Economic Magnitude & Potential of Vegetables in Georgia. Greg E. Fonsah Asst. Professor & Ext. Economist Fruits & Vegetables University of Georgia, Tifton June 2-5, 2003

OVERVIEW U.S. Agricultural Outlook Georgia Agricultural Outlook U.S. Performance in Japan’s Import Market China’s Performance in Japan’s Import Market Growth And Competitiveness in Japan Trade And Policy implications for both countries

REASONS FOR INCREASE U.S. AG -TRADE IN 2002 CHANGES IN MACROECONOMIC PERFORMANCE $ DEPRECIATION –EURO & OTHERS POPULATION GROWTH UNFAVORABLE WEATHER CONDITIONS – U.S. COMPETITORS Source: USDA/ERS

Effects of A Strong US$ Against The Yen & Other Foreign Currencies? NEGATIVE EFFECT ON THE OVERALL AGRICULTURAL TRADE BALANCES COMPROMISES THE U.S. LEADING POSITION AND COMPETITIVENESS IN THE MARKET. CHINA IS NOW THE LEADER IN THE FRESH FRUITS, FROZEN FRUIT AND VEGETABLES EXPORT TO JAPAN

Overall Benefits From NAFTA BOOSTED TRADE TIES B/W CANADA, MEXICO AND UNITED STATES CANADA IS NOW THE LEADING U.S. TRADING PARTNER. CANADA IS THE PRINCIPAL IMPORTER OF U.S. FRUITS, VEGETABLES, GRAINS, OILSEED AND MEAT. MEXICO REMAINS OUR MAIN COMPETITOR MEXICO EXPORTS 98% OF TOTAL U.S. SQUASH IMPORT

U.S. Benefits From NAFTA Deal U.S. EXPORTCANADAMEXICO Processed Potatoes > 15% Increase Fresh Apples> 15% Increase Fresh Pears> 15% Increase Processed Tomatoes < 15% Increase Snap Beans 66 % Increase Cucumber 90 % Increase

U.S. Vegetable Industry: Production Item Unit Veg. ProdMil.cwt 1,264 1,331 1,371 Fresh Mkt.Mil.cwt ProcessingMil.cwt PotatoesMil.cwt Dry beanMil.cwt OthersMil.cwt

U.S. Vegetable Industry: Area Harvested Items Unit A. Harvt. Vegetable 1,000 ac 6,370 6,988 6,946 Fresh Mkt.1,000 ac 2,070 2,050 2,075 Processing1,000 ac. 1,330 1,356 1,340 Potatoes1,000 ac. 1,222 1,268 1,325 Dry bean1,000 ac. 1,249 1,740 1,605 Others1,000 ac

U.S. Vegetable Industry: Crop Value Item Unit Veg.Value$ mil 14,998 15,570 15,610 Fresh Mkt.$ mil 9,012 9,150 Processing$ mil 1,340 1,505 1,520 Potatoes$ mil 3,058 3,170 3,175 Dry beans$ mil Others$ mil 1,195 1,250 1,245

U.S. Vegetable Industry, Import Trade: Items Unit Import$ mil 4,528 4,620 4,665 Fresh Melon$ mil 2,597 2,475 2,515 Canned, frozen$ mil Potatoes$ mil Dry beans$ mil Others$ mil

U.S. Vegetable Industry, Export Trade: Items Unit Export$ mil 3,211 3,377 3,455 Frsh Veg & melon $ mil 1,197 1,205 1,220 Canned, frozen $ mil Potatoes$ mil Dry beans$ mil Others$ mil

U.S. Vegetable Industry, Unit Value: Item Unit Fresh-Mkt.$/cwt Processing$/cwt Potatoes$/cwt Dry beans$/cwt Others$/cwt

U.S. Vegetable Industry, Per Capita Use: ItemsUnit Per CapitaPounds Frsh veg & melon Pounds ProcessingPounds PotatoesPounds Dry beansPounds 7 7 7

U.S Ag. Trade: Item1998‘992000‘01‘0202/0305/0 3 Export$bil Import$bil Balanc e Trade $bil Source: usda, usdc (2003)AES-38 Outlook, May 27

GA & U.S. Production Forecast for Selected Fruits: CropsGeorgia 2001/(02) Georgia 2001/(2002) U.S. 2001/ (2002) Apples (Lbs) 9 million 10 million %9.6 billion 8.92 billion Grapes (tons) 3,200 3, %6.55 million 7.27 million Peaches (Lbs) 140 million 115 million %2.44 billion 2.53 billion Pecans (Lbs) 111 million 50 million %338.5 bill bill

Excess Georgia Mkt. Potential Fresh Produce Per Capita consum (Ib) 2002 popu (mill) Market Pot.(mil lions) Prod. (million Ibs) Excess Market. Pot. (Mill) Onion Water- Melon Cabbage Cucum

Excess GA Mkt. Potential, cont. Fresh Produce Per Cap consum ption (Ib) 2002 popu (mill) Market Pot.(mil lions lbs) Prod. (million Ibs) Excess Market. Pot. (Mill) Bell Pepper Peaches S Bean E.plant Pecans

How can we get rid of the excess production from Georgia? DEVELOP NEW EXPORT MARKETS IMPROVE EXISTING LOCAL MARKETS INCREASE PER CAPITA CONSUMPTION INCREASE POPULATION GROW ONLY CROPS WHICH WE HAVE COMPARATIVE ADVANTAGE, COST WISE. GROW ALTERNATIVE CROPS WITH HIGH MARKET VALUE BE CUSTOMER AND MARKET ORIENTED.

IS THIS THE RIGHT TIMING? YES SARS PROBLEM AROUND THE WORLD, (ASIA), CHINA, CANADA DEVALUATION OF U.S. DOLLARS AGAINST MOST FOREIGN CURRENCIES SHOULD RENDER OUR PRODUCTS AFFORDABLE.

U.S Vs. China Fresh Vegetable Market Niche in Japan YEARS CHINA U.S.A % 14% N/A 29% % 21%

U.S. Vs China Market share: Value in $ Countries CHINA$50 MILLION$311 MILLION U.S.A.$72 MILLION$205 MILLION

China’s Growth in Market Share Crops 5% 37%Frozen Vegetables (sweet corn, potatoes) 6% 35%Fresh Vegetables 24% 50%Processed products (potatoes) Source: Economic Research Service, USDA

Five U.S. Processed Products to Japan Import Market. Frozen Potatoes Other processed Frozen sweet corn Canned sweet corn Raisins = 56% Market Share = 62% Market Share

Major Suppliers in Japan Frozen Vegetable Import Market Country Crops China 5% 37%Frozen Veg Taiwan 34% 6% F. Vegetable U.S.A. 44% 39%F. Vegetable Others: Canada, Thailand, N. Zealand, Mexico < 5% Frozen Vegetables Source: USDA Outlook VGS , Aug. 2002

Structural Changes in Japan’s Frozen Vegetable Import Country Crops Crops China 40%Beans peas 42%Legumes Spinach U.S.A. 73% 15% Prepared Potatoes Sweet Corn 87% 80% Prepared Potatoes Sweet Corn

Japan’s Vegetable Policies Domestic Policy ObjectiveCrop coverage Production, processing and Market Subsidies Increase scale, efficiency, quality and supply All Vegetables Compensation to producers if market price falls Compensate part of price fall from historically average market Price 14 “designated” 28 “specified” vegetables

Japan’s “Designated Vegetables” Cabbage* Carrot Chinese Cabbage* Cucumber Eggplant* Japanese radish* Lettuce Onion* Potato Spinach Sweet pepper Taro Tomato Welsh onion *Have special status as important vegetables. Source: Nagata, pp. 24, 27 and USDA/ERS Outlook, vgs , 11/02

Japan’s “Specified Vegetables” Asparagus Bok choy Broad bea Broccoli Burdock Cauliflower Celery Chilli pepper Green soybeans Japanese butterbur J. hornwort (mitsuba) Komatsuna leaf Lotus roots Pumpkin Scallion (rakkyo) Shiitake mushroom Source: Nagata, pp. 24, 27 and USDA/ERS Outlook, vgs , 11/02

“Specified Vegetables” Cont. Chinese chive Garland Chrysanthemum Garlic Ginger Green bean Green peas Other field melons Snowpeas Sweet Corn Sweet potato Turnip Wakegi green onion Yam Watermelon Strawberry

Japan’s Vegetable Policies, Cont. Domestic Policy Goals Commodity coverage Rice diversion payments Encourage substituting. Vegetables for rice All Vegetables Disaster insurance subsidies Reduce risk of vegetable farming Potatoes; kidney and Azuki, red beans, vegies grown in covered structure

Japan’s Vegetable Policies, Cont Import Policy ObjectiveCrop coverage Tariffs (0-12.8%)Raise domestic Market price All vegetables Gate price systemRaise import prices to a threshold level Onions Tariff-rate quotaRaise domestic market prices Dried beans

Japan’s Vegetable Policies, Cont Import PolicyObjectiveCrop coverage Temporary safeguard measures Temporarily raise domestic prices Welsh onions & shiitake mushrooms Phytosanitary regulations Protect against plant diseases and pests All fresh vegetables

Trend in Chinese Market Share in Japan Import Trade Crops Mushrooms 20% 65% Radishes 3% 76% Peas 46% 99% Leeks 82% 91% Garlic 92% 99% Edible Brassicas 2% 11% Onions 0% 16% Carrots & Turnips 3% 76% Spinach 17% 64%

Trend in U.S. Fresh Vegetable Market Share in Japan Crops Edible Brassicas 80% 84% Onions 28% 52% Asparagus 28% 20%

China’s Comparative Advantage over the U.S. In Japan Market Direct Foreign Investment by foreigner in China. China’s low cost of production Japan Geographic Proximity to China Japanese Trading Companies invested in China, providing seeds, spores, production, packing and harvesting techniques for Japanese retailers. Improved Ocean Freight Services from major Chinese ports to Japan Source: USDA Outlook VGS , Aug 02

China and Japan Trade War April 2001, Japan imposed import restrictions called temporary safeguard measures (art. 6 of the Agreement on Safeguard) on Chinese Welsh Onions and fresh shiitake mushrooms. 1 st adoption of article 6, since Japan joined WTO in China immediately imposed 100% tariffs on Japanese cars, mobile phones and air-conditioners. A special panel to oversee bilateral farm trade was formed in December, 2001 but tension still remain.

Frozen Foods Consumption in Japan, USA and Europe (weight) CountryVegetablesPotatoes Others Total Japan N/A 36.1% USA N/A 33.0% Europe N/A 42.8%

What’s the Big Deal About Japan’s Import Market? Large market for fresh & processed vegetables. It generated $23 billion (3 trillion yen) in 2000 – wholesale value. Japanese high per capita consumption of vegetables compared with other nations. Government policy encourages high prices

What’s the Big Deal About Japan’s Import Market Cont.? Japanese Consume almost all of North America, European and Asian vegetables. Vegetable production is one of the most dynamic sectors of Japan’s agriculture. Japan’s vegetable industry & government support widespread full time farming. Vegetable production is equally important as rice and livestock production. Although Japan’s domestic supply equal demand, import escalated in the 90s because of winter, good quality and lower prices from imported vegetables.

Implications for U.S. & Chinese Competition in Japan’s Market U.S. & China tend to export different types of fresh vegetables Chinese increasing market share puts competitive pressure on the U.S. Either as direct competition on a specific product or, through substitution effect among vegetables. Chinese fresh vegetables influx is also a threat to Japanese farmers and it is creating tension between both countries.

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