruitportal.com.

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