A farmer sorts out apples at his orchard in Neiqiu County, north China's Hebei Province on November 1, 2017 (XINHUA)
Soon apples will not only be for eating, but also for trading much like commodities such as gold, crude oil and stock indices. On December 22, 2017, China started listing apple futures, the world's first fresh fruit contract, on the Zhengzhou Commodity Exchange in Central China's Henan Province.
"The launch of apple futures will help establish open and transparent market prices for apples, improve the price formation mechanism and provide price guidance for various market participants. It will also offer the market with a new tool for hedging and avoiding price risks, so as to ensure the stable business of related corporations," said Chang Depeng, spokesman of the China Securities Regulatory Commission (CSRC), after the approval of apple futures on December 8.
On December 19, the Zhengzhou Commodity Exchange issued a statement on the details of the apple futures. Apple futures are traded at 10 tons per lot and at a price of 7,800 yuan ($1,200) per ton. The first apple contracts are to be delivered in May, July, October, November and December of 2018, and the minimum trading deposit is 7 percent of the contract value.
Apples, citrus, pears, grapes and bananas are the five most common fruits in China, but over the past decade, it is apples that have grown to claim the largest share of the country's fruit output. In 2015, apples accounted for 35 percent of the production of these five fruits in China.
China is also the largest apple producer and consumer in the world. Open data show that in 2014, China's apple yield reached 40 million tons and in 2016, the apple growing areas in China totaled 2 million hectares with an output of 43.88 million tons, accounting for 57 percent of the world's total apples.
The provinces of Shaanxi, Shandong, Henan, Shanxi, Hebei and Gansu are the major producers of apples in China, having contributed 84 percent of the country's total apple production in 2016. About 90 percent of apples produced in China are for direct consumption, while the remaining 10 percent is consumed after processing.
However, the principal motivation behind the launch of apple futures is to reduce poverty. As part of the statement issued to approve the trading of apple futures, the CSRC said that the launch of apple futures is an important measure in carrying out the country's poverty reduction strategy, as well as a critical arrangement for the futures market to support economic development of poverty-stricken areas and to serve the real economy.
"Apples are a kind of 'poverty-reducing fruit' because the major apple producing areas are very closely aligned with the country's poverty-stricken areas, and so growing apples is an important source of income for local farmers," said the CSRC.
"With the futures market as a bridge, risks in apple growing and business operations can be effectively transferred and farmers can be assured by stable incomes. The launch of apple futures will also further diversify the varieties in the futures market, and in doing so better serve the national economy."
Fang Xinghai, Vice Chairman of the CSRC, said at the launching ceremony of apple futures that in recent years, apple prices had fluctuated seriously, leaving apple-related corporations and apple growers eager to avoid business risks. As a pricing tool, apple futures are of great significance in ensuring the stable income of farmers in poverty-stricken areas and improving the role of the capital market in poverty reduction.
Fang also said that the CSRC is in the process of researching the potential for more agricultural futures such as red dates in order to accelerate the progression of poverty reduction.
Many listed companies involved in the production chain of apples look set to benefit from the launch of the apple futures.
Lontrue Co. Ltd., listed on the Shenzhen Stock Exchange, has been designated by the Zhengzhou Commodity Exchange as the transaction warehouse for apple futures and is allowed to start a delivery service for apple futures as of April 1, 2018. As a company specializing in the export of both dried and fresh fruit, Lontrue has been involved in the growing, processing, storage and sale of these kinds of goods. Its major products include fresh apples and raisins.
Copyedited by Laurence Coulton
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