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Chinese Apples Pose Threat
To US Apple Industry

Our pieces, China Plays Down Food Safety Problems and Chinese Garlic and Food Safety, both dealt with the implications of food safety problems in China.

The Associated Press did a piece entitled, US Apple Growers Brace For China Rivals, pointing out that, even with its food safety troubles, China is a large potential threat to the U.S. apple industry:

“We’re facing a threat that we’ve never faced before in terms of their ability to come in and essentially replace every apple that we produce in this country numerically and at a much lower cost,” said John Rice, a seventh-generation grower whose grandfather made money in the Depression era by gathering apples from area growers and shipping them to England in 100-pound barrels.

Rice’s family today owns 1,000 acres of orchards and packs and markets apples for 50 area growers primarily in Pennsylvania’s historic growing area in Adams County, on the Maryland border.

“We have to lower our costs and we have to do what other successful business have done in the face of Chinese competition and that is to innovate, to stay ahead, to either grow new varieties that they don’t grow in China, or whatever it takes,” Rice said.

Fifteen years ago, China grew fewer apples than the United States. Today, it grows five times as many — nearly half of all apples grown in the world.

China’s advantage is its cheap labor. A picker makes about 28 cents an hour, or $2 per day, according to the U.S. Apple Association. In 2005, workers in Pennsylvania made about $9 to $10 per hour, and those in Washington state about $14 per hour, the association said.

Right now fresh Chinese apples are not enterable in the U.S.:

Discussions between the U.S. and China over whether its fresh apples can be brought into the United States have been going on since 1998.

To gain access to the market here, China must prove that it meets U.S. standards for pest and disease control. The U.S. Apple Association said the Department of Agriculture’s Animal and Plant Health Inspection Service sent a list of more than 300 insects and diseases of concern to the quarantine inspection agency of the Chinese government in 2003. The Chinese government responded the next year, and then the United States asked for information on 52 pests from the list.


AP Photo: Graphic shows China’s apple production over time.

Though the U.S. competes against China for sales to third countries:

Already, U.S. apple growers compete with Chinese growers for sales in parts of Southeast Asia and India.

And American growers are haunted by their experience with the apple juice market:

After Chinese juice concentrate entered the U.S. market, the average price for juice apples fell from $153 per ton in 1995 to $55 per ton in 1998. The industry filed an antidumping case but lost on appeal with the U.S. Commerce Department. Today, more than half of imported concentrate comes from China.

“It was an uproar within the industry,” said Jim Allen, president of the New York Apple Association. “What can we do? It just takes the bottom right out of our market when the product is being delivered to New York City for less than we can process and harvest it here in the United States.”

But U.S. growers are fighting to stay on top:

Like in many areas of farming, many U.S. apple-growing operations have been absorbed by bigger ones. Some smaller remaining operations have survived by selling directly to consumers at farmers markets or developing niche markets selling organic or specialty apples.

Third-generation Pennsylvania grower Dave Benner, 61, like most growers, has slowly replaced older larger trees in his orchard with smaller dwarf ones that are close together. That makes the fruit easier and faster to pick. He also pays close attention to consumer demand and to the world market.

“Business is still business whether you’re in agriculture production or you’re in commercial manufacturing,” Benner said. “When people want small economical cars then the automobile industry had to change. When people say they like the flavor of Gala or Fuji apples … that’s what I have to be growing.”

As we discussed here the apple industry is focusing on mechanization:

Because more than half of the cost of growing apples goes toward labor, researchers have been working to develop technology and practices that will help cut labor costs. Among the concepts under development are machines that will allow apples to be mechanically picked without bruising, and platforms that lift up pickers so they don’t have to climb ladders.

The apple industry is working with other fruit and vegetable industries to seek, in the 2007 Farm Bill, about $1 billion annually for research, a state block program, a program that helps it develop overseas markets and for expansion for a program that provides fruits and vegetables to school kids.

But many growers are praying for country-of-origin labeling:

The current Farm Bill, which was worth about $100 billion, passed in 2002 and expires in September. In it, country-of-origin labeling was mandated, but its implementation has been delayed until September 2008 because of opposition by retailers and others who say it is too burdensome.

Most apples already carry the labeling, but Mark Barrett, 52, a grower in Washington’s Yakima Valley, said full implementation is the best way to help U.S. apple growers. “I believe if we had country-of-origin labeling that the consumers would buy U.S. all the time,” Barrett said.

Allen, the head of the New York apple growers group, said it would be hard to promote U.S. apples as being better than foreign-grown apples if consumers can’t be sure where they have been grown.

One bad apple, he said, might give all apples a bad name.

We suspect country-of-origin labeling may be a bit anti-climactic for growers. After all Americans are not compelled to buy American cars, clothes or otherwise. Why would they suddenly get so concerned on apples.

Although Jim Allen’s point, which basically is to use the law to enable a marketing campaign, makes a lot of sense.

It would be idiotic not to be concerned but we have noticed plenty of exports to areas such as Scandinavia even though plentiful and less expensive European apples are readily available. Why? Because some people will pay more for something exceptional.

With China’s enormous population becoming more affluent, we can expect that — if we produce something special — an imported apple is likely to be an affordable luxury.

If so, very low per capita consumption of imported American apples could be an enormous boon for the American industry.

Is the glass half empty or half full? It may be too early to say but if we keep our eye on producing the best apple in the world, we certainly have a shot at finding potential in this enormous market.

Kingsburg Introduces Kosher Stone Fruit

n an industry of commodities — and commodity like returns — the quest for differentiation is crucial and ongoing. Now, for the first time, a major national shipper of tree fruit has decided to offer a certified kosher line:

Certified Kosher Stone Fruits Now Available —
A Welcome Addition To Summer Kosher Meals

To meet the growing demand among Jewish consumers and others looking for healthier, cleaner foods, Kingsburg Orchards has introduced a new line of Certified Kosher fresh fruit including, peaches, plums, nectarines, Asian apple pears, pluots, apriums, apricots, apples, persimmons, kiwifruit and avocados. This new product line is the latest innovation from the fifth-generation farming organization that was among the first to introduce white flesh tree fruit, Asian apple pears and pluots — including the unique “Dinosaur Egg” pluot.

Kosher fruits from Kingsburg Orchards bear a new PLU label featuring the “OU” symbol of the Orthodox Union, the world’s largest kosher certifying agency. The Orthodox Union is recognized for enforcing one of the strictest kosher standards on the market today. Meeting that standard required a lengthy process and significant investment from Kingsburg Orchards.

“This certification enables us to connect with the traditions of the Jewish community, which considers the observance of keeping kosher to be a key way of making a Jewish home ‘Jewish’,” said Dan Spain, Vice President of Marketing for Kingsburg Orchards.

“At the same time, millions of other consumers — regardless of faith — perceive kosher food as being healthier and cleaner, giving our Certified Kosher fruits selling power beyond the Jewish community,” Spain said.

According to recent research, kosher certification appears on over 60% of American food products and currently accounts for more than $150 billion in annual sales — a figure that is rising dramatically.

Kingsburg Orchards is launching its new stone fruit line in regions with high demand for Certified Kosher products, enabling consumers in those areas to add the fruits to their summer kosher menu.

Although today a number of produce companies have kosher certifications for both fruits and vegetables and salads, with Star-K probably the most popular certifier in the produce industry, kosher produce is a relatively new innovation. Generally speaking fruits and vegetables are inherently kosher — or sanctioned by the Jewish dietary laws.

The rules are complex though, and this is not always the case: Fruit that grows during the first three years after a tree is planted is called Orlah and is not kosher to be eaten… there is a special procedure to render the fruit permissible to eat in the fourth year.

There are also special rules that apply if the produce was grown in Israel:

Trumah and Maaser are terms for various tithes that apply to Israeli-grown produce, to be given to the Kohen and Levi. Untithed foods are called Tevel and are not kosher to be eaten. If you’re visiting Israel, or even if you’re buying Israeli oranges or tomatoes in your local supermarket, you should make sure that proper tithes have been taken from all grains, fruits and vegetables.

The Torah (Leviticus ch. 25) says that every seven years, agricultural work must cease in the Land of Israel. This is called Shmita — the seventh, sabbatical year. Produce that grows on land that was "farmed and worked" during the seventh year is not kosher. Today, with the return of a Jewish agricultural industry to Israel, the laws related to Shmita are once again very relevant. So if you’re buying Israeli produce, make sure the laws of Shmita were properly observed.

However, although most produce sold commercially is inherently kosher, things can be done in post-harvest treatment of product that can make it not kosher. For example certain washes or waxes may not be allowed according to traditional Jewish law:

A small sign hanging above the produce in a local supermarket reads, “Fruits and vegetables have been coated with food-grade vegetable, petroleum, beeswax, and/or lac-resin based wax or resin to maintain freshness… No fruits or vegetables have been coated with animal-based wax”…. The sign is not required by law to declare the additives put in coatings, some of which raise kashrus concerns. That doesn’t mean that coatings on fresh produce are not acceptable….

Bugs are also not kosher to eat. There is such a great concern over bugs that many traditional Jewish observers will not purchase Romaine lettuce and broccoli for fear of eating a bug. In places such as Brooklyn, New York, a few companies, such as Bodek Kosher Produce, sell fresh-cut produce that has been certified kosher. The big concern is insect infestation:

Many assume that farmers and companies are wary of insects in vegetables, and take proper precautionary measures to ensure that their inventory is clean from bugs. This assumption may seem reasonable but, in fact, farmers have not been able to consistently grow insect free produce. The FDA tolerance levels of insect infestation in produce are far more permissive than proper halachic standards. For example, the US government allows averages of up to 60 insects per 100 grams in frozen broccoli, and up to 50 insects per 100 grams of frozen spinach (See Food, Drug, and Cosmetics Act 402 (a)(3)). (There are no FDA action levels written specifically for fresh salad mixes, and typically the standard required throughout the industry for leafy vegetables is the frozen spinach FDA tolerance level).

This area is controversial because many fresh-cut processors, including Fresh Express and Dole, have many of their products certified kosher. However kosher standards vary from one certifying agent to another, and different certifiers have different degrees of credibility with different communities. In some communities, only their own certifier is acceptable.

Initially Kingsburg is emphasizing distribution to areas where kosher products sell well. This includes both Orthodox Jewish areas and Muslim areas where many Muslims use kosher products to substitute for Halal products that are unavailable. Yet in the end, Kingsburg may want to pursue broader distribution. Though certainly welcome to the Orthodox Jewish community, Kingsburg Orchards efforts will probably have their most important effect among the general population. Study after study has shown that consumers perceive a kosher certification to provide a halo effect to any product it is on.

Of course, all depends on how Kingsburg uses the certification. If they are quiet about it, then only those who really care will know about it. But if Kingsburg promotes its kosher quality, it may well change consumer perceptions. We hope Kingsburg did some consumer research on attitudes toward its name. We would predict that if they raise awareness of the fact that the product is kosher, consumer perception of food safety will rise.

Such is the impact of the halo effect in marketing.

Zespri Among Most Counterfeited
Brands In China

We’ve had problems in the U.S. with companies mislabeling Washington apples and Idaho potatoes, trying to get the benefit of premium name on cheaper produce. In China, the Hermès of produce seems to be the kiwifruit, specifically Zespri kiwifruit. It is like Hermès and Gucci and other famous names because it is so often counterfeited:

New Zealand’s humble kiwifruit ranks with international retail icons such as Louis Vuitton, Gucci, Oroton and Rolex when it comes to the most commonly counterfeited items, according to an OECD report.

China is the sole source of kiwifruit rip-offs, according to Zespri chief legal counsel Murray Denyer, a contributor to the report which is due out next week.

Kiwifruit had the distinction of being the only fresh fruit to be targeted by counterfeiters, he said.

This was because of the price that premium New Zealand kiwifruit commanded in the Chinese market — as much as 10 times that of local produce. Counterfeiters printed fake labels and packaging to go with local fruit or cheap Chilean imports.

“They are quite inventive with similar-sounding names and strikingly similar packaging. It is easy to trick a Chinese consumer who doesn’t read English — to them it looks the same.”

“What we find is in the big wholesale markets a little guy will be going around selling fake labels and packaging to the small stallholder buying cheap fruit.”

Though the amount of fruit involved was not huge compared with the five million trays worth $50 million sent to China from New Zealand, Zespri acted quickly to close down the counterfeiters when they were discovered.

Some of the operations were on a large scale, Mr Denyer said.

Zespri is taking civil action against one big counterfeit operation that was found to have trademark applications underway as well as a website.

“China is a big growth market for us and as it grows the temptation to copy us will grow. Hopefully, our determination to stamp out counterfeiting will have a deterrent effect,” he said.

“Mainly it is small-scale fly-by-nighter. Our lawyers will write them a rude letter and they will disappear into the woodwork, then someone else will pop up somewhere else.”

As the produce industry becomes more sophisticated with more branding, more extensive marketing and more proprietary varieties that are not obvious to the naked eye, this is a problem that is likely to become more and more prevalent.

Compromise Immigration Bill
Gets Another Chance

The compromise immigration bill, including the AgJOBS element, is getting another chance in the Senate. Even if it passes the Senate, it has an uncertain future in the House of Representatives, with House republicans warning the President not to push too hard. Speaker of the House Nancy Pelosi has notably not committed to the bill and says she won’t even bring it for a vote if it doesn’t have 50 to 70 House Republicans signed on.

Although AgJOBS itself is a big plus for the produce industry, one wonders if in the end the bill will actually help the trade’s labor situation. After all, the profile of the typical legal immigrant will change with the shift to an education and achievement point system counting for more than family unification, and immigrants that fit the new criteria may have less interest in produce jobs than current legal immigrants.

The bill’s border security efforts to reduce illegal immigration may work and thus reduce the supply of illegal immigrants.

Plus the legalization of the estimated 12 million illegals will allow many illegals presently employed in the industry to shift to other, more stable, more lucrative or less physically taxing professions. AgJOBS will offset some of this but one wonders if net-net-net the bill will actually produce more or less labor for the produce industry?

We really need more emphasis on how the industry can survive and thrive if labor becomes scarce and more expensive. The logical approach is to use our facility with technology to develop mechanical harvesting techniques.

We’ve run pieces such as Reducing Labor With Technology, before and received a letter from an industry leader which we published here that included this point:

I’ve long contended that the agricultural community is hooked on the drug of cheap labor. In the 60’s, people were mechanically harvesting certain vegetables for Campbell’s Soup. They had to quit doing it because labor was so cheap — they couldn’t beat the cheap labor rates — and the machine wasn’t efficient enough to overcome it. The point is, it was being contemplated 40 years ago, and it should have been an industry-wide effort ever since.

We haven’t worked on mechanization and automation in this industry because we have had no motivation to do so. Now, with fear of labor shortages, we see a frenetic pace of R&D on mechanical harvesters. I’m already hearing tales of at least four companies that will be mechanically harvesting lettuce in Yuma with less than 50% of the labor previously needed, and they also claim better quality! And this is only the start of an industry revolution.

Now Vision Robotics Corporation has been hard at work developing tools for mechanical harvesting. The idea is to use a kind of “scouting robot” that will go out into a field and draw a digital map of what needs to be done. This could include weeding, trimming, etc. It also would map out the ripe fruit for harvesting. Then mechanical harvesting equipment would be brought in.

This is crucial because previous mechanical harvesting machines were too slow. This is because, as Vision Robotics explains it, the harvesters approached a tree as a human being would. The machine would find one piece of ripe fruit, harvest it, then look for another, then harvest it, etc. The scouting robot would allow a multi-armed harvester to simultaneously harvest many pieces of fruit.

This is a sketch from the patent application of the scouting robot:

These are 3-D models of mechanical equipment proposed for the apple and orange harvesting and for grape pruning. Click on each photo and you can see additional photos:

Our vision systems are first used to scan and identify apples within an orchard. Cameras placed at the end of long scanning booms use arrays of stereoscopic cameras to create a virtual 3D image of the entire apple tree. The positions and sizes of the apples are stored and passed onto the harvesting arms. Immediately following the scanning process, a series of long reticulating arms are maneuvered to gracefully pick each apple quickly, efficiently, and economically.

Our vision systems are first used to scan and identify oranges within a grove. Scanning heads placed at the end of multi-axis arms use arrays of stereoscopic cameras to create a virtual 3D image of the entire orange tree. The positions and sizes of the oranges are stored and passed onto the harvesting arms. Immediately following the scanning process, eight long reticulating arms are maneuvered to gracefully pick each orange quickly, efficiently, and economically.

At the end of each season, workers must go out into a vineyard and meticulously trim every single vine at a precise angle and location in order for the following year.

The question is: is this science or science fiction?

Well important industry institutions are backing Vision Robotics Corporation. Wired magazine reports that the California Citrus Research Board has anted up almost $1 million and Ted Baskin, president of the board, has estimated that it will take $5 million more to finish the job. The Washington Tree Fruit Commission also is investing in the project. Other ag groups are in discussions.

In the past there have been many obstacles. Wired reports that Cesar Chavez fought against Federal funding:

…it wasn’t just technological challenges that held back previous attempts at building a mechanical harvester –- politics got involved, too. Cesar Chavez, the legendary leader of the United Farm Workers, began a campaign against mechanization back in 1978.

Chavez was outraged that the federal government was funding research and development on agricultural machines, but not spending any money to aid the farm workers who would be displaced. In the '80s, that simmering anger merged with a growing realization that the technology was nowhere near ready, and government funding dried up.

Vision Robotics says it still doesn’t pay:

Despite the fact that an assortment of researchers have been working on both robotic automation of fresh fruit care and harvesting for decades, there remains no viable, cost-effective approach towards robotic mechanization. The cost of automated harvesting is based on picking speed; the faster the better. Any robot operating in an orchard will have multiple arms to operate efficiently, yet coordinating a multi-arm picker is difficult

Yet whether it “pays” or not depends on how we figure the cost. Obviously, if the labor situation gets tighter, wages will go up and the machines become more feasible.

Yet as a society, we may not be calculating the true cost of the migrant labor. That same letter that included the quote we excerpted above about mechanical harvesting also contained this analysis:

…we haven’t attributed the correct cost to our cheap labor. Thirty percent of California prison inmates are in the country illegally. There are 20 murders per year in Salinas, a city of 150,000 people. The city spends almost $1 million on a gang task force every year. These are social costs that are borne by all the citizens of the city and state, and aren’t accounted for in the cost of the produce.

Our letter writer also said this:

Where there’s a will, there is a way. We haven’t had the will because there was no need to abandon our reliance on cheap labor and find a better way of doing things.

Perhaps the debate over immigration will be the catalyst we have needed to change. The industry owes some thanks to California Citrus Research Board and Washington Tree Fruit Commission for investing in this very likely future.

Pundit’s Mail Bag —
Food Safety Double Standard

Our piece, Food Safety And ‘Locally Grown’, brought an avalanche of response, including this letter from a well-known grower-shipper:

part of what you say is true. The only problem we have is that small growers now are having financial problems. They have a limited time to get their crops to market. They do not have the financial resources to put together an elaborate safety program like Dole or Del Monte.

If retail wants to pay for it in increased costs to them, it may work but normally retail wants to get it as cheap as they can. T&A and Dole etc., can get away with adding on a cost per unit for food safety but when the little guys try to do the same, they cry foul.

Like you said in your article, there is a double standard which should not be there. The bottom line is that the small grower cannot afford to absorb any more costs than what they already have.

— Jerry Van Solkema
Van Solkema Produce Co.
Byron Center, MI

Jerry is correct, of course — small growers are struggling. Though I must confess that this Pundit grew up listening to his father and grandfather discuss produce around the dinner table and can’t recall a time when small growers were not struggling.

In this case, though, it strikes us that food safety and locally grown are a bit of a chicken-and-egg situation. As long as a grower is in competition with growers not meeting any standards, it will be hard to absorb the additional costs of meeting standards.

The solution, of course, is for buyers to constrain their supply chain to only those who meet standards. So, if Wegmans (and I pick on Wegmans only because Dave Corsi, VP of Produce, was one of the founders of the Buyer-led Food Safety Initiative) adopts a policy and issues a statement that says from now on it will only buy produce that has been third-party audited to Standard X, it is sending a message to growers that it is OK to invest in food safety because the growers will not have to worry about competing with growers who did not invest in food safety.

This is what the whole battle to get buyers to agree to limit their purchases of California product to signatories of the California Marketing Agreement for Lettuce and Leafy Greens was all about. Even Dole didn’t feel it could just absorb food safety expenses; it wanted buyers to refuse to buy product that hadn’t been produced according to set standards.

Our own analysis is that many small growers simply don’t have the commitment to meet tough, accountable standards, so they will continue to produce for an “informal market” without formal food safety standards.

Those local growers able to rise to the challenge and meet food safety standards will see their income increase as the constrained supply chain forces chain buyers to pay higher prices — if retailers are willing to make the commitment.

Put another way: Retailers get the kind of food safety program they want to pay for. We wrote about this in our piece in Pundit sister publication, PRODUCE BUSINESS, entitled Food Safety Is A Retail Issue.

The shame here is that this problem is so obvious, this double-standard so clearly unacceptable, yet very little is being done to solve the problem. That is certainly a shame and, if someone gets hurt, it may well be a sin.

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