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Cherries to China illustrate pitfalls of Trump’s tariffs

By Mai Hoang, Yakima Herald-Republic
Published: July 21, 2018, 6:02am
2 Photos
FILE - In this July 8, 2008 file photo Maria Padilla plucks a Bing Cherry from a tree at the Rowe Farms near Naches, Wash. Cherry trees are still blooming, so detailed data about the crop won’t be available for a few weeks, said Dan Kelly of the Washington Growers Clearinghouse in Wenatchee. But the early signs are a little encouraging. “Great bloom,” Kelly said. “We are expecting a large crop but not a ‘monster crop,’ as there are fewer flowers per bud this year,” said B.J. Thurlby, president of the Washington Fruit Commission in Yakima. So far the weather has cooperated, with temperatures above freezing but not hot enough to influence maturity, Kelly said. Bloom is five days to a week ahead of schedule, he said.
FILE - In this July 8, 2008 file photo Maria Padilla plucks a Bing Cherry from a tree at the Rowe Farms near Naches, Wash. Cherry trees are still blooming, so detailed data about the crop won’t be available for a few weeks, said Dan Kelly of the Washington Growers Clearinghouse in Wenatchee. But the early signs are a little encouraging. “Great bloom,” Kelly said. “We are expecting a large crop but not a ‘monster crop,’ as there are fewer flowers per bud this year,” said B.J. Thurlby, president of the Washington Fruit Commission in Yakima. So far the weather has cooperated, with temperatures above freezing but not hot enough to influence maturity, Kelly said. Bloom is five days to a week ahead of schedule, he said. (AP photo/Yakima Herald-Republic, Gordon King) Photo Gallery

YAKIMA — Last year, nearly 60 million pounds of Northwest-grown cherries were exported to China.

Those cherries were sold at retailers in a dozen cities, which collectively had nearly 115.6 million residents.

“The sheer magnitude of the population (means that) even just 10 or 20 percent (of the population) still allows for a big base,” said Bryan Peebles, export manager of Chelan Fresh, which sells fruit for growers and packinghouses statewide, including Yakima-based Borton Fruit.

The country’s large population — along with a rapid increase in middle- and upper-middle class wage earners — has made China a major and growing export market for Northwest cherries. Last year, China was the top export market for Northwest cherries, surpassing Canada.

“In the grand scheme of things, China has been a very good market for cherries,” said Mark Powers, president of the Northwest Horticultural Council, a Yakima-based organization that represents the tree fruit industry in public policy issues, such as trade.

But continued market growth has been dampened by a 50 percent tariff now tacked to U.S. cherries imported into China, a result of an ongoing trade war with the U.S.

Local fruit companies have continued to sell and ship cherries to China, but officials say it won’t be anywhere near last year’s level. And many fruit companies’ sales departments have opted to discount the product considerably to compensate for the tariff, which means lower returns for local growers.

“I would say that the buyers (in China) are hesitant in many ways, not knowing how new tariffs will affect sales,” said Jeff Webb, director of international business development for Domex Superfresh Growers, the Yakima-based tree-fruit marketing firm.

Still, things could be worse. This year’s crop is smaller than last year, which mitigates some of the negative impacts, said Frank Davis, vice president of sales for Washington Fruit in Yakima.

According to industry estimates, about 23 million 20-pound boxes are projected to be shipped around the U.S. and worldwide this year, well below the 26.4 million boxes shipped in 2017.

Tariffs “would have had a much larger effect if we had the crop (from) last year,” Davis said.

History of exports to China

From the mid-1990s to the mid-2000s, a small number of Northwest-grown cherries were sent to China via Hong Kong. Back then, China’s tariffs were high and Hong Kong, a special administrative region of China that has a separate political and economic system, had no tariffs, Powers said.

The initial opening of the Chinese market came after the country joined the World Trade Organization in 2001. China’s membership in the WTO meant that other members, including the United States, could export items to the country at a lower tariff rate — for cherries, it dropped from 30 percent to 10 percent, Powers said.

In 2006, the first Northwest cherries were shipped directly to China, said B.J. Thurlby, president of Northwest Cherry Growers, the Yakima-based organization that promotes cherries grown in the five-state region. Washington is the top grower in the region, which also includes growers in Oregon, Idaho, Utah and Montana.

The organization also started active promotions in the country around that time, said Keith Hu, international program director for Northwest Cherry Growers.

Over the last decade, the country’s middle- and upper-middle classes grew, increasing the number of people able and willing to pay the premium — the equivalent of $7 to $8 a pound — for high-end fruit.

In addition, those same residents were more interested and aware of food from around the world. To those consumers, Northwest-grown cherries are a special treat since they are only available for a few weeks a year, Webb said. The cherry’s flavor is also distinct from other fruits available in the country.

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“They see it as an exotic fruit,” Webb said.

In more recent years, promotions of Northwest cherries extended to more cities in China, which increased the availability of cherries to more people, Hu said.

The result: A drastic increase in shipments to China. In 2006, the country imported just under 35,000 20-pound boxes. That number rocketed to nearly 3 million in 2017 — 11.3 percent of the overall Northwest cherry crop. The year-over-year increase from 2016 alone was 61 percent.

Dealing with tariffs

The Northwest cherry industry was already greeted with an additional 15 percent tariff — to 25 percent overall — when harvest started in June. That increase, which went into effect in April, was part of China’s retaliation of President Donald Trump’s decision to apply tariffs to Chinese-made steel and aluminum.

A second tariff of 25 percent on cherries came earlier this month, in retaliation of Trump’s decision to apply additional tariffs on $34 billion in Chinese-made products, bringing the total tariff on cherries to 50 percent.

Thurlby said marketers in China estimate the country will import 50 to 60 percent of the Northwest cherry boxes shipped in 2017, which would equal 1.49 million to 1.79 million boxes.

Current shipment figures were not available, but if those projections stick, it would still be a sizable number of boxes — only Canada would have more cherry exports to China, based on 2017 numbers.

But the quantity of boxes isn’t the only problem.

Neither Thurlby nor local fruit companies would give specific figures, but Thurlby said that fruit companies have lowered prices to make the fruit affordable for consumers. And even with that consideration, Chinese consumers are still paying more — prices are now at the equivalent of $10 to $11 a pound, compared to $7 to $8 a pound previously, Thurlby said.

“The real issue is that the increased tariff puts a great deal of pressure (to lower) the price to make the product affordable to the Chinese consumer,” Thurlby said. “At the end of the day, our growers are shouldering the decrease in price from a market that has traditionally paid a premium for our highest-quality fruit.”

Lower returns mean some are drastically reducing or even eliminating shipments to China, and seeking better returns from other export markets.

In the coming weeks, boxes of cherries will head to places such as South Korea and Taiwan, huge markets with no or low tariffs. Others are going to smaller but growing markets in Southeast Asia, including Vietnam and Singapore.

“We need to maximize the returns in every market,” said Webb of Domex Superfresh Growers.

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