The analysis of the FAOSTAT data presented in Section 2, indicates that trade in non-traditional agricultural exports, including fruits and vegetables and selected speciality and processed products, is currently worth at least US$30 billion annually. If we exclude the traditional export crops, i.e., bananas and citrus, then developing countries held a 56 percent share of world trade in fruit and vegetables by value in 2001. In this same year, developing countries also accounted for two-thirds of trade in selected speciality products, such as chillies, ginger and garlic, and for 50 percent of trade in selected processed and partially transformed NTAEs.
Across a broad range of NTAEs, developing countries have been gaining market share at the expense of the developed countries. This has been particularly marked in the case of trade in vegetables and speciality products, in which developing countries have taken the lion's share of the very substantial growth in global trade during the last decade.
In the fruit, vegetables and speciality products sectors[63] the increase in the dollar value of developing countries' exports has kept pace with the increase in traded volumes during the past decade. This is positive trend for which there are two main reasons. First, developing countries have had some degree of success in adding value to existing export products, and have moved downstream into the production of packaged and labelled "high care" products, such as trimmed beans, sliced fruits etc. They have also been successful in diversifying into the production and export of produce with higher unit values, such as berries and asparagus. Second, despite a substantial increase in export availability there would still appear to be a reasonably high elasticity of demand for these non-traditional exports.
The non-traditional agricultural export market is dominated by just a handful of countries and many of these, such as Mexico, Chile, Argentina, Brazil and Costa Rica, are leading developing country exporters of more than one product. Other countries are dominant in the market for one product: Kenya for green beans, Malaysia for minor tropical fruits, Thailand for minor fresh fruits and Zimbabwe for green peas, for example. There is also a very strong regional concentration, led by Latin America, which dominates developing country exports of fruits.
Many of these countries have been long-established in the export market. It is these countries which have also tended to be most prominent and innovative in the development of export markets for new fruits and vegetables, and for value-adding at origin. They are also the countries most able to take advantage of the niche marketing opportunities for more specialist produce, including organic. This is not altogether surprising. These countries have an established infrastructure (physical, commercial and organizational) which has been built up over a number of years to support the export of the "core" NTAEs. They enjoy economies of scale throughout the supply chain and this makes them well placed to take advantage of opportunities to add value, or to further diversify their export base.
In addition to those countries which are well-established in the export market for non-traditional products, there are those, like India and China in particular, which are very large scale producers of a range of non-traditional crops, but are currently modest exporters. Both these countries have the capability to become large scale, very low cost exporters across a wide range of non-traditional products, as China is already beginning to demonstrate.
Despite the relative success stories for a number of countries, it is clear that certain regions and a large number of countries have only a very limited participation in the market for non-traditional products. LDCs, for example, account for only 0.5 percent of world fruit trade and only 0.8 percent of world vegetable trade, and even this is shipped by just a handful of countries, such as Niger, Burkina Faso and Madagascar. Sub-Saharan Africa, as a region, is also poorly represented. Of the leading developing country exporters from this region, only Zimbabwe, Kenya and Côte d'Ivoire (pineapples) play a leading role in world fruit and vegetable trade.
The final characteristic of the market for NTAEs is that the majority of trade takes place between developing countries and developed countries. Outside the Far East, where there is substantial inter-country trade in mangoes, other fresh fruits and tropical fruits, trade between developing countries is extremely limited. Where it does take place it is confined principally to the counter-seasonal fruits, such as pears, apples and grapes. Low demand is the main reason for the limited extent of south-south trade, whether this is because of income, taste or the fact that many of the products are grown, and widely available, throughout developing countries. Where the latter is the case, import tariffs and other import measures, such as outright bans, can be a significant barrier to inter-developing country trade.
The global market for non-traditional agricultural produce is both valuable and dynamic. Supermarkets have played an important role in increasing the opportunities for developing countries to produce and supply high value and innovative NTAEs. Against the backdrop of falling prices for primary commodities during the past decade, it is not surprising that diversifying their production and/or export base has become a major objective for many developing countries.
Import tariffs, phytosanitary rules and other measures are often perceived as the major barrier to trade for developing country exporters. In practice, the greatest challenge for existing and new entrants to the NTAE market is to meet the high standards of compliance set by the supermarkets and large retailers. It is these end-users which represent the major outlet for the NTAEs and which now set the benchmark by which all suppliers must conform.
Existing producers of NTAEs must:
innovate continuously, both product presentation and product line, in order to maintain and increase market share;
strive to lower costs throughout the supply chain to take advantage of economies of scale, in order to maintain cost competitiveness;
and,
invest in the capital equipment and technology needed throughout the supply chain, in order to meet the demands of new legislation and the standards required by major destination buyers.
New entrants to the NTAE market must achieve all of the above, but they must also:
identify, produce and market a non-traditional agricultural product to a sufficiently high standard to meet the demands of the major global retailers and processors;
and,
do so on a scale, and with the level of efficiency necessary, for them to be at least as cost competitive as existing producers and exporters.
There are several important pre-conditions for the successful establishment of NTAEs, including technical expertise, a well-structured production and export sector and a highly efficient supply chain from field through to port or airport. Those countries that have a long-established presence in the export market, as exporters of both traditional and non-traditional produce, have invested heavily in the technology and infrastructure needed to manage all stages of the supply chain highly efficiently.
The leading developing country exporters of non-traditional produce can now claim to have considerable technical expertise, high levels of local and foreign direct investment, unrivalled cold chain storage facilities and excellent relations with leading importers in Europe and the United States.
To create similarly favourable conditions among fledgling producers and exporters of NTAEs requires a highly integrated or "joined up" approach, which removes barriers to development and fosters success.
However, among the least developed countries there is unlikely to be a quick fix. Many of the advantages that are enjoyed by current exporters of NTAEs exist because of the development that has taken place elsewhere in the economy. For example, whilst an open and competitive market for freight is very important - particularly given the prominence of freight costs in total c.i.f. costs - this cannot overcome the innate disadvantages that some developing countries face in the freight market. The near collapse of Malawian rose exports with the withdrawal of air services to the Netherlands, demonstrates just how vulnerable export-orientated businesses can be when the underlying freight market is relatively narrow.
In a similar vein, pineapple exports in Côte d'Ivoire would never have developed as fast or reached the current level of volumes without the established banana tonnage; exports of mangoes and coconuts benefited from the same "drag" effect. The strong tourist economy in Kenya has had important spin-offs for air freight availability, whilst the recent downturn in Zimbabwe's tourist industry has adversely affected the cost and availability of air freight for fresh produce exporters.
Similar points can be made throughout the entire supply chain, highlighting the importance of a "virtuous circle" which makes it comparatively easy for existing suppliers to expand and diversify further, and much more difficult for new entrants to break into the market and compete on equal terms.
Many of the pre-conditions for the success of NTAE projects do not need to be restated, not least because they apply equally to all investment projects. They must be founded on a sound investment plan for a product for which there is a long term and reasonably assured market. The other preconditions for the success of NTAE projects can be divided into two categories: those which may be innate (climate, rainfall, soils, distance from end-user markets) and those which can be created.
It is generally accepted that the impetus for new development must come from the private sector; the public sector has neither the capacity nor the business acumen to identify potential investments. However, governments and other public sector bodies do have an important role to play in creating the right macro and micro-economic environment for good investment projects to succeed. There are a number of areas in which sound policy making can play a role, and these are summarized below.
Good standards of education are essential to ensure that the workforce is of a sufficiently high calibre to deliver products of the standard and quality required by destination buyers. Labour laws must also meet international standards and expectations.
Technical assistance can be particularly vital in NTAE promotion projects, particularly in the introduction of new products, packaging and technologies, such as a cool chain. To be able to draw entirely from the local labour force is obviously most desirable, but where the skills are not available locally it must be possible to bring in suitably trained outside personnel. Foreign companies often experience difficulties in securing the necessary clearance for expatriate personnel and this can act as a major disincentive to investment.
Government intervention in the labour market can reduce competitiveness. In Senegal, for example, the government placed restrictions on the employment of short term and casual staff, and this increased Senegal's labour costs relative to those of its main competitors.
This is an issue in many developing countries where land may be tribal or leasehold. The NTAE sector often requires considerable start-up capital, often including investment in irrigation infrastructure. Security of tenure is essential for producers, not least for those that must raise loans with the banks. If land cannot be purchased outright then producers need to be able to lease land for a sufficiently long period to be able to recoup any investment. One of the key constraints to developing the Ethiopian horticultural sector has been uncertainty about land policy, particularly with respect to security of tenure. Legislation protecting tenants rights and formalising the landlord/tenant relationship are essential where land is leased.
Rules preventing ownership of land by foreign companies can also hinder efforts to develop NTAEs, as was the case in the Mahaweli region in Sri Lanka.
The evidence from the literature is that Kenya's development of NTAEs has been enhanced by a liberalized market for foreign exchange, whilst, in contrast, Senegal's has been hampered by an over-valued exchange rate. There is no doubt that a sound exchange rate policy and access to foreign exchange to purchase imported inputs are key criteria for investors. Equally, important are the cost and availability of capital. High and volatile interest rates represent a major cost, and deterrent, to investors. In Ecuador, the government created more favourable investment conditions, which encouraged foreign direct investment by Colombian cut flower producers. In Uganda, macro-economic reforms have encouraged diversification into NTAEs.
Zero rated duties on inputs and outputs and the rationalization of the tariff structure on imported inputs are cited as reasons for the success of the Kenyan and, more recently, the Zimbabwean NTAE sectors. Other fiscal or financial incentives, including tax breaks, low rates of corporation tax and pre/post shipment finance schemes have also been important.
Grants and subsidies have played an important role in establishing the pre-eminence of a number of the leading exporters of non-traditional crops, and when applied on a targeted basis still have an important role to play in developing projects in the NTAE sector. In Chile and Israel, the common forms of subsidy have been low interest production credits, subsidies on production infrastructure and material inputs, and grants and low interest loans for investment in processing and storage facilities. Fundaciòn Chile, the Israel Citrus Marketing Board and the former South African Citrus Board conducted direct advertising campaigns, both in domestic and external markets. Most countries within the European Union now provide direct payments to organic producers to assist in the development of that sector.
Increasingly, the trend is away from public grades and standards, towards the private grades and standards imposed by the large supermarkets and processors. Governments still have an active role to play in ensuring that SPS standards and MRLs continue to be met, not least because if one exporter has problems all exporters from that country can be penalized. In other areas, the government, or donor agencies, can play an important role in supporting private sector initiatives to encourage common grades and standards across commodities.
The efficiency of supply chain from production through to export is a major determinant of cost competitiveness and of critical importance for perishable products. The logistical infrastructure cannot generally be met solely by investment from the private sector and governments have a role to play in making the necessary investments in public sector infrastructure, such as roads and railways. They may also have a role to play in directly financing or encouraging private sector investment in more specific infrastructure such as cold storage facilities at airports or ports.
Because freight costs often account for a high percentage of the total cost of producing NTAEs, it is essential that the government pursues policies which result in a low cost and competitive market for storage, handling and transport throughout the supply chain. Dismantling state-run monopolies in freight and ground handling, introducing competition among carriers, cleverly managing unionized stevedores, ensuring competitive freight handling fees and privatising export terminals, can all assist in reducing transport costs and enhancing export competitiveness.
The trend towards large scale, integrated producer/exporter operations, now makes it even more difficult for small scale producers to participate in the market for NTAEs. Private sector initiatives to support pool marketing and outgrower schemes have been successful in Zimbabwe and in Kenya and could be replicated elsewhere. These schemes have enabled smallholders to meet the scale, quality and traceability requirements which are now demanded by the major international buyers.
Many of the most successful smallholder schemes, in a wide range of traditional and non-traditional commodities, are initiated and led by the private sector. However, more financial assistance could be provided by governments and/or donor agencies to support those initiatives, such as revolving credit funds, extension advice, training, building of cold stores etc., which are currently financed by the private sector.
There are a number of inputs which are critical in the production of high value exports. The quality, cost and availability of packaging is very important. In the short term, packing materials can be imported, but in the long term local manufacturing capacity needs to be developed. Organic products have special requirements and may need to be packaged in biodegradable packaging.
Timely access to, often specialist, agrochemicals and fertilizers is also essential. One problem identified in the horticultural sector in Ethiopia was the time taken to gain approval for the import of a new agrochemical. This also raises the question of whether it is really necessary for countries such as Ethiopia to replicate the testing and approval process already carried out by the regulatory authorities in the United States and Europe. Approval of an input (particularly a pesticide) in the developed importing country, which usually involves extensive and expensive testing and research, should be sufficient for a product to be used on imports or domestic production in the importing country.
Rules governing the investment and ownership by foreign companies can be a major deterrent to attracting foreign direct investment. In turn, this can prevent mergers/acquisitions taking place which create greater vertical integration in the supply chain and engender greater efficiency and cost savings. Foreign capital has been central to the development of NTAEs in a number of instances, including cut flowers in Ethiopia, Asian vegetable exports from Kenya and the production and packaging of tomatoes in Mexico.
Developing countries have experienced some success participating in niche markets, such as those for organic and fair trade produce, but these markets remain relatively small in absolute volume terms. Most registered suppliers are only finding a fair trade market for a relatively low percentage of their total output, with the balance being sold into the conventional market. Any future growth in demand for fair trade products such as tea, coffee and bananas will tend to be captured by existing registered producers, which makes it difficult for new entrants. It is also likely that the market for the "new generation" of fair trade products, such as mangoes and pineapples, will be met by those countries which are already established exporters of these products.
Exporters of organic NTAEs, particularly fresh fruits and vegetables, face exactly the same constraints as exporters of conventional produce. But they also face challenges and constraints which are unique to the organic sector. The transition to organic agriculture represents at least as big a challenge to developing countries as it does to developed countries. Rigorous quality control is necessary and high levels of rejection may be necessary to meet standards. The organic market also remains small scale and vulnerable to over-supply and downward pressure on premiums.
Because the risks inherent in producing organic produce are considerable, they are only likely to be absorbed by the much larger scale farming operations in developing countries and may not offer the perceived benefits to small scale producers, except perhaps where they operate as under the umbrella of an outgrower scheme, or similar, and have access to centralized technical advice, shared logistics and pool marketing.
The major risk facing producers diversifying products is structural over-supply and falling prices, and this is of primary concern to policy makers and investors. The market for NTAEs has been buoyant during the last decade and unit values appear to have held up reasonably well. This has been helped by continuous innovation in the type of products being marketed and by the fact that demand has kept place with supply. However, the NTAE market is still potentially vulnerable to the kind of supply shocks that have typified many of the traditional commodity markets and to dominance by one or two large producers. Policy makers need to be mindful of this risk and planned projects must always be based on careful and thorough market research.
|
[63] It is not possible to
compare volume data for the processed/partially transformed products because of
the different units used (tins, kilos, litres) in recording trade. |
