U II u
ASPECTS OF IMPORT COMPETITION AND EXPORT DEVELOPMENT
FOR MAJOR FLORIDA COMMODITIES:
SOME PRELIMINARY RESULTS
By
J. Scott Shonkwiler
Kary Mathis
Staff Report 6 August 1979
Staff Papers are circulated without formal review
by the Food and Resource Economics Department.
Content is the sole responsibility of the author.
Food and Resource Economics Department
Institute of Food and Agricultural Sciences
University of Florida, Gainesville, Florida 32611
The Florida Agricultural Market Research Center is
a service of
the Food and Resource Economics Department
of the
Institute of Food and Agricultural Sciences.
The purpose of this Center is to provide timely, applied research
on current and emerging marketing problems affecting Florida's agri-
cultural and marine industries. The Center seeks to provide research
and information to production, marketing, and processing firms, groups
and organizations concerned with improving and expanding markets for
Florida agricultural and marine products.
The Center is staffed by a basic group of economists trained in
agriculture and marketing. In addition, cooperating personnel from
other IFAS units provide a wide range of expertise which can be applied
as determined by the requirements of individual projects.
TABLE OF CONTENTS
LIST OF TABLES. . . .
LIST OF FIGURES . . .
INTRODUCTION. . . .
Import Competition . .
Fresh Vegetables. . .
Trends in Vegetable Product
Preliminary Model Results .
The Effects of Beef Imports
Export Markets . . .
Fresh Vegetables. . .
SUMMARY AND CONCLUSIONS . .
REFERENCES. . . . .
ion, Imports
on Florida
. . .
. .
. .
. .
and Prices. .
Cattle Prices.
. .o .
. .o .
. o. .
Page
iv
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4
13
16
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20
22
LIST OF TABLES
Table Page
1 Average Florida FOB vegetable price measures, 1966-68,
1970-72, and 1974-76. . . . .. 12
2 Price and import equations for tomatoes and green
peppers . . . . . . 15
3 Mean structural elasticities. . . .. 16
4 Florida agricultural exports: total value and share of
cash receipts from farm marketing, fiscal 1968, 1970,
1972, 1974 and 1977 .. . . . 18
5 Florida agricultural exports: Leading product groups
and share of total Florida agricultural export value
fiscal 1970, 1974 and 1977. . . . .. 19
6 Florida agricultural exports: share of the U. S.
exports, fiscal 1970, 1974 and 1977 . . 20
LIST OF FIGURES
Figure Page
1 Fall tomato production and imports for specified
three year periods. . . . .. 6
2 Winter tomato production amd imports for specified
three year periods. . . . . 7
3 Spring tomato production and imports for specified
three year periods. . . . . 8
4 Fall pepper production and imports for specified
three year periods. . . . . 9
5 Winter pepper production and imports for specified
three year periods. . . . .. 10
6 Spring pepper production and imports for specified
three year periods. . . . .. 11
ASPECTS OF IMPORT COMPETITION AND EXPORT DEVELOPMENT FOR MAJOR
FLORIDA COMMODITIES: SOME PRELIMINARY RESULTS
J. Scott Shonkwiler and Kary Mathis
INTRODUCTION
It appears that the competitive position of Florida agriculture in
interregional and international markets will largely determine the
future prosperity of the state's agriculture industry. In the area of
international trade and marketing the Florida Agricultural Market Re-
search Center is directing its attention to two major areas: Import
competition and export market development. The first area requires
careful evaluation of the effects of competing imports on the state's
agriculture and economy. The second major area permits the identifi-
cation and analysis of opportunities for expanding commercial sales of
Florida agricultural products in foreign markets. Attention will be
directed toward summarizing Florida's position with respect to import
competition and export market development for the commodities of great-
est current concern. Commodities of particular interest are fresh
winter vegetables, limes and avocados, beef, and cut flowers.
The present study presents some short-term research results for
certain fresh winter vegetables and beef. Cut flowers, limes and
J. SCOTT SHONKWILER is assistant professor and KARY MATHIS is professor
of food and resource economics, University of Florida.
2
avocados will be addressed in later reports. Specifically, attention is
directed towards the effects of import competition on two tomatoes and
peppers, and on the state's beef cattle industry. Then, emphasis will
shift to the importance of the export market for Florida agricultural
commodities. In both cases major impediments were encountered due to
lack of complete and detailed data on Florida's agricultural trade. For
this reason the current report will be used for presenting preliminary
results with the intention of expanding and refining the Market Center's
international agricultural trade program.
In forthcoming reports major competitors will be identified and the
degree and nature of competition quantified as far as possible for each
commodity. Efforts will be directed toward measuring the impact of this
competition on each major commodity sector and on the regions of the
state affected by the competition. Concomitantly, the potential for
expanded sales of Florida products will be investigated. Attention will
be focused on determining the extent of foreign demands and will in-
dicate the magnitude and composition of expected increases in export
shipments. Finally, the consequences of both expanded demands and
changes in import competition for Florida products and the abilities of
the producers to adjust to them will be analyzed.
Import Competition
Fresh Vegetables
Tomatoes and green peppers are important Florida vegetable crops
which face strong import competition during the October to June crop
year. In the 1977-78 growing season the value of these crops amounted
to $224 million and represented 10 percent of total returns for all
Florida vegetable crops. But the growth and nature of import competition
suggest depressed returns for Florida producers in the future unless
domestic demand expands rapidly enough to accommodate increasing supplies
without price deterioration.
Analyzing Florida's competitive position vis-a-vis Mexican vegetable
exports requires an understanding of how prices, production, marketing
and imports evolve both within the crop year and across crop years.
Pronounced seasonality in production and import movements means that
annual averages may mask important price variations affecting seasonal
supply responses. To investigate the forces responsible for seasonal
price fluctuations a quarterly price determination model has been specified.
Particular interest currently is focused on how the timing and magnitude
of vegetable imports impact on Florida wholesale vegetable prices.
The first phase of this study is aimed at quantifying short-run
(quarterly) supply response and price determination mechanisms for
Florida and Mexican vegetables marketed in the United States. Acreages
planted to vegetables in Florida and Mexico are treated exogenously
since it is presumed that producers base their planting decisions on
previously observed factors extending one or more years in the past. The
short-run component of supply response recognizes that domestic market-
ings and imports depend on current prices as well as numerous non-market
phenomena. Higher prices should act to encourage more thorough harvest-
ing practices and act to ease any restrictive grading procedures. To
this extent harvesting and shipping rates are varied during the quarter.
However, increased supplies should act to moderate price increases thus,
in turn reducing harvesting and shipping rates. Clearly this type of
simultaneity calls for a model which can take account of supply-demand
conditions and determine equilibrium prices. The preliminary models
developed treat short-run imports, domestic supply and demand endogen-
ously so that market operation may be portrayed realistically.
The second phase of the analysis then will examine the longer run
supply response of Florida producers and attempt to elicit their re-
actions to expected prices, costs, returns and perceived risk (Just,
Lin, Hammig). Data for Mexican long-run vegetable supply response is
exceptionally weak (Brooker and Pearson, Simmons et al.) with some
indication that planting decisions are made autonomously by the powerful
Mexican growers' association, Union Nacional de Productores Hortalizas
(UNPH) (Meyers). Thus, some aspects of Mexican production will probably
be treated exogenously. A further problem is that climatic factors
cause yields and costs to vary across years so that without time series
data on these variables for Mexican producers certain simplifying assump-
tions will be necessary. In any event, the models created in this phase
will be capable of simulating production levels and projected returns to
parametric changes in domestic demands, tariffs, costs of production,
and import volumes.
Trends in Vegetable Production, Imports and Prices
Imports comprise a substantial part of non-summer vegetable market-
ings and there is mounting concern that their share of the winter vegetable
market will continue to expand (Simmons et al., Meyers). Mexico's rapid
development of their share of U.S. vegetable market was ostensibly
triggered by high relative prices in the late 1960's and early 1970's
caused by poor growing conditions in the U.S. (Simmons et al.). How-
ever, Meyers has implied that Mexican producers and shippers are con-
spiring to gain substantial U.S. market power via the coordination and
control of the UNPH over Mexican production activities.
To illustrate both the trends and seasonality in vegetable production
and imports Figures 1 through 6 are included. These figures show three-
year averages of imports and domestic production for three periods
spannning 11 recent years. The data conform to the Crop Reporting
Boards' Vegetables: Annual Summary and represent intra-seasonal compari-
sons based on quarterly designations. All values are expressed in terms
of 1,000 hundredweight units with zero levels being denoted by an asterik
(*) to indicate that production in commercial quantities does not occur
during the period.
Inferences based on Figures 1 through 6 must be tempered by re-
cognizing that returns to Florida producers depend on demand conditions
as well as aggregate supplies of vegetables from the various sources.
Table 1 presents average wholesale Florida vegetable prices for the same
periods analyzed in Figures 1 through 6 so that production and import
levels may be linked to demand conditions. Prices are all in terms of
dollars per hundredweight and nominal prices are, of course, the actual
values reported. Real prices are obtained by dividing nominal prices by
the average value of the consumer price index (1967 = 1) for each corres-
ponding period. The price-cost index measures the ratio of nominal
prices to total per acre growing and harvesting costs (.Brooke) for each
commodity with 1967 costs normalized to equal one.
Figure 1.--Fall tomato production and imports for specified three year
period.
S= Average Florida production
3000 -
= Other U.S. production
0 = Imports
2500 -
S 2000 \
1000
500
\\ \\_
1970 1072 1974 1976
1966 1968
Figure 2.--Winter tomato production and imports for specified three
year period.
[M = Average Florida production
3000
2500
2000
1500
1000
500
1966 1968
1970 1972
1974 1976
* No other U.S. winter production
Figure 3.--Spring tomato production and imports for specified three
year period.
3500 = Average Florida production
0D = Other U.S. production
3000 \X \ 7"'-"-v
\3\ 0= Imports \\
2500 -
S2000- \co
1500 /
1000 -\
500 \ \
1970 1972 1974 1976
1966 1968
Figure 4.--Fall pepper production and imports for specified three year
year period.
S= Average Florida production
= Other U.S. production
= Imports
1970 1972
1250
1000
750
500
250
1966 1968
1974 1976
Figure 5.--Winter pepper production and imports for specified three
year period.
M = Average Florida production
1000 -
S= Imports
I- 750 -
C-
500-
250 -
1966 1968 1970 1972
No other U. S. winter production
1974 1976
I
Figure 6.--Spring pepper production and imports for specified three
year period.
10 = Average Fl,orida production
1000-
= Other U.S. production
7= Imports
S 500 -
250- \ -
1970 1972
1966 1968
1974 1976
Table l.--Average Florida FOB vegetable price measures, 1966-68, 1970-72, and 1974-76.
Nominal price Real price Price-cost index
66-68 70-72 74-76 66-68 70-72 74-76 66-68 70-72 74-76
--------------------------------Dollars per hundredweight------------------------------
Tomatoes
Fall 10.7 15.0 19.9 10.9 12.2 12.1 11.3 11.1 6.6
Winter 14.7 14.1 19.0 14.9 11.9 12.8 15.5 10.4 6.6
Spring 10.4 13.2 17.0 10.4 10.9 10.8 11.0 9.8 5.6
Peppers
Fall 14.8 12.6 20.4 15.1 10.2 12.4 14.8 10.0 8.8
Winter 12.7 18.7 21.0 12.8 15.7 13.6 12.7 14.8 9.1
Spring 12.6 19.6 20.1 12.6 16.2 12.7 12.6 15.6 8.7
The data on prices presented in Table 1 provide an approximate
representation of relative returns to Florida producers during the 11
years spanned because average yields per acre have been fairly steady
during most of the period. Although relative prices have been subject
to some erosion in more recent years, such results are not totally
explained by changing levels of Mexican imports as implied by Meyers.
A more sophisticated approach is called for in order to separate the
effects of numerous forces which influence Florida vegetable prices.
Preliminary Model Results
Tomatoes and green peppers rank first and second in terms of market
value for these Florida vegetables which encounter stiff import competi-
tion during the crop year. Using data for the fall, winter and spring
quarters for the 1968-76 crop years, econometric models for these veget-
able crops were estimated using two stage least squares. For expositional
purposes Florida and other U.S. production variables will be exogenized
so that partial reduced form multipliers and elasticities may be present-
ed. The key eouations then for each crop are the price determination
and import supply relations. The estimated parameters for these equations
are shown in Table 2 along with t-values in parentheses below their
respective coefficients.
Since all quantity variables are expressed in units of 1 ,000 hundred-
weights the coefficients in Table 2 can be interpreted as multipliers in
terms of this quality measure. Thus, the effect of a 10 million pound
increase in Florida tomato production causes prices to fall by (-.0026 *
10,000,000 1,000 100 = -.26) 26 cents per hundredweight and imports
to drop by (-.256 10,000,000 1,000 100 = 25.6) 25.6 thousand
hundredweight or 2,560,000 pounds. Typically though, interest is focus-
ed on percentage changes in prices and quantities. These elasticities
associated with the structural estimates in Table 2 may be found in
Table 3. Here percentage changes about the means of the price and
import variables are related to one percent changes in five exogenous
variables.
The elasticities in Table 3 are relevant only in terms of structural
analysis, not for prediction, since the reduced form representation is
required for prediction. Further, it should be remembered that Florida
production is actually an endogenous variable in the complete model so
that the structural elasticities presented imply only a partial equilib-
rium. Nonetheless, several interesting observations may be drawn from
Table 3.
The direct price elasticities of demand at the wholesale level may
be approximated by inverting the elasticities of price with respect to
Florida production. They are -2.85 for tomatoes and -1.20 for green
peppers. This elasticity of demand for tomatoes appears to be overstated
compared to other studies (Jesse and Machdo) thus, some caution is
warrented in interpreting these preliminary results. Although it appears
that income elasticities are exaggerated note that in each case they are
only about 40 percent greater than the corresponding elasticity on CPI,
the implicit deflater in each price equation. Perhaps the most interesting
feature of the results summarized in Table 3 is that Florida prices are
much more sensitive to imports than to other U.S. production. Thus, it
appears that Mexican imports have a direct and substantial impact on the
prices Florida vegetable producers receive.
Table 2.--Price and import equations for tomatoes and green peppers
Tomato price FOB Florida
TPR = 19.33 .0026 TPDF
(1.3)
- .0028 TPDE .0033
(3.9) (3.8)
TM + .04 TDI
(1.6)
- 18.3 CPI
(.84)
+ 2.54 Q1
(.52)
+ 7.22 Q2
(1.3)
Tomato imports
TM = 680.6 -
.256 TPDF .416 TPDE +
(1.2) (1.3)
1.22 TDI +
(2.3)
Pepper price FOB Florida
PPR = 24.7 -
.031 PPDF -
(3.3)
+ 16.5 Q1 + 9.82 Q2
(2.2) (2.1)
Pepper imports
PM = 82.7
- .38 PPDF -
(2.9)
.013 PPDE -
(1.7)
.287 PPDE +
(2.1)
.049 PM
(2.5)
.427 TDI
(4.3)
+ .07 TDI
(1.8)
+ 239 Q1
(1.7)
- 33.5 CPI
(1.1)
+ 83.4 Q2
(.83)
Variable definitions
TPR Price FOB Florida in $/cwt
TM U.S. imports in 1,000 cwt
TPDF Florida production in 1,000 cwt
TPE U.S. production excluding Florida in 1,000 cwt
TDI U.S. total disposable income in billion $
CPI U.S. consumer price index, 1967 = 100
Q1 Intercept shifter, 1 in winter quarter only
Q2 Intercept shifter, 1 in spring quarter only
Peppers: PPR
PM
PPDF
PPE
TDI
CPI
Q1
Q2
Price FOB Florida in $/cwt
U.S.imports in 1,000 cwt
Florida production in 1,000 cwt
U.S. Production excluding Florida in 1,000 cwt
U.S. total disposable income in billion $
U.S. consumer price index, 1967 = 100
Intercept shifter, 1 in winter quarter only
Intercept shifter, 1 in spring quarter only
1634 Q1
(1.8)
+ 262202
(4.8)
Tomatoes:
Table 3.--Mean structural elasticities.
Tomatoes
With respect to
TPDF
TPDE
TM
TDI
CPI
Change in variable
TPR TM
-.35 -.29
-.24 -.29
-.40
2.16 .54
-1.53
Peppers
With respect.to
PPDF
PPDE
PM
TDI
CPI
Change in variable
PPR PM
-.83 -.74
-.29 -.48
-.67
3.32 1.49
-2.45
The Effects of Beef Imports on Florida Cattle Prices
In January 1978 Florida ranked second for states east of the
mississippi River in the number of beef cows on farms. The state
typically ranks in the 10 largest in terms of beef cow numbers nation-
ally. Florida beef cow prices have been postulated to depend both on
national conditions and more specific Florida conditions given its
geographic distance from the major beef cattle states in the central
U.S. In determining the influence of U.S. beef imports on Florida cow
prices these factors were taken into consideration first by specifying a
national beef cow price determination model and then relating it to the
Florida price series.
By using quarterly observations for the years from 1970 through
1978 an econometric model was estimated. On average it was found that
Florida cow prices were 3.06 percent less than the national prices used
in the model, yet on a quarterly basis the national price was able to
explain abcut 90 percent of the variation in Florida cow prices. It was
determined that beef imports had a slightly stronger impact on Florida
prices versus national beef cow prices. In particular a one-quarter
increase of 100 million pounds of beef imports was estimated to reduce
Florida cow prices by $0.65 per hundredweight. A sustained increase of
imports by the same amount for a year was estimated to reduced Florida
cow prices by $1.23 per hundredweight. These point to somewhat larger
effects than reported by Freebairn and Rausser whose results suggested
that 100 million pound increase in beef imports over an entire year
would reduce national cow prices by only $0.47 per hundredweight.
Export Markets
Agricultural exports from Florida have grown substantially in the
past 10 years. For example, total value of Florida agricultural products
exported grew from $101 million in 1968 to $390 million by 1977 (Table
4). Exports were only 8 percent of total cash receipts from farm marketing
in 1968, but were over 15 percent of farm sales by 1977.
Citrus and citrus products, representing virtually all of the
"fruits and preparations" class shown below, accounted for the largest
share of Florida agricultural trade in recent years. Other products,
particularly vegetables, have grown in relative importance, however
(Table 5).
Table 4.--Florida agricultural exports: total value and share of cash
receipts from farm marketings, fiscal 1968, 1970, 1972, 1974,
and 1977.
Exports as share
Fiscal year Export value of farm sales
Million dollars Percent
1968 101 8.2
1970 115 8.8
1972 148 8.8
1974 223 10.3
1977 390 15.3
Source: "Foreign Agricultural Trade of the United States", ESCS,
USDA.
Florida ranked second in the U.S. in exports of fruits and pre-
parations 1977 with 22 percent of the nation's shipments. The state
was fourth in the nation-'s exports of vegetables and preparations,
with 9 percent (Table 6).
The Florida share of all other products and of total exports was
considerably smaller, due primarily to the large shipments of grains and
oilseeds from other states.
Fresh Vegetables
Canada is Florida's largest foreign customer for fresh vegetables.
Significant percentages of several important Florida vegetables are
shipped to Canadian markets. Most vegetable exports other than those
destined for Canada go to Northern European markets. Radishes make up
about three-fourths of the value of European shipments, with carrots,
celery, sweet corn, eggplant, peppers, tomatoes and watermelons also
being shipped.
Table 5.--Florida agricultural exports: Leading product groups and share of total Florida agri-
cultural export value, fiscal 1970, 1974, and 1977.
1970 1974 1977
Million Million Million
Product dollars Percent dollars Percent dollars Percent
Fruit and preparation 65 60 117 53 178 46
Vegetables and preparations 12 10 25 11 65 17
Soybeans 4 4 13 6 24 6
Feed grains 2 2 8 3 23 6
Tobacco, unmanufactured 9 8 15 7 20 5
Peanuts --a -a -a -a 8 2
Poultry products 2 1 3 1 7 2
Hides and skins 2 1 5 2 7 2
Lard and tallow 2 2 7 3 7 2
Protein meal 1 1 4 2 5 1
Meats and products 1 1 4 2 5 1
Other 10 9 23 10 41 10
Total 145 100 223 100 390 100
a
Not available.
Source: "Foreign,Agricultural Trade of the United States," ESCS, USDA.
Table 6.--Florida agricultural exports: share of U.S. exports, fiscal
1970, 1974 and 1977.
Product 1970 1974 1977
------------ Percent ---------
Fruits and preparations 20.1 20.0 22.1
Vegetables and preparations 5.9 6.1 9.3
Other products 0.5 0.4 0.7
Total exports 1.7 1.0 1.6
Exports can have important effects on prices for Florida vegetables.
The analysis discussed earlier under "Import Competition" can also be
used to evaluate those effects. Export of 10 million pounds of tomatoes
would increase Florida prices by 26 cents per hundredweight, for example.
SUMMARY AND CONCLUSIONS
Tomatoes and green peppers are important Florida vegetable crops
which face strong import competition. The growth and nature of import
competition suggest depressed returns for Florida producers unless
domestic demand keeps pace with expanding supplies. Imports comprise a
substantial part of winter vegetable marketing and there is mounting
concern that their share of the U.S. market will continue to expand.
Prices received by Florida producers for these winter vegetables have
eroded in comparison to rapid production and harvesting cost increases.
An econometric model using quarterly data on Florida production and
prices and other U.S. production as well as imports has been developed.
Preliminary results suggest that Florida producer prices for tomatoes
and green peppers are strongly influenced by Mexican imports. Given
that tariffs on these commodities represent a substantial marketing cost
to Mexican producers, further analysis is planned to determine how the
volume of imports would react to changes in tariff levels.
Florida is important nationally for its beef cow herds but it is
geographically isolated from the major cattle markets of the central
United States. While Florida cow prices are strongly influenced by
national conditions, beef imports appear to reduce Florida prices slightly
more than the national average. In particular it was found that a 100
million pound increase in quarterly beef imports will lower Florida cow
prices by about 65 cents per hundredweight.
Finally, the impact of foreign export demands on Florida's agri-
cultural producers will become more pronounced in years to come. Potential
for future export market development is largely unknown due to the lack
of information on the composition and ultimate destination of many of
the state's agricultural exports. However, current trends strongly
suggest that export developments may shape the future prosperity of
Florida agriculture.
REFERENCES
Brooke, D. L. "Costs and Returns from Vegetable Crops in Florida",
Food and Resource Economics Department, University of Florida,
1965 through 1976 seasons.
Brooker, John R. and James Pearson. The Winter Fresh Tomato Industry -
A Systems Analysis, ERS, USDA, Agricultural Economic Report No.
330, April 1976.
Hammig, Michael. "Regional Acreage Response by Quarter for Fresh Tomatoes,"
Contributed paper to the Southern Agricultural Economics Association
Meeting, February 1979.
Jesse, E. V. and M. Machdo. Trends in Production and Marketing of
California Fresh Tomatoes, Division of Agricultural Sciences
Bulletin No. 1871, University of Calffornia, 1975.
Just, Richard. "An Investigation of the Importance of Risk in Farmers'
Decisions," American Journal of Agricultural Economics, February 1974.
Lin, W. "Measuring Aggregate Supply Response under Instability",
American Journal of Agricultural Economics, December 1977.
Meyers, Glenn D. "Centralized Planning of Mexican Winter Vegetable
Exports and its Impact on the U.S. Market and the Florida Industry",
Unpublished Report, June 1978.
Sirmmons, Richard L., et al., Mexican Competition for the U.S. Fresh
Winter Vegetable Market, ERS, USDA, Agricultural Economic Report
No. 348, Augus.t 1976.
Staff Report
ASPECTS ,OF !.P- RT COMPETITION AND EXPCP.T CE'iELOPME'IT
FCOR MAOR FLORIDrA COMODIIES:|
SOME PRELIMINARY RESULTS
By
,J. Scott Shonkwiler
Staff Report 6 Augus. 1979
FLORIDA
AGRICULTURAL MARKET RESEARCH CENTER
FOOD AND RESOURCE ECONOMICS DEPARTMENT
Institute of Food and Agricultural Sciences
University of Florida
Gainesville, Florida 32611