Marketing Apples in a Global Environment: Challenges and Opportunities by Dr. Roberta Cook University of California Davis March 2003

Overview of Presentation US apple situation –Area and Production –Trade –Consumption Global apple production Emphasis on China Global apple trade patterns Global consumption patterns Marketing issues

US Apple Acreage and Change in and State Shares Source: USDA/NASS Jan. 03 and ERS 7% 40% 31% =168,785 hectares Down 8% Down 11%

Apple Acreage in Washington 2001 Fruit Survey * Current Estimate** Reds82,00066,709 Goldens27,00025,324 Granny Smith17,60016,669 Fuji24,40022,537 Gala25,50023,775 Other15,50013,227 Total192,000168,241 * Washington Agricultural Statistics Service;**Tom Shotzko Area peaked in ’99 at 210,000

Total Acres by Size of Apple Orchard - Washington Acres  25 AC AC AC >100 AC TOTAL Less than 25 AC Over 100 AC 28,249 27,716 33,126 73, ,610 % ,664 25,216 30,382 89, ,108 % ,518 22,233 34, , ,675 % Source: Census of Agriculture, as reported by Tom Shotzko

Apple Acreage, by Variety in California and Washington, 2002 California Fresh * Current WA Estimate** RedsNA66,709 GoldensNA25,324 Granny Smith6,20016,669 Fuji5,14622,537 Gala Pink Lady 3,788 1,267 23,775 NA Other2,30213,227 Total18,703168,241 *CAC and **Tom Shotzko Likely 22,000 total acres in Ca. including processing, and fresh area of 20,250 in 2000, CAC

Apple Production, U.S. and Selected States, , in million metric tons Source: USDA

U.S. Apple Production and Selected State Shares, WA2,428,14256%46%17% NY408,4609%11%-16% MI344,9278%9%-16% CA252,6306%8%-31% PA204,5395%5%-5% Other States690,87216%21%-29% US 4,329,569100%100%-4% Source: ERS and NASS, Jan/ State Shares State Avg Metric Tons % Change

California Fresh Apple Production, by Variety, 42 lb. Cartons 2002/ /02 Granny Smith2,235,9932,437,835 Fuji649,1201,060,491 Gala Pink Lady 1,015, ,877 1,102, ,581 Other96,660111,462 Total4,263,7614,951,455 Source: California Apple Commission, as of Dec. 1, 2002 WA Fujis down to 9 million boxes in 02/03 and Pink Ladies down to 500,000; WAC

Western U.S. Fuji Production in lb units Source: U.S. Apple Association, Aug.2003 update

Western U.S. Fuji Production in metric tons Forecast prior to frost 2002 Revised Wa. and Ca. Source: US Apples and 2002 revision from the WAC

US Utilization of Apples FRESH PROCESSED In Million Metric Tons ‘77 ‘80 ‘85 ‘90 ‘95 ’02* Update: 4,237,100 total Short tons in 2002; 2002 fresh/ proc. shares estimated Sources: thru 01 ERS/USDA, 10-02; NASS Jan. 03 for 2002

Ave. Item Number in the Ave. US Fresh Produce Department Number of items Source: Supermarket Business, Oct Pma study: 574 SKU’s in 2001

U.S. Per Capita Consumption of Fresh Apples and Pears / / /98..01/02 Source: ERS, USDA kg 87/88 97/98 APPLES PEARS

US Per Capita Utilization of Apples in pounds Source: USDA/ERS

US P ER C APITA F RUIT C ONSUMPTION, P OUNDS Source: USDA/ERS, Oct Pounds per capita Total for 2001 reaches 279 including some berries and olives.

US P ER C APITA V EGETABLE C ONSUMPTION, P OUNDS, Source: USDA/ERS, Vegetables and Specialties Yearbook, July 2002 Pounds per capita

Fresh Apples: U.S. Imports & Exports by Key Country 1000 metric tons IMP EXP IMP EXP 2002 Source: ERS, USDA 2001

US Fresh Apple Imports, by Country, In Thousand Metric Tons Source: Census Bureau, US Dept. of Commerce

Indonesia Source: Bureau of the Census, US Dept. of Commerce US Fresh Apple Exports, by Country, In Thousand Metric Tons Other Mexico Taiwan Canada Hong Kong

Monthly US Imports of Fresh Apples by Country of Origin in 2002 Source: US DOC Thousand Metric Tons Months

Monthly US Imports of Fresh Apples by Country of Origin in 2001 Source: US DOC Thousand Metric Tons Months

Monthly US Imports of Fresh Apples by Country of Origin in 2000 Source: US DOC Thousand Metric Tons Months

Monthly US Exports of Fresh Apples by Country of Destination in 2002 Source: US DOC Thousand Metric Tons

World Apple Production: Key Trends China can now provide over 1/3 of all world apple production vs. 11% in 89/91, but area has stabilized. The shares of production coming from N.A., Former Soviet Union, Other Asia and Europe shrank in the 90s, but Europe increased in absolute volume. The share of S. American suppliers slipped only slightly in the 90s as production grew about 1 million metric tons to 3.4 million; share changed to 5.6% in 2001 from 6.1% in 89/91. Recent adjustments downward in US, European, and possibly Chinese production for 2002/03 will likely boost Southern Hemisphere exports in 2003.

World Apple Production by Region (% total) Source: World Apple Report 2002 Europe (exc FSU) North America South America Africa Oceania F.S.U China Other Asia (exc FSU) World Avg Avg Avg Region

Global Pear and Apple Production, Million Metric Tons CountryApples (2002)Pears (2000) China USA4.877 Chile New Zealand Argentina 1.5 Australia Europe World Sources : FAO and FAS

World Per Capita Fresh Apple Supplies , kilograms per person Production grew by 50% vs. 15% growth in world population. Source: World Apple Review 2002

Source: FAS, USDA Apples: Total Production & Net Fresh Production, in million metric tons, Key Selected Countries 99/ / Fresh Total

Chinese Apples – Total Production, Net Fresh Production, Fresh Imports & Exports, in million metric tons Source: FAS, USDA /0000/0101/0202/03 f

China's Fresh Apple Imports, By Country of Origin, MY 2001 (July-June), Metric Tons Source: FAS

N. Hemisphere Net Fresh Apple Production, Key Countries Excluding China,in million metric tons /00 00/01 01/02 02/03 f Source: FAS, USDA

Southern Hemisphere Big Six: Long-term Upward Trend Broken metric tons Source: World Apple Review 2002 and FAS for 2001 and 2002, updated in 2003

Yantai North Andre Juice Co.,Ltd Apple Production in China, , Metric Tons Area in 2000 of 2,254,100 hectares vs. 2,986,900 in % are Fujis, 12-15% are Red Delicious.

Yantai North Andre Juice Co.,Ltd Guo Guang Fuji APPLE PRICES IN CHINA

Yantai North Andre Juice Co.,Ltd Chinese Apple Production, Distribution by Province, , metric tons Projection of 27,605,000 to 31,000,000 Metric tons by 2010; Desmond O’Rourke

Yantai North Andre Juice Co.,Ltd OTHER APPLES CITRUS PEARS Banana GRAPES Chinese Fruit Production, % of Total by Type

Yantai North Andre Juice Co.,Ltd 1.Close Belt Pressing System for Hygienic Application 2.5-Effect Evaporator 3.Storage in Apple Silo 4.Ultra Filtration system 5.R&D/Quality Assurance Center 2.Evaporator 3.Apple Silo 4.UF 5.Lab 1.Belt Press

1997 – 2001 Chinese AJC Export, by Country Unit : kg Yantai North Andre Juice Co.,Ltd Projection of 400,000,000 kg by 2010; Desmond O’Rourke

US Apple Juice Imports, by Country, In 1,000 KL Source: Census Bureau, US Dept. of Commerce Tariff code:

World Fresh Apple Trade by Key Selected Country Source: FAS, USDA 99/0000/ in million metric tons IMP EXP

Chilean Apple Exports: Changes in Market Share by Destination Europe46%35%32%32% U.S.A.7%8%12%12% L. America & Caribbean19%37%36%39% Other28%20%19%18% Grand Total100%100%100%100% Source: Chilean Fruit Exporter's Association Country

Chilean Apple Exports by Destination in million cartons (18 kg) Europe Other L. America & Caribbean USA Source: Chilean Fruit Exporter's Association

Estimated European Per Capita Fresh Apple Consumption kilograms per capita Source: World Apple Review 2002

Estimated Per Capita Fresh Apple Consumption: Other Major Producing Countries kilograms per capita Source: World Apple Review 2002

US and EU: Trend in Grower Selling Prices for Fresh Apples Source: World Apple Review 2002 Indexed to 1985 base = 100

United States: Annual Average Retail Price of Fresh Red Delicious Apples cents/lb - current & deflated Source: World Apple Review 2002

Farm value 19¢ Marketing bill 81¢ 19¢ Other costs - 4.0¢ Business taxes - 3.5¢ Repairs - 1.5¢ Interest - 2.5¢ Rent - 4.0¢ Depreciation – 3.5¢ Advertising - 4.0¢ Profits - 4.5¢ Energy - 3.5¢ Transportation - 4.0¢ Packaging - 8.0¢ Source: ERS/USDA Labor - 38¢ W HAT a D OLLAR S PENT for F OOD P AID F OR in 2000 in the USA

U.S.: Producer Price Indexes for Fresh Granny Smith and McIntosh Apples Calendar Years, Base, Dec = 100 Source: World Apple Review 2002

Washington State: Relative FOB Prices of New Varieties Average price all varieties in each crop year = 100 Source: World Apple Review 2002

World Apple Variety Trends, Excluding China Red Delicious and Golden Delicious will lose market share but remain in first and second place Gala/Royal Gala will be the principal winners, growing by 50% over the next decade, reaching third place Fuji will knock Granny Smith out of fourth place Combined volume of Jonagold and Jonagored will approach that of Granny Smith Source: World Apple Review 2002

World Apple Variety Trends, Excluding China Idared keeps growing, especially in Eastern Europe Braeburn follows in 8 th place McIntosh, Elstar, Cortland, Cox’s Orange and Empire will be stable Pink Lady production will triple between 2000 and 2010, but it won’t surpass 1% of production in the principal producing countries Other growth varieties: Cameo, Honeycrisp, Pacific Rose, Fiesta and Sundowner Source: World Apple Review 2002

France: Apple export destinations & volumes, 1998 & 2000, 1000 metric tons light = 1998 dark = 2000 Totals: ,207 tons 2000 – 847,833 tons

Italy: Apple export destinations & volumes, 1998 & 2000, 1000 metric tons light = 1998 dark = 2000 Totals: ,138 tons ,053 tons

Netherlands: Apple export destinations & volumes, 1998 & 2000, 1000 metric tons light = 1998 dark = 2000 Totals: ,870 tons 2000 – 294,356 tons

Belgium & Luxembourg: Apple export destinations & volumes, 1998 & 2000, 1000 metric tons light = 1998 dark = 2000 Totals: ,621 tons ,033 tons

1 Supercenters U.S. $ % 2 Carrefour/Promodès France $ % 3 Holland $ % 4 U.S. $ % 5 Germany/Switz. $ % 6 U.S. $ % 7Kmart U.S. $ % 8Safeway U.S. $ % T OP 2001 G LOBAL F OOD R ETAILERS sales % grocery ranksales company ($ billion)sales 30 grocery retailers account for 10% of global food retail sales.

9CostCo U.S. $ % 10 U.K. $ % 11 Germany $ % 12ALDI Markt Germany $ % 13ITM Entreprises France $ % 14J. Sainsbury U.K. $ % 15Ito - Yokado Japan $ % 16Edeka/AVA Germany $ % % T OP 2001 G LOBAL F OOD R ETAILERS sales % grocery ranksales company ($ billion)sales Source: The Food Institute Report, June 17, 2002

17Aeon/Jusco Japan $ % 18 Tenelmann Germany $ % 19Auchan France $ % 20 IGA (Supervalu) U.S. $ % 21Daiei Japan $ % 22Casino France $ % 23E. Leclerc France $ % 24Delhaize “ Le Lion ” Belgium $ % 25Schwarz-Group (Lidl) Ger. $ % T OP 2001 G LOBAL F OOD R ETAILERS sales % grocery ranksales company ($ billion)sales Source: The Food Institute Report, June 17, 2002

Building Retail Partnerships uEffective Tactics uShopper Savvy Loyalty Card Better Systems uResults-driven Tracking Focus uDept. Profitability uStrategic Approach uCategory Development uBest Practices uStore-level Research uPurchase Triggers uConsumer Drivers uLong view uFact-based Selling uInnovative Marketing/ Merchandising uEfficient Practices u“Category” vs. “Item” Perspective Retailer/ Wholesaler Grower/Shipper Boards/Commissions Roles and Responsibilities Source: Adapted from The Perishables Group