Dr. Roberta Cook’s data-dense presentations are consistently among the most anticipated at The New York Produce Show and Conference. In both the New York and London Produce Show, she has stimulated discussion on a wide range of topics, including these:
When the Trans-Pacific Partnership was announced, we knew that Dr. Cook would help make it all make sense.
We asked Julie Cook Ramirez, Contributing Editor at Pundit sister publication, PRODUCE BUSINESS, to find out more:
Q: Your presentations are always so highly anticipated and well received. Would you give us a sneak peek as to what topics you will be talking about this year at the Global Trade Symposium?
A: The working title is: “Consumer Demand, Lower Trade Barriers, and More Competitors are Driving International Fresh Produce Trade.” Basically, there are various forces changing the international fresh produce landscape. I thought I would focus on what’s happening in terms of changing market access.
By that, I mean the access that different individual countries have for specific products in a specific market. Can you get in there? Do they allow imports and how high are the tariffs? When we as AG economists talk about market access, that’s what we are referring to.
One of the things I want to look at is the proposed free trade agreement now between the Pacific Rim countries. It’s the Trans-Pacific Partnership agreement, which we call the TPP. I want to take a look at one component of the TPP and discuss some of the thoughts we might have about how that component would impact produce trade.
I want to also include an overview of recent trends in global fresh produce trade, taking a look at how exports of fresh fruits and fresh vegetables changed over time in recent years. What do we know about the recent trends in terms of total volume? Then discussion would focus on the changes in relative rankings among the top players in that trade. The story then will be that, yes, trade has been expanding.
However, there’s relatively slow economic growth in many parts of the world today, in particular among developed countries. That has slowed the rate of growth in imports into some of the developed countries such as Europe and Japan.
Simultaneously, we have developing countries that in many cases have had more robust economic growth rates. They have often been countries that have been expanding their market access. They have reduced trade barriers. Other countries have now expanded market access into those markets. China is a good example of that. It is a country that joined the GATT in 2001 and has been reducing trade barriers. Many countries throughout Latin America have been reducing trade barriers.
When you have developing countries that have more robust economic growth rates than many developed economies do, and they’ve been reducing their trade barriers, that means they are becoming more important markets for fresh produce. We have countries that didn’t used to be big players on the export market which are now becoming much more important players. Peru is a very good example. Mexico has always been a very important exporter to the United States.
Countries such as Australia have also been expanding their exports of fresh produce into more countries. In part, they are doing that because they are gaining better market access. Peru has free trade agreements with many different countries. So does Australia. That’s something that has helped to facilitate their international competitiveness. We have a situation where the players are changing.
The relative importance of different exporting countries is changing and the relative importance of import markets is changing, with the developed countries still being the most important, but with developing economies starting to take a higher share now of fresh produce imports. Then you have greater competition for everybody in the marketplace underlying all of this.
It’s a fairly dramatic story when you look at how much competition has increased in the fresh produce international trade during the past decade as more markets have opened, as some markets have become relatively more important than others, and as more players, competitors, exporters have emerged on the scene.
Q: That’s quite a huge topic and one that will be of great interest to attendees. You mention reduced barriers and changing market access. Would you tell us more about those factors and how they come into play?
A: Some time ago, the North American Free Trade Agreement (NAFTA) went into effect. As of 1994, market access between the North American countries — Canada, Mexico, and the U.S. — began to expand dramatically for all fresh produce commodities. Today, in fresh produce, there are no trade barriers left.
What has been happening since that time is more countries have been negotiating Free Trade Agreements, FTAs, with each other. The United States has FTAs with the Central American countries, with Colombia, Peru, and a variety of different foreign countries. We’ve been expanding our market access into those countries, and they’ve gotten improved access into the United States. However, simultaneously, many countries such as Mexico, Chile and Peru have been negotiating FTAs with more and more countries. In recent years, we have lagged in negotiating FTA’s compared to many countries, putting us at a competitive disadvantage.
The big picture over the past 20 years has been that we got a big trade block negotiated with the NAFTA, but then after that, the story has been more individual free trade agreements between specific countries. Today, with the TPP, we would now be getting a bigger block again. The TPP involves the United States and 11 other Pacific Rim nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. That list includes several major U.S. trading partners, especially Canada, Japan, and Mexico, which are our largest partners. In the case of Canada and Mexico, we already have free trade through NAFTA, so it’s not giving us anything new. However, we don’t have a free trade agreement with Japan, so that’s significant.
Some of the countries included on this list, such as Brunei and Singapore, are very small- to moderate-sized markets and those are very open economies anyway, so that’s maybe not significant. But if you look at all of the countries combined in the TPP, they comprise about 40 percent of world GDP.
While the agreement contains some major trading partners, on the other hand, several large countries, some major trading partners that we have, are not in the agreement. China is not included. That’s a very large country and a very important trading partner for the United States. Indonesia, the Philippines and Thailand are also not included. Those are not so important as trading partners, but they are large countries and large potential markets.
South Korea is the other large economy that’s omitted, but that matters less to the United States because we have an FTA, which we recently acquired, with South Korea. We have an FTA with Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, and we have FTAs with Australia, Chile, Peru and Singapore.
In the presentation, I want to give people a more informed picture of the TPP, because especially right now with the Republican debates going on, you hear all of these things being thrown out by politicians about the TPP, which are entirely erroneous.
Donald Trump has expounded at length on the TPP, calling it a terrible agreement, focusing completely on China and its alleged currency manipulation and chastising the government for not addressing this issue in the TPP. Well, as it turns out, China isn’t even part of the TPP. While the TPP would comprise about 40 percent of world GDP, there are already a lot of FTAs between countries that are part of the TPP. As a result of that, the impact of the TPP will be less than anticipated because so much of the trade between these countries already has relatively free access before this proposed agreement would ever even take effect.
We then can look at Australia, which competes with California on many products and does have an FTA with Japan and Malaysia, while we currently do not. With the TPP in place, the United States will have relatively similar access to Japan and Malaysia whereas in the past, we have been at a disadvantage competing with Australia in those markets because they had FTAs with Japan and Malaysia and we didn’t.
Mexico also already had an FTA with Japan, so they had better market access than the United States does. That’s important because Japan is the biggest economy included in the TPP, with the execption of America. Japan also has FTAs with Malaysia and Vietnam, which we didn’t have. Basically, we have a story which in terms of how it will affect the United States is that we will have more access into some of the important markets within the TPP countries. So we will be more on an even playing field with other countries that are servicing those markets, such as Japan. Not having the TPP meant the United States was at a disadvantage because other competitors of ours did have good market access into countries like Japan.
Q: If any politician tries to claim these agreements cause cannibalization of one country’s sales by another, that’s not an issue, right?
A: Trade diversion does occur. But in general, the US is one of the most open markets and has been at a disadvantage relative to some of our competitors. What free trade does is generally improve economic growth in all countries. That’s well-documented. On the other hand, the effects of this TPP will be relatively moderate, despite the fact that it includes 40 percent of the world’s GDP.
You would think it would be a major game-changer to get this agreement, but the story is not really, because of the fact there has already been so much improvement in market access among many of these countries during the past 20 years.
The important point for this audience is there will be some gains for some specific fresh produce commodities, where we haven’t had as good of access as some of the other members of the TPP have had with each other because they had FTAs and we didn’t. However, nobody should get too excited one way or the other about this agreement.
The other thing to keep in mind is for any sensitive commodities — if a commodity is important to a country, they tend to protect it for a longer period of time. So any time trade agreements are negotiated, the commodities that are sensitive and that could be most negatively impacted by expanded import competition are put on very long phase-out schedules, sometimes up to 20 years.
Q: When you cited consumer demand as one of the drivers, is that primarily because consumers expect year-round availability of nearly all produce items these days?
A: Yes. That’s true in developed countries such as the United States and in Europe. The other thing is people are diversifying their diets. We eat a greater number of fruits and vegetables today, for example in the United States, than we did many years ago. There were fewer products offered in produce departments many years ago and product availability varied a lot between the summer and the winter.
Now, nearly everything is available and most items are available year-round. There are exceptions, such as cherries, but in general, people have so much choice. That increases competition between products because there are a lot of substitutes today. It’s been challenging to increase consumption of items that already have high consumption in the United States, such as apples, because now there’s just so much more competing with apples and citrus during the wintertime.
There are changes in terms of consumer demand for quality, appearance and flavor and those types of attributes. Within any category, we are seeing big changes. For example, within apples, today, we have so many types of apples we consume today relative to many years ago. We are not just talking about substitutes between commodities now. We are talking about lots of substitutes within commodities.
The trend has been toward the higher flavor items winning out — red delicious, golden delicious apple consumption is declining, while we had growth in the managed varieties like Sweet Tango and all those that are higher flavor, the Honey Crisp, etc. Consumer demand is really changing the specific product mix we are eating, between produce items and among produce categories. In addition, consumer demand is driving us toward more value-added product forms — more fresh-cut, for example.
As a result of that, we are also seeing a gradual decline in the commodity side and we are seeing growth in the packaged side of what is sold in the produce department, where convenience and preparation are increasing. Packaging is also playing a much more important role. That’s one of the factors we have to keep in mind with regard to international trade because international trade tends to be primarily on the commodity side.
Q: How does the international aspect of the global produce scene relate with the popular push for locally grown?
A: They are simultaneous trends. Consumers hear a lot about locally grown. Survey data shows consumers highly value locally grown. During the summer-fall, when parts of the country that are in extreme climates can grow certain products, they play a role, but remember there is really a very limited number of products in Eastern regions growing for very short seasons.
If people want to eat fresh produce the rest of the year, there are key periods of the year when we don’t grow any of these items in the United States and we only have imports available. For example, we don’t produce blueberries from the fall until the spring in the United States. Over half of the fresh tomatoes we eat in the United States are imported because we can’t produce enough in the wintertime. We don’t grow table grapes in the wintertime in the United States. If people are going to consume them, we must import them.
Each commodity has its own story to tell. Leafy greens — lettuce, broccoli, cauliflower — we can produce those in the wintertime in the United States. We produce them in the desert in the Yuma area of Arizona and in the California desert. We can’t produce tomatoes in California in the wintertime. We only produce them in Florida. Each commodity is different based on climatic factors and how that relates to the individual commodity and whether it’s warm season or cold season where it can be grown. That’s why we have all this seasonality in fresh produce.
The general point is that if you didn’t import, you would have to go back to the way we were 30 years ago, and we would be back with this very limited amount of products available in the wintertime in the United States. That would mean lower and less diverse consumption. They are simultaneous trends, but consumers benefit from both. You are not going to consume locally-grown mangos or papayas or limes or lots of different tropicals at any time in the United States.
Diversity… this is the big story. What are the factors affecting demand for fresh produce? The commodity price, consumer income, prices of substitutes and complements, population growth rates. In some of the developing countries, they are growing more rapidly than developed economies, both because they may have higher economic growth rates combined with higher population growth rates, so they are becoming more important import markets.
Ethnicity and culture… That’s another thing that has driven growth in avocado consumption and all the Asian vegetables and Hispanic vegetables. All those things affect demand.
Then you have the quality issues — appearance, flavor, color, shape, size. People want more interesting items today. They like having all these colored peppers, for example. Information on produce selection, ripening and recipes impact demand. That’s one of the areas that produce exporters need to be very involved — if they are going to export their products into another country, they need to help consumers in those countries understand how to select, ripen and prepare their products.
Then we can talk about convenience and preparation. Usage suggestions, packaging, and all of those things are becoming more important. Post-harvest technology is improving and enabling more products to be shipped globally than in the past.
New marketing channels… supermarkets in developing countries are becoming more important. They want to import during the off-season just like our supermarkets in the United States because they have to have their shelf space full year-round, so the growth in supermarkets in developing countries, in Latin America and Asia, is driving more import demand. For foodservice to handle fresh produce, they need to have the items available year-round. More international trade helps expand produce offerings in foodservice channels.
Convenience stores are starting to sell fresh produce in the United States. If they succeed and more fresh produce is sold in convenience stores, then you’ll have more fresh produce items in arm’s reach of consumers. That will impact demand, both for domestic production and for imports.
Marketing channels play a role in all of this as well. You have to have the perspective of total demand for fresh produce; international trade can only take place if you have market access, if your product is allowed into a specific country. The more countries that can receive your product, that expands total demand for fresh produce, too.
There are so many trends that are taking place simultaneously that are making it more challenging for firms to understand the markets and to get the right product to the right country, being able to compete effectively with other players in those marketplaces. International trade is not only increasing in volume, but it’s also becoming more complicated than in the past because consumer demand is changing and because there are more competitors.
Q: What a wonderful, rich presentation! What do you hope attendees will take away from it?
A: I hope they will take away that, basically, we are going through a period of an accelerated pace of change. There is margin pressure at all levels of the food system. Many produce suppliers now are facing lower profits while they are being asked to do more. There are growing expectations about food safety, traceability and sustainability. All of these things are increasing costs, not just for US growers but globally as well
We have more mergers taking place in the United States, so there’s more consolidation in the supply chain, with fewer larger buyers. The European grocery retailing industry is much more consolidated than the United States. At the same time, we have the international trade landscape changing, with expanding market access, but more competitors as well. There is more complexity in understanding consumers, whether they are in the United States or another country where you are trying to service them.
I want people to take away that there are many opportunities, but also challenges, and that it will be important to utilize information technology more effectively than in the past in order to be able to stay on top of all these trends and respond to them with great speed. Speed to market is a very important factor in relative competitiveness.
I hope to identify some of the opportunities for firms, but also point out the need to become more sophisticated in how they manage information and data so that they can, on a very rapid basis, understand changes in global produce markets both from a competitive standpoint and from the perspective of changing consumer demand.
The produce eco-system in which we work is in flux. All of the sudden, a new Trade Agreement is signed, and berries from Mexico that some US supermarket thought were theirs, are instead on their way to China.
One looks at a place like Peru and one sees these enormous plantings… they may not ever be profitable, but the costs are sunk, the infrastructure built and the produce world is changed forever.
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