Thailand's horticultural export, both fresh fruit and vegetable, has increased over the years. Trade opportunity is largely due to increasing interests of major importing countries and Thailand's relative competitiveness over other producers. To increase its presence in regional/world markets, the industry is facing increasing pressures and unfamiliar trading practice. In addition, the decade-old production system based on increasing yield and reducing production cost by the producers, as well as the traditional management style of exporters, are inadequate in the face of the challenges of an increasingly competitive and discriminating global trading environment. From the business point of view, the market operation needs to move toward improving management efficiency and effectiveness rather than developing new technology alone. This paper provides a brief overview of international horticultural trade with special reference to tropical fruit, analyses of factors influencing production and trade and trends in market development of fresh produce, effect and implication of new emerging producers, and the future role and challenge for postharvest technology in response to changing market scenes.
Overview of Global Fresh Fruit Industry
The total value of international horticultural export trades (fruit and vegetables) has increased from less than US$11 billion to US$20 billion, and to US$44 billion over the periods 1980-82, 1990-92 and 2000-02, respectively. This included fresh (70%) and processed products (30%), of which half were fruit juices. The increase represents an impressive annual growth rate of international exports at an average of 8-10% in relation to a slower growth prospect of traditional agricultural commodities such as cereals, livestock products, oil seed, fats and oil. No country can provide all the fresh produce it consumes weekly the whole year, in turn creating trading opportunities among countries. Expansion of trade for vegetables differs from that for fruits. Suppliers vary significantly between vegetable and fruit categories. Despite the increase in international horticultural trades, a far greater amount of fresh produce produced in each country is still domestically consumed.
Developed countries provide the largest production and import market. Between 60% and 80% of horticultural export trades are carried out among developed countries. Demand for fresh fruit is concentrated in Europe and the United States, which absorb around 60% and 11%, respectively, of international imports. The United States is the dominant player in the international trade of horticultural commodities, ranked number one as both importer and exporter accounting for about 18% of world horticultural trade. In general, developing countries are major producers of tropical fruits (accounting for 98% of total 60.4 million tons in 2000), but their exports remain insignificant. International trade of tropical fruit represents less than 3% of total tropical fruit production and until recently most export went to other developing countries. It is important to note that tropical fruit is mostly local fruit suited to local taste. Trade data for 1999 indicate that Latin America, the Caribbean, and Asia accounted for about 75% of world trade in fresh tropical fruits and 80% were imported by developed countries. It is generally agreed that the potential for the sustainable growth of the tropical fruit industry depends on export to developed countries and on the size of the domestic market.
Horticultural trade is characterized by a wide diversity of products. The product composition of horticultural exports has changed over time with an increase in the relative importance of fruit than vegetables. The more traditional varieties of fruit, namely citrus, apples, grapes, bananas, pears, pineapples and peaches, represent some 85% of world production with those of temperature climate origin (apples, grapes, pears and peaches) accounting for 42%. These are mainly produced and consumed in the developed countries. Of the typical tropical fruit, only banana, pineapple, and mango are produced in significant quantities and these are mainly produced in developing countries and consumed domestically. The taste for exotic products is rapidly evolving in developed countries. It was in the past 10 years that exotic tropical fruits such as avocado, guava, papaya and kiwi have become mainstream trading items ( Table 1(134) and Table 2(138)). Pineapple accounts for 44% of total tropical fruit trade, followed by mango at 27%, avocado at 12%, and papaya at 7%. Among fresh vegetables, the miscellaneous vegetable category had the largest share, followed by roots and tubers. Tomatoes were the most important single item in the miscellaneous category that also includes a wide range of varieties such as pumpkins, lettuce, cucumbers, garlic, chilies and peppers, cabbages, cauliflower, carrots, garlic, onions, asparagus and ginger.
Significant Trends in Production, Marketing, and Export Development
Factors influencing trends are summarized into three broad categories as a result of changing demand/supply, market environment and supply chain management, and regulatory/legal requirements, taking the recent developments in Thailand as examples.
Increased Interest in Tropical Fruit Trade
Tropical fruit is becoming increasingly available in Europe. The increasing interest in tropical fruit in the developed countries is due to increased promotional activities and better information to consumers. In addition, it is largely attributed to the fact that the food markets are now saturated, leading to intense competition, lower margins, and lower prices for food. Since 1990, many modern trade retailers have positioned their store formats and image around the fresh produce department. In order to further attract and delight the consumer, the markets are demanding less mass customizing of food items; diversified products based on consumer food consumption patterns; and safe, environment-friendly, organic product or by introducing new products. The introduction of tropical fruit meets all these criteria. The variety and composition of produce must therefore be enhanced, so that the characteristics of tropical fruits as diverse, exotic, unique in taste, highly nutritional, have multiple uses, and based on low input production system can be fully appreciated. For Thailand, the recent worldwide increase in the popularity of Thai food also increased the demand for Thai fresh produce.
Major Export Markets
According to the Food and Agriculture Organization (FAO), international consumption of tropical fruit will increase by around 40% between 1995 and 2005, equivalent to an annual growth rate of 3.5%. Despite the increase in consumption, developing countries export little tropical fruit due to short seasonality, short shelf-life of the fresh produce, high transportation cost, and increasing strict regulations in import. Preferences of tropical produce vary among countries and also vary greatly even within localized areas in one country. Major trades in tropical fruit, until recently, remain limited either for domestic consumption in the country, or to regional markets or other developing countries with similar taste and preference. Exports to far away markets remain constrained with the exception of bananas with some 30% of total production exported, mainly to developed countries. As more produce enter into the trade and with increasing trend in global sourcing, market prospect for tropical fruit in developed countries are becoming positive ( Table 3(136)).
Supply of tropical fresh produce during off-season, counter season and/or complementary trade will become the norm than the exception. Good examples are the shipment of Southern Hemisphere produce to meet consumer demand during the Northern Hemispheres' winter when the domestic supplies are low. Most trade is caused by differing levels of relative competitiveness between producers of the same or similar products during different seasons to avoid trade dispute. Thailand's export of asparagus, to EU and Japan, has more than twofold increase in values from 1998 to 2002 due to Thailand's natural climatic production advantage with the ability to produce almost year-round.
Export performance of horticultural trade differs widely among developing countries. It has been estimated that future rate of growth of domestic demand is much higher in developing countries than in developed countries and the prospect of high intra developing-country trade may not likely be sustained because each has increased production and expected future export growth. A large domestic market remains very important for export development, more so for fruit than vegetables. Domestic markets provide both a springboard for the growth of exports and a cushion to absorb the shocks or uncertainties of export markets. Thailand's longans and durians, two top export items each with more than US$50 million in export values per year representing an exceptionally high 30% and 15% of the country's production, respectively, still require a large domestic market to avoid price fluctuation during peak season. Thailand produces approximately 800,000 tons of durian and exports 110,000 tons mainly to China (via Hong Kong), Hong Kong, Singapore and Taiwan.
Though there is also an increasing interest for producers in the developed countries to exclusively produce tropical fruit for and sell in export markets, the global production statistics of key tropical fruit fail to indicate such a trend. The relative low export indicates that tropical fruit is typically produced for domestic market and suited to local taste. A further observation is that in many cases the largest exporters of tropical fruit are not the top producing nations. This indicates that these countries are adopting a specialized export-oriented strategy, and this is largely due to a significant price differential in favor of exports and based on high cost production system, high capital investment, and a well-coordinated vertical supply chain.
This increasing interest in the expansion of market stimulates increase in supply and this has a consequent downward pressure on prices and tends to depress margins due to intense competition especially among exporters in the developing countries. Mangoes are a good example, with prices in Europe falling 30% since 1988, in conjunction with a 66% increase in import volumes. The increase in export market and in suppliers resulted to reduced profit margins, which discouraged many exporters, and to high cost of production. This in turn has led to a supply of relatively poor-quality produce by low-cost producers.
Concentration of Suppliers and Their Composition
The size of the tropical fruit export market relative to the output in many cases is not large enough to allow many countries/exporters to succeed and will initially result in a smaller share of the market held by each country/exporter. Thus, the enlargement in trade may eventually result in consolidation and concentration of fewer suppliers operating at a reduced profit margin offering produce at a comprised quality of larger volume. This is usually considered transitional when the small industry is at a crossroad. There is a general interrelation indicating that an increase in export trade often results in overall improvement in quality, but produce for sale in the domestic markets are often of lower quality or are export rejects. Product differentiation or specialization to meet the large sourcing need of modern trade may result in reduced level of overall country production though there may be increased export by individual firm. The long-term effect of such trend to the industry will need to be seriously assessed.
Farm to Table
Production methods for domestic consumption are simple, much less demanding, and the domestic market usually pays well when lower expenditure on cost structures and investment are taken into consideration. To meet the discerning export market requirements, farming practices and marketing system will have to change.
However, changes in the production methods, better sanitation and hygienic farm practice, and improvement in quality will not ensure that export market can be developed and maintained. Traditional fragmented small-sized producers and labor-intensive nature of tropical fruit production system needs to be optimized and to link to companies that organize the distribution of products in the export market. A developing country that wants to export a not yet established tropical produce often exports it through an agent in the importing country who handles the distribution and marketing without any financial risk but for a commission. The export bears the entire risk. The risk is shared by the importer only when trust has developed over time between the importer and the exporter.
Commission sales play an important role in fresh produce markets for new exporters and remain so even for established exporters. Regulations in some countries that prohibit commission sales and require that horticultural imports must have a prearranged buyer tend to inhibit fresh produce trade.
There is no organized system for market intelligence and trade regulations for horticultural products comparable to what exist for other agricultural products. The wide variety and small trade involved with fresh produce do not attract adequate attention for the international or national trade intelligence and statistical services. Most traders and government in the developing countries lack the leadership and vision and are ill-prepared to formulate a well-developed sustainable export strategy.
Food Safety Issues
The traditional approach to food safety was that people at each stage of the food supply chain were responsible for the handling of the food and, hence, for food safety issues. This is easily said than done as the food chains have become more complex and the initiation of food safety strategy is often difficult, if not impossible, in the fresh produce supply chain where there is no certain predominant market power, or worst, a consistently shifting market power as affected by supply and demand during the season.
Recent legislation trend in many developed countries is to put the responsibility for food safety into the hands of the retailer. This is an over-simplified approach to the complex food safety issues and the tendency is toward strict requirements for imports through an expensive time-consuming import/export inspection. There has been increasing pressure and requirement to implement third party certified food safety and quality management systems especially for import/export trade. While Good Agricultural Practices, Good Manufacturing Practices, Hazard Analysis Critical Control Point, and ISO 9000 certification have been focal points for many organizations across the world to be used for food safety and management of value chain, there have been no appropriate frameworks for these standards for fresh produce. Some of these systems are either unrealistic and unworkable because of inherent weaknesses/uncertainty/dynamic nature of the fresh produce industry and the difficulty to provide branding and to understand certification, or too costly because such systems are still based on inspection and or regulation, or the intended holistic approaches are not meeting customer/business specifications or formalized dialogue in the fresh produce supply chain, or due to the fact that users and the bureaucracy take a simple concept and make it difficult for operators.
Without a clear purpose, too stringent/improper safety requirements and the application of different health standards for domestic and imported goods, and imposing food safety requirements often had an obvious protectionist component. Many safety factors/variables need to be considered in harmonizing national standards with the guidelines through international consensus, and mutual recognition agreement on food safety issues is expected to take time. The likelihood is high to forge increased bilateral and regional trading arrangement.
Another important consideration is the need for a dialogue between policy makers and the producers/operators. A recent bilateral agreement on fresh produce trade between Thailand and China, and the Thai government initiative on food safety project have been mistakenly interpreted as restricting trade by the producers/operators. The challenges are to provide better communications and to put in place food safety systems that are viable and effective both in terms of cost and efficiency.
Trade Liberalization and Trade Barriers
Horticultural exports of developing countries are constrained by tariff and non-tariff barriers (NTBs). It is generally agreed that the fruit sector must be prepared to confront a more liberalized trade environment. One of the most significant trade liberalization development and the new trading opportunities and threats affecting horticultural import/export industry worldwide is the recent inclusion of China and Taiwan in the World Trade Organization (WTO). Tariffs vary by product, season, and country of origin. The restrictive effect of NTBs on horticultural imports is considerably greater than that of tariffs. A wide range of NTBs include marketing orders such as product specifications, quotas and voluntary export constraints, import licensing, variable levies, minimum price systems, countervail taxes and duties, technical specifications (especially health restrictions, and strict labeling and packaging specifications), and even bureaucratic delays or uncertainties.
Without a clear purpose or scientific justification, there is a tendency to increase the use of NTBs as a discrimination against fresh produce imports. Most of these requirements are voluntary or as recommendation at this stage, but some are soon expected to become mandatory. Among NTBs, fresh produce is particularly heavily constrained by various sanitary and phytosanitary regulation mechanisms on the basis of concerns for consumers and most notably, for the protection/security of the importing country's own production. Sanitary and phytosanitary regulations can be characterized as trade barriers and WTO requires these to be backed by sound and verifiable scientific evidence. It should be noted that the countries with the most rigorous control procedures are precisely the major exporters, the US, EU and Japan. Almost all national standards either already have guidelines, or are in the process of harmonization with guidelines formulated through international consensus. At this transitional stage, as a result of competition, the market is at the mercy of misinformation and mud sling.
To meet these requirements, the developing exporting countries have to set up expensive, high technology laboratories. Most important of all is that exporting countries will need to provide education, training, and a sophisticated level of technological infrastructure and managerial skill to monitor conditions of production/handling processes for export and to ensure transparency, and allow consultation and dispute settlement processes between trading partners. The costly procedures for the operators to comply with regulatory requirements and restriction tends to be in favor of middle-income developing countries and give new exporting countries only very selective and limited access to enter international trade.
Changing Consumption Trend and Consumer Demand
The tropical fruit industry needs to retain the number of loyal consumers who have now moved into the middle and upper income brackets. The industry also needs to expand to new markets with a new consumer group with varying income levels in both the developed and the developing countries. In addition, recent global economic downturn, falling prices, increased competition among producers, and increased market concentration in favor of supermarkets, have all resulted in a swift of market power in a supply chain that was producer driven, to one that is driven by consumer and their proxy retailer -- a change that has a negative impact on the levels of returns to the producers and exporters. This has created new opportunities for new companies and pressured some rethinking among existing companies to concentrate their efforts on the core business and move toward more vertical supply chain coordination, in order to improve the overall quality dimensions of the product perceived by the market. The bottom line is to capture the hearts and minds of the consumer.
Emerging New Suppliers and Markets
The expansion of the EU to integrate several countries producing fresh products (Greece, Portugal and Spain) has significantly affected the horticultural exports of developing countries because these members are substantial producers and exporters of horticultural products. The questions facing the non-EU producers are the long-run trends in export supply in and out of the EU by these countries and those that are also potential suppliers to US, Japan and other developing countries in relative competitions with other non-EU member suppliers. The enlargement of EU to include these countries has resulted in the adoption of export standards to EU from one of lenient in the past to one of the strictest.
New emerging suppliers and markets in the region are the result of China and Taiwan's entry into the WTO. China has achieved an outstanding annual horticultural growth rate of 20% per year and that has transformed the country from the fourth largest producer at the start of the decade into the world's largest producer of fruit and vegetables. China has significantly increased its production of the most widely sold varieties of fruit at the international level, namely banana (13% growth per year), oranges (7% per year), apples (26% per year), pears (14% per year), and peaches (15% per year). This suggests that it has adopted a strategy of supplying the world, and as China's productions meet the regulatory requirements of importing countries and the quality/price expectation of the consumers, it will become an exporting giant. Opportunities still exist at present as China experiences increased purchasing power and improved standard of living. Thailand has gained an impressive market share of fresh fruit and vegetables imported into China in recent years, mainly tropical fruits such as durian, longan and lychee. A very significant percentage of China's fruit imports are via Hong Kong's reexport trade. During the last 5 years (1996-2000), some 250,000 tons of fresh fruits were reexported annually to China representing about 25% to 29% of fruit imported to Hong Kong. Thai fresh fruits such as durian, longan and lychee which constitute 80%, 74%, and 58%, respectively of Hong Kong's total imports of these items in 2000, were exported to China. Demand for longans in China shows maturation for the past years with an annual growth rate of 6% as a result of China's own longan production, in comparison with durian with an annual growth rate of 94% for the past 5 years. Taiwan's recent economic downturn resulting in falling price and increasing strict sanitary and phytosanitary measures have seriously affected Thailand's export prospects into that country.
Better Demand-Driven Information Intelligence
There is an increasing trend for large majority fresh produce wherein importers source their products by purchasing them directly from foreign grower/shippers. The interest of modern trade store has resulted in the growing interrelation between domestic and international market standards and a concentration of market power in the hands of the retail stores. Another trend is the increasing demand of suppliers in the exporting countries in terms of quality, quantity, delivery times, and efficiency leading to falling in price in the importing countries and a reduction in the profit margins of intermediary agents and producers. As sourcing by chain stores become global, the potential for targeted marketing strategy to replace mass marketing with the aid of information technology based on better demand information and to share the communication will increase. The quality of tropical produce in the modern retail chains remains mixed and differs widely from poor to excellent.
Increased Share in Trade of Domestic Market
The retail sector represents about 16% of Thailand's Gross Domestic Product (GDP), and modern trade retailers, concentrating in Bangkok and suburban areas, account for more than 54% of total retail sales. Supermarkets and modern retail chains are gaining market share of fresh produce from traditional wet market distribution systems such as wholesalers, street markets and small stores in many countries' domestic market. These new stores have emerged to challenge the traditional practice and established status quo of the existing central commodity-based wholesalers. Nowadays, almost all supermarkets place their produce department prominently in the front of the store. The large size of supermarkets permits greater produce diversity, better quality, and convenience required by the time-pressed consumers. While fruit is still sold predominantly whole, fresh vegetables for supermarkets are sold in branded small consumer packs. An increasing attraction is the offering of more imports, more new varieties, branded products, specialty leafy greens, sprouts, the ready-to-eat hot meal to eat at home and herbal/health foods and other food services including bakery, drinks, and dairy products. Innovative marketing strategy, technology, and R&D will play an increasing important role.
Future Focus of Postharvest Technology
The traditional goals of postharvest technology are to improve handling system with emphasis on postharvest treatments including storage, packaging and transportation to maintain quality and reduce losses of products between the field and the ultimate destination. The postharvest technology has increasingly become vital in the supply chain management. The medium and long-term challenges are that postharvest technology should be more viable to enhance the value chain and to cope with the changing market environments. Following are the new roles of postharvest technology:
- To meet the demand-driven legality, safety, and quality requirements;
- To provide mechanisms for combating non-tariff trade barriers and market access;
- Postharvest technology and quality management system integration in supply chain management;
- Shift to appropriate technologies to serve the modern trade stores and global sourcing by multinational retail chain;
- Targeted/focused technologies to meet the challenge of emerging new supplies and the requirement of the new markets.
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- The Caribbean Tropical Fruits Newsletter. 2003. The Caribbean fruit industry - towards the new millennium. 1p.
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Index of Images
Table 1 Production of Tropical Fruits
Table 2 Exports of Fresh Tropical Fruits
Table 3 Leading Producers and Exporters, by Variety of Fruit
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