Chinese market remains firm despite crackdown on smuggling

The local macadamia nut industry has been taken aback by a recent crackdown on illegal traders in China procuring nuts for their domestic market.

For many South African macadamia processers, this has meant the closure of their most lucrative export channel.

“This issue has highlighted the complexities of dealing with the Chinese market,” said Alan Sutton, chairman of the Valley Macadamias Group. “Fortunately, our business has not been affected and trading is continuing as usual. However, we have seen a big increase in the volume coming through our factory as farmers previously delivering to affected processors now need to find alternative buyers with open channels to China.”

Last year, the industry experienced frustration with black market traders sidestepping quality controls and smuggling large quantities of inferior quality nuts into China. Now that the Chinese authorities have stepped in, most of the illegal activity has come to a halt.

As the largest South African exporter of nut-in-shell macadamias to Asia, Valley Macadamias has solid relationships with reputable Chinese traders who have not been affected by the crackdown, Sutton said.

He explained that several processors who entered the Chinese market for the first time last year now face a shutdown in operations. Lack of experience in the market had led them to unscrupulous traders whose operations have since been closed, he said. This has caused a delay in the uptake of nuts, as some processors struggled to find new markets.

“Processors must be mindful of dealing with the right people in order to ensure that the nuts reach the market in China legally and that the farmers receive payment. Valley Macadamias has offered our farmers a 30% increase in price for their nuts from last year. This gives farmers the assurance that they have a product that is in high demand, and that the demand from China is insatiable,” said Sutton.

He applauded the Chinese authorities for stepping in to address the black market trade in macadamia nuts, saying that it was a practice that would adversely affect the industry and the good standing that South Africa had with legitimate Chinese importers.

The curb stemmed from a crackdown on diamond smuggling in China earlier this year, which resulted in closer scrutiny of all commodities. Diamonds attract a duty of up to 18% on imports, and as a result diamond smuggling to avoid duty is rife.

Macadamias similarly attract duty of 24% plus VAT of 14%. “With an added cost of 38%, it’s easy to see why smuggling has become such a big problem. While all tree nuts pay an import duty, it is up to the government and industry bodies to negotiate a better deal. For example, Australia has just negotiated for the duty to fall away over the next five years. This places us at a competitive disadvantage and we need to hold our industry body to account. China is desperate for our nuts, but a 38% import duty will hurt us.”

He said that despite disruptions faced by some processors in exporting to China, the market was vital to the industry’s success. “The Chinese market is key to the success of our farmers as it is Asian demand driving higher prices. Without this market, we’d be limited to European and US markets and prices would not be nearly as high. We therefore need to look after our Asian clients and ensure that the nuts reach the market legitimately.”