Press Releases

• August 17, 2010 - Novelle Consulting Launches New Website
• August 16, 2010 - Erich Hinrichs and John Musser Join Novelle Consulting
• August 1, 2006 - Novelle Principal Awarded Presidential Volunteer Service Award
• December 20, 2005- Sonora State, Mexico Completes Phase I of Development Plan
• April 26, 2005 - PMA Addresses Consumption, Industry Trends with Retailers, Growers in Mexico
• April 18, 2005 - Novelle Assists State of Sonora in Five Year Plan
• June 3, 2004 - BC Hot House Chairman Al Vangelos Elected Russian Farm Project's Chairman of the Board

Novelle in the media

• April 22, 2009, The Packer - Vangelos named Produce Man for All Seasons
• April 10, 2006, The Produce News - Novelle Takes on Winogrond and Obregon as Two Senior Principals
• April 6, 2006, FreshPlaza - Novelle Adds Two New Senior Principals; Obregon and Winogrond
• July, 2005, Productores de Hortalizas - Agronegocios en Sonora
• May 1, 2005, The Produce News - Symposium Shines Spotlight on Sonora Agriculture

on the move

Novelle and Food Safety in Southeast Asia
Novelle and the Gates Foundation
Novelle and the World Bank in Malaysia
Novelle in Southern Sudan
Novelle in Georgia
Novelle in Indonesia
Novelle in Egypt
Novelle in Guatemala
Novelle in Central America
Novelle Consulting in Zambia
Novelle Consulting in the Balkans
Novelle's Indonesian Assignment
Novelle in Southern Africa
Novelle in former Soviet Union
Novelle and Work in Colombia
Bananas in Bangladesh
Vegetables in Moldova
Packing Plant in Moldova
Quality Control in Moldova

white papers

Novelle Consulting and EUREPGAP
Moscow Supermarket Industry
The 5-Year Agricultural Business Development Plan for Sonora, Mexico
Marketing of Horticultural Produce in Asia-From Sonora Symposium

White paper

Marketing of Horticultural Produce in Asia
By: Lou Alexander

Sonora Production and Marketing Symposium – Cuidad Obregon, Sonora
April 19-21, 2005 

With already 60% of the world’s population, it is estimated that Asia’s population will continue to rise sharply in the future. This presentation will focus on the horticultural trade in East Asia (the Pacific rim nations of Japan, South Korea, Taiwan, China, Hong Kong, Malaysia, and Singapore) that already have well-established, thriving businesses in the region (Exhibit 1).

First, as the dominant exporter to the region, U.S. exports to East Asia were reviewed(1996-2003 period). The U.S. has been grouped with Mexico because both countries have similar infrastructures, geographic locations, and weather patterns. Japan was then selected as our primary target because of their enormous, well-structured market. Thirdly, Mexican exports to Japan were reviewed (1992-2002 period). Fourthly, the Japanese marketing structure was reviewed, which includes the import, distribution, retail, and consumer sectors. Fifthly, China was highlighted as both an emerging market and competitor in Japan And lastly, a number of the opportunities for the Sonora growers were listed, including the practices they must comply with to meet the challenge of the Japanese market.

Apart from the U.S., other major exporters to the region that are outside the scope of this report are Chile, South Africa, Australia, and New Zealand. By far the largest intra-regional exporter is China followed by South Korea.

U.S. Export to East Asia 
Of the $12 billion of U.S. horticultural world exports in CY2003, about $3.5 billion (29%) were to Asia. Fresh, frozen, and prepared fruits and vegetables accounted for 68% of the Asian exports followed by edible nuts, essential oils, and wine (Exhibit 2). In just East Asia, the export value reached $3.1 billion with Japan at $1.6 billion; the balance of $1.5 billion was exported to South Korea, Hong Kong, China, Taiwan, Singapore and Malaysia (Exhibit 3).

From 1996 to 2003, U.S. exports to Japan suffered a decline from $1.9 to $1.58 billion (Exhibit 4). The major reason for this reduction is the higher quality/lower cost products sourced from China and other Asian countries as a result of Japanese investments in these countries to meet Japanese consumer demands. The leading U.S. exports were fresh citrus, broccoli, potatoes, cherries, onions, melons, raisins, and almonds.

U.S. exports to other East Asian countries during the same time frame were:

1.South Korea – showed a net increase from $150 to $370 million primarily in oranges, frozen potatoes, almonds, sweet corn, and food preparations. This improved performance was due to strong economic growth and a developed infrastructure.
2. Hong Kong – fell sharply from $655 to $365 million in grapes, oranges, apples, and frozen potatoes. This reduction was a result of competition from China and Canada plus direct shipments to China after entry to the World Trade Office (WTO).
3. China – increased from $15 to $300 million primarily in food preparations, frozen potatoes, and essential oils. This performance was caused by reduced tariffs after joining WTO plus the changing lifestyles that demand fast-food products.
4. Taiwan – declined from $410 to $280 million in apples, tree fruit, cherries, and grapes. This reduction was caused by competition from Japan and Korea.
5. Singapore/Malaysia – rose from $196 to$288 million with higher sales in apples, grapes, oranges, various vegetables. This increase was due to strong economic growth plus a quality-sensitive market.

Japan’s Food Imports
Japan continues its prominence as Asia’s premier importer of food products (Exhibit 5). In CY2002, Japan imported $42 billion of food products of which $8.4 billion (20%) was in fruits, vegetables, wheat, and corn; the largest share of $15.5 billion (37%) was in fish and seafood products.

Mexico’s Exports to Japan
From 1992 through 2002, Mexico’s exports to Japan rose steadily from $131 to $429 million which represented about 1% of Japan’s total food imports (Exhibit 6). In the horticultural category, avocado, melon, pumpkin, asparagus, lemons, mango, and broccoli represented the major export items. Of particular note is the huge success of Mexican avocado exports, reaching 99% market share in Japan (Exhibit 7). In addition, the years 2003 and 2004 reflected another upsurge of avocado exports of 23,000 and 28,000 metric tons respectively to Japan (a 100% increase above CY2002).

Japan—Distribution, Consumer, Production
To get a better understanding of the Japanese market, the distribution, retail, and consumer sectors will be briefly reviewed, including government import regulations.

With an affluent population of 127 million, Japan continues to be the largest market in Asia for imports of horticultural goods. Modern port facilities throughout the country allow goods to be discharged close to the local markets. The importers generally are the traditional trading companies as well as trading subsidiaries of the largest wholesale markets (these subsidiaries were formed by aggressive wholesale markets to circumvent the law that restricted imports to a maximum of 15% of their total sales volume). There is a well-developed distribution sector anchored by the government sponsored wholesale markets that form an efficient supply line to the retail sector comprised of small mom-and-pop stores, supermarkets, major chains, and convenience stores.

Traditionally the Japanese housewife shopped daily to ensure she could have the freshest, highest quality product (it should be noted that the small homes had limited cold storage). But in the past 15 years, due to competitive pressures from the supermarkets and a significant change of living habits, the housewife no longer shops every day and the number of mom-and-pop stores has been steadily declining. Also, for the first time, the mega-chains Costco and WalMart, have been establishing operations to open the door wider for mass merchandising of horticultural goods in Japan. Because the cost of land is so high, these mega-chains generally are located in suburbs of major metropolitan areas.

Japan produces about 97% of its vegetable needs and about 80% of its fruit needs. Because local produce is more expensive than imported produce, there are many opportunities for exporters. This high cost of local product arises from the small size farms that average merely two acres. Also local distribution costs are extraordinarily high and farm labor is decreasing as the children of the farmers continue to relocate to the cities. Thus the average age of the farmer is approaching 70, and as this trend continues, Japan will be producing less, thereby offering a brighter outlook for exporters.

Japan—Tariffs, Quarantine, Fumigation
Japan traditionally had been a highly protected market through the 1970’s when, primarily from pressure of the U.S. trade negotiations, Japan slowly began to open its market to imports. Although most of the tariff and quota barriers have been reduced or lifted, Japan continues to use non-tariff barriers (severe quarantine procedures) on a case-by-case basis. As a result, it is essential for exporters to comply in detail with these quarantine regulations.

Japan imports are subject to two basic laws: the Food Sanitation Law and the Plant Quarantine Law. The Food Sanitation Law specifies the maximum pesticide levels that are allowed on the product. If this maximum level is exceeded, the product will be rejected. The Plant Quarantine Law requires a phytosanitary certificate to assure that the product and carton is pest-free; if pests are found, the product will be subject to fumigation.

Fumigation is an operation that is almost unique in the world produce industry. About 25 fumigation facilities (construction costs of over $100 million each) are located on the wharves at the various ports of entry throughout all of Japan. Specific imports such as bananas are automatically fumigated on arrival (fruit fly infestation) whereas other imports will be fumigated when/or if plant quarantine finds pests on the product. Generally most fruits and vegetables will survive fumigation but some produce, like lettuce, cannot survive and will result in complete loss of cargo (no commercial value). Other negative effects of fumigation are frequent delays of cargo delivery, interruption of the cold –chain, and reduction of the shelf-life of certain products.

Although it is most unlikely that there will be any significant revisions of the quarantine regulations within the foreseeable future, Japan, on occasion, has made exceptions to this procedure by assigning an inspector to the point of origin to inspect the product prior to shipment. For example, an inspector has been assigned to Washington State to facilitate and expedite the exports of cherries to Japan; no inspection in Japan is required under this arrangement.

China as Market and Competitor
During the past decade China is a country that has been emerging as both a competitor and as a major market. China’s production is 72 million tons (or 15% of the world’s output of horticultural goods) with apples, pears, and citrus the high volume items accounting for 36%, 54%, and 39% of the world total respectively. China is the world’ largest apple producer and the world’ second largest orange producer; also it has large plantings of table grapes and vegetables. But despite this huge domestic production, merely 3% of this production is exported; this percentage is expected to increase sharply in the future. Major reasons for China’s export success are the extensive investment and technical assistance by Japan to increase production/processing capacity and the favorable terms that China receives from intra-regional trade agreements like the Asia Free Trade Association (AFTA) and the Association of South East Asian Nations (ASEAN).

During the past five years, China consistently has increased its food exports. For example, China has replaced the U.S. as the largest exporter of horticultural products to Japan, reaching a total of $2.5 billion versus only $1.6 billion for the U.S. in CY2003. (Exhibit 8). Not only have they increased exports in East Asia, but also to the U.S. where China’s garlic exports have penetrated the market and forced U.S. growers to reduce dramatically their production. Furthermore, China has 11% of the global organic farmland that is a prime source of organic ingredients that are exported to the U.S., EU, and Japan as beans, edible seeds, soya beans, pumpkin and sunflower seeds.

Although a formidable competitor, China also is a huge potential market for high-quality horticultural products to be sold in western-style supermarkets, in the food service sector, and in the fast –growing food preparations sector. Changing life-styles and eating habits have led to a booming fast-food industry that has created a major market for frozen potatoes and the food preparation category. Membership in the WTO in 2001 has reduced import tariffs and quotas, opening the door for additional imports; the outlook is promising for this potential enormous market.

Opportunities for Sonora Growers 
In conclusion, the opportunities and challenges that the market in Japan offers to the growers of Sonora are listed below:

1. Higher volumes and wider variety of product to export due to easing or elimination of import quotas.
2. Lower landed-costs due to lower import tariffs.
3. Competitive pricing and market timing (Japanese product is more costly and seasonal).
4. Lower local farm cost due to 20% appreciation of US$ to peso in CY2004.
5. Expected revaluation of yuan that will increase export cost of Chinese goods in CY2005.

To market effectively in world markets where the competition is intense, the growers must comply with the strict product standards and offer the services that are demanded. For example, to be successful in Japan that demands the highest standards, the growers must perform the following activities:

1. Employ farm practices that comply with quarantine regulations (pest free areas)
2. Harvest to maximize shelf life
3. Grade (size, appearance, taste) to meet consumers’ expectations
4. Pack only residue-free product
5. Meet volume commitments of the customer
6. Use high quality packaging materials
7. Begin the cold chain early and maintain it
8. Inspect the product upon arrival (independent inspection)

Although Japan should be the main target in the short-term, there also will be opportunities in the other Pacific Rim countries. And we have not included in this presentation certain Asian nations such as Indonesia, Thailand, India, Pakistan and Philippines which have populations over 1.6 billion. As these nations continue to modernize and improve their living standards, the future should present additional challenges to the growers of Sonora.