Category: Commodities & markets

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Science and Technology in California Agriculture

AIC Issues Brief No. 4, February 1998.

Science and Technology In California Agriculture 

Julian M. Alston and David Zilberman*

Development and adoption of improved technology has been a central element in creating the marvel that is today’s California agriculture, as well as some of the problems it faces entering the 21st Century.

In this AIC Issues Brief we review the role of technology in development of California agriculture. First, we document changes in inputs, outputs and productivity for California agriculture during a historic period of technological growth: 1949-1991. The trend during this time was toward less land and labor, more capital and purchased inputs, and dramatically increased agricultural output of all types.

Second, we review the evolution and adoption of certain technologies that have been particularly important to the development of California agriculture, including technology spillovers from other parts of the world with Mediterranean climates and extensive use of irrigation.

Finally, we consider the sources of new technology and the role of government in developing technology.

Inputs, Outputs and Productivity, 1949-1991

Table 1 shows changes in California agricultural output from 1949 to 1991. These new data prepared by Barbara Craig and Philip Pardey are the best available to document the growth of agricultural productivity. Using a value-weighted quantity index, the table shows that California farmers produced more than three times as much output in 1991 as in 1949. Different commodity outputs grew at different rates and at different times. For instance, greenhouse and nursery output increased almost tenfold, while production of field crops—including wheat, rice, cotton, and corn—grew by only about three times, and actually declined slightly after 1980. Meanwhile, output of livestock, fruits and nuts, and vegetables steadily increased several times over. Across all categories, the index of outputs increased 218 percent.

Table 1. California Agricultural Output

Year Total Output Field Crops Fruits & Nuts Livestock Vegetables Greenhouse & Nursery
1949 100 100 100 100 100 100
1960 145 159 107 161 141 196
1970 177 169 133 209 170 278
1980 260 315 233 245 203 607
1991 318 282 267 340 249 977
Growth Rate
1949-91		 2.76 2.46 2.34 2.91 2.17 5.43
Source: Compiled by Alston and Zilberman using data provided by Barbara Craig and Philip Pardey. These data are updated and revised from those in a previous AIC publication that analyzed agricultural productivity: Valuing UC Agricultural Research and Extension (1994).

Inputs in California agriculture also changed during the four decades, as shown in Table 2. Use of purchased inputs (electricity, fuels and oil, feed, fertilizer and seed) more than trebled. The use of capital services—including physical inputs such as automobiles, tractors, trucks and combines, as well as biological inputs such as dairy cows, ewes and breeder pigs—grew by a little more than 50 percent. However, quality-adjusted land and labor use in agriculture actually declined over the same period. Across all input categories, the index of use increased 58 percent.

Table 2. Input Use in California Agriculture

Year Total Input Land Labor Capital Purchased Inputs
1949 100 100 100 100 100
1960 123 99 88 146 178
1970 120 93 68 125 222
1980 136 100 76 134 266
1991 158 92 90 156 334
Growth Rates – Percent per Annum,1949-91 1.09 -0.2 -0.25 1.06 2.87
Source: Compiled by Alston and Zilberman using data provided by Craig and Pardey.

Tables 1 and 2 show that, between 1949 and 1991, a 218 percent increase in California agricultural output was achieved with only a 58 percent increase in inputs. Expressing aggregate output per unit of aggregate input provides a measure of productivity. Thus, productivity (the index of output divided by the index of inputs) in California agriculture doubled in 42 years.

This means if input use had been held constant at the 1949 quantities, the use of 1991 technology would have resulted in twice as much output as 1949 technology. Alternatively, to produce 1991’s output using 1949 technology would have required twice as much inputs as were actually used.

Evolution of Technologies in California

Since the last century, California agriculture has placed high priority on development of institutions and adoption of technology to improve irrigated agriculture. This process included exchange of technology with other regions sharing a Mediterranean climate and crop base.Technology Spill-ins. In the 19th and early 20th centuries, a significant process of technology transfer to California was embodied in the knowledge of immigrants from Italy, Germany, France, Eastern Europe and Asia who settled in the San Joaquin Valley and near the Russian River. Bringing crop varieties and farming practices, these immigrants established the foundation for fruit and vegetable industries in California.

Transfers of technology to California from regions with similar crops and growing conditions have continued. For example, some South African entrepreneurs and Australian companies played major roles in technology transfer, and California has been a major beneficiary of the Binational Agricultural Research and Development (BARD) program with Israel. California also has benefited from new wheat and rice varieties developed by the international research centers of the Consultative Group on International Agricultural Research (CGIAR). New, higher-yielding wheat varieties developed by the International Maize and Wheat Improvement Center (CIMMYT) in Mexico, incorporating semi-dwarfing genes and rust resistance, were designed for developing countries but turned out to be especially suitable for use, either directly or as parental lines, in California and Australia. Today, virtually 100 percent of California’s wheat has important CIMMYT-bred ancestors. Similarly, improved rice varieties from the International Rice Research Institute (IRRI) in the Philippines have been relatively well suited for adaptation to California. Essentially all of California’s rice has some IRRI ancestors.

Irrigation has made the Central Valley into the most productive agricultural region in the world, and with increasing competition for water resources drip irrigation is increasingly important. Imported from Israel in the late 1960s, drip irrigation has been widely adopted and improved, particularly in high-value vegetable crops.

Technology Development. Meanwhile, public research and extension programs in California, as well as private research and development, have revolutionized virtually every aspect of the state’s agriculture:

  • The adoption of the tomato harvester and suitable new varieties of tomatoes was remarkably swift, starting from a base of zero in the early 1960s. By 1968, 95 percent of California’s processing tomatoes were mechanically harvested.
  • The state’s cotton industry expanded rapidly in the immediate post-World War II years, and California cotton growers adopted mechanical harvesting more rapidly and effectively than elsewhere. By 1965, virtually 100 percent of California’s cotton was mechanically harvested.
  • Mechanical harvesting and bulk handling equipment dramatically changed the fruit, nut and vegetable industries. Especially where the products were destined for processing use, the innovations were introduced in the 1960s or earlier and had become standard technology by the 1970s.
  • Genetic improvement has led to higher-yielding varieties with improved pest resistance, as well as other advantages. For example, California’s almond yields per acre roughly tripled between 1950 and 1990, in large part as a result of improved varieties. Combined with other technological improvements, this has helped spur the growth of the almond industry in California so that it now dominates the world market. Similar developments combining improved genetic stock with other technological improvements and management have vitalized many other Cinderella food-and-fiber industries in California, including other nuts (pistachios and walnuts), fruits and vegetables.
  • Varietal improvement also has meant better quality—sometimes at the expense of physical yields—or an increase in the number of available varieties. For example, in 1953 there were only three leading table-grape varieties, with Thompson Seedless the most important. By 1993, substantial acreages were planted to each of eight specific table-grape varieties. Extending the season and range of varieties has provided an important stimulus to demand for fresh grapes. In the case of California strawberries, varietal improvements extended a short season to almost year-round availability—at the same time allowing improvements in quality as well as huge yield gains. Another example is the lettuce industry. At one time, “lettuce” meant Iceberg lettuce, but today California grows many types and varieties of lettuce. The industry has successfully combined advanced genetic material with improved production and post harvest technologies, as well as better understanding of the market.

Pest Control. To a large extent, the ability of California farmers to grow more than 250 different crops stems from their ability to apply technologies to avoid, resist or control a multitude of diseases and pests.

Chemical pest controls have a wide range of benefits, including increased crop yields, lower production costs, improved product quality and shelf life, and reduced inventory losses. It is estimated that the cost of banning the use of chemicals in production of just five leading California crops (lettuce, strawberries, oranges, almonds, and grapes) would range from several hundred million to billions of dollars annually and would hit consumers with substantial price hikes—50 percent or more.

However, the productivity gains from pesticides can involve costly side-effects. Intensive use of some pesticides in high-value California crops means that care must be taken to assure worker safety. The soil fumigant methyl bromide is linked to depletion of atmospheric ozone, and there is doubt that it will be available in the long run. Because of such side-effects of chemical use, as well as its high cost, an array of nonchemical methods to address pest problems has been—and is still being—developed in California.

Computers. The computerized systems that have fundamentally changed other industries have been adapted by California farmers to some, but not all, aspects of their enterprises. In the dairy industry, for example, the use of computerized herd improvement programs is widespread. One reason is that dairy farmers had an intensive manual bookkeeping system and herd improvement program before the introduction of the computer—so that computerization simplified an existing procedure. In other agricultural applications, computerization often significantly alters production processes and decision making. Also, a substantial amount of the dairy industry software was developed and promoted in the public sector. Publically-sponsored computerized systems also guide irrigation decision-making, increasing water-use efficiency.

In terms of production value, the most important single sector of California’s agricultural economy in recent years has been the dairy industry—which has developed and improved its technology more rapidly than in other states. Milk production has grown relatively rapidly. Through improved technology in both dairying itself—especially milk harvesting and milk handling—and in dairy feed production, California has become the largest and among the lowest-cost dairy-producing states in the nation.

SCIENCE POLICY: A CRUCIAL ROLE

The transformation of California agriculture that began more than one hundred years ago entailed the progressive adoption and adaptation of various types of technologies including mechanical and biological innovations, and new chemicals. Improved methods of production, in conjunction with changing markets for inputs and outputs, have promoted dramatic changes in the range, mix, and total value of products from the state’s agriculture—as illustrated in Tables 1 and 2. These productivity improvements have resulted from private and public investments in California and in other places, especially other countries sharing a Mediterranean climate.

In maintaining this technological edge, public science policy will play a crucial role. New technology in California agriculture has been developed not only through investments in research and development, but through synergism between private-sector and public-sector institutions. Federal and state governments play significant roles in the process by:

  • Creating appropriate incentives for private firms to conduct research and develop technologies for which they can be rewarded by the market.
  • Financing and conducting public research and development in situations where the private sector will not adequately fund agricultural research and development from the point of view of the state or nation as a whole.

Science policy encompasses public-sector research and development, public policy related to private research and development, intellectual property rights, and technological regulation. The evolving nature of agriculture and markets for agricultural products, society and societal attitudes about science, institutional arrangements for science, and science itself mean that science policy must evolve as well.

In shaping science policy for California agriculture, it will be important to continue to find ways to maintain or increase outputs with the same or fewer inputs—but the new agendas also stress issues such as food safety, environmental effects and alternatives to agricultural chemicals. To even sustain (much less increase) agricultural productivity for the next century will require not only carefully designed and effective science policy, but specific technological solutions as well. In turn, this will require a sustained rate of investment by both the private and public sectors and a continuing but evolving role for the University.

The federal legislation that provides the foundation for much of the agricultural research undertaken in the United States is currently being negotiated in Washington. These decisions will play a crucial role, along with California’s own policies, in determining whether the past century’s successes will be repeated in the next century.

*Julian Alston is a professor in the Department of Agricultural and Resource Economics at the University of California, Davis, and an Associate Director of the Agricultural Issues Center. David Zilberman is a professor and Chairman of the Department of Agricultural and Resource Economics and Policy at the University of California, Berkeley.

 

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AIC Quarterly: Volume 11, No. 4, 1997

THE UC/AIC QUARTERLY

THE NEWSLETTER OF THE UC AGRICULTURAL ISSUES CENTER
VOLUME 11. NO. 4. 1997

 

DIRECTOR’S MESSAGEBY DANIEL A. SUMNER

This fall I spent one month in China and one week in South Korea, an interesting and productive trip to a part of the world that is particularly important to California agriculture. I had visited a number of Asian countries and South Korea several times, but it was my first visit to China.

Agriculture in China has enormous variety. Chinese agriculture is dominated by tiny family farms—a typical one might be about one acre, producing mainly grain—but it also has some huge state farms. I visited a state farm corporation outside Beijing that cultivates about 2,000 acres of wheat, milks about 10,000 cows, and raises and fattens 100,000 ducks (for Peking Duck). That farm also has a sizable hog operation, some miscellaneous crops and operates joint ventures with a Spanish multinational to produce value-added dairy products, such as flavored yogurt drinks. Outside of agriculture, the corporation owns a taxi company and a large apartment complex.

As with other state-owned enterprises in China, this company is under pressure to reduce costs, trim its bloated work force and generally get the business on sound financial footing. Clearly, growing incomes, improving infrastructure and broadening development are changing the physical and economic face of agriculture and the entire country.

Our visit to South Korea was in early November, a few weeks before the collapse of financial markets in Asia. Even at that time, the South Korean won had lost about 20 percent of its value over the previous year and there had been some increase in bankruptcies and bank failures—but the general mood within agriculture and agribusiness was one of optimism.

South Koreans are rightly proud of the economic and political transformation they have achieved in just 30 years. Traveling from Beijing to Seoul dramatizes that transformation, and also makes obvious how far the South Korean economy and its agriculture has come. Based on the achievement of recent decades, it seemed that South Korea’s financial problems were real, but short-term, and could be overcome with sound economic policy and some luck. Unfortunately, neither luck nor sound policy was available in late November and early December. The won dropped another 60 percent before recovering somewhat. This made it impossible to meet dollar-denominated debt payments. Even with improvement at the end of 1997, the situation remains serious and unsettled.

South Korea has been a major growing market for many agricultural products from California, so its prospects have clear and immediate economic implications here. It has also been opening its markets further in response to the Uruguay Round Trade Agreement and World Trade Organization dispute settlement pressures. However, the current economic turmoil means slower income growth and an expensive dollar relative to the won. Neither of these is good for California farm exports.

Everyone I spoke with agrees that the fundamental prospects for long-term growth in South Korea are strong, as they are in China. California agriculture must maintain an active interest in the region and encourage policy reforms that get economic growth back on track. In the 21st Century, both China and Korea will be even more important to California agriculture than they are today.

GROWER SURVEY ON RICE STRAW DISPOSAL

The AIC is co-sponsoring a study on growers’ responses to the state-mandated phasedown of rice straw burning in the Sacramento Valley. Data for the research is currently being collected through a mail and interview survey of randomly selected growers in a nine-county region.

The questionnaire, titled “Economics of Rice Straw Disposal: Grower Experiences 1995-1997,” queries growers about their costs of rice straw disposal, the physical characteristics of their rice fields, and their experience trading burning rights with other growers in the Valley. As is standard with this sort of statistical research, confidentiality of individual responses will be maintained.

The objective of the research is to determine the magnitude of costs that the burn phasedown imposes upon the rice industry, and to analyze the ways in which growers are responding. UC Davis graduate student Marc Carey, Professor Richard Howitt of the Department of Agricultural and Resource Economics, UC Davis, and AIC Director Daniel Sumner are collaborating on the research.

The results of this study will be featured in a forthcoming AIC Issues Brief, as well as in more technical research reports.

 

EXOTIC PEST PROJECT LAUNCHED

Exotic pests—harmful non-indigenous species—are the focus of the next major study by the AIC.

Daniel Sumner, Jerry Siebert, Marcia Kreith and Hyunok Lee have been working with the California Department of Food and Agriculture and others to plan a thorough multi-disciplinary study of exotic pest issues in California. After additional planning with scientists and policy analysts from the University of California, state and federal governments, industry and public organizations, we will begin to tackle a broad set of public issues that arise from the exotic pest threat.

The project will help decision makers better understand the effects of exotic pests on plant and animal production and mechanisms for detection, exclusion, eradication or control. We will study the public interest in exotic pest policy and review the full costs of public action or inaction. We will carefully consider the impact of potential exotic pest problems on domestic and international markets for California agricultural products. Consequences of alternative monitoring, eradication and control programs will be modeled and measured.

Exotic pests include a variety of plants, animals and microbes—such as weeds, disease-causing pathogens, insects, nematodes, vertebrates, etc. Several exotic pest related plant and animal diseases, insects, weeds, and nematodes are important in California. These include well known pests such as medfly, foot-and-mouth disease, citrus canker and hydrilla.

Early in 1998 we expect to begin working with research collaborators and project advisors from throughout the University research and extension community, the agricultural industry, and the public interest.

 

HAROLD O. CARTER ENDOWMENT UPDATE

BY WILLIAM ALLEWELT
AIC ADVISORY BOARD CHAIR

It’s gratifying to report that we’re off to a great start with fund raising for the Harold O. Carter Endowment of the UC Agricultural Issues Center. We will have lead gifts totaling more than $200,000 on the books before the official campaign commences early in 1998.

The campaign is a volunteer effort. All members of the AIC Advisory Board are enlisted and have been joined by a few other well known and respected participants in the agricultural community. It will also be of short duration; we intend to wind up our calls by the end of 1998. Of course, the endowment will remain open for future gifts from later donors who support the Center’s work.

Participants will not be subjected to a hard sell. We are committed to support being decided on the merits of what donors believe the Center has been worth over these past dozen start-up years, and what value it promises for the future.

The UC Agricultural Issues Center is a truly unique undertaking, chartered as it is to provide objective, scholarly examination of critical agricultural issues that also affect much broader public interests. In this sense we see it as a vital academic resource to promote agricultural literacy—a companion to such public information programs as Ag in the Classroom and Ag Network.

Those of us involved with this campaign believe the Center’s performance has earned your generous support for this special campaign. We’ll be anxious to hear if you agree when we contact you in 1998.

 

AIC PROGRAM ON RESOURCES AND ENVIRONMENT

BY KEITH C. KNAPP

Natural resources and the environment are under stress in California and the West. Increases in population and economic growth, and continuing concern over the environment combine to place resources at the forefront of of AIC issues.

California agriculture is both affected by and a source of change in natural resource systems. The AIC program in Resources and the Environment focuses on these interactions between agriculture and the ecosystem.

As the primary water user in California, irrigated agriculture can expect increasing competition for water supplies from urban and environmental uses. Agriculture also contributes to water quality degradation through sedimentation, salinity, nitrates and other toxics such as selenium and pesticides. Innovative water management strategies are ways to mitigate both of these problems. Some of my ongoing research is investigating the economics of these issues.

Groundwater can expect increasing attention in the future. The Center has published several studies on water transfers. Related to this work we will now investigate in more detail the impacts of proposed water transfers and water markets on groundwater usage and management. Recent research results are being summarized in a forthcoming AIC Issues Brief, and a more detailed study for the southern San Joaquin Valley has been initiated. In general the long-run sustainability of groundwater resources (both quantity and quality) is the subject of considerable concern in California. This topic will be investigated as a possibility for a future major Center study.

Air quality is another area of significant concern to agriculture. Public attention and regulation has highlighted rice straw burning, particulate matter and animal waste odor as sources of particular concern. AIC has completed studies related to livestock waste (which is also a water quality issue) and has work underway on the rice straw issue.

A major AIC research project (page 3) will deal with the analysis of issues related to exotic pest control. A part of this issue is the effect of control and eradication measures on environmental quality and on perceptions of California residents. AIC will deal with these environmental concerns in the overall project on exotic pest issues.

As you can tell, we have a full agenda for the Resources and Environment Program at AIC. There are many vital concerns facing California. We cannot deal with all of them, but we can contribute information and/or analysis to some of the most important issues.

 

WHERE IN THE WORLD ARE THE MARKETS?

A lunch address and question and answer session with California Secretary of Agriculture Ann Veneman highlighted the annual UC Executive Seminar on Agricultural Issues held at the Sacramento Hyatt on December 11, 1997.

One hundred and thirty-six agribusiness representatives, academic researchers and agency personnel shared their expertise on the topic: Where in the World Are the Markets? After a brief welcome by AIC Director Daniel Sumner, Jerry Siebert, AIC Associate Director and conference co-chair, characterized California agriculture and described trends and issues facing the industry. He pointed out that world incomes and population are expected to grow, and markets are opening further. These global forces create challenges and opportunities for California’s dynamic agricultural industries. Following Siebert’s overview, panels of industry leaders discussed those issues in three broadly defined markets.

Secretary Veneman described how the globalization of food systems profoundly influences California agriculture. Calling attention to the interconnections between international relations and agriculture, she also noted the importance of food safety and the public perception of food safety. Veneman cautioned against erecting import barriers to protect California agriculture, because we ultimately gain much more from open markets worldwide.

ASIA. The Orient is an important and growing market for California despite the current financial crisis (see Director Sumner’s message). Japan, South Korea and Hong Kong are among the top six destinations for California agricultural exports, while China and India are expected to become especially important in coming years. (Forecasts for 2020 are that China will be the world’s largest economy.)

Among the issues requiring resolution are high Asian import tariffs and quotas and China’s seemingly arbitrary use of medfly concerns to embargo California citrus. This highlights the importance of detection and eradication of exotic pests to insure reliability of California export markets.

Considerable discussion focused on the implications of the Asian financial turmoil for California agriculture. Slower income growth and a strong dollar relative to Asian currencies translate into weaker demand for California exports. However, as of December 11, for cotton and citrus, the impact was negligible.

Panel members: Colin Carter, chair; Roger Baccigaluppi, RB International; Bill Quarles, Sunkist; and Tom Smith, CALCOT.

LATIN AMERICA. Mexico and the countries of Central and South America are diverse in cultural orientation, competitive position and economic relationship. Conspicuously, the U.S. lags behind Europe and others in trade agreements with the region. A number of these countries have been aggressively developing foreign markets and have been creating trade alliances—most notably MERCOSUR.

Sanitary and phytosanitary barriers are a sensitive issue for the two-way fresh fruit and vegetable trade with Chile and other countries of Latin America. Systems inspection agreements, such as the Oriental Fruit Moth Agreement between Mexico and the U.S. covering export of California fruit to Mexico, could serve as important models for future SPS agreements. A systems inspection approach, however, requires continuous attention to details.

Panel members: Roberta Cook, chair; James Christie, Bryant Christie Inc.; Ron Schuler, California Canning Peach Association; and Cher Watte, California Department of Food and Agriculture.

US, CANADA AND EUROPE. The U.S. domestic market is the largest market for California farm production, Canada is our number two export market and the European Union remains among the top six export destinations. The domestic market is complex and changing. Consumers remain interested in value-added, time saving products and are increasingly focused on food safety. The source of the food matters less than its perceived safety. Panelists recommended seeking market niches for specific products rather than attempting to market globally.

Keys to market growth will be found through (1) market research, (2) strategic alliances with competitors in other countries and (3) consumer education. This panel also expressed frustration with market access and with export subsidies by foreign competitors.

Panel Members: Kirby Moulton, chair; Jane Anderson, Anderson & Associates; Dennis Balint, Walnut Marketing Board; Scott Horsfall, Kiwi Commission; and Jim Tillison, Alliance of Western Milk Producers.

In wrapping up the conference, AIC Director Daniel Sumner repeated the theme heard from those present—the future will be shaped by market access—and that access will be affected by sanitary and phytosanitary standards. He urged attention to trade negotiations as the one viable way to pursue market opening.

 

AIC TO SURVEY INTERNET USE AND INTEREST

The internet is here to stay. We at AIC, like others involved in California agriculture, are considering how to make more effective use of our communication opportunities through the net. To tailor our use of technology to the needs of those we serve, AIC needs to know more about the technology, experience and expectations of our clients. In the coming weeks you will receive a short questionnaire from AIC asking what information technology you use, what you use it for, and what services you would want an organization like AIC to provide through the internet. We will use the results of the survey in planning improvements in our internet service. This information also will be of interest to others and will summarize the survey results in an upcoming AIC Issues Brief.Thank you in advance for your participation in the survey.

 

AIC DIRECTOR HEADS TRADE RESEARCH GROUP

AIC Director Daniel A. Sumner was elected Chairman of the Board of Directors of the International Agricultural Trade Research Consortium (IATRC) at its annual meeting in December.

The IATRC is a diverse group of academic, government and industry economists who conduct research, policy analysis and public outreach related to trade in agriculture. Formed in 1981, IATRC now has a diverse and distinguished membership from more than a dozen countries.

Sumner was re-elected to serve a two-year term on the Board and will lead the group through its meetings on Food Security (June 1998) and Regional Trade Agreements (December 1998). He will also provide guidance for the June 1999 meeting on the role of China in the agricultural trading system.

 

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International Trade and California Agriculture

AIC Issues Brief

No. 3, October 1997

International Trade and California Agriculture

Colin A. Carter and Daniel A. Sumner*

International trade, long important to California agriculture, is becoming increasingly central to the state’s agricultural economy. There are crucial opportunities and challenges for the state’s farm-related industries in world markets. The current debate over a “fast track” for new trade agreements highlights some of the important policy issues. Meanwhile, major forces are shaping international markets and the future of California agricultural trade. (See box for global trends.)

One quarter of the more than 250 agricultural commodities produced in this state are exported. Six of California’s top 10 commodities in terms of value of production also rank in the state’s top 10 exports. As a result, California not only leads the US in farm production, but also is the nation’s largest exporter of agricultural products. California exports more food and fiber than most countries, including such major exporters as Australia and Canada (1995 data).

MAJOR EXPORT PRODUCTS

California’s exports, including bulk commodities as well as consumer-ready foods, reflect the highly diversified nature of its agriculture. Table 1 lists the value of important export commodities and the 1992-95 growth rate in exports. Of the commodities listed, the largest rates of export growth were experienced by dairy (22.1%), grapes (10.4%) and almonds (9.6%).

All the commodities listed have a long history of exporting, but the nature of those exports differs. Most California cotton is exported—mainly in the form of raw cotton that is milled and further processed overseas, especially in Asia. The almond industry also ships the majority of its output to foreign markets, especially to Europe.

For other products, the domestic market remains larger than exports. California oranges are sold fresh to Asia and Canada, but the largest market is in the US. Grapes are sold fresh, as raisins, and as grape juice and wine. Exports in all these forms have been increasing, but the domestic market remains larger.

California’s Main Agricultural Exports

1995 export value
($ million)		 1992-95 annual
growth rate
Beef 993 0.4%
Cotton 780 2.0%
Almonds 799 9.6%
Grapes 674 10.4%
Oranges 335 -0.9%
Dairy 236 22.1%
Total (1-6) $3,817 4.4%
California Total $11,506 4.5%
Source: California Agricultural Resource Directory, CDFA, 1995.
a) CDFA value for almonds was $488,439 and was considered to be inaccurate. More than 99 percent of U.S. almonds are grown in California. The almond value used was obtained from the USDA’s FATUS.
b) Grapes includes table grapes, wine, and raisins.
c) The California total uses the USDA’s FATUS for the almond data and excludes fish and timber.
d) The choice of the time period for the annual growth rate was dictated by the 1992 change in the way state export statistics were reported.

As measured by farm sales, the dairy industry is the largest single agricultural industry in California. Farm value of milk was $3.1 billion in 1995 and the processed value, including fresh milk, is several times larger. Therefore, even though less than 8 percent of dairy output is exported, the total value of exports was well over $200 million in 1995. Dairy exports have been aided by the US Dairy Export Incentive Program (DEIP), which is being curtailed as a result of the Uruguay Round Trade Agreement.

Beef is often listed among the top exports from California agriculture and the beef industry, including pasture-based and feedlot operations, remains a major part of agriculture in the state. However, the way export data are collected makes it difficult to determine whether the meat products originated from California farms or were simply processed and shipped from here. Thus, both beef and pork export figures attributed to California seem implausibly high. For beef, the 1995 data indicate exports of almost $1 billion. (See Data Issues section at end of Brief.)

MAJOR EXPORT MARKETS

California tends to specialize in commodities that are usually sold to high income countries. The top six destinations, shown in Figure 1, are Japan, Canada, European Union (EU), South Korea, Hong Kong, and Mexico. (Unofficial trade sources indicate that somewhere between 10 to 60 percent of agricultural exports to Hong Kong may be re-exported to mainland China. If accurate data were available, China might well replace Hong Kong as one of the top six California markets.)

In order to highlight some of the trade issues that California faces, market developments in important receiving nations are briefly discussed below.

JAPAN

Japan has a highly protected market in some important commodities, but is also the world’s largest importer of agricultural products. Japan is California’s largest export market for agricultural products, with beef, cotton, and oranges ranking among the top commodities. The US accounts for roughly one-third of Japan’s agricultural imports and about 20 percent of that amount originates in California.

Rice is the focus of Japanese agricultural policy and the stated goals are to enhance food security and raise farm incomes. In the recent Uruguay Round Trade Agreement, however, Japan pledged to gradually increase the import share of its domestic rice consumption from 4 to 8 percent over six years. In 1996, Japan imported about 500,000 tons, or about 5% of domestic use. Of this total, about half came from California. In addition, tariffs are being significantly lowered for beef, oranges, grapefruit, certain dairy products, peaches, wine and vegetable oils.

CANADA

The implementation of the Canada-United States Free Trade Agreement (CUSTA) in 1989 followed by NAFTA in 1994, has led to expanded agricultural trade between the two nations. Between 1989 and 1995, US exports to Canada grew about 60%, from $3.6 billion to $5.74 billion, while imports from Canada increased about 90%, from $2.9 billion to $5.56 billion. Fruits and vegetables account for more than one-third of Canada’s agricultural imports from the US and thus California plays an important role in this north-south trade.

Trade disputes seem to be a byproduct of increased farm trade on the North American continent. A continual and contentious disagreement has focused on increased Canadian exports of wheat and barley to the United States, some of which makes its way into California. In 1997, with wheat imports rising again, there are renewed US complaints, many focused on the Canadian Wheat Board.

In 1995, the United States complained formally about Canada’s high tariffs on dairy, poultry, and egg products. The US argued that these tariffs, which replace import quotas as a part of the Uruguay Round trade agreement, conflict with Canada’s NAFTA commitments. In 1996, a NAFTA dispute settlement panel unanimously supported Canada. (But, this result did not satisfy most US dairy industry advocates.)

EUROPEAN UNION

The wealthy nations of Western Europe have been a traditional market for US agricultural exports. Although high trade barriers and other rules limit its imports of grains, meat and many other products, the EU remains a key destination for US and California exports. In the case of California, the EU is a major buyer of almonds and other nuts, as well as wine and raisins.

California agriculture is also affected by EU export subsidies. These policies depress the world market prices for many items including beef and dairy products.

SOUTH KOREA

South Korea imports significant amounts of beef, cotton, and hides from California. South Korea is also a growing market for horticultural products.

Although the overall economy continues to grow rapidly, Korean agriculture is under serious economic pressure. Under the Uruguay Round Agreement, South Korea has committed to trade liberalization. Like Japan, it agreed to import a small but growing share of its domestic rice consumption. (In exchange for limits on its rice liberalization requirements, South Korea agreed to substantially lower citrus and other fruit and nut tariffs, and substantially open beef markets.) Most observers agree that South Korean imports of rice will likely exceed their minimum commitment and imports of California rice seem likely in the near future.

HONG KONG AND CHINA

Hong Kong’s population is only 6.3 million, compared with China’s 1.2 billion. However, Hong Kong’s GDP is equivalent to 21 percent of China’s and its income per head, nearly $24,000, is higher than in most Western countries. Hong Kong is highly dependent on the rest of the world for food.

The California farmer plays an important role in supplying this market and Hong Kong is a rapidly growing market for California’s agricultural commodities. There are no import tariffs on food. Non-tariff barriers, such as phytosanitary or plant quarantine regulations, are almost nonexistent.

On July 1, 1997, China regained sovereignty over Hong Kong. China pledged, however, that Hong Kong will retain its status of a free port, and that Hong Kong’s free trade structure will remain in effect.

China was an original member of General Agreements on Tariffs and Trade (GATT), but withdrew in 1949, and has been trying to rejoin since 1986. Entry into the World Trade Organization (WTO), which now enforces GATT, would mean better and increased food imports. However, the US has maintained that to enter the WTO, China must pledge to comply with basic international standards of trade.

Currently, China bans the importation of most fruits for consumption in China. (Table grapes recently became one exception to this rule.) However, fruit imports are permitted if the products are subsequently re-exported after further processing. This system is open to abuse and some produce likely remains in China.

China has the long-term potential to export high-quality food to Hong Kong, Japan or Korea. The hurdles are lack of incentives and inadequate infrastructure. Hong Kong entrepreneurs may now produce higher quality food products in China for sale in Hong Kong and other markets. This could affect California’s competitiveness in the Hong Kong market and perhaps elsewhere.

MEXICO

Mexican agricultural trade is highly dependent on its two NAFTA partners. Under NAFTA, US and Mexican agricultural tariffs and non-tariff barriers will be phased out over time periods up to 15 years.

However, it remains difficult to assess the impact of NAFTA on Mexico or on agricultural trade. Beginning with the devaluation of the peso in late 1994 and early 1995, the Mexican economy experienced a two-year economic crisis that halted the expansion of trade and the economic growth that was expected to result from the January 1994 implementation of NAFTA. The peso went from 3.4 per dollar in 1994 to 7.9 per dollar in 1996. Inflation in Mexico went from single digits in the early 1990s to over 50 percent in 1995. This crisis had a huge impact on Mexico’s trade in agricultural products. Imports dropped dramatically due to the declining real incomes in Mexico. At the same time, Mexican exports of agricultural products benefited from the peso devaluation. Mexico’s key exports are tomatoes, orange juice, coffee, fruits, cattle, beer, and grapes.

In 1996, the US partially opened its market to Mexican avocados for the first time in 82 years. Prior to this ruling, phytosanitary rules banned unprocessed Mexican avocado imports and provided protection to California growers. The US decision to import avocados into selected markets indicates a US commitment to rules-based trade which will probably help in alleviating US-Mexican trade tensions over peaches, nectarines and cherries.

Unlike Florida, many of the labor-intensive crops grown in California do not compete directly with Mexican produce. In the case of fresh tomatoes, for example, the major market periods of Mexican and Californian tomatoes do not overlap. Still, with lower labor costs and improving conditions for infrastructure, management and technology, Mexico is likely to be a formidable competitor in the future. Of course, as the Mexican economy improves, Mexico will also become an even more important export destination.

CONCLUSION

For the foreseeable future, growth in trade of agricultural products is expected to be most vigorous in the Pacific Rim. As a major food exporter, California is well situated to participate in this growing market. California agriculture is highly diversified and produces a range of high-valued food products destined for sale in relatively high income countries. Thus California is likely to experience continued growth in profitable agricultural exports.

 

FIVE GLOBAL TRENDS
ARE SHAPING AGRICULTURAL MARKETS
  • First, income growth, especially in the Pacific Rim, is driving increased demand for food and fiber. In poor countries, income growth results in more food purchased and improved diet quality. In middle income countries, income growth encourages a shift to fresher produce, more meat and poultry and higher quality products in general. In the strong economies of East Asia, agricultural imports have grown dramatically during the 1990s.
  • Second, international agreements and unilateral actions are gradually opening more foreign markets to California exports. Improved market access is occurring for many products, but this phenomenon is not universal and is certainly not complete. The North American Free Trade Agreement (NAFTA), and the Uruguay Round Trade Agreement, are already having significant impacts on California agriculture.
  • Third, US import barriers are also falling, which allows foreign products better access to US markets. This means domestic competition facing California products is stronger.
  • Fourth, technical trade barriers based on animal and plant health, food safety and related concerns must now be based on scientific evidence that satisfies international review. Barriers are not required to be standardized or harmonized, but they are subject to international challenge in the World Trade Organization, or before bilateral dispute resolution committees.
  • Fifth, investments by multinational firms, joint ventures, and trade in highly processed products or ingredients are changing the very meaning and substance of international agricultural trade. As California firms invest overseas and foreign firms invest in and source raw materials from California, we must broaden our concept of international commerce beyond the traditional exchange of commodities across national boundaries.

DATA ISSUES

Information on international trade of agricultural commodities and products is reported for the US as a whole by the USDA in a series of publications known as Foreign Agricultural Trade of the United States (FATUS). However, consistent data on the export value of agricultural products by state of production are simply not available and may be approximated only with varying degrees of confidence. The Agricultural Issues Center and the California Department of Food and Agriculture are initiating a study to assess the uses of and improve the accuracy of state agricultural trade statistics.

This Issues Brief presents export figures for 1995 based upon information from the California Department of Food and Agriculture, FATUS, and industry sources. Similar information for 1996 is not available. The major points we make in this Brief are unaffected by the approximate nature of the trade data.

*Carter is a professor in the Department of Agricultural and Resource Economics at the University of California, Davis, and an Associate Director of the Agricultural Issues Center. Sumner is the Frank H. Buck, Jr., Professor in the Department of Agricultural and Resource Economics at UC Davis, and the Director of the Center. The authors thank Ray Coppock of AIC for editing.

Posted on

AIC Quarterly: Volume 11, No. 3, 1997

THE UC/AIC QUARTERLY

THE NEWSLETTER OF THE UC AGRICULTURAL ISSUES CENTER
VOLUME 11. NO. 3. 1997

DIRECTOR’S MESSAGE BY DANIEL A. SUMNER

Several articles in this UC/AIC Quarterly highlight the importance of international trade and global relationships to agriculture in California. This issue is once again in the news as the US Congress debates the President’s negotiating authority for new trade agreements. AIC has contributed to the dialog over trade policy in the past and we will continue to provide analyses of these issues.

Among the most dramatic economic trends in recent years has been the growth of the Asian market for agricultural imports. Not only has the market grown in such places as Japan, South Korea, Taiwan and Hong Kong, but markets in other Asian countries are now poised to expand rapidly over the next decade or so.

While this AIC Quarterly is being finalized and distributed I am getting a first-hand look at one of the most important and dynamic economies in Asia. During the month of October, Hyunok Lee, UC Davis agricultural economist, and I will be in China, teaching graduate courses in agricultural policy analysis and gathering information and contacts for future research. We will then proceed to South Korea for one week to gather data related to ongoing research on Korean markets and policy.

The Agricultural Issues Center will continue to deal with many topics of interest to California agriculture. None are more important than improved understanding of international markets and related policies.

HAROLD O. CARTER RECEIVES
TOP COLLEGE AWARD

Harold O. Carter, recently retired founding director of the Center, has been given the 1997 Award of Distinction, the highest recognition granted by the UC Davis College of Agricultural and Environmental Sciences to those whose contributions have advanced the mission and enhanced the image of the College. He is one of 11 recipients from industry, agriculture and research institutions, including UC.

The awards were presented October 17, during the College’s annual Fall celebration and award ceremony. Carter, now professor emeritus in the UCD Department of Agricultural and Resource Economics, was honored for, among other achievements, a landmark study of world hunger and food supply, contributions to economic programs in Egypt, and development of the Agricultural Issues Center as “a forum where crucial trends and policy issues affecting agriculture and natural resources in California and the West are analyzed.”

 

INTRODUCING NEW AIC ASSOCIATE DIRECTORS

As indicated in the last AIC Quarterly, the Center has created program areas, each led by an Associate Director. The background and expertise of the fifth new AIC Associate Director is described below.

Jerry Siebert
Agribusiness Issues

Jerry Siebert is an economist in the Department of Agricultural and Resource Economics, University of California, Berkeley. Prior to this assignment, he was Director of U.C. Cooperative Extension. In addition to his academic experience, he has held positions in both business and government. In the latter assignments, he was special assistant to four U.S. Secretaries of Agriculture. He also has a farming background on a family farm in Madera, California.

His work centers on research and education involving the impacts on California agriculture of changes in public policies affecting production and marketing of California agricultural commodities. In particular, he analyzes the use of market mechanisms to evaluate the potential economic effects of changes in public policy. His current focus is the role of technology in California agriculture and changes needed in industry and research institutions to facilitate the development and application of agricultural biotechnology. He is also an active participant in a Russian project to facilitate the transfer of technology in a market economy.

In addition to his work at the University of California, he is an “ex-officio” member of the California State Consolidated Farm Services Committee, a public member on the California Walnut Commission and chairman of the Walnut Marketing Board, president of the San Francisco Farmers Club, and a member of the Board of Directors of the International Agribusiness Management Association.

 

AIC RURAL/URBAN PROGRAM

BY AL SOKOLOW

In each of the next issues, the AIC Quarterly will introduce the new AIC program areas. Interactions between California agriculture and the larger society, particularly the urban populations and communities of the state, are the focus of this AIC program. Up to now, we have concentrated largely on the impacts of rapid urban growth on farmland—emphasizing farmland preservation and other land use policies as they are established and carried out by California’s state and local governments. Looking ahead, we would like to stretch the boundaries of this program area to include other types of interactions critical to the future health of California agriculture. We are looking for challenging issues that call for new research or new syntheses of existing data and knowledge, that have state and local public policy dimensions, and that can generate useful educational outcomes in publications, conferences and other forms. Readers of the AIC Quarterly with ideas along these lines are invited to contact me. (Phone: 916-752-0979. E-mail: ajsokolow@ucdavis.edu)

What have we done so far, and what are the projects in the pipeline or planned for the near future?

The origins of this program go back to two projects carried out by AIC in the late 1980s, a study of the Williamson Act commissioned by state government and the Central Valley Confluence of Change project. The Williamson Act study had a positive although unanticipated effect on policy when, late in the 1993 deliberations on the state budget, the subvention to local governments for property tax losses was doubled and the formula for allocating the payments was revised to pay less for parcels close to cities—both recommendations of the 1989 study. The two-year Confluence of Change project culminated in two large conferences in Sacramento and Fresno in 1990, produced several reports and videos, and brought together more than 60 UC researchers in a comprehensive review of the implications of population growth on the Central Valley’s agricultural and other resources, residents, and local governments. Much of my outreach work as a Cooperative Extension specialist has followed in the footsteps of that 1989-90 project.

More recently, AIC held two conferences on farm-urban “edge” issues. They were (1) Farmers and Neighbors (October, 1995) that primarily examined pesticide application controversies, and (2) California’s Future: Maintaining Viable Agriculture at the Urban Edge (December, 1996) that covered a large set of edge concerns. The published proceedings of both conferences are available from the Center, as is the widely-used Farmers and Neighbors video.

An ongoing feature of our program area is the research report series on California Farmland and Open Space Policy. Three reports in the series have been published so far: studies of (1) preservation programs in four North Bay counties, (2) farmland provisions in county general plans in the Central Valley, and (3) municipal density patterns and policies in the Central Valley as related to farmland protection. Currently under preparation are two candidate reports for the series—a study of the effects of Measure A (restricting new urban growth to cities) in Solano County and a comparison of farmland protection policies and their political roots in seven Central Valley counties.

Scheduled for publication early next year is a book-length collection of articles, California Farmland and Urban Pressures: Statewide and Regional Perspectives,that has been peer-reviewed. The approximately ten pieces in this collection include statewide studies of population and farmland trends, dimensions of the edge problem, state policy, California agricultural history, and the experience of local land trusts. Also included are case studies of farmland preservation problems and programs in Marin, Napa and Ventura counties and the San Joaquin and Sacramento valleys.

As to possible future activities, we are considering a project on generational change in California farm families that would integrate research from several different disciplines—agricultural economics, sociology, anthropology, and law. The issue has implications for agricultural industry and farmland preservation as well as individual families, since shifts from one generation to the next in the ownership and management of farms often provide the impetus for selling farmland for development purposes. I welcome comments about this possible project.

 

AIC INTERNATIONAL TRADE PROGRAM

BY COLIN CARTER

International trade has long been important to California agriculture and that importance is growing. Recent domestic and international policy and market developments have created both new opportunities and new challenges for California agriculture. AIC Issues Brief Number Three documents the importance of trade to California agriculture and raises a number of trade issues facing the industry. The AIC program related to international trade cannot deal with all of the topics raised in the Brief, but we have plans to research some of the issues identified.

A substantial focus of the AIC’s upcoming international efforts will deal with the Pacific Rim. For instance, we will be looking at the growing agricultural markets of Korea and Japan and investigating how trade policy changes in those countries will affect demand for California’s imports. We are also studying the growing potential of competition from mainland China crowding out California exports to Asia. We will study factors affecting trade in high-valued processed food versus trade in bulk commodities.

The international trade program at the Center is also devoting effort toward better understanding of state trading enterprises (STEs). These government organizations established to monopolize foreign trade play an important role in global agricultural trade. STEs are expected to come under increased scrutiny under the new World Trade Organization. AIC’s work on STEs will investigate their role in Australia, Canada, and China. We will investigate both domestic and international market impacts.

Finally, applied research must begin with reliable data and trade statistics, which are notably problematic, especially at the state level. A brief article on page 5 mentions a new project initiated by the AIC and designed to improve the quality of published data on state agricultural exports. This work has a very practical objective of allowing states to more accurately gauge the value and destination of exports. It will also improve the AIC’s program on trade by developing a set of state-level trade data for California.

 

EXECUTIVE SEMINAR SCHEDULED FOR DECEMBER 11

The AIC will co-sponsor an Executive Seminar on Agribusiness Issues at the Sacramento Hyatt on December 11, 1997. The theme of the seminar will be: “Where in the World are the Markets for California Agriculture?” Registration for the seminar will be $110. To receive registration materials, call AIC at 916-752-2320. Registration is limited to 150 participants.

 

NEW CENTER PUBLICATION SPOTLIGHTS STATE’S FOREIGN AGRICULTURAL MARKETS

With international trade increasingly important to California agriculture, AIC Issues Brief Number Three examines the role of international trade in the economic progress of California agriculture.

California is the largest agricultural exporter in the U.S. Exports are crucial to the state farm economy—one-fourth of all agricultural commodities produced here are shipped abroad, a volume of trade greater than that of such major agricultural nations as Australia and Canada. In the Pacific Rim, particularly, international market trends will be a crucial factor in the future of California agriculture.

Meanwhile, the world’s food and farm product markets are being re-shaped by income growth in third-world nations, trends toward reduced trade barriers, and globalized economic enterprises. All these create opportunities and challenges for California’s agricultural industry.

The new Center publication is International Trade and California Agriculture, AIC Issues Brief Number Three, by Colin A. Carter and Daniel A. Sumner. It integrates statistics from several sources to identify California’s most important agricultural exports, their relation to domestic markets, and recent growth rates. The authors then analyze trends in the most important foreign markets for California farm products: Japan, Canada, the European Union, South Korea, Hong Kong and China, and Mexico.

Carter and Sumner are professors in the UCD Department of Agricultural and Resouce Economics. Carter is an associate director of the Center, and Sumner is director.

Those on the mailing list for this newsletter will receive a copy of International Trade and California Agriculture. Additional copies are available from the Center. Also available are the first two in the AIC Issues Brief series: Economic Impacts of Irrigation Water Cuts in the Sacramento Valley and A Measure of Subsidy to California Agriculture.

 

EXPORT DATA PROJECT TEAMS AIC AND CDFA

In recent years California state agricultural export statistics have been reported based upon several different methodologies. At the request of CDFA’s Secretary Ann Veneman, the Center is initiating a new project to investigate, review and develop a consistent methodology and approach. The research will:

  1. Survey appropriate uses of state export statistics by government and the private sector.
  2. Review current and potential ways of reporting export statistics by community and location.
  3. Develop the most accurate and appropriate measurement for values of the state agricultural exports.

With the participation of agriculture departments in other states, the project will be conducted jointly with research counterparts at several land grant universities. Thus, while the analysis here focuses on California, the project will be national in scope.

We anticipate a preliminary set of results and a proposed methodology by mid-1998. We also hope to produce a prototype set of California export statistics by the summer of 1998.

 

FUND-RAISING UPDATE

BY RICK SWANTZ, A&ES DEAN’S OFFICE COLLEGE RELATIONS

In our last issue it was announced that Hal and Carol Sconyers had named the Harold O. Carter Endowment as one beneficiary of a charitable trust they established to be shared equally by four UC Davis campus programs. Their gift to the Endowment is valued at $147,500 and is a tremendous kick-off for our fund-raising effort.

Co-chairs and steering committee members are being recruited for the fund-raising campaign and the candidates are demonstrating 100% willingness to serve. Plans to honor Hal Carter and officially launch our campaign are in their early stages.

More good news on the fund-raising front: the Dean’s Office was contacted earlier this summer by a representative of the State Attorney General’s office, asking whether the college has visible programs that provide maximum benefit to agriculture in California. The AG’s office has received money from a settlement to be awarded to programs benefiting agriculture. It was suggested to them that support of the Center’s programs through the Harold O. Carter Endowment would have substantial long range benefits for California agriculture and California residents. All indications are that $20,000 is on the way!

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