IMPORTS OF APPLES TO JAPAN:
WASHINGTON STATE'S PERSPECTIVE
(written for this web page January 15, 1997)
Below is a fairly long review of the Washington Apple Commission's experiences in the Japanese market focusing in particular on 1995, the year our apples were first allowed into Japan. This is meant in some sense to set the record straight and illuminate many of the issues and aspects of the trade that have long gone unreported. Please use this on your internet web page if you so desire.
Brent Evans, Asia Regional Director
Washington Apple Commission, Asia Regional Office, Hong Kong
I. INTRODUCTION: PUTTING THINGS INTO PERSPECTIVE
The Washington Apple Commission is an industry-funded organization charged with marketing and promotion of Washington state apple both domestically and internationally. Each apple grower in the state contributes $0.25 to the Commission for every 20-kg box of apples sold. From these funds, WAC engages in a wide range of activities: supermarket promotions, merchandising, distribution of point-of-sale and educational materials, television and radio advertising, trade relations, etc., etc. Over the last 5 years exports have grown rapidly and now represent about 30-35 percent of the state's total fresh apple production. This year, for example, we hope to export over 30 million cartons of apples from a total production volume of 98.9 million cartons. Washington apples amount to about 50-55 percent of all the apples grown in the United States and easily account for 90 percent of America's export volume. Washington apples are probably the most widely distributed apples in the world with shipments going to over 50 countries each year. It is important to note that unlike, say, the New Zealand Apple and Pear Marketing Board, WAC does not sell apples to customers; this is a function of private companies (apple processors and export companies). WAC has no direct control over pricing or grading standards. It can only seek to drive demand through marketing and advertising.
Part of Washington state's success is due to it's investment in horticultural and cold storage technology. Once the apples are harvested, they are sorted, washed and graded on high speed computerized processing lines and quickly go into cold storage. About one third of the apples are shipped fresh during the first few months of the fall; the rest go into 'controlled atmosphere storage', large facilities that are completely sealed in which the oxygen level is brought down to 1 percent and humidity and temperature are carefully monitored. This technology literally puts the apples 'to sleep' and allows us to ship 12 months a year. This ability to ship apples when others are not in the market, plus the industry's internal disciplines on consistent grading have built up a loyal trading base around the world who trust they will get what they pay for when they order. The Washington Apple Commission has also developed over the years a strong marketing network around the world with experienced in-country marketing companies working hand-in-hand with the Commission to promote the industry's apples.
Recent trends in the industry are toward growing new varieties such as Braeburn, Gala, Jonagold and Fuji which is consistent with supermarket trends in the US and elsewhere to provide consumers with more choice, color and sweetness. These new varieties together with Golden Delicious and Granny Smith varieties, now represent almost 50 percent of the Washington crop. The remainder is Red Delicious.
II. JAPAN'S IMPORT PROTOCOL
I preface my remarks on Japan with what must seem like a commercial message simply to set the stage for understanding the opportunities and constraints of that market. The industry has much experience over many years of producing apples for a wide range of markets around the world. The opening of Japan announced in August of 1994 after years of negotiation was exciting to be sure, but the difficulties of selling there were not unexpected nor underestimated. In fact, our apples were approved by the Japanese government way back in 1971 as long as a proper 'protocol' could be worked out between the United States and Japan. This small detail, as it happened, took another 24 years!
Japan's major concerns regarded a fruit tree disease called 'fire blight' (kashobyo in Japanese) and the Codling moth, an insect found wherever apples are grown throughout the temperate regions of the world. Neither of these maladies, the Japanese claimed, were in Japan and unless our industry complied with strict procedures, Washington apples could not come in. Despite the absence of any scientific data showing that fire blight can be transmitted on apples (but only on infected trees), Washington state agreed to a protocol of inspection aimed at eliminating any risk of transmission. Under this agreement, Washington apple growers would be required to designate and register the orchards from which apples shipped to Japan would derive. These orchards and a 500 meter buffer zone around each orchard would be inspected by Japanese inspectors who would be flown over from Japan and housed in the state during the spring and summer at the Washington apple industry's expense. Periodically during the growing season, these inspectors would search for fire blight in each orchard and the surrounding buffer zone. Under the rules of the agreement, even one sighting of fire blight in or around the orchard would eliminate the entire orchard from the program. This arrangement is extremely expensive and very risky. Up-front registration costs for the grower are nearly $1000 per acre, all of which is lost even if fire blight is detected in areas outside the orchard. A small grower with 20 acres could lose $20,000 just by entering the program. In addition, this requirement automatically excludes many growers whose apple orchards are adjacent to pear orchards since fire blight is far more common in pear trees. In any event, harsh though this requirement is, Washington state was confident that it could comply with the regulations.
Another requirement aimed at preventing codling moth infestation was equally as stringent and included a wide variety of specialized processing and storage requirements, including holding harvested apples in bins specially cleaned and marked for exclusive use for apples to Japan, and changing the internal configuration of cold storage warehouses including adding new ventilation systems. The most profound requirement, however, was requiring apples shipped to Japan to be held in sole-use cold storages for 55 days upon which the apples are removed and allowed to warm to a point where they can be fumigated with methyl bromide, sorted and packed, re-cooled and inspected once again by Japanese inspectors. All in all, this requirement adds at least 90 days to the time before we can ship to Japan and effectively keeps our apples out of the market during the peak apple selling season. Since this storage requires cycling the apples through heating and cooling (not to mention harsh fumigation), the apples can suffer in quality without extremely careful controls both before and after harvest.
All of these aspects of the 'Japan Protocol' add time, risk, expense and the potential for reduced quality to the equation. It can be argued that most, if not all, of these requirements are unnecessary. As has now been scientifically documented, fire blight has existed in Japan since the 1930's (not to mention that it cannot be transmitted on apples anyway) and other, just-as-effective methods for controlling codling moth are routinely used for all other markets around the world and involve far less time and expense. Nevertheless, I would point out again that the Washington apple industry was and is fully prepared to meet these requirements. But one does need to be aware of the extraordinary lengths our industry must go, as well as understand the constraints upon cost, flexibility and marketing, that these regulations necessarily impose.
Equally tough was GOJ's refusal to allow any varieties other than Red Delicious and Golden Delicious into Japan. Our research clearly showed that current consumer preference was strongly toward 'desert fruit', sweeter varieties such as Fuji and Gala. Unable to ship what the Japanese consumer preferred, we were determined to do our best to encourage a consumer shift toward less expensive everyday-eating apples. From the beginning we understood this was a long-term goal. Because of the high production costs of raising apples in Japan (small plots, high labor costs, etc.), the produce industry in Japan has directed its marketing efforts toward expensive, large unit size, high quality apples in order to maximize profitability to the grower. Since the Second World War, apples in Japan have become, in essence, a dessert, competing primarily with confectioneries, baked items and other dessert fruit. Traditionally, apples in Japan are consumed at night by being peeled, sectioned and distributed to family members as the last serving of the evening meal.
III. THE JAPANESE MARKET: LONG TERM OPPORTUNITIES?
Per capita consumption of apples in Japan is half that of the United States and the rest of Asia and one third that in Europe. Consumers in Japan do not associate apples with healthy snacking, as an alternative to junk food for children, or as lunch items. While Red Delicious and Golden Delicious apples have attributes of good color, crispness and unique shape, they are much smaller than the varieties grown in Japan and somewhat less sweet. As a result, our strategy in Japan (given the many constraints) was to seek not to replace existing Japanese varieties or consumption patterns, but to try to encourage the notion of inexpensive apples for individual, daytime use in accordance with consumer attitudes elsewhere in the world.
There were, and still are, reasons to believe that Japanese consumers will gradually change in this direction. The long-running economic recession in Japan has produced an explosion of discount retailing, not just in food, but in clothing, electronics and other sectors. Food retailing itself is undergoing a rapid transformation in Japan with the number of traditional "mom & pop" stores [kadomise in Japanese] declining at a rate of 7 percent per year. A fundamental need of large-format stores and franchise convenience stores is to offer consumers more variety and lower cost. Washington apples could fit into the desire of Japanese retailers to deliver these values to the consumer.
Still, we understood that this would be a relatively slow process. With the numerous impediments restricting our price structure, our market entry timing, and the varieties available to sell, we were still determined to enter the market in the most effective manner available to us, and most importantly, demonstrate to importers, distributors and retailers our commitment to the long-term development of the Japanese market. Demographically speaking, the tide seems to be running in our favor. Japan currently can only provide 49 percent of its total food needs from domestic sources. By the year 2000 this is expected to continue to plummet to only 15 percent. What this means, of course, is that Japan must increasingly open itself to food imports whether it likes it or not. More important for the apple business is the steady decrease in available acreage for apple orchards and the aging of the farm population. As things now stand, the average apple farmer in Japan is 60 years old and few young people are coming into this demanding, labor-intensive field. Accordingly, if the Washington apple industry persists in developing the market in Japan over the years to come and works closely with the Japanese food industry to refine our product to meet their and consumer needs, we will likely garner the lion's share of the business in time.
IV. MARKET ENTRY: THE PR STRATEGY
In August of 1994 when Japan announced that Washington apples were to be allowed into Japan, our industry was prepared. Earlier that spring, growers willing to take the initial risks registered specific orchards for the Japan Program and paid the large, up-front fees in anticipation of the lifting of the ban. The industry paid Japanese inspectors to reside in Washington state for the summer and conduct the necessary orchard inspections. With the 55-day cold storage/fumigation requirement, some apple packers would have been prepared to send their first apple shipments to Japan in early December. Instead of trickling apples into the market, however, the industry decided on an coordinated entry. This approach was not only meant to maximize the impact of the publicity surrounding the first apples to arrive, but also to ensure fairness to the many Japanese importers eager to market our apples. Accordingly, the date of January 9, 1995 was chosen as the 'launch date' for the arrival of the first apples from Washington state. This date permitted all exporters in the Japan Program to participate in the opening and ensured that all importers would have sufficient quantities to fully distribute the apples in Japan during the peak of media interest in Japan and around the world.
The controversy over US apples to Japan had long become 'news', as they say, for several years with worldwide interest far beyond the actual value and economic significance of the trade. Apples in a sense had become a symbol of Japan's reluctance to allow in even innocuous items that traded freely around the globe. Apples were something to which almost anyone could relate and understand, and Washington state's determined and long 24-year ordeal was often seen as an indicator of the Japanese government's willingness to make reasonable trade agreements. Knowing the extremely high costs of media advertising in Japan (the highest in the world) and recognizing the high level of interest in the final, successful shipping of our apples to Japan, we decided on a strategy of maximizing the publicity surrounding the first shipments. This would (and did) accomplish a number of important goals: 1) garnering tens of millions of dollars of essentially free advertising through media coverage in newspapers, radio and television, 2) ensuring sufficient supplies to meet all importer needs, 3) achieving full distribution across Japan during the height of the media coverage.
This strategy far exceeded our expectations in its impact, both on media attention and sales. Japanese dailies made it front page news during the first week of sales and national television covered the arrival and inspection of the first 250 containerloads (250,000 20-kg boxes) at the docks in Yokohama. All during the first week reporters were doing live interviews in the retail stores and talk shows on virtually every television station in Japan were displaying and discussing Washington apples. The arrival of Washington apples in Japan became worldwide news and features ran in dailies and television news segments across Asia, Europe and the United States. I and others gave countless interviews on Japanese television as well as NBC, CBS, ABC, BBC, NPR and the major wire services. A major coup was the coincidental meeting of President Clinton and Prime Minister Murayama during which President Clinton gave the Prime Minister a basket of Washington apples. This photo ran on front pages around the world. (An indicator of the success of this public relations approach was the Washington Apple Commission subsequently winning many awards for public-relations excellence including the 1995 Silver Anvil Award from the Public Relations Society of America (the most prestigious PR award in America), the Golden Quill Award from the International Association of Business Communicators, and the Best of NAMA Award from the National Agricultural Marketing Association.)
Initial shipments of Washington apples sold quickly and importers eagerly reordered additional supplies from Washington exporters. All appearances indicated that we had established confidence with the importer-distributor-retailer chain and a beachhead for additional sales in the future. Despite the limited varieties we were allowed to ship and the harsh processing requirements, a significant percentage of Japanese consumers were re-purchasing. The Japanese apple industry countered our low sales prices by drastically lowering their prices (sometimes by more than half the previous year's prices) and introducing 'Sun Fuji's' in retail bags of 6 or more. Sun Fuji's are blemished, less-than-dessert quality grade apples that previously had sold to 'juicers' in Japan. With the recent loss of the juice concentrate market to imported concentrates, Japanese growers were also contemplating the creation of an a 'consumer apple market' simultaneously with our entry. In spite of this, we were optimistic that we could still capture significant market share.
V. THE TBZ CONTROVERSY
With the many years of negotiations over the growing and processing protocol, our industry was well aware of Japan's hyper-sensitivity towards food safety, particularly regarding imported food products. We had seen the many years it had taken to establish in Japan such products as US and Australian beef and California and Florida citrus and noted the difficulties of New Zealand kiwi fruit and apples and Thai and US rice. We had already been combating the negative press from highly suspect 'consumer organizations' such as the Japan Offspring Fund (Nihon Shison Kikin 日本子孫基金) who warned that all foreign agricultural products were unsafe. Organizations of this kind were well-known for fueling the paranoia in Japan over imported food products and for being funded by agricultural interests in Japan.
Nothing could have prepared us, however, for the onslaught we confronted after the first month in the Japanese market. Several city governments encouraged by such consumer groups systematically tested our apples for chemical residues. In February, one of them found something-- Thiabendazole (TBZ).
A bit of background information is necessary at this point. TBZ is a chemical used on tree fruit around the world to prolong shelflife. The Codex Alimentarius Commission, based in Rome, Italy, a joint program of the Food and Agriculture Organization of the United Nations and the World Health Organization, sets the maximum limits for residues (MRLs) for TBZ and hundreds of other chemicals relating to imported fresh fruits and vegetables. The Codex MRL for TBZ is 10 ppm (parts per million). TBZ is routinely used in Japan on bananas, grapes, lemons, oranges and other citrus fruits but Japan's minimum residue level is somewhat more stringent than the international Codex standard, i.e., 3 ppm. Unfortunately, Japan has never established a MRL for apples since growers in Japan have traditionally used an alternative chemical rather than TBZ. This point proved to be our undoing.
Prior to shipment to Japan, one of our apple processors unwittingly washed and sorted Japan-bound apples on a processing line that 10 days earlier had run pears during which TBZ was used. Unbeknownst to anyone at that time, TBZ cannot be removed from the cleaning brushes on the line by any amount of cleaning. Only installing new brushes will ensure that no trace amounts remain. In this case, less than 1 percent of all the apples shipped to Japan contained measurable amounts of TBZ on their exterior skin up to a level of 0.04 ppm. In other words, TBZ was found on a very small portion of our apples at a level nearly one hundred times smaller than the level of TBZ allowed on other fruits and vegetables in Japan!
With this data in hand, consumer groups ran loudly to the press claiming Washington apples were unsafe to eat. To the credit of the Japanese media, however, only a few small articles made it into print. Government officials who were informed of the contamination were equally fair and sanguine about this discovery, asking only that we identify the source of the contamination and correct it. Consumer activists, however, were successful in stopping further shipments by contacting each of the retail chains carrying our apples. While no knowledgeable retailer involved in the affair ever considered the level of TBZ found to be a health hazard, the issue for them was not food safety but avoiding any appearance that they were "breaking Japan food laws" or "selling tainted imported produce". As such, retailers quickly suspended sales until further notice. As can be imagined, this trapped importers and distributors with many thousands of cases of apples still in the pipeline as well as returns from their retail customers. Many of these distributors and importers ended up selling their stocks to other markets in Asia and taking large losses on the season.
Such is the volatility of the Japanese food chain vis-a-vis imported fresh fruits, vegetables and meats. The level of consumer mistrust of imported foods is so high (and enflamed regularly by highly biased reports from consumer and advocacy groups representing traditional agriculture in Japan) that supermarkets and other food retailers are extremely gun-shy and fearful of criticism that they are party to bringing in cheap and unsafe foreign food products.
We now find ourselves continuing our long-term efforts to build market acceptance for the current allowable varieties, as well as push for the acceptance by the GOJ of additional varieties that potentially have greater appeal in Japan such as the Fuji and Gala varieties. At the same time, we are hoping that the work done by courageous researchers such as Professor Torii (who helped scientifically establish the pre-existing presence of Fire Blight in Japanese orchards) will soon eliminate many of the costly and unnecessary restrictions on shipping Washington apples to Japan.
The current sad state of the Japanese produce industry (and continuing recession in Japan) is doing little at the moment to help in re-establishing Washington apples in the market. But there is reason for optimism. Importer and retailer fears of being caught with unsold inventories as a result of another chemical scare have evaporated. Despite vigorous testing by consumer groups during the second season, no chemical residues of any kind were detected and all inventories were sold without incident. This year domestic apple prices are sharply up and Washington apple prices are down due to a historically high harvest. The will to develop the Japanese market remains strong in our industry and long-term demographic trends suggest that determination and persistence will eventually win us significant market share in Japan. Despite the many obstacles, the Washington apple industry will continue to promote its products and work closely with importers and retailers to develop the market over the coming years.
Asia Regional Director
Washington Apple Commission
Asia Regional Office, Hong Kong
(My sincere thanks to Mr Evans (his email link here) for taking the time to address this issue specially for my web page--Dave Aldwinckle)