No speaker at The New York Produce Show and Conference has won more consistent praise than Roberta Cook, Cooperative Extension Marketing Economist in the Dept. of Agriculture and Resource Economics at UC Davis. Her information-dense presentations leave the listener not only with ideas, but with the data necessary to evaluate the ideas and applicability to their own business with plans for the future. In the past, Roberta has presented on numerous topics including these:
Dr. Roberta Cook Will Talk About Increasing Produce Consumption At Global Trade Symposium
This year, in line with the Global Trade Symposium’s theme of “disruption,” she has prepared a thought-provoking portrait of Mexico, analyzing how a confluence of technology – such as shade houses for tomatoes — and new markets, such as the Asian market for berries, is transformative in the place Mexico occupies in the produce world.
We asked Pundit Investigator and Special Projects Editor Mira Slot to find out more:
Dr. Roberta Cook
Cooperative Extension Marketing Economist
Dept. of Agriculture and Resource Economics
University of California
Davis, California
Q: We’re so pleased you’ll be presenting again at the Global Trade Symposium. You tackle complex topics with a discerning perspective, and attendees praise your invaluable insights. This year’s talk surely will continue on those lines as you reveal how Mexico is broadening its competitive reach, primed to penetrate new global markets. What else should attendees know to pique their interest?
A: I’m bringing in several discussions under a central umbrella to tell a broader story about Mexico’s emerging role in fresh produce international trade.
The latest news is that Mexico just got access to China for raspberries and blackberries. I can verify that the agreement has now been signed by both countries so the document is official and Mexico hopes to ship by the end of this year, although that is yet to tell. So Mexico is gaining market access in Asia, while simultaneously becoming a more important supplier to the U.S., and attempting to diversify its markets internationally as well.
Q: Do you see this as a tipping point? What are the major shifts in play, and how could these changes impact different segments of the U.S. produce industry?
A: The first key point is the changing relative size of the U.S. fresh fruit import countries of origin. There is no change in fresh vegetables, where Mexico has always represented about two-thirds of our imports.
For context, more than 85 percent of what Mexico exports in fresh fruits and vegetables goes to the United States, and this has been the case forever, since it started developing an export industry. A little goes to Canada, since Mexico, having a long land border with the United States, is then being able to go on through the United States to Canada, another important market in terms of per capita income. Although small — 32 million people or so — you add to that the U.S. population and you’re talking about a lot of people living in high income countries right next to Mexico with no need to put the products on the shelf. So it makes sense that the U.S. is Mexico’s primary market.
Now for years, Mexico has attempted to diversify its market, and actually it faces a lot of the same problems we do. For example, many years ago, the U.S. and the California industry lost a lot of our export markets to the UK and the European Continent as they developed more important sources of supply in Southern Europe and also from Africa and other places.
Q: Where is Mexico making the most inroads? You say the dynamic shifts are occurring in the fresh fruit trade. Why?
A: One of the messages to understand is that you have to differentiate between fresh fruit trade and fresh vegetable trade. Vegetable trade is primarily intra NAFTA, going back and forth in different directions depending on the time of year, between Canada, the U.S. and Mexico. This is true for all three countries. We’re importing and exporting mainly through our NAFTA partners. This is just because fresh vegetables often have greater perishability than many of the fruits that are shipped in large volumes internationally, like oranges, which have long shelf life, and apples that can be controlled with atmosphere storage, table grapes, and grapefruit.
That’s why fresh fruit trade for important players tends to be diversified. We import fruits from many countries and export fruit to many countries. Not so with vegetables. I want to make that distinction.
Q: So what’s happening with Mexico’s export markets? Is Mexico strengthening and/or realigning its competitive trade position? And if so, in what ways?
A: Mexico has been more typically a fresh vegetable exporter than a fresh fruit exporter. That’s a key point. That’s made Mexico more dependent on the U.S., and it hasn’t been able to diversity vegetable exports, just like we haven’t.
Pass over to where we are today… Mexico over the years has developed a more important fresh table grape export industry. Demographics in the United States have driven demand for all the tropical fruits, so mangos, papayas, limes, as well as avocados {which I put on the fruit side) – all those things that Mexico plays an important role in.
Now, if you look at the composition of what Mexico exports, the share of fresh fruits is increasing. And Mexico is being given a greater possibility of expanding export markets.
Q: You’ve highlighted tropicals, but what is happening in the berry markets? Aren’t berries more challenging to export due to their more delicate characteristics and shelf life issues?
A: As global demand for tropical fruits increases, it has enabled Mexico to start diversifying export markets. In addition to that, the berry industry is exploding internationally, and Mexico is playing a growing role in berries. [Editor’s note: Dr. Cook discusses this evolving phenomenon further down in this piece].
Q: Could you describe Mexico’s growing export strategies in the context of other players in the market?
A: Mexico’s growing role must be considered relative to Chile, and also looking at Peru’s emerging role. [Editor’s note: Dr. Cook discusses Peru’s evolution further down in the piece].
I want to contrast between Mexico and Chile. Typically Chile, as you know, has had super diversified markets, mainly a fruit exporter, with the exception of asparagus, which is a small industry. As I mentioned earlier, fruits generally have greater shelf life and can be shipped longer distances, which has enabled Chile, and also because it has open trade policies and a lot of bilateral trade agreements in many countries.
Mexico is starting now to develop a growing role relative to Chile, and Chile, only in the last decade and a half, has been developing a growing citrus export industry. Now it has lemons and the easy-peelers.
Mexico is not aligned with Chile. Mexico has always had a big lime industry, so as demand grew in the United States, Mexico has been able to take advantage of developing a much more export-oriented lime industry. Before, most of Mexico’s lime production was for the domestic market, and that still may be the case. The point is, Mexico has been able to start getting limes into the United States because our demand is growing, and now Mexico is starting to develop a lemon industry as well because of investments by U.S. firms.
So now they both have a role in citrus, with different crops. What Chile doesn’t have is the tropical fruits, and Mexico does.
Q: How does this dynamic play out with trends going forward? Where are the biggest growth opportunities? Which countries are best positioned to capitalize on them?
A: Look at what’s happening with global demographic trends, and where demand is growing. You see a rise in tropicals. Chile exports commodities into saturated markets; apples and kiwis, the winter fruit, tree fruits, peaches, plums and nectarines. Those are all saturated markets, relatively saturated in the developed world. Let me just add an aside… in the developing world, consumers are starting to consume those kinds of fruits. But most of these fruits are going to the developed world — Europe, the United States, and Japan.
To sum up on this front, what we see happening is change in competition and demand for fruits, with Mexico having opportunity in the tropicals area. Mexico will never be a producer of apples or kiwis or anything like that, but it is starting to tap the global demand for tropicals. The other point is that Chile is primarily a fresh fruit exporter because it’s easier in general to export fruits than it is to export vegetables.
Mexico is primarily a vegetable producer, and that ties the exporters more to the United States and Canada. Now as local demand for the kinds of fruits it can produce is growing, that is something helping Mexico better position itself to export markets beyond the United States.
Q: I wanted to follow up related to the berries markets. What’s happening here?
A: If you look at the evolution of the international berry trade, the first people who started developing the export market were the Chileans. I wrote a case study on this.
About 20 years ago, a progressive Chilean company developed a market for raspberries, a very perishable product. Everyone thought it was a crazy idea. The company first developed the market in Europe and, of course, the raspberries were all air-shipped. Eventually, Chile started exports to the United States. So, originally, raspberry imports came from Chile, not Mexico. With airfreight so expensive, the Chilean company looked to produce raspberries closer to the U.S., in central Mexico, but found it couldn’t succeed with raspberries there.
However, it found this really great variety of blackberries with good flavor and good shelf life that could be grown there for export over a long season of the year, including through the winter. In the U.S., consumers really didn’t consume blackberries in the winter. The company couldn’t really get any retailers to import or handle the Mexican blackberries because it was considered a risk.
Q: Did any retailers take on the challenge?
A: Costco, a non- traditional operator, took the risk and started handling these blackberries, and Costco only would consider this because they had flavor. They took off and Costco was the market-driver, and eventually the other retailers followed. And now what we have is this berry industry. We’re still receiving a small amount of raspberries, just because they’re high-priced, from Chile, which controls most of our winter supply. Then we have these blackberries from Mexico coming in during the winter. And really it’s an extended season past the winter.
Q: Fascinating. What about blueberries?
A: What happened is that Chile started developing the blueberry industry. Blueberries are much less perishable than raspberries and can be shipped by boat. While Chile started in raspberries, it changed its whole focus to blueberries to its primary supply. And it developed this market to as big as it is today.
As demand grows, Argentina enters to become a fall producer. And in the case of blueberries, we can grow them in the United States and Canada from the spring to the fall, so now we have year-round supply. One of the things that helped make it completely year-round supply was that in California we never used to produce blueberries. In the last decade or so, we developed spring production.
Q: Is Mexico capable of building blueberry production?
A: There’s still this idea that it would be nice to have blueberry production in central Mexico, and raspberry production there, because the blackberry industry was evolving and so successful. And that means the infrastructure goes in. The California companies become involved as well — the berry shippers. So there are all these firms there that have the capacity to invest in and expand the berry lines of central Mexico.
Q: Does that also include strawberries?
A: Now central Mexico always had strawberry producers going back to the time of the Spaniards. But their strawberry industry didn’t have full service technology, didn’t have good packaging, or good varieties. So fresh strawberries were always for the domestic market, and the only products they exported were freezer products. Everyone knew of Mexico’s berry industry, which also produced raspberries and blackberries for the domestic market, before Chilean firms and U.S. firms started developing them as an export industry. But blueberries were never part of that.
What happened in the early 90’s, a leading California strawberry producer was experimenting in different areas of Mexico for strawberry production in December/January/February. California produced some strawberries during that timeframe but very little. It was trying in Baja, which is a coastal area and similar to California.
When I came to UC Davis in 1985, there were already fresh strawberries for export there, but not from central Mexico, where most of its domestic strawberry production existed. In Baja, there was a lot of quality problems, fluidity and land problems and it never expanded there to any extent. That’s not where the game is at. California producers were working for years to expand into central Mexico, looking at different crops and experimenting in different regions, northern states that were close to the border.
In the end, I’ve watched this progression and done many studies in all the years I’ve been here.
Q: What revelations came out of those studies?
A: In the early years, I was doing work in various regions of Mexico, looking at different crops. In the run- up to the NAFTA 1994 agreement, there were big concerns that American companies would be put out of business. I was hired by the American Farm Bureau to do this big national study on the fresh fruit and vegetable industry to research different crops grown in the United States and compare them to regions where they were being produced for export from Mexico or could be in the future, and to find out what the potential impact of NAFTA would be.
I focused on strawberries. What I found out was that Mexico won’t end up having a big strawberry export market unless American companies invest in it and develop the varieties and infrastructure. Fast forward to 20 years of them trying to figure it out because the soil conditions and climate are different, and they couldn’t transfer the California technology package to central Mexico like they could for Baja. It was a real struggle. Now we have a whole berry cluster in central Mexico; the anchor fruit is blackberries. A major California strawberry producer was the first to successfully develop a big raspberry export industry out of Mexico, and then others followed, with Chilean firms joining in.
Mexico became a primary source for a major supply of raspberries for the winter months, and now with proprietary varieties of strawberries. In addition, over the past five years, everybody has been trying to grow blueberries there, including Chilean firms. They know there is an opportunity to use the same models with the other berries to get production closer to the U.S. where they can trade over land. Now they’re starting to have success.
I was just in a major supermarket near where I live, and they had a big display case of all Mexican berries, and the blueberries were from Mexico as well.
Q: Did you get to try some? How do Mexican blueberries compare in quality and taste?
A: I’ve got some here that I’ll try right now with you as my witness. You can taste them with me vicariously! I’m just opening the box, and I’m popping blueberries from Mexico into my mouth for the first time. Hmmmm. They’re not that sweet, a little tart, but for this time of year that’s kind of typical. They’re OK. They have really good visual quality, and are really fresh compared to what you would find now. Actually, they’re pretty good, good size, definitely fresh, nothing soft on the bottom, so there you go. Mexican blueberries are now on the market. I’m looking in my fridge, and the raspberries and blackberries from Mexico are gorgeous.
Q: Is it notable to find a retailer with a Mexican berry display complete with blueberries?
A: This is a big deal from my perspective. I see so much investment in Mexico from Chilean firms, and the California firms to have year-round supply. Destination of market is a major factor in looking at relative competitiveness for fresh fruits and vegetables. Not only is the transportation cost a high percentage of the total value, but because whenever we’re talking about fresh fruits and vegetables, close to the market influences the quality and shelf life factors.
The investment in Mexico for raspberries is understandable, where we can’t produce enough, and certainly can’t do year-round, and for blackberries, which we don’t do in large volumes. It makes sense then to figure out how to do blueberries and strawberries to add to the berry mix.
Q: Do you have figures on volumes to give some perspective here?
A: For strawberries, it’s still small volumes being exported out of Mexico. The ERS just released the import share for fresh strawberries for 2013, and it is 13.3%. Imports of strawberries have always been tiny, mainly coming in from Baja. Now we’re starting to see more volume coming from central Mexico. The trend is clear. Still, if you look at total U.S. consumption of strawberries, the vast majority are grown in the U.S. —85 percent to 95 percent, primarily in California, and some in Florida.
This is not the case for blackberries and raspberries. For raspberries, almost all are coming from Mexico, and for blackberries, it’s about 99 percent, so there are clear stories there.
What’s significant is that we seem to be at a tipping point now where straws and blues are going to become an important part of the market. People are predicting that Mexico will knock out Argentina in blueberries. After Chile developed the original export market and showed the way, then Argentina stepped in with the fall window, and a lot of Chilean firms have invested in Argentina in past decade. But I’m hearing it will go by the wayside if Mexico succeeds. Mexico can produce for a lot longer period of time and with a lot cheaper transportation cost.
The big story is the composition of fruits is changing in what’s being traded globally. We’re increasing demand for tropicals, which Mexico can produce, and then in addition, growing global demand for berry demand as a whole. Mexico had a big role in blackberries, then raspberries, and now we’re starting to see the evolution of blues and straws. I was speaking in Mexico with its first berry conference about four years ago. At that time I met with a lot of the California firms and Chilean firms as well, and the big company producing the blueberry plant materials, and they were all investing in blueberry production there.
Q: Are there any issues or hesitancies in regard to food safety or security problems?
A: Sometimes there are perception issues with food safety, but these firms all are trying to have the same standards wherever they’re producing, because their brand is at stake, and all the farms are focused on food safety, whether they’re producing in the U.S., Mexico or Chile. From what I understand talking to the experts and third-party food safety inspection services, there’s no reason to be concerned. I mean, you can have a problem anywhere.
Q: I remember all the debates regarding new country-of-origin labeling regulations. Aside from extra costs and logistics issues at the industry level, there were also concerns that consumers might shy away from products originating from certain countries.
A: I do think there are perception issues on the consumer side, although the evidence isn’t showing that there is a reason for this. FMI asks this in their annual surveys, Hartman survey reports and other national surveys that I’ve watched over the past 20 to 25 years show that people tend to be more concerned about produce that has been imported as opposed to domestic produce. And the country of most concern is China and then Mexico.
Q: Who will feel the biggest impacts of Mexico’s expanding global trade in the U.S.?
A: From the perspective of the U.S. produce industry, they have expanding sources of supply. For retailers, there are more sources and greater diversity of products available. For producers and their marketers, it is the grower/shippers developing the production to have year-round supply. Generally it helps to keep their product on the shelves. First evidence of this was our case studies when table grapes from Chile were introduced in the winter. While there was originally concern from producers in the grape industry, it came to the conclusion it meant it didn’t have to fight to regain shelf space in the spring.
In the end, it’s to the benefit of consumers. There could be U.S. producers that could be impacted on the berry side. The state that could be affected by Mexico is Florida. Florida will face increasing competition if Mexico develops its winter straw and blue market. The reason why California firms invested in Mexico is there’s not enough production certain times of the year. Producers in California tried to develop in the Arizona desert, Coachella region where we do the greens, but nobody has actually succeeded yet.
California grower/shippers and marketers are interested in getting more supply during the year. Strawberries are just starting so I don’t want to oversell that, but it is news. I’m thinking wow, in my 30 years, I always said there would have to be a reason California tried in so many regions for so long. It’s been challenging, and you really have to take your hat off to those firms for their persistence in the face of losing millions of dollars in the process. Another big produce company tried celery and leafy greens in Mexico to hit a window and got nailed with weather problems in the first year and pulled out. They set up a big office but crashed and burned.
Q: Besides Mother Nature, aren’t there security problems that create obstacles?
A: Now you have all the security issues in Mexico in primary areas where they are producing these berries, which is very serious, and extremely challenging, so I’m actually surprised there is as much investment as there is. But it’s because they got to a point before the security got so bad. Once you get a cluster going, you have enough production and investment going into a product and region, then it’s worthwhile for suppliers to invest in the R&D for blues and straws and the right breeders, with the post-harvest technology and infrastructure in place. The firms are there, they might as well capitalize on that.
I wouldn’t say they could never pull out. I don’t know, things could get really bad, but what we’re seeing is more investment going in to more crops and more regions. Like I said earlier, there’s money going into a lemon sector and lime sector, and, of course, the huge investment in avocados. Firms are finding ways to manage the security. They keep low profiles, and don’t go out at night, so who knows what the mix will be? I’m not making any predictions; all I can say is now the investment is substantial and growing.
Coming back to global competition, and Mexico’s growing role relative to Chile, my talk will also look to what’s happening with Peru.
Q: Oh, yes. You did mention Peru’s emerging stake in global trade earlier. With the breadth of information you’re sharing, we could probably add in an extra day to the conference!
A: I think I can manage it! Peru’s produce industry for exports started 20 years ago with fresh asparagus exports, then some significant investment came in for the mango industry, and also for avocados from northern Peru. It was able to get enough volume and infrastructure so people could come in on other crops; the Peruvians on table grapes and then Chile. So now Peru is emerging as a more important export player with international investments coming in, Chilean investments and some U.S. investments.
Peru knocked Mexico out of the asparagus export industry about a decade ago. Most had come from Mexico, and there had been a little from Chile, but Peru developed this power house from imports into the U.S. Now Peru is expanding into these other crops. I haven’t heard predictions of Peru cutting into Chilean table grapes to cause it to decline. However, Peru has enough volume of trade, they can get better gateways to different markets and they have this avocado industry that will probably replace Chile’s.
We’ve developed avocado imports to the U.S. from Mexico, which we haven’t even talked about. Once Mexico got market access to all U.S. states except Alaska, Mexico knocked out Chile. So the opposite happened to what occurred with asparagus in Peru and Mexico. At the same time, Peru is starting to emerge, which will make it harder even yet for Chile with avocados.
It really does vary by crop, but we’ve seen major changes in relative competitiveness as investments take place in different countries. It is big news that in three years Chile has been knocked out by Mexico with avocados. Mexico produces avocados year around, and we can get them by land and at a higher maturity rate. Peru has some marketing window advantages relative to Chile. I think that’s one of the reasons why now we’re starting to see this alliance with Peru, and Chile is crashing. Each product has its own story to tell.
Q: The last area in this picture you’re painting relates to trade disputes…
A: I have some case studies I’ll reference in this regard. But before I go there, I’ve developed this whole scenario of why Mexico diversified crops and product mix, but I want to highlight that the government is really focused on getting market access to more countries, exemplified by this signed agreement that Mexico will have access to China for berries. The Mexican Department of Agriculture got ahead of the news by making the announcement in the trade press a couple of months earlier before it was finalized, but the point is that Mexico is focusing on bilateral trade agreements they’ve been developing for years, just like Chile did.
Another important point: Sometimes it’s just about trading market shares and the total pie is not expanding, but in this case, Mexico is growing in the U.S., as well as increasing overall production, not just domestically but for the international market.
Q: So how have trade disputes influenced all this activity?
A: I give the example of the tomato industry. Tomatoes have matured demand, but have always been the most important produce crop exported from Mexico for a half century. The market is saturated. In order for Mexico to expand exports to the U.S., it needs these other crops it’s now exporting, very large volumes of avocados, growing volumes of tropical fruits and berries. That’s where they’re getting their growth, not from their most important produce export, tomatoes.
Because of the fact we have this relatively saturated market of tomatoes in the U.S., for decades we’ve had trade disputes with Mexico related to fresh tomatoes; this is nothing new. It’s generally the Florida industry that competes with Mexico, so that’s where the primary disputes have arisen.
In the last decade and a half, we’ve seen the expansion in demand for protected agriculture tomatoes, a continuum, from plastic hoops, to shade houses, all the way to greenhouses, which can be glass or plastic. There’s a big range of technology applied within greenhouses, the most advanced are enclosed greenhouses, but most are not closed.
Q: You might get some tough criticism for that flexible description of greenhouses. The definition of greenhouse has been the subject of much dispute. More costly, traditional enclosed glass greenhouse suppliers in Canada and the U.S. have argued that Mexico’s consortium of growing techniques under the protected agriculture umbrella should not be categorized or labeled as greenhouse grown, and is misleading to consumers. ..[Link to an earlier piece I wrote for Produce Business on this contentious subject].
A: You raise an important point. The Netherlands had been exporting small volumes of greenhouse product to the U.S., going back 20 years ago. Basically, Canada learned from the Netherlands and that greenhouse technology evolved in Canada, capitalizing on the potential to export to the U.S. and becoming an important supplier to the U.S. Simultaneously, companies started to develop greenhouse business in the U.S., finding out it was too hard to produce in the northeast, and moving to other areas in the U.S.
Mexico was always a primary resource of field-grown tomatoes for the U.S. It started going to Spain and the Netherlands to learn about more advanced technology and began experimenting with protected agriculture shade houses and plastic greenhouses. So the greenhouse industry evolved from the field tomato industry, whereas in the U.S., the greenhouse industry came from outside the field tomato industry.
Q: What are the main draws to protected agriculture versus field grown?
A: There are advantages from protected agriculture. It improves yields, packout, cosmetic quality, reduces labor and is better from a food safety standpoint. There is more control with one entry inside and out. It brings in more trained workers and more productive workers, and labor is also becoming more of a challenge in Mexico, so this is a motivator as well. Gradually, over time, Mexico has come up with hybrid houses for the right technology mix. That started to create competition for the Canadian and U.S. greenhouse firms, leading to trade disputes that go beyond traditional ones as you point out; particularly in the U.S. because Canada doesn’t really produce in the winter.
Now they have new competition from Mexico, for “hothouse” tomatoes, when before they were the only game in town. The U.S. greenhouse industry doesn’t like this. In reality, consumers don’t care about the technical definitions.
In addition, central Mexico, which never produced in the winter, and never exported, started developing shade houses, with its high altitude and good light levels, which is why its berries do so well. Now, high-tech greenhouses as well as shade houses in central Mexico are being designed that can supply year-round production to the U.S. market.
Q: Doesn’t this set up a firestorm for increased trade disputes?
A: There are more interests at stake in tomato trade disputes than in the past, and now you can have greenhouse producers also playing a role in these disputes with Mexico.
It’s also important to understand that Sinaloa is still the primary exporter of tomatoes, but these shade houses and greenhouses there really don’t enable them to expand their season because it gets too hot. For Sinaloa, it’s pretty much the same season they’ve always had, December through April, albeit it can extend the season a little but not much. Sinaloa, during the winter, supplies all of Mexico. Now Sinaloa has all this competition in central Mexico.
So from its standpoint, that’s changing the competitiveness of its industry. So what is Sinaloa doing? It’s investing in shade house and greenhouse suppliers in central Mexico because Sinaloa was never a year-round supplier of tomatoes. So now, we have investment in central Mexico going into greenhouse tomatoes there coming from outside field agriculture and also from Sinaloa field suppliers investing in other states.
Q: How does this whirlwind of events impact the latest suspension agreement between the U.S. and Mexico?
A: We had a dumping suit Florida had filed years ago against Mexico and that was negotiated with a suspension agreement for minimum prices for tomatoes. At the time this suspension agreement was formed, there weren’t all these different kinds of protected agriculture tomatoes. A few years ago, there were some adjustments made. Now in this latest suspension agreement that went into effect in March of last year, there are all these different descriptions of various tomato production technology methods.
The whole North American tomato industry has changed dramatically. You have all these different sources of supply at different times of the year, including greenhouse production in the U.S., Canada, and now Mexico. It changes the whole competitive playing field.
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The heart of this presentation, as with the heart of the whole “disruption” theme of the Global Trade Symposium, is that what is going to hurt you and your business in the future is projecting that the future will be just like the past. That is not true of British supermarkets or the Mexican produce industry. We can’t wait to have Dr. Cook lay it out for us.
Come hear Dr. Roberta Cook at The Global Trade Symposium and attend the whole New York Produce Show and Conference. You can register right here.
