China’s food imports have outpaced exports in a period of staggering cultivation growth, with spending on the rise as cities overflow with new residents. Migration is exacerbating farm labor costs, prompting expectations of more greenhouses and container arrivals. Small ripples can mean “huge waves” for foreign suppliers in the view of Rabobank International's Hong Kong-based managing director Patrick Vizzone, while M.Z. Marketing's Mabel Zhuang says the average supermarket is still unable to beat local wet markets on freshness. Both spoke at the Produce Marketing Association’s (PMA) Fresh Connections China event in Shanghai, giving a broad overview of the trends, statistics and demographics that will determine the country’s fruit and vegetable future.

Click here for photos from the event.

The symbolism of the Chinese word for crisis including the character for opportunity is apt for produce exporters to the East Asian country, where food safety tops the public agenda, bringing with it a preference for foreign goods.

"Chinese consumers love branded products. They recognize certain imported brands like Sunkist and Zespri, but for the Chinese domestic market there are no national recognized brands yet," Zhuang said.

"In China there is a large and growing middle class. Their consumption of high end food and safe food is strong."

In the week of the PMA event, local Shanghai press published stories about a reduction in the number of dead pigs pulled out of the Huangpu River, taking the total number to 10,395 over two weeks. Elsewhere, a famous actor kicked up a storm on social media networks revealing excessive sulfur content in disposable chopsticks.

While these problems may not relate directly to the produce industry, they are part of an industrial system where consumers are questioning the health implications of the most fundamental activities in their lives – eating, drinking and breathing.

Vizzone said 57% of respondents in a poll conducted this month were concerned whether the newly formed State Food and Drug Administration could effectively address longstanding food safety issues.

"A study in 2011 by the Chinese Food Hygiene Journal put the number of food safety-related events or illnesses at 94 million," Vizzone said.

"It’s [food safety] the consumer issue – not just in fruit and vegetables, not just in food, it’s across everything."

Driscoll's CEO Miles Reiter contributed to the discussion by asking Vizzone how issues like water cleanliness, and heavy metals in the air and soil would tie in to the government's new food safety approach.

"It’s a whole package. It’s an ecosystem that needs to be solved," Vizzone replied.

"The changes that have been made to the State Food and Drug Administration, basically bringing that onto ministerial level, signals how aware the government is and the start they want to take in trying to solve this issue.

"If history has taught us anything it’s that if the government gets serious about something they tend to have a good win rate at the end of the day. I look at this very positively."

Changing local structure - from wet markets to e-commerce

While the government is taking a stronger stance on food safety, it also aims to improve the agricultural supply chain.

"There's just many small farmers, individuals, family farmers, their production is so small so they do not have the capacity to do what we can think of as the integrated marketing or direct selling," Zhuang said.

"Until now most of them are still relying on aggregators and vendors to collect produce from their small farms, and usually there are several layers of aggregators and middle men who sell to the wholesale market.

"We are at this important moment in China that the distribution system is evolving towards the future.

Zhuang said the government has introduced several measures to improve farmer skills to establish cooperatives, which have not been common in the past.

"They have also encouraged corporate farms so that the skill of the farming could be upgraded to have the volume, and then we would encourage those large growers to either have a booth or a store at the wholesale market, and also at the retail market," she said.

"Connecting the farmers with retailers is a huge government project. The government is actually giving subsidies for farmers and retailers so that retailers can source directly from farmers, but of course there are still a lot of issues to work out."

The role of wet markets continues to be key in China. As a consumer Zhuang chooses these traditional outlets over the available supermarkets in her neighborhood to do her shopping.

"Most Shanghainese will go to the wet market to shop every day, especially for the older generation - the wet markets allow more vendors who go to the wholesale market every day to source the products.

"As for the supermarket, I think they have a more complicated distribution system - if you look at the Wal-Mart we visited yesterday that's very fresh, but the majority of local retailers, especially in my neighborhood, are generally not doing a very good job."

Vizzone also believed e-commerce would eventually come to the fore in China's produce industry in major cities like Beijing and Shanghai, like it has for other industries.

"COFCO, through China Foods, has built an online platform and has had great success with seafood, which is one of the most perishable items," he said.

"You see examples like this, particularly around seafood which is one of the most difficult things to handle, and you know that’s going to evolve to fruit and veg as well.

"As the brands evolve and as the trust factor evolves, that could become a major channel, albeit within the major cities."

Patrick Vizzone

Fruit imports have historically been more relevant for China than vegetable imports, but Vizzone believes there is a future for more vegetables supplied from abroad.

"Efficiencies in China within fruit and vegetables have typically been cutting prices, but I think these efficiencies are going to be borne out of intensification, so you’re going to see much more greenhouse production as land prices and labor prices increase.

"I do think you’ll also see increasing import trade. Whether that takes place through official channels or gray channels is yet to be seen."

Production and imports

A look at the statistics is necessary to understand the sheer weight of China's phenomenal rise in fruit and vegetable production, from an already very high base. Zhuang highlighted that China accounted for 52% the world's vegetable production and 21% of fruit production, and was the global leader in both.

"The second one [in vegetables], India, as you can see is just a quarter of China’s production, but what’s more amazing is that China’s vegetable production is 99% consumed domestically.

"The fruit industry has been growing in the past five years at around a 30-40% rate, and the industry is predicted to grow in the next five to 10 years."

This average is outstanding in itself, but in 2011 fruit production growth stood at 109.2%, reaching 135 million metric tons (MT).

High growth rates were recorded for China's top 10 fruit crops in 2011, which in order of volume ranking were apples (76.1%), pears (87%), easy peelers (88.1%), peaches and nectarines (199.3%), bananas (108.3%), grapes (172%), oranges (426%), plums and sloes (49%), mangoes, mangosteens and guavas (40.8%), and grapefruit and pomelos (1245.6%).

Vegetable production grew by 57.8% in that year reaching 561.7 million MT; more than five times the next largest producer India.

With the exception of one category, strong growth was recorded in 2011 for China's top 10 vegetable crops, which in order of volume ranking were tomatoes (117.6%), cucumbers and gherkins (138.4%), cabbages and other brassicas (-20.4%), eggplants (101.2%), dry onions (75.6%), garlic (156.7%), spinach (169.8%), carrots and turnips (182.8%), green beans (175.5%) and green chillies and peppers (64.7%).

Despite such large rises in production, Zhuang pointed out that China's food trade volumes were outpacing exports. Thailand was the top fruit supplier in 2011 in terms of value, ahead of the second-largest supplier Chile.

Zhuang's graphs showed the Philippines was close behind Chile, followed by Vietnam and the U.S.

With much smaller values than the big five, the next largest suppliers in order were New Zealand, Peru, Indonesia, South Africa, Sweden and Taiwan.

By type, bananas were the most imported fruit by value accounting for 16%, followed by grapes (13%), longans (13%), durians (9%), dragonfruit (8%), cherries (7%), apples (5%), oranges (4%), kiwifruit (3%), plums (2%) and watermelons (2%).

Vizzone said volatility in some products such as green peppers would lead to greater opportunities for seasonal imports in China.

China's elderly will have far fewer workers to support them in the coming decades.

Demographic trends

Urbanization is at the core of why China's fruit and vegetable consumption is on the rise. Vizzone said that urbanites tended to spend 2.5 times more on food than rural dwellers.

"This is what’s creating increased demand for a number of categories, particularly in animal protein, and fruit and vegetables," he said, also adding that more people would eat out as well as incomes grew.

"When you look at consumption going forward, for food consumption the average in China is around 2,600RMB or about US$415 per capita. In Shanghai that’s around 4,800RMB, or US$770 per capita, so you see an 85% kind of delta between average and high income."

"If you take some numbers from the Ministry of Housing and Urban Rural Development, they say that between now and 2025 an estimated 250 to 300 million people will move into the cities, and this incredibly fast pace of urbanization will require investment of around 1 trillion RMB every year; the numbers are absolutely staggering. This is what's driving growth and therefore income."

To further illustrate how China consumes it produce, Vizzone looked at the fruit consumption differential between the top 25% of income earners and the bottom 25%.

"The difference between the bottom 25 and the top 25 is about 1.8 times - for vegetables that’s about 1.25 times.

"Most demand will be associated by local production, but imports increasingly will have a greater role. This may be a small proportion of total consumption, but because of the size of the absolute numbers, small ripples emanating from China can create huge waves overseas."

He added that one negative factor against China was its old age dependency ratio, which represents the number of working age people supporting non-working age people. The figure is currently 8.8, but Vizzone expected this would be cut by more than half to 4.2 by 2020, and fall further to 2.5 by 2050.

"You may look at this and say so what? By global comparisons it’s reasonably on par with other countries, and indeed, if you look at the U.S. the dependency ratio is even less.

"The key thing here is the rate of change and how quickly it’s happening – in fact China is now the world’s fastest ageing population."

However, he believed urbanization trends along with China's high savings rate would have a net positive impact on fruit and vegetable consumption.

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