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- Growing World Middle Class
is a New Opportunity
- By Karen Gentry
Managing Editor
- Think Asia. Think Latin America.
When vegetable and fruit producers think exports, they often think of Japan and Europe. But, according to Dr. Tom Reardon, associate professor of agriculture economics at Michigan State University (MSU), other countries provide perhaps equal and even more promising and exciting opportunities.
Reardon spoke on “Trends, Challenges and Opportunities in the World Market for Produce,” at the recent Great Lakes Fruit, Vegetable & Farm Market Expo in Grand Rapids, Mich. in December. He also spoke on related topics at the International Agriculture Trade Research Consortium in Monterey, Calif. in December.
The rising middle class in many countries offers a chunky growing market for producers, according to Reardon. There are 250 to 300 million middle class in India, 250 million in China, 150 to 200 million in Latin America, and 200 million in countries like Korea, Thailand and Indonesia as conservative estimates. That’s a total of one billion middle class consumers, more than three times the population of the United States.
The number of middle class consumers in these countries is growing at 5% (50 million people) a year, more than 2 1/2 times faster than developed countries. With this growth has been a corresponding rise in supermarkets in Asia and Latin America.
“There’s potential demand for Michigan fruit and vegetables in Asia and Latin America,” said Reardon.
In Brazil, supermarkets represent 75% of the share in food sales, having grown 10% a year. Supermarkets in Argentina have grown to 57%, growing 9% a year. In the 1990s supermarket share has grown to 50 to 60% in the majority of Latin America.
China has 3,000 supermarkets today compared to only a handful a decade ago, according to Reardon. He said that in Mexico three out of 10 pesos spent by Mexicans on food are spent in Wal Mart Mexico.
Reardon noted that some large U.S. chains are going into Latin America, “so if you’re in the procurement system of the chains that expand to these regions you may well be carried along.”
He said supermarkets in Latin American buy 2 1/2 times more fruits and vegetables to sell to local consumers than Latin America exports to the world.
Reardon said that in the past, markets other than European and Japanese markets were considered too poor.
“People think these markets are too small and fragmented,” Reardon said. “There’s vast improvements in import/export infrastructure in those regions in the 1990s.”
During his presentation, Reardon showed a photograph of a supermarket warehouse in Nicaragua with apples from Michigan, Oregon, Washington state and Chile. Reardon told growers that 18% of tart cherries exported in 2001 went to South Korea, which is almost double the value to Japan that year. He has also seen Michigan blueberries in supermarkets in Peru.
There is a convergence of quality standards around the world, according to Reardon. Buying agents around the world are all talking the same language and tough standards of quality and safety are being utilized.
“They (buyers) constantly say they want year-round supply. They’re looking for volume and that’s the trade angle,” Reardon said. Buyers (supermarket chains or specialized wholesalers buying for them) in those two regions are looking for quality, diversity, off-season fruits and vegetables and they are looking both for niche and for mass volume orders, according to Reardon.
The key to selling to some of these emerging markets is developing relationships, many times involving travel and face to face contact, according to Reardon. He notes that often it is necessary to start relatively small and be ready to increase the volume rapidly as demand increases when selling to new markets.
Reardon said retailers have come to rely on Web sites such as www.melissas.com or www.oppenheimer.com when searching for specialized produce such as organic mangoes. Retailers in Asia and Latin America have started to depend on specialized wholesale companies more like consulting firms or intelligence networks and they’re starting to bypass traditional brokers, according to Reardon. So it is worthwhile identifying brokers dealing with supermarkets in those regions, according to Reardon.
Producers can attend trade shows that take place in most countries in Latin America and Asia. Reardon mentioned the success in exports to Asia of Graceland Fruit from Michigan, who has a broker’s page listed on its Web site with brokers for each state and an international broker. Graceland Fruit has successfully entered markets in Southeast Asia, China and Korea.
Certain countries such as Chile and New Zealand have earned reputations for being responsive and flexible, Reardon said. The Chilean philosophy is to “find 1,000 niches and together you’ll have a lot. A little bit in a lot of places forms a presence,” Reardon said.
Reardon said if you tell Chilean exporters that the box size isn’t right, or you need darker color fruit or produce without pesticides, their only question is “when?” Reardon said. Chilean producers worked in the European markets that adhere to strict standards of quality and safety, which helped them become reliable, long-term suppliers.
Graceland Fruit and other successful exporters travel to trade shows and get to know the buyers personally in these regions, and that is both appreciated by Asians and Latin Americans, he said. He suggests growers need to start small so importers get to know them as a supplier. Once retailers see how something moves they may increase the amount shipped.
New Zealand has done a great job marketing lamb in the United States, Reardon said. They set up an office in California and started shipping. A representative asked retailers and consumers what they thought of the lamb from New Zealand and then made improvements and adjustments based on feedback they received.
In Michigan as well as other states, there are resources available that can help people break into new markets, according to Paul Burke, international marketing manager for the Michigan Department of Agriculture (MDA). Through the Branded Market Access Program companies can be reimbursed for up to 44% of their costs of developing export markets, Burke said. These costs could include booth and travel costs, advertising or in-store promotions. Michigan companies can apply through MDA. For more information visit www.michigan.gov/mda or www.miatco.org.
Burke also suggests that producers check out what national commodity organizations are doing on an international basis.
Vegetable Panel
Chris Peterson, ag economist with MSU, said that Michigan vegetable growers are feeling very challenged in the current environment.
Peterson was one of four panelists who spoke on the “Michigan Vegetable Industry Strategic Plan and Its Role in the Industry’s Survival,” at the Expo in Grand Rapids.
He said Michigan growers are faced with an escalating cost structure, environmental regulations and labor issues.
“They see traditional marketing outlets consolidating, with less choices of where to sell. The demands for safety and quality continue to escalate as well,” said Peterson.
Peterson sees a positive side to today’s challenges for growers.
“For those producers who are willing to create marketing relationships, I believe there are opportunities out there for them,” he said.
Michigan vegetable growers offer a three-month window to suppliers who want a year-round source. Alliances with countries with a significant or growing middle class in the Southern Hemisphere are logical choices for alliances, according to Peterson.
“You end up having a capacity to deliver a year-round supply,” said Peterson.
Peterson suggested that smaller or mid-sized growers could consider cooperatives as a step toward forming alliances or look around for brokers or middle people in chains who are working on international connections.
“A bigger grower probably has more opportunity than a smaller grower,” he said.
Peterson believes growers could do well to think like New Zealand growers who are forced to go out and market their goods on a worldwide basis because the country is an island.
He also encourages growers to travel and see how business is done in other parts of the world as many other countries require more personal contact when doing business.
Another panelist, Mike Schrom, from Honee Bear Canning Co. in Lawton, Mich., agrees alliances are important. “If we don’t create alliances throughout our system we won’t continue to exist,” he said.
Quality is also another huge issue facing growers.
“If you don’t put out a quality product, you’re going to be in trouble,” said Joe Pirrone, from Mike Pirrone Produce in Capac, Mich., another one of the panelists. He suggested that growers must do some pre-planning, very long range planning like the Japanese do, constantly adapting and innovating.
Tom Oomen, from Oomen Farms in Hart, Mich. said diversification is necessary to stay in business. He told the audience that three years ago the asparagus market for processing made a disappearing act. His operation adapted by growing more asparagus for the fresh market.
“We have successfully marketed some asparagus to Japan,” he said. Oomen put up additional storage and bought into Michigan Freeze Pack, a processor, with three other growing operations.
“There’s clearly not a silver bullet for the industry,” Peterson said. He told the audience that countries such as Mexico have an uncompetitive advantage labor wise.
“The only thing you can do is find some more labor saving devices. We’re probably not in the position to be a low cost producer,” Peterson said. Pirrone noted that the problems the vegetable industry are facing are not unique to agriculture.
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