Demand-driven agricultural diversification in Taiwan (China)

Over the past three decades, Taiwan's agriculture and agro-industry has shifted from one dominated by rice production and marketing to one in which production and domestic and external trade are dominated by high-value horticultural, livestock, and fish products. This shift has been gradual, induced by changes in domestic and international consumption patterns and made feasible by improved production technology and marketing infrastructure and methods. In the face of reduced agricultural labor, rising land and labor costs, and strong international competition in traditional exports, Taiwanese producers, processors, and traders have steadily adjusted and up-graded their product lines so to retain profitability and international competitiveness.

In the domestic market, sustained income growth, urbanization, and westernization have led to a major shift in food consumption patterns away from rice and other traditional starchy foods (e.g. sweet potatoes) and toward greater protein- and vitamin-rich foods such as meats (pork, poultry, beef), fish, dairy products, and fruits and vegetables. With changing work and living patterns, there has also been a rapid increase in demand for convenience or ready-to-eat packaged foods. While changing consumption patterns have resulted in increased food imports (especially of wheat and wheat-based products), Taiwanese agriculture and agro-industry have effectively responded to market changes. The structure of Taiwanese agriculture has changed dramatically. While rice and sweet potatoes accounted for 51 % of the value of agricultural production in 1960, their share was just 17 % in 1988. In contrast, the share of fruit and vegetables increased from only 7% to 31%, while that of livestock products increased from 25% to 39%.

While their value has steadily increased, the share of agricultural exports in Taiwan's total merchandise exports has declined from 71 % in 1960 to less than 10% during the 1980s. Over this period, the commodity mix of Taiwan's agricultural exports has completely changed, as Table A4 indicates. In 1960, such exports were dominated by sugar, with canned pineapples and bananas also being important. A decade later, these three items still accounted for nearly a third of agricultural exports, although Taiwan (China) would soon lose its competitiveness in the Japanese market (and later in the domestic market) for both bananas and canned pineapple. Rapidly advancing were exports of canned vegetables, especially mushrooms and asparagus. By 1980, nearly 60% of agricultural exports would be accounted for by canned vegetables and a rapidly expanding fresh/processed fish industry led by shrimp aquaculture. Taiwan (China) would soon lose its competitive position for canned mushrooms and asparagus (to China, Thailand, and others) and would experience a collapse of its shrimp industry due to problems of disease and pollution. Nevertheless, during the 1980s, the country experienced a boom in its exports of hogs and pork products, of other canned vegetables, and especially, of fish and fish products. Eel products replaced shrimp as the leading fish export with recent exports exceeding $450 million/year.

Among recent trends has been a significant rise in frozen food exports, including fish, meat, and vegetable products as well as prepared meals with very high value added and catered to particular market niches. With growing international competition in the canned foods market, the move into frozen and prepared foods (together with Taiwanese investments in East and Southeast Asia) represents a market-driven response by Taiwanese processors to remain viable. It is in this sector where the Taiwanese can best take advantage of their modern processing facilities, strong quality control, many trained technicians, and strong business ties with Japan, while compensating for rising labor and raw material costs.

Table A4: The Composition of Taiwan's Agricultural Exports, 1960-89 (US $ Million)

Source: Basic Agricultural Statistics, Council of Agriculture, Republic of China, cited in Mao (1991, p.38)

While the major shift in agricultural production, processing, and trading was largely carried out by private farmers, cooperatives, and companies, the Taiwanese government has provided significant financial and technical support. For example, a government program initiated in the 1960s provided financial support to farmers wishing to shift out of rice production. This, together with government research and extension programs contributed to the development of shrimp and other aquaculture production. Another 1960s program provided support for hog/pork production and marketing via production credit, technical assistance, a price guarantee system, and support for cooperative marketing. Joint government and private efforts later led to the development of an efficient electronic/computer hog auction system. Cooperatives and farmer associations received subsidies for investments in marketing facilities. This, together with a government-sponsored market information system, would have an important bearing on the development of an efficient system of cooperative marketing for fruits and vegetables within the country. A government food technology institute played an important role in spreading the technologies for food canning in the 1950s and 1960s, although food processing R&D subsequently became a major activity for the processors themselves. Although direct government subsidies in the emergent food industries were generally low compared with those for rice, sugar, and other traditional crops, the government did provide a subsidy for machinery used in processing and a large subsidy on fuel for fishing vessels.

Taiwan's efficient food processing industry has featured several hundred small-to-medium-scale companies and a more limited number of larger firms. Most processors have handling many individual commodities cutting across particular sub-sectors. Hence, many vegetable canners have added pork and/or fish products to their product lines so as to increase capacity utilization and diversify sales. Experienced management, a well-developed food processing machinery industry, large numbers of trained technicians, and very close business ties with Japanese firms have contributed to the high productivity, process and product innovation, and flexibility of many such firms. Taiwan's political and macroeconomic stability has enabled such firms to adopt a long-term, market-oriented perspective. Even as agriculture's role in Taiwan's economy continues to shrink (to only 5 % of GDP in 1988), that of food processing and marketing has remained important, accounting for about 12% of manufactured GDP and 11% of total employment in recent years.

Of course, Taiwan's agro-industrial experience has not been devoid of problems. Noted earlier were the technical/environmental problems experienced in the shrimp aquaculture industry which led to its eventual collapse. The development of a large hog/pork industry has resulted in severe pollution problems, whose costs, if internalized by producers and processors, might render the industry unprofitable. Rising land and labor costs have led several Taiwanese firms to take their experience and accumulated capital and to invest in food processing operations in China and in Southeast Asia where both labor and raw materials are less expensive.