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Executive Summary

Trends in world trade in non-traditional agricultural exports

By 2001, total world trade in non-traditional fruits and vegetables[1] was worth US$15.5 billion (Figure Exec 1). In this same year, developing countries' combined share of non-traditional fruit and vegetable exports increased to 56 percent, assisted by strong growth in trade in vegetables. Bananas and citrus have declined in importance. In 1992, bananas and citrus accounted for 50 percent of world trade in fruits; by 2001 this had fallen to 43 percent.

Figure Exec 1: Total fruits (excluding bananas and citrus) and vegetables exports by value,

Three fruits - apples, grapes and pears - account for close to 50 percent of world trade in non-traditional fruits. Grapes, in particular, have increased in importance, with their share in the value of world trade up from 17 percent in 1992 to 22 percent in 2001.

Close to 60 percent of all world trade in vegetables is in the "other vegetables" category, which covers a wide range of green vegetables, salads and root vegetables, pumpkins/squashes etc. Individually, tomatoes are by far the most important traded vegetable, accounting for 22 percent of world trade by value.

In the speciality products category, combined trade in chillies, ginger and garlic reached US$1.5 billion in 2001, up from US$650 million in 1992. Close to US$1.0 billion of this trade originated from developing countries.

Among the processed NTAEs, the prepared fruit and vegetable category are by far the most important. In 2001, total trade in prepared fruits and vegetables was valued at US$2.9 billion and US$1.6 billion, respectively. The total value of trade among the leading processed NTAEs[2] reached US$8.1 billion in 2001, divided almost equally between developing and developed countries.

Developing countries have played an increasingly important role in world trade in NTAEs, accounting for 56 percent of all trade in 2001 (Figure Exec 2). However, it is apparent that the export markets for non-traditional fruits and vegetables are dominated by just a handful of developing country suppliers.

In the case of fruits, Chile and Mexico account for 53 percent of world trade in avocados; Mexico, the Philippines and Brazil for 62 percent of world mango trade; Costa Rica and Côte d'Ivoire for 61 percent of trade in pineapples; Thailand and the Hong Kong Special Administrative Region of China for 50 percent of trade in the other fresh fruit category. Between 1997 and 2001, 43 percent of world developing country fruit exports by value were shipped by just four suppliers: Mexico, Chile, Ecuador and Costa Rica.

Export trade in vegetables is similarly concentrated, although the regional bias is less marked. Mexico is a leading supplier of tomatoes, asparagus, aubergines and onions. Together, Zimbabwe and Guatemala dominate the world market for green peas, whilst Kenya supplies 25 percent of world trade in green beans. Thailand, India and Mexico are the leading developing country suppliers of green corn, dried onions and cabbages (Figure Exec 3).

Figure Exec 3: Developed countries vs developing countries: exports of selected fruits and vegetables by value, average 1997–2001

Taken overall, four suppliers - Mexico, China, Argentina and the Syrian Arab Republic - accounted for 67 percent of developing country vegetable exports by value between 1997 and 2001. Mexico alone, with its proximity to the huge United States market, accounted for a massive two-thirds of the group's exports.

African countries are better represented in the vegetable export trade than they are in the fruit trade. In the case of the latter, only three African countries hold more than a 3 percent share in the trade of any fruit: Côte d'Ivoire and Ghana, have a 17 percent and 3.8 percent share, respectively, in world pineapple exports; whilst Kenya holds a 6 percent share in the trade in other tropical fruits.

The concentration is also marked in the case of speciality NTAEs. Mexico accounts for 43 percent of world trade in chillies, China for 45 percent, 33 percent and 21 percent of world trade in ginger, garlic and medicinal herbs, respectively, and Colombia for 14 percent of world trade in cut flowers.

The processed products category is also similarly controlled by just a handful of developing country exporters (Figure Exec 4). China accounts for 52 percent of world trade in both dried mushrooms and canned mushrooms. The canned pineapple trade is dominated by Thailand with a 45 percent share of world trade in value terms. Chile and Argentina account for one quarter of world trade in concentrated apple juice; Turkey, Chile and China for 35 percent of world trade in tomato paste. Apart from its importance as an exporter of these products, China also accounts for close to 10 percent of trade in dried fruit and 10 percent of trade in prepared fruit, whilst shipments of apple juice are increasing rapidly.

Figure Exec 4: Leading developing country exporters of processed/partically transformed NTAEs by value, average share 1997–2001 (%)

1/ Not specified elsewhere

In contrast to the performance of leading developing country exporters of NTAEs, LDCs exports of NTAEs can be measured in thousands of dollars and hundreds of tonnes. The only LDC exporting country of any significance is Niger, which accounts for 2.6 percent of world green bean exports by value. Countries such as Burkina Faso, Haiti, Yemen, Uganda, Madagascar and the Lao People's Democratic Republic export mangoes and papayas and fruits in the "other" category, but these exports are typically small-scale with considerable variability in the volumes shipped year-on-year. Other countries, such as The United Republic of Tanzania, Niger, Ethiopia and Yemen, are featuring more frequently as exporters of vegetables but volumes are still very low.

Overall, the LDCs are significant exporters of only one product - green beans - in which they hold a 12.3 percent share in world trade. They also hold between 3 percent and 5 percent of world trade in mangoes, grapes, fresh tropical fruits and green peas. Their share in world trade in other selected fruits and vegetables is negligible.

Despite the difficulties associated with the calculation and use of unit values, the use of aggregated data from all exporting countries for each product category does provide a reasonable indicator of the f.o.b. value of key NTAEs and of the trend in these values over time.

Unlike values of traditional agricultural exports, the unit values of non-traditional fruits have held up fairly well during the past 10 years. Values of grapes, papayas, avocados and pineapples have remained stable, despite the fact that export volumes have grown strongly. The values of the counter seasonal fruits - apples, pears and melons - have declined, but relatively gently and also against a background of very strong export growth. Mango values have declined more sharply, but this has merely served to bring them more in line with other mainstream fruits with which they now compete more closely.

Export values for vegetables have also held up well despite strong underlying growth in export availability. Unit values of tomatoes have risen over the period, reflecting the trend towards the export of speciality lines such as vine and baby tomatoes. A similar trend is apparent for chillies and peppers, also reflecting innovations in the range and value of products available in this category (Figure Exec 5).

1/ Composite Index (beginning at 100)

2/ Adjusted for inflation using the MUV deflator (Source: International Financial Statistics, IMF)

3/ Chillies/Peppers and Ginger

4/ Refers to the following selected processed/partially transformed NTAEs: Prepared fruits, prepared vegetables, tomato paste, canned pineapples, apple juice, concentrated apple juice, peeled tomatoes, processed sweet corn and canned mushrooms

The empirical evidence indicates that producers and exporters of non-traditional fruits and vegetables must innovate continuously in order to retain their market share and maintain unit values. Hence, exporters are developing new product lines which include high care products (trimmed and packed beans, ready prepared salads, pre-prepared stir fry mixes, prepared fruits); speciality products (baby vegetables, purple carrots, smaller-sized watermelons) and exotics (cape gooseberries, Chinese vegetables, fresh hearts of palm, tropical peppers).

Unlike the fresh produce sector, there has been comparatively little innovation in the presentation and packaging of processed products. Perhaps because of this, the processed products category appears to have fared less well over the period, with unit values generally experiencing a downward trend. The entry of China into the export market for many of these products, with its low unit costs, is also exerting continuing downward pressure on prices.

The focus of much of this analysis has been on non-traditional agricultural exports, i.e., on trade. In practice, some countries are very substantial producers of non-traditional products, and of fruits and vegetables in particular, but export comparatively little. Taken overall, developing countries export less than 10 percent of fruit produced and less than 5 percent of vegetable production. Exports as a percentage of production tend to be highest among the high value counter-seasonal fruits - grapes, pears and strawberries - and among the more specialist vegetables such as aubergines and asparagus.

Regionally, it is Central and South America which are the most heavily export-orientated. Typically, the Far East exports relatively little, despite being a very large producer of many fruits and vegetables. Far East countries account for an estimated 70 percent of developing country production of apples and 85 percent of pear production, but export less than 2 percent. The same is true for green beans and cabbages, the Far East is the largest developing country producing region but exports just 1.0 percent and 0.5 percent, respectively.

The extent of recorded trade between developing countries, so-called south-south trade, varies depending on the region. The greatest trade between developing countries takes place in the Far East, both for fruits and vegetables. Outside the Far East, regional trade among developing countries is far less important. In the case of fruits, it is confined principally to the temperate fruits which are not widely grown in developing countries, with little or no south-south trade in tropical fruits. Trade in the specialist, higher value vegetables, such as asparagus, green beans and green peas, takes place almost exclusively with developed countries.

Trade and import policy in the non-traditional agricultural export sector

In the non-traditional agricultural export sector, the overwhelming majority of trade takes place in horticultural products and individual countries' import and tariff policies reflect this bias.

Import policy measures aim to protect domestic fruit and vegetable producers in destination countries. In temperate countries, import tariffs and other measures tend to be lowest and least restrictive on tropical fruits; highest on temperate fruits and vegetables, particularly during the domestic growing season. The converse tends to be true within many developing countries, where import tariffs on tropical fruits are bound, although not necessarily applied, at generally high levels. Typically, these range between 35 percent and 100 percent.

The EU, Japan and the United States, the major markets for NTAEs, operate complex systems of seasonal duties, quotas and entry prices to regulate imports of NTAEs. However, the combination of tariff concessions extended to developing country and LDC exporters of fruits and vegetables by the European Union and the United States in particular, and the seasonal nature of those tariffs that remain, suggests that import tariffs per se are not the major barrier to entry into these markets. This view is supported by the literature reviewed in Section 5.

Where exports of non-traditional products are made in fresh form (fruits, vegetables and cut flowers) then a potentially more significant constraint to exporters are the sanitary and phytosanitary (SPS) controls that are imposed by destination buyers. These are particularly stringent in the United States and Japan, but they are also widely imposed elsewhere. A number of import controls which are reported to the WTO by implementing countries are SPS in origin. Not surprisingly, many of these also become the focus of subsequent trade disputes, where it is felt that the measures taken by the importing country are disproportionate to the risks involved. Between 1995 and 2000 it is estimated that nearly 270 SPS measures were introduced on imports of fresh fruit and vegetables.

A further hindrance to trade in fresh produce worldwide is the lack of harmonized technical standards and treatments. Some countries apply the Codex Alimentarius standards for maximum (pesticide) residue levels (MRLs), whilst other countries apply their own, often stricter, MRLs which may only partially conform to Codex. New regulations in the EU regarding pesticide residues are also of concern, most particularly for their effect on production practices and agrochemical costs in exporting countries.

Statutory food safety policy instruments are also being overtaken by a large number of private standards imposed by the global retailers and processors, led by the supermarkets. In addition to these standards there are many structural difficulties which exporters, particularly new entrants, must overcome in order to successfully develop trade in NTAEs.

Market saturation and "adding-up"

One of the major issues for governments and private sector investors, is whether increased exports of a commodity will lead to a lower average price received. The prospect of a proportionately lower increase, or even a decline, in sales revenues is a particular issue for new investments. It is also of concern when planning an expansion to an existing area of production if, at the margin, the increase in volumes exported results in an actual decline in revenues earned.

This so-called "adding up" problem can be severe for traditional agricultural exports (TAEs) such as coffee and cocoa. For these commodities, and others like wheat and maize, own price elasticities of demand are low and can result in a low, or even a negative, ERV.[3] The analysis contained within this report indicates that the NTAEs have much higher own price elasticities of demand than the TAEs.

Most of the developing countries examined are relatively small scale exporters and, not surprisingly, face highly elastic demand and correspondingly high ERVs for the NTAEs selected. Some large-scale individual producers, and individual producing regions, do face potentially lower own price elasticities of demand and correspondingly lower ERVs for some NTAEs. Where this is the case, increased production and exports would lead to a reduction in price and to a proportionately lower increase in sales revenues. Countries where this might apply include China, in respect of asparagus, cabbages, green beans and green peas; India (green peas and mangoes); Mexico (avocados). At the regional level, an expansion of cabbage, green bean and/or pineapple production in Asia would have a marked impact on price. Similarly, pineapple and avocado prices are likely to be highly sensitive to an expansion in African and Central/South American production, respectively.

Although NTAEs are not entirely unaffected by the potential problem of "adding up", they are not subject to the very severe price effects facing the TAEs. For example, research carried out in the mid 1990s[4] found that the ERV of cocoa from sub Saharan Africa was negative (-0.19), indicating that an increase in export sales from the region would lead to an actual decline in total revenues earned. The lowest ERVs calculated in the most recent exercise reported here, are recorded for pineapples and mangoes ex Asia, but these are still both positive at 0.17.

Review of the current literature on the NTAE sector

The literature available on the production and trade in high value/non-traditional agricultural products has a relatively narrow focus. Much of the literature, with the exception of that taken from commercial/trade sources, has been written by development economists investigating the potential for crop diversification in developing countries, particularly those within sub Saharan Africa. Despite its relatively narrow focus the literature reveals a number of common themes and issues.

The supply chain for NTAEs has changed markedly in recent years with the emergence of the supermarkets as a major buyer force. Increasingly, product markets means supermarkets (UNCTAD, 2002). These large retailers now control 70 percent to 90 percent of fresh produce imports from Africa (Fearne and Hughes, 1998).

Demand for "convenience" among supermarket shoppers is providing developing countries with opportunities to grade, pre-prepare and package prior to export (Humphrey and Oetero, 2000). It is also opening up opportunities for innovative and exotic produce and introducing tropical crops, such as mangoes, into the mainstream market. Pushing these functions back onto origin countries has considerable advantages for supermarkets, but it also requires considerable investment by the producer/exporters at origin.

Supermarkets' standards are high. All export firms must now have sophisticated quality assurance systems in place that document seed procurement, planting schedules, agrochemical and fertilizer use, and which ensure full traceability throughout the supply chain.

The demand for product traceability and for high standards of social and environmental compliance, not to mention commercial considerations, have tended to result in a shorter supply chain in recent years and, typically, there is a much greater degree of vertical integration. Exporters have invested upstream in production and downstream in import companies.

There also tend to be fewer active players, with production and exports taking place on a much larger scale. This is mainly for the following reasons:

New entrants to the export market face a daunting challenge. They have to be competitive on costs and quality with long-established producers and exporters, and meet the standards set by the major retailers and supermarkets, if they are to have an assured market for their produce. Increasingly they also need to be able to produce and export on a scale which is cost-effective and acceptable to the importers. This does not rule out participation by small growers, but it does require very well organized pool marketing or outgrower schemes for it to be successful.

The costs of freight, whether by sea or air, are a major determinant of a country's export competitiveness. Whilst distance from markets is obviously an important determinant of overall freight costs other factors are also important, including the extent of competition in freight handling and whether a country operates an "open skies" policy.

Freight costs tend to be lower among those countries that already have well-developed and frequently used freight routes, whether by sea or air. The synergies which are attained from economic growth elsewhere in the economy, such as in the tourist sector, tend to work to the disadvantage of the poorest, least developed countries where economic activity is generally low.

It is generally accepted that the private sector should take the lead in identifying opportunities for developing the NTAE sector. However, governments have an important role to play in facilitating this development through the provision of infrastructure (Coote, Greenhalgh and Orchard, 2003) and through the creation of a macro-economic environment which is conducive to investment. Kenya's development has been enhanced by an open and competitive market for air freight, zero rated duties on inputs and outputs, and liberalized foreign exchange markets (Barghouti, Kane and Sorby, 2004). Security of land tenure is often an important issue for investors, particularly for NTAEs where the investment per hectare is typically high.

Given the level of investment required to diversify successfully into the production of non-traditional export crops, attracting foreign direct investment (FDI) is also a key criterion. The literature reveals that some of the most important factors considered by investors as they decide on investment location are as follows:

Alternative markets for non-traditional exports: fair trade and organic

There has been considerable interest in the opportunities which the fair trade and organic markets could offer to producers or exporters of non-traditional products, particularly those in developing countries.

It is apparent, however, that the current market for fair trade and organic produce is still small relative to that for conventional produce and vulnerable to over-supply. Most registered suppliers of fair trade produce are only finding a fair trade market for a percentage (up to one third) of their total output. Similar market limitations are evident in the organic market.

The Fair Trade Labelling Organization (FLO) has already taken the unusual step, for a certification agency, of only issuing certificates to those producer groups which are able to demonstrate that they have a market for their fair trade produce. The likelihood is that much of the future growth in demand for products such as tea, coffee, sugar and bananas will be captured by existing producers, which will limit the opportunities for new entrants to the fair trade market.

Producers of fair trade and/or organic NTAEs, which are mostly perishable, rely principally on the supermarkets as their main outlets. This has the advantage of opening up a market for these products which might not, otherwise, have existed.

Supermarkets, however, are keen to develop highly efficient and low cost supply chains. The way that fresh produce sourcing is structured and the demands for traceability tend to favour the large commercial exporters with their own production capability. Smaller scale producer groups are not generally favoured as autonomous suppliers unless they are able to demonstrate considerable management capability. The preference of category managers to deal with a single exporter in a sufficient spread of countries to ensure security of supplies, is likely to be mirrored in the case of fair trade and organic produce sourcing.

Much of what applies to the conventional market for NTAEs from developing countries is also true for organic produce. Developing country exporters must meet strict phytosanitary requirements. They face the same constraints with regard to the availability of air or sea freight, good internal infrastructure and an efficient cold chain, as their counterparts producing conventional produce. If they are selling to supermarkets, they must achieve the same high standards of traceability, good agricultural practice, and health and safety. In addition to the challenges that they face as exporters of a high value, often highly perishable, product they also face specific challenges and constraints in producing crops organically.

Managing crops without recourse to synthetic pesticides and fertilizers, whilst maintaining crop quality and soil fertility, requires considerable skill. For developing country producers with limited access to technical expertise and no government support this is often a process of trial and error. Certification is also costly and time consuming. Organic producers worldwide cite the vast amount of paperwork involved in meeting and maintaining organic status as a major cost to their business.

Conversion to organic farming is risky and highly management and skill-intensive. It is also high cost: producers must pay for certification and bear the additional cost of reduced yields and higher levels of produce rejection. In a market vulnerable to over-supply, great care must be taken in recommending organic farming methods to producers in developing countries.

[1] Excluding bananas and citrus.
[2] This category includes, in order of value contribution: prepared fruit, prepared vegetables, tomato paste, concentrated apple juice, canned pineapples, single strength apple juice, canned mushrooms, processed sweetcorn, dried mushrooms, dried fruit, peeled tomatoes, pineapple juice, tomato juice, mango pulp, dried tropical fruit, mango juice, concentrated tomato juice. It excludes all traditional processed products, notably single strength and concentrated orange juice.
[3] A measurement of the elasticity of export revenues given changes in export volumes.
[4] Akiyama and Larson (1994).

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