Articles, Blog

Horticulture – profit-enhancing innovations: Andrew Harty, Citrus Australia


So just as Australia’s largest
fresh fruit export industry, we did last year just
over $200 million FOB. The big focus is on
North Asia, and you can see the dominance here of
Hong Kong, Japan, and China. We’ll talk a little bit
later about why we still have such a large trade
going to Hong Kong and how we’re trying to transfer
some of that into the mainland. So what progress have we made
since we gained access in 2006? Trade was almost
nonexistent up until 2010 because of the very difficult
protocol we had to comply with, the pest quarantine protocol. Since then, largely
due to research that was funded by industry
and the federal government and carried out
by state agencies, methods for overcoming some of
these problems were developed. And also one company
in particular, [INAUDIBLE] Fruit
Company, pioneered putting those
practises into place, and since then, the trade
has taken off as you can see. I guess everybody in the
world wants a bit of China, and that’s really
important to realise. We’re certainly not alone in
our aspirations in that market. The Southeast Asian
countries surrounding China are some of the biggest
exporters into that country. We’ve actually fallen to
place number 11, which is actually not that brilliant. I think we could do a whole lot
better, and certainly that’s our aspirations with citrus. Our products in
China– primarily Navel oranges at the moment. That’s the standard
navel orange, but also this
beautiful red variant called Cara Cara Navel,
which is really taking off like hotcakes in China. And then Honey
Murcott mandarins, which are mostly grown
up in Queensland, also much prized in China
for their sweet taste. We are looking at
alternative products. There’s a lemon boom
happening in Asia at the moment, mostly centred
around all the wonderful things that it can do. I don’t know if you
can read that there, but it says it will
improve immunity, promote wound healing, detoxification,
urine acidity, blood circulation. What more could you wish for? Some of the opportunities
we’ve got– I won’t dwell on these,
because I think you’re aware of this amazing
historical dynamic that’s happening over this incredible
middle class affluence that’s occurring there. There is a strong demand
for imported fresh product. Fortunately for us, we’ve got
premiums for that high quality product, and citrus–
it originated in China. That is the natural
home of the genus and the various
species– is China. So they’ve been consuming
this fruit for a millennia, and it’s highly valued there. We also are fortunate
that we have generally for
Australian product, but also for our citrus in
particular, a very high quality reputation. So some of the challenges that
I’ll just go through briefly on the competition that we
face there, some of the quality issues that we
need to constantly stay on top of–
external and internal– some of the pricing things
and how the exchange rate has affected that, and
then this constant task of trying to establish in a very
new, quite raw market for us, trading relationships. Competitive advantages–
the flavour, as I’ve already mentioned,
is something that is strongly appreciated in the trade and
acknowledged that we have sweeter fruit than our
competitors from South America and South Africa. The external rind appearance
of the fruit is very favoured there. We have deeper rind colour,
and in the wholesale market, which I’ll talk about shortly,
that is critically important. The appearance– the visual
appearance of the fruit is absolutely paramount. Food safety is something
we’re very proud of. I know we all talk about
being clean and green, but citrus actually now is the
biggest user of the national residue survey programme that
is run out of the Department of Agriculture here. So we’re actually walking
the walk, not just talking. And of course, being
closer to this market than any of our competitors,
we can present fruit in a more timely way, and
it’s a whole lot fresher. It’s about half the
travel time that it takes from a shipload from
Chile or South Africa. South Africa is our
biggest competition. This graph shows you in the red
the South African deliveries last year into southern Chinese
ports compared to ours in blue. And you can see that, in
the middle of our season there, there was a horrible
three week period where they sent shipload after
shipload in of fruit that they diverted away from
of their traditional markets, Europe, because they had a
quarantine problem there. We’re actually helping
them with that situation, sending our
scientists over there, trying to overcome that problem. That’s our way of trying to
deal with that particular issue. As I said, we’ve got to be
worried about external quality. So things like these light
blemishes that we see. The fruit actually
has to look fantastic. It is getting a premium price. They want a premium
looking product. Amazingly enough,
the rind texture is something that they
are very fussy about. The Chinese oranges that
you see here on your right are almost glass-like
in appearance, very flavourless,
low juice content. Nevertheless, they look,
in their eyes, fantastic. Whereas our product, which
has brilliant flavour, has got a more
slightly pebbled rind. And taste is absolutely the
number one thing for us. In just about every outlet
that you see in China, disregarding the wholesale
market where it’s almost all bought by eye– in every other
outlet, there is fruit tasted, and people will repeat
purchase on excellent flavour. I’m pleased to say that out
three biggest citrus packing houses, including Harry’s
citrus packinghouse in Renmark has now installed bricks grading
machinery on their packing lines, which means they can
segregate out the sweeter lines of fruit and deliver them
to premium markets like China. We have to improve
our packaging. We have a challenge
of our fruit arriving into very hot, humid conditions
in Shanghai or Guangzhou, and coming out of cold
storage, the fruit gets levels of
condensation around it that are absorbed immediately
by the cardboard cartons, and they collapse. Some of our competitors,
like this pack of French apples here– they’re
doing a whole lot better job of it. And in fact, we’ve got some
industry research happening right now up in
Queensland trying to develop stronger,
more resilient packaging for that market. A lot of these problems
I’ve told you about are related to the traditional
supply chain in China, which is very primitive. If you go to Shanghai,
or Guangzhou, or Beijing, or one of these import markets,
they are just literally big tin sheds with
almost no cold storage, or very primitive cool storage. And it’s just product that’s
basically put on the floor, and then shifted out
through various middlemen to secondary markets
or to wet markets. So delivery is as basic as
going out on the motor bike, as you can see there,
onto the back of a van. What is really interesting to
us is the amazing phenomenon that’s happening with online
fresh produce selling in China. More than any other
country in the world, China has absolutely
embraced this new way of marketing fresh produce. I think at last
count in Shanghai there were something
like 600 companies that were selling online
fresh produce, and that’s just in
that city alone. It is for us interesting
because it gives us the ability to communicate
directly with the consumer. On the screen here,
we can put messages that tell people about the
attributes of the fruit. We can tell them,
well, it actually might have a little
bit of blemish on it, but, hey, you can
buy that for 75% the cost of something that
looks pristine and glass-like. They came from the same tree. They taste the same. This is the kind of messaging
we can give out online that you just simply cannot get
on the wholesale market or in a supermarket. Quickly through some of
our market access issues– we have developed through, with
the Department of Agriculture last year, a very
comprehensive export strategy for all our countries. These are the four main
issues that are affecting us, and I’ll focus just
on one of those, and that is the little beetle
called Fullers rose weevil. If we were able to get a status
change in the quarantine status of that insect alone, we would
save our industry millions and millions of dollars
in compliance costs, and we would also literally take
a hand break off the industry and allow many, many
more hectares of citrus to be prepared for China. So that’s something that’s
right now on our radar. We’ve had discussions
about the exchange rate. We went through some
really, really bad times in citrus exporting
in 2011, 2012. When we were above
parity, things were looking very bleak for
our industry, I have to say. Things are looking a
whole lot rosier now. And I’ll give you a practical
example of what that actually means to a grower. So if we take a typical premium
price for a 18 kilogramme carton of oranges of, say,
$28 US– and this is a fairly universal price around
Asia– the actual return to the farm gate
actually increases in a non-linear fashion. It actually goes
exponentially as we drop down. So dropping from parity to
$0.95 increased the orchard gate return by $1.40. But when we went
from $0.85 to $0.80, which is kind of the
territory where we are now, that equivalent $0.05
drop gave us $1.90 return. And similarly, when we hopefully
go from $0.80 to $0.75, and maybe $0.75 to $0.70,
it’ll get even better. So the bottom line
for our industry is, if we’ve got
good quality fruit and we’ve got high prices, and
premium markets like China, and a low dollar,
this is really, really good times for our industry. I’m sure you’ve heard
about how important it is– the relationship
building in China. This is a country that does not
have 1,000 years of contract law backing up
trade relationships, so we have to base
everything on trust, and that’s all a very
personal experience. Our exporters, of course, have
to work on that individually. As a peak industry
body, we are working with equivalent
associations over there. We have developed a very strong
relationship with the China Agricultural Wholesale
Markets Association, or CAWA, as they
call themselves, which culminated in us
signing an MOU last year. And we continue to go to
their conferences every year. They are important to us
because they oversee the 3,000 wholesale markets
that are in China, and all our fruit at the
moment is going at some point through a wholesale market. So we need good friends on our
side if things ever go wrong or to solve problems
in those markets. Also forming relationships
with regulators– this is a myself and colleagues
meeting with the CIQ quarantine inspectors in Shanghai. And actually I will say
that, since the time that our government announced
that there was going to be a free trade agreement
negotiated with China, our relationship
with these people has turned from one that was
fairly risky and sour to one that is absolutely open
arms, great buddies. We couldn’t be the best
friends in the world. So just bear in
mind the goodwill that’s being generated by that
FTA is really important to us. Through an Austrade grant,
over the last two years, we’ve helped to get our
industry China-ready, and that’s teaching
them about the protocol. It’s also teaching them
about the cultural gap and how to do trade and
form those relationships. Branding is something
we’ve emphasised. It is a very, very
critical thing in China. The brands are everything. If you’ve got a
very strong brand, you will do incredibly well. If you’ve got a brand where the
quality lapses for some reason, you’ll be absolutely
slaughtered, and it would probably
would be better not to have a sticker on the fruit. One little thing I
illustrated here is that, even though our now friends
from Austrade tell us that the kangaroo has become
old fashioned and passe, believe me, there’s not a
person in China that would not recognise that symbol and
immediately say, oh, Dalian. They know exactly
where it comes from. Pricing– we are
helping our industry with voluntary committees
to talk about that and developing volume forecasts,
both here and offshore also with our competitors. We’ve got a good thing
happening in South Africa. We’re doing some promotions
through trade fairs. And I guess just some
challenges looking ahead– will these austerity
measures that you’re all aware of that the Chinese
government is bringing– will they affect
imported fruit sales? Our thinking is not really. We’re not on the Gucci
Prada kind of luxury market that is being affected by that. And at the latest
CAWA conference that I went to in January,
there was just a steady increase predicted for imported fruit. More worrying to us
is the fraud crackdown that’s happening in China on
importers, where they have run afoul of customs declarations. And one of our
biggest importers, a company called Dalian
Yidu, has been– well, one of the principals of
that has been imprisoned. So it’s kind of a
messy thing that we don’t want to get caught up in. And finally, as I mentioned,
this grey channel trade out of Hong Kong is something that
we are really working hard to try and mesh that in
with protocol improvements. We say to the Chinese government
we both want the same thing. We both want to legalise trade,
move it away from Hong Kong. You guys can collect
taxes and tariffs that you’re missing out on
when it goes through Hong Kong. How about we talk about
more sensible protocol? Because that will allow our
industry to comply with that. Will the demand for
imported fruit decline? I personally think it’s going
to take decades for the land degradation, the water
pollution, all those things to change in China for people
to get– the local people there to really start to
trust their product more than imported product. And lastly, we’re just
very impressed with what the government has done in
negotiating these free trade agreements in North
Asia in such quick time. It’s going to be
fantastic for us. And as I said, it’s not just
about the tariffs– of course, they will all
benefit from those. It’s also about the goodwill
that we’ve immediately engendered in China
in particular. So shei shei. Thank you very much.

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