NFAPP's Newsletter March 1997

Featured Articles :

"Mexican Avocados and the Golden Rule of Trade", by Paul M. Patterson
Topic: Fruit and Vegetable Trade Restriction Issues

"Legislative Update.....Continuing Debate over MAP", by Pamela A. Mischen
Topic: Market Access Program funding questions

"Market Watch.....Tomatoes", by Pieter van Ispelen
Topic: Fair Market Fresh Tomatoes?

"Fruit and Vegetable Trade Developments in Poland and Central Europe", by Eric P. Thor
Topic: Increasing Fruit and Vegetable Markets in Eastern Europe

During the Uruguay Round negotiations and those leading up to the North American Free Trade Agreement (NAFTA), many negotiators feared that the eventual reduction and elimination of tariff barriers would be supplanted by unjustified non-tariff barriers, particularly sanitary and phytosanitary (SPS) import regulations. To allay fears of this outcome, both agreements developed new rules on SPS trade restrictions. Under these agreements, it was agreed that countries may retain the right to adopt SPS measures to the degree required to protect human, animal, and plant health. However, these measures must be based on scientific evidence, non-discriminatory, and applied only to the extent necessary. Dispute settlement procedures, involving the use of an arbitration board, were also established. These new rules clearly defined science-based principles that should promote free trade in agricultural products. Importantly, these new rules have set the tone for future bilateral and multilateral negotiations on SPS trade restrictions.

Past bilateral negotiations have led to the removal of SPS trade restrictions that have proven to be beneficial to U.S. agricultural trade. The eventual entry of U.S. apples into Japan in January 1995 is one example. Still, the USDA estimates that technical and SPS trade barriers deny market access worldwide to $5 billion dollars worth of U.S. agricultural products annually. The current prohibited entry of U.S. tomatoes and peppers into Japan is an example. However, the new policy environment surrounding SPS restrictions suggests that there should be optimism for improved future market access. Achieving this access, though, will require good faith adherence to the principles established in the NAFTA and the Uruguay Round Agreement.

The recent partial lifting of the U.S. quarantine on Mexican avocados may be a signal of the USDA's adherence to these principles. On February 5, the USDA's Animal and Plant Health Inspection Service published a final rule in the Federal Register which will allow imports of Haas avocados from selected municipalities in the Mexican state of Michoacan into 19 northeastern U.S. states and the District of Columbia during the months of November, December, January, and February, under prescribed, stringent production and packing procedures. Provided that this rule is maintained, U.S. imports from Mexico next November could be the first to enter legally since 1914. Since that time, the U.S. has prevented Mexican avocados from entering the U.S. under the authority of the Plant Quarantine Act of 1912, due to concerns over insect pests that could be injurious to U.S. avocado groves. The February ruling, which becomes effective on March 7, resulted from negotiations beginning in 1990. These negotiations focused on the presence of certain pests in the state of Michoacan and on procedures for producing and packing export quality avocados. While not all insect pests of quarantine significance were proven to be absent from this production region, protocols for controlling their populations during production, packing, and shipping were established. Based on the evidence developed by Mexican and U.S. scientists, APHIS determined that these procedures provided adequate protection for U.S. growers, despite their strong opposition. This decision underscores the importance of science-based decisions.

The long history of the U.S.-Mexican avocado dispute, though, suggests that science was not always the most prevalent factor guiding decisions. The Mexican government had requested import permission at two other times. In 1972, access was sought for avocados from Michoacan. In 1975, access was sought for avocados from Sinaloa. In each case, after lengthy investigations by APHIS scientists, tentative import approval was recommended. Eventually, however, these recommendations were reversed after well documented political pressure by U.S. avocado growers interested in protecting their own economic interests. Thus, economic and political concerns appeared to have prevailed over science in these decisions.

The United States is now expected to lead by example in continued global efforts to liberalize trade. On this frontier, SPS restrictions are expected to be the most burdensome restrictions to be encountered. Reduction of these barriers promises important market opportunities for U.S. agricultural products. However, the United States must continue to adhere to the golden rule of trade--treat other nations' exports as you would like for your own nation's exports to be treated.

Sources

Federal Registrar, Volume 62, No. 24, February 5, 1997, pp. 5293-5315.

Roberts, D. and D. Orden. "Determinants of Technical Barriers to Trade: The Case of U.S. Phytosanitary Restrictions on Mexican Avocados, 1972-1995," in D. Orden and D. Roberts (eds.), Understanding Technical Barriers to Agricultural Trade, St. Paul Minnesota: University of Minnesota, Department of Applied Economics, International Agricultural Trade Research Consortium, 1997.

Thiermann, A. "Implementation of the World Trade Organization's Agreement on Sanitary and Phytosanitary Measures: The U.S. Perspective," ibid.

Even with the $90 million cap imposed in the FAIR Act of 1996, the Market Access Program (MAP) will be facing another battle during the 1998 Appropriations cycle. Discussion is expected to center around the idea of "corporate welfare." The Agriculture Subcommittee of the House Committee on Appropriations may begin addressing the issue of MAP funding in late March. Supporters of MAP are concerned that the program may not even survive through the Committee to make it to the floor where it typically faces its most determined opponents.

Also related to exports is the request from the Office of the United States Trade Representative for information concerning competitive conditions affecting the U.S. and Canadian fresh and processed potato industries. A public hearing will be held in connection with the investigation on April 30, 1997. For more information concerning this action, see the February 5, 1997 edition of the Federal Register or contact the NFAPP office.

Keep an eye on the NFAPP Web Site and future Newsletters for NFAPP's analysis of these issues.

Growers from Florida and Mexico agreed on setting a minimum price for fresh tomatoes this season. This agreement suspended a pending investigation of alleged dumping practices by Mexican shippers. The floor price for tomatoes is $5.17 per carton, and the Florida Tomato Exchange (a marketing cooperative comprising about 90% of Florida's tomato production) set its own minimum price at $5.35 for Florida tomatoes. Now that the season is in full swing, opinions about the floor prices are mixed. Overall the mood seems to be positive. Florida growers are satisfied that this will stop the dumping of Mexican tomatoes on the U.S. market, and the Mexican shippers think the Mexican growers will pay more attention to quality and market conditions. Skepticism exists mainly among buyers and distributors who are faced with increased paperwork.

Basic economics states that when an effective floor price (above the market equilibrium) is implemented the market creates an excess supply. With respect to fresh tomatoes, shipments will get sent back since it's not profitable for buyers to procure more fresh tomatoes. This will send a message to shippers to decrease their deliveries, causing a leftward move along the supply curve which will reestablish the market equilibrium at the floor price. So much for economic theory.

NFAPP research shows that the demand for fresh tomatoes is relatively inelastic (0.35 on a yearly basis) implying that consumers might not react so quickly to the 'high' minimum price. The question therefore remains will consumers pay for the elevated returns that growers will realize above what a perfect competition market would dictate.

A second issue is if the floor price is effective, where are the tomatoes that are 'sent back' going? Will this cause the floor to fall out of the Mexican domestic market or will suppliers sit on the shipments until they rot (or sell them on some secondary market)? As an analogy one can look at the "old" U. S. grain policy that maintained a similar floor price. In the case of feed grains, the U.S. government was able to stockpile large quantities of grain from its purchases designed to maintain the price of corn and wheat. But with tomatoes with the absence of a storing alternative, if you don't sell tomatoes, you smell tomatoes. Supply control, in the case of fresh produce, would be a much simpler prospect than with grains, yet far more wasteful. A third aspect of tomato supply controls is the question of whether the floor price will hold up since some of the Mexican suppliers didn't sign the Suspension Agreement complying with the minimum price. One would expect in that case that the amount of shipments from Mexico won't decrease at all.

These questions still remain unanswered, since the real effects of the minimum price cannot be determined yet. Tomato prices were under pressure in mid January, but a freeze in Florida caused the prices to nearly double. The effectiveness of the minimum price may not be determined until late March/April when the south western regions of Florida begin full scale production. What is apparent so far is that the agreement hasn't limited shipments of fresh tomatoes (See Figure - Tomato Winter Season comparison: Total Shipments). Total shipments this season (December through February) are 9540 thousand cwt., up 17.3% from last year and 22% from the 1994/1995 season. This increase comes from increases in both Mexican and Florida shipments.

It appears that over 55 major markets in eight different countries surrounding Poland are beginning to integrate fruit and vegetable trading mechanisms. Thus, a market of over 200 million people is discovering what western European consumers already know. Fruits and vegetables taste good! With economic growth averaging over 5% in the central European region, sales of fruits and vegetables continue to grow. Officially, Poland grew at a 7% rate in 1995. Estimates of gray market sales and real per capita income growth suggested a 25% growth projection for 1995 alone.1 As a result, total agriculture and food imports grew by 34%. Higher income consumers in Poland and surrounding countries are demanding more fresh vegetables and fruits. For example, Poland set a record for both imported and exported fruits and vegetables in 1995. Total imports of unprocessed fruit totaled $237 million U.S. in 1995. The major import categories are outlined in Table 1.

Back to NFAPP's Newsletter Articles Page

Back to NFAPP's Homepage