some insights on the n. american fresh produce industry in ... · rapid trade growth between all...

Some Insights on the N. American Fresh Produce Industry in the Context of NAFTA Renegotiation

DR. ROBERTA COOK Dept. of Ag and Resource Economics

Emerita Faculty University of California, Davis

for NAFTA, H-2A, Immigration, and ALRB Conference

April 13, 2018 Copyright @2018 Roberta Cook

Agenda • US international trade in fresh produce (Note:

perishability, the need to harvest and ship daily, seasonality, and consumer demand for year-round availability all drive trade.)

• Changing N. American fresh produce trade landscape

• Fresh tomato sector • Fresh berry sector • Conclusions

US International Trade in Fresh Produce

7.2

1994

imp

1995

Imp

19

96 Imp

19

97 Imp

19

98 Imp

19

99 Imp

20

00 Imp

20

01 Imp

20

02 Imp

20

03 Imp

20

04 Imp

20

05 Imp

20

06 Imp

20

07 Imp

20

08 Imp

20

09 Imp

20

10 Imp

20

11 Imp

20

12 Imp

20

13 Imp

20

14 Imp

20

15 Imp

20

16 Imp

20

17 Imp

US Fresh Produce International Trade: Imports and Exports, by Key Category, Million US$, 1994-2017

Exports: Fresh Fruit 25,000 Exports: Fresh Veg 20,000 Imports: Bananas/plantains

Imports: Other Fresh Fruit 15,000

Imports: Fresh Veg 10,000

5,000

0

Source: US GATS online queries, BICO -10, February 2018 .

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

US Imports of Fresh Fruit and Vegetables from Mexico, 1993-2017 (excludes canned, frozen, juice and dried)

14,000

$11.6 total 12,000$5.5 Veg

10,000 Vegetables 8,000

6,000

4,000

2,000Fruit

-

Million

$

Source: USDA/FAS GATS online query February 2018.

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

0

200

400

600

800

1,000

1,200

1,400

1,600

Million

$ US Imports of Fresh Fruit and Vegetables from Canada, 1993-2017 (excludes canned, frozen, juice and dried)

1,800 $1.6B total

Fruit

Vegetables

Source: USDA/FAS GATS online query February 2018.

US Fresh Produce Imports • Imports usually uncontentious because either they are:

• Contra-seasonal. • US shippers often invested in offshore production and control the marketing to offer yr-round supply to buyers, MEET CONSUMER DEMAND.

• National check-off programs exist that assess domestic and foreign production (e.g. avocados, blueberries). Revenue promotes consumer demand.

• So, a high import share doesn’t necessarily mean contentious trade; tomatoes the main exception.

• Fresh imports often higher priced than domestic.

Fresh fruit and vegetable imports as a share of USfresh utilization/consumption, 2016

Item Vegetables, excl. melons and potatoes Potatoes Cucumbers Sweet Peppers Tomatoes

Fruit, all Melons Excluding Bananas Blueberries

% 31 10 74 60 57 53 38 38 57

Sources: Economic Research Service, USDA Vegetables and Specialties Yearbook, 2017; Economic Research Service, USDA Fruit and Tree Nut Yearbook, 2017.

Snapshot of US Fresh Produce Trade, 2016 • N. American fresh veg trade mainly intra-NAFTA! • Veg exports: 74% Canada, Mexico, 4%. Extra-NAFTA fresh veg exports fragmented.

• Veg imports: 69% Mexico, 16% from Canada. • In contrast to veg, fresh fruit trade is diverse. • Fruit exports: 36% Canada, 11% Mexico, 53% other. • Fruit imports: 44% Mexico, 2% Canada, 54% other. • Climate, agronomics and population size and location explain trade patterns, vs NAFTA.

Mexico’s Role in US Fresh Produce Imports • Tomatoes are Mexico’s #1 fresh produce export=18% of produce exports; 35% of veg exports in 2016. • Bell peppers, chile peppers, cucumbers, eggplant, green beans, asparagus, brussel sprouts, watermelon, limes, avocados, mangoes, grapes, papaya, green onions, berries, sugar snap peas, cilantro many tropical and specialty fruit/veg. • NOT important in leafy greens, broccoli, cauliflower, celery, onions, potatoes, apples, pears, cherries, kiwi, peaches/nectarines/plums, oranges, tangerines, grapefruit, bananas. • Climate/agronomic factors determinant. Examples…

Changing N. American Trade Landscape

Changing N. American Trade Landscape • Rapid trade growth between all countries with

which the US has FTAs, led by intra-NAFTA. • Trade flows represent a combination of various

factors of which FTAs are only one. Shouldexercise care in assigning causality. Examples…

• Exchange rates play a key role. The Trump anti-NAFTA agenda since 2016 has caused the Mexican peso to devalue rel. to US$, makingMexican exports cheaper and more competitive.

• Most US fresh produce tariffs were very lowprior to the implementation of NAFTA in 1994 and afforded little protection to US growers;tariff reductions played small role in import patterns; a few exceptions.

Changing N. American Trade Landscape • Mexico had sizeable tariffs and even more

importantly, quotas; US gained more market access. • Sectors with comparative advantages won. For US,

grains and oilseeds. For Mexico, fresh produce. • NAFTA gave rules of the game, fomenting

investment in Mexico. More important than tariffs. • Integrating produce supply chains are also key. • Technological progress in Mexico major contributor

to higher productivity and competitiveness. • Mexico has been a major beneficiary of growth in

US consumer demand for fresh produce due tohaving the right climates. Demand is the major contributor to export growth!

Changing N. American Trade Landscape • In many crops Mexico has permanent climatic

advantages relative to the US/Canada (due togeography) that are unrelated to trade policy.

• For Mexico and Canada it is greatly advantageousto have duty free and overland access to the largest high income consumer market.

• Mexico is the principal export market for USapples, pears and important for many other freshproduce crops.

• Duties are taxes on consumers, without much benefit to growers as any protection afforded byduties imposed by the US would be eroded byfurther depreciation of peso or $Canadian.

Changing N. American Trade Landscape • Duties against Mexico would incentivize

investment elsewhere as buyers would seek other sources of supply.

• However, for many products alternate supply sources aren’t readily available and shippingdistances limit options.

• Nor are alternate markets readily available.Most fresh produce trade is intra-NAFTA.Intense competition in global markets, andlong distance shipping costs for extra-NAFTA trade constrain trade diversion - anymajor shifts in export markets for all 3NAFTA countries.


• Mexico exports ~90% of fresh produce to USand Canada. Trade diversion of Mexican exportsto other countries difficult. Avocados, table grapes, limes are examples of crops that mayobtain more homes outside N. America.

• If the US erected barriers against Canadatrade diversion would also be difficult. Currently, the majority of Canadian produce exports go to the US.

• In many cases, much production is grownspecifically for export so broad consequences toprotectionism.


•The US has climatic advantages in several crops withlarge exports to Mexico, such as, tree fruit,potatoes, and more. Mexico may seek protection. •Consumers benefit by high quality, affordableproducts. Economies are most efficient when lesscompetitive industries are not artificially protected. Protectionism leads to tit for tat retaliations which impede overall trade and losses outweigh any benefitsaccruing to a small group. •Trade has winners and losers. Better for economic growth to compensate losers than protect lessefficient industries. Consumers are primebeneficiaries of produce trade and healthier for it.

Fresh Tomato Market

Bottom line: Case of non-homogeneous products, substitution, cannibalization, new varieties, and technological change led by protected agriculture. NAFTA plays almost no role in explaining current trade patterns. Hence, tariffs would have small impact on current locations of production.

0

1000

2000

3000

4000

5000

6000

7000

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

US Fresh Tomato Production, Consumption, Imports, andExports, 1990-2015p (includes hothouse, excludes canning and freezing)

million pounds

Consumption

Production

Imports Exports

Source: USDA/ERS, Vegetables and Pulses Yearbook #89011, March 30, 2016.

0 500

1000 1500 2000 2500 3000 3500 4000 4500

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

US Fresh (not for canning or freezing) Field Tomato Production,(excludes hothouse, tomatillo, cherry and grape) 1982-2017

million pounds

Florida

California

Sources: various USDA/NASS Vegetable Annual Reports, including Febuary 2018, and ERS Tomato Series through 2008 for US total.

US Fresh Tomato Imports, All Types, by Key Country, 2000, 2007 & 2011-17 (million pounds)

1,300

224 85

1,609

3,555

365

24

3,944

0 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

Mexico Canada Others Total

Millions

2000 2007 2011 2012 2013

2014 2015 2016 2017

Source: US Department of Commerce, GATS online queries, FAS/USDA website.

209

813

1,471 1,605 1,700

1,947 1,950 2,156 2,194

1,609

2,361

3,287 3,377 3,390 3,418 3,468

3,938 3,944

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2000 2007 2011 2012 2013 2014 2015 2016 2017

Poun

ds (M

illions)

Cherry Grape Hothouse Roma Round Field Total

Total US Fresh Tomato Imports, by Key Tomato Type, All Countries, 2000, 2007 & 2011-17 (millions of pounds)


US Fresh Hothouse Tomato Imports, by Key Country, 2000, 2007, 2009-17, (million pounds)

61 107 42 209

1,627

295

25

1,947 1,839

333

22

2,194

0

500

1,000

1,500

2,000

2,500

Mexico Canada Others Total

Millions 2000 2007 2009 2010 2011 2012

2013 2014 2015 2016 2017


Estimated Area of Protected Culture/Hothouse Tomatoes in Mexico, 1980-2016, Acres (excludes other PC commodities)

34,580 35,000

31,910 31,925

25,807

16,429 13,500

11,479

8,145 5,813

4,603

1,425 2,429 3,109 593

1980 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 2013 2014 2016

Sources: Evolucion de la Oferta Horticola en Mexico, 1989-2009, CAADES, Sept. 27, 2010 and various othersources, including: USDA/FAS GAIN Mexico Tomato Annual Reports, 6/8/14, and 6/1/16; and Cook’s adjustedonline queries from the SAGARPA website, SIAV for 2013 AND SIAPRO for 2011; and information from privatesources. Note: The 6/21/17 USDA GAIN report estimates 37,500 acres for MY 2016/17.

A protected culture operation in Sinaloa, Mexico: A “warm climate” greenhouse

1,479 980 1,283 3,741

1,700 100 200 2,000

35,000

12,194 7,741

54,935

38,179

13,274 9,224

60,677

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Tomatoes Cucumber Peppers Total

Canada USA Mexico N. America

*In Mexico HH includes shade house with much lower yields than greenhouse. Sources: Stat Canada for Canadian area; estimates from AMHPAC and others for Mexico, as researched by Roberta Cook; estimates from Cook for US based on industry research. Note: Tomato share of total HH=63%; cukes=22% share; peppers=15% share of total HH.

N. America: Estimated Area Harvested of Hothouse* Tomatoes, Bell Peppers and Cucumbers, 2016 (acres)

Mexican Fresh Tomato Industry Trends • Total Mexican tomato area declining due to massive

productivity growth using PC. Tomato area: 1990, 85,500 hectares; 2000, 75,800; MY 2016/17, 52-53,000. (USDA/FAS Mexico Tomato Annual GAIN Report, 6/21/2017 and earlier GAIN reports.)

• Sinaloa has always been the primary exporter of fresh tomatoes (open-field and PC) and leads in PC. According to AMHPAC, about 22% of PC area is in Sinaloa, 15% in Jalisco, 12% in Baja CA, 41% in the remainder of Mexico. High tech greenhouses in central Mexico are another game changer.

• For field growers, PC gives food safety advantages, reduced water and labor use/acre, and reduced chemical inputs due to improved disease control.

Historical Perspective

Hydroponic production (coconut substrate) of tomatoes in a greenhouse in Sinaloa, Mexico

Potential Mexican Concerns •Security. •Institutional instability. •Trade disputes. •Partner risk. •Intellectual property right risks. •Corruption, legal structure, transaction costs. •Investment coming from outside the sector which is not market driven. •Water. •Social issues. •Labor.

Fresh Berry Sector

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

US Fresh Strawberry Production, Consumption(Disappearance), Imports, and Exports, 1990-20171 MT (1.232 MMT consumption in 2017)

Consumption

Production

Exports

Source: 2017 Fruit and Tree Nuts Outlook Report, FTS-366, ERS/USDA, March 29, 2018. Includes retail and foodservice.

Metric tons 1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

1Preliminary

Imports

US Fresh Strawberry Imports From Mexico andTotal, 2005-2017, (166,576 MT total in ‘17)

Metric tons Despite the growth, in 2017, imports were equivalent to only

Mexico

Total

60,000

90,000

120,000

150,000

180,000 15% of US production. 99% of Mexican straw exports go to the USA but Mexico exports only 1/3 of what it produces.

30,000

0 2005200620072008200920102011201220132014201520162017

Source: USDA/ERS Fruit and Tree Nut Yearbook, October 2014 and GATS online queries for 2014-2017.

US Fresh Raspberry Imports by Key Country of Origin,1990-2017, (88,109 total MT in ‘17) Metric tons 100,000

80,000 Mexico 60,000

40,000

20,000 Canada Guatemala/Others Chile 0 2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

Source: GATS/FAS/USDA online data queries.

US Fresh Blackberry Imports by Source, 2006-2017, (70,089 MT in 2017) Metric tons

100,000 Total

20,000

40,000

60,000

80,000

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: GATS/FAS/USDA online data query.

0

50,000

100,000

150,000

200,000

250,000

300,000 19

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

11 2

012

201

3 2

014

201

5 2

016

2017

US Fresh Blueberry Production, Disappearance, Imports,and Exports, 1990-2017P, MT (263,993 MT in 2017) Metric tons

Consumption

Production

Imports

Exports

Source: 2017 Fruit and Tree Nuts Outlook Report, FTS-366, ERS/USDA, March 29, 2018. Includes retail and foodservice. 1Preliminary

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

USA Fresh Blueberry Imports by Key Country of Origin, 1990-2017, (145,394 MT in 2017) Metric Tons 80,000 70,000 60,000 50,000 40,000 30,000

Chile Canada Argentina Mexico Other Peru

0 10,000 20,000

Source: GATS/FAS/USDA online data queries.

Tabletop production of strawberries in Mexico

Conclusions •The US has a large fresh produce industry, andexcluding tropicals, produces most of what it consumes. •For some crops (leafy greens), shifting productionregions seasonally enables yr-rd supply within the US. •Traditionally, the strong competitiveness of the USfresh produce industry is because even more than beinglabor-intensive, fruit/veg are knowledge, technology,capital, and marketing-intensive. US advantages include much lower capital costs, infrastructure, R&D, legal system transportation. •Location advantage! US producers are located in oneof the most lucrative consumer markets in the world, and face no trade barriers. •But growth in protected culture and other advantages in Mexico is closing the technological gap in some crops.

Conclusions • Trade diversion would be difficult for all NAFTA

produce players if significant tariffs introduced.

• Benefits to US growers of across-the-board tariffs against Mexico would be eroded by depreciation of peso. Lose-lose for growers and consumers.

• Product-specific duties will cause each side to negotiate tariffs on their import-sensitive crops, transferring the burden from some grower groups to others.

• Each product has it’s own story to tell; cannot generalize.

Conclusions • US consumption growth often due to imports

making produce available yr-round or expansion in S & D of tropicals not grown in the US.

• Locations of production, seasonally, by crop, within each NAFTA country, unlikely to change since climate/agronomics and location and buying power of consumers are the primary contributors.

• Mexico will continue to dominate crops like tomatoes, cukes, bell peppers and US will dominate those in which it has advantages.

• Mexico’s role in berries will grow given natural advantages, technology, labor and US investment.

some insights on the n. american fresh produce industry in ... · rapid trade growth between all...

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