What do growing oranges in a poor Chinese village and Hollywood films such as Gladiator have in common? Not much, except the Three Gorges Citrus Technology Centre, an orange growing project in a small rural township in Chongqing build by the world?s second largest media group, Vivendi Universal. The media conglomerate sells movies and music in China. It also has multi-million dollar conrtacts to build waterworks in Tianjin and Chengdu. Its most unusual project has limited commercial objectives except to enhance Vivendi Universal?s corporate image in China.
The venture, based in the remote township of Xinli in Zhongxian county three hours by car from Chongqing, is to supply 1.2m young orange trees grown locally from imported seeds to Chinese farmers by 2005. The 40,000 rural households involved are expected to farm the orange-processing plant. If all goes well, 70,000 tonnes of juice will be produced from a total of 150,000 tonnes of fruit a year. Farmers in this area will then earn more than their current meager per capita annual income of US$250-300. China will also have made a big step forward in developing a nascent orange juice industry using home-grown fruit.
The project is a test to see if a citrus industry, one of the weakest sectors of China?s agri-business, can develop successfully with foreign help. It is also an interesting case study of how useful corporate philanthropy can be for foreign companies in China.
Overseas Chinese businessmen have practiced such philanthropy for decades, building bridges, schools and museums, often in their own hometown, to express patriotism to the motherland and earn goodwill. An increasing number of foreign firms are also now active in non-commercial activities, although many are not entirely philanthropic.
Vivendi Universal?s orange project, howver, generates no income or profit, only goodwill. The prime mover behind it is Mr. Edgar Bronfman, managing director of Vivendi Universal. Bronfman had this idea when he was chairman of Seagram, the Canada-based multinational that sold movies, liquor and fruit juice to China.
Last year, Seagram merged with the French firm Vivendi in a US$34bn deal to form the new media giant, Vivendi Universal. Mr. Jeffrey Muir, director of public policy of Vivendi Universal and managing director of the orange project, says the merger has not affected the venture in Chongqing. Mr. Jean-Marie Messier, chairman of the new group, has written a letter to the mayor of Chongqing, confirming his group's continued strong commitment to the venture.
China's juice potential
Current consumption of orange juice in China is estimated at 128,000 tonnes of single-strength juice. This represents a consumption level of 0.Ikg per person, compared with an estimated 5.3kg per person of citrus as fresh fruit.
China is the world's third largest producer of citrus fruit and is expected to over-take Mexico as the third largest producer of oranges in the next decade. It is the largest citrus producer in Asia, mostly of mandarins and tangerines. China is also the only East Asian country with significant production of sweet oranges and with the potential to become a major producer of processing variety oranges.
Bronfman began exploring the idea of an orange-juice processing project in the 1990s when he noticed that at banquets many Chinese officials were drinking fruit juice rather than liquor. Bronfman's idea was to grow oranges in China for processing by one of Seagram's subsidiaries, Tropicana, the famous fruit-juice label.
Investing in an agricultural project also helps to improve the image of a company that sells Martell, Chivas Regal and other alcoholic brands in China. "We knew that, if we wished to be a serious player in China, there would be pressure to make some investment locally," says Muir.
After many feasibility studies, Seagram chose Zhongxian in Chongqing for the project because of its mild winters, long hours of sunshine and sufficient rain to help wash away the pests. Zhongxian particularly welcomes outside investment to boost the local economy, as many of its farmers will be displaced by the building of the Three Gorges dam along the Yangtze River.
In November 1997, Seagram signed an agreement with the Chongqing government and the Three Gorges Construction Group to initiate a research, production, and processing and marketing project to build a modem orange juice industry. The construction company was under the state agency Three Gorges Relocation Bureau before it was privatised recently.
Vivendi Universal's job is to build a technical centre, operate an orange nursery and develop demonstration groves. The Chinese side is to acquire from the farmers land required for the groves, to build supporting infrastructure and to contract out the groves to farmers to grow oranges.
The project, which helps the rural poor, has the enthusiastic support of local authorities, says Muir. Nonetheless, there have been a few disagreements between the foreign and Chinese parties, mainly over technical issues. There was, for example, a serious clash over planting density, he says. The Chinese side wanted to plant 50-60 trees per mu (one mu is 0.066 hectares), so that farmers could generate more income. Seagram's agricultural experts said that, to maintain high yields in the long term, it was better to have 24 trees per mu. Eventually, a compromise was reached – an average of 40 trees per mu.
The venture, now in its fifth year of operation, is on schedule, thanks to its modern facilities and expertise provided by visiting foreign experts. A spacious technical centre with a huge signboard of Vivend Universal stands amid hilly green fields. There are several nurseries, developing close to one million rootstocks of Valencia, Hamlin and other varieties of oranges. "I though it would be difficult to grow citrus here, but if you are innovative, you will be surprised what you can do," says Mr. Rene Trevino general manager of the project.
In late June, the first batch of 150,000 young orange trees left the nurseries to go tc the farms. Farmers will need to grow the trees for another four to five years before they will bear fruit.
How much corporate goodwill has Vivendi Universal generated so far from the project? Quite a lot, judging from the attention the project has received from the government and domestic media.
Many top officials, including a deputy chairman of the National People's Congress. have visited the centre. The influential China Central Television has covered the project several times. Local officials say that the project receives favourable coverage because it is one of the very few foreign agricultural ventures in such a remote inland area.
In another sign of official approval, the local Zhongxian county government plans to extend the acreage from 65,000 mu to 100,000 mu eventually.
Xinli farmers interviewed appear happy with the project. One farmer whose land has been used for the project's demonstration grove received Yn3,000 in compensation. He has since leased another small plot of land and also earns extra income from helping out in the centre's demonstration groves. In total, the project employs nearly 1,000 farmers on a part-time basis, although it has a core staff of only twenty.
Despite its success so far, the orange project faces several uncertainties. Most important is Vivendi Universal's commitment to the project, having sold Tropicana, which was sup-posed to buy the oranges for juice processing, to PepsiCo in 1998. Orange juice does not fit easily in a business whose focus is entertainment, not drinks. There is now no direct commercial reason for the entertainment group to invest in an orange juice project. However, Muir argues that there is already "the immediate benefit of being perceived as honourable." In the long run, he explains, "people will remember we helped kick-start China's orange-juice industry."
Muir stresses that Bronfman, whose family is the single largest shareholder of the merged group, continues to have a personal interest in the project. Bronfman personally donated US$20,000 to build a primary school, which bears his name, to replace one demolished to make way for the technical centre.
Another uncertainty is how well the orange trees will grow in this part of China. Trevino's experience in the south-west region of Guangxi shows the unpredictable nature of agricultural projects. While working there as a plantation manager for the leading fruit juice brand Dole in 1994-97, he oversaw the development of 3,000 hectares of forest into an orange plantation only to see it end in failure because of the spread of the pest, the canker fungus.
So far, the weather has been kind. It is now up to the farmers in Zhongxian to nurture the young plants into fruit-bearing trees. The technical centre will provide them with training, while the Chinese partners will build the infrastructure and organise the farmers to do the work.
Another challenge is to find a new partner to build the juice-processing plant, at the latest by 2003, now that Tropicana is out of the project. Muir does not anticipate a big problem in identifying a partner, given the huge potential of the product in China. He points to industry predictions that China's orange-juice consumption will increase ten-fold between now and 2005, reaching to 1.3m tonnes. So confident is he about the future that he even has a name for the product, the Three Gorges Orange Juice, which may one day appear on banquet tables alongside mao tai and other famous Chinese drinks.
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