A Look at the Chinese Market for US Confection Sunflower
Sunday, October 1, 2000
filed under: Utilization/Trade
For the U.S. sunflower industry, Bob Majkrzak views China as a
two-headed dragon. On one hand, China is anxious to buy American
products, including high quality confection sunflower. On the other
hand, China is eager to compete against the U.S. in other American
export markets around the world-including confection sunflower.
Never mind that China has a communist government. "The Chinese in my
opinion are as capitalistic-minded as I've seen anyplace in the world,"
says Majkrzak, president and CEO of Red River Commodities Inc., Fargo,
N.D., and a member of the National Sunflower Association Board of
Majkrzak took part in a two-week trade mission to China earlier this
fall that included stops in Beijing, Shanghai, Hong Kong and Taipei,
Taiwan. China is one of the fastest growing export markets for U.S.
Red River Commodities has confection sunflower processing plants in
Fargo, Colby, Kan., and Lubbock, Texas. The company joins most other
American confection processors in having a presence in overseas markets,
including China. "Over half of our confection product is exported, so we
pay close attention to export policies and the development of customers
and competitors in the export market," Majkrzak relates.
With N.D. Gov. Ed Schafer leading the trade delegation, doors were
opened for Majkrzak and other business leaders to meet with high-level
government officials that otherwise wouldn't have been possible.
"The Chinese put a lot of importance on acquaintances they can prove. To
get pictures with high-ranking political officials, that's a marketing
tool." Majkrzak leafs through a promotional booklet he obtained in a
visit to a Chinese confection sunflower roaster to prove his point.
Photos of company officials with Chinese government leaders dominate the
publication. "In China, the view is that the more important the
politician you're pictured with, the more important your company is,"
Majkrzak says. "We need to understand their way of doing business."
Meetings with the vice premier of China, and the mayor of Shanghai,
stood out for Majkrzak. "The mayor could have been a walking
advertisement for U.S. sunflower seeds," he says. "He knew about how
much consumption of sunflower there is coming from the U.S., why the
Chinese like it, and felt our industry had good market opportunities for
Majkrzak was impressed with the Chinese sunflower roasting operation he
toured. While the company wasn't necessarily concerned about increasing
automation or decreasing its dependence on hand labor, it was interested
in bringing in better equipment to increase the quality of its product.
"The companies we visited in general were interested in new
technologies, and in forming joint ventures with Americans to produce
better products," says Majkrzak. "Americans could bring financing, new
ideas, and technology to the table of such ventures, while China would
bring an understanding of and access to their marketplace. It's hard to
get what one party would bring to the table without the other."
Using much human labor, China produces confection sunflower for its own
consumption and for export in Europe at a price that is nearly
impossible for American farmers and processors to compete with, says
However, the Chinese in-shell product historically has been viewed as
lower quality, inconsistent in size with small bits of foreign material
such as dirt and stones common. Within the last three years, the quality
of Chinese confection sunflower has improved, thanks in part to foreign
investment that has brought better technology. Quality is still not on
par with American confection sunflower, however.
"When it comes down to the whole process, from our farm practices and
use of hybrid seed to handling and processing, our sunflower is still
better, but the Chinese have closed the gap," Majkrzak says. "We need to
continue to stay ahead of them by focusing on quality they can't produce
in their own country."
Limiting Chinese efforts to become more competitive in its own
confection sunflower market and those abroad are sub-par health and
environmental practices in a world that places a premium on food safety.
Irrigation water can be contaminated, and the high amount of human
interaction with the sunflower product presents sanitary concerns.
"These are systems not easily corrected in China," Majkrzak. says.
"Their standards do not compare to ours, and I think that's a real value
The Chinese grow open-pollinated sunflower, not hybrids, says Majkrzak.
Fields are harvested by hand. The heads are cut and carried to a common
area where they are shelled by hand or with crude equipment. Seeds are
typically allowed to dry by air on an open tarp or the ground, then
bagged and taken to a buyer at a specific delivery point. The buyer
drives by truck to different delivery points, loading the bags of
harvested confection sunflower from various producers. "So you can see
how quality can be inconsistent," says Majkrzak.
American in-shell sunflower already enjoys a high-quality reputation
with the Chinese. "We're recognized by the Chinese as having uniform
seed size, and a nice kernel-to-hull ratio. Our overall consistency in
seed length and color is highly important to them, and they are willing
to pay for that. So our job is to give them what they want. As long as
we do that, we will have a market there," says Majkrzak.
The Chinese represent 20% of all U.S. in-shell confection sunflower
exports, second only to Spain, which represents about 40% of U.S.
confection exports, according to John Sandbakken, the National Sunflower
Association's marketing director.
Sandbakken says the NSA focuses its confection sunflower promotion
efforts on middle and upper class Chinese, who are most likely to
consume higher-priced American in-shell sunflower. In a country of 1.2
billion people, this target market is about 200 million consumers.
"That's almost the same size as our entire U.S. population base,"
Sandbakken points out. NSA marketing efforts are concentrated
particularly in Beijing, Shanghai, and Guangzhou (Canton), with a
collective population of about 40 million.
One recent NSA promotional activity was sponsorship of a televised
comedy quiz show in Shanghai. American sunflower information was
included in the programming. The show attracted 15 million viewers.
Majkrzak says the Chinese, like other importers who turn to the U.S. for
consistently high-quality confection sunflower, are a "fussy" buyer,
right down to scuffing of the exterior seed coat. That, in turn, is why
confection processors may have to be selective in terms of buying
confection sunflower at the farm level, where marketplace
competitiveness begins, says Majkrzak. If the American confection
sunflower industry is to maintain and build markets with discriminating
tastes, then it in turn must be discriminating in the raw product that
it buys, he reasons.
"If I buy sunflower with increased levels of sclerotinia or other
problems and then attempt to put it in the marketplace, and the Chinese
buy and eat it, they won't respect us anymore and what do we do? We lose
a market. And once you lose a market, it's hard to get back," Majkrzak
says. ? Tracy Sayler
NEW TRADE RULES WITH CHINA, NEW OPPORTUNITIES FOR SUNFLOWER
China made trade concessions within the past year to gain U.S.
support for China's entry into the World Trade Organization, as well as
permanent normal trading relations (PNTR) status. Some of those trade
concessions will benefit U.S. sunflower exports.
Before, U.S. confection sunflower exports were subject to a 15% tariff,
as well as a 13% value-added tariff (VAT). Now, China will be able to
assess the VAT on U.S. confection sunflower only if it assesses the same
VAT on its own domestic industry, which is unlikely. "That 13% tariff
reduction will make a big difference and should help us become even more
competitive," says the NSA's John Sandbakken.
President Clinton signed the China PNTR bill into law in early October.
Under normal trade relations status, imports from a trading partner are
charged only the most favorable tariff rates granted by the United
States. Now, China will not be subjected to annual critiques of its NTR
status, although it will be subject to WTO rules once it gains entry
into the organization later this year.
During the signing, Clinton said: "I guess I ought to point out that our
work's not over when I sign the bill. For China must still complete its
WTO accession negotiations, and live up to the agreements it has
negotiated with us and our partners, before it can join. But when it
happens, China will open its markets to American products from wheat to
cars to consulting services, and our companies will be far more able to
sell goods without moving factories or investments there."
"Having China join the WTO will be extremely important. It will help
bring their trading policies in line with the rest of the world," says
Bob Majkrzak. Indeed, China's current programs of price control on
vegetable oil distort the world market, according to the NSA.
Because of tariffs and restrictive import policies, the price of
vegetable oil in China is well above the world market. That limits
demand and is unfair to world producers. Despite this, Chinese consumers
increased demand for veg oil by 5% this year according to Oil World.
Still, per capita oil consumption in China is low in terms of world
comparisons. Under WTO rules, Chinese consumers would be able to buy
vegetable oil at world prices. The current 40% tariff on sunflower oil
would be brought down to 10%. The reduction of this tariff is expected
to boost consumption sharply, which in turn would be good news for
oilseed producers around the world.