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 A Look at the Chinese Market for US Confection Sunflower October 2000 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 Directors. 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. agricultural exports. 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 the future." 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." Buyer, Seller 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 Majkrzak. 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 to us." 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.  Back to Utilization/Trade Stories Back to Archive Categories
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