NFAPP's Newsletter March 1996

Featured Articles :

"Cuba's Citrus : Myth and Reality!", by Eric Thor
Topic: The Cuba Citrus Industry

"Legislative Update.....", by Pamela Mischen
Topic: Immigration Reform

"Market Watch.....Tomato Market Update", by Pieter van Ispelen
Topic: Tomato Winter Competition 1995/1996

As the 1996 citrus marketing season continues, the potential for the Cuban citrus industry to re-establish large marketing channels in the U.S. and Europe for citrus continues to be debated by both importers and domestic producers. While the potential is large, Cuban citrus exporters have actually shown that they will face many challenges on the international marketplace. The hurdles in marketing, management, and export infrastructure will hamper the Cubans' ability to sell large volumes quickly into world channels. Since 1991, the sales of citrus of all kinds from Cuba has shown declines. Based upon the many delegations and official sources which have visited Cuba lately, there are emerging several trends analysts should use to form their own opinions.1 These include:

- Citrus production has fluctuated from 1 Million Metric Tons in 1991 to under 700,000 Metric Tons in 1993. The 1994 and 1995 crops were about the same size as the 1993 crop.
- Oranges are the largest category of citrus with grapefruit, limes, and tangerines making up the production. Valencia, Washington, Navel and Cricolla are the major varieties of oranges.
- For social, internal, and political reasons only about 10 percent of the citrus was exported in 1992. The exports were marketed under the Cubanita and Lola Fruit Brands. These pressures continue to constrain the fruit exports
- Increased exports are being constrained by the post harvest, cooling, and transportation systems rather than on production constraints.
Export infrastructure will not support large exports quickly with the current infrastructure focused on 21 hangars with a total conditioning capacity of 600 tons an hour, and 5 cold rooms with a total capacity of 3 million tons.
- Current yields are estimated to be approximately 10 tons per hectare. This is approximately one third of the potential.
- Tropical fruits including Mangos, coconut, pineapple, guava, and papaya continue to be a major focus of growers which seem to have more potential for the Cuban producers.
- Recent restructuring in the country, including the Statutory Order of the 20th of September 1993, will improve the production and marketing capacity of the citrus industry. It will allow the industry to organize private-type cooperatives with the objectives to produce and market part of their output. The UBPC (Unidades Básicas de Producción Cooperativa) will aid the industry.

The Cuba Challenge

The industry will focus on expanding production, post-harvest, and marketing infrastructure. In Cuba, the current focus of the industry is on oranges as graphically depicted on page 1.

The focus of potential citrus investments and expansion will have to take advantage of the uncertain current climate. A group from IICA(Inter-American Cooperation on Agriculture) together with a group of French experts recommended that there is investment potential for the country and the industry. They2 concluded that:
a. Diverse possibilities exist for partnerships or joint business ventures
b. Enterprises with Direct links could exist between foreign interests and Cuba.
c. Financial and fiscal measures which allow tax free imports as a percentage of the estimated turnover should be taken.
d. Shareholders could acquire the majority interest eventually in firms created.
e. Cuba should seek ways to guarantee financial facilities for the transfer of dividends out of the country.

In conclusion, the citrus situation in Cuba will change as the economic and political structures change. Nevertheless, without a massive redirection of the local industry the potential for large exports out of Cuba will be more of a myth than a reality in 1997. As the country and system permit, this will change as Cuba reassumes its leadership role in the Caribbean and Central America.

____________________________
1. Report of Mission to Cuba, 1994, IICA, Updates by Centre De Cooperation Internationale En Recherche Agronomique Pour Le Development, CIRAD-FlHOR-B.P. 5035-34032 Montpelleir Cedex 01-France, CEA. CUBA: Transformanciones Economicas. Interviews of Industry leaders by Dr. Eric Thor
2. Page 6 Report on Mission to Cuba, IICA, 1994

March has been a busy month for agricultural policy. While House and Senate conferees are busy hammering out differences in the Farm Bill, immigration reform gets ready to hit the House floor. With respect to agriculture and immigration, the big issue is whether or not crackdowns on illegal immigration will lead to farm labor shortages. It is estimated that 50% of the farm labor force in California and significant percentages of farm labor in other states including Washington and Oregon are comprised of undocumented workers. The concern over farm labor shortages has led the California Farm Bureau, the National Council of Agricultural Employers, and the United Fresh Fruit and Vegetable Growers Association, among many others, to support a guest worker program. Opponents of such a program feel that a guest worker provision will create more loopholes allowing increased illegal immigration. Furthermore, they point out that a provision already exists for temporary agricultural workers, the H-2A program. Proponents of a guest worker provision, on the other hand, cite problems with the current H-2A program. For example, the requirement that housing be provided makes this provision prohibitively expensive. Finally, opponents claim that farmers are just seeking cheap labor and that an ample labor force exists in rural areas.

The House is expected to vote on their immigration reform bill proposed by Lamar Smith (R-TX), H.R. 2202, on March 21. Rep. Pombo (R-CA) is expected to propose a guest worker amendment, by Rep. Chambliss (R-GA) that would create a pilot program for agricultural guest workers that would require employers to file a form with the state employment security agency that would state the wage rate and include an attestation that the worker will not adversely affect the working conditions of similarly employed workers in the area. The job would not be allowed to last more than 10 months in a 12 month period and the employer would be required to offer the job to any "able, willing and qualified" U.S. worker that applied. This amendment also requires the employer to offer temporary housing or a "reasonable" housing allowance, to withhold 25% of the agricultural workers salary in a trust fund to be returned to the employee upon return to his/her home country, and to pay federal unemployment taxes and make federal insurance contributions for workers. Finally, each guest worker will be issued an identification card to be used to access his/her trust fund account.

The Senate Commerce Committee recently voted to separate the legal and illegal immigration issues in order to deal with illegal immigration first.

Competition between Mexico and Florida in the fresh tomato market is in full force this winter season. This has led to many heated discussions and last week, Florida announced a federal lawsuit under Sections 201 and 202 of the Trade Act claiming that its produce industry has been harmed by heavy imports of Mexican produce. The case is now in the hands of the International Trade Commission. Last year's ruling was negative against a similar petition by Florida. The focus this season is the amount of imported Mexican tomatoes which reached last year's high levels. A lower peso combined with lower tariffs (which are phased out over ten years under NAFTA) and excellent growing conditions provided an environment in which the Mexican shipments could once again surge to high levels. This became apparent early in the season. Shipments in December were up 50% compared to last year, and in January the level was 24% higher than during the same month in 1995. Florida producers had some weather problems but were still able to ship larger amounts of shipments during December and January than last year (a 6% and 38% increase respectively). With the increased amounts of tomatoes from both regions January prices fell to low levels. The Florida F.O.B. price was on average about $5 per 25 lbs., compared with $11.5 last year. The tomato market was also hurt by the weak demand during the winter months. Many parts of the Mid-West and Northeast got hammered with snow and wind which seemed to affect consumer's demand. The problems of the market caused by the weak demand and the high supplies raised a lot of concern.

In February the situation improved little. Florida was hit hard on February 5th with a freeze which affected their tomato supplies. Prices increased some, but Mexican shipments reached a peak level in February matching the high levels of 1995. The tariff quota was exceeded; however, this didn't seem to affect shipment. Florida and Mexican producers have met this season to talk about the situation and to negotiate a cooperative solution to the problem. No official agreement has been reached, but in the beginning of March growers of Mexican tomatoes imposed restrictions on themselves to reduce the flow of product into the United States. The restriction limits exports of product that is a maximum of four on the ripening color chart (with one being mature green, a four pink and a five or six red) and total exports must be 90 percent U.S. One grade (up from 85 percent).

Currently, Florida is still suffering from the freeze and was hit again by a dose of cold and rain March 9-11 that dampened U.S. tomato supplies. Shipments of Mexican tomatoes were still high the week ending March 2nd , but were cut back significantly by 40% in the second week. The combined light supplies from Florida and Mexico pushed F.O.B. prices to nearly double the previous week.

The expectation is that Florida supplies will remain light over the next few weeks, ,and if the restrictions on Mexican shipments are continued, our analysis shows that one can expect prices to go over $30 per 25 lb. this month. A strong market such as this will usually attract higher amounts of Mexican grown tomatoes during this part of the season. The question now is if the Mexicans will keep their restrictions until the end of their main season, approximately the end of April, when supplies are usually winding down.

Another question is how retailers and food service buyers will fill their demand now that they are faced with a low supply of fresh tomatoes. For example, some restaurants might substitute cherry tomatoes for round tomatoes in salads. Retailers can increase their demand for greenhouse tomatoes to supplement their tomato category. Suppliers from Holland and Israel may benefit from this.

In the meantime, the International Trade Commission will have to make a decision on the Florida law suit. Many people will be waiting for the outcome with great interest. Another meeting between the representatives of both Mexican and Florida growers is likely to take place in the next couple of weeks. It will be interesting to know the outcome.

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