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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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