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REGULATING TRADE WITH A SYSTEMS APPROACH:

THE CASE OF CHINESE FRESH APPLES

presented by

Lili Gao

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REGULATING TRADE WITH A SYSTEMS APPROACH:
THE CASE OF CHINESE FRESH APPLES

By

Lili Gao

A THESIS

Submitted to
Michigan State University
In partial fulfillment of the requirements
For the degree of

MASTER OF SCIENCE
Agricultural, Food, and Resource Economics

2008

Copyright by
LILI GAO

2008

ABSTRACT

REGULATING TRADE WITH A SYSTEMS APPROACH:
THE CASE OF CHINESE APPLES

By

Lili Gao

The potential for fresh apple imports from China is very contentious in the US. It is likely
that any future imports will be governed under the regulation of a Systems Approach (SA)
to manage the risk of introducing exotic pest(s) or disease(s). This study analyzes issues
related to such a regulation for Chinese fresh apple trade. Three parts are included in the
study: first, analysis of the current fruit market situation and supply organization in China.
Despite the coexistence of three market forms and two supply chain organizations, China is
improving its phytosanitary control capacity under the support of Chinese administrative
government and regulatory laws and regulations. Second, a hypothetical SA policy is
developed (including potential pests of concern) for regulating potential Chinese fresh
apple imports, which provides a general idea of what kinds of phytosanitary measures
might be taken to prevent the introduction of exotic pests or diseases. Third, methods for
linking economics to the pest risk assessment included in a SA are evaluated. A static
multi-scenario partial equilibrium model is a useful method to link economic evaluation to
pest risk assessment; however, case-to-case differences and data sensitivities limit
feasibility as a template for empirical assessment of other potential sanitary phytosanitary

issues.

ACKNOWLEDGMENTS

I would like to thank the Department of Agricultural Economics for giving me the

opportunity to be part of the Ag Econ family.

I would like to express my deepest thanks and respect to Dr. Suzanne Thomsbury, my
major professor, who has been supporting, guiding and encouraging me since the first day
I joined the Department. Thanks for all the suggestions and advice for both my professional
and personal life. Thanks for her financial support for my thesis and for fieldwork in China.
Thanks for her support and guidance to attend conferences and workshops in the US. and
China. Thanks are due to her for supporting me through the thick and thin of my life.

Thanks for being a friend and family during my study in MSU all these years. Thanks a lot!

I would like to thank Dr. Tom Reardon (Department of Agricultural Economics) and Dr.
Susan Zhu Chun (Department of Economics). Thanks for their insightful comments on this
thesis research work; I also learned a great deal in their classes on development economics
and international trade. Thanks for being on my committee and taking time from their busy

schedule to provide invaluable comments and suggestions.

I would also like to thank the special support from the following people:
---Dr. Eric Crawford and Dr. Scott Loveridge for all the advice and financial support

during my graduate studies in MSU;

---Dr. David Orden (lntemational Food Policy Research Institute) for his great comments
and suggestions about my thesis work;

---Dr. Mariano Ripari (Argentina Embassy in China) for providing important information
and material for my thesis and his generous suggestions about my research work;

mMs. Mollie Woods for all the help and suggestions about my thesis and for being so
supportive and encouraging;

---Mr. Ming Yang (Ministry of Agricultural, China Shandong) for his great support for my
fieldwork in China;

---Dr. Barry Krissoff and Dr. Linda Carvin (Economics Research Service, USDA) for their
guidance and suggestions on my research work and guidance during the fieldwork in
China;

---Dr. F uzhi Cheng (Cornell University) for his support during the fieldwork in China and
his help for my professional and personal life;

---Dr. Yong J iang (Michigan State University) for the help with my GAMS programming;

---All the friends in “Frutopia” for their help and supports.

I am also greatly indebted to all my friends and colleagues who supported me during my
study in Michigan. Last but not least, I am deeply thankful to my mom, dad and sister for

being my base ALWAYS!

TABLE OF CONTENTS
LIST OF TABLES .............................................................................................................. ix
LST OF FIGURES .............................................................................................................. xi
ABBREVIATIONS AND ACRONYMS ........................................................................... xii
CHAPTER ONE
INTRODUCTION .............................................................................................................. 1
1.1 Background of the Study and Problem Statement .................................................. 1
1.2 Objectives and Methodologies ............................................................................... 4
1.3 Conceptual Framework .......................................................................................... 5
1.4 Implications ............................................................................................................ 6
1.5 Organization of the Thesis ...................................................................................... 7
CHAPTER TWO
LITERATURE REVIEW ..................................................................................................... 8
2.1 International and Regional Plant Quarantine Organizations and Regulations. .....8
2.2 Implementation of the SPS Agreement ................................................................... 9
2.3 The Systems Approach (SA) ................................................................................ 12
2.4 Summary .............................................................................................................. 20
CHAPTER THREE
APPLE PRODUCTION AND SUPPLY CHAIN ANALYSIS ................................. 21
3.1 Fruit and Apple Industry in China ........................................................................ 21
3.2 Fruit Markets in China .......................................................................................... 30
3.3 New Emerging Coordinated Supply Chain ........................................................... 35
3.4 Plant Quarantine Systems and Regulations in China ............................................ 41
3.5 Summary ............................................................................ ; ................................. 51
CHAPTER FOUR
A HYPOTHETICAL SYSTEMS APPROACH FOR CHINESE FRESH APPLES ....... 54
4.1 Existing Regulations ............................................................................................ 54
4.2 Hypothetical Systems Approach for Chinese Fresh Apples ................................ 65
4.2.1 A potential pests of concern ....................................................................... 66
4.2.2 Hypothetical systems approach measures ................................................... 77
4.2.3 A hypothetical systems approach for Chinese Fresh Apples .................. 89

vi

4.3 Summary ............................................................................................................. 93

CHAPTER FIVE
LINKING ECONOMICS TO RISK ASSESSMENT: AN EVALUATION... . . . . . . . . . .......95
5.1 Evaluation methods for linking economics and pest risk assessment .................. 95
5.2 Evaluation of partial equilibrium model in the case of Chinese fresh apples ...... 105
5.2.1 General framework .................................................................................... 105
5.2.2 Adaptation of partial equilibrium model in the case of Chinese fresh
apple case .......................................................................... 107
5.2.3 Limitations to adaptation ........................................................................... 116
5.3 Sensitivity analysis for selected types of parameters .......................................... 118
5.4 Summary ............................................................................................................ 140
CHAPTER SIX
SUMMARY AND CONCLUSION ................................................................................ 142
6.1 Summary ............................................................................................................ 142
6.2 Conclusions ........................................................................................................ 146
6.3 Recommendations for future research .............................................................. 148
APPENDIX .................................................................................................................... 149
REFERENCES ................................................................................................................ 184

vii

LIST OF TABLES

Tale 2.1 Comparison of probability of pest avoidance between a single phytosanitary
measure and a systems approach ................................................... 15
Table 3.1 Comparison of characteristics of three market forms in China: traditional local
market, new emerging modern market, and export market. . . . . . . . . . . . ....35
Table 3.2 Institutions in China with responsibilities related to plant quarantine... ......46
Table 3.3 Current laws related to plant quarantine ............................................. 50
Table 3.4 Current regulations related to plant quarantine......... . . . . . 51
Table 4.1 Summary of the export of Chinese Ya Pears and Fragrant pears to the U.S...58
Table 4.2 List of references for a hypothetical systems approach .................................. 60
Table 4.3 Summary of the export of fresh Chinese apple and pear exports to Canada. . .64
Table 4.4 Summary of pests listed in the reference policies ..................... I .................... 67
Table 4.5 Potential pests of concern for Chinese fresh apples ............................... 69
Table 4.6 Summary of some quarantine pests ................................................ 75
Table 4.7 Hypothetical Systems Approach for Chinese Fresh Apples ..................... 90
Table 4.8 Comparison of effects based on the number of measures included in a 8A.. . .93
Table 5.1 Summary of method for modeling and quantifying NTB to trade ............... 98
Table 5.2 General framework of a partial equilibrium model .............................. 103
Table 5.3 Potential impacts ofopening Chinese fresh apples. . . . . . . . . . . . . . ....106
Table 5.4 Estimated probabilities for peach fruit moth outbreak with. .. ..................... 111
Table 5.5 Demand elasticity of fresh apples in the US ..................................... 115
Table 5.6(a) Demand elasticity of fresh apples in the US ................................... 121
Table 5.6(b) Input data in the model (Continued) ............................................. 122
Table 5.7 Trade situation, cost and risk level between periods and scenarios .......... 124

Table 5.8 Apple production cost and SA compliance cost in China in 2004 (USS per

hectare) ............................................................................... 124
Table 5.9 Apple production costs and pest control costs in the US. (U 88 /acre). . . . . . 1 26
Table 5.10 Estimated parameters in the sensitivity analysis ............................... 127

Table 5.11 Market equilibrium between two periods (scenario 2 with medium risk)... 131
Table 5.12 Market equilibriums simulation results under alternative SA ................ 137

Table 5.13 Welfare comparison for alternative scenarios .................................... 139

LIST OF FIGURES

Figure 3.1 Fruit Production and Area in China (1972-2006) .......................................... 23
Figure 3.2 Fruit yield in China (1972-2006) ................................................................... 23
Figure 3.3 Main fruit production in China (1990-2005) ................................................. 24
Figure 3.4 Yield and area harvest of apples in China (1990-2005) ................................. 25
Figure 3.5 World apple productions, 2005 ...................................................................... 25
Figure 3.6 US and China’s share of world apple production (1990-2005) ..................... 26
Figure 3.7 Map of China ................................................................................................. 27

Figure 3.8 Chinese apple shares of the world’s export volume and value (1990-2005).29

Figure 4.1 Peach fruit moth (left), Brown rot (middle) and Hawthorn spider mite (right)
on apples ........................................................................................................ 71

Figure 5.1 Fresh apple trade relationships between supply and demand regions ......... 108

xi

ALOP
AMS
AQIS
APPPC

APHIS

AQSIQ

CABI
CFIA

CIQ

CPPC

DAF F

EPPO
FAO
FAS
IAPSC
IPPC
MOA
NAPPO
NASS

NBT

ABBREVIATIONS AND ACRONYMS

Appropriate Level of Protection

Agricultural Marketing Service

Australian Quarantine and Inspection Service
Asian and Pacific Plant Protection Commission
Animal and Plant Health Inspection Service

General Administration of Quality Supervision, Inspection and
Quarantine of the People Republic of China

Commonwealth Agricultural Bureau International
Canadian Food Inspection Agency

Entry-Exit Inspection and Quarantine Bureau of the People’s Republic
of China

Caribbean Plant Protection Commission

Australian Government Department of Agriculture, Fisheries and
Forestry

European and Mediterranean Plant Protection Organization
Food and Agricultural Organization

Foreign Agricultural Service

Inter-African Phytosanitary Council

International Plant Protection Convention

Ministry of Agriculture, the People’s Republic of China
North American Plant Protection Organization

National Agricultural Statistics Service

Non-Tariff Barriers to Trade

xii

ORISA
PPPO
PPQ
PRA
SA

SENASA

SPS
TBT
USDA

WTO

Organism International Regional De Sanidad Agropecuaria (OIRSA)
Pacific Plant Protection Organization

Plant Protection and Quarantine

Pest Risk Analysis

The Systems Approach

Secretariat of Agriculture, Livestock, Fisheries and Food of the
Argentine Republic

Sanitary and Phytosanitary
Technical Barriers to Trade
United States Department of Agriculture

World Trade Organization

xiii

CHAPTER 1

INTRODUCTION
1.1 Background of the study and problem statement
The new economy of globalization has promoted the development of world economic
integration. At the same time, varieties of barriers to trade continue to be imposed, and
have even escalated in some cases. Traditional trade barriers, like tariffs, which have been,
and still are, a commonly applied restrictions to trade are losing their relative importance
and being increasingly replaced by non-tariff barriers. Sanitary and phytosanitary (SPS)
measures, one type of non-tariff barrier to trade, have gained importance as trading nations
pay more attention to risks from foreign pests or other invasive species that might be
associated with the traded commodity. These exotic invasive species can have significant

impacts on a country’s economy, agriculture, public health and environment.

The WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS
agreement), which was negotiated during the Uruguay Round of the GATT and
implemented by the WTO in 1995, provides guidelines for World Trade Organization
members who apply sanitary and phytosanitary measures to protect human, animal and
plant life and health, and to help ensure that food is safe for consumption (WTO, 1995).1
Based on these guidelines, importing countries usually sign bilateral protocols with an
exporting country to control the risk of introducing exotic invasive species. Like other
trade barriers, these SPS measures do influence patterns of trade and can further affect

national welfare. For example, implementing such measures can increase corresponding

 

The SPS agreement just provndes the general gundelmes rather than specrfic numerical lImltS, such as those
set for tariffs under the Agreement on Agriculture.

costs from the exporting country providing an opportunity to use SPS concerns as a barrier
to isolate domestic industries from international competition (Thomsbury and Minton,
2002). Quantitative estimates of the gains from trade for cases of SPS regulatory reform are
rare (Roberts and Krissoff, 2004). Therefore, a challenge faced by policymakers when
designing policies to mitigate the risk of introducing exotic invasive species is how to
reach an appropriate level of protection (ALOP)2 without high compliance costs that are

unduly restrictive to trade.

There are a number of policy measures which can be employed to manage invasive species
risk.3 One approach, gaining in frequency of use, has been referred to as a “Systems
Approach.” The Systems Approach (SA) is a multi-step set of procedures, at least two of
which have independent effects on mitigating pest risk associated with the movement of
commodities (USDA/APHIS/PPQ, 2002). SA is recommended by WTO as one option for
pest risk management. Differences between the Systems Approach and other pest risk
mitigation measures are that 1) the required measures in a Systems Approach are multiple;
and 2) at least some measures are independent. How many measures should be included in
any particular Systems Approach is a critical decision dependent on pest and risk
conditions within the trading countries, and difficult to evaluate for policymakers. Too few

measures will fail to protect human and animal health or the domestic environment from

 

2 Appropriate Level of Protection (ALOP) or an acceptable level of risk is defined by SPS agreement as “the
level of protection deemed appropriate by the member establishing a sanitary or phytosanitary measure to
protect human, animal, or plant life or health”. The SPS Agreement recognizes and maintains the right of
countries to determine and set what is an appropriate level of protection for them, while containing several
disciplines to prevent countries from setting their levels of protection in an arbitrary or discriminatory fashion
(U SDA/API—IIS, 2007a).

3 . . . .
For example, product bans can be used to prohibit or restrict entry of foreign pests.

exotic invasive species damage. Too many measures will raise the cost and lead to

unnecessary impediments to trade.

SA policies are particularly relevant for countries that trade in fresh produce where
phytosanitary concerns are common. Potential for trade presents both opportunities and
challenges for horticultural industries, natural environment, and national welfare. While
the US. market has opened to many horticultural products, there are still some fresh
produce items, banned from entry due to phytosanitary concerns. There is an expectation
that the US. markets will open to additional products in the future and it is likely that the
potential imports would be regulated under a Systems Approach. One product under

consideration is fresh apples from China.

China is currently the largest apple producing country in the world and has been asking for
consideration to export fresh apples to the US. for more than ten years. However, for fresh
apples, entering the US. market is still a big challenge due to strict phytosanitary measures
resulting from concerns over potential pest infestation. How trade patterns would change
or how US. horticultural markets might be affected, especially in the apple industry, is an
issue of importance to both US. and Chinese apple growers and policymakers. As a result
of economic reform and opening-up in the late 19703, the economy of China has developed
at an unprecedented rate especially for the vegetable and fruit sector. For example, China’s
apple juice industry has expanded aggressively and continues to be the driving force in

world markets for apple juice concentrate.

1.2 Objectives and methodologies

The potential for fresh apple trade presents both opportunities and challenges for US. and

Chinese horticultural markets. As invasive species concerns will almost certainly be

governed by a Systems Approach, the particular form of the policy eventually adopted has

implications for policymakers and industry participants in both counties. The objectives of
this study can be expressed as:

(1) to provide an overview of the current fresh apple market and supply chain situation in
China;

(2) to develop one hypothetical Systems Approach policy by evaluating current existing
pest risk management policies for similar products relevant to Chinese fresh apples;
and

(3) to evaluate methods for risk assessment and economic evaluation of a SA using the
case of Chinese fresh apples and to estimate economic welfare from implementation of

the hypothetical SA developed using one method.

Since the US. market is currently closed to fresh apple trade with China, a Systems
Approach has not yet been officially developed. To evaluate such a policy, a number of
steps are needed. First, since the hypothetical systems approach will be designed for
Chinese fresh apples, it is necessary to understand the supply chain relationships to make
sure that the policy is relevant and implementable to the Chinese apple industry. Important
information includes Chinese apple production trends, current market situation,
horticultural supply chain organization, trade patterns, existing pest risk polices, and

governance structure related to apples.

Second, to identify the measures most likely to be included in a future SA, current existing
pest risk management policies related to fresh apples or similar products from China are
analyzed. These policies or regulations will be the best reference because: 1) they are
designed for Chinese horticultural products; 2) they have been implemented and some
have been proven efficient in mitigating pest risks; and 3) a critical review of these policies

. . 4
might reveal some areas of particular concern.

1.3 Conceptual framework

According to WTO rules, a pest risk assessment is the basis for establishing phytosanitary
regulations among trade partners. Based on current pest risk assessments for like products,
a list of pests of concern will be developed for potential imports of Chinese fresh apples.
This list includes most common pests/diseases that have been mentioned by these
reference policies or have been evaluated as high risk. The hypothetical Systems Approach
policy would include steps contained in the corresponding management strategies and Pest
Risk Assessments. Suppose there are a total of N steps after summarizing the

phytosanitary measures included in the appropriate current regulations. Among these N
steps, there are m(m S N) common steps across each regulation. These common measures

(steps) are currently being used to mitigate the risk of introducing pest(s) associated with
like products from China and should be included in the hypothetical U.S. SA for Chinese

apples.

 

4 . . . . . . . . . .

In reality, numerous soientific studies Wlll be likely implemented as the evaluation and political processes
continue. Existing policies will draw on the scientific literature and studies in place at the time they were
enacted.

In addition, there are N —- m measures that are different from one (or some) regulation to the
others. Some measures are being used by multiple countries, but not all, to mitigate the risk
of introducing pests. Suppose there are n of theN — m measures of this kind; they are the
additional options for a hypothetical SA besides the m basic common steps already
defined. As for the remaining N — m — n measures, they are unique for some certain
pest or are only necessary under some limited conditions and hence only mentioned by a
single reference policy. Therefore, m basic steps and n optional steps are adopted for our

hypothetical SA for Chinese apples.

Like any policy adjustment, potential future trade will have economic impacts for the US.
and Chinese apple industries and consumers. Concerns are raised over possibilities for
introduction of exotic invasive species associated with the apple trade. Economic theory
suggests this might have great negative impact on the US. apple growers and positive
impact on consumers. Based on the hypothetical SA, methods that link the economic

evaluation to pest risk assessment in this specific case will be evaluated.

1.4 Implications

The results and conclusions from this paper will provide important information for both
US. and Chinese policymakers seeking to reduce invasive species risk while complying
with WTO guidelines to not unnecessarily constrain agricultural trade. This study will

provides policy makers, apple growers and researchers an overview of Chinese fruit

market forms and supply chain organization. Evaluation of methodology provides

researchers insights how the economics could be linked to pest risk assessment.

1.5 Organization of the thesis

The thesis is organized as follows: Chapter 2 provides a general background literature
review which includes the plant quarantine laws and regulations, implementation of SPS
agreement, and the Systems Approach. Chapter 3 discusses the apple production and
market supply chain organization in China. The government administrative system with
respect to plant quarantine in China is also introduced in Chapter 3. Chapter 4 provides a
list of potential pests of concern and a hypothetical Systems Approach for Chinese fresh
apples. Chapter 5 evaluates methods for economic evaluation of a Systems Approach and
how it can be applied to the case of Chinese apples. Finally, Chapter 6 gives discussion and

suggestions for future research work.

CHAPTER TWO
LITERATURE REVIEW
This chapter begins with a brief review of how international and regional plant quarantine
laws and regulations are governed. Then a discussion of the implementation of SPS
agreement as it relates to Harmonization and Scientific Risk Assessments. Finally, the
chapter provides a more detailed review of the Systems Approach, which includes the
basic principles of a systems approach, designing a systems approach and the economics of

a systems approach.

2.1 International and regional plant quarantine organizations and regulations

International Plant Protection Convention (IPPC) is an international treaty that aims to
prevent the introduction and spread of pests of plant products among contracting
governments, and to promote appropriate measures for their control (IPPC, 2007). There
are currently nine regional plant protection and quarantine organizations in the world. They
are: Pacific Plant Protection Organization (PPPO), North American Plant Protection
Organization (NAPPO), Asian and Pacific Plant Protection Commission (APPPC),
Caribbean Plant Protection Commission (CPPC), European and Mediterranean Plant
Protection Organization (EPPO), Comunidad Andina, Comite Regional de Sanidad
Vegetal para el Cono Sur (cosave), Inter-Afiican Phytosanitary Council (IAPSC) and
Organism International Regional De Sanidad Agropecuaria (OIRSA). As of August 2006,
there were 157 governments in the Convention including China and the United States
(IPPC, 2007). IPPC provides a series of recommendations about plant quarantine and

inspection for contracting governments, such as recommendations for phytosanitary

certification, imports, regulated pests, international cooperation, regional plant protection

organizations, and international standards for plant quarantine.

2.2 Implementation of the SPS Agreement

The necessity of introducing trade restrictions to protect a country’s food safety and health
was recognized in the General Agreement of Trade and Tariff (GATT) in 1947. A specific
agreement on sanitary and phytosanitary measures (SPS agreement) was negotiated during
the 1986-1994 Uruguay Round and came into effect on January 1, 1995. The term
“Sanitary” refers to measures related to animals and the term “phytosanitary” refer to
measures related to plants. The SPS agreement provides guidelines for WTO members in
implementing sanitary and phytosanitary measures to mitigate risk and harm to a country’s
htunans, animals and plants caused by invasive species associated with traded
commodities. The SPS agreement is supported by, the Codex Alimentarius (Codex), the
International Plant Protection Convention, and the International Office of Epizootics (OIE)
in terms of establishing international standards, guidelines and recommendations.5 The
SPS agreement restates earlier commitments under the General Agreement on Tariffs and
Trade (GATT) and the Tokyo Round Agreement on Technical Barriers to Trade to apply

technical restrictions only to the extent necessary and to avoid unjustifiable discrimination

 

5 According to the SPS agreement, the Codex Alimentarius establishes the standards, guidelines and
recommendations for food safety; the secretariat of the International Plant Protection in cooperation with
regional organizations sponsors the development of international standards, guidelines and recommendations
for plant health; the international office of Epizootics sponsor the development of standards, guidelines and
recommendations for animal health and zoonoses. For other matters not covered by these three organizations,
appropriate standards, guidelines and recommendations can be promulgated by other relevant international
organizations open for membership to all members, as identified by the committee.

among WTO members where identical or similar conditions prevail (Roberts and Krissoff,

2004)

Harmonization

According to the harmonization principal in article 3, the SPS agreement encourages
countries to use international standards when implementing sanitary and phytosanitary
measures. Uniform harmonization is only recommended, but not required. Members may
introduce or maintain sanitary or phytosanitary measures which result in a higher level of
sanitary or phytosanitary protection which are based on an international justification like
Pest Risk Assessment (WTO, 1995). Between 1995 and 2000, more than 70 percent of the
food safety notifications of change6 reported that no international standards existed for the
referenced measures (Roberts and Krissolf, 2004). One of the reasons to explain a low
adoption rate even when international standards exist is that most of the standards are
providing common approaches but specific ones may be needed to mitigate the unique
risks between two trading partners. WTO members are required to make sure that SPS
measures are applied only to the extent necessary and are not more trade-restrictive than
necessary. Standards should be established based on the scientific Pest Risk Assessment
developed by relevant international organizations to achieve an appropriate level of
protection. Therefore, SPS measures are almost certain to vary across countries if these
guidelines are followed. Members should accept the SPS measures that are different from

their own measure or from other corresponding measures used by other members for same

 

6 The SPS agreement requires the notification of regulatory changes affecting trade to the WTO.

10

product. In reality, SPS regulations are often applied in the form of bilateral agreements or

protocols.

Scientific risk assessment

The use of science as criteria for policy evaluation is unique to the SPS Agreement
(Thomsbury and Minton, 2002). According to the SPS Agreement, WTO members should
ensure that the SPS measures are based on an assessment, as appropriate to circumstances,
of the risks to human, animal or plant life or health, taking into account risk assessment
technologies developed by relevant international organizations (WTO, 1995). WTO
members, when determining the SPS measures, are encouraged to take into account
scientific evidence, economic factors, potential risk and cost, and try to minimize the
negative trade effects by comparing relative cost-effectiveness of alternative approaches to

limiting risks.

In general, the Pest Risk Analysis (PRA) includes three stages: 1) initiation, 2) pest risk
assessment and 3) pest risk management (FAQ/IPPC, 2004). In the first stage, PRA is
initiated by the definition of a pathway, a pest, or the review of a policy or policy revision.
In the second stage, pest risk assessment is a process of identifying the pest category,
assessing the probability of entry, establishment and spread of a pest/disease and assessing
the potential economic consequences. The risk assessment can be either qualitative or
quantitative and can vary from country to country. In reality, trading countries increasingly
use scientific risk assessment even if the assessment is not very complex. Concerns over

pest/disease risk are frequently mentioned when entry of an imported commodity is

11

prohibited. For example, China prohibits the import of US. plums and nectarines produced
in California due to quarantine concern relating to the bacterial disease, fire blight, despite
U.S. attempts to provide sufficient scientific information regarding the host status of
domestic stone fruit. In 2002, a Chinese delegation visited the US. to collect scientific data
and review pest mitigation practices for a pest risk assessment of US. stone fruit before
making the final decision whether or not the ban would be lifted (Podleckis and Usnick,
2005). At last, in the third stage, conclusions from a pest risk assessment are used to decide
whether risk management is required and the strength of measures to be used. Pest risk
management is a process of evaluating and selecting appropriate options to reduce the risk
of introduction and spread of a pest/disease to an acceptable level. This phytosanitary
measure should be cost-effective and feasible, and the form of measure may include
prohibition, a pre-entry or post-entry quarantine system, and specified treatment applied

during the production like chemical or physical methods, etc.

Appropriate Level of Protection becomes the internal standards to which a PRA is
compared. In setting the ALOP, it is often difficult to decide whose interests should be
protected and what level of risk is acceptable (Thomsbury and Minton, 2002). Normally
speaking, the risk estimated by an exporting country is relatively lower than the risk
estimated by an importing country. The exchange of technical and scientific information
occurs during negotiations and can help an exporting country to convince an importing
country that the risk associated with the product is less than has been perceived, or can be

safely addressed through certain risk mitigation measures (U SDA/APHIS, 2004a).

12

2.3 The systems approach (SA)

The Systems Approach (SA) is a policy approach to pest management recommended by
WTO as one of the International Standards for Phytosanitary Measures (ISPMs). The
USDA first used the term “Systems Approach” in 1994 to describe an insect management
system developed to reduce the risk from the invasive species. The Systems Approach is
defined by the US. Plant Protection Act as “a set of phytosanitary procedures, at least two
of which have an independent effect in mitigating pest risk associated with the movement
of commodities” (USDA/APHIS/PPQ, 2002) and is defined by IPPC as “the integration of
different pest risk management measures, at least two of which act independently, and
which cumulatively achieve the appropriate level of phytosanitary protection” (FAO/IPPC,
2002). Similar to other pest mitigation measures, the focus of the SA is to reduce the
probabilities of introduction and establishment of an exotic invasive species associated
with the traded commodities. As of February, 2002, there were 12 Systems Approaches
used by the US. for regulation of plant product imports: Unshu Oranges from Japan and
Korea, Irish potato True seed, grafted lilac from Netherlands, Chinese Ya pears from China,

etc.

Like all SPS policies, one of the targets of the Systems Approach is to maximize the risk
reduction to an acceptable level. A distinction of the Systems Approach is the multiple (at
least two) independent and effective measures, which can reduce the pest risk. This means,
first, a Systems Approach is a multiple-step SPS regulation. There must be at least two
steps to reduce the pest risk in a SA; second, at least two of these multiple risk-reducing

steps are independent from each other, which means some (but not all) of these measures

13

are dependent on the result of other measures. For the independent measures, the success or
failure of one measure has no effects on the other measure’s result. It is just like a pyramid:
the multiple independent mitigation measures together decrease the probability of pest
entrance and establishment. Here is a simple example to show how the SA will decrease

probabilities.

Suppose there are m steps to mitigate the pest risk in a Systems Approach for a particular

commodity. Define dummy variable x ,- in the following way:

h

xi = O , the it step fails to eliminate the pest (there is pest infestation)

-th
=1, the I step succeeds to eliminate the pest (there is no pest infestation)
Each of these variables has a Bernoulli distribution. Define P (x, :1): p, as the

lit

probability that there is no pest infestation after the 1‘ independent phytosanitary measure
. . 4 . .
(the probability that the I step successfully eliminate the pest); then

. . . . ~th .
define P(xi = 0)=1—P,', the probability of pest infestation after the 1 independent

- th
measure (thel measure fails to eliminate the pest). Define variable [70 as the initial

probability of pest infestation before any phytosanitary measure is in place.
During agricultural production, the mitigation measures in Systems Approach are, by

definition, applied according to a certain sequence starting from pre-harvest, then harvest,

post-harvest, storage, and shipment. The additive effects are sequence-specific with each

14

succeeding mitigation effect being a probability conditional upon the preceding mitigation

effect(s) (USDA/APHIS/PPQ, 2002)." Here m = 5 , p, =0.9 for each iand p,=1.

Results are given below in Table 2.1.8

Tale 2.1 Comparison of probability of pest avoidance between a single phytosanitary
measure and a systems approach

 

 

Mitigation Single measure A systems approach
measure
(steps) Probabilit Probabilit Cumulative Cumulative
y of pest y of pest probability of pest probability of pest
invasion avoidance invasion avoidance
None 1 0 1 0
X1 0.1 0.9 0.1 0.9
X2 0.05 0.95 0.1x0.05=0.005 01-0.1x0.05=0.095
X3 0.15 0.85 0.005x0.15=0.00075 1-0.005x0.15=0.99925
X4 0.20 0.80 0.00075x0.2=0.00015 l-0.00075x0.2=0.99985
X5 0.10 0.90 0.00015x0.l=0.000015 l-0.00015x0.1=0.999985

 

Source: Calculated by author according to Table 3 on page 13 in “Preventing the Introduction of Plant
Pathogens into the United States: The Role and Application of the “Systems Approach” (USDA/APHlS/PPQ,

2002).

 

n
n
7 n measures {xpxzr ° 'xn_1axn} are statistic independent iff P[ni:1xi) = HP(xi).
i=1

While n measures {x19x29° ° °xn—19xn} are statistic dependent iff

P012213):P(xl)P(x2/l)P(x3/l,2)---P(xn/l,2,...n—1).

8 More detailed calculations for this example are shown in Appendix A.

15

From Table 2.1, the Systems Approach as a set of five independence measures, can reduce
the probability of infestation to 0.000001, which is much lower than 0.1, the probability of
infestation simply from applying a single measure; or the certainty of infestation when no
measures are applied. The independence of these measures can cumulatively increase the
mitigation effect. In this example, by assumption, all these measures are mutually
independent, however, some measures in reality might not be purely independent. Even
though, it shows that the additive affect of these dependent and independent measures in
mitigating the risk is still higher than the effect of a single measure as long as at least two of

these measures are independent.

Of course, in reality, designing a SA is much more complex than this simple example.
When designing a SA for particular commodity, basic data and information about the pests
associated with the commodity are needed including the list of pests, the climate
information in the production areas, the knowledge of the pest and disease life cycle, the
situation of harvesting, packing, storage and shipping, etc (USDA/APHIS/PPQ, 2002).
Multiple pests, multiple hosts, environmental and commercial impacts, and the uncertainty
around risk reduction probabilities all add complexity. The pest risk assessment should be
the base for designing a SA and, in general, a SA includes the mitigation measures at
pre-harvest, harvest, post-harvest, and during storage, shipping and distribution. Still,
decisions about the proper phytosanitary measures to be included in a specific Systems
Approach (for example, governing the import of Chinese apples) and the optimal
combination of measures to mitigate the pest risk at the maximum level are controversial

and difficult to evaluate.

l6

Economics analysis of SPS issues

Risk caused by the pest/disease associated with traded commodities could not only have
potential negative impacts on a county’s human, animal or plant health, the risk can also
affect a county’s national welfare by increasing the potential cost, reducing the quantity of
imports, increasing import prices either in the short run or the long run. To assess the trade
off in these impacts, economic assessment of a pest mitigation policy is important, but
difficult. There is limited literature about economic evaluation of a pest mitigation policy

that links economic assessment and pest risk assessment.

Non-tariff barriers to trade (like sanitary, phytosanitary and technical barriers to trade)
have drawn attention from some researchers. Beghin and Bureau (2001) summarizes the
methodologies used to modeling and quantifying non-tariff barriers to trade. They
mentioned several methods like price-wedge method, inventory-based approaches,
survey-based approaches, and risk-assessment-based cost-benefit measures, stylized
microeconomic approaches. Among these methods, tariff equivalent is a price edge
method used to measure the trade impact of technical barriers to trade issues. Krissoff,
Calvin, and Gray (1997) stated that technical trade barrier measures might be a social
welfare enhancing policy in the importing country if the expected gains associated with
reducing the risks over the cost of a pest infestation. Carvin and Krissoff ( l 998) quantified
the phytosanitary barriers to US. apple exports to Japan by calculating tariff-rate
equivalents to measure the magnitude of the trade barriers. They showed that both in short

run and long run, Japanese apple imports would increase if eliminate phytosanitary

17

tariff—rate equivalences and tariffs. Therefore, it is intuitive that there is a way to estimate
the impact of SPS issue on international trade. However, compared with tariffs,
phytosanitary issues might be more complex since it is related to the risk of probability, the

environmental impact, and the economic consequences.

Adding risk analysis into the traditional welfares analysis is a natural idea and is used by
several people to evaluate phytosanitary measures. A model of quarantine policy was
developed by Glauber and Narrod in 2001. In this model, probabilistic risk assessments are
combined with economic analysis to show that the USDA would have reached different
conclusions if they had incorporated risk into the benefit-cost analysis of Kama] Bunt.
Bigsby (2002) developed an Iso-Risk framework for quantifying technical trade barriers
that contain elements of risk of occurrence and economic impacts. The Iso-Risk framework
combines the two basic components of pest risk assessment, probability of establishment

and economic effects, into a single management framework.

Extending the welfare analysis in a partial equilibrium model is being used by several
people to link economic assessment and risk assessment. Paarlberg and Lee (1998) used a
partial equilibrium model to determine the welfare maximizing level of US. tariffs by
estimating the Foot and Mouth Disease risk, losses due to infection and trade elasticity.
They showed that the magnitude of the tariff in the presence of an FMD risk is very
sensitive to the specification of the risk of importing FMD and to the magnitude of losses
expected from an FMD outbreak. Wilson and Anton (2006) have tried to find an optimal

set of SPS measures considering total welfare and mitigation strategies by using a partial

Equilibrium model in the case of beef import to the US. They showed that the mitigation
strategies could generate net welfare gains. It is optimal to apply mitigation strategies first.
In addition, they provide a new point that an additional tariff as a complement can be added

into the mitigation measures if additional SPS protection is needed.

Peterson and Orden (2006) developed a static, multi-season partial equilibrium model to
evaluate the effects of allowing fresh Hass avocados from approved orchards in Mexico to
be imported into the US. under alternative Systems Approach pest risk mitigation
measures. Different from previous research, the probability of introducing the pest is
calculated for each step in a SA and for each selected pest making this model a good source
of reference for evaluating a hypothetical SA for Chinese fresh apples. In the model, three
scenarios are evaluated: unlimited access to the US. market with the Mexican systems
approach compliance measures in effect as specified in the 2004 rule, further removal of
the compliance measures directed specifically toward Mexican fruit flies, and elimination
of all systems approach requirements. Results indicate that the substantially expanded
trade when geographic and seasonal restrictions are rescinded lowers Mexican per-unit
compliance costs in half, from nearly 20 percent to about 10 percent of their producer
prices. Pest risks are low with the systems approach compliance measures still in place and
estimated annual net U.S. welfare gain from eliminating all geographic and seasonal

restrictions is calculated as approximately US$70 million.

In addition, Wittwer, McKirdy, and Wilson (2005) use a dynamic multiregional

computable general equilibrium (CGE) model to estimate the micro- and macroeconomic

l9

effects of Karnal bunt incursion in wheat in Western Australia. They decompose the
contribution of individual direct effects, like the response of buyers, the costs of
eradication and the time path of the scenario contribute to outcomes to the overall impact of

the incursion.

2.4 Summary

The SPS agreement provides guidelines for WTO members in implementing sanitary and
phytosanitary measures to mitigate risk of introducing exotic invasive species associated
with traded commodities. Pest Risk Analysis is an important component for trading
countries in the implementation of the SPS Agreement. The conclusions from PRA are
used to decide whether risk management is required and the strength of measures to be
used. Relatively little research has been done to link the economic assessment and risk
assessment when evaluating the impacts of an SPS policy on trade or a country’s welfare
change. As one type of multi-step SPS regulation, the Systems Approach, which includes
at least two mutually independent measures, is recommended by WTO as one of the
International Standards for Phytosanitary Measures. The multiple independent mitigation
measures in a Systems Approach together increase the probability of preventing pest entry

and establishment.

20

CHAPTER THREE:

APPLE PRODUCTION AND SUPPLY CHAIN ANALYSIS

As the largest apple producing country in the world, China is asking for consideration to
export fresh apples to the US. Since no fresh apple trade currently exists, background
information is needed before developing and evaluating a hypothetical Systems Approach
for Chinese fresh apples. This chapter begins with the introduction of China’s fi'uit sector
and apple industry, which includes production and consumption trends, and trade
information.9 This is followed by a discussion of the supply chain organization for fresh
apples in China. Three markets are described: traditional fruit market, new emerging
modern market, export market and the new emerging coordinated supply chain
organization is discussed. Finally, a discussion of the quarantine administration system and
regulations in China is provided, which includes existing pest risk policies and the

implementation of other phytosanitary measures related to fresh apples.

3.1 Fruit and apple industry in China
The economy of China grew at an average annual rate of 8.9 percent10 between 2001 and

2005 (the period of the tenth Five-Year plan). ” This rate is among the highest in the world

 

9 We only focus on “fresh” apple trade and associated phytosanitary measures in this paper. Discussion of
processed products including concentrate apple juice issue is omitted because it is not the emphasis of our
study.

10 Annual rates were 7.5, 8.3, 9.5, 9.5 and 9.9 percent respectively during the period 2001-2005 (National
Bureau of Statistics of China, 2006).

U The Five-Year Plans are a national economic development plan, which was first introduced in the Soviet
Union. China introduced its own five-year plan in 1953. Chins is during the period of its eleventh five-year
plan (2006-2010).

21

and illustrative of the rapid economic development of China since market reform opened
up in 1978. Fruit production has been increasing rapidly since 1978 and came into a stable
development stage during the 19905. The production of fruit in China was 4.4 million
tonnes in 1972 and 9.6 million tonnes in 2006, an increase of 20 times in only three decades
(Figure 3 . 1 ). China became the world largest fruit producing country in 1994 (MOA, 2005).
Over the same period, area planted to orchards increased from 1 million hectares to 10
million hectares (Figure 3.1), and yield came into a steady increasing period after 19903
(Figure 3.2). Shandong, Shaanxi, Guangdong, Henan Guangxi, Fujian are the main fruit
producing provinces. China now has become a fierce competitor in the international fruit
markets. The total export value of fruit was US$25 billion in 2004, an increase of 21.7
percent compared with year 2005 (MOA, 2007). The main imported fruits are grapes,
bananas, and gooseberries. Primary suppliers are Thailand, Chile, the United States,
Philippines, Vietnam, Brazil and New Zealand. Shandong, Shaanxi and Guangdong
provinces are the main apple exporting areas with most fruits going to Japan, the United
States, Russia and Germany. And the main exported fi'uits are apples, oranges and apple

concentrates.

22

Figure 3.1 Fruit Production and Area in China (1972-2006)

 

120 . ' 12
100 10
so ‘ 8
60 l 6
40 4
20 2
0 ' ' ‘ ‘ ' 0
0“” 0““ e“ 6‘" 0‘9 6*” 0“” 0*“ cf 09° <9” 6”“ cf {if cf 0“” ref if)

Million + Fruit Production ' Production Area

Source: Fruit Area and Production Online Data Sets (Crop Cultivation in China, 2007). Total fruit production
includes melons.

Figure 3.2 Fruit yield in China (1972-2006)

12.000

 

10.000 ‘
3.000
6.000 .
4.000 '

2.000 '

 

 

197219741976197319301 98219841986198819901 992l994199619982000200220042006

Source: Fruit Area and Production Online Data Sets (Crop Cultivation in China, 2007). Total fruit production
includes melons.

23

Figure 3.3 Main fruit production in China (1990-2005)

30,000 .
25,000 7 ‘
20,000 _ , ‘ ' s ‘

15,000 '

10,000 ‘ . ‘ "a... I” E E: - a...
{- -:- ~'flE} Q—A-f:.5175‘:“'

" -f‘: ;;. H
"a: 5": ‘ 15:3 :T . 4": . . :i
JTT-‘T <7 2. >3 3 a El -"

Thousand tones 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

5,000

0 Apples ~-' Grapes I Oranges °~ Peaches and Nectarines “I“Pears and Quinces

Source: Author’s calculations. FAO online data source.

Apples are the leading fruit produced in terms of volume (Figure 3.3) in China. Production
and is growing rapidly, far ahead of other fruits. Over the past two decades, the production
of apples in China has rapidly increased. In 2005, China, the world's largest apple
production country, had a production of 24 million tonnes, which accounted for 38 percent
of world's total followed by the United States, Poland, Islamic Rep of Iran, France, Italy,
and Poland (Figure 3.5). Between 1990 and 2005, China’ share of world production grew
from approximately 13 percent to almost 40 percent, while the US. share declined (Figure
3.6). The yield per hectare of apples in China is 12.97 tonnes, a 400 percent increase from
1990 as shown even through harvest area decreased since mid of 19903 as shown in Figure

3.4.

24

Figure 3.4 Yield and area harvest of apples in China (1990-2005)

 

14 3,500
12 3,000
10 2,500
8 2,000
6 1,500
4 1,000
2 - 500
0 0
19901991199219931994199519951997199819992000 20012002 2003 2004 2005
Tonnes/hectar Thousand Hectare

+ Yield Per Hectare + Area Harvest

Source: FAO online data source.

Figure 3.5 World apple production, 2005

Argentina

United States of
America

Chile ‘

Poland

  

Romania

 
     

Turkey

Russian Federation Italy

K Germany

Iran, Islamic Rep
of

Source: Author’s calculations. FAO online data source.

25

Figure 3.6 US and China’s share of world apple production (1990-2005)

 

U .45
El .4

U .35
0.3

 

 

 

 

0'05 llllllllllllllllllll III|I|||||

1990 1992 1994 1996 1998 2000 2002 2004

I China’s share of world apple promotion
I US’s share of world annle production

Source: Author’s calculations. FAO online data source. World production includes the production of all the
176 countries listed in the FAO online database.

China, especially the loess plateau areas, is suitable for apple growing with over 700
varieties grown in that region. In terms of varieties, Fuji is the primary apple variety in
China, with production area accounting for almost half of the total for China. Other
common improved apple varieties include Delicious (Yuanshuai), Golden Deli (Jinguan),
Jiaona Jin, Gala. In addition, Granny Smith seems to become an increasingly attractive
apple variety in China (USDA/PAS, 2006a). Currently, there are 25 (of 34) provinces
growing apple in China. Most of them can be classified in the following four main
production areas as shown in Figure 3.7: B0 Hai Wan Production area (Liaoning,
Shandong, Hebei province, Beijing and Tianjin, etc.); Northwest and Southwest highland
area (Shanxi, Gansu, Shaanxi, Ningxia and Qinghai province, etc.); Yellow River and Qing
mountain range area (Eastern Henan, southwestern Shandong, northern Jiangsu and

northern Anhui Provinces); and Southwest cold highland area. Bo Hai Wan area is one of

26

the biggest traditional apple production areas. Shaanxi, which replaced Shandong province

afier 2001, becomes the largest apple producing province in China.

Figure 3.7 Map of China

Map of China

  
    
  

Bo Hal Wan
Production area

Northwest and Southwest
highland area

”“~ Yellow River and
Qing mountain
range area

Southwest cold highland

 

Source: Edited by author. Original map: http.,’."' g "" ‘ 9’ 'J’ ' g ' r_china1.gif.

There are several factors that underlie the rapid increase in Chinese apple production. First,
the Chinese government has placed a high priority on development of the fruit industry,
including apples. Chinese government has identified apple production competitiveness in
world markets and its potential for driving economic development. For example, the
government encourages fruit production in mountains and hilly areas, which are mainly the
Yellow River and Qing mountain range area and Northwest and Southwest highland areas.
These areas have great geographic and topographic advantages for apple growing, like

higher land quality, more exposure to sunlight, greater variation in daily temperatures

27

resulting in better shape and higher sugar content (World Bank, 2006). A series of policies
were enacted to support development, including provision of subsidized production
materials like fertilizer, seeds, assistance to build up the greenhouses for some
commodities, financial support, and market information, etc. Growing apples is more
profitable than growing some traditional crops for Chinese farmers that can increase the
annual income and improve the quality of life. Farmers have shifted from traditional crops
to some more profitable economic crops, like apples. In addition, growing apples can drive
the development of other industries. Comparable investments would be made to support
the apple industry development, like water conservation, land protection, storage and
packaging industries, and road improvement projects, etc. This can provide further

employment opportunities.

Chinese apples and apple products have become very competitive in the international
market, especially after China entered the WTO in 2001.Chinese apple export increased
rapidly and as well as the share of world market in terms of export volume and export value
(Figure 3.8). The export quantity of fresh apples increased almost 12-fold from 69
thousand tonnes in 1990 to 832 thousand tonnes in 2005 but the average per unit value
decreased due to lower export prices (FAO, 2007). Southeast Asia, Russia and Canada are
the main export destinations for Chinese apples. While Chinese apples account for 12
percent of the world’s total export quantity, this is much smaller than the 37 percent share
of world production in 2005. Currently, most of the production is consumed domestically
even though Chinese apple growers are eager to open the international market due to the

higher price and value-added compared with the domestic market. While quality and food

28

safety issues have been relatively lagging, Chinese apples are stronger in global markets
where prices count more than.quality and safety (World Bank, 2006). China has a
long-term comparative advantage in labor, a source of competitiveness for many Chinese

products, which results in relatively low apple prices in the international market.

Figure 3.8 Chinese apple shares of the world’s export volume and value (1990-2005)

0.14

 

0.12

 

0.1

0.08

 

0.06

 

0.04

.2

19901991 1992 1993 199419951996 19971998 1999 2000 2001 2002 2003 2004 2005

0

D

Source: FAO, 2007.

The meteoric rise in apple production and the gradually open market present both
opportunities and challenges for the US. horticultural industry. The United States is one of
the most important fresh apple imported countries for China. China imported 18,972 and
19, 465 metric tons of fresh apples from the US. in 2003 and 2004, which accounts for 45
and 52 present of the total imports separately. The other countries for fresh apple import
are France, Japan, New Zealand, Chile and Australia. The Red Delicious is the most

common variety that have been imported but the flavor of Red Delicious does not appeal

29

to most Chinese consumers. Most people buy it as gift for its deep red color. The US. red

Globe is well known to Chinese for the good taste and high quality (U SDA/F AS, 2006a).

China is now requesting approval to export fresh apples to US. and it is likely that US.
market will open to Chinese apples in the near future. At present, US. federal Animal and
Plant Health Inspection Service (APHIS) is looking into developing the specific “Systems

Approach” the certification process for Chinese apples.

3.2 Fruit markets in China

Since the corresponding phytosanitary measures of any hypothetical systems approach
policy are related to how fruit is produced and handled, it is necessary to look at supply
chain organization and management in Chinese fruit markets. At present, Chinese fruit
markets can be divided into three categories: traditional fruit market, new emerging
modern market, and export or industrial market (World Bank, 2006). A simple introduction
of these three markets is given first in this section and followed by more detailed discussion

of some issues regarding supply chain organization.

Traditional fruit markets

Traditional local fruit markets have been the most popular market format in the last
decades and even now still retain the largest market share. This market consists of millions
of small-scale farmers, who normally have less than 0.5 hectares per person on average.12

A small portion of the fruit is consumed for home use but most of the fruit is collected by

 

12 In 2004, the population of China was 1,299,880,000 with 720,850,000 were employed in agriculture (28
percent). Among all the people employed, 50 percent are employed in agriculture sector (primary industry).

30

fruit dealers or farmers themselves. Sales are to local urban and rural markets, including
restaurants, street market, or grocery stores. The farmers in this market have less
consistency in pesticide, lack market supply and demand information, and have relatively
less technical and policy support from the government. Most of the fruit is sold through
outlets that combine retail and wholesale functions. Traditional fruit markets are
characterized by little food safety control, heterogeneous quality, absence of
standardization, low prices for growers and consumers, very low value-added, and a lack

of long term relationships between buyers and sellers.

New emerging modern markets

China’s food retail markets have experienced remarkable transformation after the
economic liberalization starting in the early 19803. One of the most evident examples of
rapid development is the spread of supermarkets. Over the last decades, especially in the
last five years, supermarkets have replaced most of the traditional wet and flea markets in
urban centers. Supermarket sales are growing at a growing rate 30-40 percent per year. The
supermarket revolution in China is spreading faster than anywhere else in the world (Hu, et
al., 2004). When compared with traditional fruit markets, modern domestic supermarkets
are characterized by better food safely control, convenient shopping environment,
emerging awareness of tighter supply-chain organization, sharing market information and
trust between buyers and sellers, increased value-added, and existence of market leaders.
Several reasons can explain rapid grth of the supermarket. First, rapid urbanization and
the increase in women employment. Like other market forms, supermarkets require a

certain number of consumers to be profitable and the increasing urban (as well as the

31

nearby rural) p0pulation provides a minimum clientele for the development of supermarket
(Hu, et al., 2004). In addition, employed women are seeking more convenient shopping
options with lower transportation cost to save the opportunity cost of food preparation.
Second, increase in household income. In the last two decades, the rural per capital income
increased by six-fold and urban per capital income increased by 12-times (MOA, 2005).”
Generally speaking, urban residents have stronger purchasing power than people in rural
areas; in 2004, the urban per capital income was three times the rural per capital income
(MOA, 2005). Third, increase in Foreign Direct Investment (F DI). Foreign-owned
supermarket chains, i.e., Wal-Mart (USA), Carrefour (France), Metro (Germany),
7-Eleven (Japan) and some new emerging domestic supermarkets, like Hualian, Lianhua,
Nong Gong Shang, Suguo, Huarun have dramatically changed the retail food sector in
China. Government support is a forth factor as more active government policies are helpful
in converting informal wet markets to supermarkets. For example, a program called
“Nonggaizhao”, which means changing farmers market into supermarket, was applied in
2003 in some big cities in China (Hu, et al., 2004). In rural areas, like Sichuan and
Zhejiang province, the government supports the development of small-scale “rural
supermarket” by providing financial subsidies and management training. Finally, there are
a nmnber of other reasons like liberalization of retail and wholesale sectors, westemization
of life styles, and increasing proportion of young people in the population. These reasons
combined shift food purchase from traditional fruit markets to new emerging supermarkets.

Compared with the small local traditional fruit market, the supermarkets attract consumers

 

'3 Income was 547 RMB per capital in rural area and 739 RMB per capital in urban area in 1985 and,
corresponding, 4040 RMB and 9422 RMB per capital in 2004. Here it is better to keep the Chinese currency
just to see the increase. Because Chinese exchange rate system in 1985 was quite different with the one
in2004, it is not compatible if we change it into US dollars.

32

with more varieties of food, higher food quality, convenience of one-stop shopping, and a

better shopping environment.

However, the development of supermarket sales in the fruit sector, especially for fresh fruit,
has not been as fast as other sectors in general. Not all the supermarkets in China sell fresh
fruit. The fruit sector in supermarkets still has limited market share in terms of sales due to
the difficulties of quality and safety control of fresh fruits and higher prices. Even though
the improved infrastructure and increased capacity of cold storage have helped enhance the
distribution networks in China (U SDA/FAS, 2006a), only specialized wholesale markets
or big-scale dealers are able to afford the expensive cold store or facilities. Supermarkets
are better able to handle processed foods and fresh products with a longer shelf life, but
they have major difficulties in handling fresh vegetables and fruits (World Bank, 2006). In
addition, from the consumers’ perspective, they prefer to go to traditional wet markets for

fruit due to cheaper prices but still go to supermarkets for other goods.

Export market

Over the last decades, with the privatization and economic liberalization, producers in
China have been increasingly able to respond to foreign demand in Japan, Korea, Hong
Kong and Chinese ethnic markets in Southeast Asia and North America, because of
cultural closeness, similarities in food consumption and crops grown (World Bank, 2006).
Export supplies are mainly provided from bigger domestic fruit companies. The current
export fi'uit markets themselves are still developing and improvements in quality, safety,

and technology are under way to meet requirements in different international export

33

markets and higher international standards. Export fruit markets are even more demanding
than domestic supermarkets in terms of quality and safety requirements. They are
characterized by the highest standards, food safety control systems, higher requirements
for grading and supply schedule, higher value-added, relatively higher price levels, for
existence of trust between buyers and sellers. Even within the broad category of export
markets, there are still big differences in the demands from buyers from different countries.
Markets in North America and Europe are generally more demanding than the markets in
Russia, Middle East and some Asian countries. At present, the export market probably
constitutes not more than two percent of the volume of fresh fruits and vegetables (World
Bank, 2006). Even with the limited share of product distributed through export market,
these supply chains are playing a critical role in promoting the overall development of the
fruit industries in China. Chinese government provides great support to the development of
export market for agricultural products. In 2006, the Chinese Ministry of Commerce issued

the first F ive-Year Development Program (2006-2010) for Agricultural export.

34

Table 3.1 Comparison of characteristics of three market forms in China: traditional
local market, new emerging modern market, and export market

 

 

Characteristics Traditional fruit market New emerging Export market
modern market
Supply chain leader No Large fruit company Exporters
Market share Has the largest market share Small but increasing Small market share
in China market share
Participation of Consist of million of small Small scale farmers Farmers enter the
small-scale farmers scale farmers; No constraints are gradually market only by
to enter the market excluded from the signing the contact
market due to the with the companies to
high requirements for guarantee the quality
quality, food safety and food safety

Standardization and
grading

Food safety control
capacity

price level

Value added

Trust between the partners

Government support

Global competitiveness

Almost no standards for
supply

Low

Relatively low; low market
value added

Low

Not important

Relatively low

Very low

control

Emerging higher
standards for quality

Moderate

Higher

Moderate

Emerging importance

Moderate

Moderate, but
developing very fast

Highest standards
High

Highest but still low
in global market
High

Important for long
term cooperation

High
High

Source: Edited by Author according to Table 15 “Three types of markets and their characteristics”, China:
Compliance with food safety requirements for fruits and vegetables (World Bank, 2006).

3.3 New emerging coordinated supply chain

Coordinated supply chains are durable arrangements between producers, traders,
processors and buyers about what and how much to produce, time of delivery, quality and
safety conditions, and price (Word Bank, 2006). Based on the discussion in section 3.2,
traditional supply chains in Chin have not been able to satisfy the increasing higher

requirements of supermarket and export markets, which requires the consistency of quality,

35

safely, volume, requires a strict delivery schedule, and even tracking systems throughout
the whole supply chain. Coordinated and integrated upstream and downstream
relationships satisfy requirements of the modern fruit domestic and export markets and
have become the dominant institution in these supply chains. The participants have durable
relations in a coordinated supply chain by exchanging information and consulting each
other. For example, a fruit company might be responsible for some of all the activities in a
supply chain, like production, processing and wholesaling. Some key characteristics of

coordinated supply are discussed below.

Centralized procurement system

The procurement system trends to shift away from the traditional wholesale system
towards use of large, centralized distribution centers with specialized/dedicated
wholesalers-operating preferred supplier system (Hu, et al., 2004). In such a centralized
procurement system, transaction costs can be largely reduced; there are fewer suppliers and
wholesalers, which result in an easier control over the quality and food safety; standards

are generally higher than those in traditional markets.

Standards and food safety

The standards in China can be grouped into two categories in China: private standards and
official standards. The official standards refer to the published laws and regulations and as
well as the updated standards published by Chinese government. Private standards refer to
the requirements set by supermarkets or exporters themselves (or importers) when they are

sourcing the fruit. Generally speaking, the private standards are more demanding than the

36

national official standards in China. In terms of fresh apples, the definition of standards
includes not only food safety related requirements, like pesticide residuals level, hygienic
standards, heavy chemical residuals, but also includes the grading standards, like
appearance and freshness. The rapid development of supermarket and export market
contributes to increasing the overall standards in Chinese fruit sector. The increase in
standards pushes farmers to shifi from traditional supply chains to the new emerging

coordinated supply chain.

The participation of small-scale farmers

Individual small—scale farmers in traditional fruit markets are gradually excluded from the
new emerging modern markets and export markets even though they have relatively low
production cost. New emerging supermarkets and export market do not want to source
their fruit from individual small-scale farmers due to high transaction costs, lower quality,

lower safety quarantine, lack of trust, and lack of settled delivery schedules.

However, as mentioned before, the traditional fruit market still has the largest market share
for fresh apples. It is necessary and important to help some of small-scale farmers get
involved into the new emerging modern market and export market. Contract farming is
becoming more common in China. Especially for those farmers that are capitalized and
organized, signing a contact with large fruit companies is a great opportunity to adjust
themselves to the new market format. Sometimes, farmer organizations coordinate small
growers with these larger fruit companies to sign the contracts. Commonly, with a contract,

the fruit company provides the farmers guidance for production, fertilizer, and technical

37

support for quality control. Normally these companies have their own laboratory, which is
partially sponsored by the government, to inspection products and thus address food safety
issues, like high chemical residue. In such a system, the whole production is under the
supervision of technicians from the fruit company. This can also compliment the growers’

lack of market information and guarantee market access if quality standards are met.

The emergence of association

Another important characteristic of the coordinated supply chain is the emergence of
associations in China’s fruit sector. Most of the associations are established by the
government as an official organization in order to promote the overall development of a
specific industry. In addition, there are some other associations that are established by
farmers themselves to increase sales and competitiveness. The Chinese Apple Association
was established by the Ministry of Agriculture (MOA) in 2002 to promote the national
development of apple industry. It consists of voluntary growers, dealers, companies,
researchers, and other organizations that are related to apple production, storage, shipping,
import or export from all over the country. In addition, there are some smaller regional
apple associations, such as the Shandong Yantai Xixia Cuiping apple association. This
group was founded in 2003 in Shandong Yantai city, one of the biggest apple producing
areas in China and has its own production base, cold storage, and distribution center. It also

serves a role in coordinating local apple farmers with importers and companies.

Guanxi- a special social relationship in China

38

The presence of trust between supply chain members is an important factor in an efficient
and effective coordinated supply chain. In China, “Guanxi”, which means “Interpersonal
Relationship”, is an interpersonal and characteristic-based trust, and has been an important
part of Chinese business society (Xin and Pearce, 1996). “No fiiends, no business”. If you
don’t have a good relationship, there is really no way to survive in China. Guanxi can be
the relationship among the relatives, friends, classmates, people from the same region,
teachers and the class, employees and employers, husband and wife, or even the people
who have the same hobbies. Once you have established a relationship of trust, things would
become much easier. Here it should be mentioned that "Guanxi" is not equal to a bride or
some other illegal relationship between the supply chain partners. It is just a Chinese
special term used to express this important social relationship in China. Guanxi plays a
very important role in the coordinated supply chain of fruit sector in China, not only for the
small-scale farmers, but also for the large fruit companies and exporters. Understanding the
critical role of Guanxi and then setting up appropriated Guanxi with downstream and

upstream partners is essential to survive in China.

Case study--- Longkou Fook Huat Tong Kee Fruit Co., Ltd

Longkou Fook Huat Kee Fruit Co. Ltd. in Shandong Province is one of the biggest fruit
companies in China. It is a solely Singapore-owned fruit company that was established in
1965 and came into Shandong Province of China in 1993. This company is vertically
integrated from production, packaging, storage, distribution, and exporting. Most of the
products go to export markets or domestic higher-level supermarkets. Longkou F ook Huat
Kee Fruit Co. Ltd. adopted two production modes to better control the quality and safety of

the fruit (Hu, 2005). One is to sign contracts with small individual farmers; the other is an

39

internal production base that belongs to the company and is directly controlled by the
company. In mode one, if the farmer’s cultivable land is larger than 0.82 acres (5 Mu), they
are eligible to sign a production contract with Fook Huat Kee under some conditions. For
example, growers must cultivate the same variety in the same region, use fertilizers and
pesticides provided by the company, and the quality of the fruit must meet the requirements
of the company. They provide trees, fertilizer and pesticides, but also direct supervision
and technical support to the farmers in the production. The farmers themselves also need to
increase their investment on production materials to follow the company’s quality and
safety standards according to the contracts. Sometime, the small farmers organized their
own organization to better negotiate with the company. All the individual farmers are
divided into small groups and there is one leader, one vice leader and one technical
assistant in each group. In mode 2, local farmers are employed to work in the work in the
company’s production base and the average income for them is US$50-75 per month.14
This company also has their own storage, packaging, and distribution facilities. Storage
capacity is 35,000 tonnes with 25,000 tonnes of advanced cold storage. The model of
“Production Base+ Small-Scale Farmers” increases the connections between the small
farmers and market demand by helping them improve production techniques and better
control the safety and quality of the fruits. To meet the higher requirements of
supermarkets and international buyers, the company adopted advanced techniques in their

own internal farms and also provides the techniques to its contracted farmers.

 

‘4 According to the field survey in China in 2005, for other farmers, the average salary per farmer who works
outside traditional farming time is around $30 per month.

40

3.4 Plant quarantine systems and regulations in China

As one of the largest countries in terms of food production and consumption, China has
paid increasing attention to food safety issues in recent years. At least 16 institutions,
including ministries, banks, and commissions are involved in governing agriculture and its
upstream and downstream sub-sectors (O’Brien, 2006). It should be mentioned that the
overall government system in China is relatively complicated. The National People’s
Congress (NPC) ranks the highest in the administrative system pyramid. All other
ministries, departments and institutes are either directly or indirectly under the NPC. These
ministries, departments and institutes normally all have multiple geographic divisions (i.e.
state level, provincial level, city level, county level and even village level). In addition,
responsibilities among some relevant departments are not always distinct and sometimes

overlapping.

With regard to plant quarantine and inspection, a series of food actions and plans are
currently being implemented. In addition, a new food safety control strategy is under
development, with a focus on the establishment and optimization of technical systems,
standardization systems, management systems, monitoring systems, certification systems,

emergency reaction systems, as well as the legal system (World Bank, 2006).

Government administrative system with respect to plant quarantine
As already mentioned, in China’s administrative system, the National People’s Congress is
the highest organ of state power. The State Council, which is also part of the central

people’s government, is the highest executive organ of state power and administration. It is

41

responsible for implementing the principles, regulations, and laws adopted by the NPC and
dealing with national affairs including international politics, diplomacy, defense, economy,
culture and education. In this section, discussion will focus on the most relevant
departments and institutions with respect to food safety and phytosanitary control in the
fruit sector. Several public government departments and institutions are involved in this
area. The current Chinese food safety control system is not well developed and undergoing
change, thus the responsibilities and tasks among these departments and institutions are
somewhat overlapping. The followings are the list of the most relevant government
departments or institutions with respect to the fruit safety control and implementation of

phytosanitary measures.

1. General administration of quality supervision, inspection and quarantine of the
People’s Republic of China (AQSIQ)
AQSIQ, directly under the State Council, is mainly responsible for drafting laws,
regulations and policies related to food safety and quality supervision, inspection and
quarantine; constructing unified supervision and management of national food
measurement work; coordinating and implementing and managing the formulation of state
and provincial standards; reviewing, approving and issuing sanitary and phytosanitary or
other safety and quality related laws, regulations and policies concerning import and export
products; organizing and guiding multi-lateral and bilateral governmental and
non-governmental cooperation and exchange concerning food safety and inspection;
participating in major events initiated by international organizations; reviewing and

issuing the food quality and safety certifications and standardization.

42

AQSIQ is a critical government agency in controlling food safety and implementing the
phytosanitary measures during production, processing and transportation. It is one of
several official representatives of the Chinese government in coordinating and negotiating
bilateral agreements with other countries. The most relevant departments within the
agency are the Bureau of Food Safety for Imports and Exports, the Department of Quality
Supervision, and the Committee of Standardization and Administration of Certification

and Accreditation.

2. Ministry of agriculture (MOA)

The Ministry of Agriculture is mainly responsible for drafting, reviewing and issuing
mid-and long-term development strategies, policies and regulations; drafting and issuing
policies related to the adjustments of agricultural structure, price change, financial credit,
subsidies, etc; coordinating the international economics and technical cooperation with
other countries and international organizations; guiding the development of safety food,
implementation of food safety control measures; investing in the construction and
improvement of food safety testing and inspection. The Department of Agricultural
Regulations and Policies, the Department of Market and Economic Information, the
Department of Crop Farming Management, and the Environmental/ Green Food

Development Center are the most relevant departments in MOA.

3. State food and drug administration (SF DA).

43

State Food and Drug Administration, again directly under the State Council, is in charge of
comprehensive supervision for the safety management of food, health food and cosmetics
and is the competent authority for drug regulation. Relevant departments include the Policy,
Law and Regulation Department, the Food Safety Coordination Department, and the Food

Safety Supervision and Inspection Department.

4. Ministry of health (MOH).

The Ministry of Health is also a member of the State Council and is mainly responsible for
drafting main health laws, regulations and policies; proposing and guiding the
implementation of health development programs and strategic goals; conducting health
education programs for the public; organizing and guiding governmental and
non—governmental health and medical cooperation and exchanges and medical aids to other

countries.

5. Certification and accreditation administration of the People’s Republic of China

(CNCA)

CNCA was established in 2001 and is authorized by the State Council. CNCA undertakes
responsibility for unified administration and supervision system, overall coordination and
accreditation of certification in China. This agency is mainly responsible for drafting and
implementing laws and regulations with respect to certification, accreditation and
inspection; the assessment of hygiene registration of manufacturing and processing

establishments for domestic, import-export food and cosmetics; supervising certification

44

activities; administrating the assessment and qualification approval of relevant inspection
and testing bodies; coordinating international cooperation activities and signing related
agreements and protocols; the notification and construction related to certification and

accreditation issues with the range of WTO/TBT and SPS.

6. Others

Other relevant government departments include State Administration for Industry and
Commerce, National Development and Reform Commission, State Environment
Protection Administration, Ministry of Finance, Ministry of Public Security, Ministry of
Water Resources, Ministry of Education, People’s Bank of China, and Agricultural
Development Bank of China. All of these departments and institutions have many
responsibilities including some related to plant quarantine and inspection. For instance, the
State Environment Protection Administration (SEPA) is responsible for drafting the laws
on such issues as soil pollution, water pollution. The State Administration for Industry and
Commerce (SAIC) is responsible for monitoring and managing the economic market in

general.

The following table is a quick summary of the responsibilities of the departments and

institutions mentioned above.

45

Table 3.2 Institutions in China with responsibilities related to plant quarantine

 

Institution

Main responsibilities

 

Agricultural development bank of China
Certification and accreditation

administration of the People’s Republic of
China

General administration of quality
supervision, inspection and quarantine of
the People’s Republic of China

Ministry of agriculture

Ministry of water resources

Ministry of education
Ministry of finance

Ministry of health

Ministry of land and resources
National development and reform

commission

People’s bank of China

State administration for industry and
commerce

State food and drug administration

Specialized in extending loans for agriculture and rural
enterprises

Draft and implement laws and regulations with respect to
certification, accreditation and inspection; supervise
certification activities; coordinate international cooperation
activities and sign related agreements and protocols; the
notification and construction related to certification and
accreditation issues with the range of WTO/TBT and SPS
Draft laws, regulations and policies related to food safety
and quality supervision, inspection and quarantine;
construct and coordinating unified supervision and
management of national food metrological work; review
and issue the food quality and safety certifications and
standardization

Draft and issue policies related to agriculture structure and
development, including price change, financial credit,
subsidies; coordinate with other countries and
organizations '
Formulating policies, regulations, and developments
strategies and plans of water conservation

Extension activities

Draft policies to support agriculture; formulate the
agricultural development plan; allocate and manage
financial funds for agriculture; and allocate the poverty
reduction funds

Draft key health laws, regulations and policies; propose and
guide the implementation of health development programs
and strategic goals

Plan, manage and protect the rational utilization of natural
resources, including land, mineral, and marine resources
Guide overall economic reforms; propose developments
strategies; Recommend agricultural reforms; coordinate
agency overseeing the implementation of agricultural and
rural policies;

Supervise the rural financial institution system

Facilitate fair trade, protect consumer benefits, register
business enterprise, including foreign-invested enterprises,
supervise trade marks, and market regulations, etc

Comprehensive supervision on the food safety
management of food, health food and cosmetic

 

Sources: The central people’s Government of the People’s Republic of China: http://english.gov.cn/.

46

Current laws and regulations related to plant quarantine

Over the past two decades, the Chinese government has launched a series of laws,
relegations related to plant quarantine and inspection. Several governmental organizations
are involved in planning these laws: General Administration of Quality Supervision,
Inspection and Quarantine of the People’s Republic of China (AQSIQ), Ministry of
Agriculture (MOA), State Administration for Industry and Commerce (SAIC),
Certification and Accreditation Administration of the People’s Republic of China (CNCA),
the State Environment Protection Administration (SEPA), and State Food and Drug
Administration (SFDA) (World Bank, 2006). Table 3.3 and 3.4 lists the most relevant laws

and regulations concerning SPS issues related to plant quarantine in China.

1) Agriculture law of the people's republic of China was adopted at the second meeting of
the Standing Committee of the eighth National People's Congress on July 2, 1993 and
amended at the thirty-first meeting of the Standing Committee of the Ninth National
People's Congress on December 28, 2002. Agricultural law provides the general guidance
and requirements in agricultural sector such as requirements for agricultural production,
circulation and processing of agricultural products, grain safety, and development of rural

economy, agricultural resources and protection of agricultural environment.

2) Entry and exit animals and plants quarantine law of the People’s Republic of China was
issued at the twenty-second meeting of the Standing Committee of the seventh National
People's Congress on October 30, 1991. This law is formulated for the purpose of

preventing invasive species from spreading into or out of the country, protecting the

47

production of agriculture, forestry, animal husbandry and fishery as well as human health,
and promoting the development of foreign economic relations and trade. This entry and
exist animals and plants quarantine law provides the requirements and procedures for entry,
exit and transit quarantine and the quarantine of materials carried by passengers or by post,

quarantine of means of transport.

3) Food hygiene law of the People’s Republic of China was initially implemented on
Revised July 1, 1983 and revised on Oct. 30, 1995. This law provides the general
requirements for food hygiene, hygiene of food additives, containers, packaging, utensils
and equipment, formulation of food hygiene standards and measures for food hygiene

control, and food hygiene supervision.

4) Import and export commodity inspection law of the People’s Republic of China was
adopted at the sixth meeting of the Standing Committee of the Seventh National People's
Congress on February 21, 1989, promulgated by Order No. 14 of the president of the
People's Republic of China on February 21, 1989, and effective as of August 1, 1989. The
import and export commodity inspection law provides the general inspection requirements,

supervision and administration for import and export commodities.

5) Product quality law of the People's Republic of China was adopted at the 30th meeting
of the Standing Committee of the Seventh National People's Congress on February 22,
1993, promulgated by Order No. 71 of the President of the People's Republic of China on

February 22, 1993, and effective as of September 1, 1993. The product quality law

48

provides the supervision and control over product quality, liability and obligation of

producers and sellers concerning product quality and compensation for damage.

The main regulations related to plant quarantine includes the regulations for the
Implementation of the Law of the People's Republic of China on the Entry and Exit Animal
and Plant Quarantine (1996), Regulations for the Implementation of the Law of the
People's Republic of China on Import and Export Commodity Inspection, Regulation on
Administration of Sanitary Registration for Export Food Manufactories, Administrative
Regulations of the People's Republic of China on Pesticides, Table 3.4 gives more detailed
list of these regulations. There are approximately 3000 food quality, hygiene, and safety
standards currently in practice; about half of them are international standards (World Bank,
2006). In addition, more regulations are being developed by Chinese government to help
promote the implementation of some standard monitoring system, like HACCP (Hazard

Analysis and Critical Control Point) and GAP (Good Agricultural Practice) in China.

49

Table 3.3 Current laws related to plant quarantine

 

Year

Laws and regulations

Contents

 

Issued July, 2, 1993
and revised Dec. 28
2002

Issued Oct. 30, 1991
and implementation
April. 1, 1992

Revised Oct. 30,
1995, trial
implementation July
1, 1983

Revised Oct. 1, 2002,
18’ implementation
August 1, 1989, draft

trial implementation
1 984

Issued April 29, 2006

Agriculture law of the People's
Republic of China

Entry and Exit Animals and plants
quarantine law of the people’s
republic of China

Food hygiene law of the people’s
republic of China

Import and export commodity
inspection law of the people’s
republic of China

Product quality law of the people's
republic of China

Agricultural production and
operation; circulation and
processing of agricultural
products; grain safety;
agricultural science and
technology and education in
agriculture

Entry quarantine, exit
quarantine; transit quarantine;
quarantine of materials carried
by passengers or by post,
quarantine of means of
transport

Food hygiene, hygiene of food
additives, containers,
packaging, utensils and
equipment, formulation of
food hygiene standards and
measures for food hygiene
control, and food hygiene
supervision.

Inspection requirements,
supervision and
administration for import and
export commodities

Supervision and control over
product quality, liability and
obligation of producers and
sellers concerning product
quality and compensation for
damage

 

Source: Chinese government online source.

50

Table 3.4 Current regulations related to plant quarantine

 

 

Year Regulations

Issued April 27, 1999 Administrative regulations for

MOA ORDER No.20 implementation of pesticide

Issued November 29, 2001 Administrative regulations on pesticides

Decree No. 326 Of the State Council Of the

People's

Republic Of China

Issued March 27, 2002 Administrative regulation of sanitary

AQSIQ Announcement No. 20 registration for food processing
establishment for export

Issued March 19, 2002 Quality control guideline of analysis for
residues

Implemented May 1, 2002 Regulation for administration of domestic

CNCA Announcement No.15, 2002 manufacturers regarding food export
registration in foreign countries

Implemented May 1, 2002 Regulation on administration of HACCP

CNCA Announcement No.3 2002 management System Certification

Issued on December 2, 1996 Regulations for the implementation of the

Decree No. 206 Of the State Council Of the law on import and export commodity

People's inspection

Republic Of China

Issued August 10, 2005 Regulations for the implementation of the

Decree No. 447 Of the State Council Of the law on the entry and exit animal and plant

People's quarantine

Republic Of China

 

Source: Chinese government online source.

3.5 Summary

Chinese apples that enter the global horticultural market and domestic supermarkets are
mainly supplied by highly coordinated supply chains. Even though the export market has a
limited market share in terms of total production volume, there is huge potential for future

development with the support of Chinese government and foreign partners. More support

51

is needed for the development of coordinated supply chain in new emerging domestic
market. Especially for small-scale farmers, which dominate the traditional fruit markets,
there are huge obstacles to get involved with these supply chains except through contract
farming. From both the governments and industries’ point of view, a well-developed

administrative system is needed to guide the development of horticultural market.

From a regulatory point of view, Chinese laws and regulations do exist for fruit safety and
new laws/regulations are under development by Chinese regulators. While the overall law
(like Agricultural law, Product quality law) might be enough to generally govern
agriculture production, inspection and safety control when the apple growers are trying to
export fresh apples to the US. or Canada, these laws/regulations seems not stringent
enough to meet the high standards and phytosanitary requirements. Update on some of
these laws/regulations or just adding some particular requirements for new emerging fruit

market and export market are necessary.

From an administrative point of view, due to the complexity of government administrative
system responsibilities between different agencies are somewhat overlapping and
confusing. Overlapping is not only from horizontal relationship between different agencies,
but also from vertical relationships among different levels (central government, province,
city, or country) within a single agency. China and US. government agencies needs to
improve in cooperation and provide clear transparent communication to reduce

redundancy.

52

From the structural point of view, coexistence of three market forms and two supply chain
organizations affect the effective and efficiency of phytosanitary control. China is
experiencing transformation from traditional markets to new emerging supermarkets and
export markets and from traditional supply chains to new coordinated supply chains.
Establishment of centralized procurement system, tracking facilities, industry associations
and certification services are key factors in developing the new supply chain system.
Millions of small-scale farmers participating in traditional fruit markets should eventually
be replaced by, or absorbed into, the new coordinated supply chains. At last, the effect of
Chinese characteristic relationship “Guanxi” should be managed to improve the

transparency and justice of food safety system.

53

CHAPTER FOUR:

A HYPOTHETICAL SYSTEMS APPROACH FOR CHINESE FRESH APPLES

In this chapter, a hypothetical systems approach for Chinese fresh apples is developed.
Since there is currently a ban on fresh apple exports from China to the US, no official
systems approach. Expectations, however, are that the ban will eventually be lifted and
replaced with a less restrictive policy to govern invasive species risk. Any economic
assessment method for such a policy will first need to determine which steps might be
included. As the objective is analysis of the economic assessment process, this study will
not determine the validity of risk reduction or pest exposure probabilities related to
individual steps already in use for other like-policies, but rather draw on results-to-date that
have been accepted within the political and scientific process. Therefore, to develop a
hypothetical SA example, current pest risk management regulations and policies related to

export of Chinese apples and similar fruit to other markets are being used as references.

4.1 Existing regulations

Criteria used to identify existing regulations as reference policies include: first, the selected
regulations or protocols should be similar to the systems approach systematically and
theoretically. Since the Systems Approach is based on the International Standards of
Phytosanitary Measures (ISPMs) and recommended by the World Trade Organization, the
references need to follow ISPMs or other similar alternative standards. Second, selected
regulations or protocols should govern trade of Chinese fresh apples or similar fresh
products, such as pears. Since no fresh apples are currently exported to the United States

from China, it is reasonable to consider the regulations related to Chinese fresh pears

54

within the reference. Chinese fresh pears are among the few fresh fruits that are currently
exported from China into the United States. Therefore, there already exists a Systems
Approach, under which Ya pear and Fragrant pear trade is regulated. Most of the Ya pears
exported from China to the U.S. are from the same production region as fresh apples.
Production conditions, weather conditions, government policies and domestic inspection
procedures for apples and pears are quite similar. Regulations from other countries that
currently import Chinese fresh apples and pears are also included as references. Canada,
Australia and Argentina, whose horticultural markets are fairly similar to U.S., all import
one or both of these products from China. The policies mentioned below are regarded as

references for a hypothetical SA for Chinese fresh apples.

a) Regulation for U.S. import of Chinese Ya pears and Fragrant pears

China is the world’s leading pear producing country. Ya pearls is the most popular variety
grown in China, accounting for about 30 percent of production. The only two pear varieties
that can currently be exported to the U.S. are Ya pears from Hebei and Shandong provinces,
and Fragrant pears from Xinjing Province. Chinese plant quarantine officials began
negotiating the opening of U.S. markets to these pear varieties in the early 19908 (Table
4.1). In 1995 Ya pear imports from only the province of Hebei were approved under a
systems approach for pest risk mitigation and trade began in 1997. In early 2001, there was

one report of a new species of Alternaria sp., A. yaliinficiens R.G. Roberts, '6 in Ya pears

 

'5 “Ya” means duck in Mandarin dialect of Chinese.

16 The disease Alternaria sp. is commonly found in outdoor air, on many kinds of plants and foodstuffs and
prefers rotting farmland manure. The main symptom is small, round, black spots on leaves, shoots, and the
surface of the fruit (Roberts, 2005). The disease poses a significant risk to the U.S. apple and pear industry
but does not affect human health (U SDA/APHIS, 2003b).

55

exported from Hebei Province. In March 2001, the U.S. banned imports of Ya pear from
China. In 2002, a technical team from USDA/APHIS visited Ya pear production orchards
in both Hebei and Shandong Provinces. During the visit, the delegation assessed
post-harvest mitigation measures associated with black spot in the two production
areas. After agreeing on the post-harvest mitigation measures, the resumption of the Hebei
Ya pear export program from Hebei and the initiation of a new Ya pear export program
from Shandong Province were approved in October 2002 under a bilateral agreement, The
2002/2003 Work Plan of Plant Quarantine of Chinese Ya Pears to the U.S. In November,
over 2,000 tons of Ya pears grown in Hebei province of China were exported to the U.S.
via Tianjin port. On June 9, 2003 USDA/APHIS removed the cold treatment requirement
for Ya pears from Hebei Province after receiving data indicating that no Oriental fruit fly

had been found there since 1997 (Table 4.1).

On December 9, 2003, during the period of China premier Wen J iabao visiting U.S., China
AQSIQ and the USDA signed The 2003/2004 Work Plan of Plant Quarantine of Chinese
Ya Pears to the U.S. Less than one month later, on December 19, 2003, USDA/APHIS
prohibited indefinitely the import, sale and distribution of Ya pears from China upon
detection of serious fungal disease infestation. The USDA Agricultural Resource Service
Tree Fruit Research Laboratory in cooperation with PPQ’s (Plant Protection and
Quarantine) National Identification Services determined that the 2001-2003 detection of
the previously undefined Alternarz'a sp. that causes Ya pear fungal infection was a new
pathogenic species not present in the United States. After two years negotiation, in April

2005, China and the U.S. signed The 2005/2006 Work Plan of Plant Quarantine of Chinese

56

Ya Pear Export to the U.S. According to the work plan, a USDA delegation would visit
China to investigate the disease Alternaria sp. During the visit in September 2005, the
USDA/APHIS delegation found disease symptoms in eight orchards in China and the U.S.
continued to prohibit imports. In late 2005, during the Fourteenth China-U.S. Bilateral
Meeting on Plant Quarantine in the U.S., China and the U.S. signed supplemental
provisions to The 2005/2006 Work Plan of Plant Quarantine of Chinese Ya Pear Export to
the U.S., which indicated that the U.S. might open the market again with stricter
phytosanitary requirements. In February 2006, the U.S. finally reopened the market to

Chinese Ya pears.

Another variety of pear allowed to enter the U.S. market is Fragrant pears from Korla area
in Xinjiang province. Early in 1993, China began negotiating the opening of the U.S.
market to Chinese Fragrant pears and kept providing materials and data to show that it had
low risk of introducing invasive species. In 1994, the Plant Protection and Quarantine
(PPQ) of the U.S. Department of Agriculture conducted a pest risk assessment for Chinese
Fragrant pears. During bilateral meetings in 1997 and 1998, China firrther requested the
opening of U.S. market and USDA/APHIS required evidence that there were no pests other
than those listed in the original 1994 assessment. In late August 1999, a U.S. delegation
visited Xinjiang province of China and in 2001 finished a trip report entitled Program
Analysis: Pest Risk of the Export of Fragrant Pears from the Production Areas of Korla,
China to the U.S. In December 2005, after almost thirteen years negotiation, China and the

U.S. signed the Work Plan of Plant Quarantine of Chinese Fragrant Pears to the U.S. In

57

August 2006, a USDA delegation again visited the orchards and packinghouses in Xinjiang

province and finally approved Fragrant pears for entry to the U.S. market.

Table 4.1 Summary of the export of Chinese Ya Pears and Fggrant pears to the U.S.

 

 

Variety Date Event
Fragrant 1993 China started negotiating the opening of U.S. market
pears
I994 USDA/PPQ conducted a PRA for Chinese Fragrant pears
August 1999 USDA delegation visit Xinjiang province of China
December China and the U.S. singed the “Work Plan of Plant Quarantine of Chinese
2005 Fragrant Pears to the U.S.”
August 2006 USDA delegation visited the Xinjiang province in China and finally approved
the export of Fragrant pears into the U.S.
Ya pears Early 19905 China initiates request for export of Ya pears to the United States
1995 Under 3 SA, export of Ya pears from Hebei Province to U.S. was approved
I997 Ya pears from Hebei province in China was imported and came into U.S.
market
March 2001 U.S. banned further imports due to the disease Alternaria Sp.
May and USDA/APHIS delegation visited Hebei and Shandong Provinces in China
September
2002
October 2002 China and the U.S. sign the “2002& 2003 Work Plan of Plant Quarantine of
Chinese Ya Pear Export to the U.S.” Export of Ya pears from Shandong
province to the U.S. approved.
November Ya pear imports from Hebei province was resumed
2002
June 2003 USDA removed the cold treatment requirement for Ya pears from the Hebei

December 19
2003

April 2005

September
2005

Late 2005

February 2006

province; Ya pears from the Shandong province should be undergo cold
treatment

USDA suspended indefinitely the import, sale and distribution of Ya pears
from China

China and the U.S. singed “ The 2005/2006 Work Plan of Plant Quarantine of
Chinese Ya Pear Export to the U.S. ”

USDA delegation found symptoms of Alternaria Sp. and the U.S. continued
to ban the importation

China and the U.S. signed the supplemental provisions during the “Fourteenth
China-U.S. Bilateral Meeting on Plant Quarantine” in the U.S.

The U.S. reopened the market to Chinese Ya pears

 

58

Based on the discussion above, following U.S. regulations related to Chinese Ya pears and
Fragrant pears among our references are included (Table 4.2): 1) Decision on Entry Status
of Fruits and Vegetables, Under Quarantine No.56: Ya Pears (Pyrus bretscheideri) and
Sand Pears (Pyrus pyrifolia), Peoples Republic of China (U SDA/APHIS, 1994). 2)
Importation of Fragrant and Ya Pear Fruit from China into the United States-A
Supplemental Pest Risk Assessment (Cave and Lightfield, 1997). This pest risk assessment,
conducted by USDA/APHIS/PPQ, supplements the September 1994 assessment. The pest
risk assessment provides the qualitative results of pest risk in terms of high, medium and
low for Chinese Fragrant pears and Ya pears and also provides the pest risk potential,
economic importance and likelihood of introduction and the necessity of phytosanitary
measures. 3) Removal of Cold Treatment Requirement for Ya Pears Imported from Hebei
Province in China (USDA/APHIS, 2003a). This regulation explains the reasons why
USDA removed the cold treatment requirement. Since 1997, the export of Chinese Ya
pears from Hebei and Shandong provinces should be cold treated in-transit to prevent the
introducing of oriental fruit fly. Based on the information and data provided by Chinese
government, the U.S. was convinced that the oriental fruit fly was not present in Hebei
province. But cold treatment was still required for Ya pears from Shandong province. 4)
Information Memo for the Record (Podleckis and Usnick, 2005). This memo reviews the
history of negotiation for export of Fragrant pears into the U.S., the 1994, 1997 and 2001
pest risk assessments, and also provides detailed analysis of seventeen pests of concern for
Fragrant pears. 5) Administrative instructions: Conditions governing the entry of Ya
variety pears from China (U SDA/APHIS, 2005a). This regulation provides the

phytosanitary requirements under which Chinese Ya pears can enter the U.S. 6)

59

Importation of Fragrant Pears from China (U SDA/APHIS, 2005b). This the final rule of

regulating the imports of Chinese Fragrant pears into the U.S.

Table 4.2 List of references for a hypothetical systems approach

 

 

 

 

 

County Year Policy
United 1994 Decision on Entry Status of Fruits and Vegetables, Under Quarantine
States No.56: Ya Pears (Pyrus bretscheideri) and Sand Pears (Pyrus pyrifolia),
Peoples Republic of China (U SDA/APHIS, 1994).
1997 Importation of Fragrant and Ya pear fruit from China into the United
States- a supplemental pest risk assessment (Cave and Lightfield, 1997).
2003 Removal of cold treatment requirement for Ya pears imported from Hebei
province in China (U SDA/APHIS, 2003a).
2005 Information memo for the record (Podleckis and Usnick, 2005).
2005 Administrative instructions: conditions governing the entry of Ya variety
pears from China (U SDA/APHIS, 2005a).
2005 Importation of Fragrant Pears From China (U SDA/APHIS, 2005b).
Australia 1998 Final import risk analysis of the importation of fruit of Ya pears (Pyrus
bretschneideri Redh.) from the people’s republic of China (Hebei and
Shandong provinces) (AQIS, 1998).
2003 Import of Asian (‘Shandong’) pear (Pyrus pyrifolia (Burm.) Nakai and P.
ussuriensis var. viridis T. Lee) fruit from Shandong province in the
people’s republic of China (Biosecurity Australia, 2003).
2005 Draft extension of existing policy for pears from The people's republic of
China (Biosecurity Australia, 2005a)
2005 Final extension of policy for the importation of pears from the people's
republic of China
(Biosecurity Australia, 2005b).
Canada 2007 Plant protection import requirements for fresh apples (Malus spp.) from
the people’s republic of China (CFIA, 2007a).
2007 Interim Policy for plant protection import requirements for fresh pears
from china (CFIA, 2007b).
Argentina 2004 Protocol of phytosanitary requirements for the apple and pear fruits export

from China to Argentina between the secretariat of agricultural, livestock,
fisheries and food of the Argentine republic and the general administration
of quality supervision, inspection, and quarantine of the people’s republic
of China (SENASA, 2005).

60

b) Regulation for Australia imports of Chinese pears and apples

The Australia receive an application from China in April 1992 seeking market access for
Ya pears from Heibei and Shandong provinces and in 1999, Australia finished a final
Import Risk Analysis (IRA) on Ya pears from these two provinces. Australia began the
import of Chinese Ya pears from Hebei province in 1999 and from Shandong province in
October 2000 under the requirements listed in this IRA. In January 2003, Biosecurity
Australia completed a review of all existing import conditions for pome fruit imports from
North Asia into Australia. Based on this review, Australia removed the requirement for
petal testing to detect brown rot and black spot, and flower cluster examination at

blossoming for scab on Ya pears from China.

In March 2001, during the China-Australia bilateral plant quarantine technical discussion
in Beijing, China requested additional market access for Sand pears from Shandong
province. After getting additional information from AQSIQ and a site visit to Shandong
province by pathologists from Biosecurity Australia, the trade of Sand pears from
Shandong province was regulated as an extension of existing policy for Ya pears.
Therefore, the trade of Sand pears from Shandong province began in October 2003. China
requested consideration for export of Sands pears and Ya pears from Shaanxi province,
Sand pears from Hebei province, and Fragrant pear from Xinjiang province during the
period between March 2001 and May 2004. In late July 2005, a plant pathologist from
Biosecurity Australia visited pear production areas in Xinjiang Uighur Autonomous
Region and Shaanxi province. In October 2005, Biosecurity Australia completed the final

version of the draft extension for pears from China.

61

Australia currently permits the import of Ya pears from Hebei and Shandong Provinces,
and Asian (Shandong) pears and Sand pears from Shandong Province. Pear exports from
China have increased considerably in recent years and are becoming a larger share of
Chinese production. The following Australian regulations related to Chinese pears are
included as our reference (Table 4.2): 1) Final Import Risk Analysis of the Importation of
Fruit of Ya Pears (Pyrus bretschneideri Redh.) from the People’s Republic of China
(Hebei and Shandong Provinces) (AQIS, 1998); 2) Import of Asian (‘Shandong’) pear
(Pyrus pyrifolia (Burm.) Nakai and P. ussuriensis var. viridis T. Lee) fruit from Shandong
province in the people’s republic of China (Biosecurity Australia, 2003); 3) Draft
Extension of Existing Policy for Pears from the People's Republic of China (Biosecurity
Australia, 2005a); 4) Final Extension of Policy for the Import of Pears from the People's
Republic of China (Biosecurity Australia, 2005b). Pest risk assessments for the import of
Ya pears from Shaanxi province, Sand pears from Hebei and Shaanxi province and
Fragrant pears from Xinjiang Unghur Autonomous region are still on-going by Biosecurity

Australia.

c) Regulation for Canada import of Chinese apples and pears

Canada started importing Chinese Ya pears in late 2002. After the U.S. banned Chinese Ya
pears due to the disease Alternaria sp., the Canadian Food Inspection Agency (CFIA)
suspended Ya and Asian pear imports from Hebei and Shandong provinces of China
respectively on January 28 and February 17, 2004 because of the same disease. In early

September 2004, a CFIA delegation visited China to exchange scientific information and

62

concluded that the import of Asian pears has a low risk for entry of the disease Alternaria
Sp. and thus removed the suspension. As for Ya pears, AQSIQ developed a Quality
Management System (QMS) in September, 2005 which required auditing by CFIA. The
import of Ya pears from Shandong Province was resumed as part of a one-year trial period
beginning December 1, 2005. In March 2006, another audit was conducted. Beginning
March 27, 2006, CF IA also lifted the ban on Ya pears from Hebei province for a one-year
trial period which ends March 26, 2007. As similar, the trial period for Asian pears from
both Hebei and Shandong ends January 15, 2007. Both of the trial periods were successful

and the trades continued.

In November 2004, fresh apple exports from Shaanxi province were approved to enter to
Canada under a two-year trial period, which ended October 2006. This trial period was
considered a success and the import will continue. Apple exports from Shandong province
were allowed during a shorter one-year trial period, which successfiilly ended October

2005 and trade continues.

Based on the discussion above, two Canadian regulations related to Chinese pear and apple
exports are used as our references (Table 4.2): the Plant Protection Import Requirements
for Fresh Apples (Malus spp.) from the People’s Republic of China (CFIA, 2007a) and the
Interim Policy for Plant Protection Import Requirements for Fresh Pears from China

(CFIA, 2007b).

63

Table 4.3 Summary of the export of fresh Chinese apple and pear exports to Canada

 

 

 

 

 

Variety Date Event
Apple November Apples from Shaanxi provinces was allowed during
(Malus spp.) 2004 two-year trial period which ended in October 2006;
Apples from Shandong province was allowed during
one year’s trial period which ended in October 2005
October 21, The trial period for the importation of fresh apples from
2006 Shaanxi province; The importation continues.
Asian Pear or January 28 CF IA banned the importation of Asian pears from
Nashi Pear 2004 Hebei province of China due to Alternaria sp.
(Pyrus
pyrifolia)
February 17 CF IA banned the importation of Asian pears from
2004 Shandong province of China due to Alternaria sp.
Early CFIA removed the suspension on Asian pears; The
September importation was approved both from Hebei and
2004 Shandong provinces during the trial period which
successfully ends January 15, 2007. Trade continues.
Fragrant Pear 2000 The xportation of Fragrant pears were approved
(Pyrus sp. nr.
communis)
Ya pears Late 2002 Canada started importing Chinese Ya pears
(Pyrus
bretschnei)
January 28 CFIA banned the importation of Ya pears from Hebei
2004 province of China due to Alternaria sp.
February 17 CF IA banned the importation of Ya pears from
2004 Shandong province of China due to Alternaria sp.
September CF IA conducted the first audit on Quality Management
2005 System (QMS)
December 1 The importation of ya pears from Shandong Province
2005 was resumed under a one year trial period which ends
December 1, 2006; Ya pears from Hebei province were
still prohibited entry into Canada
March 27 CF IA conducted the second audit and lifted the ban on
2006 importation of Ya pears from Hebei province with all

the shipments inspected during one year trial period
which ends March 27, 2007. Trade continues.

 

64

d) Regulation for Argentina imports of Chinese apples

Argentina began importing Chinese fresh apples in November 2004. There is only one
protocol governing apple and pear trade between China and Argentina: Protocol of
phytosanitary requirements for the apple and pear fruits export from China to Argentina
between the secretariat of agricultural, livestock, fisheries and food of the Argentine
republic and the general administration of quality supervision, inspection, and quarantine
of the people’s republic of China (SENASA, 2005). This protocol lists thirteen required
steps throughout production, storage, packing, and shipment for Chinese apples exported
to Argentina. This protocol includes 12 pests of concern for the exportation of Chinese

pears and apples into Argentina.

4.2 Hypothetical systems approach for Chinese fresh apples

According to International Standards for Phytosanitary Measures NO.14 (FAQ/IPPC,
2002), as a pest risk management policy the SA should be based on conclusions drawn
from a pest risk assessment. One of the most important results from these assessments is a
list of pests of concern associated with the traded commodity. Depending on assessments
of pest risk and economic consequence, the trading country decides whether or not to
undertake pest risk management and the strength of measures to use (FAQ/IPPC, 2002).
Therefore, a hypothetical list of pests of concern will be drawn which are associated with
potential fresh apple trade between the US and China through comparison of the reference
policies. It is reasonable to include pests that are identified as pests of concern in most of
these policies. In addition, some (but not all) polices provide more detailed pest risk

assessment results, rating risk for specific pests, most of which are expressed qualitatively

65

in terms of “low”, “medium” or “high”. In addition, those pests rated “high” by at least one

of these policies are also included in the list.

After pests of concern are selected, a list of n phytosanitary measures will be identified
which are used in the reference policies for Chinese apples and pears.” These n measures
are mentioned by at least one of the policies. According to the standard Systems Approach,
these n measures can be divided into four periods: pre-harvest, harvest, post-harvest, and
shipping and distribution. In addition, how these measures are mentioned by each policy is

discussed. A subset m of the n (m (n) common measures which are mentioned more

than once is also identified.

4.2.1 A potential pests of concern

According to the procedure and criteria of pest risk analysis (PRA), a long list of
quarantine pestsl8 is first identified by the importing country in the early stage of PRA
process. The importing country will often request evidence from the exporting country to
show that the quarantine pests do not pose risks associated with the traded commodities.
Often a delegation from the importing country will visit the exporting country to collect
corresponding information. Based on additional information and evidence, a shorter list of

pests of concern will be obtained. Table 4.4 is a summary of the number and type of pests

 

1 . . . . . .

7 As mentioned before, as our objective here rs the economic assessment process, we Will not attempt to
determine the validity of risk reduction or pest exposure related to individual steps already in use for other
like-policies, but rather drawing on these scientific results-to-date that have been accepted within the political
process.

18 Quarantine pest is defied by FAO as “a pest of potential economic importance to the area endangered

thereby and not yet present there, or present but not widely distributed and being officially (FAQ/IPPC,
2004).

66

of concern identified by policies listed in Table 4.3. Pests can be divided into arthropods
and pathogens. Arthropods include acari (mites), coleoptera (beetles, weevils), diptera
(flies), hemiptera (aphids, leaflroppers, mealybugs, psyllids, scales, true bugs, and
whiteflies), hymenoptera (ants, wasps) and Lepidoptera (moths, butterflies). Pathogens

normally include fungi and bacteria (Biosecurity Australia, 2005a).

Table 4.4 Summary of pests listed in the reference policies

 

 

Country Policy Quarantine Pests and Pests of Concern
U.S USDA/APHIS, 1994 64 quarantine pests; 13 evaluated as pests of
concern

Cave and Lightfield, 560 quarantine pests: 280 pests of Pyrus, 53
1997 pathogens, 227 arthropods; 13 evaluated as
pests of concern

Podleckis and Usnick, l7 pests of concern

2005
Australia Biosecurity Australia, 40 pests of concern; 32 arthropods, l bacteria
(Pears) 2003 and 7 fungi
Biosecurity Australia, 39 pests of concern; 31 arthropods (l acari, 5
2005b coleoptera, 1 diptera, 8 hemiptera, 2
hymenoptera and 14 lepidoptera) and 8
pathogens (fungi)
Canada CFIA, 2007a 10 pests of concern (6 insects, 1 mite and 3
(AppleS) fungi)
Canada CF IA, 2007b 12 pests of concern
(Pears)
Argentina SENASA, 2005 12 pests of concern
(Apples,
Pears)

 

Source: Policies and regulations in 4.2.

Appendix 1 provides more detailed information about the pests of concern listed in these

policies. The 2005 Memo for Fragrant Pears (Podleckis and Usnick, 2005) shows detailed

67

pests of concern for the import of Chinese Ya, Sand,19 and Fragrant pears into the U.S. and
summarizes previous PRA results. It also provides the latest pest risk assessment results for
Fragrant pears. For similar reasons, the Australia Final Extension of Policy for Chinese
pears (Biosecurity Australia, 2005b) is included as the reference for the import of Chinese

pears into Australia.

There are totally 56 distinct pests mentioned in these five policies. Among these 56 pests,
only one “Peach Fruit Moth” is common to all five policies; four pests are common to four
of the five polices; five pests are common to three of the five policies, nine pests common
to two polices, and thirty-seven additional pests are mentioned by only one of the five

polices.

Some (but not all) of the policies also provide more detailed pest risk results (Table 4.5).
The U.S. policies (Cave and Lightfield, 1997 and Podleckis and Usnick, 2005) and
Australian policies (AQIS, 1998 and Biosecurity Australia, 2005b) provide qualitative pest
risk ratings in terms of low, medium or high risk. In the U.S. 1997 decision sheet, the pest
risk rating is a combination of the consequences and likelihood of introductions.20 Each of
these factors is evaluated in terms of low, medium or high and then a final pest risk

potential is obtained. Among thirteen pests of concern listed in the 1997 decision sheet,

 

'9 The export of Sand pears to the U.S. has not yet been approved.

0 The consequenced introduction, also the economic importance, is evaluated again climate host, host range,
dispersal, economic and environmental factors. The likelihood of introduction is rated relative to the
combination of the likelihood of surviving postharvest treatment, likelihood of surviving shipment,
likelihood of not being detected at port of entry, likelihood of moving to suitable habitat and likelihood of
finding suitable hosts. More detailed information about methodology and rating criteria can be found in
“Guidelines for Pathway-Initiated Pest Risk Assessments” (USDA, 2000).

68

eleven pests were rated as “high’ and two were rated as “medium” (Cave and Lightfield,
1997). Similar to the U.S. pest risk assessment, in the final extension of original policy for
Chinese pears by Australia (Biosecurity Australia, 2005b), the unrestricted risk is a
combination of the probability of entry (import, distribution), establishment and spread,
and the consequence. This 2005 Australian policy provides a list of thirty-nine pest of
concern, but only provides detailed pest risk rating for three pests (J anpanese pear weevil,

9’ ‘6

chocolate sport of Ya Li pear, and European pear rust with risk rating of “very low , very

low” and “low” respectively).

Table 4.5 Potential pests of concern for Chinese fresh apples

 

 

Pest Pest Risk Potential*
(Scientific Name) (Common Name)
Mentioned by all Carposina Peach Fruit Moth High
5 reference sasakii(=niponensis)

Jolicies
Mentioned by 4 of Conogethes(Dichocrocis) Yellow Peach Moth High
5 reference Punctiferalis

 

policies
Moniliniafructigena Brown Rot High
Leucoptera malifoliella Pear Leaf Blister N/A"
=scitella) Moth
T etranychus viennensis Hawthorn Spider Mite High
Mentioned by 3 of Adoxophyes orana Summer Fruit Tortrix N/A
5 reference polices (Fislher)
Alternaria Black Spot High
gaisen(=kikuchiana) (N agano) of Japanese
Pear
Bactrocero Oriental Fruit Fly High
Dorsalis (Hendel)
Cydia inopinata Manchurian Codling High
(Heinrich) Moth
Gymnosporangium Japanese Pear Rust N/A
asiaticum

 

69

Table 4.5 Potential pests of concern for Chinese fresh apples (continued)

 

 

Pest Pest Risk Potential*
(Scientific Name) (Common Name)
Other pests rated Cydiafunebrana High

as “high” by at (T reitschke)
least one of the
reference policies

Rhynchitesfoveipennis Korean Pear High
(F airm) Weevil/Curculio

Rhynchites heros (Roe!) Japanese Pear Weevil High
Tetranychus kanzawai High
(Kishida)

 

Note:

*The pest potential is taken from the U.S. 1997 Decision sheet (Cave and Lightfield, 1997), which was the
supplemental pest risk assessment for Chinese Ya and Fragrant pears. l3 pests were evaluated in the pest risk
assessment and eleven of them were listed in table 4.5. The other two pests are: Numom'a pirivorella
(Medium) and Pear rusty Skin viroid (medium).

** N/A means the pest rating is not mentioned by any of our reference policies.

Among the fourteen pests/diseases in table 4.5, some particular ones are worth for firrther
analysis. All five reference polices mentioned Peach Fruit Moth and it is rated as high risk
by USDA, so peach fruit moth is included. For Brown Rot, it is the only fimgi (pathogens)
among all pest mentioned by four policies and it is also rated as high. Hawthorn Spider
Mite is also selected since it is the only Acari (mite) among the pests mentioned by four

policies.

70

Figure 4.1: Peach fruit moth (left), Brown rot (middle) and Hawthorn spider mite
(right) on apples

    

saurée: Peach fruit moth: http://www.invasive.org; Brown rot: http://www.dkimages.com; Hawthorn spider
mite: http://www.inspection.gc.ca.

Peach Fruit Moth

Peach Fruit moth (Carposina sasaki or m'ponensis) is mentioned by all five reference
polices and rated by USDA as high risk. Hosts are apples, peaches and pears, apricots,
hawthoms, plums, quinces and Ziziphus mauritiana‘” .The moths are mainly distributed in
Asia (China, Korea and Japan) and North America (Canada). The larvae tunnel all parts of
fruit, feeding on the fleshy parts and on the seeds. Several larvae may feed in each fruit.
Larvae can survive for long periods in stored fruits, so imported fruits are the most likely
means of entry (EPPO/CABI, 1996). USDA inspectors find the moth almost every year on
raw fruit fi'om Japan and Korea. In China, peach fruit moth may cause heavy losses if it is
not under control and has been recorded as destroying about one-third of the apple crop in

Liaoning province (Hwang, 1958). International dispersal by flight is extremely unlikely

 

21 Ziziphus mauritiana is a tropical fi'uit tree species and its common name is Chinese apple or Indian
jujube.

71

since the moth normally flies only short distance (Sun, et al., 1987). In Europe, the
introduction of peach fruit moth could have a severe economic impact on the fruit-growing
areas (EPPO/CABI, 1996). In China, the infestation rate ranges from 10 percent to 30
percent in middle of Yellow River old riverway and Northwest Yellow Plateau area. In
Bohai bay apple production area, which has relatively higher management technology, the
infestation rate is as low as three percent. According to the datasheet on quarantine pests
from European and Mediterranean Plant Protection Organization (EPPO), Hwang (1958)
estimated one-third production losses of the apple crop in Liaoning province. Sytenko
(1960), Pavlova (1970), and Gibanov and Sanin (1971) estimated 40 to 100 percent
damage for apples in Russia. Sun, et al. (1987) state that the moth can be controlled by
applying fenitrothion, parathion, fenvalerate or deltarnethrin at the oviposition peaks of the
first and second generations, in combination with the mechanical removal of fallen fi'uit
(EPPO/CABI, 1996). To control the moth, Ishiguri and Shirai (2004) claim that a period of
cold storage two month before export is sufficient for the apples from Japan, but harvesting
in an earlier season or a shorter period of cold treatment may increase the risk of
accidentally shipping apples that contain live larvae. USDA/APHIS requires that apples
from both Japan and the Republic of Korea must be cold treated and then firmigated for the

peach fruit moth (USDA/APHIS, 2007b).

Brown rot
Brown rot (Moniliniafiuctigena) is mentioned by four of five reference polices and rated
as high risk by USDA. This species is one of three Monilinia fungal species responsible for

brown rot, although it is a minor disease of apples and other pome fruits compared with

72

other apple diseases. The main hosts are apples, pears, plums, and cherries. Brown rot
exists and has been identified in most parts of Europe, the former Soviet Union, the middle
and far east, India and North Africa, parts of the U.S. and some provinces in China. If a ripe
fruit is infested, the first symptoms are small, superficial, circular brown spots that quickly
turn to rotting and then the entire fi'uit is decayed. Diseased fruit tend to remain attached to
the tree. Mummified fruit hang on branches of trees until spring or, alternatively fall to the
ground where they remain throughout the winter months, partly or completely buried
beneath the soil or leaf litter. Brown rot on ripening or mature fi'uit typically develops as a
rapidly spreading, firm, brown decay. The spore can be transported by wind, rain, or insects
to young fruit. Infection can take places at any stage during fruit development but only in
those fruits approaching the ripening stage is the disease more severe (Podleckis and

Usnick, 2005).

Brown rot can cause considerable economic losses worldwide. In Europe, brown rot
causes serious losses of apples, pears and plums, particularly in hot summers. In general,
fruit losses resulting from infection can range from 5 up to 35 percent (Mackie, 2000).
During the pre-harvest period, Holb (2004) estimated average yield losses from the fungi
of 27.2 percent in 2001 and 41.6 percent in 2002. During the post-harvest period, Berrie
(1989) estimated the mean losses in cultivar Cox’s Orange Pippin22 ranged from 0.1
percent to 0.6 percent during the period 1982-1988. Literature reports that an average of
about nine percent of apple fruit become infected with brown rot in a study over three

consecutive seasons (Leeuwen, et al., 2000). Brown rot is controlled through low

 

22 Cox's Orange Pippin is a cultivar of apple, which accounts for over 50% of the UK area of dessert apples
(Wikipedia, 2007).

73

temperatures, more readily in incipient and very early stages than after the disease becomes
well established in the fruits. Practical control after harvest can be accomplished by prompt

storage and rapid cooling to the desired temperature (Pierson, et al. , 1971).

Hawthorn Spider Mite

Hawthorn spider mite (Tetranychus viennensis) is mentioned by four reference polices. It
was reliably identified by Batra in a single collection from Maryland in 1979. The main
hosts are fruit trees of the family Rosaceae, like hawthorn, quince, apple, blackthorn,
cherry, peach, plum, pear, and flowering quince. Hawthorn spider mite is found mainly on
the leaves and stems of host plants, especially during the flowering, seeding, and
vegetative growing stages (Podleckis and Usnick, 2005). It is spread mainly in Europe and
Asia, like Japan and China. Injured leaves turn yellow with the underside colonized by
mites and covered with webs. The number of males in a population is 3-5 times less than
that of females. In the middle of the 20th century, excessive use of pesticides stimulated
outbreaks of hawthorn spider mite. These were mainly connected to the elimination of
entomophages in gardens and to the capability of mites to develop resistance against
pesticides. Trunks and branches of fruit trees are densely covered by webs after mass
propagation of mites. Strongly infested trees are defoliated and bud formation is decreased
the next year. Literature reports that longevity and fecundity of hawthorn spider mite
depend on ecological conditions such as temperature and host plants (Kasap, 2003).
Climate conditions, especially temperature, are critical abiotic factors influencing the
dynamic of the spider mite and their natural enemies. The mite is windbome and may be

carried accidently by large insects, birds, and even humans on their clothing (Podleckis and

74

Usnick, 2005). Yield has been reported reduced by 30 to 50 percent (Wang, 2006).
Biological control agents can be applied to control the mite. Acaricide treatment can be
used in spring after mass appearance of the mites with an average air temperature of 10°C.
Mechanical control in the packing house is also an option, the Canadian SA policy required

air brushing of each fruit before packing for export.

Table 4.6: Summary of some quarantine pests

 

 

Pest name Category Contents

Peach Hosts Apples, peaches, pears; Apricots, hawthorn, plums,
Fruit moth quinces and Ziziphus mauritiana are also noted as hosts.
(Carposina

sasakii(=ni Geographic Asia (Northeast part of China, Korea Democratic
ponensis) Distribution People's Republic, Korea Republic, Russia) and North

America (Shutova, 1970); China: Fujian, Guangdong,
Hebei, Heilongjiang, Henan, Jiangsu, Jilin, Liaoning,
Shaanxi, Ningxia, Shandong and Zhejiang provinces
(Podleckis and Usnick, 2005).

Detection and The larvae tunnel all parts of the fruit, feeding on the

Identification fleshy parts and on the seeds. Several larvae may feed in
each fruit. Infested apples exude a sticky gum, pears
turn yellow and apricots ripen unevenly.

Mitigation Fenitrothion, parathion, fenvalerate or deltamethrin

measures (Sun, et al., 1987); cold storage during shipment
(Ishiguri and Shirai, 2004); Fumigation: 23g/m3 methyl
bromide for 4 h at > 150C for overwinter caterpillars,
with slightly lower doses (17-20 g/ m3) for caterpillars
of the summer generation (EPPO/CABI, 1996).

Production loss One third of production loss in China (Hwang, 1958);
40%-100% damage for apples in Russia (Sytenko,
1960; Pavlova, 1970; Gibanov & Sanin, 1971).

 

75

Table 4.6: Summary of some quarantine pests (Continuted)

 

 

 

Pest name Category Contents
Brown Rot Hosts Apples, pears, plums, peach, nectarine, apricot, quince
(Monilinia and cherries (Mackie, et al., 2000).
fructigena
Honey) Geographic Widely spread in Europe; the former Soviet Union; the
Distribution middle and far east, India and north Africa; US: Florida
and Maryland (Mackie, et al., 2000); China: Gansu,
Hebei, Heilongjiang, Henan, J iangsu, Liaoning,
Ningxia, Shandong, Shanxi, Sichuan, Taiwan, Yunnan,
and Zhejiang provinces (Podleckis and Usnick, 2005).
Detection and Brown rot develops rapidly through wounds on apples
Identification at nonrefrigerated temperatures. Enlarged rots are soft
but not mushy (Pierson, et al. , 1971).
Mitigation Prompt cold storage after harvest (Pierson, et al. , 1971).
measures
Production loss
Total Fruit losses: 5%-3 5% in general (Mackie, et al., 2000);
9% of apple fruits become infected with brown rot
(Leeuwen, et al., 2000);
Pre-harvest Yield loss not exceed 5% in the pre-harvest stage in
1997 and 1998; Pre-harvest yield loss on average 27.2%
in 2001 and 41.6 in 2002 by fruit harvest (Holb, 2004).
Post-harvest Mean post harvest losses: 0.1%-0.6% between 1982
andl988 (Berrie, 1989);
Hawthorn Hosts Fruit trees of the family Rosaceae, like hawthom,
Spider quince, apple, blackthorn, cherry, peach, plum, apricot,
Mite pear, flowering quince, raspberry and mountain ash (Li,
(T etranych et al. , 2006).
us Geographic England, France, Germany, Austria, Bulgaria, Northern
viennensis) Distribution India, Korea, Japan and China (Afonin, et al., 2006);

Detection and
Identification

Mitigation
measures

Production loss

China: Anhui, Gansu, Henan, Jiangsu, Liaoning,
Ningxia, Shandong, and Xinjiang provinces (Podleckis
and Usnick, 2005).

Feeds mainly on leaves and on flowers of fruit trees. It
also feeds on the surface of developing fruits and may
foul them with its webbing.

Biological control agents; acaricide treatment in spring
after mass appearance of the mites with an average air
temperature of 10°C.

Yield of apples is reduced by 30%-50% (Wang, et al.,
2006); Yield of plum is reduced 2-3 times (Afonin, er
al., 2006).

 

76

4.2.2 Hypothetical systems approach measures

Pest risk assessment conclusions are used to decide whether risk management is required
and the strength of measures to be used (FAQ/IPPC, 2004). Pests rated with low risk
potential may require only port of entry inspection to maintain phytosanitary security.
However, pests with medium to high risk potentials may require more stringent
phytosanitary measures (Cave and Lightfield, 1997). Reference policies provide
corresponding (phytosanitary) requirements for the import of Chinese fresh apples and/or
pears. A hypothetical SA for Chinese fresh apples is developed based on these policies and
the standard form of systems approach developed by USDA/APHIS. 23 What to be
mentioned here is individual treatment of pests is unnecessary as most management
operations are applicable to a broad range of pests (AQIS, 1999). The mitigation measures
included in a SA can be broadly classified into four categories: exclusion of a pathogen,
detection of a pathogen, elimination of detected pathogen population, or risk reduction of
establishment in the importing region. Measures in any of the categories can be applied at
four time periods during the agricultural production sequence: pre-harvest, harvest,
post-harvest and shipping and distribution (USDA/APHIS/PPQ, 2002). Simplified and
summarized descriptions for each measure mentioned by reference polices are shown in

appendix 1.1 to 1.4.

 

23 The standard Systems Approach (also in the first column through Appendix A.2.1 to A24) is from page
15-16 in “Preventing the Introduction of Plant Pathogen into the United States: The Role and Application of
the “Systems Approach” (USDA/APHlS/PPQ, 2002).

77

a) Phytosanitary measures in pre-harvest period

According to the standard SA, pre-harvest measures normally include field certification or
management (like biocontrol, treatments), protected conditions (like glasshouse, fruit
bagging), resistant or less susceptible cultivars, harvesting plants at certain age or time of
year, vector mating disruption (particularly efficient with insects), cultural controls,
vector-and pathogen-free areas, places, or sites of production, low prevalence (continuous
or at specific times), and testing and subsequent elimination of infected components
(U SDA/APHIS/PPQ, 2002). Pre-harvest period measures from the reference policies are
grouped into the corresponding standard category (Appendix 2.1). Typical measures are
not needed in every possible category and our reference policy measures fall into the
categories: field certification or management, protected conditions, cultural controls,
vector-and pathogen-free areas, places, or sites of production, and testing and subsequent
elimination of infected components. The following measures are considered in the

hypothetical SA for Chinese fresh apples.

Pest free areas (or production site)

Four of the reference polices require traded apples or pears should be from a pest-free area
or pest-free production site. Argentina requires the fruit shall come from an area free of
Baclrocera dorsalis, from production site or orchards free from Gymnosporangium
asiaticum and the transiting host tree shall not grow within 1 km of the fruit production site.
Australia requires that AQSIQ must ensure that telial hosts (Juniperus chinensis, J.
procumbens) of Japanese pear rust and European pear rust occurring within 2 km of

registered orchards are removed. Canada requires for apples that “cultural practices,

78

chemical controls and field inspection (or monitoring) programs are carried out to ensure
freedom from quarantine pests”. The U.S. requires that all material introduced into a

registered production site must be certified free of the pests listed.

The International Standard for Phytosanitary Measures No. 4 defined pest free areas as “an
area in which a specific pest does not occur as demonstrated by scientific evidence and in
which, where appropriate, this condition is being officially maintained” (FAQ/IPPC, 1996).
Generally speaking, the pest free area could be an entire country, or an uninfected part of a
country in which a limited infested area is present, or an uninfected part of a country
situated within a generally infested area. The pest flee areas mentioned by policies for
Chinese apples or pears can be treated as the third type mentioned above. However, to be
more precise, they can be considered a “pest free place of production” or “pest free
production site” instead of “pest free area” according to the definition and distinction given
by FAO. 2" However since some polices use the term “pest free area” (like Argentina) and
some use “pest free production site” and we don’t have any official source from China
about this, we keep both terms in our hypothetical SA. In China, the government plays a
very important role in establishing the pest flee production site and maintaining its status

by providing funds for lab setup and technical support.

 

24 According to ISPM No. 10 “Requirements for the establishment of pest flee places of production and pest
flee production sites” (FAO/IPPC, 1999), the concept of the pest flee place of production is distinct flom that
of the pest flee area. They have the same objective but are implemented in a different way. First, a pest flee
area is much larger than a place of production. Second, a pest flee area may be isolated by a natural barrier
while a pest flee place of production is isolated by creating a buffer zone in its immediate vicinity. Third, a
pest flee area is generally maintained over many years without interruption while a pest free place of
production may be maintained for only one or a few growing seasons. Forth, a pest flee area is managed as a
whole while a pest flee place of production is managed individually by the producer.

79

Registration of export orchard

Almost all the reference policies require that the Chinese apples or pears should be from
registered orchards in designated export areas in China. The registration of export orchards
ensures that the locations from which pears or apples are sourced can be identified
(Biosecurity Australia, 2005b). AQSIQ (General Administration of Quality Supervision,
Inspection and Quarantine of the People Republic of China) is the official government
agency responsible for orchard registration.25 AQSIA determined the requirements for
registration systems already being used by China to export Fragrant pears to Canada and
other countries (USDA/APHIS, 2005b). Canada published the list of orchards for the
export of Chinese fresh pears.26 This list provides names, address, registration number, and
variety of the fruit from each of the registered orchards (also the packinghouses) from
Shaanxi and Shandong province. Summarizing current policies, the designated areas of
export of Chinese flesh pears, including Ya, Sand and Fragrant pears, are mainly flom
Hebei, Shandong, Shaanxi and Xinjiang provinces. Therefore, the designated export areas

of Chinese apples are mainly from Shandong and Shaanxi provinces.

Bagging of the fruit
Bagging fruit during pre-harvest period is another important measure included in most of

the reference policies, although how to implement this measure varies across different

 

25 AQSIQ is also the official government representative responsible for dealing with SPS issues. As
mentioned in Chapter 3, the responsibilities of MOA and AQSIQ are overlapping. MOA is responsible for
general agricultural production and development while AQSIQ focus more on food safety, quality
supervision and inspection.

26 The list of orchards is available at:
http://www.Meetion.gc.cwenglishflalafivegjprotect/dir/orch-chinae.m1. There are 25 registered orchard
and 14 registered packinghouse flom Hebei province,35registered orchard and 2 registered packinghouse
flom Shandong province, and 45 registered orchard and 6 registered packinghouse flom Xinjiang province.
Most of the packinghouse are registered in terms of company.

80

policies. Argentina requires the bag must not be removed more than four weeks prior to
harvest. Australia requires bagging for Ya pear, Sand pear and Asian pear grown in Hebei,
Shandong and Shaanxi provinces when the fluit is no more than 2.5 cm in diameter. Canada
requires that the bags must be sealed without holes around apples and must not be removed
more than four weeks prior to harvest. The U.S. requires bagging pears (except for Fragrant
pears)27 on the trees to reduce the opportunity for pests to attack the fluit during the
growing season. Bagging can not only beautify the shape and appearance of the fluit, but
also efficiently prevents the fruit from becoming infested with certain pests or diseases
during production. During 2005 and 2006 travel to China, we found that bagging apples
has become a very common and popular measure widely used by Chinese farmers in
Shandong province. It is also recommended by the Chinese government. The bags are
normally made of paper and are affordable for most Chinese farmers with a cost of
US$0.01 for a medium-quality bag. In 2005, the Chinese Ministry of Agriculture initiated
an apple subsidy program in production areas with export potential. The program provides
cash subsides for the purchase of apple bags and covers a total of 8,067 hectares of apple
orchards in kg producing provinces including Shandong, Shaanxi, Shanxi, Hebei, Henan

and Liaoning (U SDA/F AS, 2006a).

Field inspection and/or monitoring system

 

27 Bagging is not required by the U.S. and Australia for Fragrant pears flom Xinjiang province of China. This
is due to the smaller size of the fluit, the physiology of ripening of this species and the climatic conditions and
pest status of this area (Biosecurity Australia, 2005b).

81

The requirement for monitoring systems or inspection during pre-harvest period is another
important common measure mentioned by most of the policies. Some countries require a
monitoring system for certain pests. Argentina requires monitoring for Baclrocera
dorsalis.Australia requires a pest monitoring system for fruit flies. Canada requires field
inspection (or monitoring) and/or chemical control for Chinese apples , while in contrast,
the U.S. requires general field inspections for signs of all pests. In addition to monitoring
and inspection, Australia also state that if any pest of concern is detected, AQSIQ should
immediately report results and for some certain pests, if this happens, the infected orchard
will be excluded flom the export program or, even worse if certain serious pests are found,
all future exports might be suspended. Agencies AQSIQ, MOA and their local offices will
be responsible for general monitoring and regular inspection. More detailed instructions
about how to monitor the orchards are listed by some countries. The Argentine policy
states that monitoring should occur within a surrounding area of 1 km radius at a density of
one trap per square kilometer respectively, with the minimum of traps being 3 if the
designated orchard’s area is less than 3 square kilometers from June 1 to September 30”.
Australia requires that “a minimum of one methyl eugenol trap should be placed in each
export orchard and any villages present” identified (Biosecurity Australia, 2005b). A few
policies mention the use of “pesticide or fungicide” or “chemical control”, which are the
most basic pest control methods currently widely used in China. The monitoring record

and inspection results should be available to import country inspectors.

82

Other measures during pre-harvest period

Australia requires “registered growers must implement an orchard control program (like
good agricultural program or integrated pest management program for export pears)”.
Australia also requires “the notification of unusual weather conditions occurrence resulting

in brown rot, black spot or scab disease” (Biosecurity Australia, 2005b).

b) Phytosanitary measures in harvest period

According to the standard SA, measures implemented during harvest period include
culling, inspection or selection, stage of ripeness/maturity, timing of harvest, sanitation
(like removal of reservoir hosts, “trash”) and harvest technique and handling (Appendix
2.2). Comparing these standard measures in the SA, most of the reference policies do not
specify the stage of ripeness or timing of harvest. Australia and the U.S. (for Ya pears)
require continued bagging during harvest. Argentina requires field inspection and that
“apples should be selected to ensure fruit without insects, mites, rotting fi'uit, leaves, twigs,

roots and soil.”

c) Phytosanitary measures in post-harvest period (including storage and packing)

According to the standard SA, post-harvest measures include treatment to kill, sterilize or
remove vectors or pathogens (fumigation, irradiation, cold, controlled atmosphere,
washing, brushing, waxing, dipping, heat, etc.), inspection and grading, sanitation
including removal of parts of the host, certification of packing facilities, and testing with

subsequent elimination of infected components (Appendix 2.3). After comparing the

83

measures in the reference policies, the following measures are considered in the

hypothetical SA.

Registration of packinghouse
Similar to registration of export orchards, almost all policies require registration for
packinghouses. Australia in particular requires the registered packinghouse should be

maintained in a condition that would provide security against infestation again.

Post-harvest inspection and monitoring

Like pre-harvest monitoring requirements, almost all the policies require post-harvest
inspection or monitoring. Argentina requires that apples and pears shall be selected, sorted
and processed to insure fruits are without insects, mites, rotting fluit, leaves, twigs, roots
and soil. The packing and storage shall be subject to quarantine supervision by AQSIQ.
Australia requires pre-clearance phytosanitary inspection and remedial action. Canada
requires the apples must be subject to any post-harvest measures deemed appropriate to
eliminate pests and free of quarantine pests, oil, sand, leaves, and plant debris. The U.S.
requires inspection for Fragrant pears and allows USDA/APHIS to monitor the

inspections.
Cold treatment

Argentina requires commercial cold treatment. Australia requires pears be stored under

quarantine security and segregated by at least one meter flom all other fluit in a cold

84

storage maintained at 34~37°F (1~3°C) until loaded into containers. The U.S. removed
cold treatment for Chinese Ya pears from Hebei province based on sufficient information
to show that the oriental fruit fly do not exist there. However, cold treatment is still
required for pears from Shandong province. During the trip to China in 2005 an 2006, cold

treatment was generally used by big exporters in Shandong province.

Packing and labeling requirements

Storage, packing and processing are generally required to be isolated from fruit targeted to
other destinations. Some policies include specific requirements for packing materials. The
fruit should be packed in clean, new cardboard boxes or cartons. Label requirements made
by some policies, like Argentina, Canada, and Australia, generally include marking in
certain languages, indication of production place (provinces), orchard or its registered
number and packinghouse or its registered number. These labeling requirements are
designed to facilitate trace-back identification in the event of non-compliance (Biosecurity
Australia, 2005b). Australia and Canada also requires a monitoring (trapping) system to

maintain the packing house free of pests.

Other specific requirement for storage and packing

Even though cartons are mainly required by most of the policies, some country in particular
requires more in detail about the packing material. For example, Australia requires the
cartons with screened ventilation holes; the screening mesh size must not exceed 1.6m
with not less than 0.16mm strand thickness. Or, the pallet of cartons must be

shrink-wrapped in plastic on all six sides; only processed or synthetic packing material can

85

be used; Fruit must be packed and directly transferred into a shipping container sealed with
an AQSIQ seal and not opened until the container reaches its destination; Canada requires
additional fumigation after cold treatment for apples. Several countries require sample
inspection during packing and/or storage: Argentina requires sample inspection at 2% level;
Canada requires at 5% level; and Australia requires 600 units for quarantine pests, in
systematically selected samples per homogeneous consignment or lot. In addition,
Argentina, Australia and Canada require that fruits are not mixed with fruit for other
destinations. Australia also requires that culled fruit must be removed from the packing
house at the end of each day. The U.S. states “upon detection of large pear borer, pear

curculio or Japanese apple curculio, USDA/APHIS may reject the lot or consignment”.

d) Phytosanitary measures in shipping and distribution period

According to the standard SA, measures in the shipping and distribution period include
in-transit or on-arrival treatment or processing, restrictions on end use, distribution, and
ports of entry restrictions, post entry quarantine, inspection and/or testing with
subsequence elimination/denial of entry, speed and type of transport, and sanitation

(freedom flom contamination of carriers) (Appendix 2.4).

Regulatory Inspections by the Importing Country

Argentina states that SENASA will send two quarantine experts to China to conduct an
on-site visit prior to program initiation in cooperation with AQSIQ. The experts will
review the phytosanitary conditions of production areas, the orchards, packinghouse,

storage facility and the system of monitoring for Baclrocera dorsalis. AQSIQ is in charge

86

of the invitation, agenda and pays for all the expenses. Australia also states in the policy
that AQIS inspectors will visit China each year for pre-clearance inspection, both in the
field and packing house, unless otherwise agreed by DAF F 28 and AQSIQ on a
region-by-region basis. As mentioned earlier, the U.S. sent USDA/APHIS delegations to
Hebei and Xinjiang provinces in China several times to collect pest risk evidence for Ya

and Fragrant pears in the 19903 and early 20008.

Quarantine supervision of shipment

During the shipping and distribution period, most of the policies state the shipment should
be under supervision of AQSIQ, and shipment should be guaranteed free of quarantine
pests. The U.S. requires Fragrant pears shipped in insect-proof containers and all pears
must be safeguarded during transport to the U.S. in a manner that will prevent pest

infestation.

Import permit

The U.S. permits Fragrant pears to be imported only under a permit issued by
USDA/APHIS while Canada states that “a permit to import is not required” for both
Chinese apples and pears. However, the U.S. requires written permits for imported flesh
fruits from all foreign sources.29 Only approved plant part(s) of the fresh fluits are

authorized entry.

 

28 DAFF refers to Australian Government Department of Agriculture, Fisheries and Forestry.

29 USDA requires written permits for imported flesh and flozen fruits and vegetables (including flesh herbs
and sprouts) for consumption flom all foreign sources as well as Guam, Palau, the Federated States of
Micronesia, or flom the Commonwealth of the Northern Mariana Islands. Refer to the Fruit and Vegetable
Manual for more detail (USDA/APHIS/PPQ, 2004).

87

Phytosanitary certificate

A phytosanitary certificate is required by almost all the countries. Argentina requires the
phytosanitary certificate be issued by AQSIQ with a sample (2 percent) provided in
advance to SENASA 3° for confirmation. Australia requires CIQ“ issue a Master
Phytosanitary Certificate for all pre-export inspected lots. Canada requires the
phytosanitary certificate (include English or French) for apples and pears issued within 14
days prior to shipment and bearing the official stamp of AQSIQ. The requirement for
phytosanitary measure is consistent with International Standards for Phytosanitary

Measures No.7 Export Certification system (FAO/IPPC, 1997).

On-arrival inspection

Argentina states “when fruit arrives at the entry port, SENASA will verify the documents,
the labeling and will do the corresponding phytosanitary inspection”. Australia states
AQIS will examine documents for consignment verification prior to release from
quarantine and may open containers to verify the contents. Sample inspection on arrival is
required by Canada for both Chinese apples and pears which require 100 percent of pear
shipment inspection during trial period and 5 percent after the trial period. In addition,
Canada requires for Chinese apples that when a shipment is inspected, a random sample of
five percent of the contents will be examined and a further five percent sample may be

randomly selected and examined if there is presence of frass.32

 

30 SENASA refers to Secretariat of Agriculture, Livestock, Fisheries and Food of the Argentine Republic.

3' CIQ refers to Entry-Exit Inspection and Quarantine Bureau of the People’s Republic of China, which is
one department belonging to AQSIQ.
Frass refers to Debris or excrement produced by insects.

88

Other specific requirements for measures for shipping and distribution

Some country make more specific requirements for shipping conditions: Argentina
requires cold treatment for shipping; Australia states the fi'uit must remain within intact
bags and be covered by a tarpaulin if they are shipped through an unmonitored area; the
U.S. requires that the fruit must be shipped in insect-proof containers. In addition,
Australia requires that “If brown rot, black spot, or scab is intercepted on imported fruit,
DAF F reserves the right to implement remedial measures as deemed necessary before

trade commences next season”.

4.2.3 A hypothetical Systems Approach for Chinese Fresh Apples

A hypothetical systems approach for Chinese flesh applies is developed based on the
discussion above. There are thirty four measures in total that are mentioned by reference
policies (Table 4.7) which are currently being used to mitigate the risk of introducing pest(s)
associated with like products from China. Thirteen common measures are mentioned by
most of the policies. Another six measures are mentioned by a few policies. And fifteen

measures are only required by a single reference policy.

89

Table 4.7 Hypothetical Systems Approach for Chinese Fresh Apples

 

Harvest

 

Mentioned by most of the policies (4)

-Fresh apples must be flom registered orchard by AQSIQ
in the desired export area (Shandong and Shaanxi
Province)

-Apples must be bagged without holes on the trees

-Field inspection and/or monitoring System

-Apples must be flom pest flee areas or production site

flee of listed pests

 

Mentioned by a few policies (1)

-Chemical control like using pesticide or cultural practice

 

Mentioned by only one policy (4)

Post-Harvest

-Monitoring program should be within a surrounding area

of 1 km radius

-The traps must consist of cue lure, trimedlure and methyl
eugenol; a minimum of one methyl eugenol trap should
be placed in each export orchard and any villages
present (Australia) identified

-The notification of unusual weather conditions
occurrence resulting in brown rot, black spot or scab
disease

-Orchard control pmm

 

Mentioned by most of the policies (0)

 

Mentioned by a few policies (1)

-Continue to bag the apples through harvest

 

Mentioned by only one policy (2)

Pre-harvest
Mentioned by most of the policies (5)

Mentioned by a few policies (3)

 

-Field inspection or monitoring and/or chemical control
after the bags have been removed

-Apple should be selected, stored and processed to ensure
apples without insects, mites, rotting fluit, leaves, twigs,
roots and soil

-Packing houses must be registered flom AQSIQ

~Cold treatment

-Post harvest sampling inspection

-Fresh apples must be stored in a certain container (the
chamber, carton or cardboard)

-Each container must be labeled in English and Chinese
and marked with the production information

-Monitoring (trapping) system to maintain the packing

house flee of pests

-Sampling inspection during packing and storage
(Argentina: 2%; Canada: 5%; Australia: 600 units for
quarantine pests, in systematically selected samples per
homogeneous consignment or lot

-Fruits are not mixed with fluit for other destinations

 

90

Table 4.7 Hypothetical Systems Approach for Chinese Fresh Apples (Continued)

 

Pre-harvest

 

Mentioned by only one policy (5)

Shipping and Distribution

-Fumigation with methyl bromide after cold treatment
-More pacific requirements for packing materials: no
flesh or dried packing material of plant origin is to be
used; only processed or synthetic packing material can
be used; packed in cartons with screened ventilation
holes; the screening mesh size must not exceed 1.6mm
and not less than 0.16 strand thickness; or fluit must be
packed into cartons and the pallet of cartons must be
shrink-wrapped in plastic on all six sides

-Fruit must be packed and directly transferred into a
shipping container sealed with a AQSIQ seal and not
opened until the container reaches its destination

-In the packing house, culled fluit must be removed flom
the packing house at the end of each day

-Upon detection of large pear borer, pear curculio or
Japanese apple curculio, USDA/APHIS may reject the

lot or consignment

 

Mentioned by most of the policies (4)

Mentioned by a few policies (1)

-Shipment must be subject to quarantine supervision by
AQSIQ to make sure the shipment flee of other visible
pests and flee of soil, sand, leaves and plant debris

- A permit to import issued by the plant protection

regulation

- A Phytosanitary Certificate issued by the plant

protection regulation

-On arrival, inspection of all shipments, verify the
documents, labeling and corresponding phytosanitary
inspection

-Sample inspection on arrival: Canada 100 percent of

pear shipment inspection during trial period and 5 percent

after the trial period.

 

Mentioned by only one policy(4)

 

-USDA/APHIS delegations will visit China to review the
phytosanitary conditions of productions at certain time
of a year or invited by AQSIQ (not in the table)

-If certain disease is intercepted on imported fluit, USDA
reserves the right to implement remedial measures as
deemed necessary before trade commences next season

-Transportation under the commercial cold treatment

-The fluit must remain within intact bags and be covered
by a tarpaulin if they are shipped through an
unmonitored area

91

The number of measures included in a SA will not only determine the level of protection
but also affect the corresponding costs for apple growers both in China and the importing
country (Table 4.8). If only the thirteen common measures mentioned by most of the
reference are considered in a SA, the probability of introducing certain pest/disease
associated with the apples would be relatively high (compared with other two situation)
since there might not be sufficient mitigation measures in place to control the pest. Thus
the level of protection is relatively low. In this case, for Chinese growers, the compliance
cost of implementing the SA for Chinese growers would be relatively low since fewer
measures are required. The high probability of introducing the pest associated with
Chinese apples would lead to a high probability of pest outbreak in the importing country.
Therefore, apple growers in the importing country (like U.S.) are more likely to suffer
some extra pest control cost. In addition, apple productivity would also be somewhat

reduced due to the pest outbreak.

If we add the additional six measures (mentioned by a few polices) to the common
measures, the probability of introducing of pest would be lower and thus the level of
protection would be higher. The compliance of cost for Chinese apple growers will be
increased due to more measures to be implemented. The pest control cost for apple growers
in the importing country would be reduced due to the lower probability of pest outbreak. If
all of the thirty four measures are included in a SA, the probability of introducing the pest
will be the lowest (compared with the other two situations), which will lead to (relatively)
the highest compliance cost for Chinese apple growers and lowest pest control cost for

growers in the importing country.

92

Table 4.8: Comparison of effects based on the number of measures included in a SA

 

 

Scenario 1 Scenario 2 Scenario 3
Number of Measures included in a SA 13 19 34
Level of protection Low Average High
Probability of introducing the pest High Average Low
Level of compliance cost in China Low Average High
Level of pest control cost in the importing High Average Low
country

 

 

The hypothetical SA developed in this section provide general framework showing that
what steps (measures) should be included in such a pest mitigation policy. This
hypothetical SA is also the base for further economic assessment analysis in the next
chapter. As discussed above, the level of protection, the probability of introducing the pests
and the cost for apple growers will be determined by the number of measures included in a
SA. While the change in probability, level of protection and cost will somewhat affect the
producer and/or consumer surplus and thus the final welfare (detailed discussion in next

chapter).

4.3 Summary

By evaluating current like-product existing policies including corresponding pest risk
assessment reports, a list of pests of concern associated with potential U.S.-China flesh
apple trade is first obtained. Fourteen pests are mentioned most frequently by the reference
policies and six of them have been categorized by the U.S. with a high-risk rating. Three
pest, Peach Fruit Moth, Brown Rot, and Hawthorn Spider Mite for further analysis are
chosen for further analysis. Then, by evaluating the current existing policies, a hypothetical
systems approach for Chinese fresh apples is developed. Even though these measures are

described somewhat differently in the various reference policies, they can be divided into

93

four periods in accordance with standard SA defined by USDA: pre-harvest, harvest,
post-harvest (including storage and packing), and shipment and distribution. The selected
measures include those that are incorporated in most of the reference (thirty four measures)
or are particularly required by a few policies (six measures) or a single policy (fifteen
measures) Different numbers of measures included in a SA will determine the level of
protection, corresponding cost both in Chin and in the importing country. Three situations
are identified in this chapter and these three situations also provide the basis for further

economic assessment of SA in the mid chapter.

94

CHAPTER FIVE:
LINKING ECONOMICS TO RISK ASSESSMENT:

AN EVALUATION
It is likely that opening the U.S. market to Chinese flesh apples will occur at some point in
the firture. A hypothetical SA provides a general idea of what kinds of phytosanitary
measures might be taken to prevent the introduction of exotic pests or diseases. Like any
policy adjustment, potential future trade, with or without transfer of pests, will have
economic impacts on the U.S. and Chinese apple industries and consumers. As mentioned
in Chapter Two, relatively little research work has been done using quantitative analysis to
link economics to pest risk assessment. This chapter first provides a general evaluation of
methods for modelling and quantifying non-tariff barriers, especially phytosanitary
regulations. A comparison of available methods is provided. The multi-scenario static
partial equilibrium model, a recently applied approach, is introduced and discussed in more
detail. Then the model is adapted to Chinese fresh apples case. Key components of the
approach are defined and evaluated. Feasibility and potential difficulties are discussed. A
sensitivity analysis for selected parameters is conducted based on three different scenarios

for alternative SA.

5.1 Overview of methods for linking economics and pest risk assessment
A growing number of economists are evolved in economic evaluations for non-tariff
barriers (NTB) to trade. Table 5 .1 lists a summary of the primary methods that have been

used for modelling and quantifying NTB to trade. 33 Inventory and survey-based

 

33 The classifications in Table 5.1 following those established by Beghin and Bureau (2001).

95

approaches are used to identify the importance and list the problems and obstacles of NTB
issues by searching and collecting information on current policies. Even though these two
methods generally do not quantitatively provide economic impact, results are a good
starting point for an economic evaluation and draw attention to a specific NTB issue.
However, collecting information, especially through surveys, can entail some difficulties
related to political issues, business secrets, and/or availability of data. Similar to the two
methods mentioned above, gravity-based approach is also a method used to indirectly
evaluate the economic impact of NTBs. In a gravity model, ready-available proxy
variables (like “shared boarder”) are used to capture factors that affect trade such as
standards, regulations, and cultural characteristics. However, just like other econometric
models, a single model might not be realistic enough to explain a complicated situation.
Focusing on detailed products and spatial trade flows, prediction is likely to be sensitive to
assumptions of the model. However, gravity-based approaches, coupled with the use of
proxy variables from survey- or inventory-based methods, are a promising area of research

(Beghin and Bureau, 2001).

According to FAO, the potential economic importance of an invasive pest is based on
information about probability of spread (FAQ/IPPC, 2004). Therefore, the economic
analysis of NTB barriers concerned with these issues should include scientific pest risk
assessment. The other four methods listed in Table 5 .1 could possibly be used to evaluate
impacts by linking economics to a pest risk assessment. Price-wedge method is the
simplest way which basically expresses some factors in terms of price, like calculating a

tariff equivalent. Cost-benefit analysis approach quantitatively compares the cost and

96

benefit to capture the economic effect on a country/region flom a policy change. Partial
equilibrium model is a more complex version of cost-benefit analysis approach. In a partial
equilibrium model, the effect of regulations on supply and demand can be measured by
standard estimates of cost or profit functions, as well as by utility or demand functions
estimated econometrically (Beghin and Bureau, 2001). General equilibrium models have
the widest scope among all the methods. General equilibrium models attempt to describe
the entire economic system, capturing not only the direct impact of a policy shock on the
relevant market, but also the impact on other areas of the economy and feedback effects
from these sectors to the original market (O’Toole and Matthews, 2002). However, there
are many difficulties when applying general equilibrium model due to the complexity,
therefore, it is rarely used in empirical studies. Compared with general equilibrium, 3
partial equilibrium model concentrates only on a particular subsection of the economy. It is
easier and possible to model a particular commodity or industry for empirical studies and it
is commonly used by economists. A recent empirical partial equilibrium model used for
analysis of phytosanitary policies is the one developed by Peterson and Orden in 2006. The
model has been successfully applied to the case of U.S. imports of Mexican avocados. A

more detailed discussion about this model is provided later.

97

Table 5.1: Summary of methods for modelling and quantifying NTB to trade

 

Method

Descriptions

Inventory-based General idea: Collect data and information on

approaches

Survey-based
approaches

Gravity-based
approaches

regulations, flequency of
detentions, complaints, number of
restrictions, frequency ratios, and
import coverage ratio.

Main application: Collect information; used to
develop proxy variables for
econometric (gravity) models.

Limitations: Don’t provide quantification of the

effect of regulations but do provide useful

indication on the importance of the problem.

General idea: (compared with inventory-based
approaches) Ask practitioners
which measures have more
impact on their activity, surveys
make it possible to narrow the
scope of the analysis and to focus
on the relevant issues.

Main application: Surveys, interviews.

Limitations: Useful when other sources are

lacking; able to identify barriers that are diffuse

and difficult to measure.

General idea: Look at the residuals in economic
regressions of trade flows on the
various determinants of trade.

Main application: Gravity model.

Limitations: Not able to explain correctly all
trade flows; would be better if used
combined with survey- or
inventory-based methods.

Example of
existing studies
Swarm, Temple,
and Shurmer,
1996

USTR, 2001

Moenius, 1999

 

Price-wedge
method

General idea: NTBs can be gauged in terms of
their impact on the domestic price
in comparison to a reference
prices. Can be used in a partial or
general equilibrium model.

Main application: Calculate tariff equivalent;

Limitations: Data limitation, not working for

large-scale studies.

Calvin and
Krissoff, 1998

 

98

Table 5.1: Summary of methods for modelling and quantifying NTB to trade

 

 

 

 

(continued)

Method Descriptions Example of
existing
studies

Cost-benefit General idea: By decomposing the welfare Glauber and

measures effects, compare the costs of Narrod, 2001;

compliance to the gains from the Bigsby, 2002;
trade. Orden and
Main application: Iso-risk flarnework, Romano, 1996;
cost-benefit analysis. Krissoff,
Limitations: Great uncertainty about risk. Calvin, and
Gray, 2004

Partial General idea: (compared with cost-benefit Paarlberg and

equilibrium measures) accounting more Lee, 1998;

approach sophisticated effects in an Wilson and

analytical representation of Anton, 2006;
producers and consumers; Peterson and
Main application: (stylized) Partial equilibrium Orden, 2006
model.
Limitations: Requires simplified assumptions;
data-intensive; difficult to calibrate demand
functions (elasticity).

General General idea: Extend partial equilibrium model Wittwer,

equilibrium to encompass an entire economy, McKirdy, and

approach and allow the effects on wages, Wilson, 2005

exchange rates and national
welfare to be measured
Main application: General equilibrium model;
Limitations: Difficult to collect data.

 

Source: Beghin and Bureau, 2001; FAO/IPPC, 2004; Bigsby, 2002.

99

A static partial equilibrium model

A partial equilibrium model is one of the feasible and useful methods to estimate economic
impact of a SPS regulation. Peterson and Orden developed a multi-scenario static partial
equilibrium model for the case of U.S. imports of Mexican avocados. The model was
successfully used to compare welfare changes under different SA requirements for the

avocado case.

According to Peterson/Orden, a phytosanitary policy (¢) will be chosen to maximize
social welfare and the expected welfare change (EW) can be expressed by:

EW = p(¢)WD(¢) + [1 — p(¢)]W~ (¢) — C(¢) — W0

Where p(¢) is the probability of a pest/disease outbreak and C(¢) is cost of

implementing the systems approach. W0 (¢)and W N (¢) represent welfare if there is a

pest/disease outbreak and if there is no outbreak, respectively. W o is the original welfare

level before implementing the systems approach. For empirical applications expected
welfare, sum of producer surplus and consumer surplus, can be calculated. Peterson and
Orden’s model determines the level of imports and the associated risk of a pest outbreak, as
well as the expected welfare. Welfare is then compared between different scenarios, with
and without (partial) restriction on imports, which are under the regulation of different

systems approach policy.

Table 5.2 shows the general framework of the partial equilibrium model. Three different
types of regions are identified: region 1 is an importer, region 2 is an exporter free of pest,

and region 3 is an exporter not free of pest with some non-zero probability of transmitting

100

pest(s) to the importer. Demand in the importing region Q ,Demm’ is derived from a utility

fiinction for a representative consumer. The goods from different regions are treated as

ema

, D d . . R '1 .
slightly different goods. Qi n decreases as the its own price P ,- m’ increases and

. . I . - ' - o o .
1ncreases as cross pI'lCCS [338 mi] ¢I)1ncrease. Total supplies are from domestic production

S l _ I t , .
in region 1 (Q1 uppy ), imports from region 2 (szpor ), and imports from region 3

Import Su 1 , . . .
3 ). Q] pp y increases as the level of producer pnce increases, decreases as either

the frequency of pest outbreaks (N ) or the costs associated with controlling an outbreak
(PC!) increases. Producer price is calculated as the difference between retail price
FIRM", and a fixed market margin m 1 . The frequency of a pest outbreak (N ) is an

important factor used in the model for incorporating risk assessment results. It is assumed
to depend on probability that a pest can be introduced from region 3 into region 1 and the

I r
level of imports from region 3 (Q 3mp0 t ). In the case of pest outbreak in region 1, the

cost of mitigation depends on the frequency of outbreak and level of eradication
(OSaSl). Control cost in exporting region 3 depends on risk mitigation measures

included in the systems approach.

Change in expected welfare for the region 1 is defined as:

EW. = CS.(¢) + PS. (45) — PC. — PCP.
where CS 1 (45) is the expected change in consumer surplus, which is defined as the
equivalent variation; PS 1 ((15) is the change in producer surplus in region 1 before and after

the change in policy; PC I is the cost of control measures for growers/exporters in the

101

importing region; and PCP1 is the cost of control measures paid by public agencies.

Welfare can be computed according to this equation and compared across different

scenarios to choose the optimal policy that maximizes expected welfare.

102

Table 5.2: General framework of a partial equilibrium model

 

Endogenous Variables

Description

 

Q.

PiRCtall

N

Demand Demand for the

product fi‘om region i,
i=region 1, 2, and 3

Supply in the
importing region '1
+

Exporter excess
supply from region 2

Exporter excess
supply from region 3

Retail prices of the
products from region i,
i=region l, 2, and 3

Frequency of pest
outbreaks

A function of retail prices of product in the importing
country
iDemand = D(P1Retall, PzRetall’ P3Retail), i=region 1’ 2,

and 3.

A function of the producer price (retail price minus a fixed
marketing margin), the frequency of pest outbreaks, and
the costs associated with controlling pest outbreak.

A function of export (FOB) price of the product in regions
2 (the retail price in region 1 minus a fixed margin).

Qémpor't: Ez (IJZRetaiL ”72)

A function of export (FOB) price and the cost of control
measures required by the regulatory policy being
considered in region 1.

ngport = E3(P3Retail _ m3, PC3)

A function of the regulatory policy (¢ ) and the level of

imports from region 3. N = ((15, ngport)

The regulatory policy decides the magnitude of the
probability that the product being exported is infested

(Prob, ), the probability that the pest survives shipment
(Prob2 ), the probability that the product/pest is
transported to a suitable habitat, (Prob3 ), and the

probability that the pest is able to become established
( Pr 0b4 ).

N = prob. * probz * prob3 * prob4 * probs * ngpon

 

103

Table 5.2: General framework of a partial equilibrium model (continued)

 

Endogenous Variables

Description

 

PC] Pest-control costs in the importing
region 1
Pg Control costs in the exporting

region with pest risk in region 3

PCP Cost of control measures paid by
' public agencies

A function of the frequency of an outbreak (N ), the

intensity of an outbreak ( Int 1 ) and the level of
eradication (a ).
PC, = PC,(N,1nt,,a)

Related to the risk mitigation measures specified in

the regulatory policy (¢ ) under consideration.

PC3 = PC3(¢)

A function of the regulatory policy under
consideration, the level of exports from region 3, and
the intensity of infestations in regions 1 and 3.

PCP] = PCP1(¢,Q3I”“’°rt , Int1,Int3)

 

Exogenous Variables

m . Fixed market margin, i=region l, 2,
' and 3
Int I The intensity of an outbreak in
region 1
a Level of eradication

It is the link between producer and retail (FOB)
prices. It includes all trade and transport services
needed to get the product from producers to
consumers.

Vary between 0 and l

 

Market clearing conditions

Equate the demands for the substitutable products in
region 1 with the supplies from region 1,2, and 3.

Demand Su 1
Q1 = Q1 pp y

Demand Im ort
Q2 = Q2 p

Demand 1m ort
Q3 = Q3 p

 

Source: Summarized from Peterson and Orden, 2006.

Note": Region 1: an importer of a product

Region 2: an exporter he of the pest or pathogen
Region 3: an exporter not free of the pest with some non-zero probability of transmitting the pest to

the importer

104

5.2 Adaptation of partial equilibrium model in the case of Chinese fresh apples

In this section, the partial equilibrium model introduced in last section will be adapted to
Chinese fresh apple case. First, a discussion of the potential impact of importing Chinese
apples into the U.S. is provided. Then, based on the general framework, key components of
the model are described for adaptation to the Chinese fresh apple case. By comparing the
methods and logic used by Peterson and Orden in the avocado case, feasibility of the model
and potential difficulties to adaption will also be evaluated in this section. At last, some

conclusions about the model for apple case are provided.

‘ 5.2.1 Potential impact of opening the U.S. market to Chinese fresh apples

The introduction of exotic invasive species could have potential impacts not only on a
country’s plant, animal, and human health, but also on the environment, consumer interests,
and total welfare. It is likely that the U.S. market will open to Chinese fresh apples at some
point in the future. Table 5.3 provides a general summary of potential impact from
initiation of trade. Since apples are not mainly used as an animal feed, it is not expected to
affect animal health. As for human health, it is not clear whether the potential import of
apples will influence the Americans without further scientific assessment.34 However, no
vital serious apple disease/pest harmful to human has been found in China, it is not
expected that the import of Chinese apples would affect human health in the U.S. It is hard
to find evidence to say that invasive species exist which would affect the U.S. environment.
However, from economic perspective, it is likely that imports will have effects on the U.S.

apple industry and market. On one side, even under regulations, there is still a non-zero

 

34 . . . . . . .
The food safety Issue about Chinese fresh apples lS sensmve these days. However, it IS regulated under other agencies
and rules and is not the interests of this study.

105

probability that the exotic disease/pests could be introduced into the U.S. along with
Chinese apples. In that case, a pest outbreak could have negative effect on apple trees and
other similar susceptible plants. In addition, the pest outbreak may lead to production loss
and increases in pest control cost. The apple market (like price) could also be affected
depending on the scope of pest outbreak and total import volume of Chinese apples. On the
other side, like any policy adjustment, potential future trade with or without transfer of
pests will have impacts on the U.S. China is the world’s leading apple production country
and Chinese apples are competitive in the global market due to low prices. U.S. consumer
and producer surplus would be affected due to the change in wholesale price and producer
price. The total impact is indeterminate without further analysis. Thus an assessment of

method to evaluate the economic impact linked to the pest risk analysis is important.

Table 5.3: Potential impacts of opening Chinese fresh apples

 

Types of Impact Possible Effects

 

Plant health Potential impact to plant due to invasive pest outbreak

Animal health No major impact

Human health No major impact

Environment No major impact

Production Potential production/yield loss, pest control cost increase if there is

an invasive pest outbreak

Price and Market Change in producer and/or consume surplus due to the change in
producer and wholesale prices

Food security No major impact

 

Source: Adapted from Evans, Spreen, and Knapp, 2002.

106

5.2.2 Adaptation of Peterson/Orden model to Chinese fresh apple case

Based on introduction of the general framework in last section, some key components of
the Peterson/Orden model can be described. First, time periods are used to capture
differences in policy, like different geographic, seasonal or phytosanitary requirements.
Since the import of Chinese apples is still in the early stage of political debate and not yet
reality, two different time periods are obvious. The first is during the period when Chinese
apple imports are prohibited and the second period is during the period when the
hypothetical systems approach will be implemented to regulate imports. For simplicity at
this point, year 2004 can be used as the first period and 2005 as the second. Different than
the avocado case, there is no seasonal restrictions identified in the hypothetical systems

approach. Therefore, two periods are not necessary within one year.

The second model component is geographic regions. Peterson/Orden divided the regions
into three different kinds: an importer, an export free of exotic pest, and an export not free
from the pest under consideration. Following the same logic, the regions for Chinese apple
case are listed in Figure 5.1. The U.S. and Canada-«the North American Region are
identified as two demand regions. These two fruit markets are quite similar in terms of
consumer preference, market structure, seasonal change, etc. The hypothetical U.S.
systems approach is projected to be similar to Canadian phytosanitary regulation for
Chinese apples. Apples consumed in the U.S. and Canada will be supplied from U.S. and
Canadian domestic production, Chinese excess apple supplies available for export, and all

other countries in the world (Figure 5.1).

107

Figure 5.1 Fresh apple trade relationships between supply and demand regions

 

 

 

 

 

 

 

 

 

 

 

 

 

[The U.S. W Canada \
Importer/Exporter Importer/Exporter
free of Exotic pests free of exotic pests
k 4 J X J
rChina \ (Rest of the world \
Exporter Exporter
not free of exotic pests free of pests

 

 

 

 

J k J

Before further adapting the model to Chinese fresh apple case, some key assumptions
should be made. First, similar to other partial equilibrium models, only the variables
determined by the model (defined in Table 5.2) are endogenous to the model system, while
other variables or factors not defined by the general framework would all be assumed to be
exogenous. Under this assumption, only the variables, like apple demand, apple supply,
apple wholesale and producer price, frequency of pest outbreak, costs, are determined by
the model, while other factors outside the system, like orange price, GDP rate, and apple
price in Japan are all assumed to exogenous variables. Second, apples from different
supply regions are assumed to be imperfect substitutes with each other. They are assumed
to the same products but slightly different in freshness, appearance, tastes. Third, it is
assumed to be small open economy and it will not change the world price. Apples are
grown all over the world and it is one of the most common fruits. In this model, only two

terminal markets, the U.S. and Canada, are considered. The production of these two

108

countries accounted for only eight percent of the world’s total in 2005 (FAO, 2007). Even
though China is the world’s largest apple producer, import volume to Canada in 2005
accounted for less than one percent of Canadian production and 0.1 percent of U.S.
production. Total consumption of fresh apples in these two countries only accounted for 11
percent of the world’s total in 2005 (FAO, 2007). It is assumed that this small volume of
production and consumption in regions defined by the model is not enough to influence

global apple price.

Evaluation of the key model components

The partial equilibrium model has been applied successfully to Mexican avocado case as a
feasible and useful method for linking economics to the pest risk assessment. Similar to
other partial equilibrium model, the parameters of the production, consumption, and prices
are needed. A more detailed discussion and data availability for estimating these
parameters are given later in this section. Since scientific pest risk is incorporated into the
model, estimates of pest infestation probabilities would be pivotal to the economic analysis
for Chinese apple case. The results from a PRA are needed to estimate these probabilities.
By implementing SA policy, there are extra compliance costs undertaken by Chinese apple
growers. Introducing exotic invasive species will also result in increased cost for pest
control and/or production loss for apple growers in the U.S. and Canada. More discussion

related to the case under consideration is provided below.

Frequency of pest outbreak

109

The frequency of pest outbreak is defined as the product of a series of probabilities that a
pest/disease can survive during different production periods and the quantity of imports.
Five stages of probabilities are needed for each pest/disease under consideration: pest
infests fruit pre- or post-harvest, pest not detected during harvest or packing, pest survives
shipment, pest not detected during port of entry inspection, and infested fruit is located in
suitable habitat leading to outbreak. Peterson and Orden obtained the necessary data from
PRA for Mexican avocados; however, there is no direct source currently available for
Chinese apple case. Among all the reference policies, even though Canadian, Australian
and the U.S. policies provide PRA results for certain pest/disease, they only provide
qualitative pest risk results in terms of high, medium or low instead of numerical

probability estimates for limited pests/diseases.

Therefore, to adapt the model to Chinese fresh apple case these probabilities must be
estimated. The data from avocado case provides a starting reference. Four pests Idiseases
are considered in avocado case: fruit fly, seed weevil, stem weevil, and seed moth for both
before and after the implementation of the Systems Approach. The data for seed moth will
be most relevant to peach fruit moth (one of three pests mentioned in Chapter Four for
further analysis in apple case) because they belong to the same category “Lepidoptera”.3'5

As for brown rot and hawthorn spider mite, the other two pests identified in Chapter Four,

data from avocado case is not a reliable reference source since these two pests do not

 

35 According to Table 9 in final extension of policy for the importation of pears from the Peoples’ Republic
of China (page 27-28), peach fi'uit moth and seed moth both belong to Lepidoptera category which includes
moths and butterflies. As for other three pests/diseases mentioned by Peterson and Orden’s model, fruit fly
belongs to diptera, seed weevil and stem weevil belong to coleoptera which normally includes weevils and
beetles.

110

belong to any similar category of pest/disease as those in avocado case. Only the data with
SA implementation in the Avocado case can be used as a reference for the apple case
because the avocado case assumes free trade when no SA is in place. All probabilities in
avocado case have a uniform distribution and are expressed in terms of minimum, mean
and maximum values. The range of probabilities varies with the type of probability and the
type of pest/disease. For example, based on PRA in avocado case, the probability that Seed
Moth survives shipment with SA in place has a mean value of 0.8 while the probability that
Fruit F 1y infests fruit pre- or post-harvest has a mean of 2.5E-06 (Peterson and Orden,
2006). Table 5.4 gives the estimations of the probabilities for peach fruit moth outbreak

with the SA in place.

Table 5.4: Estimated probabilities for peach fruit moth outbreak with SA

 

Minimum Mean Maximum
Pest infests during pre-or post harvest period 0.000005 0.0000028 0.00005
Pest survives during harvest or packing 0.00008 0.00044 0.0008
Pest survives during shipment 0.7 0'8 0.9
Pest survives during port of entry inspection 0.2 0.325 0.45
Pest outbreak in suitable habitat environment 0.00005 0.000275 0.0005

 

 

Source: Peterson and Orden, 2006.

Compliance cost for Chinese growers/exporters

Cost of implementing phytosanitary measures included in a SA is an important variable
that links economics to the pest risk assessment. In Chinese apple case, it is the sum of
costs of measures needed to be undertaken to implement a SA policy, like bagging the
apples, registering orchards and/or packing house, monitoring the orchards, cold treatment,

and getting a phytosanitary certificate and an import permit.

111

In avocado case, there are two types of compliance costs: compliance costs for growers and
compliance cost for packers/exporters in the originating country. Compliance costs for
growers are grouped into three categories: increased costs of production for approved
acreage; fees paid to the local government agency for pest surveys and fruit fly trapping to
establish and maintain certification to participate; and loss of fruit sorted out during
inspections. Compliance costs for packers/exporters are grouped into four categories:
investments to establish fruit fly quarantine conditions at the plant; operating costs of
certification and fruit fly protection during picking and processing; costs for inspectors to
cut fruit and undertake other quarantine activities; and fees to reimburse APHIS for its

inspection cost and for a product promotion program.

However, for apple case, it is quite difficult to find all the data in such a detail since the
U.S.-China fresh apple trade has never started, secondary-or even primary-data does not
exist. To get a cost estimate, a good option is to refer to the compliance cost for apples
exported to Canada. There are currently only a few big companies in China approved to
export fresh apples to Canada due to strict phytosanitary requirements.36 Statistically
speaking, such a small sample size can hardly provide accurate and sufficient data. Cost
varies according to, for example, the size and capacity of the company, the production area,
subsidies from the government (“Guanxi” with the government), inspection ability, and
type of pest control program chosen. In addition, since the SA is applied throughout all the

periods of production, storage, packing and shipment, cost data for every phytosanitary

 

36Such as Longkou Fook Huat Tong Kee Fruit Co., Ltd in Shandong province, and Huasheng Fruit Co., Ltd
in Shaanxi province.

112

measure is not available directly. The market information system is still under construction
in China. Projects or programs like those in avocado case are not available. Chinese
government has started setting up a market price system for fruit and vegetables, however,
in terms of cost (especially the cost of phytosanitary measures), there is no direct source of

information.

Cost of control measures and pest damage in the U. S.

Cost of mitigation measures in the importing country depends on the specific phytosanitary
measures included in a systems approach for Chinese fresh apples. Given the probability
that an invasive species might be introduced, spread, and established, domestic plants in
the importing country might also be infested and certain production losses may occur. The
cost for growers in an importing country to prevent production loss from invasive species
should be included in the model. Several key parameters are considered: the percentage of
total production impacted by infestation, the production loss due to the infestation of

particular pest/disease, and the pest control cost due to infestation.

As mentioned in Chapter four, the infestation rate for peach fruit moth in China ranges
from 10 percent to 30 percent in middle of Yellow River old river way and Northwest
Yellow Plateau area. In Bohai Bay apple production area, which has relatively higher
management technology, the infestation rate is as low as three percent. For brown rot,
Moore (1950) recorded an average of about nine percent of apple fruit become infected
with brown rot. No data has been identified to provide infestation rates for hawthom spider
mite. There is no updated data for the infestation rate for any of these three pests. Similarly,
there is little literature related to production loss for the three pests we are interested in. In

113

avocado case, Peterson and Orden estimated the cost of controlling the fruit fly infestation
and productivity losses based on an existing regulatory control program. Then they applied
this estimated cost to other supply regions in the US for Fruit Fly. However, in apple case,
there is no similar regulatory control program since trade is still in the early stage of
negotiation. In addition, Peach Fruit Moth, as discussed in Chapter four, is mainly spread in
Asia and still considered an exotic pest to the U.S. There are limited resources and data

regarding to this pest.

Other issues

Some other parameters in the general framework (Table 5.2) are also essential to the model.
First is the elasticity. The elasticity of substitution and transformation are applied to the
model’s demand and supply equations to replicate the baseline quantities, prices, and yield
shift parameter values (USDA/APHIS, 2004b). From the demand side, two kinds of
elasticity are needed for the model: the aggregate demand elasticity of substitution between
fresh apples and all other goods; and the demand elasticity of substitution between apples
from different supply regions. The demand for fresh apples in each demand region is
derived from a heterogeneous utility function for a representative consmner where
consumers are assumed to view fresh apples from different supply regions as slightly
different products due to the variance in price, appearance, freshness and taste. Little
empirical evidence exists for fresh apple demand elasticity. Table 5.5 lists several kinds of
demand elasticity for apples from USDA/ERS online elasticity data set. The apple own
price demand elasticity ranges from -O.7 to -0.122 with a mean of -0.35838. In a partial

equilibrium model, the change in apple price represents the change in relative prices when

114

holding the prices of all other goods constant. Thus the overall price (index) change can
lead to the consumer to change apple consumption (Peterson and Orden, 2006). This price
elasticity could be used to generate aggregate demand elasticity for apples from all supply
regions according to the U.S. share of total supply. Then this own-price elasticity and
aggregate demand elasticity could be used to determine the two values of elasticity
mentioned above during the model calibration, elasticity of substitution between apples

and all other goods and one between apples from different supply regions.

From the supply side, the elasticity of transformation is also needed for the model to
capture the possibility for producers to shift avocado sales between different time periods
as relative price changes. Roosen (1999) estimated the total supply response elasticities for
fresh apple production were 0.306, 0.346, 0.868 and 0.638 for Northwest, Southwest,
Central and East region of the U.S. respectively in a short run. These numbers could be
used to determine aggregate supply elasticity for apples from all supply regions based on

their share of total supply.

Table 5.5: Demand elasticity of fresh apples in the U.S.

 

 

Minimum Maximum Mean Standard Deviation
Apple own price -0.7 -0.122 -0.35838 0.22444
Apple income 0.04 0.14 0.09 0.07071
Apple expenditure -0.206 0.8808 0.161 0.62341
Fruit other cross price -0.0598 0.0591 -0.0151 0.06471
Food other cross price -0.3 143 0.0766 -0.1 1885 0.27641
Nonfood cross price 0.1997 0.1997 0.1997

 

Source: USDA/ERS, 2007.

115

A second issue of importance is the apple variety. In avocado case, Hass avocados account
for nearly 85 percent of all avocados consumed in the U.S. In contrast, apple is one of the
most popular and common fruits and there is no a particular dominant variety in both the
U.S. and Canadian market. Most of the Chinese fresh apples for export are Fuji, so it is
likely that the major variety of Chinese apples that would enter the U.S. market is Fuji.
However, it is not realistic to restrict our target to only one variety compared with the large
apple production and demand quantity. Even if no variety in particular was identified in the
model, the large number of apple varieties and variance among different varieties presents
difficulties in collecting data. For example, computation of apple wholesale price in the
U.S. is very data-intensive. In addition, some varieties have an obvious higher price than
other varieties in some markets. For instance, wholesale price of Honey Crisp from
Michigan is as high as 87.5 cents/lb in Atlanta market on November 19, 2005, while at the
same time, the wholesale price of Rome apples from Georgia is as low as 32.5 cents/1b.

Aggregating there values may mask important differences and give misleading results.

5.2.3 Limitations to adaptation

Based on the discussion above, the partial equilibrium model would be one approach for
evaluating the potential impact of opening the U.S. market to Chinese fresh apples.
However, lack of a PRA, the early stage of discussions over this trade issue. and data
intensive requirements of the model limits its empirical application. The most important
limitation is lack of a PRA or no official Systems Approach implemented before the
economic evaluation. From the political point or view, the U.S. and Chinese government

are still negotiating the issue. Since everything is still not open to the public (and much data

116

does not yet exist), important information is lacking for economic assessment. For example,
without the official SA, it is not clear about what kind of phytosanitary measures are being
implemented in China to control the risk, which make estimating the compliance cost
directly impossible and less accurate. The on-going negotiation between the governments
also increases the difficulty. The sensitive political nature of the issue even limits
information available through interviewing those government and industry in both the U.S.
and China. In addition, from scientific point of view, according to FAO, the pest risk
assessment is the basis for economic evaluation. Unlike avocado case, there is no
government pest risk assessment available for public in apple case. The PRA for Chinese
fresh apples is still undergoing development and review from scientists in both countries.
The most important information like the probability of pest infestation has to be assumed

according to PRA for other commodity, which greatly restricts the accuracy of model.

Second, similar to the lack of SA policy, import of Chinese apples to the U.S. has never
existed, which further restricts economic evaluation. In the general framework, welfare is
compared different time periods. For Chinese apple case, all the data in second period
related to import are lacking where, by assumption, there was potential imports under the
regulation of a SA. Most of the data like import volume and price have to be be assumed.
Further information, like where the Chinese apples would go within the U.S. and how the
U.S. consumers would like the Chinese apples (demand elasticity between apples from

different regions) are also missing.

117

In addition, apple is a more popular fruit than avocado, which makes this Chinese apple
case much more complicated than avocado case. From consumption point of view, apple is
one of the most popular fruits among U.S. consumers. In contract, avocado is less popular.
There are only a few avocado varieties in the market where Hass avocado accounts for
more than 85 percent. In contract, there are nearly 100 varieties of apples are grown
commercially in-the U.S. and about 7,500 varieties throughout the world (University of
Illinois, 2007). Therefore, it is difficult to estimate the demand elasticity and other
parameters. From production point of view, avocado production in the U.S. is quite
concentrated (mainly in California). However, as for apples, there are as many as 35 states
currently growing apples. In the case of pest outbreak, all apple producing states would at
least be susceptible to infestation and it is harder to estimate the production loss and

corresponding cost.

5.3 Sensitivity analysis for selected types of parameters

Based on the discussion above, it is difficult to fully adapt the partial equilibrium model to
Chinese fresh apple case at this point. Some important data and information for analysis are
unavailable without an official SA policy and actual trade existing. Data intensiveness and
case-to-case difference limit the empirical applications of the model. In this section,
instead of fully adapting the partial equilibrium model, a simple sensitivity analysis will be
performed to find out how sensitive the model is and how the results will change with some
particular parameters. Input data is first provided in this section, which includes the
quantity demanded, total supply, wholesale price, producer price and also income,

expenditure and population information. Then parameters for sensitivity analysis are

118

described and estimated based on three scenarios identified in Chapter Four. Three types of
parameters are considered for the sensitivity analysis: first, the probabilities of introducing
pest/disease associated with the Chinese fresh apples; second, the compliance cost
undertaken by Chinese apple growers; third, the pest control cost undertaken by U.S. apple
growers in the case of pest outbreak. Results of sensitivity analysis and model calibration

are provided below.

Input data for sensitivity analysis

To implement the partial equilibrium model, a set of input data including quantity and
prices are required to present initial market equilibrium (Table 5.6 (a) and Table 5.6 (b)).
Apple quantity demanded (in million lbs) refers to consumption for fresh apples37 from
different supply regions. In period 1, the U.S. import of Chinese apples is banned. In period
2, U.S. import volume is estimated according to the proportion of total U.S. to Canada
apple imports (U.S.: Canada=9.81 :1). Total (base) supply for each supply regions refers to

quantity of production or import in demand regions, the U.S. and Canada.

Wholesale prices are the weekly average data (September to November in 2004 and 2005)
at representative terminal markets in the U.S. and Canada. All apple varieties are
considered. For simplicity, only data for apples in tray pack cartons are used. In period 2,

wholesale price in the U.S. for apples from China is assumed‘to be the same as the

 

37 Only fresh apple consumptions are considered in this model. Sometimes, only aggregate data of fresh apple
consumption are available. In this case, consumptions by demand and supply regions are adjusted according to the
proportion of domestic production and import quantity/origin. For example, the total U.S. fresh apple consumption in
2004 is 5605.67 million lbs, among of which 5455.24 million lbs (97 percent) are domestically produced. Among other
three percent, about 150.43 million lbs of imported apples, only 35.12 are from Canada. Therefore, the others are from the
rest of the world, about 115.31 million lbs.

119

Canadian apples imported from China. According to price data available in Agriculture
and Agri-food Canada (AAF C), Chinese apples do not have a price advantage in terminal
markets over other apples even though producer price is much lower. In general, wholesale
price in Canada (except for domestically produced apples in Canada) is higher than that in

U.S. market.

Producer prices for apples from different supply region are slightly different depending on
the data source, especially for Chinese apples. In this model, since only the Chinese apples
for export purpose are considered, the producer price should be higher than the national
average producer price. Based on the estimated production cost for Chinese apples in
Shandong province, the producer price is set equal to the production cost for simplicity,
which is 15 cents and 16 cents per lb in 2004 and 2005, higher than the cost of production
in other (i.e. not export-oriented) regions of China. Even so, costs in Shandong are still
lower than that for apples from U.S., Canada, and the rest of the world. Sources for apples

from other regions are listed in the table below.

In addition, income and population data are needed. Table 5.6 (b) lists the data and sources.

At last, per capita expenditure for apples in each demand region is calculated based on the

data of wholesale price, population and base supply (Table 5.6(b)).

120

Table 5.6(a): Input data in the model

 

 

 

 

Description Parameters Values
Rest of
Quantity Demandedl (Million lbs) U.S. Canada China the
world*
Period 1 qlu **
The U.S. 5455.24 35.12 0.00 115.31
Canada 249.83 530.26 8.19 80.93
T0“ (”8“) 8“PW yblr 5705.07 565.38 8.19 196.24
Period 2 (121.1
The U.S. 4769.74 74.47 77.76 107.02
Canada 289.32 521.76 7.93 53.46
Total (base) supply ysz 5059.07 596.23 85.68 160.48
Rest of
Wholesale prices ($/lb) The U.S. Canada China the
world*
Period 1 pbl 131'
The us.2 0.53 0.66 0.66 0.52
Canada’ 0.73 0.64 0.69 0.80
Period 2 p122,j
The U.S. 0.57 0.70 0.70 0.54
Canada 0.78 0.64 0.59 0.77
Producer prices4 (3/ lb)
Period 1 pplj 0.273 0.216 0.15 0.29
Period 2 pp2j 0.217 0.216 0.16 0.33

 

 

 

1 Source: Author’s calculation.

2Source: Agricultural marketing services, US Department of Agriculture online dataset (USDA/AMS, 2007).
Six markets are chosen as representatives: Atlanta, Boston, Chicago, San Francisco, Detroit, and
New York. Weekly data is be used through September to November in 2004 and 2005. Cartons tray
pack is considered during the calculation, which has been converted into pounds according to
standard conversion (40 pounds per carton tray pack for net weight).

3Source: Agriculture and Agri-Food Canada (AAFC, 2008a). Nine terminal markets are chosen: St. John'S,
Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver, Ottawa, and Moncton.

4Source: Fruit and tree nut yearbook (USDA, 2006) for the U.S.; Agriculture and Agri-Food Canada (AAF C,
2008b) for Canada; author’s calculation for China; FAO online dataset for Rest of the world.

Notes: * For quantity demanded and wholesale prices, the rest of the world refers to all the other countries
that export apples to the demand country. For producer price, the rest of the worlds refer to nine
world’s big apple producing countries including Turkey, France, Poland, Italy, the Russian
Federation, Germany, Argentina, Japan, and Chile.

** Subscript 1' denote demand regions, the U.S. and Canada. Subscript j denotes supply regions, the

U.S., Canada, China, and the rest of the world. For example, qlwflm denotes the per capital
demand of apples in the U.S. from China import.

121

Table 5.6(b): Input data in the model (Continued)

 

 

 

 

Description Parameter Values
The U.S. Canada

Per capital income (S/year)l
Period 1 inchl, 33,050 28,310
Period 2 inc] b2, 34,586 32,600
Population 2
Period 1 popli 293,655,404 31,989,454
Period 2 pop2, 296,410,404 32,299,496
Per capita apple expenditure (Slyear)3
Period 1 expl, 10.13 18.51
Period 2 epo, 9.73 18.74

 

lSources: lnfoplease online data source (2008); Statistics Canada (2004); World Bank (2008).
2Source: Wikipedia.(2008); Factmonster online data source (2008); U.S. Census Bureau (2008).

3 Source: Author’s calculation.

Model assumption and estimation for selected parameters for different scenarios

Based on the discussion in the last Chapter, three scenarios will be considered as part of the
sensitivity analysis. Scenario 1 only considers thirteen common measures in the SA that
have been mentioned by most of the reference policies (high risk); scenario 2 adds six more
measures which are mentioned less frequently (medium risk); and scenario 3 includes all
thirty four measures that are mentioned by at least one of the polices (low risk). As
discussed in Chapter Four, different scenarios imply different probability of pest

infestation, compliance cost for Chinese growers, and pest control cost for growers in the

importing country (Table 4.8).

122

General assumptions about the model discussed earlier (section 5.22) still hold for
sensitivity analysis. 38 Variables adjusted for each scenario include probability of
infestation and cost of compliance both in U.S. and China (Table 5.7). Probabilities of
introducing pest/disease are one of the most important parameters for the model. For the
U.S., trade is banned in the first period, so the probability of pest infestation is very low
even though there is no SA in place. However, it is still possible that pest (like Peach Fruit
Moth) could be introduced indirectly, for instance, along with other fruits. However, the
data of this probability is not available.” For simplicity, these probabilities are assumed to
be the minimum value of probabilities when there is SA. The overall probability after
periods of harvest, packaging, storage, shipment to the boarder is 2.8E-15. In the second
period, the ban is lifted according to our assumption. Based on the discussion earlier,
probability data for Seed Moth in Mexican avocado case is used as corresponding data for
Peach Fruit Moth in Chinese fresh apple case. The overall probability now goes to

8.8088E-13 on average.

 

38 The assumptions are: first, on the variables determined by the model itself are endogenous to the model system and
other variables are assumed to be exogenous; second, apples from different supply regions are assumed to be imperfect
substitutes with each other; third, it is assumed to be a small economy and it will not change the world’s price.

9For Avocado case. the probabilities without a SA are provided. However, they cannot be applied to Chinese apples
since trade exists for avocado case even though there is no SA in place.

123

Table 5.7 Trade situation, cost and risk level between periods and scenarios

 

 

Period 1 Period 2

(2004) (2005)
Scenario 1
(High risk) Base period, no trade, no SA Trade, high risk, low cost
Scenario 2

(Medium risk) Base period, no trade, no SA Trade, medium risk, medium cost

Scenario 1
(Low risk)

 

 

Base period, no trade, no SA Trade, low risk, high cost

 

Cost related parameters are also important for sensitivity analysis. As discussed in the last
section, it is difficult to estimate the compliance cost for a SA undertaken by Chinese
growers. Instead, cost is estimated according to the percentage increase in total cost if a SA
were to be implemented. Table 5.8 shows the average cost for growing apples in China and
in Shandong province in 2004. On average in China, total cost is estimated to be US$2,429
per hectare. The cost in Shandong province is used for the model, which is higher than
national average, US$4,422 per hectare. This is because that Shandong is the one of a few
provinces in China capable of exporting apples to the EU, Australia and Canada, which
have relatively higher requirements for food safety and standards. Among export markets
Russia and some other counties in Southeast Asia have less restrictive requirements than
Canada and the EU. Therefore, the production cost in Shandong is higher than the national
average. Cost consists of three parts: material cost, labor cost and land cost. Among these
three parts, only material cost (like pesticide) and labor cost (like bagging the apples) will
increase with the implementation of SA policy. The land cost or rent does not vary with
crop planted or production measures employed. Therefore, only production cost in

Shandong province is used to estimate the compliance cost, which is converted to 16.74

124

cents per lb in 2005.40 Since this cost has included the extra cost of compliance for
measures needed for producing apples for export purpose, it is assumed that the cost of
implementing SA for the U.S. market is another one to five percent higher, adding 0.167

cents to 0.837 cents per 1b.

Table 5.8: Apple production cost and SA compliance cost in China in 2004

 

 

(USS per hectare)
Item Average cost Shandofi

Material cost 1,154 2,414
Labor cost 1,109 1,862
Family labor 893 1,424

Hired labor 216 437
Total production cost 2,263 4,276

Land cost 166 146

Rent of lease land 11 l

Rend for own land 155 146

Total cost 2,429 4,422

 

Source: Author’s calculation. NDRC, 2005. Data was converted into U.S. dollars according to the exchange
rate 8.2768US$ per RMB in 2004 (RMB guide, www.mbguide.com).

Pest control cost due to pest infestation in the importing regions also needs to be estimated.
Similarly, cost is estimated indirectly based on percentage of total production cost. Table
5.9 provides the basic apple production cost data in Washington State.41 Cost is divided
into two parts, production cost and packing and marketing cost. Production cost for an acre
of apples is reported to range from $4,800 to $6,600 per acre in 2002. Greatest expenses are
labor for picking, pruning and hand fruit thinning. Packing and marketing costs add an

additional $4,410 to $5,250 per acre of production, about half of which is labor costs

 

40 Data in 2005 is obtained by adjusting the number in 2004 according to the production price index.
4' Washington State produced approximately 60 percent of U.S. apples between 2001 and 2005.

125

(Washington State University, 2002). Adjusted from the data in 2002, it is assumed that the
production cost for U.S. growers will range from $5,132 to $7,057 in 2004 and $5,381 to
$7,399 in 2005 based on the producer price index in the U.S. It is assumed that the pest
control cost will be one to five percentage of production cost in the case of pest outbreak
(Table 5.9).42 As for production loss and infestation rate in case of pest outbreak, estimates

range from one to three percent (Table 5.10).

As for other parameters like elasticity, the sensitivity results and estimations of Mexican
avocado case are applied or adjusted to Chinese apple case for simplicity. More detailed
application of the model (variables, parameters, and demand and supply calibration) is

described in Appendix 3.

Table 5.9: Apple production costs and pest control costs in the U.S. (USS lacre)

 

 

Item Minimum Average Maximum
Production cost in 2002 4,800 5,700 6,600
Packing and marketing costs including labor 4,410 4,330 5,250
Total COSt 9,210 10,530 11,850
Adjusted production cost in 2004 5,132 6,094 7,057
Adjusted production cost in 2005 5,331 6,390 7,399

 

Source: Washington State University, 2002; Glover, et al., 2002; Data in 2002 has been adjusted according to
Grower Price Index 2002-2005.

 

42 Only the extra cost due to pest outbreak of Peach Fruit Moth is considered.

126

Table 5.10: Estimated parameters in the sensitivity analysis

 

 

 

 

 

Description Parameter Values

Probabilities

Without SA*, without trade

(Period 1)

Pest infests during pre-or post harvest probl 0.000005

period

Pest survives during harvest or packing prob 2 0.00008

Pest survives during shipment pr0b3 0.7

Pest survives during port of entry pr0b4 0.2

inspection

Pest outbreak in suitable habitat prob 5 0.00005

environment

Probabilities Scenario 1 Scenario 2 Scenario 3
Trade with SA“ (Period 2)

Pest infests during pre-or post harvest probsal 0.00005 0.0000028 0.000005
period

Pest survives during harvest or packing probsa2 0.0008 0.00044 0.00008
Pest survives during shipment probsa3 0.9 0.8 0.7

Pest survives during port of entry probsa4 0.45 0.325 0.2
inspection

Pest outbreak in suitable habitat probsa5 0.0005 0.000275 0.00005
environment

Pest control cost in U.S. Scenario 1 Scenario 2 Scenario 3
Production loss from infestation ploss 3% 2% 1%
Percentage of production affected by pctef 3% 2% 1%
infestation

Pest control cost in period 1 controlcl 0.819 0.546 0.273
(Cents per lb)

Pest control cost in period 2 controch 0.651 0.434 0.217
(Cents per lb)

Extra compliance cost (China) Scenario 1 Scenario 2 Scenario 3
Compliance cost of implementing SA pcost 0.837 0.502 0.167

(Cents per lb)

 

127

Comparison of market equilibrium and welfare

Sensitivity analysis is performed based on currently available data and above estimations.
The purpose of this section is to find out how the market equilibrium quantity, price, and
welfare changes due to the change in selected parameters. First, welfare change, including
change in producer surplus, consumer surplus and extra pest control cost are compared
between period 1 and period 2 for each scenario. Appendix 3 explained in detail how the
consumer surplus and producer surplus are calculated. Next, in addition to the comparison
within a scenario between two periods, what is interesting is changes between different
scenarios with different cost and probabilities applied. This is the main purpose of the

sensitivity analysis.

Therefore, two parts (types) of analysis are performed in this section. First, within one
scenario, the analysis will focus on how the quantity of supply, demand and corresponding
prices change between two periods. Results for only one scenario (for example, scenario 2
with medium risk) are shown in Table 5.11 since the direction and trends in change
between periods are consistent among scenarios. Second, between alternative scenarios,
the analysis will focus on how simulated equilibrium change with the change in risk of
infestation and cost. Net welfare change differs between scenarios and the discussion of

whether U.S. consumers and apple producers gain or lose with the change are provided.

Comparison of market equilibrium between two periods (scenario 2)
Table 5.11 provides the market equilibrium results between two periods in scenario 2. At

the producer level, there is a decrease in quantity of U.S. apple supply, from almost 5340

128

million lbs in period 1 to over 4750 million lbs in period 2. This is also reflected by reduced
producer price, from 38.1 cents to 30.5 cents per lb. This is consistent with the change in
input data where both the quantity of supply and producer price are decreased in period 2.
The decrease can also be explained by the increase in risk of pest infestation and potential
pest control cost with the market opening for Chinese fresh apples in period 2. Producer’s
gross yearly revenue decreases by $585.6 million. And change in producer surplus is
$-3 84.838 million. For Chinese growers, producer price increases from 11.5 cents to 17.9
cents per lb. The difference is much higher than the difference in input data (55.7 percent
vs. 6.7 percent). It is because of the increase of export volume to U.S. market (under the
assumption).43 It indicates that market opening benefits Chinese growers. The expanded
export leads to the producer gross revenue increase by $17.4 million. For growers in
Canada and the rest of the world, there is no extra cost and pest infestation considered, the
change in equilibrium producer price and supply are also basically consistent with the

initial equilibrium.

From the consumer perspective, U.S. consumer demand for domestically produced apples
declines by 1 1.4 percent in period 2, which can be reflected by increased wholesale prices.
This is basically consistent with then trend in input data. Due to market opening, U.S.
consumer demand for Chinese apples increases to 91.73 million lbs with wholesale price at
72.4 cents per lb. U.S. demand for Canadian apples increases from 41.17 to 79.93 million
lbs even though the wholesale price increases by 7 cents. U.S. demand for apples from

Canada and the rest of the world are replaced by some shipments from China. In Canadian

 

43 . . . . . . . .
Note that the producer [31106 for Chinese growers 1n period 1 rs 1n the case that no trade exrsts. ln period 2, after market
opening, the increase in export volume leads to an larger increase in producer price for Chinese apple growers.

129

market, the input data shows that the Canadian demand for U.S. apples increases in the
second period. However, simulated equilibrium shows this demand decreased by 2.3
percent, which can also be reflected by the wholesale price with 3.3 percent’s increase. It
can be explained by the decrease in U.S. total supply in the second period and thus the
decrease in export quantity to Canada due to market opening. Decreased U.S. supply in
Canada is substituted with the apples from domestic production, China and the rest of the
world. Demands from these three regions all increase even though, in input data, the

demand from these regions all more or less decrease.

130

Table 5.11: Market equilibrium between two periods (scenario 2 with medium risk)

 

 

 

 

 

 

 

Period 1 Period 2 Change between periods
(No Trade) (With trade) (Period 2 minus period 1)
Input Resultsl Input Results Input value Results
value value
Quantity of Supply
(Million lbs)
The U.S. 5705.07 5339.914 5059.07 4750.530 -646.0 -589.4
(-11.3%) (-11.0%)*
Canada 565.38 573.085 596.23 616.674 30.9 (5.5%) 43.6 (7.6%)*
China 8.19 10.281 85.68 103.943 77.5 93.7
(946.2%) (91 1.0%)*
Rest ofthe world 196.24 218.542 160.48 187.410 -35.8 -31.1
' (-18.2%) (-14.2%)*
Producer prices
($/1b)
The U.S. 0.273 0.381 0.217 0.305 -0.056 -0.076
(-20.5%) (-l9.9%)*
Canada 0.216 0.267 0.216 0.278 0 0.‘011 (4.2%)
*
China 0.15 0.115 0.16 0.179 0.01 (6.7%) 0.064
(55.7%)2
Rest of the world 0.29 0.333 0.33 0.417 0.04 -0.084
(13.8%) (25.2%)
Quantity of demand
(Million lbs)
The U.S.
(Origin)The U.S. 5455.24 5119.120 4769.74 4534.843 -685.5 -584.3
(~12.6%) (-11.4%)*
Canada 35.12 41.173 74.47 79.929 39.4 38.8 (94.1%)"‘
(112.0%)
China 0 0 77.76 91.730 77.8 91.7“
Rest ofthe world 1 15.31 133.731 107.02 101.886 -8.3 (—7.2%) -31.8 (~23.8%)
Canada
(Origin)The U.S. 249.83 220.794 289.32 215.687 39.5 -5.1 (-2.3%)
(15.8%)
Canada 530.26 531.912 521.76 536.745 -8.5 (-1.6%) 4.8 (0.9%)
China 8.19 10.281 7.93 12.213 -0.3 (-3.2%) 1.9 (18.8%)
Rest of the world 80.93 84.811 53.46 85.523 -27.5 0.7 (0.8%)
' (-33.9%)

 

131

Table 5.11: Market equilibrium between two periods (scenario 2 with medium risk)

 

 

 

(continued)
Period 1 Period 2 Change between periods
(No Trade) (With trade) (Period 2 minus period 1)
Input Result Input Result Input value Results
value 5 value 8
Wholesale prices
(Sllb)
The U.S.
(Origin)The U.S. 0.53 0.644 0.57 0.662 0.04 (7.5%) 0.018
(2.8%)*
Canada 0.66 0.711 0.7 0.762 0.04 (6.1%) 0.051
(7.2%)*
China 0.66 0.630 0.7 0.724 0.04 (6.1%) 0.094
(14.9%)*
Rest of the world 0.52 0.563 0.54 0.627 0.02 (3.8%) 0.064
(l 1.4%)*
Canada
(Origin)The U.S. 0.73 0.844 0.78 0.872 0.05 (6.8%) 0.028 (3.3%)
'A‘
Canada 064 0.691 0.64 0.702 0 0.011 (1.6%)
*
China 0.69 0.660 0.59 0.614 -0.1 (—l4.5%) -0.046
(-7.0%)*
Rest of the world 0.8 0.843 0.77 0.857 -0.03 (-3.8%) 0.014 (1.7%)
Producer gross
revenue (Million 5)
The U.S.
(Origin)The U.S. 1557.48 2034.50 1097.81 1448.91 -459.7 -585.6
4 7 8 2 (-29.5%) (-28.8%)*
Canada 122.122 153.014 128.786 171.435 6.7 (5.5%) 18.4
(12.0%)*
China 1.229 1.182 13.709 18.606 12.5 17.4
(1015.5%) (l474.1°/o)*
Rest of the world 56.910 72.774 52.958 78.150 -4.0 (-6.9%) 5.4 (7.4%)

 

 

 

 

Notes: * denotes that the results are basically consistent with the input value. For the results that are not

consistent are explained in the text.

1 The results of the model are all from GAMS (General Algebraic Modeling System) software. It is
not statistical or econometric software, thus no statistical results like t-stat or p-value are provided.
The results are shown in the terms of “minimum”,”leve1”,”maximum” and “marginal”. The “min”
and “max” value are set in the input to restrict the output within a reasonable range. The “level” is
the optimal value and “marginal” shows the distance between the optimal value and the current
“level” value. All the results are shown as “.” For “marginal”, which means zero marginal, thus the
value in “level” is an optimal value. This is the same for all the results through Table 5.11to Table
5.13.

132

Comparison of market equilibrium and welfare between alternative SA (among scenarios)
Market equilibrium price, quantities and welfare change are listed in Table 5.12 and Table
5.13 for all three scenarios. The discussion will compare impacts of SA (along alternative
low risk, medium risk, and high risk) after imports from China are allowed (i.e. the second
period for each SA) since the change in risk of pest infestation and cost mainly occurs in
this period. For completeness, all results are provided, period 1 and 2 in Table 5.12 and

difference between periods in Table 5.13.

Compared with scenario 1, U.S. quantity of apple supply increases by 12.789 million lbs
(0.27%) in scenario 2 and another 12.69 million lbs (0.27%) in scenario 3.44 This is mainly
in response to increase in the production loss due to pest infestation. Producer price
received by U.S. apple growers reduces by 0.2 cents (0.65%) in scenario 2 and another 0.2
cents in scenario 3. U.S. producer gross revenue increase by $1.379 million in scenario 2
and continue to increase by another $1.376 million in scenario 3. Producer surplus is
increased by $0.892 million in scenario 2 and another $0.964 million in scenario 3. This
indicates that the lower risk has positive effect on U.S. growers. The more measures
included in a SA, the small probability of introducing a pest into the U.S., and thus the less
production loss. For Chinese growers, increased compliance cost leads the supply to
decrease by 2.40 million lbs (2.3%) in scenario 2 and another 2.33 million lbs in scenario 3.
Producer price correspondingly increases by 0.25 cents (1.7%) in scenario 2 and another

0.25 cents in scenario 3. Gross revenue declines 0.175 million dollars in scenario 2 and

 

44 . . . . . . .

Most of the differences among scenarios are linear because the cost and probab111ty vary in a linear way under our
assumption. For example, the production loss from infestation in the U.S. is three percent (scenario 1), 2 percent (scenario
2), and 1 percent (scenario 3).

133

0.172 million dollars in scenario 3. Increased compliance cost for Chinese growers has
negative effects on their revenue and surplus. There is not much difference in quantity of
supply and producer price for apples from Canada and the rest of the world since there is no

cost or pest risk considered for these two regions.

Quantity of U.S. apple demanded in the U.S. market increase 11.49 million lbs (0.3%) in
scenario 2 and another 11.39 million lbs in scenario 3. Corresponding wholesale price
decreases by 0.387 cents (0.6%) in scenario 2 and another 0.4 cents in scenario 3. Demand
for Chinese apples declines by 2.15 million lbs (2.3%) in scenario 2 (another 2.1 million
lbs in scenario 3) and wholesale price increases by 0.6 cents (0.8%) in scenario 2 (another
0.6 cents in scenario 3). For apples from Canada and the rest of the world, there is no
change in wholesale price and the changes in quantity of demand are both around 0.7%.
Total consumer surplus for U.S. consumers declines by $4.529 million in scenario 2 and
another $4.815 million in scenario 3. In Canadian market, there is no big change in
wholesale prices and quantity of demand. From scenario 1 to 2, Canadian consumers lose
$0.36 million in consumer surplus and another $0.384 million from scenario 2 to scenario

3.

Extra pest control cost is applied to U.S. apple growers in the second period, which should
be considered when calculating the net welfare change. Multiplying the simulated quantity
by cost per 1b, total simulated pest control cost is $10.234 million in scenario 1. The cost
increases to $20.522 million in scenario 2 and $30.866 million in scenario 3. The change in

producer surplus for U.S. growers increases $0.892 million from scenario 1 (high risk) to

134

scenario 2 (medium risk) and another $0.964 million in scenario 3 (low risk). 45 These
results are consistent with our expectation because U.S. growers are better off due to the
reduced risk and lower compliance cost. For Chinese growers, the producer surplus
decrease $0.142 million in scenario 2 and another $0.137 million in scenario 3. This
indicates that Chinese growers are worse off due to the increase number of measures
include in a SA, which is also consistent with our expectation. Net welfare change
decreases $3.277 million from scenario 1 to scenario 2, which means that the gain in
producer surplus is less than the loss in consumer surplus plus extra pest control cost. This
also means the change in welfare between two periods in scenario 2 is bigger than in

scenario 1. The same situation occurs from scenario 2 to scenario 3.

In general, the simulation results are consistent among three scenarios. The changes are
also in accordance with economic theory. Based on the above results, it can be concluded
that adjustments in risk probability and cost of compliance between scenarios have an
almost linear impact on prices and welfare. For most of the results, the changes in relative
value or the trend are more important than the absolute value. For instance, the welfare
change in absolute values are all around 500 million dollars for three scenarios, which is
not a small number compared with the annual apple import values of $215 million in 2004
(FAO, 2007) and the annual apple export values of $500 million (USDA/ERS, 2008).
However, this number is not so meaningful since it is calculated as a difference in welfare

between two periods in each scenario where most of the trade data do not exist in reality.

 

45 . . .

Note that the welfare change (including gross revenue, producer surplus and consumer surplus) is calculated as the
difference between welfares in two periods (before and after the trade). So the bigger welfare change means that the
welfare increase/decease more than that in another scenario.

135

What we are really interested in for this sensitivity analysis is to see the change between
scenarios. The results show that there is about $3.5 million difference in absolute value
between scenarios, which is reasonable compared with the trade value mentioned above. In
terms of relative values, the change is about 0.6 percent, which is also reasonable
considering the small amount of Chinese apples that are allowed to enter the U.S. by
assumption. The change in probabilities, compliance cost and pest control cost leads to

changes in market equilibrium and welfare, but the changes are reasonable.

136

Table 5.12: Market equilibriums simulation results under alternative SA

 

 

 

 

 

Scenario 1: Scenario 2: Scenario 3:
High risk Medium risk Low risk
Value Value Change’ Value Change
Quantity of Supply
(Million lbs)
Period 1 (No Trade, no SA)
The U.S. 5325.341 5339.914 14.573 5354.603 14.689
Canada 574.622 573.085 -1.537 571.544 -1.541
China 10.505 10.281 -0.224 10.063 -0.218
Rest of the world 219.831 218.542 -1.289 217.258 -1.284
Period 2 (Trade under hypothetical SA)
The U.S. 4737.741 4750.530 12.789 4763.215 12.685
Canada 618.147 616.674 -1 .473 615.214 -1.46
China 106.341 103.943 -2.398 101.613 -2.33
Rest of the world 188.344 187.410 -0.934 186.484 -0.926
Producer prices
(cents/lb)
Period 1 (No Trade, no SA)
The U.S. 38.322 38.116 -0.206 37.910 -0.206
Canada 26.702 26.666 -0.036 26.630 -0.036
China 11.168 11.519 0.351 11.870 0.351
Rest of the world 33.391 33.316 -0.075 33.240 0076
Period 2 (Trade under hypothetical SA)
The U.S. 30.656 30.488 -0.168 30.322 -0.l66
Canada 27.785 27.765 -0.02 27.745 -0.02
China 17.620 17.869 0.249 18.120 0.251
Rest of the world 41.708 41.689 -0.019 41.672 -0.017
Quantity of demand
(Million lbs)
Period 1 (No Trade, no SA)
The U.S.
(Origin)The U.S. 5106.185 5119.120 12.935 5132.155 13.035
Canada 41.598 41.173 -0.425 40.749 -0.424
China 0.0 0.0 0 0.0 0
Rest of the world 134.903 133.731 -1.172 132.565 -1.166
Canada
(Origin)The U.S. 219.156 220.794 1.638 222.448 1.654
Canada 533.024 531.912 -1.112 530.795 --1.1 17
China 10.505 10.281 -0.224 10.063 -0.218
Rest of the world 84.928 84.811 -0.117 84.693 -0.118

 

 

137

 

Table 5.12: Market equilibriums simulation results under alternative SA (continued)

 

 

 

 

 

Scenario 1: Scenario 2: Scenario 3:
High risk Medium risk Low risk
Value Value Chafie Value Change—
Period 2 (Trade under hypothetical SA)
The U.S.
(Origin)The U.S. 4523.357 4534.843 11.486 4546.229 11.386
Canada 80.551 79.929 -0.622 79.317 0612
China 93.884 91.730 -2.154 89.638 -2.092
Rest of the world 102.673 101.886 -0.787 101.108 -0.778
Canada
(Origin)The U.S. 214.384 215.687 1.303 216.986 1.299
Canada 537.596 536.745 -0.851 535.897 -0.848
China 12.457 12.213 -0.244 1 1.975 -0.238
Rest of the world 85.671 85.523 -0.148 85.376 -0.l47
Wholesale prices
(Cents/lb)
Period 1 (No Trade, no SA)
The U.S.
(Origin)The U.S. 64.841 64.362 -0.479 63.883 -0.479
Canada 71.102 71.066 -0.036 71.030 -0.036
China 62.322 62.980 0.658 63.638 0.658
Rest of the world 56.392 56.316 -0.076 56.240 -0.076
Canada
(Origin)The U.S. 84.841 84.362 -0.479 83.883 -0.479
Canada 69.102 69.066 -0.036 69.030 -0.036
China 65.322 65.980 0.658 66.638 0.658
Rest of the world 84.392 84.316 -0.076 84.240 -0.076
Period 2 (Trade under hypothetical SA)
The U.S.
(Origin)The U.S. 66.607 66.220 -0.387 65.839 -0.381
Canada 76.185 76.165 -0.02 76.145 -0.02
China 71.788 72.371 0.583 72.957 0.586
Rest of the world 62.708 62.689 -0.019 62.672 -0.017
Canada
(Origin)The U.S. 87.607 87.220 -0.387 86.839 -0.381
Canada 70.185 70.165 -0.02 70.145 -0.02
China 60.788 61.371 0.583 61.957 0.586
Rest of the world 85.708 85.689 -0.019 85.672 -0.017

 

 

 

138

Table 5.13: Welfare comparison for alternative scenarios

 

 

 

 

Scenario Scenario 2 Scenario 3

1 (Medium risk) (Low risk)

(High

risk)

Value Value Change Change Value Change Change

(unit) We) (mm M)

Change in
Cross
revenue
The US, -588.389 -587.01 1.379 -0.23% -585.634 1.376 -0.23%
Canada 18.321 18.398 0.077 0.42% 18.489 0.091 0.49%
China 17.564 17.389 -0.175 -1.00% 17.217 -0.172 -0.99%
Rest of the 5.149 5.319 0.17 3.30% 5.495 0.176 3.31%
world
Change in
producer
surplus
The US, -385.730 -384.838 0.892 -0.23% -383.874 0.964 -0.25%
Canada 6.464 6.535 0.071 1.10% 6.616 0.081 1.24%
China 3.769 3.627 -0.142 -3.77% 3.490 -0.137 -3.78%
Rest of the 16.972 16.995 0.023 0.14% 17.022 0.027 0.16%
world
Change in
consumer
surplus
The US, -100.069 -104.598 -4.529 4.53% ~109.413 4.815 4.60%
Canada -12.399 -12.759 -0.36 2.90% -13.143 -0.384 3.01%
Pest control 10.234 20.522 -0.360 -3.52% 30.866 -0.384 -1 .87%
cost (US)
Net welfare
Change
The US, -496.033 -509.958 -3.277 0.66% -524.153 -3.467 0.68%
Canada -5.935 -6.224 -0.289 4.87% -6.527 -0.303 4.87%

 

 

 

139

5.4 Summary

This chapter first evaluates methods for modeling and quantifying non-tariff barriers (N TB)
to trade. Several methods currently exit: inventory-based and survey-based approaches are
used to identify the importance and list the problems of NTB to trade; gravity models, a
simple econometric model, is used to capture the “boarder effect”; price-wedge approach
converts the NTB impact into a value by calculating a tariff equivalent; cost-benefit
method evaluates impact by comparing the cost and benefit from a NTB to trade; partial
and general equilibrium models evaluate the impact by solving utility or demand functions
and cost/profit function. The partial equilibrium approach was recently applied to Mexican

avocado case by Peterson and Orden.

This chapter provides a more detailed evaluation for a partial equilibrium model as a
method to link economics to the pest risk assessment for the Chinese fresh apple case. The
lack of an official SA policy and Chinese apple imports limits direct adaptation, which also
indicates that the partial equilibrium model is very data-intensive. Following
Peterson/Orden’s logic and method, information and data for key variables of the model
are obtained, which are crucial for estimation. However, pest risk related parameters, like
probability of pest infestation and corresponding compliance cost cannot easily be
estimated due to data limitations. Even the economic parameters such as demand elasticity
and wholesale prices are difficult to estimate because of the complexity of apple
production and consumption characteristics. Despite these limitations, this partial

equilibrium framework is still a feasible and useful method to link economic evaluation to

140

pest risk assessment as a general approach. Case-to-case difference and data sensitivities

may limit feasibility for empirical assessment as a template for evaluation.

At last, a sensitivity analysis for selected parameters is performed. Three parameters of
prime interest are selected: probability of pest infestation, compliance cost for Chinese
apple growers, and pest control cost for U.S. growers in the case of pest infestation.
According to the simulation results, welfare is first compared between two periods, before
trade (no SA) and after trade (under SA). Consistent with economic theory, results shows
market opening has a negative effect on U.S. growers and a positive effects on Chinese
growers. Then differences between scenarios are discussed. From scenario 1 to 3, with the
risk and pest control cost being reduced, the loss in producer surplus is also reduced. Lower
risk has positive effects on U.S. growers and negative effects on Chinese growers since the
compliance cost increases with the increased number of measures required in a SA. Results
are consistent among scenarios and it can be concluded that adjustments in risk probability
and cost of compliance between scenarios have an almost linear impact on prices and

welfare.

141

CHAPTER SIX

SUMMARY AND CONCLUSIONS

The potential for fresh apple imports from China is very contentious in the U.S. It is likely
that any future imports will be governed under the regulation of a Systems Approach (SA)
to manage the risk of introducing exotic pest(s) or disease(s). This study consists of three
parts: first an overview of the current Chinese fruit market and supply chain organization,
which is the basis for the study; second, development of a hypothetical SA policy listing
the phytosanitary measures likely to be included to control pest risk; and last, evaluation of
methods for modeling and quantifying the SA policy for the Chinese case. This chapter will
draw some main conclusions for the study and provide suggestions for future research

work.

6.1 Summary

The SPS agreement provides guidelines for WTO members in implementing sanitary and
phytosanitary measures to mitigate risk of introducing exotic invasive species associated
with traded commodities. Pest Risk Analysis is an important component for trading
countries in the implementation of the SPS Agreement. As one type of multi-step SPS
regulation, the Systems Approach, which includes at least two mutually independent
measures, is recommended by WTO as one of the International Standards for Phytosanitary
Measures. The multiple independent mitigation measures in a Systems Approach together

increase the probability of preventing pest entry and establishment.

142

SPS issues, as one of the technical barriers to trade, are determined not only by scientific
assessment but also by political constraints. According to FAO/IPPC, conclusions from the
Pest Risk Analysis are the basis for implementing sanitary and phytosanitary measures.
Within WTO, members are allowed to introduce their own SPS requirements to reach an
appropriate level of protection, while not too restrictive to trade. However, in reality, SPS
barriers might be used by policy-makers as a shield to protect a country’s domestic industry
from international competition. Compared with traditional tariff barriers, SPS barriers and
other non-tariff barriers might have greater impact on restricting trade, which involves

scientific assessment.

As the largest apple producing country in the world, China is asking for consideration to
export fresh apples to the U.S. Even though the export market has a limited market share in
terms of total production volume in China, there is huge potential for future development
with the support of Chinese government and foreign partners. More support is needed for
the development of coordinated supply chains in new emerging for both domestic and
export markets. Chinese apples that enter currently enter the global horticultural market
(for example, to Canada) are mainly supplied by highly coordinated supply chains. For
millions of small-scale farmers, which dominate the traditional fruit markets, there are
many obstacles to getting involved with these supply chains except through contract
farming. From both the government and industry point of view, a well-developed

administrative system is needed to fru'ther guide the development of horticultural markets.

143

Since there is currently a ban on fresh apple exports from China to the US, no official
systems approach exists. Expectations, however, are that the ban will eventually be lifted
and replaced with a less restrictive policy to govern invasive species risk. Any economic
assessment method for such a policy will first need to determine which steps might be
included. By evaluating current like-product existing policies including corresponding pest
risk assessment reports, a list of pests of concern associated with potential U.S.-China fresh
apple trade is obtained and a hypothetical systems approach for Chinese fresh apples is
developed. This study does not attempt to determine the validity of risk reduction or pest
exposure probabilities related to individual steps already in use for other like-policies, but
rather draw on results-to-date that have been accepted within the political and scientific

process.

A hypothetical SA provides a general idea of what kinds of phytosanitary measures might
be included to prevent the introduction of exotic pests or diseases once trades begins. Like
any policy adjustment, potential future trade, with or without transfer of pests, will have
economic impacts on the U.S. and Chinese apple industries and consumers. Relatively
little research has been done using quantitative analysis to link economics to pest risk
assessment. Among all the methods, partial equilibrium model has proved to be a feasible
method and was recently applied to Mexican avocado case by Peterson and Orden. The
lack of an official SA policy and Chinese apple imports limits adaptation of this model to
Chinese fresh apple case, which also indicates that the partial equilibrium model is very
data-intensive. Even the economic parameters such as demand elasticity and wholesale

prices are difficult to estimate because of the complexity of apple production and

144

consumption characteristics. Despite these limitations, this partial equilibrium framework
is still a feasible and useful method to link economic evaluation to pest risk assessment as a
general approach. Case-to-case difference and data sensitivities may limit feasibility for
empirical assessment as a template for evaluation. A multi-scenario sensitivity analysis is
conducted with different risk probability and cost of compliance applied. The results shows
that the adjustments in risk probability and cost of compliance between scenarios have an

almost linear impact on prices and welfare.

Even though the phytosanitary problem is a concern for U.S. to import Chinese fresh
apples, the pest control capacity of China is improving. Laws and regulations for fruit
safety do exits and new laws/regulations are under the construction by Chinese regulators.
China is experiencing the transformation from traditional market to new emerging
supermarket and export markets and from traditional supply chain to new coordinated
supply chain. Establishment of centralized procurement system, tacking facilities, industry
associations and certification services are all helping to improve the quality and pest
control capacity. The Chinese government is also trying their best to help growers open the
international market by providing policy priority and support. In addition, Chinese apples
have been accepted by Canada and Australia under certain pest risk management policy,
which indicates that China is capable to meet the high standards and phytosanitary
requirements in these countries. The potential for U.S. import is still optimistic especially

under the regulation of a specific Systems Approach policy.

145

6.2 Conclusions

A static multi-scenario partial equilibrium model, as an analytical tool for linking
economics to pest risk assessment, is data intensive and sensitive to case-to-case
differences. By incorporating pest outbreak parameters, scientific pest risk data are crucial
for the model. For example, through the case of Chinese fresh apples, many data are related
directly or indirectly to pest risk assessment, including the probabilities of a pest being
introduced, spread, and established, and compliance cost for U.S. and China apple growers
and government agencies. However, most pest risk related data are missing and difficult to
collect, which makes the empirical analysis incomplete. In addition, empirical case-to case
differences is another factor that limits the feasibility of the model to Chinese apple case.
Compared with avocado, apple is a more widely consumed and produced fruit, which
makes the estimate of production loss and welfare loss more difficult. Other critical inputs
like regions, pests, and relevant government agencies vary across cases. More work is

needed to adapt the partial equilibrium model as a general empirical analytical tool.

Economic evaluation of an on-going political trade debate is complicated from both
political and scientific points of view. Compared with avocado case, potential import of
Chinese fresh apples is still in the early stage of policy making, therefore, there is no trade
or official SA policy existing. Lack in data of public policy, pest risk assessment, trade
volume and price makes the empirical study difficult. While some of these data have been
estimated in this study, more data are unable to obtain or estimated due to the lack of policy

and scientific pest risk assessment. The sensitive political nature of the issue even limits

146

information available through interviewing those government and industry in both the U.S.

and China.

Data unavailability in China itself makes the empirical analysis more difficult. On one
hand, apples are grown in most of provinces (25 of 34) in China. Even focusing on some
big producing area, coexistence of different market forms and supply chain organizations
makes implementation of phytosanitary measures more difficult. Directly collecting
compliance cost of SA measures is difficult. On the other hand, compared with the U.S.,
China has relatively less developed data resource systems either for academic or for
industrial purpose. Chinese government has just started setting up economic data system.

Limited research work have been done on market price or cost analysis for apples.

Sensitivity analysis is a good Option to apply the model to see how the results will vary
with the change in some particular parameters given that fully adapting the model is
impossible. Due to data limitation and other difficulties, to fully apply the model to
Chinese apple case is really hard at this point. However, by making reasonable assumption
and estimations, results of sensitivity are still helpful for analysing and even predicting.
The flexibility in data assumption and results makes the sensitivity analysis a good

transition to fully adaptation of the model.

The partial equilibrium model is not sensitive to the probability of pest infestation, the
compliance cost for Chinese growers and pest control cost for U.S. growers given a small

amount of apples import in to the U.S. With increase in the strength of SA regulation, the

147

probability of introducing a pest into the U.S. from China is decreasing. Correspondingly,
the compliance cost for Chinese growers are increasing since more phytosanitary measures
are required and the pest control cost are decreasing due to the decrease in risk. However,

the changes do not have significant effect on the market equilibrium and welfare.

6.3 Recommendations for future research

Economic evaluation of SA policy for Chinese apple case is possible but more work is
needed. The partial equilibrium model is a theoretically and conceptually feasible method
for linking the economic assessment with scientific pest risk assessment. To adapt this
model to Chinese fresh apple case, the focus of the future work would be data collection
and estimation to overcome existing empirical limitations. Results and conclusion from the
study will provide important information for both U.S. and Chinese policy makers seeking
to reduce invasive species risk. The method of static, multi-period partial equilibrium
model provide a general framework for linking economics to pest risk assessment for the
case of Chinese fresh apple imports into the U.S. The evaluation of a SA provides insight

about how economic analysis and pest risk assessment can be linked.

148

Appendix 1: Comparison of pests of concern from reference policies

 

 

Scientific Name Common Name U.S. Australia Canada Canada Argentina
(Pears) (Pears) (Pears) (Apples) (Apples and
Pears)
Aclerisfimbriana Fruit tree tortrix /
Acrocercops Pear bark miner \/
astaurota
Acrobasis Pear fruit moth I
pyrivorella
Adoxophyes Summer fruit / J J
orana IOTU'IX
(Fisher)
Alternaria Black Spot 1/ I ./
gaisen(=kikuchia (Nagano) Of
It a) Japanese Pear
Alternaria spp. Causative agent 1/ J
of Chocolate
spot of Ya pears
Amphitetranychu Hawthorn ./
s viennensis Splder mrte
(Zacher)
Anarsia Peach Twig J
Lineatella Borer
Bactrocero Oriental Fruit / J J
Dorsal is Fly
(Hendel)
Cacopsylla Pear wood /
pyrisuga Psylla
Carposina Peach Fruit / I ./ ,/ J
sasakii(=niponen K2): )
- a umura
szs)
Ceroplastes Japanese Wax J
Japonicum Scale
C eroplastes Ruby Wax J
Ruhens Scale
Choristoneura Common apple /
longicellana leaf toner
Conogethes Yellow Peach / l J J
(Dichocrocis) ”c1501“
punctiferalis ( ueme)
C ydia funebrana ‘/
(T reitschke)
Cydia inopinata Manchurian / .r ./
(Heinrich) codlmg moth

 

149

Appendix 1: Comparison of pests of concern from reference policies (continued)

 

 

Scientific Name Common Name U.S. Australia Canada Canada Argentina
(Pears) (Pears) (Pears) (Apples) (Apples
and Pears)
Diaporthe Twig blight. J J
tanakae (Kobaryash1&
Sakuma)
Diaspidiotus Pear Oyster Scale J
ostreaformis
Dolycoris 3'06 bug ‘/
baccarum
Ectomyelosis Pear Fruit Moth J
Pyrivorella
Euzophera Pyralid moth J
pyriella
Grapholitha Manchurian fruit J
inopinata mom
Grapholita Oriental Fruit J J
molesta Mom
(Busck)
Gymnosporangiu Japanese pear rust J J J

m asiaticum

Gymnosporangiu Eur0pean pear J J
m sabinae “‘5‘
Halyomorpha Yellow-brown J
picus Stink bug
Holotrichia Large black J
parallela Chafe’
Holotrichia Brown chafer J
titanis
Hoplocampa Pear sawfly J
pyricola
Leucoptera Pear leaf blister J J J J
malifoliella mom

(Costa)

(=scitella)

 

150

Appendix 1: Comparison of pests of concern from reference policies (continued)

 

Scientific Name

Lopholeucaspi
sjaponica

Lymantria
dispar

Monilinia
fi'uctigena
Monilinia mali

Lopholeucaspi
sjaponica

Mycosphaerell
a pomacearum
(C 0rd. ) Sacc.

Numonia(=My
elois)
pirivorella

Pandemis
heparana

Phomopsis
fukushii

Physalospora
piricola

Pseudococcus
comstocki

Rhynchites
coreanus

Rhynchites
foveipennis
(F airm)

Common Name

Pear white scale

Gypsy moth

Brown rot
(Honey)

Apple blossom
blight

Pear white scale

Leaf spot

Pear fruit moth
(Matsumura)

Pear rustry skin
viroid

Apple brown
tortrix

Japanese pear
canker

Physalospora
canker

Comstock’s
mealybug

Pear leaf
weevil/curculio

Korean pear
weevil/curculio

U.S.
(Pears)

Australia
(Pears)

J

Argentina
(Apples and

Pears)

 

151

Appendix 1: Comparison of pests of concern from reference policies (continued)

 

 

Scientific Name Common Name U.S. Australia Canada Canada Argentina
(Pears) (Pears) (Pears) (Apples) (Apples and
Pears)
Rhynchites 1313311856 Pear V V
heros (Roel) weev"
Spilonota Eye spotted bud J
albicana mom
Spilonota Tipshoot tortrix J
lechriaspis
Spilonota Eye sported bud V
ocellana mom
Sphanostigma Powdery Pet!r V
iakusuiense aph‘d
Stephanitis Pear lace bug V
nashi
Tetranychus Kanlawa Spider V V
kanzawai "me
(Kishida)
Tetranychus A red spider J
truncatus mite
(Ehara)
Tetranychus Hawthorn spider J J J J
viennensis mite
(Zacher)
Urochela Pear stink bug J
luteovaria
Vespa mandarinia Paper wasp J
Venturia Japanese pear J J
nashicola scab

 

Source: Policies and regulations listed in Table 4.3.

Notes: The U.S. treats Gymnosporangium asiaticum and Gymnosporangium sabinae as the same pests, but
they are shown here as two pests. Therefore, there are actually 18 pests of concern in appendix 1 for US
rather than 17 as mentioned in table 4.4.

152

Appendix 2.1: Comparison of reference polices: pre-harvest measures
Field certification/management (treatments, bio-control, etc)

 

Argentina (Apples and
Pears)

Australia(Pears)

Canada (Apples)

Canada (Pears)

U.S. (Fragrant Pears)

U.S. (Ya Pears)

From orchards registered by AQSIQ and designated by both SENASA and
AQSIQ; Monitoring for Baclrocera dorsalis in the Orchard within a
surrounding area of 1 km radius

Pear must be from registered orchards by AQSIQ in the designated export
areas; Registered growers must implement an orchard control program; Fruit
fly monitoring system; the traps must consist of cue lure, trimedlure and
methyl eugenol; a minimum of one methyl eugenol trap should be placed in
each export orchard and any village present

Approved orchards by AQSIQ in Shaanxi and Shandong provinces in China;
Field inspection and/or chemical control for fruit boring moths after the bags
have been removed

Approved orchard by AQSIQ from Hebei, Shandong and Xinjiang Province
in China; In registered orchards, cultural practices, chemical controls and
field inspection (or monitoring) programs are carried out

Pears must have been grown in the Korla region of Xinjiang Province in a
production site that is registered with the national plant protection
organization of China (AQSIQ); Within 30 days prior to harvest, inspect the
registered production site for signs of pest infestation and allow
USDA/APHIS to monitor the inspections

 

Protected conditions

 

Argentina (Apples and
Pears)

Australia(Pears)

Canada (Apples)

U.S. (Ya Pears)

The export pear shall be conducted bagging measure until packinghouse; The
export apple shall be conducted bagging measure and the bag must not be
removed more than 4 weeks prior to harvest

Bags must be placed over Ya pears, Sand pears and Asian Pears grown in
Shandong and Shaanxi Provinces when the fruit is no more than 2.5 cm in
diameter; Bags must be removed in the packing house away from the packing
line; No fallen fruit is to be collected for export

Option a: Apples must be bagged without holes just afier flowering, provided
firngicide application has occurred during flowering and until more than four
weeks prior to harvest

Bagging the pears on the trees

 

Vector-and pathogen-free areas, places or sites of production

 

Argentina (Apples and
Pears)

Australia(Pears)
Canada (Pears)

U.S. (Fragrant Pears)

Apples are from area free of Baclrocera dorsalis and from free production
site for Gymnsporangium asiaticum; With 1 km from the fruit production
place, no transiting host tree

AQSIQ must ensure that telial hosts of Japanese pear and European pear rust
occurring within 2km of registered orchards are removed

Certain control program are carried out to ensure fieedom from quarantine
pests

All propagative material introduced into a registered production site must be
certified free of the pests listed.

 

Testing and subsequent elimination of infected component

 

Australia(Pears)

 

If either Japanese pear rust or European pear rust is found, fi’uit from the
export orchards within 2 km of the infected site will not be accepted into
Australia; If brown rot is detected in any designed export area, if the orchards
are infected with Japanese pear scab, or if more than 0.5% of fruit are infected
with black spot at the time of blossoming, those orchards will be excluded
from the export program; the notification of unusual weather conditions
occurrence resultig in brown rot, black spot or scab disease

 

153

 

Appendix 2.2: Comparison of reference polices: harvest requirements

 

Culling, inspection or selection

 

Argentina (Apples and Field inspection or monitoring and/or chemical control for fruit boring moths
Pears) after the bags have been removed; Apple should be selected, stored and
processed to ensure fi'uit without insects, mites, rotting fruit, leaves, twigs,

roots and soil

 

 

 

Harvest technique and handling

Australia(Pears) Bagging the pears (except for Fragrant pear) when the hit is no more than
2.5 cm in diameter

 

U.S. (Ya Pears) Bagging the pears through the harvest and during their movement to the
packinghouse ~

 

 

 

154

Appendix 2.3: Comparison of reference polices: Post-harvest and handling measures
(including storage and packing)

 

Treatment to kill, sterilize or remove vectors or pathogens (fumigation, irradiation, cold,
controlled atmospheres, washing, brushirg, waxing, dippintheat, etc.)

 

 

 

Argentina (Apples and
Pears)
Canada (Apples)

U.S. (Fragrant Pears)

U.S. (Ya Pears)

 

Monitoring for Baclrocera dorsalis in the packinghouse within a
surrounding area of 1 km radius

Option b for un-bagged apples: cold treatment followed by fumigation
with methyl bromide; packing facilities are maintained free of pests, soil,
plant debris and discarded or infested fruit;

All packing houses must be situated within the area subject to a fruit fly
monitoring (trapping) program; Fragrant pears must be held in a cold
storage facility while awaiting export

Cold treatment for Bactrocera dorsalis

 

Inspection and grading

 

Argentina (Apples and
Pears)
Australia(Pears)

Canada (Apples)
U.S. (Fragrant Pears)

Packing and storage should be subject to quarantine supervision by
AQSIQ; 2% sampling

Joint inspection for all consignments by CIQ and AQIS; The AQIS
sampling protocol requires inspection of 600 units for quarantine pests, in
systematically selected samples per homogeneous consignment or lot
Post-Harvest Inspection at 5% level and graded

After harvest, inspect the pears for signs of pest infestation and allow
USDA/APHIS to monitor the inspections

 

Sanitation, including removal of parts of the host

 

Argentina (Apples and
Pears)
Australia(Pears)

Canada (Apples)

 

The apples should be stored separately in the chamber to avoid
re-infestation

Pears destined for Australia are not mixed with fruit for other destinations;
Culled fruit must be removed fi’om the packing house at the end of each
day

Safeguard from contamination from orchards or other crops during

packing and loading

 

 

 

Certification of packing facilities

 

Argentina (Apples and
Pears)

Australia(Pears)

Canada (Apples)

 

From packinghouses registered by AQSIQ and designated by both
SENASA and AQSIQ; Packing box should have marking in English
indicating the relative production information; the package of apples
should be clean the unused

A11 packing houses must be registered with AQSIQ; Packing houses must
be well-lit, and the storage area must be secure to prevent infestation after
packing; Pears must be packed into clean, new cardboard or cartons; No
fresh or dried packing material of plant origin is to be used; Only
processed or synthetic packing material can be used; Fruit must be packed
and directly transferred into a shipping container sealed with a AQSIQ seal
and not opened until the container reaches its destination; OR, fi'uit must
be packed into cartons with screened ventilation holes; the screening mesh
size must not exceed 1.6mm and not less than 0.16 strand thickness; OR
fruit must be packed into cartons and the pallet of cartons must be
shrink-wrapped in plastic on all six sides

Apples should be packed and stored in a approved facility only for export
to Canada; The facility must be clean Each carton is clearly labeled in
Chinese and English or French and marked with the code number of each
approved orchard

 

155

 

Appendix 2.3: Comparison of reference polices: Post-harvest and handling measures
(including storage and packing) (continued)

 

Certification of packing facilities

 

Canada (Pears) Clearly labeled in Chinese and English or French; Specify the type of pears
and the place of origin; Marked with a number representing the code of
each approved orchard; Each carton shall be sealed with a sticker

U.S. (Fragrant Pears) Must be packed in cartons

U.S. (Ya Pears) Packing houses are only used for Ya pears in intact bags and in sealed
containers from registered growers

Testing with subsequent elimination of infected component

 

U.S. (Fragrant Pears) Upon detection of large pear borer, pear curculio or Japanese apple
curculio, USDA/APHIS may reject the lot or consignment

 

 

 

156

Appendix 2.4: Comparison of reference polices: Shipping and distribution measures

 

Reference policies

ln-transit or on-arrival treatment or processing

 

Argentina (Apples and
Pears)
Australia(Pears)
Canada (Apples)

Canada (Pears)

U.S. (Fragrant Pears)

 

Transportation should be subject to quarantine supervision by AQSIQ;
Transportation under the commercial cold treatment

The fruit must remain within intact bags and be covered by a tarpaulin if
they are shipped through an unmonitored area

The apples must be appropriately stored and transported free of quarantine
pests and free of soil, sand, leaves, and plant debris

Shipment must be free of visible pests and signs and symptoms of pests,
soil, leaves and plant debris; Shipment will be subject to inspection and
sampling on arrival

Must be shipped in insect-proof containers

 

Restrictions on end use, distribution and periods, and ports of entry restrictions

 

Argentina (Apples and
Pears)

Australia(Pears)

Canada (Apples)

Canada (Pears)

U. S. (Fragrant Pears)

U.S. (Ya Pears)

 

The Phytosanitary Certificate issued by AQSIQ with 2% sampling;
AQSIQ provide the sample of Phytosanitary Certificate in advance to
SENASA

CIQ will issue a Master Phytosanitary Certificate for all pre-export
inspected lots

A permit to import issued under the Plant Protection Regulations, is
required during the trial importation period; A Phytosanitary Certificate
issued by either the Shandong or Shaanxi Entry-Exit Inspection and
Quarantine Bureau within 14 days prior to shipment and bear the official
stamp of AQSIQ

A permit to import issued under the Plant protection regulation is required
for the importation of Asian pears from Shandong and Hebei Province;
Not required for the importation of Fragrant pears fi'om Xinjiang
Province; A phytosanitary certificate issued within 14 days prior to
shipment;

Each shipment of pears must be accompanied by a phytosanitary
certificate; Fragrant pears may be imported only under a permit issued by
USDA/APHIS;

Phytosanitary certificate issued by the Chinese Ministry of Agriculture

 

Inspection and/or testing with subsequent elimination/denial of entry

 

Argentina (Apples and
Pears)
Australia(Pears)

Canada (Apples)

Canada (Pears)

 

After the arrival, SENASA will verify the documents, the labeling and the
corresponding phytosanitary inspection

If brown rot, black spot, or scab is intercepted on imported fruit, DAF F
reserves the right to implement remedial measures as deemed necessary
before trade commences next season; On arrival, AQIS will examine the
documentation for consignment verification prior to release from
quarantine

On arrival, inspection of all shipments during the trial importation;
inspection of random sample of 5% (further 5% if necessary) of the
contents of the inspected shipment

During Trial Period, 100% of the pear shipment will be inspected; then a
random sample of 5% of the contents of the shipment will be examined

 

157

 

 

 

Appendix 2.4: Comparison of reference polices: Shipping and distribution measures
(continued)

 

Sanitation (freedom from contamination of carriers)

 

Canada (Apples) Safeguard from contamination from orchards or other crops during the
transportation; Shipments free of other visible pests, signs and symptoms
of pests, soil, sand, leaves, and plant debris

U.S. (Fragrant Pears) Safeguard from pest infestation during transport

 

 

 

158

Appendix 3: Model calibration for sensitivity analysis

This section provides the main calibration for demand and supply for sensitivity analysis.
By adapting and adjusting the avocado partial equilibrirun model (Table 5.2), the most
important model equations are described below. Notations for variables and parameters

mentioned earlier are applied here.

Computing frequency of pest outbreak

The frequency of pest outbreak is computed as the products of the probabilities that the pest
will in introduced into an importing regions at different periods, the percentage of
suspected area in importing country, and the quantity of import. In period 1, it is assumed
that there is still small probability that the pest could be introduced along with other fruits.
However, the frequency is zero since U.S. import of Chinese apples is banned. Like
discussed earlier, the frequency is adjusted since quantity unit used in the model is million
lbs. There is about 25,000 cartons tray pack in a million lbs (net weight 40 lbs per cartons

tray pack).

(1)
fiequS’ p = problUS’ p * probZUs, p * prob3US’ p * prob4US’ p * prob5US’ p
*suscethS’ p * D1US,CH * 25000

(2)
freq2US’ p = probsalUS’ p * probsaZUS’ p * probsa3US’ p * probsa4US’ p * probsa5US’ p
*suscepti, p * D2i,CH * 25000

Where freqlus‘p, freq ZUS, p = the frequency of pest outbreak for demand region i for

particular pest in period I and period 2. i refers to demand
regions, the U.S. (US) and Canada (CA). p refers to pest “Peach
Fruit Moth ”.

prowl/5,1,, probZUShp, prob3US’p, prob4US’ p and prob5np = probability of

pest infestation during pre-or post harvest period, during

159

harvest or packing, during shipment, during part of entry
inspection and in suitable habitat environment in the case of
without trade and without SA in place;

probsalUSJ, , probsaZUSJ, , PrObsa3r/S,p a Pr 012504115, p and pr obsa 505, p

= probability of pest infestation during pre-or post harvest period,
during harvest or packing, during shipment, during port of entry
inspection and in suitable habitat environment in the case of
without trade and without SA in place;

suscethS’ p = Proportion of population in susceptible areas;

DIUS,CH 9 DZUS,CH = calibrated Chinese apple imports to the U.S.

Supply calibration:

A constant Elasticity of Transformation (CET) production possibility frontier is used to
capture sales between different situations (periods). Total amounts of U.S. apple supplies
available in each U.S. region can be calculated as the sum of utilized production of the
states included in each region. Supply calibration for each supply regions that are used in

the GAMS code is provided below.

CET revenue functions for different supply regions are given as:

(3) R(pp1, pp2, V) = V[1—(fi'eql +fieql)*ploss * pctef]

l
* {6(ppl - cost)'B +(1— 6)(pp2 — cost)'6 }/'B

Where V = supply of factor endowment;
freq], frqu = frequency of pest outbreak.
ploss = production loss fi'om infestation;
pctef = percentage of production aflected by infestation
pp], pp2 =calibrated producer price in period 1 and period 2;

COS! = compliance cost or pest control cost for supply regions;
5 = shift parameters for CE T revenue function for each supply region;
,6 = exponent parameter that determines the elasticity of transformation

160

By taking the derivative of above revenue equation to the producer price, the conditional

supply function for different supply regions are derived as following. In period 1, supply of

each supply regions ( S] j ) can been calculated through the following equations. Forms for

each supply region are slightly different since the cost and frequency of pest outbreak are
different. For the U.S. and Canada, there exist probabilities of pest outbreak. Therefore, the

apple growers suffer the production loss from pest infestation. The frequency of pest

outbreak ( frequS,p , freq 2US, [9 ), productivity loss ( 171085,, ) and percentage of pest

infestation ( PCtefp ) are considered in the supply equations, which will affect the final
quantity of supply. In addition, in the case of pest outbreak, the cost increase due to the

increasing pest control cost ( COHU‘OICUS,p) for the U.S. For Chinese apple growers,

compliance cost of implementation of SA ( pCOStCH,p) is considered. For the rest of the

world, according to the assumptions, there is no extra cost considered for this partial
equilibrium model. For period 2, same function form can be applied for each supply region

and function forms are listed here.

161

(4)

SIUS(PP1USaPP2US,VUS) = VUS[1- Z[(fieq1US,p + frquUS, p )* PIOSSp * Pctef p l]
p

P P

]5US yflus -1

5115
at: 5US{PP1LS- ZcontrolclUS p] +(l ‘5US{PP1US —Zcontrolc1US,p

5US 1
* 5US [ppl US — Z controlclUS, p]
P

(5)
CA
SICA(PP1CA9 PPZCAsVCA)= VCA {5CAPP1ggA +(1— 5CA1PP2gSAlfl

(6)

PCH
SICH(PP1CH,PP2CH , VCH) = VCH 5CH[PP1CH — ZPCOS’CH,p] +
p

Ten yfius—l

5CH 1
*5CH[PP1CH ZPCOS’CH ,p]

(1 501i PPICH- ZPCOS’CH ,p
p

p
CH-

(7) SIRW(PP1RW9PP2RW’VRW) VRW RW*PP1£RW +(1‘6RW)*PP1'BRW}5

5RW*PP1£§IW 1

Notes: 1) Subscript p refers to pest variety. However, for simplicity, the sensitivity analysis

only considers the pest “Peach Fruit Moth ” at this point. Model can be extended
to more than one pest for further analysis;

2) fiequS’p =0 due the zero import in the first period.

162

Calibration of supply factor endowment for C E T revenue functions

The factor endowment for CET revenue function V1 is also calculated through model

calibration. Similar to the supply calibration, function form of V] is slightly different for

different supply region due to different cost and frequency application. Intercept c] abd

slope d]. can be computed during the calibration. Starting values are set equal to the

quantity of base supply for each supply region.

(8)

(9)

(11)

VUS =CUS tdust

f

5US * [pplUS — Zeontrolclus,p
P

P

 

K

PUS
+(1— 6US ) *[pszS — ZCOI’ltrOlCZUS’p]

PUS

]PUS

 

US,
l

V CA = CCA + dCA {501 * PPICA'BCA +(1‘ 5C4 ) * PPZCA'BCA VGA

VCH = CCH + den 1

(10)

l PCH

5CH * PPICH - Z pcostCH, p
:7

+(1-5CA)* PPZCA ’ZPCOS’CH, p

 

. P

l

PCH

PCH

 

l

VRW =CRW +dRW {51w *PPIRW'BRW +(1-5RW)*PP2RWflRW}flRW

163

Demand calibration

By adapting the avocado model, the demand for apples from different supply regions is
derived from a weakly separable utility function for a representative consumer. The
demand is defined as a function of wholesale price, apple price index, and total expenditure.

As mentioned in the text, two different elasticity of substitution are used in the model.
01 irepresents the elasticity of substitution between fresh apples and all other goods. A

relative increase in the apple price will lead the consumers to substitute more all other
goods. 0.6 (absolute value) 46 is used in avocado case. In Chinese apple case, this value will
be adjusted and then used in Chinese apple case due to the data limitation, Referring to the
discussion in the text (Table 5.8), based on available limited literature, price elasticity of
demand between apples all other food products ranges from -0.3143 to 0.0766. Price
elasticity of demand between apples and all other food is 0.1997. Since apple is a more
common fruit variety than avocado, apple should be less elastic than avocado. 0.3 is

applied during model calibration for Chinese apples case.

021' represents the elasticity of substitution between fresh apples from different supply

regions. A relative increase in the apple price from a supply region will lead the consumers
to consume more apples from other supply regions. According to the assumptions, apples
produced in different supply regions are assumed to be heterogeneous products, which
means the apple from different regions are imperfect substitute. Since there is no available
literature about this, same value 1.85 will be applied to apple case. More detailed

discussion and demand calibration are provided below.

 

46 0.6 and 1.85 only refers to the absolute values of elasticity. Minus sign is applied during calibration.

164

Computing demand shift parameters
To replicate the quantities demanded in the initial input data, shift parameters needs to be

calculated. The following equations are first used to compute the basic shift parameters

(71i,j , 72i,j) for different demand regions.

 

 

 

 

(12)
—02
rIUS,r2 * Pblygfés explus
q1US,r2=
1-02 1—02
1 *b1 US+1— 1 *b1 US
Z{r US,r2 P USfl } Zr US,r2 P UMW
r2 r2
—O'2US
72US,r1 * pszS,r1 epoUS
(13) qZUs,r1=
1-0'2 1-02
2 *b2 US+1-1 *b2 US
§{r US,r1 P UM } [ §7US,r1]P US’CH
“UZCA
71CA,rl * PbICA’H exPICA
(14) qlCA,rl=
1-02 1—02
1 * b1 CA}+1— 1 * b1 CA
§{r CA,r1 P CM [ Ere/1J1] P CM”
—O'2CA
72CA,r1 * PbZCAfl exPZCA
(15) q2CA,r1=

1—02 1—02
72 * or CA}+ 1— 2 * b2 CA
El{ CA,r1 P c.4,.- Er CA,r1 P CA’CH

Where 71,-, 1372,; j =demand shift parameters for demand and supply regions for both

period, which satisfy Zylid' = 0,272,”: = 0,Vi .And 71mg” =0 since

1 I
import is banned for the U.S. in period I.
i = demand regions, the U.S., and Canada
j = supply regions, the U.S., Canada, China and the rest of the world.

165

r1 =subset of supply regions, the U.S., Canada and the rest of the world;
r2 = subset of supply regions, the U.S. and Canada.

I7 b 11', j. szi’ j = wholesale prices (input data) for demand region i and supply
region j in period 1 and 2.
636191;, 635192 1' = per capita apple expenditure pear year for consumers in demand

region.

Then apple quantity index (qindexl, ,qindex2,) and price index ( pindexl, , pindex2,) are
calculated through equation (17) to (19).

 

 

 

 

 

 

 

 

 

%‘2 6.3;” "'1 52”"
(l6) qindexlUS =4 leleS r?S* quS,HS i
52CA
x. —5§§"’ ”CA"
(17) qindexlCA =1271CAJCA *qchfA r
f
L J
52,
l a. 5%? ‘5“
i alt
(13) qindex2i =< ZyZ, laj q2,-, }
r1
1
' 1—52-
. l— 52 I
(19) pmdexli= 271i j *l-pblj
j
1
1—52-
1— 52, 1
(20) pindex2i- — 272,-, j "‘,-pb2,j
j

Based on the price and quantity index calculated above, aggregate shifi parameters

(401,402,) are computed through the following two equations.

166

(01,- *pqi1;5li *inclbl-

 

(21) qindexli = 1_ 51-
(01,- * pindexll- ’ +(1— (01c,- )

(02,: * pqi2i—51i * inchi

 

(22) qindex2, = 1_ 51-

(p2,: *pindexZi ' +(l-(p2i)

where inclb,,inc2b,- = per capital income for a consumer representative in each demand
region.

Demand calibration

As mentioned earlier, the demand can be expressed as a non-linear function in terms of

apple wholesale price, price index and income. As shown in equation (24) to (27),

71i,j, )2 i, j and (01, , (p2, are shift parameter that are calculated above. Quantity demanded

( 351i, j,xzj’ ] ), wholesale price ( W171, W192,”- ), and apple price index

.1 ’

(index1,,index2, ) are variables that needs to be calibrated through systems of equations.

popli * {(01,- * 7li,j * wpli—fzi * indexlgézi-ali) * incli}

 

(23) D1i,j =
(pli*index1,(-l—6li) +(1- (01,-)

(24)

pop2,° * {p2, * 72i,j * wp2,-_j2i *index2g62i—51i)*inc2i}

 

 

D2,: °=
a] _ .
092i *index2,(.l 61‘) +(1—(02i)
1
1—52-
. 1—52- 1
(25) 111618in = Z[}/li,j *WPll-J 1)

1'

167

1

. 1—62- 1‘52i
(26) mdex2i = 2(72i,j *wp2i’j ‘ j

J

 

In addition, the following equations express the relationship between wholesale prices,
cost, and producer prices. These equations, as part of the system of equations, are also

needed to solve the model. In period 1, the wholesale price for apples from the U.S.

( wpl 1.1/s ) is equal to the producer price ( pplUS) plus the market margin ( marl 1.1/s ) and pest

control cost (controlcl ). This is the same for apples from Canada. For apples from

US,p
China, the pest control cost is replaced by compliance cost of SA ( pcosthHJ, ). No cost is

added for apples from the rest of the world. In the second period, same equations are

applied.

(27) wplws = pplUS + marl,” + Zcontrolclus,
p

(28) WP1.,o. = PPlo. + marlre.

(29) wplm, = pplCH + marl,“ +pcost1CH,p

(30) wpli,RW = pleW + mar 1i,RW

Marketing clearing conditions:

Market clearing conditions are needed to guarantee the partial equilibrium for demand and

supply.

(31) “j = Ext-,1:
i

<32) yzj = 2x201

l

168

Welfare calibration

Based on the general framework of the model, welfare is defined as the sum of producer
surplus and consumer surplus. Detailed computation is listed below. What needs to be
mentioned is the method used in Avocado case is not applied here. In avocado case,
welfare change is compared between initial equilibrium (input data) and new calibrated
equilibrium (calculated data). However, in apple case, what is more interesting is the
welfare difference before and afier trade (without and with SA implementation). Therefore,
welfare change is calculated as the difference between two time periods for each scenario.
In this sensitivity analysis, for simplicity, the consumer surplus is approximately computed

using rule of one-half:

l
(33) APS,=—2—{pp2,.—pp1,}*(Sl,+SZ,-)
Similarly, for consumer surplus:

l
(34) ACS, = 52 {(wph, — wp2,',)*(D1,-J + D2.,, )}

1

where ppl j , pp2 j = simulated producer price from model calibration;

wpl ., wp2 = simulated wholesale price from model calibration;

D1 i, j: D2 i, j =simulated quantity of demand from model calibration;

S 1] 9 521' = simulated quantity of supply from model calibration;

169

Appendix 4: GAMS code for sensitivity analysis (scenario 2 with medium risk)
$Title Economic Evaluation for Chinese Fresh Apples-New version

$offsymxref

$offsymlist

option limrow=0,limcol=0,decimals=8,solprint=on;
option iterlim=999999;

Option reslim=999999;

* Two time period: academic year 2004 (t1) and 2005 (t2)
* Demand regions: U.S.(Region U) and Canada (Region C)
* Supply regions:The U.S.- Region US

* China—Region CH
* Canada-CA
* The rest of the world-RW

* Only one pest is considered: "PFM"-Peach Fruit Month
*

 

SETS i set of demand regions / US,CA/
j set of supply regions / US,CA,CH,RW/
r1(j) subset of supply regions / US,CA,RW/
r20) subset of supply regions / US,CA/
SIG) subset of supply regions /CH/
820) subset of supply regions /RW/
s30) subset of supply regions /US/
$40) subset of supply regions /CA/
d1(i) subset of demand regions /US/
d2(i) subset of demand regions /CA/
p set of pests / PFM/

ALIAS(r1,k1);
ALIAS(r2,k2);
ALIAS(m,i);
ALIAS(nJ);
ALIAS(z,p);

PARAMETERS

sig1(i) Elasticity of substitution between apples and all other goods
/US 0.3, CA 0.3 / ,

sig2(i) Elasticity of substitution between apples
/US 1.85, CA 1.85 /,

expl(i) percapita apple expenditure in t1
/US 10.12894918, CA 18.51085274 /,

exp2(i) percapita apple expenditure in t2
/ US 9.72674412, CA 18.74481219 /,

inc1b(i) base percapita income in t1

170

/US 33050, CA 28310/,
inc2b(i) base percapita income in t2

/ US 34586, CA 32600 /,
a1c(i,j) calibrated bottom-level demand shift parameters for t1,
a2c(i,i) calibrated top-level demand shift parameters for t1,
b1(i) top-level demand shift parameters for t1,
b2(i) top-level demand shift parameters for t2;

TABLE pb1(i,j) Wholesale prices by demand and supply region in t1
US CA CH RW

US 0.53 0.66 0.66 0.52

CA 0.73 0.64 0.69 0.80 ;

TABLE pb2(i,j) Wholesale prices by demand and supply region in t2
US CA CH RW

US 0.57 0.70 0.70 0.54

CA 0.78 0.64 0.59 0.77 ;

TABLE ql (i,j) Percapita quantity demand in t1 in lbs
US CA CH RW
US 18.57702164 0.119606569 0.0 0.392668026
CA 7.810016553 16.5763013 0.256153996 2.529951957;

TABLE q2(i,j) Percapita quantity demand in t2 in lbs

US CA CH RW
US 16.09171134 0.251243516 0.262330539 0.36104966
CA 8.957701799 16.15395734 0.24540512 1.655172816;

VARIABLES a1 1(r2) US shift parameters for apples at second level in t1,
a12(r1) US shift parameters for apples at second level in t2,
a21(r1) CA shift parameter at second level in t1,
a22(r1) CA shift parameter at second level in t2;

a11.LO(r2) = 0;
a11.UP(r2) = 1.0;

a12.LO(rl) = 0;
a12.UP(r1) = 1.0;

a21.LO(r1) = 0;
a21.UP(r1) = 1.0;

a22.LO(r1) = 0;
a22.UP(r1) = 1.0;

EQUATIONS zl 1(r2) equations for US region in t1,

171

zl l(r2)..

z12(r1)..

221(r1)..

222(r1)..

212(r1) equations for US region in t2,
221(r1) equation for CA region in t1,
222(r1) equation for CA region in t2;

ql("US",r2) =E= (a11(r2)*pb1("US",r2)**(-sig2("US"))*expl("US"))/
(sum(k2,al 1(k2)*pb1("US",k2)**(1-sig2("US"))) +
(1-sum(k2, a11(k2)))*pbl("US","RW")**(1-sig2("US")));

q2("US",r1) =E= (a12(r1)*pb2("US",r1)**(-sig2("US"))*exp2("US"))/
(sum(k1,al2(k1)*pb2("US",k1)**(l-sig2("US"))) +
(1-sum(k1, a12(k1)))*pb2("US","CH")**(1-sig2("US")));

ql("CA",r1) =E= (a21(r1)*pb1("CA",rl)**(-sig2("CA"))*exp1("CA"))/
(sum(k1,a21(k1)*pb1("CA",kl)**(l-sig2("CA"))) +
(l-sum(kl, a21(kl)))*pb1("CA","CH")**(1-sig2("CA")));

q2("CA",r1) =E= (a22(r1)*pb2("CA",r1)**(-sig2("CA"))*exp2("CA"))/
(sum(k1,a22(k1)*pb2("CA",k1)**(1-sig2("CA"))) +
(1-sum(k1, a22(kl)))*pb2("CA","CH")**(1-sig2("CA")));

MODEL r11 /zll /;
MODEL r12 / 212 /;
MODEL r21/z21/;
MODEL r22 / 222 /;

SOLVE r11 using CNS;

alc("US", r2) = a11.L(r2);

alc("US", "RW") = 1-sum(r2,a11.L(r2));
alc("US", "CH") = 0;

SOLVE r12 using CNS;
a2c("US",r1) = a12.L(r1);
a2c("US","CH") = 1 - sum(r1, a12.L(r1))

SOLVE r21 using CNS;
alc("CA",r1) = a21.L(r1);
alc("CA","CH") = 1 - sum(r1, a21.L(r1))

SOLVE r22 using CNS;
a2c("CA",r1) = a22.L(rl);
a2c("CA","CH") = 1 - sum(rl, a22.L(r1));

Display a] 1.1, 812.1, a21.l, a22.l;

172

PARAMETERS aqi1(i) apple quantity index in t1,
aqi2(i) apple quantity index in t2,
pqil(i) apple price index in t1,
pqi2(i) apple price index in t2;

aqi1("US") = (sum(r1, a1c("US",rl)**(l/sig2("US"))*ql("US",rl)**
((sig2("US")-1)/sig2("US"))))* *(sig2("US")/(sig2("US")-1));

aqi1("CA") = (sumo, alc("CA", j)**(1/sig2("CA"))*q1("CA",j)**
((sig2("CA")-1)/sig2("CA"))))**(sig2("CA")/(sig2("CA")-l));

aqi2(i) =(sum(i, a2c(i,j)**(1/sig2(i))*q2(i,j)**
((8i82(i)-1)/Si82(i))))**(SigZ(i)/(Sigz(i)-1));

Pqi1(i) = (8111110, alC(iJ)*pb1(iJ)**(1-Si82(i))))**(1/(1-Si82(i)));
Pqi2(i) = (SW0. a20(iJ)*Pb2(iJ)**(l-Si82(i))))**(1/(1-Si82(i)));
DISPLAY alc, a2c, aqil, aqi2, pqil, pqi2 ;

VARIABLES b1c(i) shift parameter for aggregate level of apples in t1,
b2c(i) shift parameter for aggregate level of apples in t2;

b1c.LO(i) = 0;
b1c.UP(i) = 1.0;

b2c.LO(i) = 0;
b20.UP(i) = 1.0;

EQUATIONS zb1(i) equation for calibration of b1->aggregate shift parameter,
zb2(i) equation for calibration of b2->aggregate shift parameter;

zb1(i).. aqi1(i) =E= (b1c(i)*pqi1(i)**(-sig1(i))*inc1b(i))/(b1c(i)*pqi1(i)**
(l-sig1(i)) + (1-b1c(i)));

zb2(i).. aqi2(i) =E= (b2c(i)*pqi2(i)* *(-sigl (i))"'inc2b(i))/(b2c(i)*pqi2(i)* *
(1-sig1(i)) + (l-b2c(i)));

MODEL topl /zb1 /;
MODEL top2 / zb2 /;

SOLVE topl using CNS;
b1(i) = b1c.L(i);

SOLVE top2 using CNS;

173

b2(i) = b2c.L(i);
display blc.l, b2c.1;

PARAMETERS xq1(i,j),
xq2(i.i);

Xq1(i.i) = (b1(i)*alC(iJ)*Pb1(iJ)**(-Si82(i))*mi1(i)**(8ig7-(i) - Sigl(i))"‘
in01b(i))/(b1(i)*Pqi1(i)**(1-Sigl(i)) + (1-b1(i))) - ql(iJ);

xq2(i,j) = (b2(i)*a29(i.j)*pb2(i.i)**(-si82(i))*pqi2(i)**(sig2(i) - sig1(i))*
inc2b(i))/(b2(i)*pqi2(i)**(1-sig1(i)) + (1-152(0)) - q2(i,j);

DISPLAY qu, xq2;

PARAMETERS
pp1(j) Producer price of apples $ per lb in t1
/US 0.273 , CA 0.216, CH 0.15, RW 0.29 /,
pp2(j) Producer price of apples $le in t2
/US 0.217, CA 0.216, CH 0.16, RW 0.33 /,
ybl(j) Base supply in time period 1 (million lbs)
/ US 5705.069908, CA 565.3823691, CH 8.19, RW 196.2395623/,
yb2(j) Base supply in time period 2 (million lbs)
/ US 5059.068969, CA 596.2277587, CH 85.68, RW 160.4791564/,
vb(j) Base endowment,
c(j) Intercept for supply functions ,
d0) Slope for supply functions ,
AS(j) Aggregate supply elasticities ,
c(i) Shift parameter for CET revenue function ,
f(j) Exponent for CET revenue function
/US1.5, CA 1.5 , CH 1.5, RW 1.5 /;
VARIABLES
ec(j) CET shift parameter for each region,
vc(i) Apple factor endowment;

vc.L("US") = 10764.14;
vc.L("CA") = 1161.61;
vc.L("CH") = 93.88;
vc.L("RW") = 356.72;

EQUATIONS
sup1(j) Supply time period 1,
sup2(j) Supply time period 2;

ec.LO(j) = 0.01;
ec.UP(j) = 0.99;

174

SUP10)-- yb10)=e= €00)*PP10)**(f0)-1)*(CCG)*PP10)**f0) + (1-600))*
PP20)**f0))**((1/f0))-1)*VC(j);

8111320). beU) =e= (1-ecti))*Pp2(i)**(f0)-l)*(ectj)*.Pp1(i)**f(i) +
(1-eC(i))*pP20)**f0))**((1/f(i))-1)*VC(1);

MODEL calib / supl, sup2 /;

SOLVE calib using CNS;

60) = eC-L(i);
vb(j) = vc.L(j);

Parameters checksl(j) Check on first period supply,
check82(i) Check on second period supply,
ppiG) apple price index;

PPiU) = (€0)*pP10)**f(i) + (1-e(j))*pp2(i)**f0))**(1/f0));

011601610) = €0)*PP10)**(f0)-1)*(60)*PP10)**f0) + (1-60))*PP20)**f0))
**((1/f0))-1)*Vb(i) - yblG);

011601620) = (1-60))*PP20)**(f0)-1)*(60)*PP10)**f0) + (1-60))*PP20)**f0))
**((1/f0))-1)*Vb0) - yb20);

AS("US") = 1.5;
AS("CA") = 3;
AS("RW") = 6;
AS("CH") = 8;

d0) = ASG)*Vb0)/Ppi(j);
c(i) = vb0) - d0)*ppi(i);
display ppi, AS, c, d, ybl , yb2, checksl, checks2;

PARAMETERS
al(i,i) Bottom-level demand shift parameters for t1,
a2(i,j) Bottom-level demand shift parameters for t2,
pop1(i) Population in demand regions for t1
/US 293.655, CA 31.989 / ,
pop2(i) Population in demand regions for t2
/ US 296.41, CA 32.299 / ,

175

inc1(i) percapita income in t1
/US 33050, CA 28310/,
inc2(i) percapita total income in t2
/US 34586, CA 32600/,
pcost1(sl) Compliance cost in China in t1 ($ per lb)
/ CH 0.004610175/,
pcost2(sl) Compliance cost in China in t2 ($ per lb)
/ CH 0.005022098/,
pcteff(p) Percent of cr0p in importing region affected by infestation
/PF M 0.02/ ,
ploss(p) percent productivity loss from infestation in importing region
/PF M 0.02/;

al("US",r2) = alc("US",r2);
a1 ("US","CH") =0;
al("US", "RW") = l- surn(r2,a1("US",r2));

al("CA",r1) = alc("CA",rl);
al("CA", "CH") = 1- sum(r1,a1("CA",r1));

a2(NUSH,r1) = 32C("US",I'1);
a2("USII’ "CH") = 1- smn(r1’a2(llUSll’r1));

a2("CA",r1) = alc("CA",r1);
a2("CA", “CH") = 1- sum(r1,a1("CA",r1));

display a1, a2;

Table prob1(i,p) Probability that pest infects fruit during the harvest for US&CA Without
SA
PF M
US 0.000005
CA 0.000005;

Table prob2(i,p) Probability the pest is not detected during packing Without SA
PFM

US 0.00008

CA 0.00008;

Table prob3(i,p) Probability that pest survives shipment Without SA
PFM

US 0.7

CA 0.7;

Table prob4(i,p) Probability that pest is not detectd at port-of-entry Without SA
PF M

176

US 0.2
CA 0.2;

Table prob5(i,p) Probability that pest is able to become established Without SA
PFM

US 0.00005

CA 0.00005;

Table probsal (i,p) Probability that pest infects fruit during the harvest for US&CA
PFM

US 0.0000028

CA 0.0000028;

Table probsa2(i,p) Probability the pest is not detected during packing
PFM

US 0.00044

CA 0.00044;

Table probsa3(i,p) Probability that pest survives shipment
PF M

US 0.8

CA 0.8;

Table probsa4(i,p) Probability that pest is not detectd at port-of-entry
PFM

US 0.325

CA 0.325;

Table probsa5(i,p) Probability that pest is able to become established

PFM
US 0.000275
CA 0.000275;

TABLE m1(i,j) Fixed wholesale margins for t1
US CA CH RW

US 0.257 0.444 0.51 0.23

CA 0.457 0.424 0.54 0.51 ;

Table m2(i,j) Fixed wholesale margins for t2
US CA CH RW

US 0.353 0.484 0.54 0.21

CA 0.563 0.424 0.43 0.44 ;

Table suscept(i,p) Proportion of population in susceptible areas

177

PFM
US 0.90
CA 0.90;

Table controlc1(i,p) Fixed control cost of pest in dollors in t1
PFM

US 0.00546

CA 0.00432;

Table controlc2(i,p) Fixed control cost of pest in dollors in t2
PFM

US 0.00432

CA 0.00332;

POSITIVE VARIABLES
freq1(i,p) frequency of pest outbreak in t1,
freq2(i,p) frequency of pest outbreak in t2,
x1(i,j) Demand for apples in t1,
x2(i,j) Demand for apples in t2,
y1(j) supply of apples in t1,
y2(j) Supply of apples in t2,
p1(j) Producer price of apples in t1,
p20) Producer price of apples in t2,
V0) Endowment for CET revenue function,
api1(i) Apple price index in t1,
api2(i) Apple price index in t2,
wp1(i,j) wholesale price for apples in t1,
wp2(i,j) wholesale price for apples in t2;

EQUATIONS
outbreak11(d1,p) Equation for frequency of pest outbreak in t1,
outbreak12(d2,p) Equation for frequency of pest outbreak in t1,
outbreak2(i,p) Equation for frequency of pest outbreak in t2,
xdl(i,j) Demand equations for apples in t1,
xd2(i,j) Demand equations for apples in t2,
ysl l(sl) Supply equations for China in t1,
ys12(s2) Supply equations for RW in t1,
ysl 3(s3) Supply equations for US in t1,
ysl4(s4) Supply equations for CA in t1,
ys21(sl) Supply equations for China in t2,
ys22(s2) Supply equations for RW in t2,
y823(s3) Supply equations for US in t2,

178

ys24(s4) Supply equations for CA in t2,

mc1(j) Market clearing conditions in t1,

m02(j) Market clearing conditions in t2,

endsl(s1) Supply of factor endowment for CET revenue functions for China,
ends2(32) Supply of factor endowment for CET revenue functions for RW,
ends3(s3) Supply of factor endowment for CET revenue functions for US,
ends4(s4) Supply of factor endowment for CET revenue functions for CA,
pind1(i) Equations for apple price index in t1,

pind2(i) Equations for apple price index in t2,

wholep11(i,s1) wholesale price for apples from China in t1,

wholep12(i,s2) wholesale pricefor apples from RW in t1,

wholep13(i,s3) wholesale pricefor apples from US in t1,

wholep14(i,s4) wholesale price for apples from Canada in t1,
wholep21(i,sl) wholesale price for apples from China in t2,

wholep22(i,s2) wholesale pricefor apples from RW in t2,

wholep23(i,s3) wholesale price for apples from US in t2,

wholep24(i,s4) wholesale price for apples from Canada in t2;

wp1.LO(i,j) =0.01;
wp2.UP(i,j) =3;

wp2.LO(i,i) =0.01;
wp2.UP(i,j) =3;

p1.LO(j) = 0.05;
p1.UP(j) = 2;

p2.LO(j) = 0.01;
p2.UP(j) = 2;

api1.LO(i) = 0.5;
ap12.LO(i) = 0.5;

yl.LO(sl)=1;
y2.LO(sl)=10;

yl .LO(82)=100;
y2.LO(82)=100;

yl .LO(s3 )=4000;
y2.LO(s3)=4000;

yl .LO(s4)=500;
y2.LO(s4)=500;

179

outbreakl 1 (d 1 ,p).. freq 1 (d1 ,p) =e= prob] (d1,p)*prob2(dl ,p)*prob3 (d1 ,p)*prob4(dl ,p)
*prob5(d1,p)* suscept(d1,p)*(x1(dl,"CH"))*25000;

outbreak12(d2,p).. freq 1 (d2,p) =e=
probsal (d2,p)*probsa2(d2,p)*probsa3 (d2,p)*probsa4(d2;p)
*probsa5(d2,p)* suscept(d2,p)*(x1(d2,"CH"))*25000;

outbreak2(i,p).. freq2(i,p) =e= probsal(i,p)*probsa2(i,p)*probsa3 (i,p)*probsa4(i,p)
*probsa5(i,p)*suscept(i,p)*(x2(i,"CH"))*25000;

xd1(i.j)-- XIGJ) =e= p0P1(i)*(b1(i)*al(iJ)*WP1(i,j)**(-Si82(i))*
api1(i)* *(sig2(i) - sigl (i))*inc1(i))/
(b1(i)*api1(i)**(l-sig1(i)) + (1-b1(i)));

x(120.1% x2(i,j) =e= P0P2(i)*(b2(i)*a2(i.l)* WP2(iJ)**(-Si82(i))*
api2(i)**(sig2(i) - sigl(i))*inc2(i))/
(b2(i)*api2(i)**(1-sigl(i)) + (l-b2(i)));

ysl 1(s1).. y1(s1)=e= e(sl)*(p1(sl)-pcost1(sl))**(f(s1)-l)*V(s1)*
(e(sl)*(p1(sl)-pcostl(s1))**f(sl)+
(1-e(s1))*(p2(s1)-pcost2(s1)))* *f(s l )* *((1/f(sl ))—1 );

y512(s2).. y1(32) =e= e(32)*pl(s2)**(f(s2)-l)*V(52)*
(6(82)*P1(82)**f(82)+(1-e(82)))*P2(82)**f(82)**((1/f(82)-1));

ys13(s3).. y1(s3)

=e=(]-sum(p,(freq1("US",p)+freq2("US",p))*pcteff(p)*ploss(p)))*e(s3)*
(p 1 (s3)-sum(p,controlc l ("US",p)))* *(f(s3)-1)*V(s3)*
(e(s3)*(p1(s3)-sum(p,controlc1("US",p)))* *f(s3)+
(1-e(s3))*(p2(s3)-sum(p,controlc2("US",p)))* *f(s3)* *
((1/f(83))-1));

ysl4(s4).. y1(s4) =e= e(s4)*pl(s4)**(f(s4)-1)*V(s4)*
(e(s4)*p1(s4)* *f(s4)+(1-e(s4)))*p2(s4)**f(s4)**((1/f(s4)-1));

y521(sl).. y2(s1) =e= (l-e(sl))*(p1(sl)-pcost2(s1))**(f(s1)-1)*V(s1)*
(e(s1)*(pl(sl)-pcost1(sl))**f(sl)+
(1-e(sl))*(p2(sl)-pcost2(sl)))**f(sl)**((l/f(s1))-l);

ys22(s2).. y2(52) =e= (1-e(s2))*p2(52)**(f(32)-1)*V(32)*
(C(82)*p1(SZ)**f(SZ)+(1-e(32)))*P2(SZ)**f(S7-)**((1/f(82)-1));

180

ys23(s3).. y2(s3) =e=

(1 -e(s3))*(1-sum(p,(freq1 ("US",p)+freq2("US",p))*pcteff(p)*ploss(p)))*
(p2(s3)-sum(p,controlc2("US ",p)))* *(f(s3)—1)*V(s3)*
(e(s3)* (p1(s3)-sum(p,controlc1("US",p)))* *f(s3)+
(1-e(s3))*(p2(s3)-sum(p,controlc2("US",p)))* *f(s3)* *
((1/f(S3))-1));

y824(s4).. y2(s4) =e= (1-e(s4))*p2(s4)* *(f(s4)-1)*V(s4)*
(e(s4)*pl (s4)* *f(s4)+(1-e(s4)))*p2(s4)* *f(s4)* *((1/f(s4)- l ));

mcl(j).. y1(j) =g= sum(i, x1(i,j));
mc2(j).. y2(j) =g= sum(i, x2(i,j));

endsl(sl).. V(s1)=e= c(s1)+ d(sl)*(e(s1)*(p1(sl)-pcost1(sl))**f(sl)+
(1-e(sl))*(p2(s1)-pcost2(sl))**f(s1))**(1/f(sl));

ends2(s2).. V(s2) =e= C(32) + d(s2)*(e(82)*pl(s2)**f(82)+
(l-e(32))*p2(s2)**f(32))**(1/f(82));

ends3(s3).. V(s3) =e= c(s3)+ d(s3)*(e(s3)*(p1(83)-sum(p,controlcl("US",p)))**
f(s3) +(1-e(s3))*(p2(s3)-sum(p,controlc2("US",p)))* *
f(s3))"""(1/f($‘>3));

ends4(s4).. V(s4) =e= c(s4) + d(s4)*(e(s4)*p1(s4)**f(s4)+
(1-e(s4))*p2(s4)**f(s4))**(1/f(s4));

pindl(i).. apil(i) =e= (sum(i, a1(i,j)*wpl(i,j)**(l-sig2(i))))**
(1/(1-SigZ(i)));

pind2(i).. api2(i) =e= (sum(i, a2(i,j)*wp2(i,j)**(1-sig2(i))))**
(1/(1-Si82(i)));

wholep11(i,s1).. wp1(i,sl) =e= p1(s1)+ m1(i,sl)+ pcostl(sl);
wholepl2(i,s2).. wp1(i,s2) =e= p1(s2)+ m1(i,s2);

wholep13(i,s3).. wp1(i,s3) =e= p1(s3)+ m1(i,s3)+sum(p,controlcl("US",p));
wholepl4(i,s4).. wp1(i,s4) =e= pl(s4)+ m1(i,s4);

wholep21(i,sl).. wp2(i,sl) =e= p2(sl)+ m2(i,sl)+ pcost2(sl);
wholep22(i,sZ).. wp2(i,s2) =e= p2(s2)+ m2(i,s2);

wholep23(i,s3).. wp2(i,s3) =e= p2(s3)+ m2(i,s3)+ sum(p,controch("US",p));
wholep24(i,s4).. wp2(i,s4) =e= p2(s4)+ m2(i,s4);

MODEL aphis / outbreakl1.freq1,outbreakl2.freq1, outbreak2.freq2, xdl .xl, xd2.x2,
ysl 1.y1, y312.y1, ysl3.y1, ysl4.yl, ys21.y2, y822.y2, y523.y2, ys24.y2,

181

mcl.p1, mc2.p2, endsl.v,ends2.v, ends3.v, ends4.v,pind1.api1,
pind2.api2, wholepl l.wp1, holep12.wp1,wholep13.wp1,wholep14.wpl,
wholep21.wp2, wholep22.wp2,wholep23.wp2,wholep24.wp2/;

SOLVE aphis using MCP;

display wpl.l, wp2.l, p1.l, p2.l;

Parameters ga(j) gross avenue change,
ppd(j) producer price inference,
ps0) half rule;

ppd0)=P1 -l(i)-p2-l(j);
830) = p2-10)*y2-l(i)-p1-l(j)*y1-l(i);

P50)=-de0)*(y1-10) + y2-10))/2;
display ga, ps;

parameters pd(i,j) price different for US,
cs(ij) consumer surplus for US from US,
css(i) consumer surplus sum;

Pd(i.j)=WP1-1(iJ)-WP2-1(i.j);

cs(i,j)= pd(i,j)*(x1.l(i,j)+x2.l(i,j))/2;
css(i)= sum(i,cs(i,j));

display cs,css;
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