NFAPP's Newsletter June 1996

Featured Articles :

"Export Effects on Retail-Farm Margins", An exerpt from "Effect of Fruit and Vegetable Exports on Retail-Farm Margins", (policy briefing paper, NFAPP #96-2)
Topic: Export effects on Fruit and Vegetable Retail-Farm Margins

"Legislative Update.....Farm Bill Flexibility", by Pamela Mischen
Topic: Double Cropping

"Market Watch.....Cucumber Market Update", by Pieter van Ispelen
Topic: The U.S. Cucumber Market

Starting in the mid 1980s exports of fruits and vegetables have grown rapidly. Trade liberalization, rising incomes in the Pacific Rim and Latin America, improved growing and processing technologies in the U.S., government promotion programs, enhanced transportation and communication infrastructure, and other factors indicate that this trend should continue unabated into the next century. In fact, the value of all high value-added product (HVAP) exports is now greater than the value of traditional, or bulk agricultural exports. USDA estimates the production of vegetable and fruit products is expected to grow at a rate of 3-4 % from 1996 through 1998. Analysts see this rise in fruit and vegetable production and exports as a way of preventing a loss of farm income that is possible with the diminishing amount of farm support contained in the Federal Agricultural Improvement and Reform Act (1996).

It is expected that consumption of fruits and vegetables in the U.S. will increase due to significant population growth. Rapid income growth, changing diet patterns, problems in water allocation, and trade liberalization will increase consumption of fruit and vegetable products in many foreign countries as well. This increased trade could prevent a loss of farm income due to the reduction in farm support that is contained in the Federal Agricultural Improvement and Reform Act (1996). Increased trade also contributes to reducing the overall trade deficit, provides a ready source of foreign exchange, reduces the variability of prices for U.S. farm products, and causes U.S. farmers to improve their productivity in order to meet the high standards of international competitiveness.

As exports of fruits and vegetable have attained a higher profile, issues of market performance will move to the front of the policy debate. Retail- farm margins are often cited as indicators of the efficiency of the marketing channel. Among fresh fruits and vegetables, the farm level share of the retail price varies from 18% for lettuce to almost 30% for lemons. The most important factor in the retail-farm margin, is the cost of marketing. As the amount of produce for export increases it will cost more to process, ship, and market these goods to foreign markets. How much of this cost will be borne by the farmers and the marketing channel?

Among the group of commodities under consideration (onions, fresh tomatoes, fresh oranges, FCOJ, frozen potato products, apples, grapes, and celery), celery margins exhibit the most sensitivity to an increase in exports, rising 9.5% in the short run, and 7% in the long run in response to a 10% surge in exports. At the other end of the spectrum, a 50 % increase in frozen potato exports is likely to only result in a short run increase in margins of 0.13%, rising only to 4% by 2003. Among the other commodities considered, onion margins rise by an average of 3.3% from 1995 to 2003, fresh tomato margins rise by 3.1%, margins for fresh Florida oranges rise by 6.9%, California fresh orange margins rise by 6.0%, margins for oranges used to make FCOJ rise by 1.25%, celery margins rise by 7.8%, and margins on potatoes used in frozen potato products rise by only 0.3%. Contrary to these results, fresh apple margins fall by an average of 5.6% over the forecast period.

Not surprisingly, both retail and grower prices increase in response to higher exports. In some cases, the increase in grower price is significant - apple grower prices rise by an average of over 25%. Commodities that are not heavily exported, frozen potatoes, for example, show very small changes in the grower price. Retail prices are comparatively less sensitive to changes in export demand. Retail prices for frozen potato products rise by less than 0.5%, while retail celery prices may rise upwards of 7% in response to a 10% increase in exports.

While these results suggest that farmers will not receive all of the benefit of higher commodity prices as export demand increases, it should not be taken to imply that marketers are exploiting their farmer-suppliers. In fact, much of the increase in margins may be due to higher marketing costs resulting from a greater volume of produce in the marketing channel. Continued productivity gains in the processing, distribution, and retailing sectors will help farmers receive more of the export-benefit.

Although plantings of fruits and vegetables have been prohibited from flexibility contracts under the current Farm Bill, the practice of double cropping of vegetables and program crops will be allowed. Title I, Section 118 of the Federal Agricultural Improvement and Reform Act of 1996 states that double cropping will be permitted in those regions where there is a history of double cropping. States are currently in the process of identifying these regions.

A related issue that has caused black-eyed pea growers in Texas a great deal of concern has been whether or not they will be allowed to plant black-eyed peas on failed cotton acres. Under the 1990 Farm Bill, such plantings on 'ghost acres' were allowed in cases where the Agriculural Stabilization and Conservation Service declared a failed crop. Approximately 3 million acres of cotton are planted in the high plains region of Texas with a 6% average abandonment rate per year. Of the 180,000 or so acres of cotton abandoned due to hail or drought, 50-60,000 acres are planted to black-eyed peas.

Current USDA interpretation of the double cropping provisions of the Farm Bill would allow planting only in a strict double cropping rotation-- meaning that the cotton must be grown to maturity and harvested in order for a subsequent crop to be planted. Legislators from Texas and California along with industry members are attempting to change this interpretation and allow growers in double cropping regions to continue the ghost acre practice.

Cucumber production in the U.S. has more than doubled in the last twenty years. However, this has not been sufficient to meet the growing per capita consumption as imports have tripled over the same period. Imports of fresh cucumbers are predominantly from Mexico, while imports of processed cucumbers are evenly split between Asia and Canada. In the U.S., more than half of all cucumbers are grown for pickling purposes. These are grown in a large number of states, while fresh cucumber production is located mainly in Florida, Georgia, and California.

Fresh

Figure 1 shows that U.S. farmers grew approximately 450 million pounds of fresh cucumbers in 1974, but grew almost 1 billion pounds in 1995. Of the 1995 total, 30.9% was grown in Florida, 19.4% in Georgia, 16.6% in California, and 8.7% in Michigan, with the rest spread out among a variety of states. Hothouse production and local summer markets allow cucumber production to occur in virtually every state.

Despite experiencing a decline in planted acreage from a high of 18,000 acres in 1986 to last year's 13,000 acres, Florida remains the dominant production area for fresh cucumbers due to rising yields. In fact, the growth in production has been evenly split between the growing regions.

Fresh cucumber production in 1996 is estimated to be lower than last year's. This is mainly caused by the occurrence of freezing temperatures and strong winds which damaged the crop in Florida. Spring harvested acreage in Florida is estimated to be 8500 acres, a 20 percent decline from the 1995 level.

Pickles

In recent years, the total allocation of cucumber production for pickling purposes has been relatively stable at slightly over 50% of production. Unlike fresh cucumber production, pickle cucumbers tend to be grown closer to the consuming regions. The top three states in pickle cucumber production are Michigan (21.3%), N. Carolina (11.8%), and Texas (9.3%). In 1996, pickle packers intend to contract approximately 97,000 acres of cucumbers for pickles, down 3 percent from last year. Acreage intentions were up in Florida, Ohio, Texas and Wisconsin. Acreage reductions were estimated for California, Colorado, Indiana, Michigan, North Carolina and South Carolina.

Consumption and Trade

A gradual rise in per capita consumption of fresh cucumbers is driving the increase in total cucumber production. From 3.0 lbs. per capita in 1974, U.S. consumers used almost 5.5 lbs. per capita in 1995 (figure 2). On the other hand, pickle consumption has fallen over the same period from over 6.0 lbs. per capita in 1974 to 5.0 lbs. in 1995. To meet the rising consumption of fresh cucumbers year-round, U.S. imports have increased sharply from 2.0 m lbs. in 1974 to almost 6.0 m lbs. in 1995. Exports over this period have been comparatively insignificant. In 1995, over 92% of U.S. fresh cucumber imports were from Mexico, with the remaining amounts split between Canada and several other countries. The U.S. also imported over 35.0 million pounds of processed cucumbers in 1995, 38.5% of which came from Asia, 32.4% from Canada, and 12.1% from Mexico.

While retail prices of fresh cucumbers have risen with the rate of inflation over the last twenty years, the grower price has remained in a close band between $20 and $30 per cwt. In 1995, the retail-farm margin widened sharply as the retail price rose to $80/cwt, while the FOB price fell from 1994 levels. While this may reflect increased competition from Mexican imports, it is unlikely to be the primary reason because Mexican production occurs between November and April, while Florida growers harvest from October to December, and again from March through May.

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