VEGETABLES AND SPECIALTIES December 03, 1999 November 1999, ERS-VGS-279 Approved by the World Agricultural Outlook Board --------------------------------------------------------------------------- VEGETABLES AND SPECIALTIES is published three times a year (includes yearbook) by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the report -- tables and graphics are not included. See supplemental data files in Lotus 123 (.WK1) format. Subscriptions to the printed version of the report are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #SUB-VGS-4039, $30/year. ERS-NASS accepts MasterCard and Visa. --------------------------------------------------------------------------- Contents Summary Fresh Market Vegetables Processing Vegetables Potatoes Sweet Potatoes Dry Edible Beans Mushrooms Special Articles Modeling the U.S. Processing Tomato Industry The F.o.b.-Retail Price Relationship for Selected Fresh Vegetables List of Tables Situation Coordinator Gary Lucier Voice: (202) 694-5253 FAX: (202) 694-5820 E-mail: GLucier@econ.ag.gov Principal Contributors Gary Lucier (202) 694-5253 Charles S. Plummer (potatoes & sweet potatoes) (202) 694-5256 Editor Martha R. Evans Graphics, Table Design, and Layout Wynnice P. Napper Approved by the World Agricultural Outlook Board. Summary released November 17, 1998. The summary of the next Vegetables and Specialties Situation and Outlook is scheduled for release in April 2000. Summaries and text of Situation and Outlook reports may be accessed electronically; for details, call (202) 694-5050. The Vegetables and Specialties Situation and Outlook is published semi-annually (April and November) and supplemented by a yearbook (July). See back cover for subscription information. Summary Despite cool, rainy spring weather in California, the summer drought in the East, and hurricanes in the South, f.o.b. shipping-point prices for U.S. commercial vegetables and melons averaged 8 percent below a year earlier during the first 10 months of 1999. During this time, average fresh vegetable shipping-point prices were the lowest since 1994. With farm prices lower, retail prices for all fresh-market vegetables averaged 3 percent below those of a year earlier during the first 10 months of 1999. If potato prices, which were 5 percent higher in 1999, were excluded from the retail price index, a larger decline would have been evident. Through October 1999, retail prices averaged below the previous year for most major items, including lettuce (down 12 percent), broccoli (10 percent), peppers (10 percent), cabbage (9 percent), celery (4 percent), and tomatoes (3 percent). Retail prices for carrots increased 1 percent due largely to weather-reduced supplies this past winter and spring. In the year ahead, assuming growers reduce acreage in response to low prices, both shipping-point and retail prices for fresh-market vegetables are likely to average above the lows of this past year. One benefit of the sustained low prices this year is expected to be increased per capita use of fresh-market vegetables and melons. Per capita use of all vegetables and melons is expected to reach a record 455 pounds in 1999-up 4 pounds from 1998. Use of fresh vegetables and melons (excluding potatoes, sweet potatoes, and mushrooms) is forecast to total a record high 165 pounds per person. Per capita use of potatoes (fresh-weight basis) for calendar 1998 totaled 140.8 pounds, down less than 1 percent from 1997, and 4 percent below the record high set in 1996. Fresh use declined slightly, and processing use just edged ahead of 1997's level. Total per capita use has averaged 141.3 pounds for the past 5 years (1994-98), 8 percent above the average of the previous 5 years. The forecasts for 1999 and 2000 are 144.9 pounds and 142.8 pounds per capita. The first estimate of U.S. fall-season potato production is 435.6 million hundredweight (cwt), up less than 1 percent from last year and up 3 percent from 1997. The slight increase occurred despite a 3-percent decrease in harvested acreage, as per-acre yields rose 4 percent from a year ago. Large crops in Washington and Wisconsin more than made up for a smaller crop in Idaho. The quality of the crop is expected to be good, and the marginally larger crop should combine with continued strong demand to improve season-average grower prices in 1999/2000. This fall (primarily October to December), persistently low shipping-point prices for fresh-market vegetables likely contributed to U.S. growers' decision to harvest 1 percent fewer acres of fresh-market vegetables and melons than a year ago. California (64 percent), Florida (20 percent), and Arizona (5 percent) account for the majority of fall-season vegetable and melon acreage. While California's acreage increased slightly, area in Florida is estimated to be down 5 percent from a year earlier-the fourth consecutive annual decline. Florida's fall season acreage is now 13 percent below that of 1995. The majority of fall-season vegetables escaped damage when Hurricane Irene hit south Florida in October. However, a reduced volume of winter-season crops from south Florida may be experienced in December and early January due to Irene. During January to October, shipping-point prices averaged lower for tomatoes (down 17 percent) due to a combination of larger domestic field production and increasing competition in the retail market from domestic and imported greenhouse-grown product. Although domestic tomato output is likely up this year, imports have been lower. Fresh-market tomato import volume from January through August was down 19 percent from a year ago and was 4 percent lower than 2 years ago. Tomato import volume from Mexico was 24 percent below a year earlier during the first 8 months of 1999, but volume from Canada (largely greenhouse product) jumped 30 percent. Spurred by low stocks and strong wholesale prices, tomato processors have harvested a record-large crop this year. According to delivery information from the California Processing Tomato Advisory Board, 12.24 million tons of tomatoes were delivered to processors in the State this season. Adding an expected 0.5 million tons from other States would result in a U.S. processing tomato crop exceeding the 1994 record by 10 percent. With excellent weather (warm and dry) allowing an unusually large (record-large) volume to be harvested late in the season (after October 1), the California crop substantially exceeded both industry and U.S. Department of Agriculture estimates. For 1999, wholesale prices for canned vegetables and juices are forecast slightly lower than a year ago. In the coming year, larger supplies of tomato products and several other canned vegetables will likely leave wholesale prices for canned vegetables and juices at or below those of 1999. Wholesale prices for frozen vegetables are forecast 1 percent higher in 1999, with little or no increase expected in 2000 due to continuing high stocks, lackluster exports, and stodgy domestic retail demand. After rising about 12 percent in 1999, wholesale prices for dried and dehydrated vegetable products are expected to average below year-earlier levels in 2000 due to much improved garlic and onion crops in California. Unlike last year when the cool, wet spring severely damaged these California crops, larger crops this year have settled prices. These lower prices should also help stem the flow of imported product during the 1999/2000 marketing year. In September, Hurricane Floyd hit eastern North Carolina, causing extensive damage to the sweet potato crop. Rains and flooding from the hurricane and again later from Hurricane Irene inundated the major eastern sweet potato growing counties in the State. Although a fifth of the crop had already been harvested prior to the flooding, most of the unharvested area had standing water on it for varying periods of time. As of November 8, f.o.b. shipping-point prices for 40-pound cartons of cured U.S. number one medium sweet potatoes from North Carolina were about $14.50 per carton-up 38 percent from the low levels of a year ago. This season through November 13, shipment volume from North Carolina was down slightly from a year ago. A 4-percent increase in yields is expected to outweigh a 1-percent decline in harvested acreage and push 1999 dry edible bean production up 3 percent to 31.8 million cwt. Although area for harvest increased or remained steady in 13 of the 17 surveyed States, the national acreage declined due largely to a 15-percent drop in North Dakota's dry bean area. Dry bean grower prices averaged 10 percent below a year earlier during the first 10 months of 1999. The failure of Mexico to auction import certificates in January for calendar year 1999 trade virtually halted U.S. dry bean movement into Mexico during the first 7 months of 1999. This created a drag on markets and was especially serious for growers and dealers of pinto and black beans. During periods of oversupply, the industry relies heavily on export markets. With exports down, dealer prices declined during the first half of the year, with black beans down 39 percent from a year earlier and pintos down 16 percent. Per capita use of all mushrooms has moved from 3.70 pounds in 1990 to an estimated 4.10 pounds in 1999. Much of the gain in total mushroom demand since 1990 has been the result of rising fresh use. Fresh use has been gaining due to a combination of factors, including the rising popularity of specialty mushrooms, industry promotional efforts, and increased use of fresh mushrooms in the food service industry, such as by pizza chains. In 1998, while use of mushrooms for processing declined due to reduced imports, fresh use continued to rise. Per capita use of fresh-market mushrooms increased 6 percent to 2.49 pounds during the 1998 crop year. The outlook for 1999/2000 points to the likelihood of a fifth consecutive annual increase, with fresh use exceeding 2.5 pounds. Fresh-Market Vegetables Fall Acreage Down, Prices Low This fall (primarily October to December), persistently low shipping-point prices for fresh-market vegetables likely contributed to U.S. growers' decision to harvest 1 percent fewer acres of fresh-market vegetables and melons than a year ago. Although damage from Hurricane Irene in October reduced yields of some vegetables from south Florida and required replanting of young winter-season crops, the majority of fall-season vegetables escaped damage. In addition, strong fall-season supplies from California helped mute any immediate impact on national prices. California (64 percent), Florida (20 percent), and Arizona (5 percent) account for the majority of fall-season vegetable and melon acreage. While California's acreage increased slightly, area in Florida is estimated to be down 5 percent from a year earlier-the fourth consecutive annual decline. Florida's fall season acreage is now 13 percent below that of 1995. Area for harvest of cool-season crops is expected to be 2 percent lower this fall as reductions in head lettuce (down 3 percent), broccoli (10 percent), and celery (4 percent) outweigh larger plantings of carrots (up 10 percent) and cabbage (9 percent). Area in warm-season crops is expected to rise less than 1 percent this fall, paced by watermelon (up 38 percent), cucumbers (16 percent), tomatoes (3 percent), and snap beans (1 percent). Only a few warm-season crops are expected to decline but perhaps the most notable is cantaloupe, which is expected to drop 9 percent to 11,500 acres. Although California's desert acreage continues to recover (up 25 percent) from the effects of whitefly infestations earlier this decade, growers in Arizona reduced cantaloupe plantings. This cutback was likely a response to poor prices last fall, which were 30 percent below the average of the previous 3 years. Fresh-market tomato area (field-grown) is expected to rise 3 percent this fall--the second consecutive increase after bottoming out in 1997. Following two poor years where acreage dropped by a fourth from 1996 levels, California's fall-season tomato area is expected to increase 21 percent in response to relatively high prices last fall. With warm, dry weather, production and quality have been strong in California. In Florida, acreage declined 8 percent. Florida's tomato yield may also be trimmed in some parts of the State as a result of heavy rains and increased disease pressure this fall. U.S. field-grown tomatoes also face increased domestic competition from hothouse varieties--largely on the retail side of the market. Although actual volume is not known, hothouse tomato shipments from both domestic and import sources are expected to continue rising as acreage under glass increases. Heavy Florida Rains Trim Output, Delay Winter Crops In mid-October, Hurricane Irene brought strong winds and heavy rains to several major vegetable growing areas in Florida. Most of the damage occurred in southern and east coast areas with flooding in Dade County fields bringing heavy losses to snap beans, squash, and winter-season tomatoes. Sturdier plants such as okra suffered less damage with more delicate plants such as tomatoes and peppers hit harder. The harvest of some winter-season crops in the Homestead (Dade County) area may be delayed several weeks (until mid to late January) due to hurricane damage. The Hurricane did not affect the west central fall-season-growing region around Palmetto/Ruskin, which accounted for one-third of the State's planted tomato acreage in mid-October. The southwestern area (largely Collier, Lee, and Hendry Counties) is the largest tomato-producing region in Florida and accounted for about half of the acreage planted at the time the storm hit. This area received a glancing blow with generally lower rainfall totals but with strong winds blowing blooms off plants. These blooms were part of the crop to be marketed beginning in late November. As a result, much of the price impact on the tomato market will likely occur in December and January. Also, volume from alternate sources will be smaller than during the fall since California's season will be finished and import volume will just be building from west Mexico. As of early November, area planted in the wind-affected growing regions was up about 1 percent from the previous year, which may slightly offset the reduced yield potential. Area was up on the East Coast and in the Southwest but was off substantially in Dade County as some growers were just resuming planting following cleanup of storm damage. Grower costs in flooded Florida growing areas will likely be higher this fall and winter due to the need in some spots for replanting, relaying of plastic mulch, and increased use of fungicides to combat disease pressures brought on by excessive moisture and wind-damaged foliage. Summer Vegetable Acreage Up This past summer, fresh-market vegetable and melon area for harvest was up 5 percent from a year ago. Increased summer acreage during the past 2 years largely reflected grower reaction to strong prices during the previous summer seasons. During the summer of 1998, average prices received by growers for fresh-market vegetables were the second highest this decade (second only to 1997). California, accounting for 46 percent of this year's summer season area, increased acreage 9 percent. New York, the second leading summer-season producer with 11 percent of acreage, expected to harvest about the same area as last year although yields were off due to very dry weather. With market volumes above a year ago, summer-quarter (July-Sept) vegetable prices averaged 9 percent below the highs of the past year. Market volume (shipments) was average to above average for most major items during the summer quarter. Shipments of major vegetables such as tomatoes (up 5 percent from a year ago), onions (3 percent), cauliflower (10 percent), and celery (3 percent) were higher, while volume declined for head lettuce (down 6 percent), carrots (7 percent), and sweet corn (29 percent). Cool weather in California delayed the harvest for most warm-season vegetables by about 2 weeks. This created short supply gaps and temporary price spikes early in the summer. Growers in States such as South Carolina that normally fill in market niches in early summer benefited from these gaps as prices rose, likely increasing their gross revenues. Drought Apparent but Fresh Vegetable Prices Low This summer and fall, despite drought in the Northeast and parts of the mid-Atlantic, and floods in the South, fresh vegetable grower prices have remained below a year-earlier and have changed little since mid-July. Despite difficult weather conditions, a combination of geographically diverse production during the summer and the prevalence of irrigation limited the impact on prices. Northeastern and mid-Atlantic States affected by the drought only account for about 5 percent of today's annual commercial fresh-market vegetable supplies (excluding potatoes) versus 15 percent in the late 1940's. From this area, New York and New Jersey are the biggest shippers of fresh vegetables, with lesser volumes from other States. According to the Census of Agriculture, about three-fourths of New Jersey's vegetable area is covered by irrigation, which helped reduce losses and maintain output of higher-valued commodities such as tomatoes and peppers. For New York's onion crop, despite largely being grown on heavy muck soils, per-acre yields fell 17 percent due to the dry summer. Despite cool, rainy spring weather in California, the summer drought in the East, and hurricanes in the South, f.o.b. shipping-point prices for U.S. commercial vegetables and melons averaged 8 percent below a year earlier during the first 10 months of 1999. However, current dollar prices during 1997 and 1998 were above the average for the decade due largely to a series of weather-related production problems. In 1999, average shipping-point prices were the lowest since 1994. Adjusted for inflation, the commercial vegetable price index was at its lowest level this decade. Further comparisons with price levels in earlier periods would require a more detailed analysis, which would take into account improvements in factor productivity over time. During the first-half of the year, shipping-point prices averaged lower for every major vegetable except carrots (rose 75 percent due to the wet, cold spring) and onions, which were even with a year ago. With sharply higher acreage and strong yields, broccoli shippers realized the largest price decline at 32 percent. An 18-percent increase in spring broccoli acreage was followed by a 9-percent increase in acreage for harvest during the summer season. Although demand for broccoli continues to trend higher, supplies have exceeded demand this year, with prices languishing near the cost of harvesting and packing. During January to October, shipping-point prices also averaged lower for tomatoes (down 17 percent) due to a combination of larger domestic field production and increasing competition in the retail market from domestic and imported greenhouse-grown product. Although domestic tomato output is up this year, imports have been lower. Fresh-market tomato import volume from January through August was down 19 percent from a year ago and was 4 percent lower than 2 years ago. Tomato import volume from Mexico was 24 percent below a year earlier during the first 8 months of 1999, but volume from Canada (largely greenhouse product) jumped 30 percent. With Canada shipping increasing quantities of greenhouse tomatoes and U.S. greenhouse volume expanding rapidly, aggregate hothouse volume coming from traditional sources such as the Netherlands, Spain, Belgium, and Israel has declined this year. In July, the Census Bureau added an HS import code specifically for greenhouse tomatoes covering the periods March 1 to July 14 and September 1 to November 14. The addition of this import code is a reflection of the rapid growth and rising importance of this product category. Estimates suggest that hothouse tomatoes may account for about a quarter of the U.S. retail tomato market. The outlook for the winter season indicates that fresh-market vegetable acreage may not change greatly despite current low prices. Increasing area for crops such as tomatoes and carrots will be offset by declines in other vegetables. However, a reduced volume of winter-season crops from south Florida (due to Irene) may be experienced in December and January as replanted crops arrive later to market. After that passes and assuming no December freezes, the prospect of average weather and a small increase in imports from Mexico should leave winter vegetable supplies near average levels. As a result, at this time no unusual price spikes are anticipated after January. With farm prices lower, retail prices for all fresh-market vegetables averaged 3 percent below those of a year earlier during the first 10 months of 1999. The most heavily weighted item in the fresh vegetable retail price index is potatoes. If potato prices, which were 5 percent higher in 1999, were excluded from the index, a larger decline would have been evident this year. Fresh vegetable retail prices were 6 percent higher than during the same period in 1995. Through October 1999, retail prices averaged below the previous year for most major items, including lettuce (down 12 percent), broccoli (down 10 percent), peppers (10 percent), cabbage (9 percent), celery (4 percent), and tomatoes (3 percent). Retail prices for carrots increased 1 percent due largely to weather-reduced supplies this past winter and spring. In the year ahead, assuming growers will eventually reduce acreage in response to low prices, both grower and retail prices for fresh-market vegetables are likely to average above the lows of this past year. Fresh Exports Strong During the first 3 quarters of 1999 (January through September) fresh-market vegetable exports (excluding potatoes and melons) declined 1 percent from a year earlier to $725 million. Export values for carrots (up 13 percent), asparagus (9 percent), tomatoes (8 percent), and broccoli (6 percent) increased, while onions (down 20 percent) and head lettuce (10 percent) declined. The value of U.S. fresh market exports to Japan rose 20 percent during the first 9 months of 1999 as a strengthening economy supported demand. Largely because of reduced export prices, the value of exports to Canada declined 3 percent. However, increased volume helped exports to Mexico rise 4 percent. With increased sales to other countries this year, the share of fresh export value going to Canada fell to 69 percent--down from 71 percent a year ago. Fresh-market vegetable imports declined 7 percent to $1.5 billion during the first 9 months of 1999. While the value of imports increased for asparagus (18 percent), chile peppers (15 percent), and garlic (27 percent), declines were noted for onions (13 percent), bell peppers (20 percent), and cucumbers (16 percent). Imports from Mexico declined 13 percent due partly to poor weather last winter. Mexico's share of the U.S. fresh vegetable import market continued to trend lower, dropping to 70 percent-down from 74 percent a year ago and 84 percent in 1995. Although slowing, imports from Canada still rose considerably (up 19 percent compared with a 58-percent gain a year ago) for the second consecutive year to $206 million. Canada's burgeoning hothouse industry, led by tomatoes and bell peppers, is responsible for the majority of recent gains. Canada now provides 14 percent of U.S. fresh vegetable imports, with tomatoes and peppers accounting for two-thirds of that country's fresh vegetable exports to the United States. Spinach Gaining Strength Fresh-market spinach use has been on the rise since 1996 but use of this nutritious leafy green hasn't always been strong. The "golden years" for per capita consumption of fresh-market spinach peaked in 1939 at 2.9 pounds. Use then began a slow decline that reached bottom in the early 1970's at 0.3 pound. Spinach use picked up in the late 1970's and 1980's with the popularity of salad bars and reached 0.8 pound per person in the early 1990's. Fresh-market spinach use leveled off in the early to mid-1990's before beginning to exhibit signs of decline once more. However, creativity in the way spinach is presented to the consumer has apparently renewed demand in this industry. During the 1997-99 period, per capita use of fresh spinach averaged 1.0 pound-up 40 percent from the 1990-96 average. A prime driving force behind this renewed interest in fresh spinach is undoubtedly the variety of pre-packaged products such as triple-washed bagged spinach and spinach salads and the increasingly popular bagged baby spinach products. Baby spinach (as well as young spinach leaves) is gaining in popularity partly because of the convenience offered by the smaller leaves, which do not require cutting for easy consumption. Given the nutritional benefits of spinach and the continued success of spinach salads, per capita spinach consumption is expected to rise again in 1999 to nearly 1.1 pounds. California (81 percent of the national market) and Texas (8 percent) are the leading domestic sources of spinach. Both curly-leaf and flat-leaf varieties have contributed to the rise in consumption. Like most vegetables this year, wholesale prices for spinach (flat-leaf) have been relatively low and constant, averaging about $7.50 per 24-bunch carton in the Los Angeles market. In early November, the Los Angeles terminal market reported wholesale spinach prices at $8 per carton-the same as a year earlier. On the trade front, the United States is a net exporter of fresh-market spinach. Imports account for just 2 percent of domestic use while 11 percent of supply is exported. Canada accounts for most export sales while Mexico and Canada are the source of fresh imports. During January through September, the volume of spinach exports increased 11 percent due mostly to a 14-percent decline in average export prices to 34 cents per pound. With domestic prices down and supplies adequate, import volume dropped 53 percent during the first 9 months of 1999 with Mexico absorbing the entire decline. Onion Crop Large, Prices Low When the final statistics are released in January, the 1999 U.S. onion crop will likely be shown to have eclipsed the previous record set in 1997 with over 69 million cwt. Good yields and increased acreage produced a strong spring-season onion crop, and favorable weather in the Pacific Northwest produced a near record summer-season storage onion crop. Onion production in the Northwest (Idaho, Oregon, and Washington) was very large in 1999 with high yields and good quality. The crop was a "bin buster" in some areas, with growers forced to store part of the harvest outside in temporary storage bins. The effects of heavy summer rains and hail increased disease pressure in Colorado's crop, which may show up as increased shrinkage and loss during the marketing season. In New York and Ohio, the summer drought reduced yields by nearly a fifth. Cool weather in California did not prevent the State from producing a record-large storage onion crop. About two-thirds of California's summer crop is used for processing (primarily dehydration). As a result of the large crop, onion prices have been relatively low this fall. With a good quality crop in many areas, shrinkage may be lower than normal. In the absence of extraordinary demand factors, this could keep supplies steady and prices relatively low until late March 2000 when the spring season begins. Although not expected, any unusual import volume could also weigh heavily on the market. In early November, shipping-point prices for a 50-pound sack of jumbo yellow Spanish hybrids were averaging from $2.75 to $3.00 in the Idaho/Oregon growing region. This was 60 percent below a year earlier and well below the cost of production. Prices were also 40 to 50 percent below a year earlier for both white and red varieties. Similar pricing was experienced in most U.S. growing regions. For the first 9 months of 1999, onion export volume was 13 percent below year-earlier levels. However, with the large crop of high quality onions, particularly in the Northwest, and lower prices, exports are expected to run significantly above previous year's levels into 2000. Export volume is expected to be strong to East Asian nations with additional sales to Mexico and some Central American nations. With shipments from Mexico down, import volume was about 11 percent lower than a year ago during the first 9 months of 1999. Industry sources indicate that despite low domestic onion prices, imports of sweet onions from Peru are expected to be up this winter. Although Peruvian imports represent less than 5 percent of total onion imports, volume has been increasing the past few years. According to shipment information, imports during October from Peru were 2.8 million pounds-up from 1.6 million a year earlier. Fresh Per Capita Use To Rise in 1999 One benefit of the sustained low prices this year is expected to be an increase in the per capita use of fresh-market vegetables and melons. Per capita use of all vegetables and melons is expected to reach a record 455 pounds in 1999-up 4 pounds from 1998. Use of fresh vegetables and melons (excluding potatoes, sweet potatoes, and mushrooms) is forecast to total a record high 165 pounds per person. Adding fresh-market potatoes, mushrooms, and all sweet potatoes would bring fresh vegetable and melon use to about 220 pounds in 1999-48 percent of total vegetable and melon use. Melon use, which has jumped 20 percent during the 1990's, is expected to approach 30 pounds per person in 1999 due primarily to rebounding watermelon use. This would be the largest annual consumption of melons since 1946. Rising per capita use of tomatoes, broccoli, and lettuce is forecast to lead the way in 1999. Use of fresh-market asparagus also continued its recent surge as domestic use rose an estimated 14 percent to 239 million pounds (0.9 pound per capita). U.S. asparagus supplies increased as a result of a combination of rising domestic production (up 4 percent) and imported product (expected up 25 percent). Import volume for fresh-market asparagus could approach the level of domestic production for the first time in 1999. Processing Vegetables Production Up, Prices Down Processing Production Up 16 Percent Contract production of the four major processing vegetables (tomatoes, sweet corn, green peas, and snap beans) is expected to increase 16 percent this year (most processing vegetables are produced under contract). Acreage harvested under contract for the four crops was up 3 percent, while per-acre yields were higher for tomatoes (up 6 percent), sweet corn (3 percent), and snap beans (3 percent). Snap bean output is expected to increase 5 percent to 0.73 million short tons because of increased acreage and record-high yields. Contract output of sweet corn declined 1 percent from a year earlier as processors cut acreage in response to low wholesale prices, particularly for canned corn. Contract output of green peas was down 7 percent as a 1-percent gain in area was outweighed by a drop in yields caused largely by heavy early-season rains in both the Midwest and the Pacific Northwest. Contract acreage for cucumbers intended for pickling increased 4 percent, with acreage up 2 percent in Michigan, the leading State. Tomato Crop Shatters Record Spurred by low stocks and strong wholesale prices, tomato processors have harvested a record-large crop this year. According to delivery information from the California Tomato Advisory Board, 12.24 million tons of tomatoes were delivered to processors in the State this season. Adding an expected 0.5 million tons from other States would result in a U.S. processing tomato crop exceeding the 1994 record by 10 percent. With excellent weather (warm and dry) allowing an unusually large (record-large) volume to be harvested late in the season (after October 1), the California crop substantially exceeded both industry and U.S. Department of Agriculture estimates. Quality was said to be excellent this year, an especially important attribute for packers of whole-tomato products (diced, peeled, etc). Despite another late spring and cooler than normal temperatures during the early part of the California season, early-season tomato harvest volume was able to run 2 to 3 weeks ahead of last year's El-Nino-delayed season. Tomato yields likely returned to trend levels this season and were up substantially from a year earlier when poor weather caused the largest year-to-year decline in yields since 1973. From mid-summer to the end of the season, warm (and at times hot) and dry weather held in California, greatly aiding harvest activities and crop quality. Processors ran close to industry capacity (about 1 million short tons/week) during most of August and September. With stocks low and imports filling supply gaps, wholesale prices for bulk tomato paste remained strong (over 45 cents per pound) during 1999 and did not begin weakening until September when the success of this year's crop was all but assured. By the beginning of November when nearly all processors had shut down for the season, bulk paste prices had dropped to around $0.36 per pound. This year's record-large crop will easily cover anticipated demand and result in some accumulation of inventories. Further significant price movement will not likely take place until early in 2000 when preliminary intentions are released for the 2000 crop. The U.S. processing tomato industry will continue to upgrade facilities and increase efficiency in 2000 through the construction of two new processing plants plus the expansion of others in California. Despite the modest increase in capacity, steady domestic demand, plus competition in the export market will likely keep a lid on tomato acreage in 2000. The first acreage intentions for 2000 will be published in January. Processing tomato production in countries that are members of the Association of Mediterranean Tomato Processors (AMITOM) was also reportedly record-large this season. AMITOM is an association of tomato processors from 10 countries in the Mediterranean Basin, led by several from the European Union (EU). AMITOM and the United States account for the lion's share of the world's processed tomato products with both realizing similar production levels in 1999. The EU accounts for around three-fourths of the output of AMITOM, with Italy accounting for about 40 percent. Thus, larger world production will boost depleted stocks and lead to both downward price pressure worldwide and additional competition for U.S. exports. Short crops, depleted inventories, and higher prices characterized the 1998/99 U.S. processing tomato market. As a result, the value of imports during the first 9 months of the calendar year jumped 55 percent to $107 million. The majority of this increase came from sharply higher paste imports, which rose from $6 million to $57 million. As the leading tomato paste manufacturer in the world, the United States only imports paste during periods of shortages. Chile ($26 million) and Mexico ($15 million) accounted for the majority of the paste imported during 1999, with smaller amounts from Peru ($4 million), Israel ($5 million), and China ($3 million). In the year ahead, paste imports will likely be minuscule due to this year's record-large tomato crop. From January through September 1999, the value of processed tomato product exports totaled $167 million, down 5 percent from the same period a year earlier. Virtually all of this reduction came in paste exports, which dropped 22 percent. The decline in paste was a direct result of the smaller crop last year and the higher prices accompanying reduced stocks earlier this year. Although paste exports declined, exports continued to increase for sauces (up 2 percent), ketchup (up 4 percent), whole peeled tomato products (up 14 percent), and juice (up slightly). Tomato product exports to Canada, the largest market, were flat at $86 million, while Japan was down 16 percent to $17 million. Exports to Mexico were up 24 percent to $13 million. Processing Vegetable Prices Up Slightly For 1999, wholesale prices for canned vegetables and juices are forecast to average 1 percent above a year ago. In the coming year, much larger supplies of tomato products and several other canned vegetables will likely leave wholesale prices for canned vegetables and juices at or below those of 1999. Wholesale prices for frozen vegetables are forecast slightly lower in 1999, with little change expected in 2000 due to continuing high stocks, lackluster exports, and stodgy domestic retail demand. Wholesale prices for dried and dehydrated vegetable products will likely average below year-earlier levels well into 2000 due in part to vastly improved garlic and onion crops in California. Unlike last year when the cool, wet spring severely damaged these California crops, larger crops this year have settled garlic prices. In mid-November, the wholesale price for a 30-pound carton of California white colossal garlic was running less than half that of a year earlier. Lower prices should also help stem the flow of imported product during the 1999/2000 marketing year. During January to August of 1999, bulb garlic import volume was up 47 percent from a year earlier. Average retail prices for all processing vegetables increased 2 percent during the first 10 months. With wholesale prices for canned vegetables lower and little changed for frozen, the small rise in retail prices likely reflected increased retail marketing costs. Sweet Corn Down 1 Percent Contract production for sweet corn is expected to decline 1 percent to 3.2 million short tons. Harvested area is down 4 percent, but per-acre yields are up 3 percent. Canning acreage dropped 6 percent due to low wholesale prices, while processors increased area for freezing 1 percent despite stocks that were running about 10 percent above a year earlier for most of 1999. Production in Washington, which accounts for a fourth of the sweet corn crop, was estimated to have increased 1 percent despite a cool season, which slowed crop progress and pushed harvest dates back. In Minnesota, which also harvests nearly a fourth of the crop, processors had planned for a 3-percent smaller crop this season. However, late season heat and excess moisture pared yields and increased acreage abandonment, leaving output down an estimated 10 percent. Reflecting a smaller pack this year (primarily in the Midwest and New York), wholesale prices for canned whole kernel sweet corn during the fourth quarter of 1999 were running 7 to 14 percent above a year earlier, with the smaller increases being reported for retail packs. With sluggish domestic demand, canned sweet corn prices have been at relatively low levels the past 3 years, and current wholesale prices are still below the average of the first 5 years of the decade. With continued high carryover from two consecutive record packs and strong Pacific Northwest production this year, wholesale prices for retail packs of frozen whole kernel sweet corn (which have changed little since the fall of 1994), were again unchanged this past season and may only rise slightly during 1999/2000. During the 1998/99 marketing year (Aug.-July), preliminary data indicate that total frozen sweet corn shipments (cut and cob) rose 10 percent to nearly 1 billion pounds. Over the past 2 years, the export market has been a positive factor in both the canned and frozen sweet corn industries. However, canned sweet corn export volume during January to September was down 1 percent from a year earlier. Reduced volume to Taiwan, Japan, and Germany was about offset by increasing sales to the Netherlands, Norway, and South Korea. Although export value was unchanged, frozen sweet corn export volume declined 1 percent during the first 9 months of 1999. Frozen export volume to Canada and China rose, but volume shipped to Japan, our largest overseas sweet corn market, declined 5 percent. Green Pea Output Down The estimate of 1999 contract production for green peas indicates a 7-percent decline from 1998 to 447,333 short tons. Production declined in all the major States. Harvested area is up 1 percent, but per-acre yields were cut 7 percent due to excess moisture in several States. Both canners and freezers had intended to reduce packs this year, with canners contracting for 4 percent fewer acres and freezers 1 percent less. While wholesale prices for canned peas are averaging 4 to 8 percent above a year earlier, prices for frozen products are little changed. Stocks of frozen green peas on October 1 were even with a year earlier and about on par with the average stock levels during the decade. Demand for processed green peas appears to have waned during the 1990's. During 1997-99, per capita use of canned and frozen green peas declined 5 percent compared with average use during 1987-89. While green peas for freezing rose 5 percent to 2.0 pounds per person, peas for canning declined 17 percent to 1.5 pounds per person. This continues the long-run trend of continued erosion in canned green pea use and small gains in frozen use. Canned green pea use is now less than half of what it was in the early 1970's. Snap Bean Output Rises Despite a 3-percent decline in Wisconsin, the largest processing snap bean State, strong yields in several other States pushed U.S. output of snap beans up 5 percent this year. Favorable weather during the growing season pushed average yields up 3 percent to a record-high 3.83 short tons per acre. Wholesale prices for frozen snap beans have remained about equal with the past 2 years while prices for canned snap beans have been running about 7 percent higher for most of the year. With the expected small increase in supplies, no large changes are anticipated in these markets in the year ahead. Potatoes Fall Potato Crop Up Slightly, Overall Quality Good The first estimate of U.S. fall-season potato production is 435.6 million hundredweight (cwt), up less than 1 percent from last year, and up 3 percent from 1997. The slight increase occurred despite a 3-percent decrease in harvested acreage as per-acre yields rose 4 percent from a year ago. Bumper crops in Washington and Wisconsin more than made up for a smaller crop in Idaho. The quality of the crop is expected to be good, and the marginally larger crop should combine with continued strong demand to improve season-average grower prices in 1999/2000. In the five Eastern States, fall potato production was estimated at 28.7 million cwt, down 3 percent from last year. In much of the East, extremely dry summer weather stunted growth and reduced yields. In Maine, extremely wet weather during September and early October delayed harvest and led to higher-than-normal acreage abandonment in some areas. In the eight Central States, production was 109 million cwt, up 1 percent from a year ago. Production in Minnesota was down 4 percent, as wet weather during the spring delayed planting in the northwestern region of the State. Wet weather again in the fall hampered harvest and led to increased acreage abandonment. North Dakota also experienced similar weather-related problems and abandoned acreage, causing a 6-percent decline in production. Conversely, excellent growing-seasons in Michigan, Nebraska, and Wisconsin created record yields and increased production in these States. The 10 Western States produced 298 million cwt this fall, up 1 percent from last year and each of the past 2 years. Production was down about 2 percent from last year in Idaho, but increased in Washington (up 2 percent), Colorado (5 percent), and Oregon (8 percent). Overall size and quality was reported to be very good and much improved over last fall's crop. Prices Expected Higher in 1999/2000 The slight increase in production this fall will likely be outweighed by several other factors that should push grower prices higher than a year ago for the 1999/2000 marketing season. Coming into this season, stocks of fresh and processed potatoes were lower than a year earlier. June 1, 1999, stocks of fresh potatoes were at 51 million cwt. This is the first time the U.S. Department of Agriculture has reported June 1 stocks, so historical comparisons are unavailable, but it is likely down from a year earlier. May 1, 1999, stocks of fresh potatoes were nearly 6 percent below the previous year levels. Additionally, cold storage holdings of frozen potato products at the end of September were estimated to be 3 percent below a year ago. The processing quality of last fall's crop was below average and processor recovery rates were reduced, meaning more raw product was needed to produce a given amount of finished product. The improved quality of this fall's crop is likely to garner strong demand from processors and put some upward pressure on grower prices. An expected small reduction in Canadian potato output may reinforce a tightening domestic supply and demand situation and help push potato prices higher this season. Canadian potato production is estimated at 92.7 million cwt-down 3 percent from a year ago and the first decline in 5 years. This could slow the recent upward trend in frozen french fry imports from Canada during the coming season. U.S. imports of frozen french fries from Canada have steadily risen over the past decade, with particularly strong growth in the past several years as Canadian processing capacity has greatly increased. Increased potato production in the European Union this fall (up perhaps as much as 10 percent from a year ago) will likely translate into decreased U.S. exports of dehydrated potato products in the coming year. U.S. exports of potato flakes and granules exploded during the first three quarters of 1999 (up 95 percent from the same period a year ago), due mostly to the flood-ravaged crop in the Netherlands last fall. If demand remains strong for processing potatoes, the 1999/2000 season-average price for all potatoes will likely be between $5.40 and $6.40 per cwt, compared with $5.56 in 1998/99. The scope of the increase is likely to be determined by the strength of processor demand. If processors work to rebuild slightly depleted frozen inventory, and if exports of frozen product continue to increase, the overall grower price would likely reach the middle to upper end of the forecast range. Utilization of the 1998/99 Crop Last year, a 2-percent increase in potato production (all seasons) from 1997/98 resulted in a 1-percent increase in the total quantity sold during the marketing year. Processor use increased 5 percent to 282 million cwt, just 1 percent below the record set in 1996/97. A large portion of the increase in processor use can be attributed to last year's poor recovery rates for frozen product. Because of the lower recovery rates, utilization for frozen french fries increased by nearly 9 percent from 1997/98. The decreased quality of potatoes for producing frozen product last year also combined with overall lower prices to contribute to record utilization for dehydrated potato products. Utilization for potato chips and shoestrings also rose to record high levels last year. Most of the increased use for processing came at the expense of fresh utilization, which declined nearly 6 percent to 124 million cwt-the lowest since 1990. Little change in the total quantity of potatoes sold and grower price from 1997/98 to 1998/99 resulted in little change in total grower sales, which were $2.4 billion for both crop years. Considering current market conditions and the expected increase in prices likely in the coming year, total sales value of the 1999/2000 crop should exceed $2.4 billion. With improved frozen-processor recovery rates from a year ago, the quantity used for processing may not increase significantly, although processed output should increase. This should leave more potatoes available for the fresh market in 1999/2000. Per Capita Utilization Down in 1998 Per capita use of potatoes (fresh-weight basis) for calendar 1998 totaled 140.8 pounds, down less than 1 percent from 1997, and 4 percent below the record high set in 1996 (table 7). Fresh use declined slightly and processing use just edged ahead of the 1997 level. Total per capita use has averaged 141.3 pounds for the past 5 years (1994-98), 8 percent above the average of the previous 5 years. The forecasts for 1999 and 2000 are 144.9 pounds and 142.8 pounds. As growth in domestic per capita consumption of potatoes and potato products appears to slow, it will become increasingly important to continue advertising and other potato promotion projects. Sweet Potatoes Flooding Cuts North Carolina Crop In September, Hurricane Floyd hit eastern North Carolina, causing extensive damage to the sweet potato crop. Rain and flooding from Hurricane Floyd and again later from Hurricane Irene inundated the major eastern sweet potato growing counties in the State. Although a fifth of the crop had already been harvested prior to the flooding, most of the unharvested area had standing water on it for varying periods of time. Sweet potatoes are relatively tolerant of moisture but do not fair as well if completely submerged for several days. As the leading producing State, North Carolina has accounted for about 38 percent of the Nation's sweet potato output over the past 3 years. More than 90 percent of the crop is grown in the eastern portion of the State hardest hit by the storm, with the largest crop concentration in an inland band of counties near the east coast of the State. Within this band, the top three counties (Nash, Johnston, and Wilson) account for 55 percent of the State's output. As of November 8, f.o.b. shipping-point prices for 40 pound cartons of cured U.S. number one medium sweet potatoes from North Carolina were about $14.50 per carton-up 38 percent from the low levels of a year ago. This season through November 6, shipment volume from North Carolina was up 5 percent from a year earlier. At the same time, shipments from Louisiana were unchanged, and shipping-point prices (also $14.50 per carton) were running 12-percent above the drought-afflicted highs of the previous year. In the Boston wholesale market, the early November price for a 40-pound carton of cured Beauregard sweet potatoes from North Carolina was up 25 percent from the lows of a year earlier. Prior to the flooding in North Carolina, U.S. sweet potato growers had expected to harvest 2 percent more acreage this fall-the largest area since 1990. National production and per acre yields will depend on how much of the North Carolina crop was of merchantable quality. As of November 15, 88 percent of the North Carolina crop had been harvested, compared with the 5-year average of 91 percent. During the final week of October, about 43 percent of the crop left in the ground was considered to be in fair to good condition with the remainder poor or very poor. Yields in several other States hit by drought last year are expected to improve, partly offsetting losses in North Carolina. Last year, the drought in key southern States such as Louisiana, Texas, and Georgia dropped U.S. sweet potato yields 9 percent to the lowest level in 6 years. These lower yields cut output by about 1 million cwt from the previous year's level. Despite some dry weather, Louisiana, the second leading sweet potato State, is expected to harvest a more normal crop this season compared with last year's drought-reduced crop. The annual estimate of 1999 U.S. sweet potato production will be released in early January. Dry Edible Beans Output Up 3 Percent A 4-percent increase in yields is expected to outweigh a 1-percent decline in harvested acreage and push 1999 dry edible bean production up 3 percent to 31.8 million cwt. Although area for harvest increased or remained steady in 13 of the 17 surveyed States, national acreage declined due largely to a 15-percent drop in North Dakota's dry bean area. As the industry leader, North Dakota plants nearly one-third of all U.S. dry bean area, with 88 percent in pinto and navy beans. Per-acre yields were estimated at 1,669 pounds-the third highest on record, with all three record-highs this decade (1991, 1997, 1999). Dry bean yields have been trending upward by about 10 pounds annually since 1960. Michigan bean growers enjoyed a nearly ideal growing season, with yields shattering the previous record by 3 percent. California's dry bean crop was also excellent, with yields the second highest on record. On the other hand, North Dakota's crop endured drought in August and wet, cool conditions in September, which delayed maturity and harvest. Nebraska weathered a heavy late season rain and hail storm, escaping with just a 5-percent loss of output. While markets such as those for pinto and black beans have been down this year, markets such as navy and light red kidney have been up. This was reflected in area planted, which showed U.S. navy bean area up 60 percent and U.S. pinto area down 23 percent. Stronger grower prices for several bean classes relative to traditional alternative crops (e.g. corn and soybeans) encouraged increased acreage for those classes. Acreage rose for 11 of 15 dry bean classes. Dry bean grower prices averaged 10 percent below a year earlier during the first 10 months of 1999. The failure of Mexico to auction import certificates in January for calendar year 1999 trade virtually halted U.S. dry bean movement into Mexico during the first 7 months of 1999. This created a drag on markets and was especially serious for growers and dealers of pinto and black beans. These two classes are in an oversupply situation in the United States and both rely heavily on export markets. Dealer prices for both declined during the first half of the year, with black beans falling 39 percent and pintos 16 percent. The price decline for these two classes has stopped due largely to expected sharp reductions in 1999 crop output. The resumption of dry bean trade with Mexico will also likely help bring some life back into U.S. dry bean markets. The market situation at a glance for the top three dry bean classes is as follows: Pinto Beans: Unless export demand picks up substantially within the next year, only a modest increase in pinto bean acreage will likely be needed in 2000 to avoid rebuilding stocks. Export volume declined 31 percent from a year earlier during the first 6 months of calendar 1999. Since January, dealer prices for pinto beans have averaged 73 to 78 percent of the levels of a year earlier, hovering around $20 per cwt. Prices are expected to advance in the year ahead as stocks are reduced. Navy Beans: Although production is up this year, stocks were exhausted--given fairly constant demand for both domestic and export needs, another above-average crop may be needed in 2000 to meet the various needs of the market. Export volume declined 13 percent from a year ago during January to June due to a 21-percent hike in average export value ($23.86 per cwt). In June, dealer prices reached the highest monthly average this decade. Going into the 1999/2000 marketing year, navy prices are expected to remain relatively firm at around $20-$22 per cwt. Great Northern: Assuming exports of about 1 million cwt and normal domestic yields in 2000, a small cut in Great Northern acreage may be required next year to avoid a buildup of stocks. Export volume declined 34 percent during January to June despite a 13-percent lower average unit export value. Aside from some market weakness during the spring, dealer prices for Great Northern beans hovered around $26 per cwt for most of the 1998/99 marketing year. Going into the 1999/2000 marketing year, Great Northern prices are expected to remain steady, with season-average prices averaging at or above levels experienced a year earlier. With average grower prices for dry beans adrift for most of the past marketing year, retail prices also changed little, rising 1 percent during the first 10 months of 1999 compared with a year earlier. As a result, the U.S. dry bean grower-retail price margin, after declining during the first quarter, remained relatively flat during the second and third quarters of 1999. The first quarter decline reflected the sudden plunge in grower prices during the first 4 months of the year, caused largely by the lack of export markets and burdensome supplies of some bean classes. Domestic dry bean consumption is forecast to total about 2.1 billion pounds in 1999-up about 3 percent from 1998. To start off the new millennium, another 2 percent increase is projected in next year's domestic use. On a per person basis, dry bean use remained flat in 1998 at 7.6 pounds. In 1999, with exports sluggish and production expected to be up 3 percent, supplies should be fairly strong for most major bean classes into the year 2000. Thus, most dry bean prices are low and relatively stable now. Given low prices and strong supplies, the domestic market is expected to absorb more dry beans in 1999, with per capita use rising as high as 7.9 pounds. Exports to Mexico Resume After much political maneuvering, Mexico announced procedures to import as much as 57,963 metric tons of duty-free dry beans from the United States as required under the North American Free Trade Agreement (NAFTA). An auction was held on August 30, 1999, to allocate import certificates of 48,000 metric tons. The remainder of the quota was assigned to a Mexican government agency (Diconsa) which purchases food for social feeding programs. The volume of dry edible bean exports during the first half of 1999 was down 35 percent from a year ago. However, exports began to pick up during the third quarter, with volume rising above previous-quarter levels for many of the major classes. During the first half of the year, black bean volume plunged 89 percent and pinto beans fell 31 percent due to a lack of sales to Mexico and fewer exports to Central and South American countries where demand was stronger than usual in 1998. With inventories at very low levels, navy bean export volume fell 13 percent during January to June, as supplies of export-quality beans became non-existent. In the year ahead, lower prices and improved quality should provide a boost to U.S. dry bean export volume. On the other side of the trade ledger, dry bean imports (excluding cluster [guar] beans, which are largely used for industrial purposes) rose 38 percent over a year earlier during the first 6 months of 1999. Import volume was up for mung beans (up 58 percent, largely from China), chickpeas (14 percent), black beans (49 percent, largely from Canada), and small reds (18 percent). At the current rate, U.S. dry bean imports (excluding cluster beans) will total about 1.2 million cwt in 1999. Mushrooms Fresh Use Continues To Edge Upward U.S. mushroom production totaled 861 million pounds in 1998, up 5 percent from a year earlier. Agaricus mushrooms (white and brown types) accounted for 98 percent of the crop, with Pennsylvania (50 percent of the volume), California (16 percent), and Florida (5 percent) the leading States. Production of brown mushrooms, including Portobello and Crimini, rose 7 percent from a year earlier to 50.1 million pounds. Specialty mushroom production (including Shiitake, Oyster, and other exotics) increased 36 percent to 13 million pounds. The value of the 1998/99 mushroom crop totaled a record high $867 million, with the fresh market accounting for a record $709 million. The value of sales of specialty mushrooms (excluding brown mushrooms like Portobello and Crimini), increased 35 percent to $38.6 million, with Shiitake accounting for $25.9 million and oyster mushrooms $7.6 million. The value of brown mushrooms, including Portobello and Crimini rose 12 percent to $67.5 million. The versatile Portobello mushroom has enjoyed increasing popularity with applications such as barbecue grillers and meat substitute products (e.g. mushroom burgers) expanding the market. Per capita use of all mushrooms has moved from 3.70 pounds in 1990 to an estimated 4.10 pounds in 1999. Much of the gain in total mushroom demand since 1990 has been the result of rising fresh use. Fresh use has been gaining due to a combination of factors, including the rising popularity of specialty mushrooms, industry promotional efforts, and increased use of fresh mushrooms in the foodservice industry, such as by pizza chains. In 1998, while use of mushrooms for processing declined due to reduced imports, fresh use continued to rise. Per capita use of fresh-market mushrooms increased 6 percent to 2.49 pounds during the 1998 crop year. The outlook for 1999/2000 points to the likelihood of a fifth consecutive annual increase, with use exceeding 2.5 pounds. In Canada, per capita fresh mushroom use is 50 percent higher than in the United States. Although use per person is higher in Canada, total fresh use was 115 million pounds in 1997-less than a fifth that of the United States. While fresh use in both countries has been on the rise, U.S. use has been rising at a faster pace. Canadian per capita fresh mushroom consumption has risen less than 10 percent during the 1990's, while fresh per capita use in the United States has jumped 26 percent. Imports of canned mushrooms declined 62 percent during the 1998/99 crop year to 68 million pounds. Most of this decline was the result of dumping duties assigned nations found to be dumping product in the U.S. market. Imports of fresh mushrooms, mostly from Canada, rose 2 percent to 23 million pounds. During the first quarter of the mushroom year, canned imports remain well below pre-dumping levels. On the export side, fresh and processed mushroom export volume is running well above a year ago through the first 3 months of the marketing year and is expected to continue rising in the coming months. Although the majority of fresh exports go to Canada, small amounts have also been shipped to 11 other countries this year. Special article Modeling the U.S. Processing Tomato Industry Charles Plummer -------1/ 1/---------------- Agricultural economist, Market and Trade Economics Division, Economic Research Service, U.S. Department of Agriculture. Abstract: The United States is the world's largest producer of processed tomato products. Over the last 20 years, average production has increased 47 percent and the farm value of the crop is now around $700 million. Processing tomatoes are second only to potatoes in terms of national per capita consumption. Given the significance of this industry, this article presents an econometric model designed to provide short run projections of this industry's key variables, such as acreage, yield, production, price, trade, and domestic use. Keywords: Processing tomatoes, modeling, production, trade, prices, supply, demand. The U.S. processing tomato industry has realized substantial growth and change over the past 20 years. In the late 1970's (1975-79), total processing tomato production averaged 7.3 million tons, with an average annual crop value of $463 million. The average crop size for the past 5 years (1994-98) was 10.7 million tons (47 percent above the late 70's) with an average annual crop value of $658 million (up 42 percent). The preliminary estimate for the 1999 crop is over 11.5 million tons, just shy of the record set in 1994, and the crop value will likely top $700 million. With such tremendous growth in the industry over the past two decades, older econometric forecasting models of the processing tomato industry are unable to capture more recent structural and demand changes, and are therefore unlikely to yield useful forecasts. The purpose of this article is to present an _______________________________ econometric model designed to provide short run projections of the industry's key variables, such as acreage, yield, production, price, trade, and domestic use. An overview of industry structure and domestic and export demand is followed by development of the model and model forecasts. Industry Overview Much of the increase in tomato production over the past 20-30 years can be attributed to improved yields and increased efficiency at the grower and processor levels. In the late 1970's (1975-79), the average yield of processing tomatoes in the United States was 22.1 tons/acre. By the late 1980's the average had risen to 28.5 tons/acre, and in the late 1990's the average has been 33.2 tons/acre. This increase in yields is due to the steady development of higher-yielding hybrid varieties, improved cultural practices such as increased use of transplanting, and a continued shift in production to California, where average yields are currently about 30 percent higher than the average yield in the rest of the United States. In the late 1970's, California accounted for about 84 percent of total U.S. processing tomato production. At the end of the 1990's, California is averaging approximately 94 percent of the total U.S. production. In addition to improving raw tomato yields, hybrid varieties (along with advances in mechanization) have helped to improve final product output. Hybrid tomato characteristics (such as skin thickness, solids content, etc.) have helped harvesting equipment to become more efficient, and have helped improve processor recovery rates and product quality. Harvest has become less labor intensive and processors are now more able to meet stringent output standards for final product. These improvements have resulted in some overall structural change within the industry. Several major companies have restructured to source a large portion of their product needs through other tomato processors who can meet their quality standards. This restructuring has helped to improve overall industry efficiency, as processing capacity consolidates and older, less efficient processing plants are taken out of production (Welty). For example, 1992 California tomato paste processing capacity (tomato paste output) from direct marketers (i.e., not including remanufacturers) was 484,000 pounds/hour from a total of 16 processing facilities. By 1998, total capacity had risen to 698,000 pounds/hour from a total of 13 facilities. Additionally, of the 16 facilities in operation in 1992, 8 had been built prior to 1976. By 1998, the number of facilities in use built before 1976 had decreased to five (The Food Institute). Growth in Domestic Demand Tomatoes and tomato products are an important part of the American diet. After potatoes, tomatoes are the most widely consumed vegetable in the United States. During the past 20 years, U.S. annual per capita use of tomatoes and tomato products has increased by nearly 30 percent to a total fresh-weight equivalent of 93 pounds/person in 1998. Processed tomato products, including sauces, ketchup, pastes, salsa, juice, etc., accounted for 81 percent of that total. Utilization statistics by processed product type are unavailable. However, an estimate based on limited data from the late 1980's suggests that the largest use is for sauces (35 percent), followed by paste (18 percent), canned tomatoes (17 percent), ketchup, and juice (each about 15 percent). Domestic use of processed tomato products has increased substantially in the 1990's. During the 1980's, per capita use of processed tomato products averaged 63.5 pounds. During the 1990's, processed use has averaged 75.5 pounds per person. The increase is likely the result of continued expansion in food-service demand, especially for pizza, tacos, and other Italian and Mexican foods. Some of the increase may also be due to rising public awareness of the health benefits of processed tomato products in the diet. Several studies this decade have linked diets rich in tomatoes and tomato products to reduced risk of various cancers and heart disease. Tomatoes contain lycopene, a naturally occurring compound that, when ingested, acts as a powerful anti-oxidant that helps protect human cells from the degenerative effects of various free radicals. Some studies indicate that canned tomato products may contain higher concentrations of lycopene than fresh tomatoes due to the heat processing used to create the product. Although domestic consumption of processed tomato products has boomed in the 1990's, it appears that trend may be leveling somewhat as the century closes. Per capita use has averaged just under 75 pounds for the past 5 years, with the preliminary estimate for 1999 at 75.3. However, with continuing strong export potential in the coming decade, slow growth (or even a slight decline) in domestic demand in the next few years does not necessarily translate into little or no growth in domestic production. Exports Could Drive Future Production Even with domestic consumption of processed tomato products appearing to level somewhat, the outlook for continued growth in U.S. production looks good as there appears to still be potential for continuing growth in exports. The United States is the world's largest producer of processed tomato products, and exports have just recently become an increasingly important outlet for U.S. producers. Prior to 1989, exports of processed tomato products rarely accounted for more than 1 to 2 percent of total processed tomato utilization (on a raw-equivalent basis). However, since 1989, the importance of exports has steadily risen, and in 1998 exports accounted for 12 percent of total utilization. In 1989, all U.S. processed tomato product exports were valued at $60.1 million. By 1998, total value had nearly quadrupled, rising to $237.1 million. Such a dramatic increase can be partly accredited to increased access to the Canadian market as a result of the North American Free Trade Agreement (NAFTA). In 1989, Canada accounted for 25 percent ($15.1 million) of total export value of all processed tomato products. By 1998, Canada's take had risen to 50 percent ($119.3 million). NAFTA has also increased access to the Mexican market, although exports to Mexico are still relatively small (accounting for 6 percent of total export value in 1998). Exports to Mexico increased from $3.4 million in 1989 to $14.4 million in 1998. Exports of processed tomato products have also increased to other regions of the world, although the growth rate has not been as rapid as it has been to Canada and Mexico. Export value to Japan, the second largest U.S. export market for processed tomato products, rose 251 percent from 1989 to 1998. Japan accounted for $27.3 million (12 percent) in processed tomato exports in 1998, of which, 22 percent was ketchup. Other Asian and Pacific Rim countries took nearly $23 million in U.S. exports in 1998, with nearly 29 percent of that being ketchup. The rapid growth of Western-style fast food chains in Japan and other Asian Pacific Rim countries over the last decade has spurred the growth in U.S. processed tomato exports to the region. As Western-style cuisine continues to increase in popularity around the world, the United States should remain well situated to continue increasing exports of processed tomato products. Model Development An econometric model was developed to estimate U.S. processing tomato acreage, beginning stocks, production, grower price, trade, and domestic utilization. The system of equations can be found in table A1. The supply portion of the model consists of an equation to estimate beginning stocks, an acreage response function, a yield equation, a multiplicative identity for production, and an import equation. The demand portion of the model is determined by an export equation, with domestic utilization being the residual (beginning stocks + domestic production + imports - ending stocks - exports). Because nearly 100 percent of anticipated production is contracted between processors and growers prior to planting, at an agreed upon price, acres planted is the best variable (when combined with an autoregressive [AR] term) in forecasting grower price. The model is estimated using annual data from 1970 to 1998. Endogenous and exogenous variables are identified in table A2. The method used to minimize the annual variation of an endogenous variable is ordinary least squares (OLS) regression. The explanatory variables are either economic variables logically consistent with microeconomic theory, proxy variables such as trend, or related forecast variables such as Economic Research Service (ERS) or National Agricultural Statistics Service (NASS) estimates. In all but two of the regression equations, first-order serial correlation appeared to be a significant problem (as indicated by a Durbin-Watson statistic below the critical value at the 5 percent level). In these equations, autoregressive (AR) and/or moving average (MA) terms were added to account for the problem. When current endogenous variables appear as independent variables (right-hand side variables) in regression equations, OLS may produce biased and/or inconsistent parameter estimates. However, since these problems didn't appear to be severe in any of the equations, all published equations are OLS regression results. ---------/ Selected in-sample summary statistics are found in table A3. ----------- 2/ Two-stage least squares regressions were run on relevant equations and the results were not significantly different from OLS results. Therefore, all published equations are OLS regression results. Forecasting Assumptions and Results For any model to forecast successfully, some assumptions are necessary. First, the model must be correctly specified to reflect market behavior. The in-sample summary statistics (table A3) partially confirm this assumption. Additionally, it must be assumed that the behavior captured by the model must continue into the future. Naturally, this assumption weakens as the forecasting horizon extends because the model is unable to capture out-of-sample (future) dynamics without being re-estimated. Finally, several exogenous factors must be given future values for estimation. For this model, the exogenous variables future values are forecast using AR and ARMA models. Thus, caution must be used when interpreting the model's forecasts, as they are based on a set of explicit assumptions that include forecasts of determinate variables. Changes in these assumptions can have significant effects on the model's forecasts. The equations used to determine future values of the exogenous variables are in table A1 and selected in-sample summary statistics can be found in table A3. The best test of a forecasting model's accuracy is a comparison of forecasts with actual values. Because recent structural changes have had such an impact on the processing tomato industry, the model was estimated using data through 1998 in order to capture these changes in the explanatory variables. This currently leaves 1999 as the only out-of-sample year for which to evaluate the model's accuracy. Preliminary USDA estimates of 1999 processing tomato acreage, yield, and production indicate fairly good agreement between model forecasts and actual (preliminary) values (table A4). ---------/ ------------ 3/ Current USDA estimates are for contracted production only. However, this typically accounts for 99 percent of the industry total, which will be published in January 2000. For the 2000 simulation, the model was run using USDA's July and September preliminary estimates for 1999 values of contract acreage, yield, and production. Because 1999 seems to be shaping up as a somewhat unusual trade year, trade volume for 1999 was not estimated by model equations. Export volume in 1999 was estimated to be 15 percent below 1998 levels, and import volume was estimated to be 20 percent above 1998. Model equations were used to estimate the remaining 1999 variables and all year 2000 estimates. The results of this simulation indicate declines of 9 percent in acreage, 6 percent in production (assuming trend yields), and 4 percent in average grower prices (table A4). The model forecasts a 9-percent decline in acreage next year although other market factors seem to indicate that a smaller decline is possible. The 2000 season looks now as though it may have a beginning very similar to 1995. It looks as though beginning stocks in the year 2000, although significantly higher than 1999, will not be substantially higher than levels experienced recently in the industry. As was the case in 1995, the 2000 season will follow 2 previous years of declining stocks, and one year of relatively high production. In 1995, growers increased acreage under these similar circumstances, and production was relatively high for a second consecutive year. This, subsequently, contributed to increased beginning stocks again for 1996. Due to the relatively large stocks on hand, acreage was decreased in 1996. However, strong yields led to increased production and record-high beginning stocks in 1997. This forced a large drop in acreage and production in 1997 followed by only a slight acreage increase in 1998. During this 3-year adjustment period (1996-1998), grower prices decreased each year. In order to avoid the potential of a similar build-up in stocks over the next several years, it is likely that acreage will decrease in 2000, but perhaps not quite the 9-percent forecast by the model. With increased grower prices in 1999, and a good export outlook in the coming years, a more gradual decline in acreage is more likely. If planted acreage decreased about 5 percent to 335,000 acres in 2000, average acreage abandonment and trend yields (which would approach record-high levels) would lead to only a slight decline in production 4/---------. If only a slight decline in production is ------------ 4/ The 95 percent confidence interval for ACPL in the year 2000 is 277,250 to 356,526 acres. realized next year, stocks would likely rise substantially in 2001 and trigger a larger decline in acreage. The forecasts for the various scenarios can be seen in table A4. Long-run Outlook Long-run forecasts (from 2001 and beyond) with the model are somewhat impractical, as the potential for forecasting error increases with the forecast horizon. Over time, current assumptions and the relationships estimated by the model will likely change and new relationships, not captured by the existing model, may become important. However, the model can be used as a reference point to speculate on long-run prospectus in the industry. For example, the model indicates that per capita domestic use of processed tomato products may decline slightly over the next couple of years and then increase slowly (table A5). Likewise, production is forecast to decline for the next 2 years before steadily increasing to nearly 13.1 million tons in 2010 (table A4). Conclusions As the model suggests, exports (EXPVOL) and cost-effective (CNPPI[-1]/PPITW[-1]) production are key variables in determining planted acreage. Continued growth in export markets through a rapidly expanding food-service industry and increasing consumer awareness about the effects of a healthy diet should both bode well for processing tomato demand in the years to come. If the U.S. producers can remain relatively low-cost producers of high-quality processed tomato products, the industry should be well situated to capitalize on increasing worldwide demand. Conversely, slow growth in exports and/or increasing producer costs relative to returns would likely translate into little or possibly even negative growth in the domestic industry. Because beginning stocks, exports, and producer costs relative to returns are such important variables in forecasting planted acreage, reliable forecasts of these variables are vital to forecasting acreage, production, and price. Perhaps the most glaring weakness of this particular forecasting model is the lack of a theoretically satisfactory export volume equation. While the simple AR process fits well statistically and accounts for the relatively recent explosion in exports, it does nothing to account for potential changes in key variables which would likely affect export volume, such as changes in price, exchange rates, and stocks on hand. An improvement in long-run export forecasting would likely improve the model's other long-run projections. References Chern, W.S., and R.E. Just. "Econometric Analysis of Supply Response and Demand for Processing Tomatoes in California." University of California, Berkley Agricultural Experiment Station. Giannini Foundation Monograph No. 37, 1978. Conway, Roger K. and John F. Yanagida. "Estimating U.S. Potato Demand: Structure and Forecasts." USDA, ERS. Vegetables and Specialties Situation and Outlook Report, TVS-218 (1980): 31-40. The Food Institute. "Food Markets in Review, 1998/99: Tomato Products." Fair Lawn, NJ, 1998, pp. 2-5. Love, John M. and Lois S. Willet. "Modeling the U.S. Potato Industry." USDA, ERS. Vegetables and Specialties Situation and Outlook Report, TVS-250, March 1990, pp. 16-24. Welty, John C. "The California Tomato Growers Association's District Meeting Wrap-Up." California Tomato Growers, Inc. Special article The F.o.b.-Retail Price Relationship For Selected Fresh Vegetables Thomas Worth 1/ ---------- ---------- 1/ Agricultural economist, Market and Trade Economics Division, Economic Research Service, U.S. Department of Agriculture. Abstract: A recurring question in agriculture is to what degree are changes in grower prices reflected in retail prices. There is a perception that price increases are passed on to retail prices more quickly and completely than are price decreases. This article examines the price behavior of six vegetables: carrots, celery, lettuce, onions, potatoes, and tomatoes. The analysis indicates that for celery, lettuce, onions, and potatoes there is no evidence of price asymmetry. For carrots and tomatoes, however, there is evidence that retail prices show a greater response to f.o.b. price increases. Keywords: vegetables, prices, retail, f.o.b., asymmetry, tomatoes, carrots, lettuce, potatoes. A recurring question in agriculture is to what degree are changes in grower prices reflected in changes in retail prices. Recent mergers in the retail industry renew concerns that retailers have gained an ability to increase their margins at growers' expense. Retailers may increase their margins by keeping grower prices lower than they would be if retail competition were greater. Alternatively, retailers can increase margins by raising retail prices, which would decrease demand for growers' output. In either case, an increase in the retailer margin has a negative effect on growers. Retailers must account for a variety of costs when determining their prices. The largest among them are labor, packaging, and transportation. In the case of produce, the costs are higher than for most other food products and are reflected in the grower-retail price margin. In 1996, the fresh produce margin was 44 percent compared with an average of 30 percent for all foods (Elitzak, 1999, p.10). The greater cost is partly due to the perishability, shrinkage, and the additional labor fresh fruits and vegetables entail. Refrigeration during transportation also contributes to the cost of selling fresh produce. A portion of the retail price also reflects profit. Fresh produce contributes disproportionately to store-wide profits. They account for 8.7 percent of total supermarket sales but supply about 20 percent of net profit (Elitzak, 1999, p.10). The overall profitability of retail food chains is similar to that of other industries that produce nondurable goods. In 1997, the return on stockholder equity for retail food chains was 17.4 percent. This is only slightly above the 17.0 percent average return on equity for all non-durable goods industries (Elitzak, 1999, p.19). Free-on-board shipping-point prices (f.o.b.) may not be fully transmitted to retail prices because of several factors. First of all, retailers generally attempt to maintain constant prices so as not to lose goodwill with their customers. If a retailer believes that a decrease in f.o.b. prices is temporary, he or she may choose to keep prices constant. For commodities that are less perishable, changes in existing stocks may reduce the effect of supply shocks, such as bad weather, on f.o.b. prices and on retail prices. Finally, any change in a retailer's expenses will cause a change in the f.o.b.-retail margin. This article examines the price behavior of six vegetables: carrots, celery, lettuce, onions, potatoes, and tomatoes. The variability of f.o.b. and retail prices is first examined. With a couple of exceptions, the retail price and f.o.b. price variability has declined for all of the selected commodities. The following section examines the retail and f.o.b. price trends over time. Prices rise steadily over time for most of the commodities, except for carrots and tomatoes where it appears that retail price increases accelerated in the 1990's. In the last section, a statistical test finds evidence that retail prices for carrots and tomatoes respond more to f.o.b. price increases than to f.o.b. price decreases. F.O.B. and Retail Price Variance One way to compare f.o.b. prices with retail prices is by the amount of variance they exhibit. If f.o.b. prices are passed through immediately and completely to retail prices, they should vary together and exhibit the same variance. If retailers do not adjust their prices completely in response to f.o.b. price changes, retail prices should have a smaller variance. Reasons for retail prices to have a smaller variance include the cost of changing a retail price, such as the labor involved in repricing fresh produce. The retailer may also lose some goodwill from consumers who prefer stable prices. The means, standard deviations, and coefficients of variation for retail prices, f.o.b. prices, and the resulting margins for the selected vegetables are listed in table 1. The coefficients of variation are the ratio of the standard deviation to the mean. This statistic provides a convenient way to compare the price variance of different commodities in a way that corrects for the fact that each commodity has a different mean. The data are split in half around 1980. The first number in each cell covers 1960-1979 and the second number covers 1980 to May 1999 (except for onions where the data ends in December 1997). All of the data share a common gap of July 1978 to December 1979 when data were not collected. The f.o.b. price data are supplied from the National Agricultural Statistics Service (NASS) at the U.S. Department of Agriculture, and the retail price data are supplied by the Bureau of Labor Statistics at the U.S. Department of Labor. The data, which cover nearly 40 years of monthly observations, are split in two parts to test if agricultural markets have changed. Table B-1 indicates that retail prices vary less than f.o.b. prices. This applies to all of the commodities and for both time periods. This suggests that retailers do not adjust their prices fully to the f.o.b. price changes they encounter on the market. Except for carrots and potatoes, the variance of the retail-f.o.b. margin is closer to the retail price variance than the f.o.b. price variance. Although retailers are keeping their prices more constant than f.o.b. prices, they are adjusting prices enough to reduce the variance in their margins. This pattern of variability is consistent with both asymmetric price adjustment and with markup pricing (Pick et al., 1990). For all commodities, the variance of the retail prices and the retail-f.o.b. margins drop from the first time period to the second. In four of the six cases, this mirrors a drop in the variance of f.o.b. prices. A more stable supply of fresh produce, likely due to improvements in agricultural techniques and increased imports, contributes to a reduction in the variance in grower prices. There are, however, two notable exceptions. The variance of f.o.b. prices for tomatoes and lettuce increase in the second time period, albeit only slightly. In the case of lettuce, the increased variance is due to large price increases at the end of 1987 and again from December 1994 to September 1995. A possible explanation for the increased variability of lettuce f.o.b. prices is the growing proportion of the market accounted for by direct contracts between seller and grower. This reduces the size of the residual spot market, which, in turn, tends to increase the variability of prices. Another explanation may be that the increased use of contracts may leave a residual demand for spot market output that is less elastic. A decrease in the elasticity of demand can increase the variability of prices. For tomatoes, the increased price variability is due to price spikes early in 1990, 1992, and 1996. Although the variance of f.o.b. prices for tomatoes and lettuce increased, the variance of retail prices and the margin still decreased. F.O.B. and Retail Price Trends The f.o.b. and retail price trends are rising for all of the selected commodities. Prices for the second time period, 1980-99, are presented in figure B-1. The solid lines in the graphs represent a two-year moving average for retail and for f.o.b. prices. Retail prices consistently rise during this time period. Except for potatoes, f.o.b. prices rise consistently, albeit modestly, as well. The retail-f.o.b. margin increases for all of the commodities. Although all retail prices rose throughout the time period, they do not all rise at the same rate. Carrots and tomatoes rose more rapidly during the 1990's than lettuce, onions, and celery. The retail price of potatoes increases steeply from 1989 to 1990 and then retreats. This is due to an increase in processor demand as described in an earlier article (Love, 1993). The transmission of f.o.b. prices to retail prices is evident in the dramatic price increases in celery in the mid-1990's or in lettuce in 1989 and 1995. Although it appears that prices move together, what is harder to discern from figure 1 is the extent to which f.o.b. price changes are reflected in retail prices. When f.o.b. prices rise, is the increase fully reflected in the retail price? When f.o.b. prices fall, does the decrease get fully passed on to retail prices? Is there a bias in retail prices in that they fully reflect f.o.b. price increases but not the decreases? Another way of phrasing these questions is whether retail prices respond symmetrically to both f.o.b. price increases and decreases. This is addressed in the next section. An Analysis of F.O.B.-Retail Price Changes Several studies have examined vertical price transmission in fresh produce. The first question that they address is whether f.o.b. price changes precede retail price changes or vice-versa. One possibility is that fresh produce prices are driven more by shifts in demand than by changes in supply. The chain of events in this situation is that increased demand causes retail prices to rise which, in turn, leads to increases in f.o.b. prices. This would be a long-run phenomenon. In the short-run, prices are affected more by supply. An increase (decrease) in supply causes f.o.b. prices to fall (rise) which, in turn, leads to decreases (increases) in retail prices. All of the studies indicate that short-run f.o.b. price changes precede retail price changes (Ward, 1982; Powers, 1995; Heien, 1980). In other words, f.o.b. prices affect retail prices and not the other way around. In examining the transmission of f.o.b. prices to retail prices, studies reach different conclusions. Studies that look at market prices in specific cities find that the adjustment of retail prices to f.o.b. price changes generally occurs within a month (Ward, 1982; Pick et al., 1990; Powers, 1995). When using national-level data, the adjustment time appears to be much longer - from 1 to 4 months (Heien, 1980). This might indicate that all of the markets in the United States, when taken as a whole, react slowly even though some individual markets may react more quickly. The conclusions about whether retail prices respond symmetrically to f.o.b. (or wholesale) price changes varies between studies as well. One study reports some evidence that retail prices respond more to wholesale price decreases than increases (Ward, 1982). Other studies, examining the markets in specific cities, find evidence of the opposite (Pick et al., 1990; Powers, 1995). For this analysis, national data are used to test whether price asymmetries found in specific markets hold for the United States in general. For comparability, the estimation technique used here is similar to that used in previous studies (Ward 1982; Pick et al., 1990; Powers, 1995). The data used are monthly f.o.b. and retail prices from January 1980 to May 1999 (except for onions where the data end on December 1997). Earlier data, though available, are not used because of changes in agricultural markets since 1960. The estimation equation separately measures the effect of f.o.b. price increases (FOBUPSUM) and f.o.b. price decreases (FOBDOWNSUM) on the retail price (RETSUM). The equation is: (1) where: and: The variable RETSUMt is the change in the retail price from its initial value (RET0) to its value at time t (RETt). For this estimation, the initial value is the price as of January 1980 - the first observation of the dataset. The sum of all of the f.o.b. price increases as of time t (FOBUPi) is FOBUPSUMt. Similarly the sum of all of the f.o.b. price decreases as to time t (FOBDOWNi) is FOBDOWNSUMt. The two variables FOBUPSUMt and FOBDOWNSUMt separate out the effects of price increases and price decreases on the retail price. The sum of the two variables equals the overall change in the f.o.b. price from time 0. The time trend variable is TRENDt. As discussed in the introduction, there are several factors that affect the f.o.b.-retail margin, such as transportation and labor costs. The inclusion of the trend variable accounts for these costs. This implicitly assumes that the costs that are contributing to the margin are changing at a constant rate. If retail prices respond equally to f.o.b. price increases and decreases, then a1 = a2 in equation 1. If retail prices respond more to f.o.b. price increases than to f.o.b. price decreases, then a1 > a2. The opposite holds if retail prices respond more to f.o.b. price decreases. As indicated by earlier studies, there is a lag between f.o.b. price changes and retail price changes. The lags for each commodity in this study are determined by estimating equation 1 with values of FOBUPSUM and FOBDOWNSUM lagged up to 4 months (Pick et al., 1990). The lags that are different from zero with a confidence level of 20 percent are retained. To test for asymmetry, the coefficients for all of the lags of FOBUPSUM and FOBDOWNSUM are summed up and then compared. If there are m lags of FOBUPSUM and n lags of FOBDOWNSUM then the test is: (2) A Durbin-Watson test indicated the presence of autocorrelation in the data. As a result the estimation is done using a linear regression with the Prais-Winston procedure to correct for autocorrelation. The results are listed in table B-2. The table also includes a test of equation 2 and the lags used for each commodity. The number of monthly lags varies across the commodities. The lag for lettuce and carrots is greater for price increases than for price decreases. For the rest of the commodities, there is a greater lag for f.o.b. price decreases. Although this gives some indication of the speed of adjustment, it is not definitive. For example, the lag for f.o.b. price increases in carrots is 3 months. This simply indicates that the lagged coefficients are statistically significant, but does not indicate whether the coefficients are economically significant. It may be that most of the change in the retail price occurs in the first month. The remaining months, while statistically significant in terms of t-statistics may account for a small remainder of the retail price change. The coefficients for the f.o.b. price increases (a1) are higher than the coefficients for f.o.b. price decreases (a2) for carrots, onions, and tomatoes. They are nearly equal for celery and lettuce. The coefficient for the f.o.b. price decrease is greater than for the increase for potatoes. Although the gap is larger than for any of the other commodities, it is not statistically significant. Of the six commodities examined, only carrots and tomatoes show a difference that is statistically significant. In other words, these are the only commodities that show evidence of price asymmetry. In both cases retail prices respond more to f.o.b. price increases than to f.o.b. price decreases. Conclusion For celery, lettuce, onions, and potatoes there is no evidence of price asymmetry. In the case of carrots and tomatoes, however, statistical results show that retail prices show a greater response to f.o.b. price increases. These results would lead to concern that retailers have gained enough market power with carrots and tomatoes to increase the f.o.b.-retail margin at growers' expense. Finding that a price asymmetry exists is not enough to reach this conclusion. There are many factors that affect the f.o.b.-retail margin. The price asymmetry may be due to increasing expenses on the retailer's part, such as labor or transportation, rather than to an increase in profits. Precise data on retail expenses, which is not generally available, would be needed to explore the cause of the price asymmetry and why it is evident only for carrots and tomatoes. References Elitzak, Howard. Food Cost Review, 1950-97. Food and Rural Economics Division, Economic Research Service, USDA. Agricultural Economic Report No. 780, June 1999. Heien, Dale M. "Markup Pricing in a Dynamic Model of the Food Industry." American Journal of Agricultural Economics. 62:11-18. 1980. Houck, James P. "An Approach to Specifying and Estimating Nonreversible Functions." American Journal of Agricultural Economics. 59:570-72. 1977. Love, John M. "Grower-Retail Price Trends and Statistical Relationships for Selected Fresh-market Vegetables." Vegetables and Specialties Situation and Outlook Report, Market and Trade Economics Division, Economic Research Service, USDA. TVS-259, pp. 23-27. April 1993. Pick, Daniel H., Jeffrey Karrenbrock, and Hoy F. Carman. "Price Asymmetry and Marketing Margin Behavior: An Example for California-Arizona Citrus." Agribusiness, 6(1):75-84. 1990. Powers, Nicholas J. "Sticky Short-Run Prices and Vertical Pricing: Evidence from the Market for Iceberg Lettuce." Agribusiness. 11(1):57-75. 1995. Ward, Ronald W. "Asymmetry in Retail, Wholesale, and Shipping Point Pricing for Fresh Vegetables." American Journal of Agricultural Economics. 64:205-212. 1982. List of Tables 1. U.S. vegetable industry: Area, production, value, unit value, and trade, 1995-2000 2. Fresh vegetables: Percent of U.S. consumption accounted for by trade, 1975, 1980, 1985, 1990-99 3. Selected fresh vegetables: U.S. trade, 1997-99 4. Value of U.S. processed vegetable trade, 1998-99 5. Potatoes: State acreage and production of fall crop, 1997, 1998, and indicated 1999 6. U.S. potatoes: Utilization by crop year, 1993-98 7. Potatoes: U.S. per capita utilization, by category, 1985-2000 8. U.S. fresh vegetables: Harvested area, by seasons, for selected crops, 1997-99 9. Representative wholesale prices for selected fresh-market vegetables and melons in Chicago, 1999 10. Commercial vegetables, potatoes, and dry edible beans: Monthly average index of prices received by U.S. growers, 1985-99 11. Selected fresh vegetables: U.S. shipments, by quarters, 1998 and 1999 12. Fresh vegetables: U.S. monthly and season-average f.o.b. shipping prices, 1995-99 13. Fresh vegetables, including potatoes: Monthly retail price index, 1987-99 14. Fresh vegetables: U.S. monthly and season-average f.o.b. shipping prices, 1993-99 15. Fresh vegetables: Quarterly trade volume, 1997-99 16. Selected fresh vegetables: U.S. export volume and value, by selected country, January-September, 1997-1999 17. Mexican vegetable production: Selected commodities, 1990-98 18. U.S. onions: Harvested area and production, 1995-99 19. U.S. vegetables for freezing: Calendar year supply and utilization, farm weight, 1980, 1985, 1990-2000 20. Processing vegetables: Contract acreage, yield, and production, 1994-95 average, 1997, and indicated 1999 21. Selected frozen vegetables: Carryover, pack, seasonal supply, and shipments, 1994/95-1999/2000 22. Processed vegetables: Monthly index of wholesale and retail prices, 1990-99 23. Canned vegetables: Quarterly wholesale price trends, 1990-99 24. Frozen vegetables: Quarterly wholesale price trends, 1994-99 25. Frozen vegetables: October 1 cold storage holdings, 1991-99 26. U.S. vegetables for canning: Calendar year supply and utilization, farm weight, 1980, 1985, and 1990-2000 27. Selected processed vegetables: Monthly index of wholesale prices, 1994-99 28. Canned vegetables: U.S. quarterly trade volume, 1997-99 29. Frozen vegetables: U.S. quarterly trade volume, 1997-99 30. Vegetable cash receipts: Leading States, 1991-98 31. Potato cash receipts: Leading States, 1991-98 32. Dry bean cash receipts: Leading States, 1991-98 33. Potatoes: Seasonal acreage, yield, and production, 1997, 1998, and indicated 1999 34. Potatoes and pulses: Monthly average f.o.b. shipping-point prices, 1993-99 35. Fresh potatoes: Monthly and annual average retail price index, 1986-99 36. Retail potato prices: Fresh, frozen, and chips, 1985-99 37. Frozen french fries: Monthly and annual average producer price index, 1985-99 38. Potatoes: U.S. quarterly trade volume in fresh-weight equivalent, 1998-99 39. Frozen french fries: Monthly and annual U.S. exports, 1988-99 40. U.S. potatoes: Value of trade by product, January-September, 1995-99 41. Sweet potatoes: Acreage harvested, 1992-96 average; 1997, 1998, and indicated 1999 42. U.S. sweet potatoes: Calendar year supply and utilization, farm weight, 1990/2000 43. Dry edible beans: Planted acres by class, 1993-96 average, 1996-97, and indicated 1999 44. Dry edible beans: Acreage harvested, 1992-96 average, 1997-1998, and indicated 1999 45. Dry edible beans: Production, 1992-96 average, 1997, 1998, and indicated 1999 46. Dry edible beans: Quarterly wholesale prices by class, 1998-99 47. Dry edible beans: U.S. quarterly trade volume, 1998-99 48. Selected dry peas and lentils: Planted acreage, 1992-99 49. Dry peas and lentils: Production, 1992-99 50. All mushrooms combined: Number of growers, volume, and value of sales, 1987/88-1998/99 51. Mushrooms: U.S. quarterly trade volume, 1998-99 52. U.S. agaricus mushrooms: Production, price, and value, selected States, 1996/97-1998/99 53. U.S. brown and specialty mushrooms: Production, price, and value, 1996/97-1998-99 54. U.S. harvested area for vegetables and melons: Top counties, 1997 END_OF_FILE