Exporting High-Value Food Commodities: Success Stories from Developing Countries (WB, 1993, 119 p.): III. Synthesis high-value food commodity system ''Success stories'': Selected dimensions of commodity systems performance: Cost advantages and product/service differentiation

Exporting High-Value Food Commodities: Success Stories from Developing Countries (WB, 1993, 119 p.)

III. Synthesis high-value food commodity system ''Success stories''

Selected dimensions of commodity systems performance

		(introduction...)
		Cost advantages and product/service differentiation
		Additional performance indicators

Cost advantages and product/service differentiation

3.12 As noted earlier, the international competitiveness of a commodity system can stem either from a) lower costs of production and delivery or b) product differentiation. Table 9 below summarizes the major source(s) of competitive advantage in the focal cases and indicates where a shift in competitive strategy has taken place. Where the commodity system has had both a cost advantage and a differentiated product, an asterisk (*) indicates the most important factor in competitive success. The table also indicates cases in which international market penetration and trade expansion have been aided by 'off-season' or other complementary supply patterns.

Table 9: Sources of Competitive Advantage for Commodity

Commodity System	Low Cost Advantage	Product 90a/or Service Differentiation	Counter Seasonality of Supply	Shift in Source/Strategy Of Compet. Advantage
Mexico Tomatoes	Production*	Vine Ripe Tomatoes	Very Important
Kenya Vegetables	Production	Broad Product Range*	Historically Important
			Although Less So Today
Chile Temperate Fruit	Production		Very Important
Israel Fresh Citrus		Broad Range/Brand Name	Important	Shift from 'commodity'
Processed Citrus		Tailor-made Products		supplier to supplier of niche and technology supported products
Chile Tomato Paste	Production		Important
Brazil FCOJ	Production*	Bulk Transport and Tank
		Farm Distribution
Argentina Beef	Production
Canned Meat	Production	High-Quality Products*
Thailand Poultry	Production and Processing	Special Cuts of Meat*
Chile Fish/Products	Production			Initial shift from low-cost to differentiated supplier
Thailand Tuna	Processing
Thailand Shrimp	Production	Range of Value-added Products*		Emerging shift from low cost to differentiated supplier
China Shrimp	Production and Processing
Taiwan (China) Food Processing		Tailor-Made and High- Quality Products		Completed Shift from low-cost to differentiated supplier
Argentina Soybeans and Soybean Products	Production and Processing
Brazil Soybeans and Soybean Products	Production*	Higher Oil Content Bringing Premium Prices	Important

3.13 The table indicates that the majority of these sub-sectors have incurred lower production costs than faced by many major competitors. Such lower production costs have been the result of different combinations of relatively low labor and land costs, availability of inexpensive inputs (e.g. feeds), government-built or subsidized infrastructure, and/or favorable yields (See Box 2). These production cost advantages have off-set the generally higher processing, packaging, and transport costs incurred in these subsectors. Few of the focal sub-sectors have achieved especially low processing costs, in part due to the common pattern of capacity underutilization in processing. Relatively high (international) transport costs has lowered profitability and/or the competitiveness of the Mexican tomato, Kenyan vegetable, Israeli citrus, and Brazilian soybean subsectors (See Box 2).

Box 2: Favorable Yields Contribute to Competitiveness

Several of the focal commodity systems have achieved production yields and/or yield gains which exceed those achieved by major developing and industrialized country competitors. In the case of cultured shrimp production, China and Thailand have achieved yields and yield gains well above those of competing Asian countries. For soybeans, Argentina and Brazil have achieved average yields comparable to those of the United States (e.g. 2.16 tons/Ha.) and higher than those of other major developing country producers. For grapes, productivity gains by Chile over the past decade led it to match or surpass the average yields obtained by major Southern Hemisphere competitors.

Cultured Shrimp Yields	(Kgs./Hectare)		Soybean Yields	(Tons/Hectare)	Grape Yields	(Tons/Hectare)
	1984	1987		(1985-90 Ave.)		1979-81	1989-91
China	578	1167	Argentina	2.06	Chile	9.02	9.73
Thailand	353	600	Brazil	1.76	S. Afr.	10.69	9.75
India	360	394	Paraguay	1.66	Argentina	9.69	9.47
Indonesia	142	209	China	1.39	World	7.00	6.9 7
(Aquatic Farms (1989)	(USDA (1992))	(FAO Production Yearbooks)

3.14 Several commodity systems, either initially or more recently, have sought to compete in international markets by differentiating their products or the marketing services accompanying these products. This has included efforts to provide especially high-quality products, products designed to meet special manufacturer requirements or consumer tastes, a broad range of related products, and special distribution services. In this regard, the Taiwanese food processing industry is especially interesting as it has successfully adapted to rising labor and raw material costs by improving product quality, developing new value-added products (e.g. shifting from primarily canned foods to frozen and prepared foods), and targeting its exports to higher price market segments. The Thai poultry and shrimp industries have followed a similar path in recent years. In the latter, many new value-added products have been developed to cater to Japanese demand. In several cases, lower labor costs have contributed to the achievement of higher quality or more preferred product forms, as with vine-ripened tomatoes from Mexico, 'extra-fine' Kenyan french beans, and Thai de-boned poultry products. In only one of the focal cases, that of Israeli fresh citrus fruit, has a national brand name been effectively used for product differentiation.

BOX 3: Comparative costs of Production, Packing, and Distribution: Mexican vs. Florida Tomatoes for the U.S. Market

The table below compares the costs of production, packing, and distribution of Mexican (Sinaloa) and Florida fresh tomatoes. Due to far lower labor costs and less intensive use of fertilizers, chemicals, and machinery, the per acre costs of pre-harvest production are less than half in Mexico: than in Florida. A large part of this cost differential is countered by Florida's superior yields. Nevertheless, total pre-harvest costs per 25lb. carton are $2.75 for Mexico vs. $3.41 far Florida. In harvesting and post-harvest handling, grading, and packing Mexico's cost advantage is extended further as a result of lower labor costs. Such cost advantages more than compensate: for higher costs for containers and sales commissions. Most of Mexico's cost advantage for sales within the U.S. market is cancelled out by the combination of transport costs to the border, U.S. import duties, and other border fees. As a result of these added costs, Mexican: tomatoes are cost competitive with those of Florida only: in the western half of the United States. Most U.S.: :imports of Mexican tomatoes ate marketed on the: west coast and in the southwest.

Comparative Production and Distribution Costs Per Acre and Per 25 lb. Carton

	Sinaloa	Florida
Pre-Harvest Costs
Seeds:	$145.71	$293.87
Fertilizer	$177.46	$309.67
Agro-Chemicals	$214.28	$785.37
Labor	$373 14	$829 24
Machinery	$131.17	$812 62
Interest	$299.78	$165,87
Land Rent	$175 44	$298.44
Overhead/Misc.	$489 38	$1226.54
Total Cost/Acre	$2006.36	$472:1.63
Average Yield
(25 lb. Canons)	729	1385
Sub-Total Cost/Unit	$2.75	$3.41
Harvest/Pack/Sales Costs
Hanfest/Haul	$0.36	$0.84
Grading/Packing	$0.28	$1.77
Containers	$0.88	$0.67
Selling + Miscellaneous	$0.91	$0.15
Sub-total costs	$2.43	$3.43
Transport/Border Costs
Freight to Border	$0.67
U.S. Import Duty	$0.38
Sub-total	$1.35
Total Cost	$6.53	$6.84

Source: Cook et al. (1991), p.. 281.