As heightened attention has been brought to bear on obesity as a serious national health concern, in conjunction with mounting scientific evidence regarding the health benefits of fresh produce, more governmental effort is now focused on relaying positive messages to consumers about the potential health rewards of fruit and vegetable consumption. For example, there are new federal school lunch program initiatives featuring fruits and vegetables and a revamped USDA Food Guide Pyramid. The benefits of fruits and vegetables are being promoted by the Produce for Better Health Foundation in conjunction with numerous organizations such as the National Cancer Institute. Increasingly, consumer awareness of the benefits of eating fruits, vegetables and nuts is rising. Per capita consumption of fruits and vegetables, in both fresh and processed form, increased 15 percent from 1976 to 2002, reaching 324 kg, as shown in Table 2. However, examining only the total fruit and vegetable category masks important changes occurring within, such as changes in product form and relative preferences for vegetables versus fruits. Health claims benefited fresh fruits and vegetables proportionally more than processed ones, with 59 percent of total fruit and vegetable consumption in fresh form in 2002, compared to 49 percent in 1976. Fresh fruit and vegetable consumption totaled 145 kg in 2002, up 8 percent over 1989 and 29 percent relative to 1976. These gains are impressive in a developed country with a mature food market in the aggregate. Vegetable consumption, in both fresh and processed form,hydroponic channel grew much more rapidly from 1976-02 than did fruit consumption. Vegetable per capita consumption increased 20 percent to 195 kg, while per capita total fruit consumption grew by only 7percent to 128 kg.
Key forces driving the increase in vegetable consumption include the emergence of fresh-cut salads and vegetables , growth in the fast food industry with its usage of processed tomatoes, primarily for pizza, and processed potatoes, primarily for French fries.In 2002 fresh-cut produce sales were estimated to have reached $12.6 billion , with about 60 percent sold via food service channels and the remainder through retail. However, to date primarily vegetables have benefited from this trend. In 2002 the value of fresh-cut fruit sold through supermarket channels was still quite small, $238 million according to IRI, with total sales including through food service channels estimated by industry sources at over $600 million. Recently fresh-cut fruit new-product introductions have risen and fresh cut fruit post harvest technology is improving. Growing consumer demand for convenient, healthy snack foods and desserts lead some to predict that fresh-cut fruit may be poised for the same type of rapid growth experienced by fresh-cut vegetables over the last decade. California fruit shippers should benefit from this growth, both as producers and as sourcing agents. The diversity of fresh produce offerings in U.S. supermarkets has expanded at an astounding rate. The number of items carried by the average supermarket produce department increased from 133 items in 1981 to 350 items in 2001. This reflects the emergence of more diverse eating habits, and the growing demand for specialty and ethnic fresh fruits and vegetables, as well as the introduction of a myriad of fresh-cut, value-added products, designed to respond to the growing consumer demand for convenience. The abundant supply of increasingly diverse and convenient fruit and vegetable offerings should support continued growth in per capita consumption.
Exports have come to represent an increasingly important growth market for U.S. food marketers, in light of a mature domestic market. The importance of the export market varies widely by commodity and state, with a weighted average export share of 18 percent for the top 50 products produced in California in 2002 . Among horticultural crops export shares are higher for nuts than for fruit and vegetables, due to the lower perishability of nuts and California’s important role in world production. Over 60 percent of California’s almond crop is exported annually compared with 10 percent of lettuce and around 12 percent of strawberries. With certain important exceptions California is a net exporter of most of the crops it produces, even those facing import competition. Most fresh produce imports tend to enter during the off- or early-season when domestic production, including in California, is low. Trade liberalization negotiated under the Uruguay Round of the GATT and implemented under the World Trade Organization , as well as through regional trade agreements such as NAFTA, has expanded market access and strengthened mechanisms for combating non-tariff trade barriers such as scientifically unfounded phytosanitary restrictions. Advances in post harvest technology, including the development of container-level modified atmosphere technologies, have also facilitated exporting perishables to distant markets. Total U.S. horticultural exports, including fresh and processed fruits, vegetables, and nuts, were $11.3 billion in 2002, up from $2.7 billion in 1985. California firms captured a sizable share of this export growth, exporting $4.9 billion worth of horticultural products in 2002 according to USDA. However, trade liberalization has also led to greater import demand, with U.S. horticultural imports reaching $18.7 billion in 2002.
In recent years imports have grown more rapidly than exports but imports are still a small share of total U.S. horticultural consumption, 18 percent in 2001. As markets become more open, they become globalized and many California commodity sectors are increasingly impacted by changes occurring in international markets. Expanding export demand, in particular in Asia, led by Japan, in the first half of the 1990s caused producers to increase plantings of perennial fruit crops, for example. By the time this area was coming into production as of around 1995 and beyond, export markets had peaked and declined due to Japan’s economic recession and the resulting Asian flu. A growing export market in Mexico also temporarily peaked in 1995 due to an economic crisis there. Simultaneously, greater world production of many commodities also grown in California has increased competition for California firms in third country markets. The rapid emergence of China as a major producer and growing exporter of fruits and vegetables is already having a competitive impact on demand for California products in Asian markets and will continue to do so as China improves its infrastructure and export quality. China is the world’s largest producer of vegetables, apples and pears. Although most of the production remains in China to serve internal demand generated by its 1.3 billion inhabitants,hydroponic dutch buckets even a small export share can be significant relative to the international volumes normally traded in any given commodity. On the other hand, income growth should expand import demand as Chinese consumers demand a greater array of higher quality food products, including fruits and vegetables. Import demand is being further stimulated by the explosion in supermarkets which require year-round availability of produce. Indeed, a recent trend throughout the developing world away from wet markets and toward supermarkets bodes well for international fresh produce trade, and hence, for California producers. It is estimated that the 30 largest retail grocery chains now account for at least 10 percent of world food sales. Many of these chains have stores located on several continents and their global procurement practices and cold chain management investments and exigencies mean that these modern produce departments must be kept full year-round. Since no country produces all of the fruits and vegetables it needs year-round, international trade will undoubtedly expand. As some California commodity sectors adjust to new market realities, structural adjustments may occur. However, in general, California agriculture remains very competitive with imports still a small share of supply. California growers and shippers substitute capital and technology for labor, enabling them to remain competitive even in the most labor-intensive horticultural crops. The primary crops for which sizable production has moved off-shore, in this case to neighboring Mexico, are those requiring bunching at harvest, such as green onions, asparagus and radishes. Still, over the next decade it is likely that many California commodity sectors will face greater import competition and more competition in export markets. While competition in third country markets will be strong, total international trade should expand as trade liberalization continues under the WTO.The principal marketing channels in the U.S. fresh fruit and vegetable marketing system are shown in Figure 1. Final value in 2002 is estimated to be at least $81 billion with roughly equal amounts distributed through food service and retail channels and around 2 percent comprised of direct farm to consumer sales.
In California, there are about 400 Certified Public Markets and many fresh produce growers participate in these markets for at least a part of their sales. Produce sold in retail or food service outlets may be procured directly from shippers or from wholesalers operating in terminal markets or in independent warehouses in local communities. Terminal markets have steadily declined in importance since the 1950s. Today there are major terminal markets serving only 15 cities, and these markets primarily handle the residual fresh market domestic production that cannot be marketed directly to retail or food service buyers. The largest terminal markets tend to be located near port areas since many imports are still handled by importers/intermediaries physically receiving the product upon arrival to the U.S. Terminal markets are no longer a factor in the distribution of processed food. The decline in terminal market share is largely a result of the increased buying power of integrated wholesale-retail buying entities, which operate large-volume centralized buying operations, and enhance efficiency by purchasing directly from the source, bypassing the wholesaler and thereby avoiding intermediary margins and handling costs. Also, the retailer- or food service-buyers are able to communicate directly with suppliers concerning important issues such as desired product quality, safety/traceability, packaging characteristics and shipment timing, improving their management of the supply chain. For fresh products, direct production-source-to buyer shipments have the additional advantage of not breaking the cold chain, better preserving product quality. Brokers may be used by either buyers or sellers at any level of the distribution system. Most brokers do not take title to or physically handle the goods, and, rather, assist in making the sale and possibly arrange transportation and other logistics. Their role had grown in importance since World War II. However, retail consolidation has been reducing the role of brokers as buyers seek closer relationships with preferred suppliers with strong category management skills. Today successful brokers tend to be those with global sourcing capabilities and account-specific service-orientations, including category management, designed to meet specialized buyer needs.Turning now to the opposite end of the marketing system, farm production of most commodities in California remains atomized in the sense that producer volumes, although often large in absolute terms, are small relative to the size of the market. It is estimated that there are about 16,500 fruit, vegetable and nut growers in California producing about half of the total volume of these crops grown in the U.S. However, most fresh produce growers don’t market their own produce, marketing instead via shippers acting as agents. Most shippers are large growers that have integrated their operations downstream into the marketing of their own production and the production of other growers—hence their designation as forward-integrated “grower-shippers.” These grower-shippers generally control harvesting, packing, and cooling, and arrange for domestic and export sales, transportation, and promotion of production. They are the dominant type of marketer of California fresh produce. According to the Red Book Credit Services there are around 5,000 fresh produce shippers in the U.S. as a whole, with about 900 located in California. These shippers are selling to an estimated total of 1,079 principal buyers, including 267 retail chains, 188 produce wholesalers, with the difference accounted for by independent retailers and other types of buyers. The bulk of retail chain purchases are being made by 161 retail chains each selling at least $64 million in 2001 . Consolidation at the buying end of the food marketing system has driven consolidation at the production level. Today’s large, integrated wholesale-retailer and food service buyers demand more services from their suppliers, tailored to their specific needs, including: category management, ripening and other special handling and packaging, including private labels, and year-round availability of a wide line of consistent-quality fruits and vegetables. Grower-shippers have responded with improved communication and information management programs and by becoming multi-regional and multi-commodity in focus.