Exporting High-Value Food Commodities: Success Stories from Developing Countries (WB, 1993, 119 p.): III. Synthesis high-value food commodity system ''Success stories'': International market environment

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

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

		(introduction...)
		Selected dimensions of commodity systems performance
		International market environment
		Macroeconomic conditions. human capital. and infrastructure
		Government support and interventions
		Commodity system organization coordination

International market environment

3.20 For most of the commodities covered by our case studies, world market conditions have been very favorable, either during the initial years when the focal industry experienced a rapid growth in trade or over a more extended period covering several decades. Favorable trends in world trade and in world prices for these commodities have been sparked not only by rising incomes, relatively high income-elasticities of demand, increased health consciousness, and demand for dietary diversity, but also by product and distribution system innovations which have both enhanced demand and increased value added.

3.21 In many of our focal cases, demand for the commodity (s) in industrialized countries was well-established long before the developing country 'success stories' entered international markets on an significant scale. Consumers were familiar with the products, while the physical and other infrastructure for imports and for market distribution were already well developed. The focal industries built upon this base, either enlarging the market in size or seasonality or replacing traditional domestic and/or international suppliers. The costs for market entry and development for these low/middle-income country sub-sectors were considerably lower than would have been the case if they were promoting consumption or use of a non-traditional or exotic commodity. While several of the focal sub-sectors did encounter protectionist moves by producers in foreign markets to limit imports, the focal sub-sectors were generally able to cultivate allies among the food manufacturers and/or distributors in such markets to stave off protectionist measures.

3.22 The generally favorable world market conditions are summarized in Tables 10 and 11 below. Table 10 compares the average growth rates in world imports for the case study commodities with those of more traditional tropical food and beverage products exported by many developing countries. The majority of our focal commodities featured world import growth of more than 4.0% per year over the 1970-88 period. Annual trade growth has exceeded 7.5% for fresh vegetables, frozen concentrated orange juice, poultry, crustaceans (e.g. shrimp, crabs, lobster), and canned tuna over this period. Trade growth for fresh tomatoes and citrus fruits has been considerably slower since 1970, although there was rapid growth in trade during the 1950s and 1960s when the focal commodity systems experienced their initial or secondary trade booms. In comparison, the growth rate for world imports of many traditional beverage and tropical food crops has been generally in the range of only 1 3%.

Table 10: AVERAGE ANNUAL RATE OF CHANGE IN WORLD IMPORTS 1970 TO 1988

Case Study Commodities		Comparison Commodities
Fresh Tomatoes	2.5	Bananas	1.2
Fresh Vegetables	7.6^a	Coffee	1.4
Processed Tomato Products	6.0	Tea	2.1
Major Temperate Fruits^b	3.0	Cocoa	3.1
Fresh Citrus Fruit	1.4	Sugar	1.7
Frozen Conc. Orange Juice	11.6	Groundnut Oil	-1.5
Beef and Veal	4.0	Rice	2.9
Poultry (meat)	8.8	Copra Oil	0.9
Fresh Fish	5.4^c
Crustaceans (Shrimp, Crabs, etc.)	8.1^d
Canned Tuna	15.3^e
Whole Soybeans	4.3
Soybean Meal	6.8
Soybean Oil	6.1

^a World exports, 1965-85
^b Grapes, axles, peers, peaches, and nectarines.
^cExport volumes of LDCs, 1971-88
^d197086
^e1980-89
Sources:
- World Bank Economic and Social Database FAO Fisheries Commodity Statistics FAO Trade Tape
- World Bank (1990) Price Prospects for Major Primary Commodities 1990 - 1995; and Islam (1990)

3.23 Table 11 provides indices of representative world prices for many of the case study commodities and for all major food commodities combined. With the exceptions of soybeans and soybean meal (whose nominal prices have been relatively flat since the late 1970s), each of the case study commodities has featured better long-term price trends than the aggregate food commodity category. World price trends for grapes, oranges, and FCOJ have been especially favorable.

3.24 While the case study sub-sectors have taken advantage of favorable long-term market trends, they have also benefitted from shorter term market vacuums created when previous suppliers of the commodities (or of traceable substitutes) suffered from adverse weather conditions, plant or animal disease, a reduction in productivity and/or restrictive trade measures imposed by governments. The rapidity and/or scale in which the focal commodity systems responded to these new market opportunities is what makes them especially distinctive. Examples of these market vacuums (and their beneficiaries) included:

a) the under-supply of the U.S. fresh tomato market in the early 1960s (and later) due to the trade embargo placed on Cuba and periodic frosts in Florida. This provided opportunities for Mexico and other Latin American countries to supply the 'off-season' winter market, yet it was Mexico which became the dominant player in this market.
b) the under-supply of the world and U.S. markets for frozen concentrated orange juice in 1977 and again in the early-to-mid-1980s due to damaging frosts in Florida. This provided market opportunities to existing or new FCOJ producers, yet Brazil would assume a dominant share of world trade within five to ten years of initial major investments in processing facilities.
c) the under-supply of the world market for livestock feeds during the early 1970s due to the rapid decline of the Peruvian anchovy catch and the short-term U.S. embargo on soybean exports. Brazil was among the first countries to respond to this market opportunity and Brazil and Argentina would eventually account for large shares of the growing international market.
d) the under-supply of the U.S. processed tomato market in the late 1980s following the imposition of a punitive tariff of 100 % of canned tomato products from EEC countries. While several countries responded to this market opportunity (including Mexico, Israel, Turkey, and others), the growth in Chile's trade was the most sudden and substantial.
e) the under-supply of the U.S. and Japanese shrimp markets during the mid-to-late-1980s with the slowdown of production and trade from Latin America and with the collapse of the Taiwanese shrimp industry due to disease and pollution. This provided a stimulus for shrimp cultivation throughout Asia, although the Chinese and Thai industries have been the most successful.

Table 11: Indices of World Prices For Case Study Commodities (Based on Current Prices; Period Averages with 1972-74 = 100)

Commodity	1972-74	1976-78	1982-84	1986-88
All Foods Commodities^a	100	151	147	135
Fresh Tomatoes^b	100	133	218	198
Tomato Paste^c	100	128	141	154
Table Grapes^d	100	158	201	259
Oranges^e	100	151	219	257
F.C. Orange Juice^f	100	147	243	237
Beef^g	100	103	140	138
Poultry^h	100	131	151	159
Shrimpⁱ	N.A.	100	142	154
Canned Tunaⁱ	N.A.	100	110	107
Soybeansⁱ	100	110	114	103
Soybean Meal^k	100	104	106	102

^a Weighted index of major beverages, cereals, and other foods (World Bank 1991).
^b Unit values for U.S. imports FAO Trade Yearbooks)
^c Unit values for world imports (World Bank Economic and Social Data Base)
^d Unit values for world imports FAO Trade Yearbooks)
^e EEC Indicative Import Price for Mediterranean Navel Oranges (World Bank 1991).
^f Unit values (f.o.b) for Brazilian exports (Braga and Silber 1°,91)
^g U.S. imported frozen boneless (World Bank 1991)
^h Unit values for Japanese chicken meat import (World Bank 1991)
ⁱ Unit values for world imports (FAO Fisheries Commodity Statistics); 1976-78 =100
^j U.S. exports c.i.f. Rotterdam (World Bank 1°.91)
^k U.S. exports c.i.f. Rotterdam (World Bank 19.°1)

3.25 It was not only a favorable international market environment which provided a boost to the development of the focal commodity subsectors. In the majority of cases, the development of a large domestic market for the fresh or processed product either preceded or paralleled the development of exports. Significant domestic market experience was obtained prior to exports in the cases of Kenyan vegetables, Thai poultry, Thai shrimp, and Taiwanese livestock and fruit and vegetable products, and paralleled export development in the cases of Mexican fresh tomato, Brazilian and Argentine soybeans, Argentine beef, and PRC shrimp. While the Mexican tomato, Argentine beef, and PRC shrimp sub-sectors were initially primarily export-oriented, one-half or more of production is now directed to the domestic market where per capita or total consumption levels are among the highest in the world Local market development provided an arena for 'learning by doing' before entering international markets, enabled producers and marketing enterprises to spread their market risks, and facilitated fuller use of raw materials as some grades of produce or animal/fish parts could be directed to the local market while premium grades or choice parts could be channeled to export markets.