NFAPP's Newsletter October 1996

Featured Articles :

"New Export Program for High Value Products", by Paul Patterson
Topic: The Supplier Credit Guarantee Program

"Legislative Update.....NFAPP's Warm Up", by Pamela Mischen
Topic: NFAPP's Policy Warm Up Meeting

"Market Watch.....Onion Market Update", by Pieter van Ispelen
Topic: Strong Fall Onion Market

On August 30 the USDA launched its newest export assistance program, the Supplier Credit Guarantee Program (SCGP). This program augments its existing credit guarantee programs, the GSM 102 and GSM 103. Under the GSM programs, foreign buyers may purchase U.S. agricultural products with U.S. banks providing credit to the foreign buyer's bank. The USDA's Commodity Credit Corporation offers credit guarantees for a portion of the principal. These programs have operated in countries where credit is necessary to support U.S. exports and where credit is less accessible without the CCC guarantee.

Traditionally, GSM 102/103 was used mostly for exports of bulk agricultural products. In fiscal year 1995, 80% of the exports under GSM 102 were accounted for by bulk grains and cotton. The small usage of the program by high value agricultural products is particularly apparent in the U.S. fruit and vegetable export sector. Peach shipments to Mexico, accounting for only 0.12% of GSM 102 sales, were the only fresh fruit or vegetable products shipped under the program in that year. This under utilization of the program for high value products led USDA to consider new programs, like the SCGP.

The key features of the SCGP are summarized in the table below and are compared to the GSM 102/103 programs.
Under the SCGP, importers will no longer be required to secure a letter of credit (L/C) with their bank before a sales contract can be completed with U.S. exporters. U.S. exporters can extend credit directly through a promissory note and receive a credit guarantee from USDA. This is expected to help facilitate export transactions. In some countries, the cost of obtaining an L/C is quite high and in-country credit terms are often not as favorable as U.S. banks terms. Thus, the program is as much an export promotion tool, as it is a risk management tool.

On August 30, 1996, the USDA authorized $20 million in credit guarantees under the SCGP for sales to Mexico during September, the final month of the fiscal year. Under this program announcement, shipments must be completed prior to November 30, 1996. However, if a portion of the allocation is not utilized, USDA is prepared to consider applications for the remainder, provided that shipments occur prior to December 31, 1996. Exports of tree nuts, fresh fruits, dried fruits, canned fruits, potatoes, fresh vegetables, canned vegetables, frozen vegetables, wine, brandy, and dairy products are currently authorized under this announcement. As of September 24, no sales had been registered under the program.

The SCGP is currently operating under interim rules, while the USDA awaits further public comments on the program regulations. Public comments will be accepted until December 30. During the first comment period, which ended on September 18, 1995, the most contested SCGP regulation was the coverage rate. USDA has justified this lower coverage rate as a means of encouraging prudent credit practices, as buyer defaults may be higher under the SCGP. The lack of coverage on freight also raised concerns, since freight may account for up to 20% of the delivered value of fruit and vegetable exports. The SCGP coverage fee, a nonrefundable fee which must be paid when applying for the credit guarantee, was also criticized as being too high. These program regulations may affect the attractiveness of the program to U.S. exporters. It is also unclear how many exporters are aware of this new program. With these questions in mind, NFAPP is currently undertaking a study to evaluate the potential benefits of this program for the U.S. fruit and vegetable sector.

As the 104th Congress comes to a close, NFAPP is gearing up for the upcoming legislative year by scheduling a meeting to discuss setting the policy agenda for the fruit and vegetable industry. Fruit and vegetable industry participants, government officials, Congressional staff and academic researchers are invited to participate in NFAPP's Winter Warm-Up, to be held at Arizona State University on December 5-6, 1996. The purpose of the meeting is two-fold:

* to give fruit and vegetable organizations an opportunity to discuss what each feels the most important policy issues are for the upcoming year, and
* to give industry, federal agencies, Congressional staff and academic analysts an opportunity to dialogue regarding these policy issues.

The tentative agenda includes presentations by industry groups outlining their respective policy agendas. Policy issues will be prioritized by the group for more detailed discussion.

In order to provide an atmosphere conducive to productive dialogue among the participants, seating will be limited. If you are interested in participating in the Winter Warm-Up, please contact Pamela Mischen at (602) 965-5503 as soon as possible.

The fall harvest of summer storage onions is late this year due to cool and wet spring and summer conditions in most of the major onion producing regions. According to Wayne Mininger, executive vice-president of the National Onion Association, harvest was two to three weeks from completion on the first of October.

Despite the late harvest, the summer and fall onion market seems to be in good shape. Three reasons explain the present and expected strong prices for storage onions.

First, there were fewer acres planted for storage onions this year as growers responded to low 1995 prices. Total summer storage onions acreage is down 7% from last year.

Second, adverse weather conditions in New York and Eastern Colorado led to smaller supplies of onions in these regions.

Such reductions in supply have a positive effect on prices when combined with a strong demand. Domestic demand for onions has been gradually rising over the last 15 years, and according to NFAPP's newest projections, this trend will continue into the next decade. A more variable portion of total demand is foreign demand. Although the onion export market has been in general good health historically, domestic conditions in other onion producing countries often determine either a positive or a negative swing in U.S. shipments abroad. The Pacific Rim has become an increasingly important export market for U.S. storage onions in the 90s. U.S. onion exports to Japan peaked in 1994 as a result of low levels of production in Japan. Last year's exports declined somewhat as a result of a rebound in Japanese production. Korea had an exceptionally large 1995 crop allowing them to compete with the U.S. in Pacific Rim countries. This year, the Pacific Rim market seems more promising for U.S. onion shippers. Japan's crop is fair at best and both Korea and Taiwan are having poor crops. Another factor in foreign demand is that Mexico is slowly recovering from the peso davaluation. For two years Mexico hasn't imported many onions because it had become too expensive. This year Mexican buyers are again interested in U.S. onions, a development that is not unimportant considering that shipments to Mexico formed about 8% of the total U.S. export market in 1993 and 1994.

To summarize, less acreage, weather adversity and a favorable export year combine to form good prospects for the fall and winter months in the onion industry.

Looking at the different onion producing states, Washington shows the fastest growth in onion acreage. This is not surprising since Washington is geographically in the best position to profit from the favorable Pacific Rim market. Adverse weather conditions in other major onion producing states should also help to increase WA onion prices .

1996 Production Statistics

Total annual production of onions is forecasted by NASS to be 61 million cwt., down 3 percent from comparable production in 1994 and 1995. Harvested acreage is 160,660, slightly down from last year, and yield is 380 cwt. per acre, a 11 cwt. decrease from last year's level.

Acreage was up for spring onions. Almost 37,000 acres were harvested, compared to about 35,500 the year before. Despite this rise in acreage, production was down due to low yields in California and Georgia. Partly due to the shortage in supply of Georgia Vidalia onions, the prices for these premium onions were up by about 8% compared to 1995. Other spring onion prices were down. Texas saw a 50% reduction in price after last year's high of $19.20 per cwt. Spring onion producing states face increasing competition from the storage onions produced the year before. The storage time of these onions has been increasing historically, which allows the storage onion producing states to supply onions well into the following year's spring season.

Summer non-storage is the smallest group of onion producing states. Acreage is estimated to be about 13,500 acres, a 6% decrease from last year, but on the same level as 1994 figures.

Summer storage onions are still being harvested this month (October). As mentioned earlier, total acreage is down from last year, but the market seems to be strong and is expected to stay strong through the winter. California production goes primarily to processing. Acreage is unchanged from last year, but a 10 cwt. per acre increase in yield caused the production (at 13.0 million cwt.) to be 2 percent greater than last year.

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