Dr. Roberta Cook, on the slate for the London Produce Show, is among the foremost authorities on produce trends around the globe. She remains a coveted catch for any conference. Previous presentations at the New York Produce Show and the London Produce Show have stimulated thought and discussion on a wide range of topics including:
We spent some time with her to find out what’s been happening since her last interview and to get a sneak preview of what she’ll share in London.
Roberta Cook, PhD
Founder, Fresh Produce Marketing Consulting, in Dixon, CA
and retired Cooperative Extension Marketing Economist
Department of Agricultural and
University of California, Davis
Q: The last time the Pundit spoke with you, you were preparing for your talk at the 2015 New York Produce Show Global Trade Symposium about the impending Trans-Pacific Partnership (TPP). What has happened since in that arena, especially with the U.S. presidential election?
A: When I spoke the last time in New York, everyone anticipated the TPP would be approved by the U.S. Of course, now we know that is not the case. One of my points in that presentation was how the U.S. lags behind other countries in terms of free trade agreements. In 1994, when NAFTA began, there were about 40 preferential agreements in the world yet the U.S. only had one with Israel. By the end of 2015, there were about 260 in the world and the U.S. was party to 20.
We really haven’t progressed as rapidly as other countries since then in terms of obtaining new trade agreements. With specific respect to the TPP, it’s unfortunate that, though some countries still approved it, others have decided to pursue bilateral agreements with China.
One of the major attractions of the TPP for many countries was the leadership role of the U.S. in the agreement, which obviously now it doesn’t have. We’ve missed this opportunity and now China is pursuing that role of leadership in the Pacific region. We’ve left a vacuum there, and other countries are re-evaluating their trading relationships in light of this.
Q: There seems to be a political trend of protectionism starting in many areas. Does Britain’s exit from the E.U. and other political issues in Europe signal a move against free trade for that region as well?
A: I don’t think so. Angela Merkel is extremely pro-trade and has stated though trade has been controversial at times within the European political landscape, it is still an important asset to their economies. It seems they’ve been able to help their populations understand the benefits of free trade. Also, the recent election in France, where the extreme nationalist candidate was defeated, seems to point to a Europe still actively engaged in free trade.
Another crucial aspect beyond looking at Europe or the U.S. is how interwoven these trade agreements and relationships are. It’s not just about bilateral benefits. For example, there’s a lot of talk about how a major concern with NAFTA is the whole labor/social responsibility area, and the environment. However, if the U.S. president had signed the TPP, those concerns would have been addressed. That agreement contains significant provisions in the labor and environmental arenas, and would have addressed any concerns with Mexico because Mexico is part of the TPP. In fact, if you talk to people in Mexico, they have been very concerned and involved in making sure their practices are in line with what the TPP would require.
Q: Let’s switch gears for a minute and talk about you. You are now retired from academic life. So, what have you been up to?
A: Yes, I retired officially from the University of California on July 1, 2016. However, I’ve kept busy with consulting work and speaking. Two quite important things I remain active in are service on the Village Farms Board of Directors and Ocean Mist Farms Board of Directors. I’ve been on those boards for some time, and I am very involved. I continue to give presentations to industry groups and spend a lot of time researching and preparing for these.
I’m constantly developing new topics. One of the things I’m involved in now is the hothouse vegetable industry and how it’s changing the panorama of the open field industry – especially as led by tomatoes. Tomatoes represent one of the biggest fresh produce crops we grow in the U.S., as well as in all three North American countries (Canada, Mexico and the U.S.). There are many changes and trends happening in this sector, driven primarily by the protected agriculture industry. I’m extremely interested in analyzing their interplay.
I also continue to look at broad fresh produce trends and what’s happening in terms of retail consoldiation. I spoke about this topic the last time I spoke in London. Our industry is so dynamic and there are so many things changing and impacting fresh produce demand and supply — whether it is product development, technology or trade. You really need to be working every day to stay current on this myriad of issues.
Q: Speaking of retail consolidation, can you give us some insight on what’s happening in that area? It seems more and more European retailers are claiming a greater stake in the U.S. market.
A: We’ve seen aggressive moves by European chains. Aldi has been and will continue to make significant inroads in the U.S. market. And most people believe Lidl’s entry will be even more dramatic. We see more retail chains, including Kroger, investing in price to be competitive with retailers such as Aldi. Walmart already has stores in test markets to compete with Aldi and also in anticipation of Lidl entering their market. Most retailers expect a significant impact — that means lower prices for all.
One of my messages to growers is that it’s going to get worse as far as pricing pressure goes. In 2008, when we entered the recession, we saw significant margin pressure shifted downstream to growers and that trend has continued. Even though we came out of the recession some time ago, the trend is still with us due to ongoing retail consolidation and the market entrance of these value-driven chains.
Aldi already has 1,600 stores in the U.S., and its internal studies show its prices are 21 percent lower than its lowest price rival — including Walmart. Aldi expects to expand and remodel 1,300 stores and open 400 new stores by 2018 – mainly in Florida, Texas and on both coasts. This highlights how aggressive these strategies are. In the U.S., 18 retailers have gone bankrupt since 2014. It is a very challenging retail environment.
Q: Last time you spoke at the London Produce Show, you talked about such retail trends. What will your presentation in London this year focus on?
A: This time I want to highlight the changing trade landscape in the U.S. and draw out a particular example of being on the frontline of this — the Hothouse Veg Industry. I’ll be speaking about how The North American Hothouse Vegetable Industry is in the Firing Line for Trade Disputes. We have this new trade context evolving with the NAFTA renegotiation. I want attendees to understand the current trade environment for fresh produce and the key roles Mexico and Canada play, and to think about how the NAFTA renegotiation could affect markets.
I’ve put together a comprehensive set of current trade stats to show the volume of produce moving between the three countries and illustrate each country’s role — particularly in fresh vegetable trade. Currently, the U.S. imports 69% of its fresh vegetable from Mexico, 16% from Canada and only 15% from other countries. Fresh fruit imports are more diverse, with 44% from Mexico, only 2% from Canada and 54% from other countries. As far as U.S. exports go, 74% of U.S. fresh veg exports go to Canada, 4% to Mexico, and 22% goes to other countries; 36% of U.S. fresh fruit exports go to Canada with 11% destined for Mexico, and 53% to other countries.
Trade has grown rapidly between all countries with which the U.S. has Free Trade Agreements, led by Canada and Mexico. The renegotiation of NAFTA could have a major impact on fresh produce trade within the North American region and elsewhere. It could result in growers seeking to send products to other countries and thus affect markets worldwide. It could also impact U.S. trade policies and tariffs with respect to other regions.
Q: So, why focus on vegetable trade as opposed to other commodities that might be affected by a NAFTA renegotiation?
A: Clearly, as demonstrated by the above statistics, most fresh veg trade is intra-NAFTA, hence, renegotiation has significant potential implications for this large sector, accounting for billions of dollars in trade. Secondly, I believe hothouse or protected culture (PC) items may be the most contentious of the products — led by tomatoes, but also including peppers and cucumbers. All three of these products have high import shares in the U.S. market.
Tomatoes have long represented Mexico’s Number One fresh produce export, regardless of how they have been grown. Tomatoes also have a long history of trade disputes between the U.S. and Mexico. Currently, tomato trade operates under a suspension agreement, which suspends a dumping suit submitted by U.S. growers against Mexico. The parties came to a negotiated agreement to “suspend” the suit based on agreed-upon terms establishing minimum pricing for imports into the U.S. This has relieved price pressure on U.S. growers.
Mexico’s competitiveness in tomatoes and other hothouse crops is a result of its application of technology, i.e., the protected culture/ag sector. The Mexican industry has evolved over the years from open field to production in shade houses and greenhouses. The field cucumber, tomato and pepper industries in Mexico have made great strides in moving to protected ag, which has improved their quality and competitiveness compared to the U.S.
In contrast, the Florida tomato industry (the industry that has always led the disputes with Mexico) continues to produce in the open field and harvest mostly mature green tomatoes. The mature green tomato industry (in Florida, California and elsewhere) has lost most of its market share in the U.S. retail market, and now sells mostly to foodservice. The retail share lost by the mature green industry has been replaced primarily by hothouse tomatoes grown in Mexico, followed by the U.S. and Canada. Consumers have voted with their dollars and demonstrated a preference for hothouse tomatoes, despite their typically higher prices.
In contrast, there are other commodities with high import shares but where trade is not contentious, and we wouldn’t expect to see U.S. producers seek protection during the renegotiation of NAFTA — for example, blueberries. Blueberries have a very high import share, but the blueberry industry is highly vertically integrated in terms of the shippers sourcing from growers in various states around the U.S. and other countries, in order to provide year-round supply.
Also, Mexico is only recently emerging as a new producer of blueberries; rather it is Canada and the U.S. that are the main NAFTA players in blueberries. While there could be some contention between Canada and the U.S., the interdependent industry structure should make this less likely. In contrast, open field tomatoes, peppers and cucumbers are mainly produced in Florida in the winter, and the Florida industry has always fought for protection from Mexico. As Mexico has become more competitive in those crops, some say that imports are impacting springtime markets in the Southeast outside of Florida, such as Georgia. This may make imports more contentious.
Q: How does all this shake out from a consumer and overall economic standpoint?
A: Consumers in both countries benefit from having high quality, affordable products. And, economies are most efficient when less competitive industries are not artificially protected. Protectionism only leads to tit-for-tat retaliation impeding overall trade, and both countries lose. This is the danger that hopefully can be avoided as NAFTA is renegotiated.
Mexico also has crops in which it is less competitive. For example, the U.S. exports sizeable volumes of apples, pears and potatoes to Mexico, so during renegotiation, Mexico could seek protectionist measures for those crops. Each country always has some industries that are less competitive, and protecting inefficient industries only leads to consumers having fewer and less affordable products available. To have a successful economy, you want efficient industries, and that’s how you generate good wages and employment. Protecting a small number of growers is not beneficial to consumers or the economy as a whole.
Other factors also affect this competitive environment. Growth in consumer demand for fresh produce grown in Mexico is the major contributor to export growth. Exchange rates also play an important role in trade. The Trump anti-NAFTA agenda since last year has caused the Mexican peso to devalue relative to the U.S dollar, making Mexican exports cheaper and more competitive.
Q: I assume, as always, you have a good amount of data to back up what you’re presenting? How will this data help attendees understand the real world?
A: Yes, the data is what drives the presentation. I always analyze a lot of data in order to be able to tell a story of what is actually happening in the marketplace. Without data, it is only opinion. I begin by setting the stage with the volume of imports and exports of fresh produce as a whole as well as the import share for these main products. The data shows imports from Mexico and Canada from before 1993, which was the year before NAFTA was implemented. If you look at total fresh imports and exports, you see how linked we are within the North American region in terms of fresh produce trade.
NAFTA has been positive for all three countries; it has had a very positive effect on consumers and has helped integrate our supply chains to make us more competitive as a region relative to the rest of the world. Any ag economist who looks at NAFTA agrees it has been positive overall — you always have winners and losers, but the gains have far outweighed the losses.
I also have a good deal of data on the North American protected culture (PC) industry. I’ll be providing an overview of the hothouse veg market and looking at trends in demand for the different types of tomatoes as well as cucumbers and peppers. Retail scanner data shows that in 2016, hothouse tomatoes represented 44% of tomatoes sold in quantity and 56% of dollar sales. In contrast, for both cucumbers and bell peppers, the hothouse shares of dollar sales are about 37%.
The retail tomato market is relatively saturated, and there is more upside potential for growth for hothouse bell peppers and cucumbers. They will continue to replace open-field-grown peppers and cucumbers in retail channels. In both instances, the bulk of U.S. consumption of these items originates in Mexico, which has aggressively adopted protected culture.
As far as real-world application, the data documents the picture I paint. If I’m referencing imports increasing in the U.S., we can look at the data to demonstrate how they are increasing. When I show the share of veg exports by country of destination, it will be clear most of the veg trade is with Canada and Mexico. I’m using the graphs and charts to show the changes taking place over time. Anyone who is making decisions relative to what’s happening in the North American market needs this data for a complete picture.
Q: What relevance will this presentation have for attendees in London who hail from Europe or other parts of the world? Why would it be of interest to them since it’s so heavily North American market-oriented?
A: I hope it will be of interest to a broad audience. I get a lot of questions from Europeans about the hothouse sector in North America. For example, I have received calls from big traders in Europe interested in investing in the North American hothouse industry. There is a lot of interest now and a lot of money being invested, in some cases from venture capital – it’s a sexy sector. These potential investors are always seeking more information, and many don’t fully comprehend the complexities of the hothouse sector and the challenges it faces.
Europeans might also be interested in NAFTA trade issues because Mexico and the U.S. are important players in the international trade scenario. If things change within the North American region, it will have implications for other countries whether they’re competitors or potential markets.
Q: You’re covering a lot of information. What do you most want our readers to know about your upcoming London presentation?
A: I want to be clear this isn’t a prediction of what’s going to happen. My objective is to set the stage with the current trade picture and highlight the importance of intra-NAFTA trade in fresh vegetables, in particular. I want attendees to understand Mexico’s major role in the North American fresh produce supply chain, and highlight what’s going on in the hothouse sector. When the negotiators sit down, you never know what will result. Fresh produce will be caught up in the rest of the ag discussions, and we’re just a small part of this larger ag sector. Then you also have ag versus the rest of the sectors of the economy, all competing and jockeying for influence within the overall trade negotiations.
Key to the presentation is how Mexico is legitimately competitive in these products. They’re not gaining because of some unfair advantage. They’ve done a nice job on the technology side and they are producing good quality, affordable products. In many crops, Mexico has permanent climatic advantages relative to the U.S. (due to geography) that are unrelated to trade policy. Likewise, the U.S. has climatic advantages in several crops with large exports to Mexico, such as apples, pears and potatoes, and the U.S. has major climatic advantages relative to Canada across most fresh produce crops.
North American trade is a complex and intertwined issue. It’s not as simple as just accusing one country or another of having an unfair advantage. Even in the case of labor availability and costs, an advantage for Mexico, labor is becoming more challenging there. Mexico is experiencing problems with availability of farm labor now and as a result is starting to bring in workers from Guatemala. Other researchers (Edward Taylor and Diane Charlton from UC Davis) have looked at the rural labor supply in the U.S. and Mexico combined. Basically, the study determines that the supply of rural farm labor is declining in Mexico, and since Mexico has been the primary source of farm labor for the U.S. fresh produce industry, that means both Mexico and the U.S. will have less farm labor available in future.
Wages are rising in Mexico, just as in the U.S. This will be a significant topic for discussion in the near future, and the fresh produce industry must invest much more in labor-saving technologies in order to address this challenge.
Another interesting development in Mexico is the creation of AHIFORES, a group made up of Mexican grower organizations, produce companies and government entities, designed to elevate worker welfare and social responsibility practices.
The group was formed after the scathing L.A. Times article with the intention of ensuring no bad actors tarnish the industry’s reputation. Industry and government came together to collaborate on developing metrics and ensuring laws are adhered to and that workers are treated fairly.
Mexico was already on this path because of TPP. This has a lot of support from both the private sector and the government and is a great example of how an industry can be proactive.
Additionally, we can’t forget that a major factor making this industry so competitive is retail consolidation. Independent of foreign competition, retail consolidation is leading to lower margins for all players, wherever they are located, and regardless of how they’re producing, no one is immune.
All firms must invest more in information technology in order to better manage costs, improve operational efficiencies, and survive on thinner margins. Retail consolidation is incentivizing grower and shipper consolidation as scale becomes ever more important in remaining viable suppliers for larger retailers. The hothouse veg industry is a good example of an industry ripe for consolidation.
One of the reasons for bringing speakers from around the world to each of our events, including The London Produce Show and Conference, is because the world of produce is a seamless web. If the US decides to block Mexican tomatoes, and Mexico decides to block American apples, those apples may well wind up flooding the market in Scandinavia, reducing not only opportunities for other apple producers to sell there but, also, because of the inexpensive apples being on heavy promotion, it would likely impact sales of grapes, pears, oranges and other snacking fruit.
Roberta Cook is one of the most thorough researchers in produce today. She further has the kind of globally oriented mind that catches the implications for global trade of seemingly local issues. To have the opportunity to hear Roberta Cook speak is a treat!
Come and join this conversation with Roberta Cook, at The London Produce Show and Conference.
You can check out the website for the event here.
If you would like a hotel room please give us your specifications here.
And you can register to see Roberta’s seminar and the entire program of The London Produce Show and Conference right here.