China: a garlic powerhouse
An increasingly popular vegetable for its health benefits, garlic made a financial splash in the international market in the late 1980s and early 1990s, the production influx nosedived prices, edged out producers, and challenged existing supply chains. As global demand for garlic continues to increase, global production of garlic has in general remained relatively flat, with the notable exception of Chinese production. Hectares of garlic harvested in China increased by nearly three times from 1970 to 2013.
This increase in output meant that in the 1990s cheap garlic from China flooded the market, threatening the solvency of garlic growers all over the world and sparking an international response. For example, when Chinese garlic first appeared in the US at half the cost of domestic garlic, the US government instituted a 377 percent tariff on imported garlic, the highest tariff imposed on any imported product at the time. In another instance, Chinese garlic provoked a trade war between China and South Korea. In 1999, South Korea forced a 315 percent tariff on garlic imports from China, to which China responded with a retaliatory trade restriction on imports of mobile phones and polyethylene from Korea. The antagonism ended when Korea agreed to substantially reduce its garlic import duty in 2000.
This influx of garlic can be attributed, in part, to China’s agricultural policy change in the 1980s. Decollectivized farms gave individual farmers greater choices in crop selection, which produced a more competitive market that could respond to demand. Private marketing, an influx of capital, and excessive fertilizer use also helped Chinese farmers to not only feed 22 percent of the world’s population on 7 percent of the world’s arable land but also to export globally.
Chinese garlic production possesses many comparative advantages, which has initiated its massive exportation from the 1990s to the present. In 1993, the year that the EU first restricted Chinese garlic imports, producer prices per tonne for garlic in China were three times cheaper than in Spain, the largest European producer of garlic. While low labor costs certainly contribute to this pervasive price discrepancy, many farmers around the globe claim that irresponsible farming practices allow for the cheap production of garlic. Chinese garlic producers frequently bleach their garlic and sell a poor quality good containing mold or insect damage. Therefore, health concerns also surrounded the decision to limit the amount of Chinese garlic to enter the European market.
Regardless of health concerns, aided by cheap prices, demand for garlic in general continued to grow. China gained a larger share in the market when it entered the World Trade Organization (WTO) in 2001, which has allowed for a massive increase in its exportation of garlic worldwide.
The importation of garlic in the United Kingdom illustrates the rapid rise of Chinese garlic in European markets. The tonnage of Chinese garlic imported to the UK increased 13-fold from 1989 to 1993 so that it would almost equal the UK’s supply of garlic from the rest of Europe. Because of this, Chinese garlic’s duty-free access to the European Union halted in 1993 when the European Commission established a 33,700 tonne quota. This protectionist measure helped prevent the total collapse of garlic production in EU member nations such as Spain, Italy, and France.
The damage done to buyers prompted EU officials to create a longer term solution to Europe’s garlic dilemma in 2001, when China entered the WTO, where all garlic that exceeded the preset quota limit would be subject to a 9.6 percent ad valorem tariff and an additional fee of 1,200 euros per tonne. Despite the steep cost, Chinese garlic’s presence in European markets continued to grow. Even with an increase in the total quota to 46,075 tonnes per year made in 2014, European demand for Chinese garlic continues to outstrip this quota limit, causing many importers to face heavy European taxation. To avoid these costs, a complex system of smuggling has arisen throughout Europe to circumvent the European Union’s protectionist measures. The European Anti-fraud Office estimated in 2006 that at least 60 million euros had been lost from Chinese garlic smuggling. At the time of the estimate, among all agriculture-related investigations by the European Anti-fraud Office, Chinese garlic ranked third in number of cases, just behind sugar and meat.
European state prosecutors have found that garlic is being smuggled through multiple schemes. The EU has seen garlic imports rise from countries it had traditionally not imported from, such as Thailand and Norway, as Chinese garlic is smuggled through other countries and reloaded into new containers before arriving in the EU. Some of these countries are countries with whom the EU has preferential agreements with, such as Egypt or Morocco, countries for which normal duties do not apply. Sometimes Chinese garlic is directly shipped to the EU while certificates of origin are completely falsified or illegally issued by local authorities. In 2013, Swedish prosecutors found that two garlic importers had shipped 10 million euros worth of Chinese garlic to Norway, a non-EU state where garlic is not taxed on imports, and then smuggled the garlic to Sweden and the rest of the EU.
In some cases, local authorities have unknowingly assisted in garlic smuggling by neglecting to check shipments. Garlic is also smuggled into the EU through a misdeclaration of goods, where fresh garlic will be declared as a commodity such as ginger or onions. Fresh garlic can also be misdeclared as frozen or dried garlic for which far lower duties apply. The UK, for example, was fined 15 million pounds by the EU for failing to charge enough duty on Chinese garlic imports. These imports were classified as frozen garlic, which has a lower tariff rate than fresh garlic. Custom duties are collected by EU member states on behalf of the EU and paid to the common EU budget as part of each member state’s annual contributions. As Brexit will allow the UK to negotiate its own trade deals with non-EU countries, it will be interesting to see how the country chooses to manage its garlic trade.
The future for garlic
Both a growing affinity for its flavor and an appreciation of its health benefits, will lead to a continued expansion of global demand for garlic. However, unlike many other vegetables, it takes years for a garlic crop to become large enough to supply the market. On average, each plant’s six to 12 cloves result in only six to 12 new plants —far fewer than the hundreds of plants possible from other vegetable seeds. As China continues to dominate global garlic production, it will become increasingly difficult for other countries to make the investment to jumpstart domestic garlic production. As a matter of fact, garlic production in many European countries has only decreased as Chinese garlic production has risen.
Currently, the EU, United States, Canada, Thailand, Mexico, and Israel all have import tariffs against Chinese garlic. Unfortunately, these tariffs were only able to halt the flow of imported Chinese garlic for a short period of time; soon after, importers found loopholes that enabled global garlic smuggling. If these loopholes are not addressed and garlic demand continues to grow with no new source of production, garlic smuggling will likely only get worse.