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NAFTA At 11: Impact on the California Fresh Produce Industry
By Dr. Roberta Cook
Dept. of Agricultural and Resource EconomicsUC DavisApril 2005
for theUC President's Advisory Commission on
Agriculture and Natural Resources
Presentation Overview•Bottom line and some recent history•Imports as share of domestic consumption•US-Mexico trade patterns, and Mexican hort trade relative to total US hort trade •Seasonality drives fresh produce trade•Structure and location of horticultural production in Mexico•Myths and Realities•Relative competitiveness•Tomato trade – changing dynamics•Role of supermarket growth in Mexico and domestic demand
Bottom Line and a Little History• Exchange rates and the WTO have influenced California
ag much more than NAFTA.• Mexico’s decision to join the GATT in 1986 had a greater
impact on reducing trade barriers in the Mexican market.• Prior to joining GATT Mexico had high average tariff
rates and major nontariff barriers in the form of licensing restrictions.
• Mexico made a decision to “unilaterally disarm” in ’86, partly as an internal strategy for controlling food costs and inflation.
Bottom Line and a Little History• Mexican fruit and veg average tariffs were already reduced
from around 50% to a max of 20% prior to NAFTA.• Licensing restrictions were removed on most ag products,
including fruit/vegs. This began to open Mexico to US exports prior to NAFTA. (ag licenses: 320 in ’85, 57 in ’90)
• The US trade-weighted average tariff rate for Mexican fresh vegetable imports was 7% prior to NAFTA. There were only a few fruits and vegetables facing high ad valorem tariff rates (like 25% on asparagus, 35% on melons.) Grapes were already duty free (big growth in Sonoran grape exports since NAFTA not due to improved market access).
• Arguably, the US had the most to gain from improved market access since Mexico had higher average tariffs.
Fruit and vegetable imports as a percent of US consumption, 1990 vs 2003
Imports-% Imports-%
of Consumption of Consumption Item 1990 2003All vegetables 7.2 13.9
Fresh veg/melons 9.4 15.9 Melons 14.2 22.4All fruits & nuts 33.4 26.3
Fruits:
Fresh, all 34.7 44.5
Excl’ing bananas 11.6 23.5
All fresh fruit/veg 17.4 23.2
All fruit/veg/nut 17.7 19.0
Source: ERS
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1994
IMP
1994
EXP
1995
IMP
1995
EXP
1996
IMP
1996
EXP
2004
IMP
2004
EXP
SeafoodConsumer- OrientedIntermediateBulk
U.S.-MEXICO AGRI-FOOD TRADEU.S.-MEXICO AGRI-FOOD TRADE
Source: U.S. DOCSource: U.S. DOC
U.S. Imports from/Exports to Mexico, Million $USU.S. Imports from/Exports to Mexico, Million $US
US/Mexico fresh fruit & vegetable trade: trend overwhelmingly favors
Mexico
0
1
2
3
4
92 93 94 95 96 97 98 99 00 01 02 03 04
$billion
US exports to MexicoUS imports from MexicoMexico's trade surplus (US deficit)
Source: U.S. Department of Commerce, BICO aggregations
0
1
2
3
4
5
6
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
US Horticultural Imports from Méxicoby Key Product Form, 1993-2004
Source: U.S. Dept. of Commerce
$ Billions
Fresh Vegetables!
Process Fruit/Veg/Juice
Other
Wine/Beer
Fresh Fruit
Fruits vs. Vegetables
•Mexico is the principal US foreign supplier of fresh vegetables (65% of US fresh veg import value in 2004), exporting most product during the winter when US supply is inadequate.
•Mexico is a minority player in US fresh fruit imports since it is not an important banana exporter.
•Exceptions: Mexico’s role in fruit trade is important for avocados, mangoes, limes, early season grapes, and some specialty tropicals.
0
250
500
750
1000
1250
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
US Horticultural Exports to Méxicoby Key Product Form, 1993-2004
Source: U.S. Dept. of Commerce
$ Millions
Fresh Vegetables
Process Fruit/Veg/Juice
Other/Nursery
Wine/Beer
Fresh FruitTree Nuts
U.S. Horticultural Imports and Exports by Key Product Category, $Billion
0
5
10
15
20
25
30
1999 EX
P
1999 IMP
2000 EX
P
2000 IMP
2001 EX
P
2001 IMP
2002 EX
P
2002 IMP
2003 EX
P
2003 IMP
2004 EX
P
2004 IMP
Process/Other
Tree Nuts
Nursery/Flower
Wine
Fresh
Source: FAS/USDA
Seasonal Complementarity in Fresh Produce Production
•Mexico’s main exports are a segment of winter vegetables only grown during the winter in Florida and Sinaloa – don’t compete with California in the winter – and we dominate production of these items in the summer:
– Tomatoes, cucumbers, peppers, eggplant, green beans, sweet corn
•Leafy greens, broccoli, cauliflower which Ca./Az. does produce in the winter are still mainly grown in the US, with minor production in the Mexicali-San Luis Valley
Sinaloa
Sonora
BC
Jalisco Bajio
Key Mexican Horticultural Areas
BC Sur
Veracruz
Mexico Production and Harvested Area of Fruits and Vegetables, Million Metric Tons and Hectares
Source: SIACONSource: SIACON
2003 1993 Fruit Area 1.21 1.00 Fruit Production 15.73 11.36 Vegetable Area .56 .49 Vegetable Production
9.65 5.96
Total Area Total Production
1.77 25.38
1.49
17.32
2003 1993 Fruit Area 1.21 1.00 Fruit Production 15.73 11.36 Vegetable Area .56 .49 Vegetable Production
9.65 5.96
Total Area Total Production
1.77 25.38
1.49
17.32
California and US Area and Production of Fruits, Nuts and Vegetables, Million Metric Tons and Hectares, 2002/03
Item California USFruit/nut area 1.16 1.64Fruit/nutProduction 13.06 30.00Vegetable/melon
area .484 2.10
Vegetable/melon
production 22.32 57.61
Total Area 1.644 3.74
Total Production 35.38 87.61 Sources: Ag Census,
ERS, CDFA
Myths and RealitiesMyth:•It is an advantage to be underdeveloped.Reality:•US ag benefits from:
– enormous support in RD&D from govt. institutions such as USDA and from the land grant university system.–enormous public sector investments in transportation and infrastructure of many types, including water storage and distribution.–extensive private sector research targeting specific crop needs.–a transparent and relatively responsive govt.–unimpeded access to the largest consumer market in the world and usually a transportation cost advantage.
Myths and RealitiesMyth:•Because fruit and vegetable production is labor-intensive, countries with low wage rates naturally have the advantage.Reality:•Fruit and vegetable production is capital, technology, management, research, marketing, and infrastructure intensive.•Mexico’s advantage is generally seasonal (climatic advantage) rather than a cost advantage.Exceptions: crops requiring bunching at harvest – green onions, radishes, asparagus, give Mexico a cost advantage; and avocados.
Myths and RealitiesMyths:•A given wage rate differential is equivalent to the same differential in labor costs.•Ag labor is abundant everywhere in Mexico.•Mexican growers provide few social services to workers.Reality:•Labor is generally less well trained and efficient, offsetting some of the wage rate advantage.•Certain areas also experience labor shortages.•Labor management can be challenging in Mexico due to social and policy issues. •Common to provide housing and schools.
Myths and RealitiesMyth:•Food safety and pesticide practices are substandard in Mexico.
Reality:•Important to distinguish between domestically-oriented growers and export growers.•Although it depends on the grower/exporter, practices have improved markedly for exporters and many now are third party certified and implementing GAPS.•It is possible to find operations in Mexico with superior food safety controls.
A small number of sectors receives most of the FDI investment in Mexican
agribusiness
Tobacco30%
Dairy13%
Beer12%
Others26%
Corn flour4%
Non-alcoholic beverages
15%
Cumulative share
1999-2003
Source: Secretaria de Economia
FDI in Mexican Ag after NAFTA•There were 252 foreign firms officially operating in Mexican ag as of around 2001, including 144 directly involved (FDI) in veg and cut flower production, and 19 in fruit production including 1 in grapes.•Accumulated FDI in Mexican ag (1994-2001) was US$126.6 million.•Most US hort firms are not direct owner/investors, rather marketers, but this is changing (strawberries, tomatoes, avocados).•However, restrictions on corporate farming, acreage limits and land investment restrictions in coastal and border issues remain a constraint. Source: Rabobank Mexico
GH Prodn MT 159,664 220,114 148,300 528,078
Field Prodn 1,000 Mt
1,594.2 26.882 1,804.0 3,425.1
GH Share of Prodn
9% 89% 8% 13%
Average Yield MT/HA
484 494 156 378
North American Fresh Tomato Industry, Greenhouse and Field, 2003
CANADAUSA TOTALMEXICO
Source: Roberta Cook and Linda Calvin
Weekly Fresh Tomato Prices: Florida Mature Green; Calif. Mature Green and Vine-Ripe; Mexican Vine-Ripe and GH;
Canada GH Jan. 11, 2003 – Dec. 27, 2003
00.20.40.60.8
11.21.4
1/11
2/11
3/11
4/11
5/11
6/11
7/11
8/11
9/11
10/1
111
/11
12/1
1
$/p
ou
nd
MX-VR
CAL-VR
FL-MG
MX-GH
CAL-MG
CAN-GH
SUSP-P
Source: AMS/USDA; US Customs *VRs, 4x5; Mx-GH 22’s; MGs US 1s, extra large or 5x6.
*
National Fresh Tomato Retail Shares of Quantity and Value by Tomato
Type, 2003 vs. 1999
Sources: CTC, IRI, and The Sources: CTC, IRI, and The Perishables GroupPerishables Group
Greenhouse 39% 42% 37% 31%
Round field 26 36 31 43
Roma (field) 1216 19 23
Cherry/grape 22 6 13 3(field)
Type Type Share of $Value Share of Pounds
2003 1999 2003 1999
0
25,000
50,000
75,000
100,000
125,000
150,000
90 92 94 96 98 '00 '02 '04
U.S.exports
U.S.imports
U.S.- Canadian fresh tomato trade, 1990-2004, Metric Tons
Source: US DOC
0
25
50
75
100
125
150
175
200
225
250
1990 1992 1994 1996 1998 2000 2002 2004
U.S.exports
U.S.imports
U.S.- Canadian fresh tomato trade, 1990-2004, Million US$
Source: US DOC
Field Grown
Green-house
North American fresh tomato shipping seasons (dark bars) by region - greenhouse versus field grown
J F M A M J J A S O N DCaliforniaFlorida
Sinaloa, Mex.Rest of U.S.
CanadaBaja Calif., Mex.
CanadaU.S.*Sinaloa, Mex.
Central MexicoImuris, Sonora, Mex.
Baja Calif., Mex.*
•Many U.S. and Baja greenhouse industry locations don’t produce year-round, but there is •year-round production in the aggregate.
Relative Competitiveness•Ca. has an advantage in year-round fresh produce marketers (with diversified geographical sourcing) with organized marketing and extensive marketing services.•Mexico has a climatic/seasonal advantage in numerous vegetable crops.•Mexico has a disadvantage in marketing and in US perception of its products, as well as in infrastructure and RD&D.•Much trade is complementary.•Both countries are expected to experience expanding demand for fresh produce and greater trade, fueled by retail and foodservice demand for year-round availability.
The supermarket is the most widely shopped format in
Mexico’s major cities
Public market
28%
Corner store9%
Other2%
Super-market
57% Hyper-market
4%Source: ANTAD
Mexican Domestic Market•Domestic demand is expected to expand in Mexico as income and diets of its 100 million consumers improve, substitution of more fruits and vegetables and animal protein for starches.•Currently around 80% of Mexican hort. production is consumed internally – domestic demand will remain a major factor.•Growth in the Mexican supermarket sector is stimulating demand for imports and Ca. shippers have the ability to meet supermarket needs for consistency in quality, volumes and services.•More Mexican shippers are also targeting supermarket chains, in some cases making them more formidable competitors.