What the Fruit? Globalization in the Fruit Industry

Fresh fruits have become one of the most globalized products within the agricultural sector.  The trend in globalization has been increasing by many factors such as improvements in transportation, changes in middle-class income, and shifts in dietary habits.  It is estimated that roughly 10 percent of the world’s production of fruits are traded internationally,  and is growing at an annual average rate of 3% in the last ten years.

Deficit in the U.S. Market

It may be obvious to anyone shopping for fresh fruit in an American supermarket that most of fresh fruit on display comes from foreign farms.  To which the extent may be surprising: more than half of all fresh fruit consumed in the U.S. is imported from other countries.   In fact, over the last decade, there has been a growing U.S. trade deficit in fresh fruits and vegetables. According to one report in 2015, exports totaled more than $6 billion, while imports totaled nearly $18 billion. The result is a deficit of $11 billion and fruit imports from other countries are continuing to rise.

According to the U.S. Agricultural Departments Economic Research service, the proportion of the fresh fruit eating in the U.S. has risen from 23 percent in 1975 to 53 percent in 2016.  Several factors in the U.S. are at play that have contributed to the rising demand for fruits and vegetables.  However, they also contribute to the rising deficit.

Influence of Consumer Lifestyles

One explanation for the increase in fruit consumption is the growth in American income.  As more Americans achieve higher educational attainment, there is accompanying higher income, which brings better dietary knowledge. The result is greater consumption of fresh produce year-round.   Change in consumer lifestyles also leads to an increase in fresh fruit demand seen by shifting dietary habits.  Many consumer diets exclude animal products, such as veganism, which cause greater demand for fruits and vegetables. Consumer choices are expanding to include new special varieties of fruit, which also plays a role in increasing demand and is directly related to international trade and imports.  However, the import boom is advantageous for U.S. consumers as the availability and variety of fresh produce increases.

As consumer demand for fruits and vegetables has grown, consumers have become accustomed to availability of certain fruits year round. This is especially applicable in winter, when import countries provide fruits and vegetables off-season to production in the United States.  Most counter-seasonal trade occurs between the northern and southern hemisphere countries because they often tend to have opposite production cycles. Although the long-distance trade of fresh fruits is highly complex, improvements in transportation and refrigeration have made it easier to ship these fresh products.

Advantage of Trade Agreements

The deficit in fresh fruit trade can also be attributed to trade tariffs. Lower tariffs on U.S. fruit and vegetable imports combined with relatively higher tariffs on U.S. exports into other countries, in part, may explain why U.S. export growth has not kept pace with import growth. The U.S. Department of Agriculture reports that the global average tariff for fruits and vegetables is more than 50% of the import value.

Most of the leading import suppliers of fruits and vegetables to the United States are granted trade preferences under an existing free trade agreement (Canada and Mexico, Australia, Chile, Peru, and several Central American and some Middle Eastern nations), pending or negotiated free trade agreements, or other types of preferential arrangements (Argentina, Brazil, Ecuador, Thailand).  These allow the imports to the U.S. to enter duty-free or at reduced rates, which may contribute to the rapid import growth. Some of these countries have a lower cost of producing or packaging the fruit compared to producers in the United States.  Farm labor costs in the U.S. are generally high and account for 42 percent of the variable production expenses for fruit and vegetable farms.

Many of the countries that are part of the trade preference program import products like bananas and tropical fruits.  These fruits often are in limited supply or are provided off-season to production in the United States.  However, there is growing concern that these imports directly compete with the domestic fruit produced in the United States throughout the year.

 

Patrick McMahon