business

China's Growing Exports: Food and Fear

As its shipments of fresh produce to the U.S. increase, so do concerns about contamination

As the U.S. and China hold high-level economic talks, there's no shortage of important topics. At the top of the list for Treasury Secretary Henry Paulson and China Vice-Premier Wu Yi will be China's trade surplus with the U.S., which hit $232 billion last year and has prompted Congress to consider all sorts of economic sanctions against China. China's currency policy is a related issue. And the safety of pet foods from China has received attention because of the recent deaths of some animals in the U.S.

However, one topic has received less attention: China's growing influence as an exporter of fresh produce for human consumption. While China's overall exports of agricultural goods are relatively small, they're growing at a torrid pace. In the first three months of this year, imports of fresh fruit from China grew 279%, to $7.4 million; fresh vegetables grew 66%, to $32 million; and fruit and vegetable juices grew 98%, to $109 million.

Vulnerable Supply

This huge increase of food imports into the U.S. has been fed by the growth of large retailers like Wal-Mart Stores (WMT) and consolidation of others such as Albertsons and Kroger (KR), all of which are looking for a 52-week supply of fresh fruits and vegetables for their consumers. "People have gotten used to buying strawberries in the winter," says William Hallman, director of the Food Policy Institute at Rutgers, The State University of New Jersey.

As large manufacturers such as Kellogg (K), General Mills (GIS), and Kraft (KFT) buy more from the country, China looks as if it could become the same kind of export juggernaut in fresh foods that it has become in manufactured goods. Consider this: In 2000, China accounted for 1 million pounds, or less than 1%, of all U.S. fresh garlic imports. By 2005, China dominated that market, exporting 112 million pounds, or 73%, of the total garlic import market. The same goes for strawberries: China exported just 1.5 million pounds in 2000 and now exports 33 million pounds to the U.S.

What's not to like about reasonably priced berries in January? Well, some food experts are concerned. The trouble is that perishable commodities shipped over vast distances are some of the most vulnerable to contamination and other issues. Rutgers' Hallman points out that much fresh produce is meant to be eaten raw, and there's no way to kill microorganisms they may contain, the way food companies can use irradiation on poultry or meat. "The longer the distance that the fresh produce travels, the more chances there are for contamination from mishandling and more time for the microbes to multiply," says Hallman.

Lax Standards

China's record with food imports isn't reassuring. Just last month, 107 food imports from China were detained by the Food & Drug Administration at U.S. ports, according to The Washington Post. Among them were dried apples preserved with a cancer-causing chemical and mushrooms laced with illegal pesticides.

With the backdrop of the tainted pet food ingredients, food safety will be one of the issues addressed in the Washington trade talks on May 23. Commerce Secretary Carlos Gutierrez said the topic would be addressed formally before the discussions ended on Wednesday (see BusinessWeek.com, 5/21/07, "How Safe Is The Food Supply?").

Organic foods, of course, have been growing in popularity precisely because of these kinds of concerns with food safety. But organics are starting to come from China, too. Manufacturers including Dean Foods (DF) and Kellogg, as well as retailers such as Wal-Mart, are importing their organic strawberries, soybeans, mushrooms, and broccoli from China. While some companies label where their produce comes from, they don't have to. And the U.S. Agriculture Dept. says that it has no records of how much organic produce and food is imported into the country. The USDA's National Organic Program spokeswoman Joan Shaffer says: "Sorry, honey, but we just don't track that."

The research that's available isn't that comforting. In a report prepared last year, Ursula Chen, a former marketing specialist at the USDA's Agriculture Trade Office, found that the Guangdong province of China had started pursuing organic farming and production on a large scale. The majority of the products were exported to the U.S., EU, Japan, Russia, Hong Kong, and Macau. However, Chen found that the organic standards were lax. "Before April 1, 2005, there were no national or unified industrial organic food standards in China," she says.

"Sanitary Issues Are Pawns"

Though organic food increasingly is being exported from China, it's still an emerging field. Chen found that though some products were certified as organic, they didn't meet the requirements, and that in some cases there were traces of fertilizer, feed additives, animal medication, and other toxic materials. Food-packaging companies and retailers had taken it upon themselves to provide safer food products to customers and had developed their own food safety inspection systems.

"Typically, such company inspectors will check for residue levels of pesticides, and their tolerance level could be pretty far from the USDA's own organic standard," says Steve Suppan, policy analyst at the nonprofit Institute for Agriculture and Trade Policy in Minneapolis.

China clearly has high aspirations in the global agriculture arena. According to the latest data from the Food and Agriculture Organization of the United Nations, China produced nearly half of the world's vegetables—five times the U.S. share. China also produced 16% of the world's fruit, more than double the U.S. share. And its growth in agriculture, as in manufacturing, is staggering. In the last four years for which data are available, China added 5.7 million acres to the cultivation of vegetables. That's 50% more than the total land used for vegetable farming in the U.S.

How important food issues are in the overall economic talks between the U. S. and China remains to be seen. They certainly can become high-profile when consumers (read voters) get scared about the safety of the food on their dinner tables. But by and large, the issue will take a back seat to discussions of deficits and devaluations. As Suppan from the Institute for Agriculture and Trade Policy says, "Sanitary issues are pawns in a much larger trade-policy game."

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE