While the Market for Wine in China Is Still in Its Infancy, with Total
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Wine in China: Final Report to the California Association of Wine Growers March 2006 Scott Rozelle and Daniel Sumner University of California Agricultural Issues Center and UC Davis Jikun Huang Center for Chinese Agricultural Policy The principle investigators want to recognize the assistance from staff at the Center for Chinese Agricultural Policy and the University of California Agricultural Issues Center (AIC). At AIC Henrich Brunke, Kurt Richter, Omid Rowhani and Chris Gustafson provided research assistance. 1 Wine in China: Final Report to the California Association of Wine Growers Table of Content Introduction......................................................................................................................... 3 Section I: The Horticulture Economy of China .................................................................. 4 I.1 The Economic Environment of China’s Horticulture Economy .............................. 4 A. Consumption Forces .............................................................................................. 4 B. Changes in Macro-Marketing/Processing Environment ........................................ 5 C. Changes in Macro-Production Trends................................................................... 9 I.2 The Actors—From a Micro-level........................................................................... 11 A. The Producers ...................................................................................................... 11 B. Traders and marketers .......................................................................................... 14 C. The Local Government and Role of Policy.......................................................... 15 D. What makes China’s horticulture procurement so small-trader dominated?....... 16 I.3 Competitiveness...................................................................................................... 19 I.4 Export segment....................................................................................................... 20 Tables and Figures, Section I........................................................................................ 22 II.1 The Macro Picture................................................................................................. 56 A. Introduction/Overview......................................................................................... 56 B. History of Grape Wine in China .......................................................................... 57 C. Domestic Production............................................................................................ 58 D. Imports of Wine ................................................................................................... 61 II.2 The Actors............................................................................................................. 62 A. Producers.............................................................................................................. 62 B. Procurement of Wine Grapes ............................................................................... 64 C. Wholesaling Wine: From Winery to Consumer................................................... 66 D. Constraints to Selling Wine in China................................................................... 67 II.3 Supermarkets and Wine ........................................................................................ 70 Tables and Figures, Section II ...................................................................................... 76 Section III: California’s Wine Relationships with China ................................................ 99 III.1 U.S. exports of wine and related commodities to China and Hong Kong........... 99 III.2 Tariffs and taxes on wine in China: ................................................................... 100 III.3 Summary of a Survey on California wineries about marketing in China.......... 101 III.4 Results of a respondent to a survey on California wineries about marketing in China........................................................................................................................... 103 Tables and Figures, Section III. .................................................................................. 113 Conclusion ...................................................................................................................... 133 List of References ........................................................................................................... 134 Appendix 1.2: List of specialized wine-importing and distribution agents in China ..... 140 Appendix 2: Supplemental Reference Materials Cited in Text ...................................... 148 2 Introduction In this report we provide a summary of the work that we have been doing on China’s wine economy over the past year. This work, in part, was supported financially by the California Association of Winegrape Growers (CAWG). The funds provided by the CAWG were mostly used to support a survey of wine producers and interviews with wholesalers and winery managers in rural China as well as data analysis. It also went to support the procurement of a dataset that we collected on wine and China’s supermarkets. The work summarized here, however, is from far more sources. We greatly appreciate the support of CAWG and look forward to continuing to interact with the management and members in the coming years. To make the material more accessible, we plan to organize this report by asking a question and then summarizing the answer. The report in organized into 3 sections. The first section is on China’s horticulture economy. It covers a lot of ground in a lot of detail, more than is covered on the wine study per se. We believe that much of the material covered in the study on horticulture is relevant for those who really want to understand what is happening in the wine-grape industry in China. However, the reader is forewarned that all specific mention of wine-grapes is saved for Section II. The reader solely interested in wine should go directly to Section II, “The Wine Economy of China.” In a few sections that reference material in Section I, we tell the reader where to go (for comparisons or relevant background). However, the section is written to “stand alone.” Section III, “U.S. and California Wine Relationships with China,” provides trade statistics and discussion of a survey of California wineries who expressed interests in marketing in China. Comments are welcome and should be addressed to Scott Rozelle, [email protected] or Daniel A. Sumner, [email protected] 3 Section I: The Horticulture Economy of China I.1 The Economic Environment of China’s Horticulture Economy In this section we lay out the facts and a few of the relevant statistics serving as a background for our analysis in section II. We first look at the changes in consumption. A. Consumption Forces 1. What is the driving force of the horticulture economy? There is no doubt about it. China’s rising demand for fruits and vegetables is the main driver of the horticulture economy. As will be seen in the rest of this report, the millions of farmers who produce fruits and vegetables are doing so on their own and are mainly responding to the forces of rising demand that are signaling (sometimes not so perfectly) that consumers inside and outside of China want to buy more fruits and vegetables. Demand for quantity is rising, as is the demand for quality. There is increasing demand for a diversity of products. Moreover, it is domestic demand that is driving these changes; for every $1 of sales into the export market, China’s domestic consumers probably spend $50 on horticulture products (Figure 1-1). 2. What is happening to domestic consumption of fruits and vegetables? Domestic per capita consumption (in kg) of vegetables (Figure 1-2) and fruit (Figure 1-3) are rising slightly over time, but the trends differ by urban and rural. The average urban resident increased his/her consumption from 113 kg/capita in 1997 to 123 kg/capita in 2004; fruit rose from 40 kg/capita to nearly 60 kg/capita. The typical rural resident consumed less of both vegetables and fruit and the trend was stagnant. Quantity statistics, especially for fresh horticultural crops consumed by urban residents cover a lot of growth for two reasons. Quality has grown over time, so expenditure per capita has increased (although prices have also fallen in real terms between 1995 and 2004—Rozelle et al., 2006). In addition, much horticultural consumption is done away from home (in restaurants). As we have seen in the case of meat (Ma et al., 2004), this type of consumption leads to severely underestimating rising consumption trends. So, in general, consumption is rising; but the change in quality and variety—at least in urban consumption—is the main trend to consider. 4 3. What are the forces driving the consumption trends? What is the future of these forces? Income: China’s GDP has grown at an astounding 10% annually for more than 20 years now, a record that has never before been equaled in the history of our world by a country (Figure 1-4). Rising income means higher demand for horticultural crops, especially higher valued ones and higher quality product. Migration: When people move from rural to urban areas, over time the former rural resident tends to adopt the urban consumer’s consumption patterns. The number of migrants increased rapidly in the past; it is scheduled to continue for