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Global Outlook 2018: The prospects for apple juice

History repeats itself. China’s apple juice processing industry suffered a deadly blow when the country’s apple farmers started storing their fruit in brand new coldstores, which allowed them to choose precisely when they could sell the fruit.

History repeats itself. China’s apple juice processing industry suffered a deadly blow when the country’s apple farmers started storing their fruit in brand new coldstores, which allowed them to choose precisely when they could sell the fruit.

The same dynamic has completely changed the Polish industry. The country is dotted with bright new coldstores, mostly paid for with EU money, and these considerably extend the storage time of the fruit – up to at least a year and sometimes closer to two.

Unfortunately, this modernity has not been accompanied by equally forward thinking by the country’s apple farmers, who are at one and the same time a very fragmented and militant group. Only a few years ago, they were blockading apple juice factories in protest against low fruit prices. The basic problem is that farmers have, for the last two seasons, kept their fruit locked up in storage, releasing it to processors in irregular and relatively small volumes. This keeps the price high, which is good in the short term for the farmers, but makes it impossible for processors to price their juice across a season, because they do not know how much fruit they will be allocated nor how expensive it will be.

Poland’s new apple orchards are moving into full bearing, and the country has the capability to produce apple harvests of over 4.0 million tonnes. Only a few years ago, 3.0 mln tonnes was considered a large harvest. The question is how to sell an apple harvest that is one-third larger than what the country handled a decade ago.

This was obvious just before the new apple season started. Europe’s fresh apple inventory, as at July 1, stood at 471,220 tonnes, the highest level for at least a decade and quite possibly the highest ever, according to the latest data from the World Apple & Pear Association (WAPA). Polish stocks were 57,000 tonnes: close to last year’s record level of 59,000 tonnes and the figure meant that Poland had managed to dispose of 87,000 tonnes of fruit in the month of January.

Polish apple production (tonnes)


Of course, the frost that struck Europe in April proved a godsend to Poland. Apple production was severely slashed in Poland, Germany, Austria and Italy, and the farmers’ gamble of keeping their fruit in storage paid off.

So here we are, at the end of the year, and Polish apple juice production has ground to a halt for lack of raw material. Yet Poland’s estimated harvest of around 2.7-2.8 mln tonnes would have counted as quite a large harvest in the past. Once again, the fruit has been locked away. The farmers are probably figuring that they have nothing to lose. Who knows? There might be another late frost in 2018 and if there isn’t, well, they will confront the problem of excessive stocks when/if it arises. One should not forget that, in the absence of another weather problem, Poland will probably produce around 4.0 mln tonnes of apples in 2018.

IEG Vu has said it before and will say it again: somehow, the apple farmers and the processing industries have to get together and thrash out some form of agreement that permits a regular and large flow of lower grade fruit for juicing at an agreed price within a certain value band. This will ensure coherent cashflow for the farmers and equally coherent juice production. It sounds simple, but it obviously isn’t. But if next season’s harvest is a good one, then the farmers may be faced with a serious glut of fruit that will have to be sold off cheaply.

In the long term, Europe is likely to have more apples than it can easily sell, either on domestic or export markets. The other problem, as it is for the orange juice industry, is the matter of acidity. There is a shortage of high ratio (low acid) orange juice for blending and just as severe a shortage of high acid apple juice, also for blending. The European taste is for slightly more acid apple juice than is preferred by, for example, US consumers and in Germany, law forbids the selling of drinking apple juice of less than 3.5% acidity. The industry desperately needs AJC of 4% acidity or higher to blend with lower acid juice to come up with good volumes of palatable juice.

Polish AJC price vs. Spanish GJC price (USD/tonne fob)

However, over the last 10-15 years, acidity levels have been dropping in Poland, probably due to climate change. Moreover, especially in Germany and Austria, a lot of high acid fruit comes from the streuobstbau – the ‘back yard’ apples. The elderly trees that bear these apples are gradually being taken out. In Poland, the old orchards have been grubbed out and replaced with new high yielding trees, and the old higher-acid apple varieties replaced with dessert varieties such as Gala, Fuji, Jonagold and Idared. This is an issue which cannot be easily corrected, and in the long-term, the solution may lie with China which is finally producing higher acid juice – up to 2.8%, anyway, which is adequate for most European markets, if not Germany.

Europe’s total 2017 apple production should be around 9.3-9.4 mln tonnes, according to WAPA. This figure is based on the estimates from the top 21 EU member states. Golden Delicious production will decrease by 18% to 1.98 million tonnes, Gala by 3% to 1.27 mln tonnes, Idared by 30% to 679,000 tonnes and Red Delicious by 9% to 576.000 tonnes. Other new varieties will decrease by 15%, from 157,000 tonnes to 133,000 tonnes.

In other non-EU northern hemisphere countries, significant decreases were noted: Russia (-37%), Mexico (-30%), Switzerland (-21%), Belarus (-19%), Ukraine (-10%), and Canada (-5%), while the US is expecting a stable crop around 4.80 mln tonnes.

As IEG Vu said at the time, this brings the supply/demand equation more into balance. As we also said, prophetically: “Unless the apple farmers can come to some sort of realistic supply agreement with the juice processors, it is possible that AJC exports to the EU from China, even given the 30% duty on Chinese product, could resume.”

China

There appears to be a new dynamic affecting the Chinese apple harvest and apple juice industry. The last major change was when, as in Poland (discussed above), the apple farmers set up their coldstore network. China now has the world’s third-largest coldstore capacity at 76 mln cubic metres, and this is growing at 10-12% annually. It may increase by a factor of 20 in the next decade. (Source: Global Cold Chain Alliance). This has coincided with a huge consumer boom in demand for fresh apples, which was adequately fed by a steady increase in Chinese apple harvests.

The 2017 harvest is believed to be around 44 mln tonnes. This year, something different has happened. Fresh apple prices have tumbled. Chinese consumers are still devouring fresh apples, but they are opting for the best fruit, for three reasons. First, they can afford it. Secondly, the coldstore network can now hold apples all season. Thirdly, the country’s motorway network has expanded very rapidly and road freight has grown with it. In 1997, China had 3,400 kilometres of motorway. In 2017, that had grown to about 125,000 km and it is still growing. The result is that apples are now available practically everywhere.

Sources in China have told IEG Vu of “mountains” of lower grade fruit piling up outside processors. The average price was, in early December, around CNY660 per tonne (USD100/tonne), but was as low as CNY630/tonne in some regions. IEG Vu thinks that China will take the opportunity to process more AJC that it originally intended, in order to cope with renewed demand from Europe this season, and to rebuild inventories. These were quite high in the last few years, but have since reduced.

This over-supply needs to be considered closely. Is it a one-off event this year, or does it signal a move upmarket for the fresh apple industry, which will therefore release more fruit for processing? Given that there are still more new plantings in China coming into bearing, IEG Vu believes the latter and therefore the global industry should consider the prospect of Chinese AJC processors having access to cheap raw material for at least the next few years.

China’s AJC price was maintained around USD1,000/tonne fob through the past season. We expect China to increase it to at least USD1,150/tonne this season, simply because they can and Poland still cannot compete on price, even with the 30% duty added to Chinese product. Polish processors themselves are importing Chinese AJC, and blending it with some of their own production.

Chinese AJC price (USD/tonne fob)

Finally, then, we need to assess what Polish and Chinese AJC exports will be in the 2017/18 season. The figures for the last season were 267,000 and 548,000 tonnes, respectively, for the September- August season. China counts its season from the start of August to the end of July, one month earlier than Poland, and we have changed our records accordingly for this season: China’s figure on this basis was 534,000 tonnes.

At the China Juice conference in September, it was estimated that China would make between 550,000-600,000 tonnes of AJC this season. IEG Vu thought that figure was too low and reckoned 650,000-700,000 tonnes was more realistic: Given what is happening in China now, we think China is likely to make as much as 750,000 tonnes. There is no doubt that Polish exports will decline dramatically this season, and Chinese increase, and therefore IEG Vu puts an estimate of 123,000 tonnes and 660,000 tonnes respectively.

This article is featured in the IEG Vu Global Outlook 2018 report. This special supplement is the ultimate guide to price performance, production and trade for the range of agricultural commodities featured on the IEG Vu website, authored by our analyst team and including the latest statistics powered by our Data Tools.

To download your copy, visit the Market Reviews page in the Resources section of the left hand menu or go direct via this link

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