Sep 30, 2011

U.S. fruit exports trying to catch up to imports

It’s safe to say U.S. fruit exports have grown in the last two decades. But not as fast as imports.

In 2010, the total value of U.S. fruit exports (including fresh, dried, frozen, canned, juice, wine and other categories) was roughly $7.6 billion, up from about $2 billion in 1989. Meanwhile, the total value of fruit imported into the United States (same categories) grew from roughly $3.7 billion in 1989 to more than $15 billion in 2010, according to USDA’s Foreign Agricultural Service (FAS).

The growth of fruit imports in that period can be explained in part by growing minority ethnic populations and an increased demand for new products, according to USDA’s Economic Research Service (ERS). That demand has created new markets for domestic fruit growers, but they find themselves competing with an ever-expanding volume of imported fruit.

For example, nearly half of the fresh fruit, two-fifths of the canned fruit and 30 percent of the frozen fruit consumed in the United States is imported. Bananas, the most consumed fresh fruit in the United States, claim more than half the volume of fresh imports. Even excluding bananas, however, fresh imports rose from 12 percent of domestic consumption in 1990 to around 30 percent in the late 2000s, according to ERS.

Imports might be growing faster, but numerous sources said exports aren’t even close to reaching their potential. There are plenty more mouths to feed around the world, if only U.S. fruit can get to them.

Brief history

Desmond O’Rourke, 72, has been studying the international fruit trade for more than four decades. As president of Belrose Consulting and a professor of economics at Washington State University, he tracks the worldwide flow of apples, pears, sweet cherries and kiwifruit.

International trade slowed dramatically after the Great Depression, especially for agriculture. Countries enacted protectionist tariffs on fresh fruit, processed fruit and other products, to the point where exports became almost prohibitive, O’Rourke said.

By 1960, trade barriers were starting to come down. Japan started buying U.S. wheat, corn and soybeans that year. According to O’Rourke, the fruit industry saw what was happening and said: “Why not apples, pears and so on?”

A cascade of Asian markets started opening up to U.S. fruit, starting with Japan and including Hong Kong, Singapore, Thailand, Indonesia and Taiwan. By the 1970s, economies were growing around the world (thanks in part to rising oil prices). As they became more affluent, some countries started importing more fruit – especially fruit they couldn’t grow themselves. Saudi Arabia, for example, became a huge new market for Washington state apples in 1977, he said.

U.S. fruit exports have been on a gradual upward swing since the 1970s, even though there have been plenty of setbacks along the way, O’Rourke said.

In 1978, U.S. exports got a boost from the federal government, which created what became known as the Market Access Program (MAP). According to FAS, which administers the program, MAP uses USDA funds to aid in the development and maintenance of foreign markets for U.S. agricultural products. The program forms a partnership between trade groups, small businesses and the government to share the costs of overseas marketing and promotions.

Mark Slupek, director of FAS’ program operations division, said MAP’s budget has been set at $200 million since 2006. In 2010, nearly a quarter of that money was used to promote fruit and wine exports.

MAP and other federal funding is crucial, said Kris Marceca, executive director of the U.S. Apple Export Council.

“I don’t want to think about the day there isn’t MAP funding,” she said. “New markets have been developed because those funds were there.”

Another significant event affected U.S. trade in 1993: the passage of the North American Free Trade Agreement. Thanks to NAFTA, U.S. apple and pear producers have become increasingly dependent on Mexico and Canada. O’Rourke called that dependence “our Achilles heel.”

Mexico has a tendency to pull an extra tariff out of its pocket every few years (the last tariff dispute between Mexico and the United States, involving trucking, was resolved earlier this year). If Canada could find a way to do the same, it probably would, he said.

“You don’t want to be dependent on just two markets,” he said. “It’s good to have eight or ten major markets. That way, if one goes sour, you can sell into the others.”

Apples

In 2010-11, U.S. fresh apple exports reached record highs: 42.6 million bushels worth $877 million, according to Mark Seetin, director of regulatory and industry affairs for the U.S. Apple Association.

Mexico was the top destination, followed by Canada, India, Indonesia and Taiwan, Seetin said.

Exports are more vital than ever for the U.S. industry. Production continues to increase – especially in Washington state, which produces more apples than the rest of the country combined – while domestic consumption remains flat. Markets need to be found for all those extra apples, O’Rourke said.

For a long time, America’s main trade competitors were France and Italy. In the 1990s, however, China started to flex its muscle and is now the biggest apple exporter in the world (even though it only exports about 3 percent of its production), O’Rourke said.

With cheap apples, cheap labor and the latest technology from Europe, China became a dominant player in the apple juice concentrate (AJC) trade in the late 1990s – pretty much decimating the AJC industry in the United States. Seventy percent of all apple juice consumed in the United States is now imported, mostly from China, he said.

China is trying to open the U.S. market to its fresh apples, but in O’Rourke’s opinion, it’s more for prestige than anything else. China’s production and shipping costs are going up, and any fresh apples coming in would be fairly expensive. Besides, Fuji is the only apple China can really export, which is a niche market in the U.S., he said.

Cherries

The United States exported 58,750 metric tons of cherries (tart and sweet combined) in 2010, worth about $326 million. Canada was the largest market overall, followed by Japan and Taiwan, according to USDA’s Agricultural Marketing Resource Center.

Sweet cherry exports have grown rapidly — almost a third of U.S. sweet cherries are now sold in foreign markets. For a long time, Canada was the main buyer, but Asian markets started opening up in the 1980s – starting with Japan and continuing with Taiwan, Hong Kong and China. Exports are starting to penetrate Thailand and Indonesia, while Mexico also opened up in the last few years, O’Rourke said.

Incomes are rising in some of those countries and consumers are seeking to improve their lifestyles. Sweet cherries fit that bill nicely, he said.

European countries used to dominate world trade, but now the three biggest players are the United States, Turkey and Iran. Iran, however, has quality problems. Down the road, Turkey is going to be America’s biggest competitor, O’Rourke said.

U.S. sweet cherry growers are planting earlier and later varieties, which has doubled the length of their sales window – a big advantage when it comes to trade, O’Rourke said.

As for tart cherries, Europe is still the biggest market, by far. An extremely small crop in 2002 hurt international sales for the U.S. industry, especially canned sales into Europe. In the years since, however, cherry juice concentrate and dried cherry products have picked up much of the shortfall – with help from a promotional campaign that emphasized the health and nutrition benefits of tart cherries, said Philip Korson, executive director of the Cherry Marketing Institute.

Twenty-five years ago, with help from MAP funds, the tart cherry industry started cracking the Japanese market. Japan’s economy was booming at the time, and the Japanese had lots of disposable income. The industry invested in Japan for quite a few years, but is now phasing down promotional operations there. China appears to have more potential. Last year, sales to that country surpassed sales to Japan, Korson said.

Interest also is high in South Korea, but that country’s 45 percent tariff is “killing us,” he said.

Turkey, Poland and Canada are probably the biggest competitors in the world tart cherry market. All three countries ship cherry products into the United States, Korson said.

Other tree fruit

The value of U.S. pear exports (most of which come from Washington, Oregon and California) has increased 27 percent in the past five seasons. The record year was 2008, when pear exports earned $175.5 million, according to Pear Bureau Northwest.

About 14 percent of the world’s supply of pears is traded internationally. Spain and Italy used to be America’s main competitors, but China has entered the world marketplace in a big way. That country produces mostly Asian pears, which aren’t directly competitive with U.S. pears, but Chinese exports have hurt U.S. sales nonetheless, O’Rourke said.

California’s peach, nectarine and plum growers exported their fruit for a long time, but only in small amounts until the late 1980s, when they started taking advantage of MAP and other federal funds. These days, 25 percent to 30 percent of their crops are exported, said Gary Van Sickle, executive director of the California Tree Fruit Agreement.

In 1988, the Japanese market finally opened to U.S. nectarines. It was a learning experience for those in the industry, who started realizing how important it is to properly promote a commodity when introducing it into a new marketplace, he said.

After Japan, CTFA started applying for MAP funds to help open other markets. During the last few years, MAP was contributing $2.5 million annually for overseas promotion of California tree fruit. The state’s peach and nectarine growers, however, recently voted to discontinue their federal marketing orders, forcing CTFA, the umbrella organization for both, to terminate those operations and shrink its overall size. Most of those MAP funds will be lost, which could affect the future of peach and nectarine exports from California, Van Sickle said.

Blueberries

In 2010, the United States produced 489 million pounds of highbush blueberries. More than 40 million pounds were shipped to Canada, about another million pounds to Mexico. About 4 percent of the total U.S. crop went to offshore markets (not including Canada and Mexico), mostly Asian markets like Japan, Hong Kong, Singapore and South Korea, said Mark Villata, executive director of the U.S. Highbush Blueberry Council.

Overseas demand is still growing, fueled by word of blueberries’ health and nutrition benefits. About two years ago, U.S. fresh berries gained access to India. Fresh blueberries still aren’t allowed in China, but that country is buying more frozen exports. Chinese demand for blueberries has become so strong that native producers can’t keep pace. Chilean fresh blueberries recently gained access to that market, which should help U.S. efforts, Villata said.

In the past, domestic demand put a cap on the export potential of the U.S. highbush industry. An increasing number of blueberry plantings, however, has allowed U.S. growers to take care of domestic demand while exploring more options overseas, he said.

Grapes

According to the Wine Institute, U.S. wine exports (90 percent of which come from California) totaled 425 million liters and earned a record $1.1 billion in 2010. Compare that to 1994, when U.S. exports totaled 133 million liters worth $196 million.

The vast majority of table grapes are grown in California. In 1968, that state exported 4 million boxes of table grapes, mostly to Canada. By 2010, that number had grown to 37.4 million boxes, shipped to about 60 countries. Canada is still the largest market, followed by China, said Kathleen Nave, president of the California Table Grape Commission.

By Matt Milkovich, managing editor