Spend Matters welcomes this guest post from Jara Zicha, market analyst at Mintec.
President Donald Trump is still talking about imposing high tariffs on imports from China, even with all of the presidential campaigning behind him. While this is yet to be followed by something more definite, government officials and workers from several industries, including manufacturing, technology and farming, are either voicing their excitement or worry. Importers in the U.S. apple juice industry are likely to be some of those with concerns, as they mainly import apple juice concentrate (AJC) from China.
China is the global leader in AJC production and the main exporter to the U.S. market. Although orange juice is the most popular juice drink in the U.S., the consumption of apple juice is still pretty impressive; in 2011, Americans consumed almost 700 million gallons of apple juice. To add some perspective, this is enough juice to fill more than 1,000 Olympic-sized swimming pools.
Contrary to orange juice, which is produced in the orchards of Florida and to a lesser extent in California, the majority of apple juice has to be imported. Around 85% of apple juice consumed in the U.S. is shipped from abroad. On average, the U.S. imported close to 500 million gallons of apple juice each year, with China accounting for around 70% of this. The remaining 30% imported was divided between Chile, Argentina, Brazil and Turkey. The E.U. managed to squeeze into this group briefly in 2014/15, when apple juice prices crashed in the market due to a bumper apple crop in Poland (and some Russian trade embargos).
This season, fresh apple production in China is forecast at 43.5 million tons, 2% higher than in 2015/16 due to new apple orchards coming into maturity. As a result of the increase in production, the volume of apples sent into processing in China is forecast up 10% year-on-year. The increase in volumes for processing is also attributed to weather damage to some of the crop and lower prices seen in the wholesale market for fresh fruit.
A combination of increased juice supply, lower prices for fresh fruit and competitively priced Polish AJC have caused Chinese prices to fall 14% year-on-year, to multi-year lows. In addition to China, Chile, Argentina and Poland are all also expected to increase their apple processing in 2016/17 and will potentially try to offload some of their surplus to the US market. In 2014/15, European processors benefitted from low apple prices in the E.U. and managed to flood the U.S. market with Polish juice. However this year, China has set the benchmark price very low, putting other major exporters and also domestic apple juice processors in a difficult position.
So, while some within the apple juice industry might view the proposal of new tariffs as a threat, some might see it as an opportunity. But should the high tariffs on imports from China be introduced by the Trump administration, the impact on U.S. trade and apple juice consumption most likely would not go unnoticed this year.