Join the Conversation on Twitter: #FreshConnections PRODUCE MARKETING ASSOCIATION

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1 Join the Conversation on Twitter: #FreshConnections

2 Fresh Connections: Southern Africa Conference & Expo The Next Frontier: Exploring New Opportunities in China Richard Owen, Produce Marketing Association

3 What to expect from this session: Snapshot of the vast China market Size of the Prize Import opportunities E-commerce growth Perspective of South African companies working in the Chinese market Jason Bosch, Origin Direct Asia Cecilia Landman, The X-Group Panel discussion

4 Global Trade Flow Shift Past 10 Years 2005 Flows Significant growth Growth in trade is toward Eastern Hemisphere Source: International Trade Centre (ITC)

5 Top Fresh Produce Markets & Share of Imports Global fresh produce imports (US$ 121B) averaged +4% growth annually last 10 years Canada +0% U.S. +0% EU -8% Russia +1% China +5% Japan - 1% Southeast Asia +1% Source: FAOSTATS Fruits and Vegetables

6 Fresh Produce Consumption Growth by Region (As percentage of world growth) 1,200, % 1,000, % 800, , , % 2.0% 1.5% 1.0% 200, % 0.00 Asia Pacific Middle East and Africa Western Europe Latin America Eastern Europe North America Australasia 0.0% 2015 Fresh Produce Consumption Forecasted CAGR Asia Pacific and Middle East & Africa are growing consumption regions Source: Euromonitor International

7 Regional Share of International Trade Now and in Source: Oxford Economics

8 Fruit Imports by Country (million USD) Thailand Chile Vietnam Mainland China Philippines USA New Zealand Ecuador Peru South Africa Australia Source: China Customs

9 Total Fruit Imports: Mainland and HK Volume (million tons) Value (billion USD) China Source: China Customs, HK Customs Hong Kong China Hong Kong

10 Mainland Top 10 Fruit Imports by Value Share change compared to 2014 Cherries: +1.85% Guava/Mango/ Mangosteen: +1.58% Plum/ Prune: +1.26% Kiwi: +1.19% Orange: +1.12% Pineapple: +0.81% Grape: -2.81% Durian: -3.01% Banana: -4.11% Plums, Prune Plums, Sloes 3% Pineapples 3% Apples 4% Oranges 5% Guavas, Mangoes, Mangosteens 7% Kiwi 7% Bananas 21% Durians 16% Cherries 18% Grapes 16% Source: China Customs

11 Growth Leaders (million USD) Raspberries, Blackberries, Mulberries, Loganberries Avocados Fruit Growth % 279.7% Apples % Plums, Prune Plums, Sloes Blueberries Pineapples Oranges Guavas, Mangoes, Mangosteens Kiwifruit Source: China Customs % 66.9% 65.3% 52.0% 46.8% 36.4%

12 Growth of Fresh E-commerce in China 91 Billion RMB/183 Billion Rand Source: Produce Report

13 Fresh Connections: Southern Africa Why you cannot afford NOT to be in China Cecilia Landman The X Group August 24, 2016

14 Points of discussion Why you cannot afford NOT to be in China! Information about the size of the market, GDP China s own production & World production SA Citrus industry information Information shared will be mainly based on citrus Some market information and lessons learned Market Segments Quality Branding

15 World population & Growth Rate & % of world population EU Area % 6.84% Russia % 1.92% Canada % 0.45% United States % 4.35% China Billion 0.5% 18.58% Source: Worldbank.org South America % 5.68% Africa 1.2 Billion 2.3% 16.12% India Billion 1.2% 17.85%

16 GDP Growth Rate: Annual % Euro Area China India Russia Source: Worldbank.org

17 GDP Growth Rate: Per Capita 15 GDP Per Capita Growth Rate % United States Euro Area China India Russia Source: worldbank.org

18 GDP per Capita 60, , , , , , United States 44, , , , , , , , , , , Euro Area 30, , , , , , , , , , , China 1, , , , , , , , , , , India , , , , , , , , , Russia 5, , , , , , , , , , , Source: tradingeconomics.com.

19 China Middle Income group growth

20 World Production/Exports (Volume) Oranges Production Exports , , , , , , , , , , , , , BRAZIL CHINA UNITED STATES INDIA MEXICO SPAIN EGYPT ITALY INDONESIA TURKEY SOUTH AFRICA 0.17% 2.62% 9.31% 0.61% 0.40% 54.16% 40.44% 5.48% 0.00% 21.17% 65.24% Source: Production, Trade and Regulation Statistics: Fruit

21 World Production/Exports (Volume) - Grapefruit Production Exports , , CHINA UNITED STATES SOUTH AFRICA MEXICO THAILIAND TURKEY INDIA ARGENTINA SUDAN ISRAEL 4.29% 19.68% 51.70% 4.28% 4.39% 72.19% 0.41% 5.39% 0.00% 32.44% Source: Production, Trade and Regulation Statistics: Fruits

22 World Production/Exports (Volume) Lemon & Limes 4, Production Exports , , , , CHINA MEXICO INDIA ARGENTINA BRAZIL UNITED STATES TURKEY SPAIN IRAN ITALY SOUTH AFRICA 20.76% 5.9% 13.3% 65.31% 63.44% Source: Production, Trade and Regulation Statistics: Fruits

23 World Production/Exports (Volume) - Tangerines 25, Production Exports 2, , , , CHINA SPAIN BRAZIL JAPAN TURKEY ITALY EGYPT IRAN MOROCCO KOREA SOUTH AFRICA 8.53% 75.12% 0.9% 0.28% 53.98% 13.07% 1.9% 0.93% 46.28% 0.43% 72.54% Source: Production, Trade and Regulation Statistics: Fruits

24 World Production/Exports (Volume) - Apples 71, Production Exports 3, , , , , , , , , , CHINA UNITES STATES INDIA TURKEY POLAND ITALY FRANCE IRAN CHILE BRAZIL SOUTH AFRICA Source: Production, Trade and Regulation Statistics: Fruits

25 World Production/Exports (Volume) - Pears 31, Production Exports 1, CHINA ITALY UNITED STATES ARGENTINA SPAIN TURKEY SOUTH AFRICA INDIA JAPAN KOREA Source: Production, Trade and Regulation Statistics: Fruits

26 World Production/Exports (Volume) - Grapes 18, Production Exports , , , , , , , , , , CHINA ITALY UNITED STATES FRANCE SPAIN TURKEY CHILE ARGENTINA IRAN AUSTRALIA SOUTH AFRICA Source: Production, Trade and Regulation Statistics: Fruits

27 World Production/Exports (Volume) Avocados 1, Production Exports MEXICO DOMINICAN REP INDONESIA UNITED STATES CHINA COLOMBIA PERU KENYA BRAZIL CHILE SOUTH AFRICA Source: Production, Trade and Regulation Statistics: Fruits

28 Global Fruit Import Trends

29 Global Fruit Import Trends

30 Why you cannot afford NOT to be in China 18% of the world population One of the highest growth in GDP Fast Growing Middle & Affluent class One of the biggest fruit producing countries in the world The more developed a country is the bigger the requirement for year around supply of a product China is Northern Hemisphere South Africa Southern Hemisphere. South Africa is the biggest Southern Hemisphere exporter of citrus.

31 Top Citrus producing/exporting countries Southern Hemisphere - Grapefruit South Africa Production Exports Argentina Source: Production, Trade and regulation Statistics

32 Top Citrus producing/exporting countries Southern Hemisphere - Tangerines Production Exports , BRAZIL Source: Production, Trade and Regulation Statistics SOUTH AFRICA

33 Top Citrus producing/exporting countries Southern Hemisphere Lemon & Limes Production Exports , , ARGENTINA BRAZIL SOUTH AFRICA Source: Production, Trade and Regulation Statistics

34 Top Citrus producing/exporting countries Southern Hemisphere - Oranges Production Exports , , , BRAZIL INDONESIA SOUTH AFRICA Source: Production, Trade and Regulation Statistics

35 Southern Hemisphere Citrus export volumes tons tons tons tons tons tons Source: Global Fruit Trends

36 SA Industry Grapefruit China Hong Kong China and Hong Kong 1,464, , , , , , , , , , , ,795 1,196,464 1,016,322 1,067,

37 SA Industry Oranges China Hong Kong China and Hong Kong ,397,172 3,652, ,250,823 3,093, ,010, ,988, ,061,715 4,506,305 5,260,983 5,102,

38 SA Industry Lemons China Hong Kong China and Hong Kong 9,200 15,830 40,640 30,946 31, , , , , , ,136 1,264,479 1,295,425 1,957,688 1,998,

39 About the market: If you think about China don t think about it as a single market segment like you do for e.g. with Middle East or Europe There is a distinct difference with regards to quality and sizes whole sale vs retail vs supermarkets Different regions in the market requires different fruit sizes for eg. Southern area (Guangzhou) all sizes, because the sell everywhere. Guangzhou is also the biggest and oldest market Eastern area (Shanghai) Small and middle size Northern area (Beijing) Middle and big sizes Western area Big sizes

40 Most Dominant supermarkets in China 1. Lianhua Supermarket 5. Vanguard 2. Carrefour 6.Tesco 3. Lotte Mart 7. Sam's Club 4. Lotus 8. Pagoda Source: ibisworld.com

41 Current Reality In Europe a lot of consolidation has taken place the last 5 8 years vs CN relatively new market still a lot of new players entering the market. Europe medium quality spec China high end Biggest Changes in the last 5 years: Less and less fruit going through the grey channel via Hong Kong The use of Storage Facilities of fruit to reduce the impact of high volumes that arrive in the market Changes in the future: Impact of E-commerce

42 About Quality Visit the market that you can understand your client and your clients client requirements Don t judge a book by its cover Jiangnan Market

43 About Quality The most important factor is QUALITY especially if you selling on the wholesale markets Substandard product draws the market down and you WILL get penalized A market like Europe adjust easier to changes in quality due to differences in season China not For citrus the most important quality factors are: Taste Color Firmness Skin texture Heavy pack CONSISTENCY Be cautious with new varieties

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45 About branding Chinese people are superstitious color, numbers, symbols means something make sure you know the meanings Chinese people must be able to pronounce your brand Animals on packaging make it easier to recognized Consider colour of packing Red - lucky, happiness, beauty, success and good fortune Yellow - royalty and power Green - money Lucky numbers 8 prosperity, wealth, success and social status, even numbers also better, 6 success and 2 harmony

46 Changes in packaging

47 If you want to be successful Grow specifically for the market Pack for the market Plan your logistics carefully and in detail challenges with cold steri protocol Monitor market and SA shipping info closely Understand the cost chain Be aware of important festivals like Mid Autumn Festival, National Day, Chinese New Year Know upfront how you are going to handle a quality problem Remember a good Chinese importer will never loose money

48 Aspects to keep in mind for the future SA can not afford to NOT focus on China and we HAVE to grow The Grey channel is no longer an option Supermarkets are starting to request phytos Global Gap will soon be a reality Negotiating of sustainable protocols are critical Negotiating of competitive tariff structures are critical Chile is brilliant Learn from countries like Chile

49 Aspects to keep in mind for the future Be 100% clear on Where you want to play Keep in mind E-commerce is a reality With whom you want to play What they can offer clients, cold chain management, infrastructure Their strategic position market segments How you going to play Fixed, MG s Spot market opportunity taker or long term brand building Who will take what risks What you need to do to win This is why you and SA cannot afford NOT to be in China!

50 Let all of us do our part and enjoy the exciting journey! Grower Grow for China Pack for China Consistency Understand the dynamics of the market Success and Growth in China Industry & Government Competitive trade agreements Realistic protocols achievable Industry facilities Exporter Clarity on where to play & How to play in this segment Branding and packaging Focused and Hands on logistics Risk management Steri failues & market fluctuations

51 Let s take hands and Win together!

52 Fresh Connections: Southern Africa The Next Frontier: Exploring New Opportunities in China 18 August 2016

53 Fruit supply into the Chinese market Jason Bosch Origin Direct Asia

54 After your first week in China you feel like you can write a book. After your first month in China you feel like you can write an article. After you first year in China you are more confused than the day that you arrived and don t dare to try and write anything.

55 What we see What we read and hear China must feed a fifth of the world s population with about 7% of its arable land, according to the UN s food and agriculture organisation, and nearly half of that land has been degraded by decades of unchecked development. It s a zero-sum game, you have less and less resources, but more and more people who need them.

56 Shoppers spent nearly US$10bn in the first 10 hours of Chinese e-commerce giant Alibaba s singles day event, almost 15 million users logged onto T-Mall in the first 60 seconds of sale and 213 mill logged on for the first day. With forecast 32 percent average annual growth, online shopping expenditures in China are set to reach 3.3 trillion yuan ($539 billion) The compound annual growth rate for B2C platforms was 160 percent from 2009 to 2012, and the sector is expected to continue growing by 53 percent annually. Jack Ma, founder of Alibaba, was recently quoted as saying: in other countries, e-commerce is a way to shop, in China it is a lifestyle. No matter how you slice the numbers, trends or forecasts, it s clear that e-commerce is booming in China. China's fruit imports in 2014 up 23% According to information supplied by China's customs authority, Chinese fruit imports increased by 26.2% in terms of value compared to 2013, while the volume grew by 22.8%, reaching 3.3 million tonnes.

57 ZAR vs USD 2 performance

58 A look our industry in the China market

59 South African grapefruit volumes to China and HK

60 South African orange volumes to China and HK

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64 China s economy expanded by 7.4% in 2014 and 6.9% in 2015, its slowest rate in a quarter-century and below the government s growth target, although this still sounds very positive China's economy is not in a good place, China's broad money growth which includes physical currency, some sorts of deposits in banks, and some sorts of very liquid securities has slowed to the point at which it is actually slower than that of the US. Oxford Economics adds that China's M2 (a broad money measure) has risen about 2.5 percentage points faster than nominal GDP (which includes inflation) since 2010, so growth of 7% would suggest growth of about 4.5% nominal growth, even lower once inflation is stripped out.

65 The total cost to the economy of the prohibition on government consumption and the chill on administrative spending is an estimated reduction in growth of at least 0.6% this year. But it could, the report argues, be as high as 1.5% which, by rough calculation, gives us the figure of about $135bn of lost economic activity. Even honest officials, the report suggests, are now so terrified of starting new projects, for fear of being seen as corrupt, that they're simply keeping public funds in the bank.

66 What we are failing to see China produces half of worldwide vegetables and 30% of fruit! China is not only the most populated country in the world but when it comes to production of fresh vegetables and fruit China is the worlds number 1! Of the estimated (commercial) production of fresh vegetables in the world, China produces half. Of all the fruits, China produces 30%. From this enormous amount, only a small portion is exported. Of 484 million tons of vegetables produced in 2012, only 4.4 million tons was exported. That's less than one percent. Of the 220 million tons of fruit produced in 2012 only a mere 3 million tons were exported abroad. Despite these figures China remains high on the list of exporters. With fresh vegetables China's export value is in fourth place and with fresh fruit export they are in 7th.

67 We are not starving

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69 Comments in China from sellers and buyers Australia s cherry production is considerably smaller than major cherry exporting countries such as Chile, so Aussie exporters generally position their cherries as a premium product. And such a brand image goes well with many Asian countries gift exchange traditions during cultural festivals. For many Asian consumers, imported fruits are expected to be more expensive than their local peers and when there is too much availability they look for something new. Many of those people who bought cherries in China did not purchase the fruit for themselves; they were bought as gifts for others. As we all know, in recent months, the Chinese government has become increasingly heavy-handed with its anti-corruption campaigns across the country. This definitely had an impact on the sales of fruit Cherries were a premium gift. But some sellers say even though cherry imports are at their height this year, they re no longer the hot luxury fruit they were just last year. One major importer that has been in the imported fruit business for 25 years. Last Chinese New Year he did great business in cherries. But this year, he says, the market is flooded. "It s like you want one bowl of rice a day and they give you 10, there s no way you can eat it all and it starts to lose its appeal," Another factor contributing to the shortfall is the changing attitude among Chinese buyers toward higher-priced imported fruits. As they become increasingly familiar with foreign fruits and the volumes available increase, the imported fruits have begun to loose some of that exotic appeal. Instead, some Chinese consumers have reverted to buying local products with a lower price unless the quality is significantly better.

70 China s Second tier cities This is a very broad term that we throw about, roughly 180 Chinese cities have over 1 million residents but only 4 of them have the title of first tier cities in terms of size and GDP and to a large extent this is due to their coastal location and access to port facilities. These second tier cities have been the engines if China s economy for many years and are key to growth in our industry, most of these 2 nd tier cities are however located inland making them inaccessible to direct shipment and for this reason they are often unheard of and considered untapped new markets however in reality they are currently very active in consuming imported products. Increased future growth in these cities is going to come as a result of improved logistical infrastructure in China and building relationships with sellers that are responsible for the physical sale of the fruit in these regions.

71 How we tend to think.

72 Reality

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74 Solutions???

75 Get an FTA in place to make South Africa competitive The Chinese Government deems Free Trade Agreements (FTAs) as a new platform to further opening up to the outside and speeding up domestic reforms, an effective approach to integrate into global economy and strengthen economic cooperation with other economies, as well as particularly an important supplement to the multilateral trading system. Currently, China has 19 FTAs under construction, among which 14 Agreements have been signed and implemented already. China's Free Trade Agreements China-ASEAN FTA China-Pakistan FTA China-Chile FTA China-New Zealand FTA China-Singapore FTA China-Peru FTA Mainland and Hong Kong Closer Economic and Partnership Arrangement Mainland and Macau Closer Economic and Partnership Arrangement China-Costa Rica FTA China-Iceland FTA China-Switzerland FTA China-Korea FTA China-Australia FTA Free Trade Agreements under Negotiation China-GCC(Gulf Cooperation Council) FTA China-Norway FTA China-Japan-Korea FTA Regional Comprehensive Economic Partnership, RCEP China-ASEAN FTA Upgrade Negotiations China-Sri Lanka FTA China-Maldives FTA China-Georgia FTA

76 Supply the correct fruit into the market according to their requirements: Trying to force undesirable fruit onto a wholesale platform pulls down the market and damages the industry reputation. Forcing someone to take it will maybe work for a year or two but is this worth while at the jeopardy of your countries reputation. There will never be a shortage of customers willing to take your fruit but there is a severe shortage of customers that will pay you for your fruit. Know your clients back ground and intentions.

77 Manage spikes in arrival volumes and spread the season longer and more evenly

78 2016 Grapefruit shipment by port

79 Manage Industry data released into the market

80 Thank You Dankie Xie Xie