IMPORTS_OF_APPLES_TO_JAPAN__Draft by xiagong0815

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									               IMPORTS OF APPLES TO JAPAN:
          WASHINGTON STATE'S PERSPECTIVE
(January 15, 1997)




I. INTRODUCTION: PUTTING THINGS INTO PERSPECTIVE

The Washington Apple Commission is an industry-funded organization charged with
marketing and promotion of Washington state apple both domestically and internationally.
Each apple grower in the state contributes $0.25 to the Commission for every 20-kg box
of apples sold. From these funds, WAC engages in a wide range of activities:
supermarket promotions, merchandising, distribution of point-of-sale and educational
materials, television and radio advertising, trade relations, etc., etc. Over the last 5 years
exports have grown rapidly and now represent about 30-35 percent of the state's total
fresh apple production. This year, for example, we hope to export over 30 million cartons
of apples from a total production volume of 98.9 million cartons. Washington apples
amount to about 50-55 percent of all the apples grown in the United States and easily
account for 90 percent of America's export volume.

Washington apples are probably the most widely distributed apples in the world with
shipments going to over 50 countries each year. It is important to note that unlike, say,
the New Zealand Apple and Pear Marketing Board, WAC does not sell apples to
customers; this is a function of private companies (apple processors and export
companies). WAC has no direct control over pricing or grading standards. It can only
seek to drive demand through marketing and advertising.

Part of Washington State's success is due to it's investment in horticultural and cold
storage technology. Once the apples are harvested, they are sorted, washed and graded on
high speed computerized processing lines and quickly go into cold storage. About one
third of the apples are shipped fresh during the first few months of the fall; the rest go
into 'controlled atmosphere storage', large facilities that are completely sealed in which
the oxygen level is brought down to 1 percent and humidity and temperature are carefully
monitored. This technology literally puts the apples 'to sleep' and allows us to ship 12
months a year. This ability to ship apples when others are not in the market, plus the
industry's internal disciplines on consistent grading have built up a loyal trading base
around the world who trust they will get what they pay for when they order. The
Washington Apple Commission has also developed over the years a strong marketing
network around the world with experienced in-country marketing companies working
hand-in-hand with the Commission to promote the industry's apples.
Recent trends in the industry are toward growing new varieties such as Braeburn, Gala,
Jonagold and Fuji which is consistent with supermarket trends in the US and elsewhere to
provide consumers with more choice, color and sweetness. These new varieties together
with Golden Delicious and Granny Smith varieties now represent almost 50 percent of
the Washington crop. The remainder is Red Delicious.



II. JAPAN'S IMPORT PROTOCOL

I preface my remarks on Japan with what must seem like a commercial message simply
to set the stage for understanding the opportunities and constraints of that market. The
industry has much experience over many years of producing apples for a wide range of
markets around the world. The opening of Japan announced in August of 1994 after years
of negotiation was exciting to be sure, but the difficulties of selling there were neither
unexpected nor underestimated. In fact, our apples were approved by the Japanese
government way back in 1971 as long as a proper 'protocol' could be worked out between
the United States and Japan. This small detail, as it happened, took another 24 years!

Japan's major concerns regarded a fruit tree disease called 'fire blight' (kashobyo in
Japanese) and the Codling moth, an insect found wherever apples are grown throughout
the temperate regions of the world. Neither of these maladies, the Japanese claimed, were
in Japan nor unless our industry complied with strict procedures, could Washington
apples not come in. Despite the absence of any scientific data showing that fire blight can
be transmitted on apples (but only on infected trees), Washington state agreed to a
protocol of inspection aimed at eliminating any risk of transmission. Under this
agreement, Washington apple growers would be required to designate and register the
orchards from which apples shipped to Japan would derive.

These orchards and a 500 meter buffer zone around each orchard would be inspected by
Japanese inspectors who would be flown over from Japan and housed in the state during
the spring and summer at the Washington apple industry's expense. Periodically during
the growing season, these inspectors would search for fire blight in each orchard and the
surrounding buffer zone. Under the rules of the agreement, even one sighting of fire
blight in or around the orchard would eliminate the entire orchard from the program. This
arrangement is extremely expensive and very risky. Up-front registration costs for the
grower are nearly $1000 per acre, all of which is lost even if fire blight is detected in
areas outside the orchard. A small grower with 20 acres could lose $20,000 just by
entering the program. In addition, this requirement automatically excludes many growers
whose apple orchards are adjacent to pear orchards since fire blight is far more common
in pear trees. In any event, harsh though this requirement is, Washington State was
confident that it could comply with the regulations.

Another requirement aimed at preventing codling moth infestation was equally as
stringent and included a wide variety of specialized processing and storage requirements,
including holding harvested apples in bins specially cleaned and marked for exclusive use
for apples to Japan, and changing the internal configuration of cold storage warehouses
including adding new ventilation systems. The most profound requirement, however, was
requiring apples shipped to Japan to be held in sole-use cold storages for 55 days upon
which the apples are removed and allowed to warm to a point where they can be
fumigated with methyl bromide, sorted and packed, re-cooled and inspected once again
by Japanese inspectors. All in all, this requirement adds at least 90 days to the time before
we can ship to Japan and effectively keeps our apples out of the market during the peak
apple selling season. Since this storage requires cycling the apples through heating and
cooling (not to mention harsh fumigation), the apples can suffer in quality without
extremely careful controls both before and after harvest.

All of these aspects of the 'Japan Protocol' add time, risk, expense and the potential for
reduced quality to the equation. It can be argued that most, if not all, of these
requirements are unnecessary. As has now been scientifically documented, fire blight has
existed in Japan since the 1930's (not to mention that it cannot be transmitted on apples
anyway) and other, just-as-effective methods for controlling codling moth are routinely
used for all other markets around the world and involve far less time and expense.
Nevertheless, I would point out again that the Washington apple industry was and is fully
prepared to meet these requirements. But one does need to be aware of the extraordinary
lengths our industry must go, as well as understand the constraints upon cost, flexibility
and marketing, that these regulations necessarily impose.

Equally tough was GOJ's refusal to allow any varieties other than Red Delicious and
Golden Delicious into Japan. Our research clearly showed that current consumer
preference was strongly toward 'desert fruit', sweeter varieties such as Fuji and Gala.
Unable to ship what the Japanese consumer preferred, we were determined to do our best
to encourage a consumer shift toward less expensive everyday-eating apples. From the
beginning we understood this was a long-term goal. Because of the high production costs
of raising apples in Japan (small plots, high labor costs, etc.), the produce industry in
Japan has directed its marketing efforts toward expensive, large unit size, high quality
apples in order to maximize profitability to the grower. Since the Second World War,
apples in Japan have become, in essence, a dessert, competing primarily with
confectioneries, baked items and other dessert fruit. Traditionally, apples in Japan are
consumed at night by being peeled, sectioned and distributed to family members as the
last serving of the evening meal.
III. THE JAPANESE MARKET: LONG TERM OPPORTUNITIES?

Per capita consumption of apples in Japan is half that of the United States and the rest of
Asia and one third that in Europe. Consumers in Japan do not associate apples with
healthy snacking, as an alternative to junk food for children, or as lunch items. While Red
Delicious and Golden Delicious apples have attributes of good color, crispness and
unique shape, they are much smaller than the varieties grown in Japan and somewhat less
sweet. As a result, our strategy in Japan (given the many constraints) was to seek not to
replace existing Japanese varieties or consumption patterns, but to try to encourage the
notion of inexpensive apples for individual, daytime use in accordance with consumer
attitudes elsewhere in the world.

There were, and still are, reasons to believe that Japanese consumers will gradually
change in this direction. The long-running economic recession in Japan has produced an
explosion of discount retailing, not just in food, but in clothing, electronics and other
sectors. Food retailing itself is undergoing a rapid transformation in Japan with the
number of traditional "mom & pop" stores [kadomise in Japanese] declining at a rate of 7
percent per year. A fundamental need of large-format stores and franchise convenience
stores is to offer consumers more variety and lower cost. Washington apples could fit into
the desire of Japanese retailers to deliver these values to the consumer.

Still, we understood that this would be a relatively slow process. With the numerous
impediments restricting our price structure, our market entry timing, and the varieties
available to sell, we were still determined to enter the market in the most effective
manner available to us, and most importantly, demonstrate to importers, distributors and
retailers our commitment to the long-term development of the Japanese market.
Demographically speaking, the tide seems to be running in our favor. Japan currently can
only provide 49 percent of its total food needs from domestic sources. By the year 2000
this is expected to continue to plummet to only 15 percent. What this means, of course, is
that Japan must increasingly open itself to food imports whether it likes it or not. More
important for the apple business is the steady decrease in available acreage for apple
orchards and the aging of the farm population. As things now stand, the average apple
farmer in Japan is 60 years old and few young people are coming into this demanding,
labor-intensive field. Accordingly, if the Washington apple industry persists in
developing the market in Japan over the years to come and works closely with the
Japanese food industry to refine our product to meet their and consumer needs, we will
likely garner the lion's share of the business in time.



IV. MARKET ENTRY: THE PR STRATEGY

In August of 1994 when Japan announced that Washington apples were to be allowed
into Japan, our industry was prepared. Earlier that spring, growers willing to take the
initial risks registered specific orchards for the Japan Program and paid the large, up-front
fees in anticipation of the lifting of the ban. The industry paid Japanese inspectors to
reside in Washington State for the summer and conduct the necessary orchard inspections.
With the 55-day cold storage/fumigation requirement, some apple packers would have
been prepared to send their first apple shipments to Japan in early December. Instead of
trickling apples into the market, however, the industry decided on a coordinated entry.
This approach was not only meant to maximize the impact of the publicity surrounding
the first apples to arrive, but also to ensure fairness to the many Japanese importers eager
to market our apples. Accordingly, the date of January 9, 1995 was chosen as the 'launch
date' for the arrival of the first apples from Washington State. This date permitted all
exporters in the Japan Program to participate in the opening and ensured that all
importers would have sufficient quantities to fully distribute the apples in Japan during
the peak of media interest in Japan and around the world.

The controversy over US apples to Japan had long become 'news', as they say, for several
years with worldwide interest far beyond the actual value and economic significance of
the trade. Apples in a sense had become a symbol of Japan's reluctance to allow in even
innocuous items that traded freely around the globe. Apples were something to which
almost anyone could relate and understand, and Washington State’s determined and long
24-year ordeal was often seen as an indicator of the Japanese government's willingness to
make reasonable trade agreements. Knowing the extremely high costs of media
advertising in Japan (the highest in the world) and recognizing the high level of interest
in the final, successful shipping of our apples to Japan, we decided on a strategy of
maximizing the publicity surrounding the first shipments. This would (and did)
accomplish a number of important goals: 1) garnering tens of millions of dollars of
essentially free advertising through media coverage in newspapers, radio and television,
2) ensuring sufficient supplies to meet all importer needs, 3) achieving full distribution
across Japan during the height of the media coverage.

This strategy far exceeded our expectations in its impact, both on media attention and
sales. Japanese dailies made it front page news during the first week of sales and national
television covered the arrival and inspection of the first 250 container loads (250,000 20-
kg boxes) at the docks in Yokohama. All during the first week reporters were doing live
interviews in the retail stores and talk shows on virtually every television station in Japan
were displaying and discussing Washington apples. The arrival of Washington apples in
Japan became worldwide news and features ran in dailies and television news segments
across Asia, Europe and the United States. I and others gave countless interviews on
Japanese television as well as NBC, CBS, ABC, BBC, NPR and the major wire services.
A major coup was the coincidental meeting of President Clinton and Prime Minister
Murayama during which President Clinton gave the Prime Minister a basket of
Washington apples. This photo ran on front pages around the world. (An indicator of the
success of this public relations approach was the Washington Apple Commission
subsequently winning many awards for public-relations excellence including the 1995
Silver Anvil Award from the Public Relations Society of America (the most prestigious
PR award in America), the Golden Quill Award from the International Association of
Business Communicators, and the Best of NAMA Award from the National Agricultural
Marketing Association.)
Initial shipments of Washington apples sold quickly and importers eagerly reordered
additional supplies from Washington exporters. All appearances indicated that we had
established confidence with the importer-distributor-retailer chain and a beachhead for
additional sales in the future. Despite the limited varieties we were allowed to ship and
the harsh processing requirements, a significant percentage of Japanese consumers were
re-purchasing. The Japanese apple industry countered our low sales prices by drastically
lowering their prices (sometimes by more than half the previous year's prices) and
introducing 'Sun Fuji's' in retail bags of 6 or more. Sun Fuji's are blemished, less-than-
dessert quality grade apples that previously had sold to 'juicers' in Japan. With the recent
loss of the juice concentrate market to imported concentrates, Japanese growers were also
contemplating the creation of a 'consumer apple market' simultaneously with our entry. In
spite of this, we were optimistic that we could still capture significant market share.



V. THE TBZ CONTROVERSY

With the many years of negotiations over the growing and processing protocol, our
industry was well aware of Japan's hyper-sensitivity towards food safety, particularly
regarding imported food products. We had seen the many years it had taken to establish
in Japan such products as US and Australian beef and California and Florida citrus and
noted the difficulties of New Zealand kiwi fruit and apples and Thai and US rice. We had
already been combating the negative press from highly suspect 'consumer organizations'
such as the Japan Offspring Fund (Nihon Shison Kikin 日本子孫基金) who warned that
all foreign agricultural products were unsafe. Organizations of this kind were well-known
for fueling the paranoia in Japan over imported food products and for being funded by
agricultural interests in Japan.

Nothing could have prepared us, however, for the onslaught we confronted after the first
month in the Japanese market. Several city governments encouraged by such consumer
groups systematically tested our apples for chemical residues. In February, one of them
found something-- Thiabendazole (TBZ).

A bit of background information is necessary at this point. TBZ is a chemical used on
tree fruit around the world to prolong shelf life. The Codex Alimentarius Commission,
based in Rome, Italy, a joint program of the Food and Agriculture Organization of the
United Nations and the World Health Organization, sets the maximum limits for residues
(MRLs) for TBZ and hundreds of other chemicals relating to imported fresh fruits and
vegetables. The Codex MRL for TBZ is 10 ppm (parts per million). TBZ is routinely
used in Japan on bananas, grapes, lemons, oranges and other citrus fruits but Japan's
minimum residue level is somewhat more stringent than the international Codex standard,
i.e., 3 ppm. Unfortunately, Japan has never established a MRL for apples since growers
in Japan have traditionally used an alternative chemical rather than TBZ. This point
proved to be our undoing.
Prior to shipment to Japan, one of our apple processors unwittingly washed and sorted
Japan-bound apples on a processing line that 10 days earlier had run pears during which
TBZ was used. Unbeknownst to anyone at that time, TBZ cannot be removed from the
cleaning brushes on the line by any amount of cleaning. Only installing new brushes will
ensure that no trace amounts remain. In this case, less than 1 percent of all the apples
shipped to Japan contained measurable amounts of TBZ on their exterior skin up to a
level of 0.04 ppm. In other words, TBZ was found on a very small portion of our apples
at a level nearly one hundred times smaller than the level of TBZ allowed on other fruits
and vegetables in Japan!

With this data in hand, consumer groups ran loudly to the press claiming Washington
apples were unsafe to eat. To the credit of the Japanese media, however, only a few small
articles made it into print. Government officials who were informed of the contamination
were equally fair and sanguine about this discovery, asking only that we identify the
source of the contamination and correct it. Consumer activists, however, were successful
in stopping further shipments by contacting each of the retail chains carrying our apples.
While no knowledgeable retailer involved in the affair ever considered the level of TBZ
found to be a health hazard, the issue for them was not food safety but avoiding any
appearance that they were "breaking Japan food laws" or "selling tainted imported
produce". As such, retailers quickly suspended sales until further notice. As can be
imagined, this trapped importers and distributors with many thousands of cases of apples
still in the pipeline as well as returns from their retail customers. Many of these
distributors and importers ended up selling their stocks to other markets in Asia and
taking large losses on the season.

Such is the volatility of the Japanese food chain vis-à-vis imported fresh fruits, vegetables
and meats. The level of consumer mistrust of imported foods is so high (and enflamed
regularly by highly biased reports from consumer and advocacy groups representing
traditional agriculture in Japan) that supermarkets and other food retailers are extremely
gun-shy and fearful of criticism that they are party to bringing in cheap and unsafe
foreign food products.



VI. THE FUTURE

We now find ourselves continuing our long-term efforts to build market acceptance for
the current allowable varieties, as well as push for the acceptance by the GOJ of
additional varieties that potentially have greater appeal in Japan such as the Fuji and Gala
varieties. At the same time, we are hoping that the work done by courageous researchers
such as Professor Torii (who helped scientifically establish the pre-existing presence of
Fire Blight in Japanese orchards) will soon eliminate many of the costly and unnecessary
restrictions on shipping Washington apples to Japan.

The current sad state of the Japanese produce industry (and continuing recession in
Japan) is doing little at the moment to help in re-establishing Washington apples in the
market. But there is reason for optimism. Importer and retailer fears of being caught with
unsold inventories as a result of another chemical scare have evaporated. Despite
vigorous testing by consumer groups during the second season, no chemical residues of
any kind were detected and all inventories were sold without incident. This year domestic
apple prices are sharply up and Washington apple prices are down due to a historically
high harvest. The will to develop the Japanese market remains strong in our industry and
long-term demographic trends suggest that determination and persistence will eventually
win us significant market share in Japan. Despite the many obstacles, the Washington
apple industry will continue to promote its products and work closely with importers and
retailers to develop the market over the coming years.

Brent Evans

Asia Regional Director, Asia Regional Office, Hong Kong

Washington Apple Commission

								
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