The country, which exploits low labour costs to become the dominant grower of produce like persimmons, pears and asparagus, exported fruit and vegetables worth US$7.2 billion last year, according to data from Rabobank and the United Nations. This amounted to 7.19 per cent of the global trade, behind the Netherlands, the US and top exporter Spain. Increasing volumes of fruit and vegetable exports, particularly to currently small markets like the EU and US, are expected to drive this increase in value, in combination with stronger sales of higher value-added products. "The proportion of added-value processed and prepared products compared to fresh has been increasing," said Patrick Vizzone, head of the bank's food and agricultural advisory and research unit for Asia. And although China has cost advantages over other fruit and vegetable producers in almost all areas - specifically labour, fertilizer and farm costs - some costs are rising quickly and significantly, he warned. "China has historically been a price maker but costs, and therefore export prices, are rising," he told AP-Foodtechnology.com. These include land prices, which have increased by a compound annual growth rate of 14 per cent for vegetable growers between 1998 and 2004, more than for any other type of land use including corn, soya and cotton. These costs have combined with other factors to push up prices for products like berries, seeing a large surge in demand, and apple juice concentrate, which was impacted by a poor crop last year. Higher prices are evident in exports to Japan where new, even stricter controls on pesticides and contamination have stunted volume growth yet the value of vegetable exports are still up by 6 per cent in the first half of 2006. Vizzone warned that it is difficult to predict structural price increases in China. "China is still very competitive but prices have increased, underlining the potential for this trend," he said. China's fresh produce sector should also benefit from government policies to boost rural incomes, suggests Vizzone. "The government is really pulling out all the stops to try to help the rural sector. It cut the agricultural tax last year and for the first time in about eight years, the growth of rural incomes is now on a par with urban areas." But there will also be rising demand for imports, he said. Rising incomes, particularly in China's growing middle class, will lead to higher spend on fruit in particular. "Fruit is seen as more of a luxury compared with vegetables, which are a real staple," said Vizzone. The biggest fruit exporters to China in 2004 were Thailand, the US and the Philippines, with 29 per cent, 16 per cent and 14 per cent respectively, although Vizzone warns that it is difficult to assess imports with much of the fruit entering through grey channels. Export data does however show an increasing trend and this is expected to be a real area of opportunity for international markets, fuelled by growth of the retail sector. Wet markets are still the largest channel for fresh produce sales but in major cities, consumers now buy 55 per cent of their fruit from supermarkets. "Fruit and veg is a destination category for supermarkets and another way for them to grow," said Vizzone. Demand from the retail and other developing sectors like foodservice is also creating opportunities for larger fresh produce processors, many of which are international or joint ventures. "These suppliers have really carved a niche in meeting the strict quality requirements of foodservice," said Vizzone. "And there are ample more opportunities for foreign companies to participate in the sector both as producers and exporters to the industry. Lots of local companies are looking to partner with foreign firms for knowledge transfer." He added that the fruit and vegetable industry is relatively liberalized, allowing for investment for foreign companies.