China and U.S. agriculture

China's undervalued currency is holding back U.S. exports, and this fresh ERS report talks about the implications. Thanks to Luis of the Fresh Produce Discussion Group for keying me on to it. Here is a little from the summary of the 26-page study:

China is being pressured by the United States and other trading partners to allow its currency to appreciate. In June 2007, the U.S. Treasury concluded that the Chinese yuan was undervalued and that the Chinese central bank’s intervention in the foreign exchange market contributes to China’s persistent trade surpluses and rapid accumulation of foreign exchange reserves. In response to pressure from trade partners, China’s monetary authorities have allowed the value of the yuan to rise gradually since July 2005. However, Chinese policymakers are concerned that a sharp change in the exchange rate could result in economic dislocations and financial market instability, and they have adopted a go-slow approach to exchange rate policy reform. Many analysts believe a much larger appreciation is needed in order to narrow China’s trade surplus.
This report examines how the undervalued yuan affects China’s competitive performance in domestic and international markets for agricultural commodities and food products. The report compares Chinese and U.S. prices for various foods and agricultural products to provide perspective on the price-competitiveness of U.S. agricultural products in China and allow informed assessments of how currency appreciation may affect that competitiveness.

Later, on apples

In this section, we compare the price of U.S. apples available in Chinese supermarkets with the price of various domestic Chinese apples. Apples are also a heterogeneous item that can vary in quality, color, size, and taste, all attributes that can affect the price. A careful comparison shows that U.S. apples sold in U.S. supermarkets are much more expensive than Chinese apples of similar quality that are sold in a Chinese supermarket.The average retail apple prices reported by U.S. and China statistical agencies are for two different types of apples (Red Delicious in the United States, domestic Fuji in China), but apples of varying price and quality are available in both countries. Imported U.S. apples are valued by Chinese consumers for their appearance and are given as gifts. But much cheaper Chinese apples are purchased for everyday consumption. There is, however, competition between U.S. and domestic apples sold in Chinese stores. In visits to Beijing supermarkets in July 2007, the authors found domestic Chinese apples very similar in appearance to U.S. apples. Sanchez and Wu report that demand for imported apples is weakening as high-quality apples are produced locally in China at lower prices.4According to the China Price Information Center, China’s national average apple price for January 2007 was 5.6 yuan per kilogram, but prices reported by a Chinese supermarket5 (Tianhui Supermarket Fruit Prices, January 5, 2007) showed domestic apples available at widely varying prices, from 3 yuan/kg to 10 yuan/kg (fig. 3). Imported apples were priced at 15.60 yuan/kg, nearly three times the price of commonly purchased domestic apples like Shaanxi Fuji (5.8 yuan/kg), and still 50 percent more than “high-quality” domestic Fuji apples and Aksu apples from western China.6 The 50-percent premium for imported apples is much less than the differential for apple
reported in table 1, but it still suggests that the yuan is significantly undervalued when products of similar quality are compared.
Other imported-fruit prices reported by the Chinese supermarket were also well above domestic prices. U.S. oranges were 11.8 yuan/kg and Australian tangerines were priced at 27.6 yuan/kg, while Chinese citrus fruits were priced from 5 to 8 yuan/kg. Domestic plums were priced at 3 to 5 yuan/kg while imported plums were over 37 yuan/kg.
Wholesale fruit prices quoted by the Xinfadi Agricultural Products market in Beijing (one of China’s largest agricultural markets) on March 2, 2007 showed an even bigger difference between imported and domestic fruit. U.S. pears were quoted at prices of 24-26 yuan/kg, about five times the price of the most expensive domestic pears (fragrant). U.S. red grape prices were quoted at 32-38 yuan/kg, more than four times the price quoted for domestic red grapes. U.S. plum prices were in a similar price range, but no domestic plum prices were quoted.

TK: China's surging farm exports would be vulnerable to decline if the yuan would appreciate, while it would open the door to Chinese consumers for U.S. exporters of some fruits. At the same time, continuation of the artifically undervalued yuan could be a real blow for the America's apple industry if China eventually gains access to the U.S. market.