A Look at Global Competition
The Tomato Magazine
December 2004
With global tomato production growing rapidly, U.S. negotiators
are determined to open international markets to American products.
That was the bottom line of a report, "Outlook for Florida Tomatoes
under FTAA and Future Marketing Issues," presented Sept. 8 during
the Florida Tomato Institute in Naples, Fla.
Speaking was John J. VanSickle with the University of Florida/IFAS, International
Agricultural Trade and Policy Center, Gainesville, Fla.
"The U.S. tomato industry is one of the largest global suppliers
of tomatoes in the world," VanSickle reported. "U.S. producers
grew 12.275 million metric tons of all types of tomatoes in calendar year
2003 on 410,433 acres with a yield of 2,113 cartons per acre."
The U.S. trails only China in tomato production. In 2003, China produced
17.151 million metric tons on 2.97 million acres with a yield of 843 cartons
per acre, according to the speaker.
Between 1993 and 2003, global tomato production climbed 45 percent, VanSickle
pointed out. Consumer demand for produce in general and tomatoes specifically
is growing as they respond to diet and health concerns. More efficient
production and marketing practices also are giving consumers greater access
to higher quality produce year-round.
"Competition in the U.S. market has been strong with domestic and
foreign suppliers competing to serve this important market," VanSickle
said. "Consumption of fresh tomatoes reached 2.46 million metric
tons in 2003. Imports accounted for 939,257 metric tons of this consumption
with U.S. producers exporting only 142,461 metric tons. Mexico supplies
80 percent of these imports and Canada almost 14 percent."
Seventy-eight percent of U.S. exports go to Canada and 13.6 percent to
Mexico, he added.
Leadership Role
The U.S. has taken a leadership role in opening markets to international
trade, VanSickle said. The North American Free Trade Agreement (NAFTA)-between
the U.S., Canada and Mexico-created a free trade zone between the three.
And since then, other free trade agreements have been finalized with Chile,
Jordan, Singapore, Guatemala, El Salvador, Honduras, Nicaragua, Costa
Rica, Australia, Morocco, the Dominican Republic and Bahrain. The Bush
administration also is negotiating other free-trade agreements with Panama,
Colombia, Ecuador, Peru, Thailand, Botswana, South Africa, Lesotho, Swaziland
and Namibia.
"The U.S. is also aggressively pressing for global free markets through
the World Trade Organization and for hemispheric openness through the
Free Trade Area of the Americas (FTAA)," VanSickle said.
With negotiations underway, the focus is on the three pillars of opening
markets: (1) eliminating export subsidies; (2) phasing out tariffs; and
(3) cutting domestic support. Agriculture has been a focus in all of the
previous agreements negotiated.
"The growth in domestic support to agriculture in the U.S. as a result
of the 2002 Farm Bill has caused several nations to call on greater discipline
in providing support to agriculture in future free trade zones,"
the speaker said. "Developing countries object to domestic support
programs like those in the U.S. because they believe it leads to unfair
competitive advantage in global markets. They organized their objections
to domestic support during the Cancun Ministerial for the WTO, causing
U.S. Trade Representative Robert Zoellick to declare 'the breakdown in
Cancun was not a success but rather a missed opportunity.' The Miami Ministerial
for the FTAA also saw repeated calls for more discipline on domestic support."
Domestic Support Is Small
The fresh produce industry receives "very little" domestic support
for its programs, VanSickle said. The largest threat to the produce industry,
particularly the fresh tomato segment, is from elimination of tariffs
and the increase in foreign direct investment expected to increase productivity
in competing countries relative to U.S. producers.
The largest tariffs are collected from March 1 to July 14, the late spring/early
summer period, and from Sept. 1 to Nov. 14, the late fall market period,
he explained. Tariff rates during these periods are 3.9 cents/kg. The
volume of trade during these periods in 2003 was $561 million with $536
million of this entering duty free from Canada and Mexico.
The tariff rates for the other periods-July 15 to Aug. 31 and Nov. 15
to the end of February-equal 2.8 cents/kg, he said. In 2003, trade during
these periods was $107.2 million and $46.8 million, respectively. Again,
in 2003, Canada and Mexico accounted for most of the trade during these
periods-$99.7 million in the July 15 to Nov. 15 period and $24.3 million
in the Nov. 15 to end of February period. Total tariffs collected on all
imports declined from $19.1 million in 1993 to $3.5 million in 2003 as
all tariffs on imports from Canada and Mexico were eliminated under NAFTA.
"As we look to the future, the WTO and FTAA are the two agreements
under negotiation likely to have the largest impacts on U.S. producers
of fresh tomatoes," VanSickle said.
He estimated the probable economic effects of the reduction or elimination
of U.S. tariffs on selected fresh vegetables and concluded that elimination
of tariffs is likely to have only a small impact. The reason, he explained,
is because the larger countries exporting to the U.S. already enjoy duty
free entry. The larger impacts are more likely to be felt from increases
in foreign direct investment that could increase the productivity of tomato
producing countries and make them more competitive in U.S. markets.
The Asian Threat
Looking at area harvested, yield and total production in different regions
of the world, Asia leads all others, accounting for more than half of
global tomato production-58 million metric tons, VanSickle said. Western
Europe follows with 15.1 million metric tons; North American production
is next at 11 million metric tons.
The U.S. is able to compete in global markets because of its higher productivity,
2,266 cartons per acre, he said. The U.S. is second only to Israel where
almost all production is from greenhouses. Due to increasing productivity
over the years, Western Europe also is increasing its production of fresh
tomatoes. In 2003, average tomato yields there were 2,070 cartons per
acre.
Asia appears to pose the largest threat to U.S. producers, VanSickle warned.
Asia accounts for nearly 60 percent of the global area devoted to tomato
production. Yields in Asia, however, averaged only 825 cartons per acre,
or just slightly more than a third of the yields realized by U.S. producers.
"Investments in Asian markets that increase their producers' productivity
could have large impacts on U.S. and other global producers," the
speaker said. "Another potential threat to U.S. producers is South
America where producers in that region are in the upper half of all producers
in productivity. In 2003, yields averaged 1,571 cartons per acre. In South
America, the larger threat to U.S. producers is what the FTAA might do
to increase productivity and increase trade in tomatoes in U.S. markets
from their suppliers."
South American countries most likely to benefit from FTAA provisions include
Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, French Guiana, Guyana,
Paraguay, Peru, Suriname, Uruguay and Venezuela, he pointed out. Most
other countries of Central America and the Caribbean already benefit from
duty free entry from previous agreements. Hence, it is useful to examine
South American countries for the potential to increase their presence
in U.S. markets from implementation of a FTAA.
Brazil and Chile appear poised to take advantage of any benefits provided
by an FTAA or WTO, he said. Both already experience higher yields that
could compete with other North American producers. While land may be a
constraint in Chile, Brazil has demonstrated an ability to expand production
on a number of commodities- citrus and soybeans are good examples-once
the domain of U.S. producers.
"Technologies that improve the quality and shelf life of tomatoes
in Chile and Brazil could lead to greater competition in U.S. markets,"
VanSickle said. "Lower tariffs are not likely to drive the innovations
that will be necessary to increase their competitiveness in U.S. markets,
but increases in foreign direct investment could be the driving force
to this increased productivity."
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