Mechel S. Paggi Director, Center for Agricultural Business California State University, Fresno
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Transcript of Mechel S. Paggi Director, Center for Agricultural Business California State University, Fresno
Mechel S. PaggiDirector, Center for Agricultural Business
California State University, Fresno
Supply Chains for Food Trade in Asia: Implicationsfor U.S. Farm Policy*
* This presentation was prepared in collaboration with Dr. Tom Reardon, Professor, Michigan State University and Dr. Tom Wahl, Professor and Department Chairman, North Dakota State University basedon ongoing research funded by the California Department of Agriculture.
Domestic and TradeImpacts of U.S. Farm Policy:
Future Directions and Challenges
November 16, 2007Washington, D.C.
IntroductionIntroduction Dynamics of the Asian Dynamics of the Asian
Food Supply ChainFood Supply Chain
Linkages to U.S. Farm Policy?Linkages to U.S. Farm Policy?&&
Thoughts on the FutureThoughts on the Future
Reality of the PresentReality of the Present&&
Promises Promises For the FutureFor the Future
Asia is a Big Market&
Asia is where the Money and People Will Be in the Near Future
Rapidly Shifting Nature of Asian Food Economy … almost defies description
Markets
Flourishing
[Shenzhen in 1980 and 2000, S. China borer Hong Kong]
Urbanizing
Industrializing
Westernizing
1.3 billion People1.3 billion People Biggest consumption push will come over the next 20 years Biggest consumption push will come over the next 20 years when hundreds of millions of rural residents migrate to the citywhen hundreds of millions of rural residents migrate to the city
Huge Market Potential
Overall Increase in Off-farm WorkOverall Increase in Off-farm Work
0%
20%
40%
60%
80%
100%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
off-farm busy season part time farm only
2004
More than 150 million people shifted to the off farm sector between 1980 and 2004
Off farm Employment
2015
200019901980
>150 mil
Rozelle, Jikun, Reardon, et. al survey 2005
1.3 billion800 million rural
200 million farmers
China Rural To Urban Migration
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Bill
ion
Total Population
Rural Population
Urban Population
Sources: Gilmour and Cheng (2004) Personal Calculations, China National Bureau of Statistics, and Population Division of the Department of Economic and Social Affairs of the United Nations.
Urban Household Food Expenditure by Catetogy Share
0%10%20%30%40%50%60%70%80%90%
100%Eating-outBeverage & LiquorsBread & ConfectionerySeasoned FoodsFruitsVegetables & Sea WeedsFishes & ShellfishesDairy Product sMeatGrain
Korea
The Food Market Place is Changing The Food Market Place is Changing To Accommodate the Changing To Accommodate the Changing
Consumers Consumers
Korean Food Retail MarketKorean Food Retail Market (Food share in sales)(Food share in sales) (Fresh Produce share in sales)(Fresh Produce share in sales)
Supermarket (80%) Supermarket (80%) (35%)(35%) Supercenter (40-50%) Supercenter (40-50%) (20-25%)(20-25%)
• Large-scale food discounter storeLarge-scale food discounter store• E-mart, LotteMart, HomePlus, Wal-Mart E-mart, LotteMart, HomePlus, Wal-Mart
Supercenter, CarrefourSupercenter, Carrefour Convenience Store (80%)Convenience Store (80%)
• Seven Eleven, LG25Seven Eleven, LG25 Department Store (20%)Department Store (20%)
• In Korea, Department Stores have a In Korea, Department Stores have a supermarket in basement floor.supermarket in basement floor.
Mom and Pop Store (80%)Mom and Pop Store (80%) Traditional Market(Wet Market)Traditional Market(Wet Market)
Share of Consumer Purchase Channel by Product (Based on the amount; January to June 2004)
Source : AC Nielsen, 2004
Korea
The volume of retail sales of Supermarkets in The volume of retail sales of Supermarkets in
China 12 large citiesChina 12 large cities CityCity
Total volume of Total volume of retail sales retail sales
(100 million (100 million yuanyuan ))
Total amount of Total amount of sales of sales of
supermarketsupermarketss ( ( 100 100 million yuan million yuan ))
Proportion of Proportion of supermarksupermarketsets (%)(%)
No. of stores No. of stores of of
supermarsupermarketket
ShanghaiShanghai 2368 2368 896 896 37.8 37.8 1022010220
BeijingBeijing 2112 2112 616 616 29.2 29.2 50005000
TianjinTianjin 1016 1016 240 240 23.6 23.6 ChongqingChongqing 920 920 200 200 21.7 21.7 30003000
Qingdao Qingdao 584 584 168 168 28.8 28.8 37853785
ShenyangShenyang 776 776 208 208 26.8 26.8 40004000
WuhanWuhan 928 928 240 240 25.9 25.9 23502350
SuzhouSuzhou 600 600 96 96 16.0 16.0 10931093
NingboNingbo 576 576 136 136 23.6 23.6 TaiyuanTaiyuan 216 216 48 48 22.2 22.2 HangzhouHangzhou 680 680 120 120 17.6 17.6 12221222
YantaiYantai 424 424 56 56 13.2 13.2 14001400
HarbinHarbin 680 680 32 32 4.7 4.7 253253
Fi g. 1 The sal es and stores of Supermarket Chai n wi thi n of100 top retal compani es 2001 2006( - )
0.0
20.0
40.0
60.0
80.0
100.0
2001 2002 2003 2004 2005 2006
Sale
s (b
illi
on U
S$)
0
1000020000
30000
4000050000
60000
Numb
r of
sto
re
Total Sal es Number of stores
The FDI supermarkets have entered into China’s marketThe FDI supermarkets have entered into China’s market
YearYear Name of CompanyName of Company CountryCountry Place of first Place of first SupermarkeSupermarkett
19911991 Yohan Yohan JapanJapan ShanghaiShanghai
19921992 7-Eleven 7-Eleven JapanJapan ShenzhenShenzhen
19951995 CarrefourCarrefour FranceFrance ShanghaiShanghai
19961996 MetroMetro GermanyGermany ShanghaiShanghai
19961996 Wal-MartWal-Mart USAUSA ShenzhenShenzhen
19971997 Lotus Super CenterLotus Super Center ThailandThailand ShanghaiShanghai
19981998 Ito YokadoIto Yokado JapanJapan BeijingBeijing
19991999 AuchanAuchan FranceFrance ShanghaiShanghai
Sal es and Store Number of FDI Supermarket i nChi na
0. 02. 04. 06. 08. 0
10. 012. 014. 016. 018. 0
2001 2002 2003 2004 2005 2006
Bill
ion
US$
050010001500200025003000
ChangingFood
Markets
Increasingly This GrowthIs Helping Fuel Trade
Share of Total Food
0. 0%2. 0%4. 0%6. 0%8. 0%
10. 0%12. 0%14. 0%16. 0%
1 2 3 4 5 6 7 8 2003 2004 2005 2006 2007 2008 2009 2010
Food Imports Becoming More ImportantMetro Estimates of Imports to Supply China
And Increasingly That Trade is Regional
Sourcing From Within the RegionSourcing From Within the RegionMCC China trade flow within Asia countries MCC China trade flow within Asia countries
16%
84%
Countries Share%
Main products
Thailand 24Fruit / Rice / sea Food
Korea 23 Gen. Food
Japan 13 Gen. Food
Philippine 10 Fruit
Singapore 10 Gen. Food
Taiwan 8 beverage
Indonesia 4 Sea Food
Malaysia 2 Gen. Food
Other 6 Gen. Food
Asia imported food share 16% of total MCC China import
Imported fruit
Domestic Fruit
61%
30%
9%
Imported fruit
Asia imported fruit share 9% of total
MCC China import fruit
Countries Share%
Main products
Philippine 53 Banana
Thailand 35 Durian
Vietnam 9 Dragon fr
Taiwan 1 Mango
Japan 1 Apples
Other 1 Pear
Metro C&C Exchange 2008
Countries Main products
India Mango
Pakistan Mango
Sourcing From Within the RegionSourcing From Within the RegionMCC China trade flow within Asia countries MCC China trade flow within Asia countries
Table 10 Japanese Imports of Horticultural Products from Major Countries: 1999 and 2004
Value of imports share in total Value of imports share in total2004 Million $ Percent 1999 Million $ Percent
Suppliers Suppliers China 2,198.53 33.25% China 1,859.49 29.76% United States of America 1,504.86 22.76% United States of America 1,780.16 28.49% Philippines 639.29 9.67% Philippines 497.58 7.96% New Zealand 298.99 4.52% New Zealand 241.97 3.87% Rep. of Korea 249.94 3.78% Rep. of Korea 278.94 4.46% ROW 1,721.45 26.03% ROW 1,589.54 25.44%Total 6,613.06 100.00% Total 6,247.68 100.00%
Source: Extracted from the UNSD Comtrade Database
China Exports Expanding to Important Near By MarketsTaking Markets from U.S. Suppliers
Who are these Folks? Asian Suppliers to this Dynamic Market
& The Corresponding Supply Chain
• Small• Many
• But Changing
China’s Farm StructureChina’s Farm Structure 200,000,000+ million farms200,000,000+ million farms Every rural resident (800,000,000 of them) Every rural resident (800,000,000 of them)
has landhas land Almost all farms are “family farms”Almost all farms are “family farms” Farm size: “1 mu per person”Farm size: “1 mu per person” Average size of vegetable operation Average size of vegetable operation
(about 1/3 of an acre … a big garden!)(about 1/3 of an acre … a big garden!) Few Cooperatives or Farmer AssociationsFew Cooperatives or Farmer Associations
6 mu acre; 15 mu hectare
Diversified Farming OperationChina Scale
42(mandays)Hired Day / ha3.2(US$/day)Wage
Ownership and Control96%(%)Contracted from “collective”4%(%)Rented from other farmer
95%(%)Share of area decided by farmer
312(mandays)Own Labor Days / haLabor
3 crops (horticulture makes up ½)(number)Number of crops
(diversification)
5 plots(number)Distinct Plots0.4 ha (1 acre)(ha)Farm size
Farm Characteristic
The typical fruit growing farm in China, 2005
Rozelle, Jikun, Reardon, et. al survey 2005 6 mu acre; 15 mu hectare
7882(US$) Housing402(US$)Assets: Farm equipment
25(%)Share of household head who has off-farm jobs (self employed)
20(%)Share of HH head who has off-farm jobs (in factory)
(%)Off-farm job
50(%)Share of HH head with ag extension training
7(year)Education of HH headEducation and training
42 (male)(year)Age of HH head4(person)HH size
Household characteristics
The typical fruit growing household in China, 2005
Rozelle, Jikun, Reardon, et. al survey 2005, greater Beijing area
Major Assets
* Same place that has lunar orbiting satellite?
But the Times they are a ChangingBut the Times they are a Changing
Melon Production Under Plastic
The Evolving Supply Chain
Sales Primarily still at point of ProductionSales Primarily still at point of Production(2004)(2004)
0
20
40
60
80
100
WholesaleMkt
PeriodicMkt
Wet Mkt inCity
In theVillage
Note; -- “In the village” = Off the tree + From Home + Road-side
-- Share sold in wet markets in cities down over time
Percent of all purchases
Small Trader-dominated System Small Trader-dominated System (2004)(2004)
0
20
40
60
80
100
Supermarkets
ProcessFirms
SupplyFirms
U-pick SmallTraders
Percent of all purchases
/ coops
Typical Trading “Firm” ArrangementTypical Trading “Firm” Arrangement
Farmer’s field
Small Trader:
Finds seller / contacts trucker / buys with cash
Small Trader -- Partner
Outlets Inside
China’s cities
(>90% private)
Partners: in other villages
Small Trader -- Partner
Small Trader -- Partner
In the city wholesale mktGoing from village to village
Private, “contract” truckersDivision I
Div II
Rozelle, Jikun, Reardon, et. al survey 2005
Small TradersPurchase Product Transfer to Partners in Markets
Some ProductSold Directly
Big WholesaleTo Big BuyersSupermarkets,
Institutions, Military, etc
Smaller Wholesale to Restaurants & Mom and Pops
Metro China HQMetro China HQ
Metro Distribution
Center
Metro Distribution
Center
AgriculturalAssociations
or cooperatives
AgriculturalAssociations
or cooperatives
Logistic company
Store
Store
Store
Store
…
Customer
Customer
ProfessionalCustomer
Customer
Customer
Store
Farmer
Farmer
Farmer
Farmer
…
…
Ministry of Commerce/local
government
Ministry of Commerce/local
government
Agricultural Technical
Station
Agricultural Technical
Station
Subsidy
Food and Drug AdministrationFood and Drug Administration
Third-party QA AgentsThird-party QA Agents
Authorization Entrust
Training
Standard making &Training
Quality control
deal
Domestic/global marketDomestic/global market
Global sourcing system
logistics Information Quality controlInstruction
Working Committee:
-MOFCOM-Local Government
-Metro-Agri-Tech Station
-FDA-Third-Party QA Agents
Working Committee:
-MOFCOM-Local Government
-Metro-Agri-Tech Station
-FDA-Third-Party QA Agents
Reporting
Produce
Quality Control/Pricing
Asian Food Supply Chain Evolution
Metro Cash & CarryWholesaler to Small Retail and Food Service
Asian Food Supply Chain Evolution
Distribution Flow for Fruits and Vegetables in Korea
PRODUCERS
CONSUMERS
APC
Others
Others
Large Vendors
Small Food Retailers
Restaurants
Small Vendors
Regional CommodityProducers Group
• APC : Agricultural Processin Center (mostly operated by regional ag. co-op) • RPC : Rice Processing Center (operated by regional ag co-op or farm related firm) Source : Korea Ministry of Agriculture, 2003
Collecting Agents
Large Food Retailers
Wholesale Market(48.5%)
IAMC(5.4%)
TraditionalWet Market
(29.5%)
Large Food Retailers(SC)
(5.8%)
Direct Sale to Consumers or Retailers
(10.8%)
KoreaGrowth in Number of Super Centers
The Quality Line : Real Quality and Value Image
Taste:Propose good tasting products above market standard
Food safety: Contribute to the
human health and food safety for the consumer by applying the precaution and prevention principle.
No GMO Control the food chain:
from the field to the plate (guide line, control plan and traceability)
Quality/Price:Guarantee the best and stable quality products with an accessible priceRetribute producers according to their work
Authenticity:Preserve and promote the agricultural heritageLook for the best origin Encourage and SupportRegions and Countries where Carrefour is presented
Permanence:Preserve the social, economical and ecological environment
QL project in Carrefour China
Fuji
Veg BJ
Veg SH
Pork DL Beef SH
Litchi99.06
Pomelo02.09 Mandarin
02.12Salmon03.03
Pork03.06
( SH)Pork04.11( BJ)
Pork05.05
(South )Signed Product
7 product
Orange Pork DL Beef SHProduct in trial ( launching in
store )
6 product
Project in developmen
t
8 product
Veg GZ
Veg ShZ
Shrimp Pork
CDPorkKM
PorkShYang
BeefBJ
KIWI
Carrefour Future Supply Chain
Breeder
Slaughtering , Cutting
Transportation
Farming
MeatCarrefour ’s
product
CustomerCustomer
Control
Analyse
Record
Delivery
Sale
SummarySummary Asian Food Supply Chain Developing at a Rapid Asian Food Supply Chain Developing at a Rapid
RateRate Increasing Demand for High Quality (Safe) and Increasing Demand for High Quality (Safe) and
Diversity in Products Diversity in Products Intra Asian Supply Becoming Important in Food Intra Asian Supply Becoming Important in Food
TradeTrade Producers Increasing Quality and Quantity Producers Increasing Quality and Quantity Growth in Consumer Base Has Great Potential for Growth in Consumer Base Has Great Potential for
Higher Valued ProductsHigher Valued Products Global and Regional Food Chains Increasing Global and Regional Food Chains Increasing
Presence in Control of the FlowPresence in Control of the Flow
Linkages to U.S. Farm Policy? Linkages to U.S. Farm Policy?
Does Farm PolicyDoes Farm PolicyEnhance U.S. Agriculture’s Enhance U.S. Agriculture’s
Ability to Benefit from ChangesAbility to Benefit from ChangesIn Asian Food Supply Chain? In Asian Food Supply Chain?
What’s In the Farm Bill ?
What Does Current Policy Contribute? What Does Current Policy Contribute? Commodity Title? Commodity Title?
Cheap inputs for Asian fiber sector: cotton to Cheap inputs for Asian fiber sector: cotton to China, textiles back to U.S.; China, textiles back to U.S.;
Cheap inputs for Asian feed sector: corn and Cheap inputs for Asian feed sector: corn and soybeans for livestock and poultry feed, value soybeans for livestock and poultry feed, value added products in return; added products in return;
Not readily apparent any significant contributionNot readily apparent any significant contribution to U.S. agriculture having increased opportunities to U.S. agriculture having increased opportunities
in growing markets in Asia. in growing markets in Asia.
What Does Current Policy Contribute? What Does Current Policy Contribute?
Horticulture?
Planting Flexibility: no change in either House or Senate version except for pilot program of 10,000 of processing tomatoes in Indiana ( Not much supplySide impact)
Block Grants to States: Could fund efforts to expand access in Asian Markets and/or develop new products, etc. $365 million over 5 years ($73 million/50 = $1.46 million per state) Modest Support by Title I standards Last Time Authorized $44.4 million annually Provided $7 (PL 180-465); Allocated by production %
What Does Current Policy Contribute? What Does Current Policy Contribute?
Other Provisions?
COOL, may create standards that are adopted/required in AsianMarkets.
Export Market Promotion:
HouseSenate
What Does Current Policy Contribute? What Does Current Policy Contribute?
Technical Assistance for Specialty Crops (TASC) Funding to assist in removal of SPS barriers to
U.S. agricultural Exports: Provides Input into StandardsDevelopment Adopted in Asian Supply Chains (Public/Private)
(H) (S)
Does Farm PolicyDoes Farm PolicyEnhance U.S. Agriculture’s Enhance U.S. Agriculture’s
Ability to Benefit from ChangesAbility to Benefit from ChangesIn Asian Food Supply Chain?In Asian Food Supply Chain?
Not Much, Indirectly for the Most Part
What Could We Do if We Should DoAnything?