When Wisconsin Ginseng Met A Fake China

 

It was 2004. Butch Weege was in a trade mission to China with a Wisconsin governor. A year ago, Weege was elected as the executive director of international marketing at the Ginseng Board of Wisconsin (GBW), the official organization of Wisconsin ginseng growers. He had been growing ginseng since 1982, the crop that has a high value in oriental medicine, and has a large market in China.

The mission for his trip was to understand the end users of the ginseng market. He went to Shanghai, Nanjing, Guangzhou and Hong Kong and many others cities. In every city he stopped in, he found the trade mark of Ginseng Board of Wisconsin. In the Chinese traditional medicine portion of town, in the shops, in the pharmacies, he found the trade mark everywhere in the cities. The state’s prized Wisconsin ginseng seal was printed on countless ginseng products, but no one was authorized to be using it.

“People were taking our brand, our registered trade mark, and they were putting ginseng from other countries, they were putting on their home grown Chinese ginseng,” Weege said. “It made us realize why our market was falling apart.”

He knew he needed to do something. He needed to do something right now.

******

 

In the early 1980s Wisconsin had 1,400 ginseng growers. Now, it has only about 150. In middle 90s, Canada and China entered in the global market, and the largely increased supply has been making the price of ginseng plummet since then. In 2007 the price that ginseng growers received was lower than the profitable price by $5 per pound on average.

“That is a huge collapse in the industry,” Paul Mitchell, an assistant professor, agricultural and applied economics at UW-Madison.

“It was a hard time for us,” Kirk Baumann, a ginseng grower in Wisconsin. “Many of other farmers gave up the ginseng and began to grow other crops.”

Baumann stayed in the industry while his brothers started to grow corns or wheat. The bad economic situation made him almost gave up as well, especially considering that ginseng is extremely hard to grow.

“Kids are easier to raise than ginseng,” a ginseng grower said in an interview with WSJ. Kristin Johannsen wrote in her book Ginseng Dreams the ideal condition for ginseng: “The climate must be cool and temperate, with plenty of rain, but the water must not stagnate around its roots. …It needs protection from the direct rays of the sun by an unbroken canopy of forest. It needs soil that will keep the roots growing slowly as they force their way down. And most of all, it needs a particular combination of nutrients found only in the decaying leaves of certain hardwood trees that drop their leaves early in the fall, such as maples and poplars.”

But in his mind Baumann believed that the thing would work out one day, and it would come to a good end.

What Kirk didn’t know is that in the other side of the Pacific, a large underground ginseng market was taking advantage of Wisconsin ginseng’s reputation illegally. While ginseng growers in Wausau like him had to pay in 20 cents per pound of ginseng that they sold to Hong Kong, mainland China, Malaysia and Korea buyers, for using the GBW seal, the counterfeit Wisconsin ginseng market in China was using the trademark for free for many years and making great profits.

 

******

 

Liang Xie, had been taking ginseng capsules for 2 years. The stress from his job made the 45-year-old businessman fatigue all the time. A Chinese traditional medicine pharmacist told him that Western ginseng could relief the fatigue and make him full of energy.

Xie accepted the suggestions. He went to the nearest drugstore, and saw many different kinds of Western ginseng products produced by different drug brands. He decided to buy Eagle Stars and Stripes ginseng, the brand he was familiar with, whose advertisement of its Western ginseng played on different television channels all the time. The price of ginseng capsules was pretty high, but it was worth, Xie thought.

In the May of 2006, he went to the drugstore as usual, but the people who sold the Eagle Stars and Stripes ginseng told him that the product was out of stock.

“It is odd, I have been buying this for 2 years and it never sold out before,” he thought.

He asked when the products would be in stock, the people said they didn’t know. Driven by this curiosity as well as the need to consume the product, he finally forced the drugstore workers tell his the real reason why the Eagle brand’s ginseng products were gone: they were confiscated by the market supervisors from Industry and Commerce Ministry, because the Eagle brand as well as other ginseng production brands stole the trademark of Ginseng Board of Wisconsin and counterfeited the American ginseng, which was actually produced in Northeast China.

“They were basically confusing Chinese consumers and during the meantime, our farmers here were being paid for much less for their products,” Weege said. “In 2005 and 2006, we spent a lot of time taking people to court.”

A war without gunsmoke flared up. In 2005, GBW set up a bureau in Shanghai, appointing a sale representative to investigate the counterfeited Wisconsin ginseng products, as well as to promote their authentic ginseng. In 2007, the Ginseng Board of Wisconsin filed and won lawsuits against 30 to 40 Chinese Pharmaceutical companies in Chinese courts. The result of the lawsuit was a fine, for each vendor, of up to 22,429.5 US dollars, and more importantly, forced them to stop selling their products with the Wisconsin Seal.

The lawsuits went on successfully. Pharmaceutical companies paid the fine and stopped immediately, partly because local Chinese governments actively involved in the enforcement of these sanctions and they found no loophole that they could take advantage of anymore.

“I believe we had effectively cleaned up the market place, so we could go in there fresh, and began to re launch our Wisconsin American ginseng in its image, and regain the consumers’ confidence that had been tarnished by the counterfeited ginseng,” Weege said.

 

******

In Baumann’s business card, his Chinese name was printed in the opposite side of his English name. Keqin Bao, which is pronounced similarly to Kirk Baumann, is named by Mabel Zhuang, the Chinese sale representative of GBW, in order to make it easy for Baumann to communication with Chinese buyers.

In 2008, GBW signed a deal with Beijing Tong Ren Tang Health Pharmaceutical Company (TRT Health), a company with a 400-year history, and about 1,000 drugstores in China, to distribute genuine Wisconsin ginseng in the country. The Chinese drugstore giant is now the exclusive Chinese dealer for the Ginseng Board of Wisconsin, the only one that could use the “Wisconsin Seal”, certifying that the ginsengs are 100 percent Wisconsin grown.

The target consumer of TRT’s ginseng products is up class and up-middle class in China. The price of Wisconsin ginseng is too high to working class and major middle class, not everyone has the ability to consume the nutrient product on a daily basis.

But the obstacles for Wisconsin ginseng still exist. Although GBW won the lawsuits, and stopped the unauthorized usage of GBW’s trademark, there are still Chinese ginseng products using the name of “American ginseng”, “Western ginseng”, or printing American maps, the Star Spangled banner of America and the Statue of Liberty on the box to confuse consumers.

“It is hard on that level. We cannot stop them using the American map or flag, even American government has no such right,” Zhuang said. “What we can do is to try whatever we can to build the reputation of our organization in Chinese market and make as many as Chinese consumers know us.”

“They’re gonna to be there to maintain the presents. It’s important for them to know their market,” Mitchell said. “And I really think production control is important. Have a few selected marketers, maybe they should have more than one, I don’t know, but keeping that number small and controlled is important.”

Weege is now learning Chinese. He can already speak a few Chinese words like Nihao (Hello) and Zaijian (goodbye). He knows that winning the lawsuits and signing the exclusive deal are not enough. The potential of the Chinese market is waiting for him to explore.

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Wheat in China

by bernat...(flickr.com)

Today I was exploring the Economic Research Service website of USDA, and attracted by a graphic and some analysis on Chinese wheat industry. Let see the graphic first:

We can see from the graphic that China had an increasing wheat trade deficit, until 1996, when the imports was almost equal to the exports. But then it worsened again in 2004.

China net trade of Rice, Wheat and corn (from ERS/USDA)

Bryan Lohmar summarized several reasons for the low production of wheat in China, in his report China’s Wheat Economy: Current Trends and Prospectsfor Imports:

  • Decreasing sown area in China
  • Low wheat prices: farmers moved productive land from wheat to high-value horticultural crops.
  • Policy changes, market development, and increasing commercialization in rural areas: many provinces abandoned the grain quota delivery obligation; instead, they accepted taxes and fees in cash.
  • Depleted resources, particularly water: both ground and surface water sources are showing signs of severe overexploitation

And he concluded:

China’s wheat production will likely remain at or below 90mmt for the foreseeable future. China will continue to expand horticultural production, especially for export markets. China’s wheat marketing institutions are becoming more market oriented and are moving beyond government intervention, and farmers are increasingly making decisions based on commercial considerations.

Is this the case for Chinese wheat production? Chinese wheat industry is going to be market-oriented and the government intervention is going to fail?

Well, it may be not. China is self-sufficient in wheat production last season, even when a series of flood and drought in several provinces have badly damaged the wheat and other grains’ productions in China, the wheat price is constantly going up, but it is basically self-sufficient. Chinese government considers food self-sufficiency as “a matter of national security”, and has been trying to subsidize the wheat production and sale in many ways.

What Leslie Hook wrote in this article at Financial Time precisely describes the whole picture:

China’s self-sufficiency policies are often costly for consumers as they drive up the cost of grain. But today, as world wheat markets shudder after an export ban from Russia and similar talk from Ukraine, China’s leaders are no doubt breathing sigh of relief.

Tomato, Ketchup and China

By An& (Flickr.com)

Most Chinese don´t know ketchup. If you say “ketchup” to a Chinese who just comes to the United States, I bet he/she will look at you strangely, and ask, “What?” I remember when I first came to America last August, I got off the plane at Chicago O’Hare Airport, brought some fries at McDonalds, and asked for “tomato sauce”.

“Tomato sauce”, that is what we call all the processing tomato food  in China. Most Chinese only use it with fries or pizzas in Western restaurants. Chinese cuisine doesn’t have it at all.

Not only ketchup, tomato also has a foreign identification. Four centuries ago, in the middle of Chinese Ming Dynasty, European missionaries followed the Silk Road on their journey to ancient China, bringing seeds of tomatoes and other Western plants. Chinese accepted the tomato, and began to plant it in its own land. The tomato found a new home there, also a new name, “foreign eggplant” (fan qie) in Mandarin.

The ancient European missionaries didn’t expect China accepts tomatoes much easier than bibles, and they would never know China could become one of the world’s largest tomato paste producer and exporter one day. But it is a true story. China, the country where people have no appetite for ketchup, without mentioning other tomato processing food, has only been growing processing tomatoes since the mid to late 1970s, has made a surprising growth in tomato processing industry. Its export volumes of processing tomatoes rose from 100,000 tonnes in 1999, the year that China marked its debut in international tomato market, to 600,000 tonnes in 2005.

In 2009, China exported 8.65 million tons processing tomato products to 150 countries, rising up 35.1% from a year earlier, and increasing the market share to 20.5% in the global processing tomato export market. In particular, the export volume to Italy, Russian Federation and Nigeria accounted for 13%, 12.1% and 6.8% respectively.

The main regions for the tomatoes industry are in Xinjiang Province, a plateau to a number of Muslim ethnic groups, used to be a landlocked frontier crossroad on the ancient Silk Road, and followed by Inner Mongolia and Gansu Province. The dry continental climate there is an ideal condition for tomato growth. The long daylight hours, sufficient sunshine and the significant temperature difference between day and night are all good for sugar and lycopene accumulating inside the crop.

It is a promising industry. But for those farmers living in Xinjiang, tomato is more than just a business. It is a way of life. Xinjiang Production and Construction Corps, an affiliate lead by Xinjiang local government and Beijing, have more than one million employees, most of whom were soldiers, or ex-convicts, who had been sent to the remote barrens, “being reformed through labor” in Chinese political term. Those Han Chinese have been living in this land for decades. Their sons and daughters have grown up, gone to college or had their own jobs. No matter which regions of China they came from, now they are all Xinjiang farmers (though their official identification is “farming soldier”), sinking roots in this plateau, turning the wild land into a fertile spot.

In spite of the boom, Chinese tomato processing industry has its troubles. The irrigation system needs to be improved. The poor transportation causes the tomatoes rotten before reaching the tomato processing plants. The non-brand tomato processing products are given a “made in Italy” label after exporting to Europe and being reprocessed in Italian small plants. China wants its homemade brand, while Europe chides China for dumping products into oversea market.

From "Apple and Tomato Chains in China and the EU" by Xiaoyong Zhang, Huanguang Qiu, Zhurong Huang

The change will not come about by itself. Chinese tomato processing industry should reinforce its agricultural research, improve the rural transportation, develop a better management system to meet the international quality standard, and engage in building its international reputation. The industry with only a history of four decades is still too young. It should learn, learn and learn more, before it boasts its large exporting volume.

Agriculture and Economy

By Thomas Fisher Rare Book Library (Flickr.com)

I am going to write blogs on agriculture and economy in China and the world in this semester.

I am really excited about it! Agriculture is an industry so important for the world economy and for China, but it never comes to my mind before. A totally new topic for me. I love the feeling of exploring a new field that I never know.

I am going to focus on the undeveloped agriculture in China and its counterpart in the United State. Why does China still need to import wheat, rice, corns from the United States and other countries, while there are nine hundred millions farmers and plenty of farming lands in China? why the rural area in China is so undeveloped while the big cities like Beijing and Shanghai are rich enough to complete with New York?

Another issue I am interested in is open market’s impacts on Chinese agriculture after China joining  WTO in 2001. What are the trends of  food export and import during the nine years? What role does Chinese agriculture play in the international market?

So many issues come to my mind, I just can not wait to know everything.

Call for Economy Transformation

Now that China has been buffeted by global financial crisis for more than a year, it is time for China to start economy transformation, urged the Editorial Board of the People’s Daily, the official newspaper of the Communist Party of China in an editorial.

The article argued that China is depended too much on international trade, which leads to economy prosperous, but also makes the whole system fragile. China should improve the production capabilities and technical skills of its own industries, rather than taking advantage of the cheap labor market.

I like this article because it gets the point of China’s weakness. China has been focusing too much on the GDP growing, and it really does a good job on it. But if China still relies on the cheap labor to produce the raw materials, without developing its own high-technology and high-end manufacturing industries, its economy cannot be considered as healthy.

The raw products like billet, rolled steel, refined oil and plastic are closely depended on the global climate. If the global market is manipulated by the industry giants or international speculators, China could do nothing but bear it.

An article called “Problems of China’s steel industry” tells what happened to China’s steel industry last year:

In 2009, industrial capacity exceeded 700 million tons while the domestic market could only consume about 560 million. The excess capacity is estimated at over 100 million tons. The situation may worsen this year as analysts predict demand will continue to lag behind supply.

China’s steel overcapacity is also a bad news for the environment. An article published on Chinastakes described its environmental problem:

China has overtaken the US as the largest emitter of greenhouse gases (GHG), to which steel industry contributes no small part.

Just before the Copenhagen climate conference, China promised to lower emissions per unit of GDP by 40 to 45 percent by 2020. As many countries, developed and developing, pointed out, this is the promise of merely a slowdown and not a cut of emissions, and pressure on China to get serious is increasing. The US Congress is even now considering levying penalties against imported products from high emission processes, and also including in climate change legislation additional tariffs on imported steel and other energy-intensive products to offset alleged competitive harm to domestic industries, should other countries not commit to equivalent GHG reductions. China is the key target, and he steel issue threatens to pass currency valuation as the most contentious trade issue between it and the United States.

It is an urgent need for China to transform from low-technology and polluting manufacturing to high-technology and eco-friendly industries. Being the fastest economy growing country is good, but China should also realize that GDP is not everything.

New Rules Guide Foreign Investment

China has some new rules for foreign investment. Interesting. This is from AFP.

China said Tuesday it planned to curb foreign investment in polluting sectors and instead direct it into high technology and new energy.

The State Council, the nation’s cabinet, said in guidelines on its website that it aimed to “seriously restrict (foreign investment) in high energy, highly polluting… projects”.

It added that foreign investment in “high-end manufacturing, high-technology and service industries, and new energy and energy-saving environmental sectors” should be encouraged.

Wisconsin Exports in the Past Decade

I come across with the data of export by states, and it is interesting to know the trend of export in Wisconsin and surrounding states in the past decade.

The data shows Wisconsin is making effort to trade with the foreign countries. In the past decade, export in Wisconsin increased 73 percent, which is much higher than the average (53 percent). But there are still some spaces for the increase. According to the latest data, Wisconsin is ranking #20 in the state exports in 2009, while Illinois is #6 and Ohio is #8. The total U.S dollar value of exports in WI is 16.7 billion, which is 40 percent of Illinois’ exports, 1.58 percent of all states.

Source: http://www.wisertrade.org/, data from U.S. Census Bureau Foreign, Trade Division.

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