Mechel “Mickey” Paggi held up a newspaper supermarket ad during his presentation at the recent California Plant and Soil Conference. It advertised a special on Peruvian asparagus.
On the same page was the seal of the America’s largest public-private nutrition education initiative, the 5-A-Day for Better Health funded in part by the U.S. government.
Paggi, director for the Center for Agriculture Business at California State University, Fresno, used the newspaper ad to illustrate the confusing and complex issues facing California agriculture in exporting food and fiber worldwide.
And there is no issue more important to California producers than agriculture exports since 25 percent of the agricultural output from the state is sold outside the U.S. Fifty percent of the fruit, vegetable and tree nut crops are exported.
It has not been easy achieving these percentages with tariffs and treaties limiting access to many world markets, yet the high quality of what California grows and ships to other nations continues to put California ag products in demand. That demand is positioned to grow along with the economic growth of the middle class, particularly in China and India, the world’s most populous nations.
This anticipated growth is expected due to the recognition of the importance of a healthy diet among this growing middle class, again a factor boding well for the future of California horticultural export products, noted Paggi.
The world is an $8 billion marketplace for California agriculture. This record-setting 2004 number represents a 9 percent increase from the year before and 25 percent over 2002.
“Almost everything we do has linkage to international markets,” he said. The world is California’s agriculture marketplace since 95 percent of all consumers live outside of U.S.
The domestic market is mature, stable and important. However, the international market is where the world’s population and economic growth will be.
Mexico and Canada, NAFTA trading partners, now purchase 29 percent of California ag exports; Japan 14 percent and UK about 23 percent.
“Sixty-six percent of our markets are in those three areas,” he said.
In the future, markets will be more diverse. Asia will be the main growth area where 53 percent of the world’s population growth and 49 percent of the world’s income growth will be through 2025, according to World Bank projections.
“We cannot ignore our trading partners like UK, Canada and Mexico, but we need to pay a lot more attention to the Asian region, particularly India and China,” he said.
While row crops like cotton have led the California export parade for years, horticulture crop exports are becoming increasingly more important in a changing California ag environment where the trend is away from farming commodity crops to horticulture crops due to higher land values, reducing water supplies and overall increases in cost of farming in California.
Crops like cotton will continue to be almost totally exported, but there will be less of it and more hort crops.
While horticultural crops represent the “future of California agriculture,” competition is getting stiffer not only abroad, but within the U.S. as well.
‘Pause for concern’
“Horticultural imports are increasing faster than exports, and this is pause for concern,” said Paggi.
Import growth is coming primarily with fruit. Domestically grown vegetables continue to dominate the U.S. market.
Much of these imports are coming from NAFTA neighbors in the off-season for U.S. production in effort to provide consumers with year-round supplies of fresh produce. Off-season imports often have no tariff.
The import selection is not extensive compared to what California grows; tomatoes, onions, garlic, squash, cucumbers, asparagus, grapes, Mandarins, Clementines, melons apples and pears primarily.
However, that is not the case generally. Ag import tariffs for the U.S. are only about 12 percent while American exports face world tariffs averaging 62 percent.
Also restricting American exports are sanitary and phytosanitary rules, which are often used to limit American products.
That is why trade negotiations are so critical, said Paggi. The World Trade Organization (WTO) talks are constantly in then news. They are not moving fast toward treaties, and the current Doha round is not likely to conclude until 2007, he said.
American agriculture is getting beat up in the WTO talks.
The most obvious example is the WTO ruling in favor of Brazil which complained about U.S. farm policy on cotton production. Brazil’s WTO victory has ended cotton’s Step 2 export enhancement program and forced the U.S. to modify its preferential loan program for countries buying U.S. imported cotton.
Brazil also wants the U.S. to change its long-standing federal farm policy that prohibits production of fresh fruits and vegetables from program crop land. WTO has agreed.
Flood fresh market?
The fear here is that planting fresh market crops on commodity ground will flood the fresh market. “I am not sure that is grounded in fact, but is certainly something that will muddy the water,” added Paggi.
And if the WTO cotton ruling is not bad news enough, Paggi reported at the ASA conference in Visalia, Calif., that the same U.S. law firm that won the case for Brazil against U.S. cotton has agreed to represent Uruguay in a WTO complaint against U.S. rice farm policy.
With multi-lateral talks dragging and the domestic farm policy continuing to be battered, the U.S. is also working on bilateral trade talks, which Paggi said offer more opportunities to open up foreign markets to more California agricultural products.
One reason for that is many of the countries in the bilateral talks already have open access to the U.S. for their ag products.
“The U.S. does not have much to lose with these regional agreements and has everything to gain in added market access,” said Paggi.
It is tough for California to compete in the world market where cost of production in other countries is much less and often more highly subsidized. However, Paggi pointed out that the state’s producers and marketers have had considerable success, overcoming many challenges in the process.
Challenges will continue overseas and at home where Paggi said agriculture must do more with less land, less water and more regulations.
California agriculture will generate more output per unit by continued farm consolidation, more research and development, more intensive capital investment, better management and improved technology.
The world demand for California horticulture products will only grow. The challenge for Golden State producers will be to meet that demand.
“We have market advantage now with our high quality products; traceability from dirt to plate and other positive factors,” he added. Other countries will continue to compete with the U.S. with cheap labor and other advantages, but California has some “advantages it needs to play out and that will be a good thing for us.