China - Fruit and vegetable marketing performance

Report No. 1 5658-CHA China Fruit and Vegetable Marketing Performance November 6,1996 Rural and Social Development Operations Division China and Mongolia Department East Asia and Pacific Regional Office Doacmune of te W d Bank  CURRENCY EQUIVALENTS (as of May 1996) Currency Unit= Yuan (Y) $1.00 = Y 8.30 Y 1.00 = $0.12 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System and 1 hectare = 15 mu I jin = 0.5 kg PRINCIPAL ABBREVIATIONS AND ACRONYMS USED GDP - Gross Domestic Product GVAO - Gross Value of Agricultural Output MIT - Ministry of InternalTrade MOA - Ministry of Agriculture SSB - State Statistical Bureau VAT - Value Added Tax Vice President (Acting) Nicholas C. Hope, EAP Director : Nicholas C. Hope, EA2 Division Chief Joseph Goldberg, EA2RS Staff Member Albert Nyberg, EA2RS  CONTENTS PREFACE ................................ , iii EXECUTIVE SUMMARY .v 1. INTRODUCTION .1 A. Sector Overview .1 B. Objectives .2 C. Report Organization .2 2. PRODUCTION AND CONSUMPTION .3 A. Production Structure .3 B. Consumption .5 C. Prices .8 D. Income Impacts on Consumption and Production .9 3. REGULATORY AND POLICY FRAMEWORK .10 A. Regulatory Issues .10 B. Policy .12 C. Market Information .14 4. MARKET STRUCTURE .16 A. The Marketing Chain .17 B. Post-Harvest Handling and Quality Control .19 5. MARKET PERFORMANCE .23 A. Operational and Allocative Efficiency .23 B. Price Transmissivity .26 6. CONCLUSIONS AND RECOMMENDATIONS .30 ANNEX 1: RULES AND REGULATIONS GOVERNING THE USE OF CHEMICALS ON FRUIT AND VEGETABLES .35 STATISTICAL ANNEX .39  - ii - TABLES IN TEXT Table 2.1: Per Capita Purchases (Urban) and Consumption (Rural) of Selected Food Items ..........................................................7 Table 2.2: Expenditure and Own Price Elasticities ..........................................................7 Table 4.1: Free-Market Sales Volume ......................................................... 16 Table 5.1: Beijing Wholesale-Retail Market Margins ...................................................... 27 Table 5.2: Construction of Synthetic Price Margins ......................................................... 28 Table 5.3: Illustrative Price Margins ......................................................... 28 FIGURES IN TEXT Figure 2.1: Consumer Price Seasonal Indices ..........................................................8 Figure 5.1: Seasonal Sales Distribution ......................................................... 25 Figure 5.2: Monthly Distribution of Annual Sales (Three Wholesale Markets) .............. 25  - iii - PREFACE This report is largely based on the findings of a World Bank mission that visited China in October 1995. The mission members were Albert Nyberg (EA2RS-mission leader), Zhengxuan Zhu (EA2CH-Operations Officer, Agriculture), Edward Chobanian (Consultant-Agroindustry), and Donald Taylor (Consultant-Marketing Specialist). The mission worked closely with counterpart staff from the Green Food Development Center of the State Farms Bureau, Ministry of Agriculture, who provided considerable background information, statistical data, and logistical support. Ms. Cheng Conghong (Vice Chairperson) was the principal counterpart and Messrs./Ms. Dou Ming, Li Furong, and Sun Hong accompanied the mission on field visits. Staff of the Ministry of Agriculture, Beijing, Shanghai, Shandong, and Yunnan Municipal/Provincial Bureaus of Agriculture were helpful in providing production and marketing information during many discussions. Particularly helpful and interesting were the numerous State Farm managers, smallholder farmers, exporters, traders and trading company staff, wholesale market managers and staff, and retailers who provided information on market operations.   - v - EXECUTIVE SUMMARY Conclusions 1. A decade of rapid income growth, particularly for urban residents, has led to increased expenditures for fruits and vegetables and increased demand for a wide variety of foods while reducing demand for food staples such as cabbage. This has translated into higher producer prices for vegetables (relatively more stable prices for fruits), a doubling and tripling of vegetable and fruit areas, and increased farmer income. Vegetable production has shifted away from cabbage toward "finer" vegetables- although cabbage remains the most widely grown and consumed vegetable. Fruit production remains concentrated in traditional apples and citrus. 2. Fruit and vegetable marketing has evolved from a planned distribution system to a broad network of competitive and well-integrated markets. Price levels and price changes are rapidly and widely transmitted to market centers across China by networks of wholesalers and traders. Provincial and municipal authorities have intervened modestly in fruit and vegetable factor markets (land and input subsidies, etc.), but the product market has been largely left to the nonpublic sectors. This largely private wholesale- retail marketing system is highly competitive and internally efficient, despite high marketing margins, and has performed impressively over the past decade. Other marketing entities, such as institutional vendors, processors, and exporters exist but they serve niche markets and do not offer competition to the wholesale-retail system. Without competitive systems such as distribution centers, auctions, farmer-retailer contracting, etc., it is not possible to determine or ensure the wholesale-retail system is efficient. 3. Government should maintain a flexible regulatory framework to accommodate the development of more efficient marketing systems. The complexity of future systems will preclude direct government intervention lest efficiency be reduced. Further adjustments in the prevailing marketing system will be necessary to accommodate complex changes in future market channels, institutions, volumes, and composition. High-volume, low-margin systems have developed elsewhere and more efficient alternative marketing structures will evolve in China to provide an increasingly urban population with an increasingly diverse array of food items. The Role of Government in Marketing 4. Reducing quantity and quality losses is the most important initiative for improving market efficiency, increasing farmer incomes, and reducing urban consumer food expenditures. Reducing estimated marketing losses from 30 to 20 percent would save 19 million tons of vegetables for sale and consumption, with a farmgate value of Y 17.5 billion (1994). Various methods are employed in other  - vi - countries to enhance quality and reduce losses but these have not been widely adopted in China, which reflects the lack of understanding of their benefits. Without such information, risk-averse farmers and low-margin traders have no adoption incentive. Over time, these methodologies will become industry norms but adoption could be accelerated by widely demonstrating their benefits. This could be accomplished by, first, establishing a Post-Harvest Research Institute, under the Ministry of Agriculture, to develop systematic information on marketing losses and test alternative methods for reducing those losses. These would include practices such as on-farm precooling of vegetables, farm-level sorting and grading, and technologies such as rigid crates for on- farm harvesting and off-farm transportation, alternative packaging materials, mechanical handling and conveying equipment, alternative transport modes including refrigerated rail/road transport, temporary use of cold storages, etc. Second would be farmer education using traditional training and extension materials plus pilot projects to demonstrate the efficacy of these practices and technologies. 5. Standardized grades would assist in increasing farm income, give consumers more options, permit traders to base their purchase on samples, and improve the usefulness of market information. But equally important, grades are essential for developing the export trade. Grading is implicit at all transfer points, but is not institutionalized. Without Government guidance, grades and standards would emerge over time, but the sector may face multiple and inconsistent grades before an industry standard is agreed. This initiative also would require substantial training of both farmers and marketing staff. 6. Given the potential health risk from toxic residues and unsanitary vegetables, enforcement of existing phytosanitary regulations should be strengthened. Strict adherence to these regulations is necessary to further develop the export market. Farmer training is an important element in improving regulatory compliance. 7. The Government could assist market development by consolidating the marketing information system and making it more comprehensive. To improve the efficiency of production and market decisions, the market information system should be concentrated in one ministry, expanded to include information from sources other than wholesale markets, and distribute quantity information along with price data. Also, situation and outlook information (assessment of production conditions and probable marketings) should be disseminated similar to that currently released by the Ministry of Agriculture for grains and oilseeds. 8. Village-based cooperative marketing organizations would increase farm income by providing participants with increased market power, reducing the price risk of individual farmers, and permitting them to enjoy a portion of the marketing margin. Such organizations are difficult to organize and manage effectively. Consequently, some organizational assistance would probably be required of Government; but it is critical that farmers, not Government control the cooperatives.  - vii - 9. Various producer subsidies through the National and Municipal Vegetable Basket Projects have contributed to increased suburban vegetable production, improved farmer incomes, and made available a wide variety of vegetables at "reasonable" cost. These initiatives have demonstrated the efficacy of "protected" production, which is now widely practiced. Given this success, it is timely to refocus project objectives toward improving marketing efficiency. 10. Discontinue the guidance price policy. It was designed to protect urban consumers from "price gouging" by retailers but it has been relatively ineffective. Given the numerous retailers in urban centers, competition should effectively prevent excessive margins. Another Consideration 11. The abundant labor force, limited land resources, and diverse agroclimatic environment suggests China has a potential comparative advantage in horticultural production. However, this potential should be further studied as this study did not undertake a comparative advantage analysis of horticultural crops. With a comparative advantage, farm income could be increased not only by producing more vegetables to meet increasing domestic requirements, but also to serve the regional export market. Foreign exchange earnings from horticultural exports should be greater than the foreign exchange savings that would result from producing import substitution crops such as grain, oilseeds, and cotton. To exploit that potential, improvements would be required in market infrastructure and product quality.   - 1 - 1. INTRODUCTION 1.1 Horticultural crops comprise one of the most dynamic subsectors of agriculture. China's farmers now produce more than 150 million tons of fruits and vegetables annually, making China the world's largest fruit and vegetable producer. A combination of two major factors has led to this rapid growth. The relaxation of government controls over the subsector permitted farmers to reallocate their resources to more efficient production modes. The subsequent fruit and vegetable supply response was possible only because consumers were demanding more fresh vegetables, which increased prices, thereby sending incentive signals to farmers. Rising fruit and vegetable production increased farmer incomes despite marketing inefficiencies. A. SECTOR OVERVIEW 1.2 Between 1984 and 1994, the Gross Value of Agricultural Output (GVAO) increased from about Y 560 to Y 980 billion (1990 constant terms) implying an average growth rate of about 5.5 percent (Annex Table AL.1). Fruit and vegetable areas are relatively small but, due to their high value, they contribute a disproportionately large share of agricultural output value. The real gross output value of vegetables (including melons) increased at an average annual rate of 10.5 percent between 1984 and 1994 and the share of GVAO contributed by vegetables increased from 6 to 9 percent. A portion of this increase is attributable to changes in the production mix as higher-quality (and higher-value) vegetables were increasingly produced. The output value of fruit production is not reported separately but is included with other perennial tree crops (tea, mulberry, etc.). The importance of cereal production is declining but continues to make the largest contribution to GVAO accounting for 25 percent of agricultural value in 1994. 1.3 China's food self-sufficiency objective has lingered from the prereform period. Self-sufficiency ratios in the two major food components, grain and fruits and vegetables, reflect different pictures. Since 1978, grain self-sufficiency has twice cycled from less than to greater than 100 percent and in 1995 again became a net importer. Alternatively, fruit and vegetable self-sufficiency has consistently improved with net exports continuing to increase (1985-94). 1.4 Per capita consumption of fruits and vegetables now exceeds that of food grain both in terms of quantity and value. Consumer expenditures for vegetables have increased rapidly, although the quantity consumed has declined as consumption patterns have shifted away from coarse to "fine" vegetables. Also, far greater quantities of both fruits and vegetables are consumed by high-income earners than by low-income earners.  - 2 - B. OBJECTIVES 1.5 As the Government disengaged from direct intervention in fruit and vegetable marketing, the market structure was transformed into a highly competitive wholesale- retail marketing system, which has adapted well to the rapidly changing demand and supply situation. However, the marketing process remains costly. The overall purposes of this study were to assist in: (a) identifying means and methods of improving the marketing process that would contribute to further increasing farmer incomes, and (b) better defining Government's role in regulating markets while relying on market forces to promote alternative marketing systems and achieve supply-demand balances. 1.6 Specific objectives of the study were to: (a) determine a policy and regulatory environment conducive to efficient food marketing; (b) identify government marketing roles in information services and regulatory issues such as grades and standards, health and hygiene, etc.; (c) identify constraints to the adoption of practices and technology which would improve marketing efficiency; (d) assess the status of competitive market structures, marketing institutions and channels and prospects for future development; and (e) determine if "price spikes" occurred in the fruit and vegetable market (as occurred in food grain prices) during 1993-95 and, if so, identify their causes. C. REPORT ORGANIZATION 1.7 Recent changes in fruit and vegetable supplies and farm prices are reviewed in the first section of Chapter 2. Secondly, demand and consumption and the future implication of income changes on demand is discussed. Lastly, it reviews consumer prices. Chapter 3 reviews the regulatory and policy framework applying to fruits and vegetable markets and discusses the role of government in: (a) introducing-enforcing grades and standards, and (b) collecting-disseminating market information. Market structures are discussed in Chapter 4, including the problems of post-harvest handling and quality control. Chapter 5 analyzes market performance in terms of efficiency and price transmission. Chapter 6 contains the study's conclusions and recommendations.  -3- 2. PRODUCTION AND CONSUMPTION A. PRODUCTION STRUCTURE 2.1 Almost all vegetables are produced on small farms. Statistical data suggest that 2 to 3 percent of the vegetable and melon areas are on State Farms, but much of this land is subleased to individual farmers and the mode of production is distinctly small farm; however, the State Farm may perform some of the marketing functions. The structure of State Farms better lends itself to fruit production and marketing and they account for 2 to 3 percent of actual fruit production. 2.2 The vegetable area (including melons), of 10 million hectares (ha) in 1994, occupies about 10 percent of the planted agricultural area of China, but vegetable land is double and triple cropped, resulting in vegetables occupying a smaller proportion of the cultivated area. Anecdotal evidence suggests that area and production under "protected cultivation" (plastic tunnels and greenhouses) have increased very rapidly, but official statistics do not separately record this information. As orchards are perennial crops, their cultivated and planted areas coincide (7.2 million ha in 1994). Sources of Growth 2.3 Detailed area and production data by vegetable variety are limited but suggest that vegetable subsector growth is attributable to the expansion of land allocated to vegetable production, and changes in vegetable composition with "fine" vegetables (snow peas, green garlic, green beans, cucumber, etc.) replacing "staple" vegetables (Chinese cabbage, round cabbage, radish, etc.). Cabbage area declined by 100,000 ha between 1989 and 1991, but still occupied 19 percent of the total vegetable area. The area planted to many of the "fine" vegetables increased by 20 percent or more over the same three years. Although the vegetable area is expanding, total vegetable production and average yields are declining because lower-yielding fine vegetables are replacing high-yielding cabbage. 2.4 The fruit area and production increased by more than 225 and 250 percent, respectively, over the decade; suggesting that area increases accounted for most of the increased production. Apples and citrus are the most important fruits, collectively accounting for 50 percent of fruit production. Pears, bananas, and grapes comprise the second tier, accounting for a further 25 percent of production; numerous temperate and tropical fruits comprise the balance. 2.5 In the absence of an age distribution of trees, it is difficult to assess productivity changes in orchard crops as different varieties commence and reach full production at various ages. Given this caveat, it appears that virtually all of the production increases of  - 4 - 300 and 90 percent for apples and pears were attributable to expanded areas. Citrus production increased by 275 percent, assisted by a 50 percent increase in yield. Grape and banana production quadrupled and yields doubled. It must be appreciated that grapes and bananas each occupy only about 2 percent of the fruit orchard area. Locations of Growth 2.6 The total vegetable area doubled between 1984 and 1994, in part, due to implementation of the Vegetable Basket Project (paras. 3.12-3.14), which included infrastructure and production input subsidies. Shandong expanded its vegetable area by 200 percent over the decade and surpassed Sichuan as the leading vegetable province in 1994 (in terms of area). The highest rate of vegetable growth was in the group of southern provinces (Guangdong, Guangxi, Fujian, and Hainan), which more than tripled the planted areas. Other important vegetable-producing provinces include Hubei, Henan, and Jiangsu. The area planted to melons fluctuated widely, but generally increased over the 1985-94 decade. The major melon production areas are the North China Plain and the lower Yangtze valley. 2.7 Apples are produced throughout the country, except for the southern tier of provinces, but are concentrated in the high-yielding North China Plain. Citrus production is located primarily in the southern and coastal provinces. Banana production is highly concentrated in the southern provinces, particularly Guangdong, which produces more than 50 percent of the nation's output. Although grapes are widely scattered across the country, there are two concentrations, Xinjiang Autonomous Region and the North China Plain; each area contributes about one-third of national production. National pear production, which occurs in every province, increased the least of the five major fruits. Trade Impacts on Supply 2.8 A wide variety of fresh and selected dried fruits-vegetables are imported but the volume is minor, typically less than 1,000 tons per variety, except for tropical fruits, which are imported in significant quantity. However, exports of fresh/dried fruits- vegetables have increased rapidly in recent years, totaling over 3.5 million tons and $3.0 billion in 1994 and 1995. Exports reduced domestic supplies by about 2 percent. 2.9 Although international trade has a relatively unimportant supply impact, the trade statistics for fruits reveal important quality aspects of production and consumption. Vegetable statistics are too aggregated to evaluate individual varieties. About 265,000 tons of apples were exported during the three-year period 1992-94. The nominal export price (unit value) was $413 per ton. Apple imports, although small, have doubled in each of the last five years; 1994 imports were 3,438 tons. The average import price during 1992-94 was $925 per ton, or more than double the export unit value. This demonstrates a small but growing demand for high-quality, high-value produce that is not met from domestic producers. It also demonstrates the need to introduce grades and standards into the food marketing system. The same pattern emerges for orange exports and imports.  The average unit value of exports and imports was $372 and $590 per ton, respectively, for 1992-94; meanwhile the "world" price of oranges' averaged $444 per ton. 2.10 As horticultural production is labor-intensive and given China's resource endowment, especially the diverse agroclimatic environment, it should enjoy a comparative advantage in fruit and vegetable production. Thus, in addition to serving the large domestic market, Chinese production could potentially service a regional export market. However, to exploit that potential, quality must be improved and additional infrastructure must be developed. This further illustrates the need for the introduction and usage of standardized grades. Prices are Increasing 2.11 National annual average farmgate prices for fresh vegetables (collectively) and individually for apples and citrus/oranges were reported until 1992, and subsequently discontinued (Annex Table A4.1). However, price indices have been computed through 1994. These prices and price indices reflect not only price changes in the various commodities, but also incorporates quality and composition changes. The index of fresh vegetable prices (farmgate) increased rapidly from the mid-1980s. Prices doubled between 1985 and 1990, and doubled again by 1994, increasing much more rapidly than the overall farm product price index and providing an important incentive for farmers to produce more vegetables. In contrast, the farmgate fruit price index increased by only 45 and 20 percent, respectively, during the two time intervals. 2.12 Fresh vegetable prices, in constant terms, increased by 150 percent between 1984 and 1992, although they experienced a "down cycle" in 1988-89. The real price of apples and citrus/oranges reached a peak in 1988 and plateaued for apples; but citrus/orange prices declined and in 1992 were below 1984 prices. 2.13 There is anecdotal evidence indicating a supply shift is occurring in vegetable production, but without more detailed statistics it is not possible to measure this shift. Given the increasing real average prices, it appears demand for fine, high-quality vegetables is increasing more rapidly than supply. The price increases are a partial reflection of the composition change with less coarse and more fine vegetables produced/sold. Alternatively, it appears that increases in apple and citrus production have exceeded demand increases. B. CONSUMPTION 2.14 Cross-section data from the annual urban consumption and expenditure surveys conducted by the State Statistical Bureau (SSB) clearly indicate that per capita consumption of fruits and vegetables increase as incomes increase; this is fully consistent World Bank; Commodity Markets and the Developing Countries, A World Bank Quarterly. EEC indicative imnport price (CIF) Paris, navel oranges, Mediterranean Exporters.  - 6 - with consumption theory. However, these data just as clearly indicate that vegetable consumption declined during the 1985-94 decade-a period when urban incomes increased rapidly. 2.15 It is difficult to reconcile these two data sets. But, declining per capita vegetable consumption may be partially explained by the changing preference of Chinese consumers for improved quality and less quantity. Earlier vegetable consumption consisted primarily of coarse vegetables, such as cabbage, but as incomes increased over time consumers prefer more "fine" vegetables. [Although declining in importance, cabbage remains the most important vegetable in the diet, 32.3 kilograms (kg)/capita in 1994.] 2.16 Other possible explanations for declining vegetable consumption include: (a) vegetable purchase statistics in earlier years overstated consumption as substantial wastage occurred-particularly in winter-stored vegetables, such as cabbage; and (b) improved grading, quality control, and marketing increased the edible proportion of the vegetables marketed; thus, losses formerly absorbed by consumers are now considered post-harvest losses. 2.17 Parallel changes in per capita consumption of grain and fresh vegetables by urban and rural consumers are illustrated in Table 2.1. Fruits and vegetables are the most important component of urban diets in both expenditure and volume terms. Urban per capita fresh vegetable consumption remained relatively stable during the 1980s but started to decline in 1990; by 1994 consurnption was about 20 percent below the 1988 peak of 147 kg. Between 1992 and 1994, per capita consumption of fresh vegetables declined marginally (from 124.9 to 120.7 kg) but expenditure increased more than 50 percent. This further indicates the shift from low- to high-quality (price) vegetables and in the face of rapid price increases confirms a high expenditure elasticity for vegetables. Consumers in the highest income decile consume about 40 percent more fresh vegetables than consumers in the lowest income decile. Urban fruit consumption data are available only since 1992 and have averaged about 40 kg per capita. Consumers in the highest income decile consume about 100 percent more fruit than those in the lowest decile. Rural household consumption of fresh vegetables reportedly declined from a 1984 peak of 140 to 107 kg/capita in 1994 with a precipitous decline between 1992 and 1993. In the absence of a major calamity, such a decline seems improbable and it is likely that a change occurred in survey techniques, methodology, or definition. Elasticity Coefficients 2.18 Several scholars have estimated income (or expenditure) and price elasticity coefficients for selected food items. Some of the more recent are those estimated by Fan, et al.,2 Gao, et al.3, and Chern and Wang.4 Different models were used, different 2 Fan, Shenggen, E. Wailes, and G. Cramer, "Household Demand in Rural China: A Two-Stage LES- AIDS Model," American Journal ofAgricultural Economics, Vol. 77 (February 1995), pp. 54-62.  - 7 - disaggregation levels were employed (Fan, et al. analyzed only rural households and Gao, et al. analyzed only urban households), and varying results were obtained. Chern and Wang used a more sophisticated model and estimated elasticities under conditions of nonrationing and rationing, using quadratic expenditure systems, and are summarized in Table 2.2. TABLE 2.1: PER CAPITA PURCHASES (URBAN) AND CONSUMPTION (RURAL) OF SELECTED FOOD ITEMS (kg/capita) Urban Consumers Rural Consumers Year Grain Fresh Vegetables Grain /a Fresh Vegetables 1980 257.0 127.0 1981 145.4 152.3 256.0 124.0 1982 144.6 159.1 260.0 132.0 1983 144.5 165.0 260.0 131.0 1984 142.1 149.0 267.0 140.0 1985 134.8 144.4 257.0 131.0 1986 137.9 148.3 259.0 134.0 1987 133.9 142.6 259.0 130.0 1988 137.2 147.0 260.0 130.0 1989 133.9 144.6 262.0 133.0 1990 130.7 138.7 262.0 134.0 1991 127.9 132.2 255.5 127.0 1992 111.5 124.9 250.5 129.1 1993 97.8 120.6 266.0 107.4/l 1994 101.7 120.7 260.6 107.9/l /a Trade grain (unprocessed). Lb There is no official explanation for the precipitous decline in consumption between 1992 and 1993. Source: China Statistical Yearbook, various issues. TABLE 2.2: EXPENDITURE AND OWN PRICE ELASTICITIES /a No rationing lk Rationing l2 Item Expenditure Own Price Expenditure Own Price Grain -0.06 0.05 - - Fresh Vegetables 0.47 -0.42 -0.36 -0.59 Dry Vegetables 1.15 -0.88 -1.08 -0.97 Fruits 1.58 -1.09 -0.88 -0.95 /a Linear systems estimates yielded statistically similar coefficients; thus, only the quadratic system estimates are listed. Lb As both grain and vegetable oil were rationed during the 1985-90 period, the systems were estimated using two alternative specifications; the first assumed all grain and vegetable oil were unrationed market purchases, and the second assumed all grain and vegetable oil expenditures were quota ration purchases with coupons. 3 Gao, X.M., E. Wailes, and G. Cramer, "Partial Rationing and Chinese Urban Household Food Demand Analysis," Journal of Comparative Economics, Vol. 22 (1996), pp. 43-62. 4 Chem, Wen S. and G. Wang, "The Engel Function and Complete Food Demand System for Chinese Urban Households," China Economic Review, Vol. 4, No. 1, 1994, pp. 35-57.  - 8 - C. PRICES Consumer Prices 2.19 Since 1980, retail vegetable prices have increased consistently and more rapidly than retail prices in general. The All Retail Price Index increased 250 percent between 1978 and 1994, while fresh vegetables increased by 500 percent (85 percent increase between 1990 and 1994). Government intervention in the vegetable market has been minor since the mid-1980s and retail vegetable prices have generally moved in parallel with farmgate prices. Seasonal Prices5 2.20 Some vegetables are available for only a few months during and immediately following harvest as they are too perishable or of too little value to store fresh, but many vegetable varieties are available year-round as winter crops are either grown in southern locations or in sheltered production facilities (greenhouses and plastic tunnels). Storable fruits are placed in cold storage following harvest for off-season consumption. 2.21 A seasonal price index was calculated for Chinese cabbage to represent a traditional vegetable "staple." Also, fresh vegetable and fresh fruit seasonal price indices were constructed by consolidating six vegetable price indices (tomatoes, cucumbers, sweet peppers, celery, eggplant, and cauliflower) and three fruit indices (apples, pears, and oranges). The indices are represented in Figure 2.1. The seasonal index starts with September rather than January to accommodate Chinese cabbage, which is generally available for only 7 to 8 months of the year. FIGURE 2.1: CONSUMER PRICE SEASONAL INDICES 160 14 0 - - - - - - - - - - - - - - 40 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug +--Fruit ---Vegetables +-Cabbage] 5 Derived from monthly retail prices in 20 major cities using 1988 to 1995 data.  - 9 - 2.22 Cabbage and fine vegetable prices follow traditional seasonal patterns, which are very low during summer, increasing during autumn and winter to reach peaks in early spring. The volatility of individual vegetables is much greater than indicated by the aggregate index as individual vegetable price peaks may be four times the level of price lows. Despite large increases in winter greenhouse production over the past several years, there is no indication that summer-winter price differentials have diminished. Separate indices were constructed for a few cities (Beijing, Shanghai, Shenyang, Wuhan, and Chengdu) to evaluate seasonal price variation geographically. The only discernible difference was the tendency for more volatile prices to prevail in northern cities and less volatility in the south. There is no evidence of abnormal price volatility, or "spikes," in vegetable prices in late 1993 or early 1994. 2.23 Fruits mature and are harvested over a 2- to 3-month period. Fruits have better storability than vegetables; consequently, fruit prices have less seasonal volatility than vegetables. The fruit price index is lowest during harvest months, and gradually increases (consistent with storage costs) over the winter and peaks just prior to the following harvest. Intraseasonal price volatility is