Mushroom economics in China

Last april, Mushroom Business published an article on Dragon Companies in China. This time, Dr. Dinghaun Hu and Dr. Xiaoyong Zhang will focus on the Chinese mushroom economy in general. How did the remarkable achievements in this field come about, and how about the threats and challenges they present for other mushroom producing countries? By Dr. Dinghaun Hu, Institute of Agricultural Economics, ChineseAcademy of Agricultural Science and Dr. Xiaoyong Zhang, Agricultural Economics Institute (LEI), WageningenUniversity and ResearchCenter. The authors are grateful for the comments of Dr. Frank van Tongeren. Over the past two decades the Chinese economy has made tremendous progress. Its annual GDP growth rate kept above 8 percent, outperforming almost all other countries in Asia. During the same period, international trade has expanded more rapidly than its national GDP. The annual growth rate of foreign trade reaches nearly 15%. This remarkable achievement started in the late 1970s from the so called Household Responsibility System (HRS), in which collective communes were dismantled and agricultural land was distributed to individual households. This decollectivisation policy has contributed greatly to the increase of agricultural productivity and efficiency. Following the successful story of rural HRS reform, China has pushed forward a series of economic reforms related to marketing and trade policy. Consequently, the average agricultural import tariff has fallen from 42% in 1992 to 17% in 2001, when China joined the WTO. Meanwhile, agricultural export pattern has shifted from land-intensive bulk commodities, such as grains, toward more labour-intensive products, such as horticulture. Mushroom Production in China The story of the mushroom economy is much in line with the development of the macro policy. When the HRS was initiated in 1978, mushroom production in China was only 60,000 tons. Soon after individual farmers got the right to decide what to produce for themselves, the mushroom industry was booming. According to the Chinese Association of Edible Fungi, mushroom output has reached over 8 million tons in China, accounting for 70% of the world total (see table 1). This number is a bit breathtaking. The FAOSTAT indicates that the world mushroom production in 2003 is over 3.2 million tons and China accounts for 41% of the world total production. The big gap may lie in the different species included in both statistics. China may include productions of all species, while FAO only covers major species. Table 1. Mushroom Production in China and in the World. (Unit: 1000 tons). Source: CEFA.

Year

World China China/world (%) 60 585 5.7 26.9

1978 1060 1986 2176

1990 3763 1000 26.6 1994 4909 2640 53.8 1997 6158 3415 55.5 2000 6630

2002 12250 8650 70.6 Chinas advantage in the mushroom industry is its abundant labour. According to some experts in China, it is estimated that 35 million people are engaged in the labour-intensive mushroom industry. The traditional mushroom production region is located in the south and south-east of China where the climate is most suitable for mushroom cultivation. Since the 1990s however, the production pattern has been shifting towards the north where the labour costs are even lower and raw materials are even cheaper when compared to the economically advanced south. Mushroom production in China is dominated by small-scale households with a average size of 12 mu plastic tunnels (1 ha = 15 mu). Nevertheless, private mushroom companies at a scale of 1015 ha can also be found in major production areas. These large companies are often engaged in the whole chain of mushroom business, from basic materials to cultivation to mushroom processing. In some cases, these private companies are working together with small scale households in outgrowing schemes. The big companies (dragon companies) supply small farms fully grow compost and later collect the mushrooms back from these individual households. Marketing and trade The Chinese people associate mushroom with a healthy image, such as reducing cholesterol levels, regulating blood pressure, increasing resistance to viral infections, etc. A typical example is that the mushroom consumption in China raised sharply during the SARS periods in 2003. Consequently, China itself is the biggest mushroom consumption market. More and more urban consumers are substituting meat products with mushrooms. The mushroom export accounts for less than 5% of its total domestic production. In terms of international trade, there have been significant changes over the past two decades. Before the economic reform in the trade sector in the 1980s, there were only a handful of stateowned trade companies in the whole of China. As the time passed by, licences to trade have been abolished and every Chinese nowadays can exercise his/her trade skill.

As a direct result, China is becoming an important player in both fresh and processed mushroom markets in the world. The major destination for Chinese mushroom export is Asia, which accounts for almost half of the total. Exports to Europe and US are falling in both absolute tons and percentage. The markets are picked up by Russia and Latin America.

Table 2. Major Destination of Chinese mushroom export. Source: Information Center of the General Administration of Customs of the PRC.

Quantity (tons) Year Japan Hong Kong Germany U.S. Malaysia Russia Netherlands South Korea Total export 1995 2000 2003 58059 70582 80857 22729 21544 36114 30114 35685 32591 39532 8556 26442 6833 8604 18044 472 3370 12684 15.7

Proportion (%) 1995 2000 2003 23.0 9.0 12.0 3.1 2.7 0.2 2.2 1.9 25.3 7.7 12.8 7.5 3.1 1.2 6.1 3.1 5.3 3.6 3.6 3.4 23.0 10.3 9.3

5464 17004 12509 4821 8569 11815 251885278831351118

100.0 100.0 100.0

Challenges and Opportunities Since China joined the World Trade Organisation (WTO) in 2001, the global mushroom industries sometimes express a sense of fear for the mushroom giant in the world. Mushroom growers worldwide are worried of a flood of Chinese mushrooms to their domestic markets. As a matter of fact, the WTO impact on the Chinese mushroom sector is limited. To the contrary, Chinas mushroom exports did not increase sharply, but even reduced in certain regions since China joined the WTO. The trade negotiations on tariff and quota are mainly focusing on button mushrooms (Agaricus), which is the major species produced in Europe and US. However, button mushroom is only one of many varieties in China. For the rest of exotic mushrooms (not exotic in China), it has always been a free international trade market.

Whether the mushroom giant is really a threat to other mushroom producing countries is not dependent on the trade liberalisation, but on Western consumer behaviour. Only when consumers in Europe and the United States accept and value those exotic mushrooms, as the Asian consumers do, can imports from China be expected to rise significantly. Investment is needed What are the opportunities laying ahead then? The Archaeologists showed that China started Lentinus edodes cultivation some 1000 years ago. China is one of the countries with the richest biological resources. More than 1,400 mushroom species have been found in China, of which 938 species are wild edible fungi. However, only some thirty mushroom varieties are cultivated at a commercial scale. These germplasm resources provide great opportunities for both domestic and international industries to further explore not only in the food chain, but also in pharmaceutical usage as well. What about the investment opportunities? Most of the mushroom cultivation in China is seasonal. The rapid development of supermarkets in the last decade is putting higher pressure on the fresh produce supply chain. They are increasingly demanding high quality products and yearround stable supply. Large investments are needed to establish a modern mushroom farm, which requires not only the state-of-the-art technology, but also high quality compost, improved cultivation and the whole cooling chain. Currently, A Sino-EU mushroom project financed under the EU Asia Invest programme is ongoing. For those who are interested, please check the website www.lei.nl/leichina