Mechel S. Paggi Director, Center for Agricultural Business California State University, Fresno Supply Chains for Food Trade in Asia: Implications for U.S

Mechel S. PaggiDirector, Center for Agricultural Business

California State University, Fresno

Supply Chains for Food Trade in Asia: Implicationsfor U.S. Farm Policy*

* This presentation was prepared in collaboration with Dr. Tom Reardon, Professor, Michigan State University and Dr. Tom Wahl, Professor and Department Chairman, North Dakota State University basedon ongoing research funded by the California Department of Agriculture.

Domestic and TradeImpacts of U.S. Farm Policy:

Future Directions and Challenges

November 16, 2007Washington, D.C.

IntroductionIntroduction Dynamics of the Asian Dynamics of the Asian

Food Supply ChainFood Supply Chain

Linkages to U.S. Farm Policy?Linkages to U.S. Farm Policy?&&

Thoughts on the FutureThoughts on the Future

Reality of the PresentReality of the Present&&

Promises Promises For the FutureFor the Future

Asia is a Big Market&

Asia is where the Money and People Will Be in the Near Future

Rapidly Shifting Nature of Asian Food Economy … almost defies description

Markets

Flourishing

[Shenzhen in 1980 and 2000, S. China borer Hong Kong]

Urbanizing

Industrializing

Westernizing

1.3 billion People1.3 billion People

Biggest consumption push will come over the next 20 years Biggest consumption push will come over the next 20 years when hundreds of millions of rural residents migrate to the when hundreds of millions of rural residents migrate to the

citycity

Huge Market Potential

Overall Increase in Off-farm WorkOverall Increase in Off-farm Work

0%

20%

40%

60%

80%

100%

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year

off-farm busy season part time farm only

2004

More than 150 million people shifted to the off farm sector between 1980 and 2004

Off farm Employment

2015

200019901980

>150 mil

Rozelle, Jikun, Reardon, et. al survey 2005

1.3 billion800 million rural

200 million farmers

China Rural To Urban Migration

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Bil

lio

n

Total Population

Rural Population

Urban Population

Sources: Gilmour and Cheng (2004) Personal Calculations, China National Bureau of Statistics, and Population Division of the Department of Economic and Social Affairs of the United Nations.

Urban Household Food Expenditure by Catetogy Share

0%10%20%30%40%50%60%70%80%90%

100%Eating-outBeverage & LiquorsBread & ConfectionerySeasoned FoodsFruitsVegetables & Sea WeedsFishes & ShellfishesDairy Product sMeatGrain

Korea

The Food Market Place is Changing The Food Market Place is Changing

To Accommodate the Changing To Accommodate the Changing Consumers Consumers

Korean Food Retail MarketKorean Food Retail Market (Food share in sales)(Food share in sales) (Fresh Produce share in sales)(Fresh Produce share in sales)

Supermarket (80%) Supermarket (80%) (35%)(35%) Supercenter (40-50%) Supercenter (40-50%) (20-25%)(20-25%)

• Large-scale food discounter storeLarge-scale food discounter store• E-mart, LotteMart, HomePlus, Wal-Mart E-mart, LotteMart, HomePlus, Wal-Mart

Supercenter, CarrefourSupercenter, Carrefour Convenience Store (80%)Convenience Store (80%)

• Seven Eleven, LG25Seven Eleven, LG25 Department Store (20%)Department Store (20%)

• In Korea, Department Stores have a In Korea, Department Stores have a supermarket in basement floor.supermarket in basement floor.

Mom and Pop Store (80%)Mom and Pop Store (80%) Traditional Market(Wet Market)Traditional Market(Wet Market)

Share of Consumer Purchase Channel by Product (Based on the amount; January to June 2004)

Source : AC Nielsen, 2004

Korea

The volume of retail sales of Supermarkets in The volume of retail sales of Supermarkets in

China 12 large citiesChina 12 large cities

CityCity

Total volume of Total volume of retail sales retail sales (100 million (100 million

yuanyuan ））

Total amount of Total amount of sales of sales of

supermarketsupermarketss （（ 100 100

million yuan million yuan ））

Proportion of Proportion of supermarksupermarketsets （％）（％）

No. of stores No. of stores of of

supermarsupermarketket

ShanghaiShanghai 2368 2368 896 896 37.8 37.8 1022010220

BeijingBeijing 2112 2112 616 616 29.2 29.2 50005000

TianjinTianjin 1016 1016 240 240 23.6 23.6 　　ChongqingChongqing 920 920 200 200 21.7 21.7 30003000

Qingdao Qingdao 584 584 168 168 28.8 28.8 37853785

ShenyangShenyang 776 776 208 208 26.8 26.8 40004000

WuhanWuhan 928 928 240 240 25.9 25.9 23502350

SuzhouSuzhou 600 600 96 96 16.0 16.0 10931093

NingboNingbo 576 576 136 136 23.6 23.6 　　TaiyuanTaiyuan 216 216 48 48 22.2 22.2 　　HangzhouHangzhou 680 680 120 120 17.6 17.6 12221222

YantaiYantai 424 424 56 56 13.2 13.2 14001400

HarbinHarbin 680 680 32 32 4.7 4.7 253253

Fi g. 1 The sal es and stores of Supermarket Chai n wi thi n of100 top retal compani es 2001 2006（－）

0.0

20.0

40.0

60.0

80.0

100.0

2001 2002 2003 2004 2005 2006

Sale

s (b

illi

on U

S$)

0

10000

20000

30000

40000

50000

60000

Numb

r of

sto

re

Total Sal es Number of stores

The FDI supermarkets have entered into China’s marketThe FDI supermarkets have entered into China’s market

YearYear Name of CompanyName of Company CountryCountry Place of first Place of first SupermarkeSupermarkett

19911991 Yohan Yohan JapanJapan ShanghaiShanghai

19921992 7-Eleven 7-Eleven JapanJapan ShenzhenShenzhen

19951995 CarrefourCarrefour FranceFrance ShanghaiShanghai

19961996 MetroMetro GermanyGermany ShanghaiShanghai

19961996 Wal-MartWal-Mart USAUSA ShenzhenShenzhen

19971997 Lotus Super CenterLotus Super Center ThailandThailand ShanghaiShanghai

19981998 Ito YokadoIto Yokado JapanJapan BeijingBeijing

19991999 AuchanAuchan FranceFrance ShanghaiShanghai

Sal es and Store Number of FDI Supermarket i nChi na

0. 02. 04. 06. 08. 0

10. 012. 014. 016. 018. 0

2001 2002 2003 2004 2005 2006

Bill

ion

US$

0

500

1000

1500

2000

2500

3000

ChangingFood

Markets

Increasingly This GrowthIs Helping Fuel Trade

Share of Total Food

0. 0%2. 0%4. 0%6. 0%8. 0%

10. 0%12. 0%14. 0%16. 0%

1 2 3 4 5 6 7 8 2003 2004 2005 2006 2007 2008 2009 2010

Food Imports Becoming More ImportantMetro Estimates of Imports to Supply China

And Increasingly That Trade is Regional

Sourcing From Within the RegionSourcing From Within the RegionMCC China trade flow within Asia countries MCC China trade flow within Asia countries

16%

84%

Countries Share%

Main products

Thailand 24Fruit / Rice / sea Food

Korea 23 Gen. Food

Japan 13 Gen. Food

Philippine 10 Fruit

Singapore 10 Gen. Food

Taiwan 8 beverage

Indonesia 4 Sea Food

Malaysia 2 Gen. Food

Other 6 Gen. Food

Asia imported food share 16% of total MCC China import

Imported fruit

Domestic Fruit

61%

30%

9%

Imported fruit

Asia imported fruit share 9% of total

MCC China import fruit

Countries Share%

Main products

Philippine 53 Banana

Thailand 35 Durian

Vietnam 9 Dragon fr

Taiwan 1 Mango

Japan 1 Apples

Other 1 Pear

Metro C&C Exchange 2008

Countries Main products

India Mango

Pakistan Mango

Sourcing From Within the RegionSourcing From Within the RegionMCC China trade flow within Asia countries MCC China trade flow within Asia countries

Table 10 Japanese Imports of Horticultural Products from Major Countries: 1999 and 2004

Value of imports share in total Value of imports share in total2004 Million $ Percent 1999 Million $ Percent

Suppliers Suppliers China 2,198.53 33.25% China 1,859.49 29.76% United States of America 1,504.86 22.76% United States of America 1,780.16 28.49% Philippines 639.29 9.67% Philippines 497.58 7.96% New Zealand 298.99 4.52% New Zealand 241.97 3.87% Rep. of Korea 249.94 3.78% Rep. of Korea 278.94 4.46% ROW 1,721.45 26.03% ROW 1,589.54 25.44%Total 6,613.06 100.00% Total 6,247.68 100.00%

Source: Extracted from the UNSD Comtrade Database

China Exports Expanding to Important Near By MarketsTaking Markets from U.S. Suppliers

Who are these Folks?

Asian Suppliers to this Dynamic Market&

The Corresponding Supply Chain

• Small• Many

• But Changing

China’s Farm StructureChina’s Farm Structure 200,000,000+ million farms200,000,000+ million farms Every rural resident (800,000,000 of them) Every rural resident (800,000,000 of them)

has landhas land Almost all farms are “family farms”Almost all farms are “family farms” Farm size: “1 mu per person”Farm size: “1 mu per person” Average size of vegetable operation Average size of vegetable operation

(about 1/3 of an acre … a big garden!)(about 1/3 of an acre … a big garden!) Few Cooperatives or Farmer AssociationsFew Cooperatives or Farmer Associations

6 mu acre; 15 mu hectare

Diversified Farming OperationChina Scale

42(mandays)Hired Day / ha

3.2(US$/day)Wage

Ownership and Control

96%(%)Contracted from “collective”

4%(%)Rented from other farmer

95%(%)Share of area decided by farmer

312(mandays)Own Labor Days / ha

Labor

3 crops (horticulture makes up ½)

(number)Number of crops (diversification)

5 plots(number)Distinct Plots

0.4 ha (1 acre)(ha)Farm size

Farm Characteristic

The typical fruit growing farm in China, 2005

Rozelle, Jikun, Reardon, et. al survey 2005 6 mu acre; 15 mu hectare

7882(US$) Housing

402(US$)Assets: Farm equipment

25(%)Share of household head who has off-farm jobs (self employed)

20(%)Share of HH head who has off-farm jobs (in factory)

(%)Off-farm job

50(%)Share of HH head with ag extension training

7(year)Education of HH head

Education and training

42 (male)(year)Age of HH head

4(person)HH size

Household characteristics

The typical fruit growing household in China, 2005

Rozelle, Jikun, Reardon, et. al survey 2005, greater Beijing area

Major Assets

* Same place that has lunar orbiting satellite?

But the Times they are a ChangingBut the Times they are a Changing

Melon Production Under Plastic

The Evolving Supply Chain

Sales Primarily still at point of ProductionSales Primarily still at point of Production(2004)(2004)

0

20

40

60

80

100

WholesaleMkt

PeriodicMkt

Wet Mkt inCity

In theVillage

Note; -- “In the village” = Off the tree + From Home + Road-side

-- Share sold in wet markets in cities down over time

Percent of all purchases

Small Trader-dominated System Small Trader-dominated System (2004)(2004)

0

20

40

60

80

100

Supermarkets

ProcessFirms

SupplyFirms

U-pick SmallTraders

Percent of all purchases

/ coops

Typical Trading “Firm” ArrangementTypical Trading “Firm” Arrangement

Farmer’s field

Small Trader:

Finds seller / contacts trucker / buys with cash

Small Trader -- Partner

Outlets Inside

China’s cities

(>90% private)

Partners: in other villages



In the city wholesale mktGoing from village to village

Private, “contract” truckersDivision I

Div II

Rozelle, Jikun, Reardon, et. al survey 2005

Small TradersPurchase Product Transfer to Partners in Markets

Some ProductSold Directly

Big WholesaleTo Big BuyersSupermarkets,

Institutions, Military, etc

Smaller Wholesale to Restaurants & Mom and Pops

Metro China HQ

Metro China HQ

Metro Distribution

Center

Metro Distribution

Center

AgriculturalAssociations

or cooperatives

AgriculturalAssociations

or cooperatives

Logistic company

Store

Store

Store

Store

…

Customer

Customer

ProfessionalCustomer

Customer

Customer

Store

Farmer

Farmer

Farmer

Farmer

…

…

Ministry of Commerce/local

government

Ministry of Commerce/local

government

Agricultural Technical

Station

Agricultural Technical

Station

Subsidy

Food and Drug AdministrationFood and Drug Administration

Third-party QA AgentsThird-party QA Agents

Authorization Entrust

Training

Standard making &Training

Quality control

deal

Domestic/global market

Domestic/global market

Global sourcing system

logistics Information Quality controlInstruction

Working Committee：

-MOFCOM-Local Government

-Metro-Agri-Tech Station

-FDA-Third-Party QA Agents

Working Committee：

-MOFCOM-Local Government

-Metro-Agri-Tech Station

-FDA-Third-Party QA Agents

Reporting

Produce

Quality Control/Pricing

Asian Food Supply Chain Evolution

Metro Cash & CarryWholesaler to Small Retail and Food Service

Asian Food Supply Chain Evolution

Distribution Flow for Fruits and Vegetables in Korea

PRODUCERS

CONSUMERS

APC

Others

Others

Large Vendors

Small Food Retailers

Restaurants

Small Vendors

Regional CommodityProducers Group

• APC : Agricultural Processin Center (mostly operated by regional ag. co-op) • RPC : Rice Processing Center (operated by regional ag co-op or farm related firm) Source : Korea Ministry of Agriculture, 2003

Collecting Agents

Large Food Retailers

Wholesale Market(48.5%)

IAMC(5.4%)

TraditionalWet Market

(29.5%)

Large Food Retailers(SC)

(5.8%)

Direct Sale to Consumers or Retailers

(10.8%)

KoreaGrowth in Number of Super Centers

The Quality Line : Real Quality and Value Image

Taste:Propose good tasting products above market standard

Food safety: Contribute to the

human health and food safety for the consumer by applying the precaution and prevention principle.

No GMO Control the food chain:

from the field to the plate (guide line, control plan and traceability)

Quality/Price:Guarantee the best and stable quality products with an accessible priceRetribute producers according to their work

Authenticity:Preserve and promote the agricultural heritageLook for the best origin Encourage and SupportRegions and Countries where Carrefour is presented

Permanence:Preserve the social, economical and ecological environment

QL project in Carrefour China

Fuji

Veg BJ

Veg SH

Pork DL Beef SH

Litchi99.06

Pomelo02.09

Mandarin02.12

Salmon03.03

Pork03.06

（ SH）

Pork04.11（ BJ）

Pork05.05

(South )

Signed Product

7 product

Orange

Pork DL Beef SHProduct in trial ( launching in

store )

6 product

Project in developmen

t

8 product

Veg GZ

Veg ShZ

Shrim

p PorkCD

PorkKM

PorkShYang

BeefBJ

KIWI

Carrefour Future Supply Chain

Breeder

Slaughtering , Cutting

Transportation

Farming

MeatCarrefour ’s

product

CustomerCustomer

Control

Analyse

Record

Delivery

Sale

SummarySummary Asian Food Supply Chain Developing at a Rapid Asian Food Supply Chain Developing at a Rapid

RateRate Increasing Demand for High Quality (Safe) and Increasing Demand for High Quality (Safe) and

Diversity in Products Diversity in Products Intra Asian Supply Becoming Important in Food Intra Asian Supply Becoming Important in Food

TradeTrade Producers Increasing Quality and Quantity Producers Increasing Quality and Quantity Growth in Consumer Base Has Great Potential for Growth in Consumer Base Has Great Potential for

Higher Valued ProductsHigher Valued Products Global and Regional Food Chains Increasing Global and Regional Food Chains Increasing

Presence in Control of the FlowPresence in Control of the Flow

Linkages to U.S. Farm Policy? Linkages to U.S. Farm Policy?

Does Farm PolicyDoes Farm PolicyEnhance U.S. Agriculture’s Enhance U.S. Agriculture’s

Ability to Benefit from ChangesAbility to Benefit from ChangesIn Asian Food Supply Chain? In Asian Food Supply Chain?

What’s In the Farm Bill ?

What Does Current Policy Contribute? What Does Current Policy Contribute?

Commodity Title? Commodity Title?

Cheap inputs for Asian fiber sector: cotton to Cheap inputs for Asian fiber sector: cotton to China, textiles back to U.S.; China, textiles back to U.S.;

Cheap inputs for Asian feed sector: corn and Cheap inputs for Asian feed sector: corn and soybeans for livestock and poultry feed, value soybeans for livestock and poultry feed, value added products in return; added products in return;

Not readily apparent any significant contributionNot readily apparent any significant contribution

to U.S. agriculture having increased opportunities to U.S. agriculture having increased opportunities in growing markets in Asia. in growing markets in Asia.


Horticulture?

Planting Flexibility: no change in either House or Senate version except for pilot program of 10,000 of processing tomatoes in Indiana ( Not much supplySide impact)

Block Grants to States: Could fund efforts to expand access in Asian Markets and/or develop new products, etc. $365 million over 5 years ($73 million/50 = $1.46 million per state) Modest Support by Title I standards Last Time Authorized $44.4 million annually Provided $7 (PL 180-465); Allocated by production %


Other Provisions?

COOL, may create standards that are adopted/required in AsianMarkets.

Export Market Promotion:

HouseSenate


Technical Assistance for Specialty Crops (TASC) Funding to assist in removal of SPS barriers to

U.S. agricultural Exports: Provides Input into StandardsDevelopment Adopted in Asian Supply Chains (Public/Private)

(H) (S)

Does Farm PolicyDoes Farm PolicyEnhance U.S. Agriculture’s Enhance U.S. Agriculture’s

Ability to Benefit from ChangesAbility to Benefit from ChangesIn Asian Food Supply Chain?In Asian Food Supply Chain?

Not Much, Indirectly for the Most Part

What Could We Do if We Should DoAnything?

Documents

Mechel S. Paggi Director, Center for Agricultural Business California State University, Fresno Supply Chains for Food Trade in Asia: Implications for U.S