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NAFTA Swells U.S. Horticultural Product Profits
By Samuel Rosa, Ingrid Mohn and Steven Shnitzler
NAFTA has been a good deal
for U.S. horticultural producers and exporters. Of all U.S.
agricultural export sectors, horticultural products experienced
some of the strongest gains just before and after NAFTA’s
enactment. Today, the early promise of that growth is being
realized.
NAFTA took effect on January 1, 1994, and incorporated provisions of the 1989 U.S.-Canada Free Trade Agreement (CFTA). As its guiding principle, NAFTA calls for the elimination of trade barriers among the United States, Canada and Mexico.
The phasing out of trade restrictions is creating new and expanded market opportunities for U.S. horticultural farmers and exporters. Canada and Mexico are the first- and fifth-largest markets for U.S. horticultural exports.
In 1993, U.S. horticultural exports to Canada and Mexico totaled $2.8 billion. By 1997, after 4 years of NAFTA, our sales had jumped by more than 20 percent to $3.5 billion. In 1998, exports continued their strong performance, reaching $1.8 billion for January-June, up 9 percent from the same period the year before.
U.S. exports of fresh and processed fruits and vegetables, tree nuts and wine have all shown gains that can be attributed partly to NAFTA accomplishments, such as lower tariffs, the elimination of import licenses and a more transparent business environment.
Fresh produce makes up more than 40 percent of all U.S. horticultural sales to Canada and Mexico. Apples, pears, table grapes, lettuce, tomatoes and potatoes are some of the top earners. Nearly one-fifth of the U.S. pear crop goes to our two NAFTA partners, translating into significant gains for Washington and Oregon, the leading pear producing and exporting states.
Under NAFTA, all agricultural tariffs will be phased out over 5-, 10- or 15-year periods. However, the agreement does provide special safeguards for horticultural products considered especially sensitive to import competition, such as particular fresh and processed fruits and vegetables. For example, "snapback" most-favored-nation tariff rates apply to asparagus if certain price and acreage conditions prevail. NAFTA also includes tough rules of origin to ensure that its benefits accrue only to the signatories.
Canada’s Market Growing Strong
Canada continues to be the No. 1 customer for U.S. horticultural exports, and sales have risen steadily under NAFTA. U.S. sales to this country alone approached $3 billion in 1997, compared with $2 billion before the agreement.
Fresh fruits and vegetables account for almost half of all U.S. sales. The United States supplies Canada with more than 60 percent of its fresh fruit imports (except for bananas) and more than 80 percent of its fresh vegetable imports. Oranges, strawberries and apples are the fruits in greatest demand; lettuce, tomatoes and potatoes are the top earners among vegetables.
U.S. horticultural exports continued
strong in 1998. For January-July, shipments of all horticultural
products reached $1.9 billion, up 6 percent from the same period
in 1997. Fresh fruit and vegetable sales amounted to $896
million, up 4 percent. Processed fruits and vegetables, led by
tomato products, reached $406 million, up almost 10 percent. Tree
nut exports, valued at $45 million, chalked up a 13-percent gain.
Wine shipments rose 14 percent to $50 million.
In 1997, U.S. lettuce exports to Canada reached $130 million, up more than 20 percent from pre-NAFTA levels and 18 percent from just a year earlier. U.S. tomato sales reached $109 million, a 16-percent gain over 1996. And exports of both vegetables for January-July 1998 outstripped those for the same period in the preceding year.
Canadian imports of U.S. fresh citrus fruits have increased steadily in recent years. Oranges, valued at $101 million in 1997, account for most sales in this category. U.S. orange shipments for the first seven months of 1998 hit a record $78 million. This achievement is particularly significant because the Canadian market is replete with other citrus items, including exotic options: Israeli sweeties, Moroccan and Spanish clementines and ortaniques, orange-tangerine hybrids imported from Jamaica, to name a few.
Some Trade Irritants Persist
Canada is the largest U.S. wine market, routinely purchasing 30 percent of U.S. exports. Canadian tariffs fell to zero on January 1, 1998, and U.S. wine exports responded by surging to $50 million by the end of July, up 15 percent from the same period in 1997.
The tariff reduction has been crucial to keeping U.S. wine exports on the rise in the face of a strong U.S. dollar; stiff competition from traditional European regions and New World competitors like Australia, Chile and Argentina; and strict import controls. Except for Alberta, Canada’s provinces oversee wine imports and sales through liquor control boards, a circumstance that hampers the introduction and promotion of U.S. wines. The Market Access Program (MAP) has been a critical factor in helping U.S. exporters overcome the boards’ restrictions and establish a strong presence.
Canada also tightly restricts bulk importation of many commodities, such as potatoes intended for table or processing uses. Importers must prove to Agriculture Canada (USDA’s counterpart) that comparable potatoes are unavailable from domestic sources before it will approve a bulk transaction. Agriculture Canada then issues a waiver allowing import of the commodity in a quantity of more than 50 kilograms (110.23 pounds), not including packaging. In the absence of such waivers, U.S. potato exports to Canada are limited to containers of no more than 50 kilograms. The United States is working to ease these restrictions.
Mexico’s Imports on the Rebound
U.S. horticultural exports to Mexico posted impressive increases in the run-up to and first year of NAFTA. But the first few years of the agreement were not without their ups and downs. In 1995, for example, the peso devaluation and ensuing recession drastically cut Mexican consumers’ purchasing power. Declines in U.S. horticultural exports followed.
But U.S. sales have rallied, registering strong gains in 1996 and picking up speed in 1997, when shipments totaled $496 million, up 23 percent from the previous year and second only to their record $550 million, set in 1994.
And though U.S. exports have yet to recover fully, their growth continued in 1998: sales reached $306 million in the first seven months, up almost 20 percent from the same period in 1997. The processed fruit and vegetable group (valued at $102 million) registered the largest increase (up 45 percent), led by dried, frozen and canned vegetables. Tree nuts, valued at $15 million, rose almost 30 percent.
On the other hand, U.S. wine shipments for January-July 1998 dropped 24 percent from that period a year earlier. The punitive tariffs Mexico imposed in 1996 have eroded earlier gains.
Fresh fruits and vegetables,
which account for about a third of all U.S. horticultural exports
to Mexico, totaled $73 million, up 2 percent. Apples, pears and
table grapes are the stars in this category, accounting for over
50 percent of U.S. sales. In the three years preceding
NAFTA’s enactment, Mexico began scaling back phytosanitary
barriers and restrictive licensing, and U.S. exports of these
products rose sharply.
The largest U.S. fresh produce export to Mexico, apples, climbed steadily from 1991 through 1994, spurred by the removal of import licensing and implementation of a phytosanitary protocol.
Along with many other products, apples were hard-hit by Mexico’s economic crisis of the mid-1990s. Exports posted a modest gain (4 percent) in 1996, and a slight one in 1997 (when they were hampered by a 101.1-percent antidumping duty imposed on U.S. Red and Golden Delicious apples, our main export varieties).
Although the dumping case was resolved in March 1998, U.S. apple shipments to Mexico for January-July 1998 fell more than 20 percent from the same period a year earlier. MAP-funded market development and promotion activities will be critical in helping U.S. apple sales regain their share of this market.
When the market first opened to U.S.
table grapes in 1994, growers had high hopes that Mexico, with
its proximity, market potential and declining tariffs, would
become a major customer for California grapes, which make up over
90 percent of U.S. production.
By 1997, those hopes had become a reality: table grape exports reached a record $22 million, up 15 percent from the previous record set in 1994 and more than double the 1996 total. For January-July 1998, table grape shipments were up 100 percent from the same period in 1997.
However, U.S. grapes, like many other horticultural products, face strong competition for Mexico’s market from domestic competition and other foreign producers.
Fulfilling NAFTA’s Promise
NAFTA has not resolved all of our trade issues with Canada and Mexico, and negotiators are likely to be kept busy working on solutions for the foreseeable future. But it has expanded market access for a broad range of U.S. horticultural products, and paves the way for further export gains.
Ingrid Mohn, marketing specialist, Steven Shnitzler,
marketing specialist, and Samuel Rosa, agricultural economist,
are with FAS’ Horticultural and Tropical Products Division.
Tel. (202) 720-6590; Fax (202)720-3799.
Email: mohn@fas.usda.gov,
shnitzler@fas.usda.gov,
rosa@fas.usda.gov
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