VEGETABLES AND SPECIALTIES April 09, 2001 April 2001, ERS-VGS-283 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 USDA order desk. Call, toll-free, 1-800-999-6779 and ask for stock #SUB-VGS-4039, $30/year. ERS-NASS accepts MasterCard and Visa. --------------------------------------------------------------------------- Vegetables and Specialties Situation and Outlook Report. Market and Trade Economics Division, Economic Research Service, U.S. Department of Agriculture, April 2001. VGS-283. Contents Summary Industry Overview Fresh Vegetables & Melons Cash Receipts and Cost Indicators Processing Vegetables Potatoes Sweet Potatoes Dry Beans Mushrooms Special Articles Factors Affecting Onion Consumption in the United States The U.S. Lettuce and Fresh-Cut Vegetable Industries: Marketing Channels, Sales Arrangements, Fees, and Services 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 Raymond King Graphics, Table Design, and Layout Wynnice P. Napper Approved by the World Agricultural Outlook Board. Summary released April 19, 2001. The summary of the next Vegetables and Specialties Situation and Outlook is scheduled for release July 26, 2001. 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 (June). Summary According to preliminary estimates, per capita use of all vegetables and melons totaled 464 pounds in 2000--up about 2 percent from a year earlier. Most of the gain stems from increased use of potatoes (up 6 percent), due largely to the record-large crop last fall and subsequent lower prices. Increases were also noted for vegetables for canning and sweet potatoes. Per capita vegetable and melon use is projected to decline about 1 percent in 2001 as potato use declines with the expected smaller crop this year. Although fresh vegetable use could decline slightly due to reduced supplies this past winter, little change is anticipated in the use of processing vegetables (excluding potatoes) as processors reduce output and work down stocks. On the fresh-market side, significant increases in 2000 per capita use were experienced in cabbage, romaine/leaf lettuce, and bell peppers. These were offset by reduced use for melons, broccoli, and tomatoes. Utilization of both watermelon and cantaloup declined last year as growers responded to low prices by reducing acreage and production. Preliminary estimates of potato use indicate both fresh and processing uses registered gains in 2000, with use for dehydrating gaining the most. Detailed utilization data for the 2000 potato crop will not be available until September. Processors of five major vegetables (tomatoes, sweet corn, snap beans, green peas, and cucumbers) expect to contract for 1.18 million acres in 2001--down 14 percent from a year ago. Because of generally weak wholesale prices, most of the decline will come from canning vegetables, with canners contracting for 18 percent fewer acres. Assuming average acreage losses and trend yields this coming season, output of the five leading processing vegetables could be 12 to 16 percent lower than a year ago and total around 14 million short tons. U.S. tomato processors intend to contract for 12 percent less tonnage in 2001. Contract area is expected to decline 14 percent to 263,800 acres, with yields forecast to rise 2 percent this year. California, which now accounts for about 95 percent of the U.S. processing tomato crop, expects to produce 12 percent fewer tomatoes, with all other States projected to produce only 2 percent less than a year ago. This is the second consecutive reduction in the processing tomato crop following the record-large 1999 crop. Although production was cut 15 percent last year, output was the sixth highest on record and exceeded market needs. This resulted in a small addition to already burdensome stocks. As a result, wholesale prices for tomato products sank to the lowest levels since 1997 and were the third lowest since the late 1980s. The average price for bulk tomato paste, the key raw ingredient used in the manufacture of tomato products like sauces, soups, ketchup, and juice, was down 9 percent from the previous year during the first quarter of 2000. This spring, area for harvest of 13 selected fresh-market vegetables is expected to be 8 percent above a year ago. Assuming average weather and yields, available domestic supplies will likely exceed those of a year earlier. Rising acreage for commodities such as cabbage, celery, tomatoes, and cauliflower outweighed reduced area for eggplant, watermelon, honeydew melons, and cucumbers. Spring-season melon acreage for harvest is expected to be 9 percent lower than a year ago, with area for each of the three major melons (watermelon, cantaloup, and honeydew) declining. Lower prices a year ago, especially for watermelon and cantaloup, spurred growers in most areas to cut spring melon acreage to the lowest level in several years. Increased supplies for many fresh-market vegetables will likely result in reduced shipping-point prices from the highs experienced during the first quarter. As a result, April-June f.o.b. shipping-point prices are expected to settle at or below the average of the past 5 years and remain below the level of a year ago. Planted area for the summer onion crop is expected to decline 3 percent this year. All but two storage-type onion producing States are expected to plant less. Among the non-storage States, onion acreage is expected to decline 5 percent, with area in Texas, the third largest non-storage State, down 27 percent. For the storage crop, which provides the bulk of the Nations onions into the next spring, growers were encouraged by improving prices last year, but are expected to exercise restraint when planting this spring--cutting area 3 percent. Most States are expected to reduce acreage but Colorado growers intend to increase area 4 percent--Colorado growers had cut acreage 23 percent in 2000 because of financial losses. Growers in Oregon, the top fresh- market storage onion State, expect to plant 3 percent more area this year after dropping 18 percent a year ago. Combining this increased area with average acreage losses and trend yields could produce an Oregon onion crop second only to the 1999 record. The 2001 winter-season potato crop is estimated at 4.0 million hundredweight (cwt), down 20 percent from 2000 and 2 percent below 1999. Harvested area was down 18 percent from a year ago, and yields were down 2 percent--declining in both California and Florida. With heavy supplies of potatoes on hand from the fall 2000 crop, growers planned for a small reduction in winter-season production by decreasing planted acreage by 2 percent from the previous winter. However, heavy rains in Floridas Homestead area during December virtually wiped out the crop. In total, about 3,000 acres were abandoned in Florida, and yields on remaining fields were down nearly 20 percent from a year ago. The combination of lost acreage and reduced yields have Florida output estimated at 58 percent of last years level. In California, winter production this year is estimated to be just 3 percent below a year ago, due entirely to reduced yields. As exports of french fries continue to rise, so do french fry imports from Canada. Domestic demand for french fries in the United States has increased steadily over the past three decades, and an increasing portion of this demand is being met by Canadian processors. Since 1989, imports of fries from Canada have increased an average of 25 percent per year. Canadian-produced fries currently account for about 13 percent of all fries consumed in the United States, up from about 2 percent in 1989. In 2000, total fry imports from Canada were nearly 1.1 billion pounds, up 17 percent from 1999 and were just 2 percent less than total U.S. french fry exports. With Canadian processing capacity continuing to expand, the United States could become a net importer of french fries for the first time in 2001. U.S. sweet potato growers have indicated they will reduce area planted 1 percent in 2001. Barring any weather-related disasters this season, average acreage abandonment and a return to long- term trend yields (159 cwt/acre) could place 2001 U.S. sweet potato production as high as 14.7 million cwt. That would be the largest crop since 1982, and would be 8 percent above a year ago. Grower prices would likely fall, but with good domestic and export demand, the season average price might not drop much below $15 per cwt. However, if sweet potato yields do not follow trend and instead maintain the recent 3-year average (147 cwt/acre) level, production would be about the same as last year, with prices potentially rising to a forecast range of $15 to $16 per cwt. Because of continued low prices (the lowest since the 1980s), 2001 U.S. dry bean output is expected to decline from last year's level. U.S. Department of Agriculture's (USDA) Prospective Plantings report indicated that dry bean growers plan to seed 17 percent fewer acres this spring. If realized, planted area of 1.453 million acres would be the smallest since 1983. With the exception of Idaho, all major producing States have indicated substantial reductions in area this year. Michigan growers intend to plant 200,000 acres, 30 percent less than a year ago and the lowest acreage on record (records began in 1909). During the first quarter of 2001 (Jan.-Mar.), U.S. grower prices for all dry beans were 2 percent below the low levels experienced a year ago and were the lowest since 1988. With burdensome stocks, this was the fourth consecutive year that grower prices have declined from the previous year, having dropped at least 11 percent in each of the past 3 years. The Economic Research Service (ERS) forecasts suggest total dry bean output could drop from 26.44 million cwt a year ago, to a range of 21 to 23 million cwt this year. Industry Overview Cool weather so far in 2001 has damaged or delayed U.S. fresh vegetable production and kept market prices well above last years levels. With yields down, fresh vegetable shipments (excluding potatoes) have declined 14 percent during the first 3 months of the year, with much of the decline coming from domestic sources. With production down, Floridas share of the winter vegetable market declined, with some of the shortfall being made up by Mexico. Reduced market volume led to higher shipping-point prices for domestic fresh-market vegetables following very low prices a year ago. During the first 3 months of 2001, f.o.b. shipping-point prices for commercial vegetables averaged 40 percent above a year earlier and 22 percent above the average of the previous 5 years. On the processing side, contract tomato production could decline as much as 12 percent from a year ago as processors again attempt to cut stocks and raise prices that are under pressure from high inventories and soft demand. Dry bean growers continue to be besieged by the lowest prices since 1992 and have indicated that they will again cut acreage and output dramatically this season. Similarly, sweet potato growers expect to trim acreage slightly after last years large crop dropped prices. Some economic highlights for the U.S. vegetable and melon sector: O U.S. growers are likely to harvest 8 percent more acres of fresh-market vegetables this spring than last year. Increasing acreage in Florida (9 percent) and California (8 percent) outweighed declines in Texas (23 percent) and Georgia (3 percent). Melon area is expected to decline 9 percent as rising area in Arizona and Georgia outweighed lower area in all other States. O Assuming average weather and yields this spring, available domestic supplies of fresh vegetables are expected to exceed those of a year earlier. Fresh-market vegetable imports are also expected to increase as higher U.S. prices bring more product in from Mexico. At the same time, demand is not likely to improve this spring due to the pause in the general economy, which should put downward pressure on April-June f.o.b. shipping-point prices. O For processing vegetables, canneries expect to trim contract area 18 percent, while freezing firms cut area 5 percent despite reduced stocks and stronger prices for some items. Contract area for the five leading processing vegetables is expected to drop 14 percent to 1.18 million acres in 2001. This decline largely reflects weaker markets for canned vegetables such as tomatoes and green peas. O The preliminary estimate of 2000 total per capita vegetable and melon use is a record 464 pounds--up 2 percent from a year earlier. Much of the gain reflects the record-large potato crop, as use of both fresh and processed potato products increased. Despite higher prices, fresh vegetable use remained at the strong year-earlier level. Increases were also noted for canning vegetables and sweet potatoes. In 2001, a reduction in domestic output is likely across many commodities, which may result in a small decline in per capita vegetable, melon, and pulse use. O The value of vegetable, melon, and pulse imports rose 3 percent to $4.1 billion in calendar 2000 because of reduced domestic fresh vegetable supplies and higher prices. Reflecting continued higher prices and smaller supplies during the first 2 months of 2001, the total value of U.S. vegetable, melon, and pulse imports jumped 25 percent from the low levels of a year earlier. O With somewhat stronger potato prices this past season and a lack of attractive alternatives, the Economic Research Service projects that fall-season potato growers could plant 2 to 5 percent less area than a year ago. This spring, a 1-percent drop in harvested area and 6 percent lower yields are expected to produce an 8-percent smaller spring-season potato crop. O U.S. sweet potato growers intend to plant 1 percent fewer acres than a year ago. With strong output in 2000 in States such as North Carolina setting the market tone, U.S. season average prices in 2000/01 were about 12 percent below those of 1999/2000. Given average growing weather this year, yields should trend higher and largely offset the small reduction in acreage to leave production at or above a year earlier. In 2000, increased production was outweighed by weaker prices, cutting the value of the 2000 sweet potato crop 3 percent to an estimated $209 million. O Preliminary indications point to a 17-percent decline in dry bean plantings this year, with acreage in Michigan, Minnesota, and California down considerably. With low prices this year encouraging larger domestic use and improved export volume, reduced stocks and higher dry bean prices are expected in the coming months. O Total U.S. mushroom production rose 1 percent during the 1999/2000 season and is expected to rise again in 2000/01. The value of mushroom sales totaled $867 million in 1999/2000, placing the crop fifth (following potatoes, tomatoes, lettuce, and onions) among all vegetable crops. Per capita use of fresh mushrooms continued to trend higher in 2000, reaching a record 2.24 pounds. Fresh Vegetables and Melons Spring Outlook: Acreage Up, Prices To Recover This spring, area for harvest of 13 selected fresh-market vegetables is expected to be 8 percent above a year ago. Assuming average weather and yields, available domestic supplies will likely exceed those of a year earlier. Rising acreage for commodities such as cabbage, celery, tomatoes, and cauliflower outweighed reduced area for eggplant, watermelon, honeydew melons, and cucumbers. Spring-season melon acreage for harvest is expected to be 9 percent lower than a year ago, with area for each of the three major melons (watermelon, cantaloup, and honeydew) declining. Lower prices a year ago, especially for watermelon and cantaloup, spurred growers in most areas to cut spring melon acreage to the lowest level in several years. Some highlights of spring-season vegetable acreage for harvest includes: O 13 selected fresh-market vegetables, up 8 percent; O head lettuce, up 11 percent; O the three major melon crops, down 9 percent; O asparagus, down 7 percent; and O spring onion harvested area, up 2 percent. A combination of higher area this spring and good yields (due to favorable weather) could leave domestic spring season fresh- market vegetable shipments above the average of the past 3 years. With imports expected to rise slightly as a result of higher domestic prices and improved supplies in Mexico compared with both this past winter and last spring, overall supplies should be higher than last spring. Increased supplies for many fresh-market vegetables will help ease prices down from the highs experienced during the first quarter. As a result, April-June f.o.b. shipping-point prices are expected to settle at or below the average of the past 5 years and remain below the level of a year ago. With reduced acreage and generally lower yields in both southern and western growing areas during the first 3 months of 2001, f.o.b. shipping-point prices for fresh-market vegetables averaged 40 percent above the low levels experienced during the first quarter of 2000. Assuming favorable growing weather persists this spring, vegetable and melon prices will likely continue to average below those of last year through at least early summer. In early April, shipping-point prices for many major commodities were mixed in terms of changes from the low levels of last spring. In early April, the following shipping-point prices were noted: - California iceberg lettuce, $6.00 per 24-head (50-pound) box, about even with a year ago; - Florida roma tomatoes-large, $11.90 per 25-pound carton, up 9 percent; - Florida bell peppers-large, $6.92 per 28-pound carton, down 11 percent; - California asparagus-bunched, large, $28.50 per 28-pound cartons, unchanged; - Arizona broccoli, $4.50 per 23-pound carton, down 5 percent. The f.o.b. shipping-point price for head lettuce eased considerably in mid-March as harvest wound down in the desert regions and began in the Central Valley of California. Head lettuce reached as high as $15.50 per 24-head carton in early March before settling at $4.50 per carton by mid-month. This winter, the shipping-point price averaged above the cost of production (around $6 per carton) during both January ($7 per carton) and February ($12 per carton). Lettuce prices during April and May are frequently variable due to uncertain spring weather and the shifting from one production region to another. However, given average weather during the spring, supplies are expected to be more than adequate and prices should average below the highs of a year earlier ($10 per carton). Melon Crops Off to A Late Start Cool temperatures in the California and Arizona desert vegetable region slowed the growth of cantaloups and honeydews this spring. As a result, the spring crop was about two weeks behind schedule. Harvest of desert cantaloups typically begins around the second week of May and runs into early July. Since the Mexican melon season ended before the bulk of the domestic seasons began, shipping-point prices for cantaloups will likely start off well above a year earlier during the first few weeks of May. This could benefit both Florida and Texas melon shippers who were expected to be shipping by May 1. In Florida, the spring melon crops were also expected to be one to two weeks late due to cold, dry, windy weather early in the growing season. The harvest typically begins in early April but did not start until late in the month. Spring watermelon area declined 12 percent due to oversupply and low prices a year ago. Some growers have reportedly switched to other crops such as cantaloups. With new varieties and increasing demand, cantaloups are becoming more popular among Florida shippers. Although USDAs National Agricultural Statistics Service (NASS) does not currently estimate cantaloup production in Florida, the 1997 Census indicated acreage had risen 55 percent between 1992 and 1997. Indications are that area has continued to rise since 1997. U.S. per capita use of cantaloup peaked in 1999 at 11.8 pounds-- up 28 percent since 1990. Declining domestic output in 2000, reflecting reduced area and low yields in some states (e.g. Arizona) and poor market prices in others (e.g. Georgia), caused per capita use to drop back to 10.9 pounds in 2000. With acreage and shipments down, per capita use is expected to remain around this level in 2001. USDA Adds Nine New Crops To Annual Estimates Program In January, NASS added nine vegetable crops to its annual estimates program for 2000. These nine are collard greens, kale, mustard greens, turnip greens, okra, chile peppers, pumpkins, radishes, and squash (table 11). Similar to existing estimates for celery and bell peppers, data for these 9 crops cover all uses and are not broken down into fresh and processing components. The data are grouped with fresh market vegetables since they are largely used in fresh form. Only kale has previously appeared in past NASS estimates. The farm value (all uses) of these 9 crops in 2000 was estimated to be $607 million, with squash accounting for one-third of this value. These 9 crops also add more than 16 pounds to the estimate of U.S. per capita vegetable use. NASS also expanded the coverage of several existing vegetable and melon crops through the addition of estimates for several States. For example, Arizona, New York, Delaware, and Virginia were added to the fresh-market spinach estimates program in 2000. These four states accounted for 5,220 harvested acres and 89 million pounds of production in 2000. The production of these four States added 0.3 pounds per capita to the 2000 consumption estimates for fresh spinach. As a result, per capita use of fresh spinach is now estimated to be 1.5 pounds--the highest since 1952. Winter Acreage Declined Acreage for harvest of 13 selected fresh vegetables fell 2 percent to 193,000 acres during the 2001 winter season (largely January to March). Acreage declined in two of the four surveyed States, with Texas down 14 percent and California down 3 percent. Arizonas acreage remained unchanged at 50,300 acres. Reflecting improved shipping point prices, Florida growers increased area 4 percent from a year ago. California accounts for about 46 percent of winter vegetable acreage, followed by Arizona (26 percent), Florida (21 percent), and Texas (6 percent). Acreage increased the most for endive/escarole (50 percent), snap beans (16 percent), and sweet corn (15 percent), but declined for cabbage (-27 percent), spinach (-19 percent) and eggplant (-17 percent). Winter acreage accounts for about 10 percent of the annual fresh- market vegetable and melon area (1.92 million acres in 2000). With variable weather in growing areas impacting yields and average winter weather in eastern cities helping to maintain demand, commercial fresh-market vegetable prices rose impressively during the first quarter from the depressed levels of a year ago. Winter quarter fresh vegetable shipping-point prices increased 40 percent from the lows of a year earlier as the effect of reduced winter acreage combined with lower yields caused by several occurrences of below freezing weather in Florida and bouts of cool, wet weather in California and Arizona. A year earlier, shipping-point prices during the winter quarter were 14 percent below the average of the previous 5 years and were the lowest in a decade. This past winter, cool weather in the Southern California and Arizona desert areas delayed growth and affected harvest schedules for lettuce, broccoli, cauliflower, and asparagus. The same weather pattern affected the winter growing areas in Mexico, slowing import volume. This was one factor leading to elevated prices for crops such as bell peppers and snap beans this winter. When hard freezes hit Florida this winter, tender vegetables like these were heavily damaged leading to sharply reduced supplies in Florida. However, Mexican shippers were hard pressed at times to keep up with the additional demand as rain and cool weather played havoc with their growth and harvest schedules. Thus, with weekly shipment volumes below average, and demand frequently termed good by market reporters, winter-season shipping-point prices remained above the average of the past 5 years. Iceberg (crisp head) lettuce prices averaged $7 per carton in January and over $12 during February before slipping to $4.50 during the last half of March. Onion Markets Much Improved from Last Year A year ago, onion growers were lamenting poor market prices. These low prices were the result of a record large storage onion crop, which filled bins to bursting and drove winter quarter (Jan.-Mar.) f.o.b. shipping-point prices to their lowest levels since 1980. This past winter, onion growers had a smaller storage crop to market (shipments were 10 percent below a year earlier) and also enjoyed relatively strong domestic and export demand (Jan-Feb 2001 export volume was up 17 percent). As a result, winter quarter shipping-point prices were 126 percent above the extreme lows of a year ago and 36 percent above the first quarter average of the past 5 years. These higher prices reflected a smaller crop last fall, good storability and quality of the fall crop, strong domestic and export demand, and fewer imports from foreign suppliers such as Mexico and Peru. With a strong and orderly conclusion to the marketing season for the fall storage crop, the transition to the spring onion crop is likely to see shipping-point prices remaining above the average of the previous 5 years ($14.13 per hundredweight, or cwt). F.o.b. shipping-point prices in early April for jumbo yellow onions in south Texas were $8.00 per 50 pound sack (80 percent or more U.S. No. 1)--up from $5.25 per sack a year earlier. Despite average prices last spring and a strong fall-season market (the spring crop is planted the previous fall), the 4 U.S. spring onion states (Texas Georgia, California, and Arizona) reduced planted area 8 percent this year. Planted area declined in each state with California (12 percent) and Georgia (down 10 percent) cutting area the most. In Texas and Georgia, although area planted is down, harvested area is expected to rise in each state. Last spring, acreage abandonment was larger than normal as heavy spring rains flooded some fields. This year, despite cooler than normal weather, the Texas spring onion crop was in average condition with good quality expected. In Georgia, where the marketing focus is on the mild Vidalia onion, per acre yields are expected to average below the record-high of last spring (255 cwt). In south Texas, where a large portion of the crop is geared toward mild onions such as the 1015 variety, cool, wet weather has brought the possibility of record yields. Unless wet weather increases crop losses, preliminary data indicate Texas yields could reach 320 cwt per acre, compared with last springs record-tying level of 310 cwt. Although the first U.S. estimate of total spring onion production will be released on July 10, crop estimates are available for Georgia and Texas. With a small increase in acres harvested and record yields, the Texas onion crop is expected to rise 12 percent to 4.7 million cwt. In Georgia, unusually cold weather will bring lower yields and drop production 18 percent from last year. Spring-season supplies from the Rio Grande Valley and Georgia generally peak in April, with Texas supplies continuing into June. Georgia growers also place a portion of the perishable Vidalia crop into controlled atmosphere storage for marketing during the fall. Planted area for the summer onion crop is expected to decline 3 percent this year. All but two storage-type onion producing States (States that store fresh dry-bulb onions for later marketing) are expected to plant less. Among the non-storage States (States that market fresh onions soon after harvest), onion acreage is expected to decline 5 percent with area in Texas, the third largest non-storage State, down 27 percent. For the storage crop, which provides the bulk of the Nations onions into the next spring, growers were encouraged by improving prices last year, but are expected to exercise restraint when planting-- cutting area 3 percent. Most States are expected to reduce acreage but Colorado growers intend to increase area 4 percent-- Colorado growers had cut acreage 23 percent in 2000 because of financial losses. Growers in Oregon, the top fresh-market storage onion State, expect to plant 3 percent more area this year after dropping 18 percent a year ago. Combining this increased area with average acreage losses and trend yields could produce an Oregon onion crop second only to the 1999 record. Tomatoes: Mexico Up, Florida Down Supplies of 2000/01 fresh-market tomatoes (excluding cherry tomatoes) since Dec 1, 2000 totaled 4 percent higher than the previous year. Heavier shipments from Mexico (up 23 percent) have offset a 13 percent decline in Floridas volume caused by freeze damage. Since December 1, tomato shipments (including round and roma) from Florida and Mexico have totaled 13.8 million cwt, compared with 13.3 million cwt. a year earlier. Floridas share of the tomato market during December to March declined from 53 percent in 1999/2000 to 44 percent this season, largely due to the combined effects of winter freezes on volume sold in early January and March. This is still above the low market share of 1998, when Florida only captured one-third of the winter tomato market. Interestingly, Floridas cherry tomato shipments increased 10 percent during December to March, while imports from Mexico fell 5 percent. Thus, Floridas share of the increasingly popular cherry tomato market increased from 40 percent a year ago to 43 percent this year. With reduced yields and smaller domestic supplies, shipping-point prices for tomatoes have averaged above year-earlier levels since last August. The December-March U.S. average for all fresh-market tomatoes was $37.55 per cwt, up 42 percent from the low levels of the previous year and 7 percent above the average during the same period for the 5 previous years. For product coming from Mexico, the average import value during December to February (most recent available) was $37.47 per cwt, up 35 percent from the previous year. Fresh-market tomato import volume declined 1 percent in 2000 to 1.6 billion pounds. With volume down, the import share of domestic tomato consumption declined to 30 percent, the lowest since 1995. Tomato import volume from Mexico fell 4 percent to 1.301 billion pounds. Mexico continued to lose market share, accounting for 81 percent of tomato import volume--down from 83 percent last year, 87 percent in 1998, and over 90 percent 4 years ago. Most of this share has been lost to countries primarily selling greenhouse/hydroponic tomatoes, which have been gaining favor with consumers the past several years. Although volume from Belgium (down 36 percent) and the Netherlands (down 19 percent) also declined in 2000, gains in this market segment came from Canada. The volume of fresh-market tomato imports from Canada rose 27 percent in 2000 to 224 million pounds, after jumping 29 percent last year. With Canada's greenhouse industry continuing its expansion (although likely at a slower pace), the value of the Canadian dollar remaining weak, and continued U.S. demand for premium tomatoes, further increases are anticipated in 2001. Greenhouse Tomato Industry Files Anti-dumping Petition On March 28, 2001, a group of U.S. greenhouse tomato producers filed a petition with the U.S. International Trade Commission (USITC) alleging dumping of greenhouse tomatoes by Canada in the U.S. market. The USITC has started an investigation to decide if there is a reasonable indication that the U.S. industry is injured or under threat of injury by the selling of greenhouse tomatoes from Canada at less than normal value. The USITC must reach a preliminary decision by May 14 and communicate its findings on injury to the Department of Commerce by May 21. Canada is the second largest foreign supplier of fresh-market tomatoes to the U.S. market, and may be the largest exporter of greenhouse tomatoes to the United States. About 14 percent of all U.S. fresh-market tomato imports came from Canada in 2000, with the majority of these tomatoes produced in greenhouses. Canadas share of the U.S. fresh tomato import market has risen substantially since 1995, when it had about 2 percent of the U.S. import market. Most of this market share has been lost by Mexico, which controlled nearly 96 percent of the tomato import market in 1995. Although Mexicos tomato export volume to the United States in 2000 was about the same as in 1995, it has not generally shared in the 18-percent growth in import volume that has occurred since the mid-1990s. The Netherlands also ships fresh tomatoes to the United States (virtually all are greenhouse- produced) and is the third largest supplier, holding 4 percent of the market in 2000. Per Capita Use Rises in 2000 According to preliminary estimates, per capita use of all vegetables and melons totaled 464 pounds in 2000--up about 2 percent from a year earlier (table 47). Most of the gain stems from increased use of potatoes (up 6 percent), due largely to the record-large crop last fall and subsequent lower prices. Increases were also noted for vegetables for canning and sweet potatoes. Per capita vegetable and melon use is projected to decline about 1 percent in 2001 as potato use declines with the expected smaller crop this year. Although fresh vegetable use could decline slightly due to reduced supplies this past winter, little change is anticipated in the use of processing vegetables (excluding potatoes) as processors reduce output and work down stocks. In 2000, per capita use of fresh market vegetables (for a comparable set of crops) was unchanged from the year earlier. Significant increases were experienced in fresh cabbage, romaine/leaf lettuce, and bell peppers. These were offset by reduced use for melons, broccoli, and tomatoes. Utilization of both watermelon and cantaloup declined last year as growers responded to low prices by reducing acreage and production. Preliminary estimates of potato use indicate both fresh and processing uses registered gains in 2000, with use for dehydrating gaining the most. Detailed utilization data for the 2000 potato crop will not be available until September. Per capita use was estimated for several new vegetables in 2000. The estimated levels (all uses) include: O squash, 4.5 pounds; O pumpkins, 3.3 pounds; O okra, 0.2 pounds; O collard greens, 0.7 pounds; O mustard greens, 0.5 pounds; O turnip greens, 0.5 pounds; O kale, 0.3 pounds; and O radishes, 0.5 pounds. ERS has included estimates of per capita use for radishes and chile peppers based on State data for several years. Except for squash, estimates for the others begin with 2000 and have no historical context. ERS has been constructing a brief supply and use history for squash based on available State data and plans to publish it in the upcoming July Vegetables and Specialties Situation and Outlook Yearbook. Per capita vegetable and melon use is projected to decline about 1 percent in 2001 as potato use declines with the expected smaller crop this year. Smaller output of fresh market crops could also lead to reduced per capita consumption. Little change is anticipated in use of processing vegetables as processors reduce output and work down stocks for items such as canned tomatoes. Cash Receipts and Cost Indicators Revenue Up in 2000 But May Fall in 2001 In 2000, grower cash receipts from the sale of vegetables (including melons, potatoes, pulses, and mushrooms) rose 6 percent from a year earlier to a record $16 billion (table 17). This was 17 percent of all crop receipts and greater than field corn receipts ($15 billion). Although vegetable shipping-point prices generally improved during 2000, field crop prices remained low, which has been reflected in crop revenues. In 2000, cash receipts from the sale of all crops were estimated to be about the same as the lows experienced in 1999 ($93 billion), but were much lower than the 1997 peak ($111 billion). Despite the lack of direct subsidies and bouts of low market prices, the vegetable and melon sector continues to be one of the more resilient industries within the crop sector, having managed small gains in gross revenues since the mid-1990s. In 2000, increases in the value of fresh vegetable output outweighed lower revenues for processing vegetables, potatoes, and dry beans. Combined revenue for the 25 major fresh market vegetables and 10 major processing vegetables increased 9 percent in 2000 to $10.1 billion. In general, higher prices led to a 14 percent increase in value of the 25 major fresh-market vegetables and melons to $8.7 billion. Reduced production caused processing vegetable revenue to drop 14 percent to $1.4 billion. Processing tomatoes (down 27 percent), brussels sprouts (down 27 percent), and fresh carrots (down 20 percent) realized the largest decreases in farm value while significant increases were recorded for celery (up 44 percent), fresh-market cabbage (up 38 percent) and head lettuce (up 34 percent). While declines were the result of reduced production or lower prices, most increases resulted from sharply higher prices. In 2001, grower cash receipts are projected to remain near year-earlier levels as higher prices offset reduced volume for most major commodity categories. Input Prices To Rise In 2001, prices paid by vegetable and melon farmers for production inputs are projected to rise 5 to 7 percent from a year earlier. Prices are expected to increase markedly from a year earlier for fertilizer (especially nitrogen), labor, agricultural chemicals, and fuel and electricity. A sharp increase in the price of natural gas last winter was the main factor behind an 80-percent leap in the price of nitrogen fertilizer this spring. In addition, the California vegetable industry is facing substantial price increases for electricity, which will add to irrigation expenses and food processing costs. Partly offsetting increases in the energy sector will be slight declines in prices for machinery and building supplies. In 2000, ERS estimates suggest the average input costs for vegetable and melon growers increased between 3 and 4 percent. Farm wage rates, which rose nearly 4 percent in 2000 and are the most heavily weighted item in the ERS vegetable input price index, are expected to rise 5 to 7 percent in 2001, partly reflecting the continuing difficulty in attracting skilled labor. Marketing Costs in 2000 During 2000, the ERS marketing cost index indicated that the prices for production items used by food processors, wholesalers, and retailers rose 4 percent from a year earlier. Few categories registered lower costs in 2000 (metal cans were down 7 percent). Among individual items, the largest increase was in fuel and power, which rose 29 percent from a year earlier. Although the cost of electricity rose just 2 percent from 1999, the cost for petroleum products (gasoline, diesel) doubled. Petroleum costs leaped during the first quarter and remained high throughout the year. Retailer labor costs rose just 1 percent in 2000 after rising 4.3 percent in 1998 and 2.6 percent in 1999. However, the cost of paper products rose significantly in 2000, with paperboard boxes and containers increasing 9 percent and paper bags and related products rising nearly 7 percent. Short-term interest (up 11 percent), property taxes and insurance (6 percent), and advertising (2 percent) also registered increases in 2000. Despite rising energy prices, the cost of transportation services averaged about the same as a year earlier, after declining 8 percent in 1999. Processing Vegetables U.S. Economy Slows U.S. economic growth has slowed over the past several months as consumer confidence has waned and labor demand has slackened. Despite the softening economy, the unemployment rate remains low (around 4 percent) which is a positive sign for food demand (including processed vegetables) in both the retail and foodservice industries in 2001. Real disposable personal income increased 2 percent in 2000, and is expected to post similar modest gains in 2001. According to preliminary data from the Bureau of the Census (unadjusted for inflation), retail sales at all food stores (95 percent were grocery stores) increased about 5 percent to $484 billion in 2000. A somewhat smaller gain is expected in 2001. On the foodservice side of the market, full- menu restaurant sales rose nearly 5 percent in real terms while fast food sales increased about 2 percent. According to the National Restaurant Association, total restaurant industry sales are expected to slow slightly in 2001, but will reach nearly $400 billion, up 5 percent (about 3 percent in real terms) from 2000. Per capita use of all processing vegetables (including potatoes and mushrooms) totaled 227 pounds in 2000, up 3 percent from a year earlier. The increase was due to an expected 18-percent gain in dried and dehydrated potato products and 1-percent greater use of canning (including potatoes and mushrooms) and freezing vegetables (including potatoes). Canning use totaled about 107 pounds per person, with freezing use at 83 pounds. An estimated 34 pounds per capita of potatoes were processed into chips and dehydrated products in 2000. In the year ahead, utilization of processed vegetables is expected to decline 1 percent, spurred largely by higher prices for dehydrated potato and canned tomato products. Output To Decline, Prices Rise Processors of five major vegetables (tomatoes, sweet corn, snap beans, green peas, and cucumbers) expect to contract for 1.18 million acres in 2001--down 14 percent from a year ago (table 20). Most of the decline will come from canning vegetables (down 18 percent) as canners attempt to reduce inventories and shore up wholesale prices. Assuming average acreage losses and trend yields this coming season, output of the five leading processing vegetables could be 12 to 16 percent lower than a year ago and total around 14 million short tons. In general, the expected 14 percent decline in canning contract acreage will likely cause wholesale prices for canned vegetables to rise this coming fall, as most canned vegetables register increases. During the first quarter of 2001, wholesale prices for canned vegetables were largely unchanged from a year earlier, reflecting burdensome stocks of processed tomato products. Stocks of frozen vegetables in cold storage on January 1, 2001, were down 2 percent from a year earlier (table 26). Excluding potatoes, stocks were 4 percent below a year ago. Green pea stocks were up 7 percent and were the highest since 1992. However, stocks of frozen green beans were down 6 percent to the lowest level since 1988. Frozen sweet corn (cut-basis) inventories on January 1 were down 3 percent from a year ago. Perhaps portending a larger pack this year, stocks were also significantly lower for lima beans (down 35 percent), blackeye peas (down 32 percent), broccoli (down 31 percent), and spinach (down 31 percent). Despite the reduction in January 1 stocks and constant prices, intended contract area for freezing vegetables fell 5 percent this spring--possibly reflecting weakness in the general economy. The resulting small decline in supplies, together with weaker demand, is not expected to result in much change in frozen vegetable wholesale prices over the coming year. During the first quarter of 2001, frozen vegetable wholesale prices were unchanged from a year earlier. Processing Tomato Output to Decline U.S. tomato processors intend to contract for 12 percent less tonnage in 2001. Contract area is expected to decline 14 percent to 263,800 acres, while per acre yields are forecast to trend up 2 percent this year. California, which now accounts for about 95 percent of the U.S. processing tomato crop, expects to produce 12 percent fewer tomatoes, with all other States projected to produce only 2 percent less than a year ago. This is the second consecutive reduction in the processing tomato crop following the record 1999 crop. Although production was cut 15 percent last year, output was the sixth highest on record and exceeded market needs. This resulted in a small addition to already burdensome stocks. As a result, wholesale prices for tomato products sank to the lowest levels since 1997 (the third lowest since the late 1980s). The average price for bulk tomato paste, the key raw ingredient used in the manufacture of tomato products like sauces, soups, ketchup, and juice, was down 9 percent from the previous year during the first quarter of 2000 (table 21). This returned paste prices to the levels experienced in 1997 and reflects a California stock situation (for all tomato products) about 13 percent above the average of the past 5 years. Improving prices for tomato products should help California processors manage increased energy costs this year. Some estimates suggest that higher energy prices in California could add 2 to 3 cents (about 10 percent) to the price of bulk tomato paste this fall. While processors may be able to recoup some or all of these increased costs, growers may not be afforded this opportunity. Increased natural gas prices mean higher fertilizer prices, while higher electric rates translate into increased irrigation costs for those who run pumps. At the same time, processors require fewer tomatoes this year, which usually means growers face lower contract offers for their red ripe tomatoes. Contract negotiations between processors and the California Tomato Growers Association were not completed at this writing. Overcapacity remains a problem in the tomato processing industry given the apparent stabilization of per capita use in recent years. Although overproduction and low prices have caused several older plants to be shut down recently, new and refurbished capacity has been added over the past year in California. Although this has undoubtedly increased the overall efficiency in the industry, it has not reduced the processing capacity. Unless domestic and/or export demand increases, it seems likely that another round of inventory accumulation, low prices, and business failures could face the industry within the next 2 years. In 2000, the value of processed tomato product exports (including dried and dehydrated) exceeded the value of imports by $127 million, up from a margin of $110 million in 1999. Lower prices for tomato products during the year made the U.S. market less attractive to foreign traders, but generally did not encourage potential buyers of U.S. products. Import volume declined 47 percent in 2000 and accounted for 3 percent of total domestic tomato use, compared with nearly 7 percent in 1999. Tomato paste (down 86 percent from $59 million in 1999) accounted for most of the decline. While canned imports generally declined, imports of dehydrated tomato powder, used primarily as a flavoring agent, rose 13 percent to $28 million. Processed tomato imports are expected to rise during 2001 and into 2002 as inventories are trimmed and wholesale prices increase. Although prices fell in 2000, large world supplies of tomato products and the continued strength of the U.S. dollar prevented exports from rising. Export volume in 2000 remained near year- earlier levels and represented 6 percent of total tomato supplies, the same as a year earlier. Canada remained the leading market for U.S. processed tomato exports, accounting for 48 percent of the total value sent to other nations--down from 52 percent in 1999. Japan (12 percent) and Mexico (11 percent) were the next most important foreign buyers of U.S. tomato products. Exports to Mexico rose 34 percent in 2000 to $26 million, and followed a 32 percent gain in 1999. The value and volume of processed tomato exports to Japan each rose 7 percent, recovering the loss in value in 1999. Per capita use of processing tomatoes was estimated to be 71.7 pounds (fresh-weight basis) in calendar 2000, down 2 percent from the previous year. In 2001, with a smaller domestic crop and improved export volume, stocks should decline and wholesale prices for tomato products should rise modestly during the last quarter of the year. Before then, continued favorable prices and expected gains in away-from-home consumption should support increased use of tomato-based foods such as pizza and pasta. As a result, domestic disappearance during 2001 is expected to expand at least 1 to 3 percent from the estimated 2000 level of 19.7 billion pounds (fresh-weight basis). Although production is expected to drop this summer, continued favorable U.S. tomato product prices during much of the year and reduced stocks in several competing countries could result in an increase in export volume in 2001. Sweet Corn: Canning Area Up; Freezing Down In 2001, vegetable processors expect to contract for 421,180 acres of sweet corn--down 11 percent from a year ago. Despite the appearance of smaller stocks, particularly for foodservice-sized products, canneries expect to cut contract acreage this year. With canned prices mixed (retail sizes are lower while foodservice sizes are higher) compared with a year ago, canners intend to contract for 22 percent fewer acres in 2001. March wholesale prices for Midwest Fancy whole kernel 24/300s (retail- size) were down 6 percent from a year earlier but even with the average of the previous 5 years. However, similar to a year ago, tighter stocks for bulk sizes have left the wholesale price for cases containing 6 number 10 foodservice-sized cans about even with a year ago (7 percent higher than the average of the previous 5 years) at nearly $15/case--the highest since 1994. Per capita disappearance of canning corn, which has been on a downward trend since the mid-1970s, increased slightly in 2000 to 9.5 pounds. With production anticipated to fall and stocks of some sizes low, per capita use is expected to show a modest decline in 2001 (table 47). Frozen sweet corn price movements are opposite those for the canning sector in that the retail side remains constant (as it has for 3 years) while the bulk packs have been running 4 percent below a year ago (2 percent below the 5 year average). Frozen sweet corn stocks on January 1, 2001, declined for the third consecutive year after reaching a record high in 1998. Stocks as of January 1 were the lowest since 1993. Both domestic and export demand appear to have flattened since the mid-1990s, and processors have responded by trimming stocks and limiting the pack over the past 3 years. Processors of frozen sweet corn intend to increase acreage 2 percent in 2001. Given average yields and acreage losses, production of sweet corn for freezing is expected to be large enough this year to cover the needs of the domestic and export markets (around 3.2 billion pounds, fresh-equivalent) at current prices. However, inventories will not likely increase much and little impact on wholesale prices is expected. Per capita disappearance of sweet corn for freezing is estimated to have declined 11 percent to 9.2 pounds in 2000. A small increase in use is expected in 2001. Snap Beans: Frozen Area Up, Canning Down Production of canning snap beans in 2000 was the largest since 1989. As a result, canneries are looking for 22 percent less acreage in 2001 following the replenishment of stocks a year ago. Prices for canned snap bean products have remained below a year ago for both retail and foodservice packs (table 21). Domestic per capita disappearance of canned snap beans (fresh-weight basis) rose slightly to 3.9 pounds in 2000--just above the average for the previous 5 years and relatively unchanged since the mid-1980s. Following a 4-percent drop in 1999 and a further 3-percent cut in 2000, domestic packers of frozen snap beans intend to increase pack in 2001. Area devoted to snap beans for freezing is expected to rise 12 percent to 64,400 acres in 2001. January 1 stocks have been whittled down to the lowest level since 1989. Although bulk prices have moved down slightly with the rest of the product line, retail prices continue unchanged from the previous 5 years. Imports of frozen snap beans (largely from Canada) reached a record high in 2000, accounting for 8 percent of domestic disappearance--also the highest since this import data became available in 1989. U.S. per capita use of frozen snap beans (fresh-weight basis) fell to 1.9 pounds--down slightly from 1999s record-tying-high of 2 pounds. Green Peas: Lower Prices Bring Less Acreage Domestic green pea canners intend to contract for 88,800 acres in 2001, down 33 percent from a year ago. The canning crop in 1999 was the largest since 1992 and boosted supplies about 13 percent above a year earlier. Wholesale prices for retail sizes have been under pressure this March, with prices running slightly below year-earlier levels. With prices down, imports are expected to drop from a year ago when they were the second highest on record. Imports accounted for 6 percent of domestic canning green pea disappearance last year. In the 1990s, per capita use of canning peas averaged 1.7 pounds, down from 2.2 pounds in the 1980s and 3 pounds during the 1970s. In 2001, per capita use of green peas for canning will likely remain near the 1.6 pounds of 1999. Frozen green pea stocks were up 7 percent from a year ago on January 1, 2001, and were the second highest since 1986. However, with domestic demand relatively strong, wholesale prices remain unchanged for retail sizes and down slightly for foodservice packs. Because stocks are strong relative to the past decade, frozen green pea processors plan to cut acreage 20 percent in 2001. Given average yields and acreage losses, production is expected to decline. Thus, domestic disappearance of green peas will likely remain near the 2000 record of 599 million pounds (fresh-weight basis)--equal to 2.2 pounds per capita. Pickling Cucumbers: Contract Acreage Up In 2000, the production of cucumbers used to manufacture pickles declined 2 percent due to a combination of small reductions in area and yield. Despite the small decline in output, a larger carryover of salt stock placed December 1, 2000, pickle stocks up 26 percent from a year earlier. For 2001, beginning stocks on December 1 (including dill, fresh pack, and refrigerated product) were 14 percent below the previous year. Because stocks are down, pickle processors have indicated they plan to increase contract acreage of pickling cucumbers 7 percent in 2001. Among the surveyed States, only Wisconsin and Indiana plan to cut acreage. While Michigan, the leading state, expects to add 1 percent more contract area this spring, the second leading state, North Carolina, plans a 26 percent jump in area under contract. Pickle processors traditionally contract for a much smaller proportion of their raw product needs than most other vegetable processors. Because of diverse size requirements and variability between the spring and fall cucumber crops, processors use open market purchases of cucumbers from growers to adjust pickle inventories to satisfy the needs of the market. Thus, final harvested acreage could change markedly from that indicated by these contract intentions. The recent sale of financially troubled industry leader Vlasic Foods is not expected to have an impact on this years output. Potatoes Winter and Spring Production Down The 2001 winter-season potato crop is estimated at 4.0 million cwt, down 20 percent from 2000 and 2 percent below 1999. Harvested area was down 18 percent from a year ago, and yields were down 2 percent--declining in both California and Florida. With heavy supplies of potatoes on hand from the fall 2000 crop, growers planned for a small reduction in winter-season production by decreasing planted acreage by 2 percent from the previous winter. However, heavy rains in Floridas Homestead area during December virtually wiped out their potato crop. In total, about 3,000 acres were abandoned in Florida, and yields on remaining fields were down nearly 8 percent from a year ago. The combination of lost acreage and reduced yields have Florida output down 42 percent from last years level. In California, winter production this year is estimated to be just 3 percent below a year ago, due entirely to reduced yields. The first estimate of the 2001 spring potato crop is 20.3 million cwt--down 8 percent from last year, and 19 percent below 1999 (based on comparable States). Due to continuing burdensome stocks from last fall, growers planted 2 percent less acreage than last spring, and harvested 8 percent less. An estimated 6 percent cut in per acre yield was due to a cooler growing season. Most of the spring crop is progressing normally. Harvest began in late March in some areas of Florida and an early May start is expected in California. Fresh Potato Stocks at Record High Levels On April 1, fresh potato stocks were 154 million cwt, up 20 percent from a year ago and 4 percent above the previous record set in 1997. April 1 stocks represented 33 percent of fall production in the 15 potato-storage States, 2 percentage points more than last year. The record fall production of 2000 and some of the lowest grower prices since the 1996/97 marketing season have contributed to record disappearance this season--up 5 percent from last year and 4 percent above the record set during the 1996 season. Processor use is up 1 percent (based on comparable States) from last season, but has slowed somewhat in recent months, falling behind last years pace in the months of February and March. Another sign of the recent processor slowdown relative to a year ago is the significantly smaller buildup of frozen potato product inventories (frozen stocks) in the month of February. During February of 2000, frozen stocks rose by 11 percent while in February 2001, stocks rose by only 2 percent. Furthermore, frozen stocks on February 28, 2001, had fallen below year-earlier levels (5 percent below February 28, 2000) for the first time this season (the marketing season runs from October through the following September). However, because the decline in processor use and frozen stocks occurred simultaneously, it is quite likely that demand for frozen potato products remains strong. Potato processors have apparently slowed down raw product usage to bring frozen stocks down to more comfortable levels. Processors may also be slowing their use, knowing that ample supplies of raw potatoes for processing could extend well into the beginning of the next marketing season. Without a rather large cut in potato production this fall, such a situation could put even further downward pressure on grower prices later this year. Grower Prices Down in 2000/01 As a result of record production last fall in both the U.S. and Canada, grower prices for potatoes have dropped significantly from a year ago. During the October through February period, U.S. grower prices for all potatoes averaged 18 percent below the same period a year ago. Fresh-market potato prices averaged 36 percent below year-earlier levels, while processing potatoes were down only 3 percent. Prices for processing potatoes have not fallen as much as prices for fresh because the majority of processing potatoes are sold to processors on a contract basis, with quantities and prices determined before the growing season. Most fresh-market potatoes are sold on the open market, and the record supply has depressed these prices substantially. The Producer Price Index (PPI) for Irish potatoes for consumer use has also declined 18 percent below year-earlier levels, while the PPI for frozen french fries shows a 2 percent increase from October through February--likely largely due to increased costs of other production inputs such as power and water. Grower prices for potatoes have averaged lower than a year ago through February, and retail prices for fresh potatoes have also declined. For the October through February period, fresh retail prices have averaged 10 percent below a year ago, and the Consumer Price Index (CPI) for fresh potatoes was 4 percent lower. Retail prices for frozen french fries have virtually mirrored the change in the PPI, averaging 1 percent above a year ago during October through February. Grower prices are likely to remain below year-earlier levels for the remainder of the 2000/01 marketing season. How much below remains in question, and will depend on several key factors: domestic and foreign demand of processed potato products, processor usage for the remainder of the season, processor contract intentions for next season, and the effect of a USDA diversion program for the remainder of the 2000 crop. USDAs Agricultural Marketing Service has implemented a $10.25 million program to divert a portion of the 2000 crop to charitable food uses, livestock feed, and ethanol production. Payments are targeted at $1.00 per cwt and diverted potatoes must equal or exceed specific minimum U.S. grade standards for grade no. 2 potatoes (further details on the program are available in the April 13 Federal Register). Strong demand and processor usage through the summer would certainly help elevate prices and help reduce stocks of fresh potatoes heading into harvest this fall. If stocks are not diminished significantly, prices will remain low well into the next marketing season. Fall Acreage to Decline, But by How Much? Based on overall market conditions and estimates of current season prices, ERS projects planted acreage for 2001 (all seasons) to decline 2-5 percent from a year ago. While many industry groups and representatives are urging growers to cut acreage by 10-15 percent, in many growing areas there are few alternative crops that present a clear economic advantage for growers to shift significant acreage away from potatoes. USDAs Prospective Plantings report shows sugarbeet acreage will be down in Idaho, Colorado, and much of the Midwest, but is slated to increase in Washington. The report also indicates dry bean and barley acreage will be down in many major potato-growing areas this year. It appears that the major alternative crops to potatoes that growers may be considering are soybeans in the Midwest, and spring wheat in the Pacific Northwest. Another factor likely to have an impact on planting decisions this spring is the water and power supply shortage in the Pacific Northwest. The power shortage throughout much of the West this winter is likely to only get worse during the summer as electricity demands rise. Some western power companies are offering power buy-back options to growers this spring, in hopes of reducing total power demand. Buy-back programs would pay growers to reduce or eliminate power usage on farm acreage. Such programs may be an alternative for potato growers that must pump water great distances in order to irrigate acreage. Also, due to a well-below-normal snowpack in much of the Northwest this winter, water availability may be limited for some growers. Furthermore, decreased pumping from rivers and streams would also mean more water would be available for hydroelectric power generation. The power shortage situation is also likely to affect potato processor decisions this spring. Potential power outages and higher costs for electricity and water this summer may influence processors to slow down production throughout the summer, and subsequently affect their contract decisions with growers. Early in the spring planting season, processors have been reluctant to rush into volume contracts with growers. In addition to potential power and water problems, this hesitation in contracting volume from growers is compounded by the current heavy supply of potatoes from last fall. With the current situation of abundant supply and low prices, processors are hesitant to contract for increased volume at higher prices than a year ago. However, production costs for growers will also certainly rise this year (power, water, fertilizer, fuel etc), making growers reluctant to settle for less than a year ago. It is possible that these factors could combine to reduce overall contracted volume from a year ago. If planted acreage does decline 5 percent from last year, average acreage abandonment and long-term trend yields would put 2001 potato production (all seasons) at about 465 million cwt (down 10 percent from a year ago). However, a 5-percent cut in planted acreage combined with another outstanding growing season with yields matching last years records could push total production to 491 million cwt (5 percent below the 2000 total). A 10 percent or greater decrease in production would certainly put upward pressure on grower prices in the 2001/02 marketing year, but a mere 5 percent reduction might not have a significant impact on prices if high carryover stocks from the 2000 crop are still available this fall. USDAs first official estimate of planted acreage for fall potatoes will be released on July 11. Potato Trade Surplus Declines in 2000 The U.S. trade surplus in potatoes and potato products decreased by 31 percent in 2000 to $268 million. The decline is the result of a drop in total export value and increased imports. Total U.S. potato exports were valued at $768 million in 2000, while imports were valued at $500 million. Exports of french fries continued to increase in 2000, up nearly 4 percent from 1999 to $351 million. However, this gain was more than offset by declines in exports of potato chips (down 12 percent from 1999 to $225 million), and flakes/granules (down 38 percent from 1999 to $43 million). Most of the decreased chip and flake/granule exports in 2000 were due to vastly improved European potato production in the fall of 1999. French fry exports continue to be the most important export item for the potato industry, although the destination markets have changed somewhat in the past decade. While Japan continues to be the single most important foreign market for U.S. fries, its market share has declined from 59 percent of U.S. fry export volume in 1990, to 46 percent in 2000. However, the Asian market as a whole is still the fastest growing market for U.S. fries with market share increasing from just under 77 percent in 1990, to 82 percent in 2000. Much of the growth has occurred in China, where year 2000 exports were nearly 400 times what they were just a decade ago. During that time, Chinas market share of U.S. fry exports has risen from less than one tenth of a percent to 5 percent. Another market of increasing significance is Latin America. Between 1990 and 2000, U.S. fry exports to Latin America increased 583 percent and its share of U.S. fry exports grew from 5 percent to 10 percent. As exports of fries continue to rise, so to do imports from Canada. Domestic demand for french fries in the U.S. has increased steadily over the past three decades, and an increasing portion of this demand is being met by Canadian processors. Since 1989, imports of fries from Canada have increased an average of 25 percent per year. Canadian-produced fries currently account for about 13 percent of all fries consumed in the U.S., up from about 2 percent in 1989. In 2000, total fry imports from Canada were nearly 1.1 billion pounds, up 17 percent from 1999 and just 2 percent less than total U.S. french fry exports. With Canadian processing capacity continuing to expand, the United States could become a net importer of french fries for the first time in 2001 Sweet Potatoes Acreage Down 1 Percent U.S. sweet potato growers intend to plant 96,200 acres this spring, down 1 percent from last year but 3 percent more than 1999 (table 37). Acreage in North Carolina and Louisiana, the two largest sweet potato producers, is expected to remain unchanged from a year ago. In California, the third largest producer, acreage is down 5 percent from last year and 8 percent below two years ago. Some of the decrease may be attributed to grower expectations of higher returns from competing crops such as other vegetables and melons. Sweet potato acreage in Texas is also declining. Planted acreage is expected to be 27 percent below last year and 29 percent less than 1999, with growers cutting back after several consecutive years of poor yields and acreage lost to drought. Conversely, sweet potato acreage is expanding in Mississippi, where planted area is expected to be 12,700 acres in 2001, up 10 percent from a year ago. Planted acreage has increased in Mississippi every year since 1994, and has not declined in any year since 1989 when it was 3,000 acres. The dramatic increase in Mississippi sweet potato acreage during the last decade has been driven by profitability, with sweet potatoes yielding the highest dollar return per acre of any vegetable grown in the state. Beauregard is the leading variety, and the top-producing counties of Calhoun, Chickasaw, and Pontotoc are in the northern portion of the state. The slight overall net decrease in U.S. acreage for 2001 is at least partially in response to lower prices for sweet potatoes during the 2000 marketing season. The preliminary U.S. season- average price for the 2000 crop is $15.40 per cwt, nearly 13 percent below the 1999 average of $17.60. Typically, a 13-percent decline in season-average prices would cause more than a 1- percent cut in acreage the following year. However, the high prices in 1999 were due largely to Hurricanes Floyd and Irene, which devastated much of the sweet potato crop in the Carolinas, elevating the season-average price in the U.S. due to short supply. Without such a disaster, production in 1999 would have been at least 2 million cwt higher, and prices would certainly have been lower. A larger crop in 2000 helped to reduce prices, bringing them in line with prices from 1998 ($15.30) and 1997 ($15.80). Barring any weather-related disasters again this season, average acreage abandonment and a return to long-term trend yields (159 cwt/acre) would put 2001 U.S. sweet potato production at 14.7 million cwt. That would be the largest crop since 1982, and would be 8 percent above a year ago. Grower prices would likely fall, but with good domestic and export demand, the season average price might not drop much below $15 per cwt. However, if sweet potato yields only maintain the recent 3-year average (147 cwt/acre), production would be about the same as last year with prices potentially rising to a forecast range of $15 to $16 per cwt. Dry Edible Beans Low Grower Prices and Large Stocks Drop Area Because of continued low prices (the lowest since the 1980s), 2001 U.S. dry bean output is expected to decline from last year's level. USDA's Prospective Plantings report indicated that dry bean growers plan to seed 17 percent fewer acres this spring. If realized, planted area of 1.453 million acres would be the smallest since 1983. With the exception of Idaho, all major producing States have indicated substantial reductions in area this year. Michigan growers intend to plant 200,000 acres, 30 percent less than a year ago and the lowest acreage on record (records began in 1909). Area in Idaho is flat largely because reduced pinto and navy bean area will likely be offset by increases for small red, pink, and garbanzo beans. Increasing area for garbanzo beans is possible given recent export demand and could lie behind the expected 23 percent gain in Montanas acreage. In general, the national cut in dry bean area is expected to be widespread among the major classes, including pinto, navy, black, and Great Northern. For these classes, area is dropping due to burdensome stocks, slow export demand (due partly to large world supplies), and extremely low market prices. During the first quarter of 2001 (January-March), U.S. grower prices for all dry beans were 2 percent below the low levels experienced a year ago and were the lowest since 1988. This was the fourth consecutive year that grower prices have declined from the previous year, having dropped at least 11 percent in each of the past 3 years. Growers attempted to trim stocks a year ago by reducing planted area 13 percent, but this turned out to be insufficient as export demand remained soft and prices continued to fall. In the coming season, trend analysis (1970-2000) suggests a slight decline in U.S. dry bean yields to about 1,640 pounds per acre. Yields in 2000 (1,646 pounds per acre) exceeded the trend by 1 percent. Assuming average acreage losses on the intended planted area during the season (7 percent), U.S. production of dry beans is expected to decline from last year's level of 26.44 million hundredweight (cwt). Current ERS forecasts suggest total dry bean output could be within a range of 21 to 23 million cwt this year. Along the lines of the acreage cuts listed above, reduced production is expected for all the major classes. However, because output was cut substantially last year for classes such as small red, pink, cranberry, and blackeye beans, stock adjustments for these classes have largely been completed. This has likely paved the way for increased output in these smaller bean classes. In Canada, dry bean (excluding chickpeas) harvested area is expected to decline 8 percent in 2001. However, assuming yields recover from last years decline and return to trend levels, production is forecast to rise 8 percent. The largest share of the increase is projected to be in colored beans, with white beans rising little. Despite higher output, low carryover stocks will prevent total supply from rising. The volume of Canadian dry bean exports is also expected to decline due to reduced availability. Given smaller supplies in both the U.S. and Canada this coming season, average dry bean prices are expected to rise, setting the stage for increased area in 2002. As in the United States, Canadian chickpea production is expected to rise to meet stronger world demand. Most of the gain will be in the kabuli-type chickpea, which is also produced in the U.S. and are commonly known as garbanzo beans. U.S. dry bean export volume (excluding seed and including garbanzo beans) declined 5 percent during calendar year 2000. The trade balance in dry edible beans remained positive in 2000. In 2000, export value totaled $185 million, while imports (excluding guar seeds) totaled $35 million. Guar seeds (also known as cluster beans) are largely used for industrial purposes, with 2000 imports totaling $30 million. Over the past 5 years, an average of 19 percent of U.S. dry bean supplies have been exported. In 2000, about 8 million cwt, or 18 percent of available supply, was exported. Although supplies will be declining in 2001, ERS estimates suggest exports could rise slightly from last years low level and account for about 21 percent of available supply. Despite the fact that domestic markets have been much more important for most other dry bean classes, export markets also remain vital. For example, although pinto beans account for 40 percent of domestic dry bean consumption, over the past 5 years about 10 percent of pinto bean supplies were exported (the same as in 2000). Pinto and navy beans each accounted for 21 percent of U.S. dry bean export volume in 2000. Pinto beans Reflecting the general malaise in agriculture over the past year, the 2000/01 pinto bean market remained weak. Despite a 2-percent reduction in production in 2000, export demand did not match market expectations and persistently high stocks continued to weigh heavily on prices at both the grower and dealer levels. During the first quarter of 2001, average grower prices in North Dakota, the leading pinto producing State, were the lowest since 1983. Market fundamentals for the 2000/01 pinto bean season were as follows: O Acres harvested in 2000 remained largely unchanged at 646,200 acres; O Per acre yields fell 2 percent to 16.51 bags (cwt) per acre; O Production totaled 10.67 million cwt, down 2 percent from 1999 but 26 percent below 1998; O Grower bids in North Dakota and Minnesota have averaged about $11.30 during the 2000/01 marketing year--down 3 percent from a year earlier and 13 percent lower than in 1998/99; O Dealer prices in Colorado have averaged $20.55, about 4 percent above a year earlier; O The farm value of the 2000/01 crop is down 5 percent to an estimated $120 million; O Export volume during calendar year 2000 declined 7 percent to 1.64 million cwt; O Import volume dropped 20 percent to 17 million pounds, with most volume coming from Canada; O Domestic use of pinto beans remained even at an estimated 981 million pounds--per capita use of pintos remained constant at 3.6 pounds. The record per capita use is 3.8 pounds, set in 1992. Entering early spring, grower prices for pinto beans in places such as North Dakota and Colorado were beginning to stir, rising slightly on the expectation of significant cutbacks in area planted. With acreage expected to decline and yields moving back down to trend, pinto production is likely to range from 8 to 10 million cwt. Production in this range would be a significant change since pinto bean production has not been less than 10 million cwt since 1993. With a small gain expected in export volume this year, pinto bean dealer prices in Colorado, Nebraska, and Wyoming, which are expected to average around $21 per cwt in 2000/01, are currently expected to average several dollars higher in 2001/02. Navy beans The 2000 navy (pea bean) crop was down 35 percent from a year earlier. Despite the reduction in output, weak demand prevented significant stock drawdowns. With stock positions remaining above average, grower prices for all bean classes in Michigan were the lowest since 1988. Navy bean market fundamentals during the 2000/01 season include: O Area harvested down 24 percent to 307,100 acres; O Per acre yields averaged 1,554 pounds, down 14 percent from the record high of a year earlier; O Navy bean production fell 35 percent to 4.77 million cwt, just 2 years after harvesting the smallest crop of the decade; O Grower prices for navy beans in Michigan have averaged about $10.60 during the 2000/01 marketing year--down 16 percent from a year earlier and down 45 percent from 1998/99. Prices have been low and flat throughout the season and stood at $10.50 cwt in early April, the lowest grower price in many years; O Dealer prices in Michigan have averaged $16.10, about 16 percent below a year earlier; O The farm value of the 2000/01 navy crop declined 45 percent to an estimated $51 million; O Navy bean export volume in calendar 2000 declined 27 percent to 1.6 million cwt, with sales to the U.K. accounting for 46 percent (54 percent in 1999). With prices low, import volume dropped substantially in 2000; O As of January 1, 20001, stocks in Michigan were down 3 percent to 2.8 million cwt--about the same as in 1997; O Total domestic use of navy beans likely fell 4 percent to 320 million pounds--this was about 12 percent below average use during the 1990s. On a per person basis, use of navy beans declined about 5 percent to 1.2 pounds. The highest per capita use during the past 30 years was 2.4 pounds in 1973. For the coming season, it is very likely navy bean output will decline because of poor navy bean grower prices and comparatively attractive soybean and grain Commodity Credit Corporation (CCC) loan rates. With lower acreage and trend yields, navy bean production is likely to drop back to a range of 3 to 4 million cwt. With current low prices encouraging a small increase in domestic and export volume, stocks should be reduced to more profitable levels this season. Reduced supplies and stronger domestic and export use should support higher navy bean prices in 2001/02. Mushrooms Mushroom Trade Stronger During the first 7 months of the 2000/01 marketing year (July 2000 to January 2001), U.S. fresh-market mushroom export volume was down 6 percent from a year earlier to just under 9 million pounds. On the import side, fresh-market import volume was up 50 percent from a year earlier to 21.6 million pounds. Starting with January 2000, fresh-market agaricus mushroom imports have been broken out from all other mushrooms. In January of 2001, agaricus imports were 56 percent of all fresh-market import volume (compared with 77 percent a year earlier). In the canning market, canned export volume was up 16 percent, but dried mushroom exports (a small category) were down 23 percent from the strong levels of a year ago. Canned imports jumped 18 percent to almost 88 million pounds during the first 7 months of the marketing year. Importers have still been adjusting to the anti-dumping duties placed on certain preserved mushrooms from Chile in late 1998 and China, India, and Indonesia in early 1999. While imports were much lower in calendar 2000 from Chile, substantial volume arrived from the Netherlands (up 58 percent), India (up 8 percent), China (up from 0.5 million pounds to 8.7 million), and Indonesia (down 3 percent). Additional volume is also coming in from Taiwan and Canada. Preliminary projections from the United Nations Food and Agriculture Organization indicate that world mushroom production for all uses rose 2 percent in 2000 to a record 5.3 billion pounds (table 51). Production in 1999 was estimated at 5.2 billion pounds. China continues to dominate world mushroom production with an estimated 1.6 billion pounds--30 percent of the world total and 8 percent above a year earlier. United States output is forecast at 875 million pounds (17 percent of the world total), followed by the Netherlands (10 percent), France (6 percent), the United Kingdom (4 percent), and Poland (4 percent). Special article #1 Factors Affecting Onion Consumption in the United States Gary Lucier, Biing-Hwan Lin, and Jane Allshouse 1/------ ------ 1/ Lucier is an economist with the Market and Trade Economics Division. Lin and Allshouse are economists with the Food and Rural Economics Division, all within USDAs Economic Research Service. ------ Abstract: Fresh and processed dry bulb onion consumption has increased significantly in the United States over the past two decades. However, little is known about the distribution of onion consumption across different marketing sectors, geographic regions, or population groups. Using data from USDAs 1994-96 and 1998 Continuing Survey of Food Intakes by Individuals, this article examines the consumption distribution of fresh and processed onions in the United States. The analysis indicates that per capita fresh dry bulb onion consumption is greatest in the western areas of the country, while processed onions are generally more popular in the Northeast. The majority of onions and processed onion products are consumed at home. The analysis indicates that men consume about 40 percent more onions than women. Keywords: Onions, consumption, per capita use, distribution, regions, dehydrated, frozen. There has been continuing interest in information regarding the consumption distribution of foods such as onions. Although a great deal is known about the supply side of the U.S. fresh and processed (frozen, canned, dehydrated) dry bulb onion markets, relatively little has been published about consumer demand. According to per capita disappearance data compiled by the U.S. Department of Agricultures (USDA) Economic Research Service (ERS), both fresh and dehydrated onion demand have trended higher over the past three decades. While the trend in processed (dehydrated) onion use has been almost flat with only a slight upward trend over the past 30 years, fresh onion consumption has experienced a strong upward trend, with use nearly doubling over the period (table A-1). During the most recent 3 years (1998- 2000), average use of all onions increased 74 percent over the 1968-70 period. A combination of factors, including immigration trends and changes in Americas tastes and preferences, has likely contributed to rising per capita onion use. However, due to a lack of consumer research in this area, little is known about the demographics of fresh and processed onion consumption. For example, what proportion of fresh and processed onions are purchased for at-home versus away-from-home meals? Has the increasing Hispanic population in the United States influenced fresh onion demand the way it has other vegetables? Who consumes onions? These questions have largely gone unanswered. The purpose of this article is to provide unique basic information about the market distribution of fresh and processed onions using data from USDAs most recent food consumption surveys. Following a short discussion of the data used in the analyses, the next sections will describe the distribution of fresh and processed onion consumption by food source, region of the country, ethnic background, income class, and age and gender. Market distribution analyses will be presented for fresh and total processed onions and also for the major processed categories--dehydrated, frozen, and canned/glass-packed products. Data and Methodology USDA has conducted periodic surveys of household and individual food consumption in the United States since the 1930s (see box). The most recent surveys, the 1994-96 and 1998 Continuing Survey of Food Intakes by Individuals (CSFII) -----2/, ----- 2/ U.S. Department of Agriculture, Agricultural Research Service, 1998. 1994-96 Continuing Survey of Food Intake by Individuals and 1994-96 Diet and Health Knowledge Survey. CD-ROM. Available from National Technical Information Service, Springfield, VA. ----- conducted by USDA's Agricultural Research Service (ARS), provided the basis for this article. Each year of the 1994-96 data set comprises a nationally representative sample of non- institutionalized persons residing in 50 States and Washington, D.C. The 1998 CSFII was a supplemental survey to the 1994-96 CSFII. The supplemental survey was strictly focused on children (see the box for more detail). In the CSFII, two nonconsecutive days of dietary data for individuals of all ages were collected 3 to 10 days apart through in-person interviews using 24-hour recalls. The 1994-96 CSFII data set includes information on the food and nutrient intakes of 15,303 individuals, while the 1998 CSFII data set includes 5,559 children who were up to 9 years of age. The respondents provided a list of foods consumed as well as information on where, when, and how much of each food was eaten. Standardized probes were used to collect details on food descriptions and amount of food eaten. The location where the food was purchased was coded into several categories. For each respondent, an array of economic, social, and demographic characteristics were also collected. This rich database enables researchers to estimate the market/consumption distribution of a food by numerous delineations. Onion Markets and Use Although not a major plate vegetable, onions rank fifth among all vegetables in terms of both consumption and value. Total onion consumption in 2000 was, at 20.7 pounds per capita, just under the record high of 21.3 pounds set the previous year (table A-1)--only potatoes, tomatoes, lettuce, and sweet corn are higher. From 1998 to 2000, farm cash receipts for onions averaged $737 million--5 percent of receipts for all vegetables--with an estimated retail value of over $2 billion. The U.S. is the worlds third-largest producer of onions (behind China and India), with production up 44 percent between 1988/90 and 1998/2000. While the fresh market accounts for the largest share of onion use, other forms also account for a significant share. Most onions used in canning and freezing are taken from fresh-market varieties, while dehydrated products use separate varieties having higher solids content. Onions in frozen form are estimated to account for as much as 10 percent of all onions consumed. Both fresh-market and dehydrated onions (largely granulated and powder) appear in a wide variety of canned and frozen products such as salsa, soups, stews, salad dressings, and pickled products. Some fast-food hamburgers are topped with dehydrated (reconstituted diced/minced) onions. Dried and dehydrated onion products are manufactured for both domestic and export markets. Per capita use of onions has generally been expanding since the 1970s. However, since peaking in 1997, fresh use (includes freezing and canning) appears to have reached a plateau of about 19 pounds per person. This is 27 percent above the 1988-90 average and 67 percent above 1978-88. Per capita use of dehydrated onions averaged 1.8 pounds (fresh-weight basis) during 1998-2000--about the same as 1988-90, but a third higher than 1978-80. Onion demand during the 1970s rode the increasing popularity of fast-food hamburger chains that featured onions on burgers and onion rings as side orders. In the 1980s, the booming popularity of salad bars added another layer to onion demand. By the end of the decade, onion demand was gaining from the growing popularity of pizza, pasta, salsa, and other ethnic cuisine. The booming economy of the 1990s has propelled demand for away-from-home foods, many of which feature onions. Onions also have natural qualities that make them attractive to consumers, particularly in todays health-conscious market. Research has shown that onions contain antioxidants, can reduce blood cholesterol levels, are low in calories, and are a source of dietary fiber. Bulb onions also provide vitamin C, with one medium onion providing 15 to 20 percent of the daily requirement. Market Share by Location In the CSFII survey, the at home and away from home delineation is based on where a food was obtained or prepared, not where it was consumed. Food at home is generally obtained at a retail store such as a supermarket, grocery store, or convenience store. Food away from home is generally purchased from foodservice establishments, but can also be obtained in such places as school cafeterias, community feeding programs, or child/adult care centers. Both home and away-from-home food can be consumed at or away from home. For example, a bagged lunch prepared at home and consumed at work is classified as home food. A commercially prepared pizza delivered and consumed at home is classified as food away from home. Fast-food places include self-service establishments and carryout places; restaurants are places that have wait staff; and school cafeterias include daycare facilities and summer camps. The survey indicated that on any given day, 55 percent of the population ate at least one food away from home, with 31 percent visiting fast-food establishments. The category others is a catchall category, including such things as community feeding centers, bars and taverns, vending machines, etc. According to the CSFII survey, the bulk (72 percent) of fresh and processed onions were purchased at retail stores and considered as home foods (table A-2). Processed onions were more likely to be consumed at home (79 percent) than fresh-market onions (67 percent). This reflects both the strong use of fresh onions in the foodservice industry and the predominance of onions in manufactured foods purchased from retail establishments. The fact that two-thirds of fresh-market dry bulb onions are purchased at retail for home use is relatively consistent with the overall percentage of meals consumed away from home during the survey period. Although the preparation of meals at home is not necessarily a dying art, eating out has become much more prevalent during the past two decades as consumer affluence has risen and free time has become more dear. About 15 percent of fresh-market onions were consumed in food prepared in standard restaurants (those with wait staff). The popularity of various ethnic restaurants (e.g. Italian, Mexican, Indian, Chinese, etc) during the 1990s has likely aided growth in onion demand. Entrees (prepared on-site), salads, and side dishes such as rings and fried/baked specially-sliced whole onion appetizers likely form the backbone of restaurant demand for fresh-market onions. Fast food is the other major away-from-home source for fresh-market onions. Consumers obtained 12 percent of their fresh onion intake from fast foods. Sandwiches (hamburgers, subs, etc), ethnic foods (Mexican, Indian, etc), and toppings for pizza were likely the major avenues for consumers to inject fresh-market onions into their diets. Consumers purchased 37 percent of their frozen onion products from the foodservice market--the greatest percentage of away- from-home purchases among the 4 onion market segments. The largest share of frozen onion products (30 percent) were purchased from fast food establishments, with fried onion rings (made from both diced and whole rings) likely the top product (figure A-2). The category termed canned onions also encompasses products commonly packed in glass jars such as salsa and tomato-based sauces--onions are an important seasoning agent in these products. The survey indicated that about 80 percent of onions sourced from canned products are purchased at retail for home consumption. The increasing prevalence of convenience-oriented products such as spaghetti sauces and ready-to-eat soups and stews, plus the rise of salsa as a major condiment/dip, has added strength to a canned category traditionally held by onion- containing products such as pickles, taco sauces, bottled onions, and canned vegetable mixtures. Dehydrated onions are used in hundreds of manufactured food products ranging from catsup to cured meat products. By volume and dietary influence, this is the most important market segment for processed onions with 58 percent of all processed onions purchased in dehydrated form. About 79 percent of dehydrated onions are purchased directly from, or are contained in, foods purchased in retail establishments. Onion Use by Region and Urbanization The CSFII data indicated that, with some exceptions, onion consumption is relatively evenly distributed among the four Census regions. The 4 Census-defined regions are Northeast (20 percent of the population), Midwest (24 percent), South (35 percent), and West (22 percent). In general, total per capita onion consumption was fairly uniform across all four regions. As table A-2 shows, total dry bulb onion consumption (fresh and processed) was strongest in the West and weakest in the South. Total onion consumption in the Northeast and Midwest was almost directly proportional to the share of national population. The survey data indicate that on any given day, fresh-market onion consumption is greatest in the West and weakest in the Northeast (figure A-3). About 26 percent of fresh onions are consumed in Western States, where per capita consumption is more than 25 percent higher than in the Northeast (18 percent of consumption). Much of the strength in western onion consumption is likely due to the large (and growing) Hispanic population, since onions are an important component in the diets of many Hispanic consumers. Fresh consumption was also proportionately greater in the Midwest but weaker in the South. Although Census data indicate that Hispanics are also an important subgroup in the South, their consumption impact was apparently offset by weak fresh onion consumption among black consumers. Consumption of processed onions was strongest in the Northeast and Midwest and weakest in the South. The Northeast, consisting of New York, New Jersey, Pennsylvania, Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, and Maine, contains less than 20 percent of the Nations population but accounts for 22 percent of processed onion consumption. Although the Northeast was a weak consumer of frozen onion products, this region was strong in canned and dehydrated onion consumption. The West dominated frozen onion consumption, with 37 percent of frozen products consumed by 22 percent of the Nations population. People in the Midwest consumed proportionately greater amounts of dehydrated onions than any other region. This may in some way be a reflection of the traditional Midwestern values featuring more at home meals, since the majority of dehydrated onion is consumed as at-home foods. About 47 percent of American consumers resided in suburban areas, 32 percent live in metropolitan cities, and 21 percent live in rural areas. Fresh-market onion consumption was slightly stronger in rural areas, while overall processed onion consumption was favored in metropolitan areas and proportional to the population share in the suburbs. However, processed onion consumption was uniformly weak in rural areas. Per capita use of frozen and canned onions was strongest in metropolitan America, while dehydrated onions were favored in both metropolitan and suburban areas. Racial/Ethnic Makeup of Onion Consumers Table A-2 provides consumption breakdowns for the top three racial groups (white, black, Hispanic) and all others (two-thirds of which is Asian). On any given day, Hispanics and other ethnic groups (largely Asians) were found to more intensively consume fresh-market onions. Likely reflecting traditional diets steeped in fresh produce, Hispanics consume one-third more fresh onions per capita (market share divided by population share) than do white consumers. Non-Hispanic whites consumed fresh onions almost in direct proportion to their percentage of the population during the 1994-96 and 1998 survey periods. At the same time, non- Hispanic black consumers reported per capita fresh onion consumption about 25 percent below that of whites. Hispanics represented 10.5 percent of the U.S. population and accounted for nearly 14 percent of fresh-market onion consumption. Demographers expect rapid growth in the Nations Hispanic population over the next few decades, which bodes well for the onion industry. While frozen onion products (such as onion rings) appeared to be most popular among consumers of Hispanic and other ethnic heritages, they were not as appealing to black or white consumers. For onions consumed in canned products (salsa, soups, sauces, etc.), blacks and other ethnic groups were strong consumers, with blacks consuming 26 percent more onions in canned products per capita than whites. Whites accounted for three- fourths of the volume of dehydrated onions (chopped, powder, etc) consumed in the United States--the only racial group consuming more than its respective population share. Onion Use and Income In the CSFII survey, households were classified into three income brackets using the Federal poverty guidelines. As a matter of reference, the Census Bureau reported that the weighted-average poverty income threshold for a 4-person household was $15,961 during 1994-98 (derived from Statistical Abstract of the United States, 2000). The poverty guideline was developed by the U.S. Dept. of Health and Human Services for the implementation of Federal food programs. Some Federal food programs, such as the Food Stamp Program, have used 130 percent of the poverty level to determine eligibility for participation. It is used in this study as the top end of the low-income category. About 39 percent of households had income exceeding 350 percent of the poverty level (high-income households); 42 percent of households had income falling between 130 and 350 percent of the poverty level (middle- income households); and 19 percent of households had income below 130 percent of the poverty level (low-income households). In general, per capita onion consumption was greatest within the high-income bracket, although the range from low- to high-income consumers was relatively narrow (figure A-4). Households in the highest income bracket, with income greater than 350 percent of the poverty level, represented 39 percent of the U.S. population and consumed 41 percent of fresh onions. This likely reflects the relative strength in away-from-home consumption (especially use in standard restaurants) for fresh-market onions. Upper income consumers are more likely to eat at such places. At the other end of the income spectrum, low-income consumers account for 19 percent of the population and consume 19 percent of fresh onions. One of the few notable outliers among the income and product class relationships was for frozen onions, which were found to be most popular with low-income consumers and less popular with both middle- and high-income consumers. The survey results suggest a typical scenario for frozen onion demand to be a low-income consumer visiting a low-cost fast-food place (serving onion rings) in a western metropolitan area. This may also reflect lower consumption of fast foods by upper income consumers. Also, even though the survey sample is nationally representative, the number of respondents reporting the consumption of any particular food (such as frozen onions) could still be too small to represent a market accurately. For dehydrated onions, the largest and broadest processed onion category, per capita use increased with income, reflecting the wide range of use in manufactured foods such as specialized prepared sauces, meat products, soups, and salad dressings sold in supermarkets. In some cases, higher cost luxury items may be more likely to be purchased by those who can afford them, while those of lesser means may be more likely to prepare sauces and soup from scratch. The distinction in consumption was greatest between the low-income bracket and the middle-income bracket, with a minor increase seen from the middle- to the high-income group. Consumption by Age and Gender There are distinct onion consumption patterns by age. As shown in table A-2, on any given day, male consumers (perhaps because of their higher caloric intake) had higher per capita consumption of all fresh and processed onion products than females. Men consumed 58 percent of fresh-market onions and 56 percent of processed onion products. On any given day, men consume about 39 percent more onions and onion products per capita than women. The distinction between male and female consumption is greater for fresh-market onions than for processed products. For both men and women, per capita fresh-market onion consumption increases with age and peaks between 20 and 39 years of age (figure A-5). Per capita use then tends to drop off slightly in middle age (more so for men than women) before falling sharply after 60 years of age back to the levels consumed during the teen years. Children between the ages of 2 and 11 tend to consume very few onions of any type, with per capita consumption for both male and female about one-half the average for all age groups. Children under the age of 12 account for 18 percent of the population but consume less than 9 percent of all onions. Not surprisingly, dehydrated onion consumption, although still low, was the strongest among the onion categories for these children. This largely reflects the hidden nature of dehydrated onions as most are consumed as ingredients of manufactured foods. Children apparently begin to acquire a taste for onions once they reach the teen years. Teens (defined here as ages 12-19) account for 11 percent of the population and consume 11 percent of all onions. Teenage boys are important consumers of frozen onions (likely onion rings) and fresh onions, while teenage girls consume onions at a lower but more consistent rate across product forms. The CSFII survey indicated that men between the ages of 20 and 39 were the largest consumers of fresh onions, representing 16 percent of the population and consuming 23 percent of all onions. Women in this same age group, although continuing to lag behind men in terms of use, also reported peak onion consumption-- approaching the level of their population proportion. As men and women approach middle age, their per capita use of all onions fades only slightly, with relatively strong consumption still evident. However, the survey indicated that total onion consumption begins to drop after age 59 for both men and women. Conclusion While much is known about the supply side of the U.S. onion markets, little is known about the consumer side of the market. In this paper, using data from USDAs CSFII survey, we show where and how much fresh and processed onion products are consumed and link this consumption to consumers economic, social, and demographic characteristics. The important findings in this article include: O The bulk of fresh and processed onions were purchased at retail stores and considered as home foods. Likely reflecting the influence of fast-food onion rings, 37 percent of frozen onions were purchased away from home, with most bought at fast-food places; O Fresh-market onions were favored slightly more in the West and Midwest and less so in the Northeast and South. Consumption of processed onion products was strongest in the Northeast and weakest in the South. O Hispanics were the strongest consumers of fresh-market onions. Compared with other consumers, fresh onions were discovered to be relatively less important in the diets of non-Hispanic black consumers. O Per capita consumption of fresh and processed onions was greatest in the high-income category. Households in this income bracket, with income greater than 350 percent of the poverty level, represented 39 percent of the U.S. population and consumed 41 percent of both fresh and processed onions. O The survey indicated that men consume nearly 40 percent more onions per capita than women. O Children apparently do not begin to acquire a taste for onions until the teen years. Total onion consumption appears to peak for both sexes between the ages of 20 and 39 and remains relatively strong through the middle-age years. BOX USDA Food Consumption Data USDA collects and compiles two major data sets on food consumption in the United States: the Food Supply and Utilization, or food disappearance data, compiled by ERS, and the Continuing Survey of Food Intakes by Individuals, compiled by ARS. Both data sets are key components of ongoing Federal efforts to monitor the nutritional health and dietary status of U.S. consumers. They were mandated by Congress under the National Nutrition Monitoring and Related Research Act of 1990. When used together, they provide a comprehensive picture of the Nations eating habits. Food Supply and Utilization Data, also known as food disappearance data, measures the flow of raw and semiprocessed food commodities through the U.S. marketing system. They are neither a direct measure of actual consumption, nor of the quantity of food actually ingested. The total amount available for domestic consumption is estimated as the residual after exports, industrial uses, seed and feed use, and year-end inventories are subtracted from the sum of production, beginning inventories, and imports. The use of conversion factors allows for some subsequent processing, trimming, spoilage, and shrinkage in the distribution system. However, the estimates also include residual uses for which data are not available (such as miscellaneous nonfood uses, and changes in retail and consumer stocks). With data back to 1909 for most commodities, the food disappearance data are useful as indicators of trends over time. The data are most commonly used to measure the average level of food consumption in the country, to show year-to-year changes in consumption of major foods, to calculate the approximate nutrient content of the food supply, to establish long-term consumption trends, and to permit statistical analyses of effects of prices and income on food consumption. Because they include spoilage and waste accumulated through the marketing system and in the home, the data typically overstate actual consumption. A 1997 ERS study suggested that such losses may exceed 25 percent of the edible food supply. Food disappearance data reflect the amount of major food commodities entering the market, regardless of their final use. Final product forms and consumption locations are not usually known, and little or no data exists on supplies of further processed products. In short, relatively good information exists for many food ingredients, but not for foods as actually eaten. For example, the food disappearance data provide a good estimate of the annual per capita consumption of onions, but provide no information on products consumed--fresh, frozen, canned; where the onions/products were marketed--supermarket, hospital, school, restaurant, or food manufacturer; how they were consumed--in salsa, on hamburgers, or on pizza; how they were prepared--cooked from scratch or reheated from a canned or frozen product; or the socioeconomic characteristics of the consumer that ultimately ate the food. Data used in this paper are taken from USDAs Continuing Survey of Food Intakes by Individuals (CSFII), 1994-96 and 1998. The 1998 CSFII is a supplemental survey of children to the 1994-96 CSFII, which is a national representative sample. The 1998 CSFII adds intake data from 5,559 children (from birth through age 9 years) to the intake data collected in 1994-96. The CSFII measures foods actually eaten by individuals. The survey records food intake over a specific period of time (two non-consecutive days in 1994-96 using 24-hour dietary recalls). The survey collects demographic information, such as household size, income, race, age, and sex, and information on where a food was purchased, how it was prepared, and where it was eaten, in addition to food-intake data. The CSFII provides information for use in policy formation, regulation, program planning and evaluation, education, and research. For example, data from recent surveys have been used to evaluate the impact of food fortification on nutrient intakes, to estimate exposure to pesticide residues and other contaminants from foods, and to target nutrition assistance and education programs to those who need them most. The data are particularly valuable for measuring the effect of socioeconomic and demographic characteristics on food consumption. In this study, we make use of the Food Commodity Intake Database (FCID) from the Environmental Protection Agency. FCID contains human food consumption data expressed in terms of agricultural food commodities on 5,831 different foods and beverages people of different ages reported eating in 1994-96 and 1998. FCID provides the edible amount of agricultural food commodities contained in each food reported eaten in CSFII. There are four food commodities for dry-bulb onions including; 1) fresh dry bulb; 2) fresh in baby food, 3) dried/dehydrated; and 4) dried/dehydrated in baby food. A factor of 9 is used to convert dry weight to fresh dry bulb weight. The intake data show where and how much of the food was consumed. The 1994-96 CSFII data include a sample weight for each respondent, indicating the number of people the sample represents. The share of an onion product by location can be estimated by calculating the weighted sum of the product consumed in each location. Similarly, the socioeconomic and demographic characteristics of the respondents can be used to estimate the consumption share of onions by these characteristics. Special Article #2 The U.S. Lettuce and Fresh-Cut Vegetable Industries: Marketing Channels, Sales Arrangements, Fees, and Services by Lewrene K. Glaser and Gary D. Thompson 1/------ ------ 1/ Agricultural economist, Economic Research Service, U.S. Department of Agriculture and Professor, Department of Agricultural and Resource Economics, University of Arizona, respectively. ------ Abstract: Fifteen lettuce and bagged salad shippers were interviewed as part of a larger study on changes in produce marketing. These shippers and processors offer a diverse product mix and typically market their products to a wide array of buyers. The interviewed firms provided more fees and services to retail buyers in 1999 than 1994. Most of the bagged salad shippers paid slotting fees, while none of the lettuce shippers were currently doing so. Bagged salad firms tended to offer services to their customers, while lettuce firms generally complied with the service requests made by retailers. Keywords: Lettuce, fresh-cut, bagged salads, fees, services, marketing. In the past year, produce shippers have expressed concern about the recent wave of supermarket mergers and the adverse effects of new industry marketing and trade practices, such as slotting fees and electronic data interchange (EDI). Yet, there is a lack of information on the incidence and magnitude of these new practices and how they affect shippers, retailers, and consumers. As part of a project examining these issues, ERS staff worked with university researchers to identify and characterize the types of marketing and trade practices used in the produce industry, including fees and services provided by shippers. U.S. Fresh Fruit and Vegetable Marketing: Emerging Trade Practices, Trends, and Issues (Calvin et al.) presents the results for all seven studied products (California grapes, oranges, and tomatoes; California and Arizona lettuce and bagged salads; and Florida tomatoes and grapefruit). This article explores in further detail the marketing experiences of 15 California and Arizona shippers of lettuce, mixed vegetables, and fresh-cut vegetable products. Information is presented on marketing channels, sales arrangements, fees, and services. More information can be found in the forthcoming report by Glaser, Thompson, and Handy. Nearly 100 percent of the lettuce consumed in the United States is produced domestically. The vast majority of domestic production takes place in just two States: California and Arizona. (See Glaser, Lucier, and Thompson for more detail on lettuce production and consumption trends.) A relatively small number of firms coordinate the growing, processing, and transport of lettuce. Nearly all the major shippers have headquarters and year-round sales offices in the Salinas, California, area. Because of this geographic concentration, California-based shippers constitute virtually the entire population of lettuce shippers supplying the domestic U.S. market. Most shippers of iceberg (also known as crisphead or head), leaf, and romaine lettuce are diversified mixed-vegetable shippers with product lines of as many as 75 commodities, including broccoli, cauliflower, celery, and green onions. Most of these Salinas- based shippers carry such wide product lines in order to offer their customers one-stop shopping. Some of these same shippers also specialize in particular commodities that have thinner markets. Such specialty items could include organic vegetables, artichokes, cactus pears, and rappini. Many lettuce shippers engage in some degree of processing. Industry participants categorize their products into roughly three groups--commodity, value-added, and fresh-cut or fresh- processed--mainly based on the degree of processing required. Commodities are typically the least differentiated products; the amount of processing required is minimal and often may be performed in field-pack operations. Value-added products encompass a wide variety of fresh products, such as hearts of romaine, cello-packed spinach, and cauliflower florets. These value-added products typically require less processing than fresh-cut products, and operations may be performed in modified packing sheds. Bagged salads require substantial capital investments in plants and machinery and sophisticated packaging films to manage product transpiration and respiration rates and extend shelf life. Firms Interviewed Because there are no public data on transactions between produce shippers and retailers, ERS and university researchers conducted a small number of personal interviews with fresh fruit and vegetable shippers to better understand the evolving nature of marketing and trade practices. Given the limited number of interviews--15 California and Arizona lettuce and bagged salad shippers--the findings should be interpreted with caution. In particular, the quantitative results should be viewed as indicative of industry practices rather than a precise accounting. Nevertheless, the information is a first step in understanding recent changes in the produce industry. The interviews concentrated on two main aspects of the business relationship between shippers and retailers: O the types and characteristics of sales and marketing arrangements, and O the types of fees and services that shippers were being asked to provide, or were offering, to retailers and mass merchandisers. Information was collected for 1994 and 1999, providing two time periods for comparison. Eight of the 15 interviewed shippers sold commodity lettuce, along with a wide range of mixed fresh vegetables. The firms offered an average of 24 commodities to their clients, with iceberg as the dominant type of lettuce sold, followed by romaine and green and red leaf lettuce. Five of the eight firms were involved only in commodity sales, while three shippers offered a few fresh-cut and value-added items, such as broccoli and cauliflower florets. Seven of the 15 interviewed shippers sold either bagged salads exclusively or offered an extensive line of bagged salads and other value-added products in addition to their commodity sales. The interviewed shippers had sales that ranged from over $200 million to $100 million or less in 1999 (table B-1). Although there were exceptions, the bagged salad firms tended to have the highest annual sales, while the firms specializing only in commodities tended to have the lowest. Firms were asked specifically about their lettuce or bagged salad buyers, marketing practices, and sales. However, because of their broad product lines, many firms were unable to be that specific. The results presented here apply predominantly to lettuce and bagged salads, but also may encompass other vegetables and value-added products. Marketing Channels Shippers typically market their products to a wide array of customers: retail supermarkets, foodservice firms, mass merchandise stores (supercenters--large general merchandise discount stores with grocery departments--and membership wholesale clubs), wholesale markets, brokers, and others. The nature of demand for fresh produce varies considerably across these markets. Foodservice can be the most stable market, in which fixed menus and prices can translate into consistent demand for products. Demand for products at retail and wholesale markets, on the other hand, can vary substantially from one week to the next. Some fresh products like lettuce are expected to be available year-round at consistent quality, while other products like watermelon are seasonal. Prices and volumes may be more volatile for seasonal products as demand varies and supplies fluctuate. Most shippers sell to the full range of market channels. While some concentrate on particular types of customers, others consciously diversify across channels. Ten of the interviewed firms provided information on the marketing channels they used for selling lettuce in 1999. Grocery retailers accounted for 59 percent of lettuce sales at the median, but sales ranged from 34 percent to 70 percent. At median values, foodservice was the next most important marketing channel (22 percent), followed by produce wholesalers (8 percent), mass merchandisers (4 percent), brokers (4 percent), and exporters (3 percent). Seven of the 10 firms also reported on their marketing channels for lettuce in 1994. The median percentage of sales going to retail buyers declined slightly from 1994 to 1999, while the share to foodservice increased (fig. B-1). Several small- and medium-sized lettuce shippers said they made a strategic decision to actively pursue more foodservice business, either in response to retail consolidation or as a diversification strategy. Over the same period, the median share of sales to wholesalers and brokers (market intermediaries) declined. For bagged salads and value-added products, the share of products sold through marketing channels differs from lettuce. The four firms reporting value-added sales by buyer type in 1999 sold almost exclusively to retailers and foodservice firms. Although the median percentage of sales to grocery retailers is the same for lettuce and value-added products (59 percent), the range is wider for value-added products (31 percent to 85 percent). The share of value-added sales going to foodservice ranged from 15 percent to 53 percent, with a median of 33 percent. Sales and Marketing Arrangements The market for commodities is traditionally price-competitive, emphasizing daily sales and short-term pricing arrangements. Volumes sold and prices in wholesale and retail markets typically experience significant intra- and interyear price variation, with most sales finalized on a daily or weekly basis. Quality or brand reputation can provide some negotiating strength in the commodity market, allowing some firms to receive a premium over market price. However, the base price still fluctuates with the market, which is largely driven by weather conditions in production areas. In an industry with many suppliers and relatively homogeneous products, most shippers are simply price-takers. Among the interviewed lettuce firms, daily sales were the most frequent mechanism used to sell commodities to produce wholesalers and grocery retailers (table B-2). Advance-----2/ ------ 2/ Typically, advance pricing agreements specify the price for some period in advance for an estimated volume but without a formal purchase commitment. ------ pricing and daily sales were commonly used for foodservice buyers. All of the sales going to mass merchandisers were based on annual contracts. Mass merchandisers generally have different procurement methods than other retail buyers, relying on a limited number of preferred suppliers for automatic inventory replenishment. Based on the interview results, lettuce firms negotiated these marketing arrangements on an annual basis. The bagged salad market much more closely resembles markets for traditional packaged products. Daily sales are extremely rare. Most firms negotiate sales arrangements to cover at least a year. Ninety-three percent of the sales to grocery retailers and 100 percent of the sales to mass merchandisers were via annual and multiyear contracts (table B-2). Shippers tend to specify a set list price and offer it to all retailers for the length of the agreement. This price can be negotiated across accounts, but once agreed upon, tends not to vary over the course of a contract. Negotiations to secure a long-term sales commitment with a retailer generally focus on various fees and services provided by the shipper. Requests for fees and services from retailers to produce shippers have reportedly been on the rise in recent years. The study asked interviewed shippers to focus on their experiences with retail and mass merchandiser buyers when discussing a list of possible fees and services. The intent was to sort out which fees and services have become standard industry practices, which are new or increasing, whether they are retailer or supplier induced, whether the costs of providing these fees and services are significant, whether failure to provide requested fees and services frequently leads to loss of accounts, and whether shippers benefit or lose. Fees for Bagged Salads Slotting fees, which were first used for manufactured grocery products in 1984 (Sullivan), and pay-to-stay fees, have not traditionally been used in fresh produce departments. (A slotting fee is a lump-sum payment, from a supplier to a retailer, for introducing a new product to the supermarket shelf, while a pay- to-stay fee is a fixed payment made to keep a product on the shelf.) However, branded fresh-cut and value-added produce is produced and marketed more like other manufactured products, requiring dedicated year-round shelf space. Most of the bagged salad shippers paid slotting fees, either in response to retailer requests or to remain in the bidding with other competitors (table B-3). Two firms did not, one made an alternative arrangement, while the other, for whom bagged salads were a minor part of its business, lost the account. Interviewed bagged salad shippers would not reveal the exact amount of slotting fees paid by their firm, but several would talk about the general use of slotting fees in the sector. For example, shippers reported that slotting fees generally ranged from $10,000 to $20,000 for small retail accounts to $500,000 for a division of a multiregional chain, and up to $2 million, in some cases, to acquire the entire business of a large multiregional chain. Some firms characterized the fees as upfront payments, but contracts are typically renegotiated every year or, in a few cases, every 2 or 3 years. At renegotiation, competing shippers submit their proposals, which may include higher fees. Fees may include category management (a program where suppliers and retailers work together to improve category profitability), volume discounts, advertising allowances, rebates, and capital purchases. Some firms argue that the categories covered by fees have blurred, and many retailers have control over how fees are used. Most firms in the bagged salad industry are aware of their costs of production and typically design proposals to guarantee a certain profit margin regardless of the particulars. One key point about renegotiation is that supermarket chains do not demonstrate much loyalty. Put differently, there appears to be considerable competition among branded salad firms at renegotiation. To the extent retail consolidation has reduced the number of chains and buyers, losing a single contract can represent substantial lost revenue. As some chains are now offering private label salads, there is presumably private label versus branded competition for shelf space and promotion. An indication of retail bargaining power is the lack of commitment on space or volume sold once fees are paid. Bagged salad firms were not clear about what rights they obtain from paying fees. No firm mentioned slotting fees as a guarantee of a specified number of linear feet in refrigerated displays. A few mentioned that they use third-party or the chain's scanner data to track sales after the contract had been negotiated and signed. But it was not clear what happens when retailers sales volume does not meet expectations. In a few cases, when one retail chain was acquired by another, previous slotting fee agreements have not been honored. Not all retailers use the same business management practices. Some firms do not request or accept fees, but instead focus on the efficiencies of handling relatively high-volume products and negotiating long-term agreements with suppliers. Fees for Lettuce and Mixed Vegetables The use of slotting and pay-to-stay fees for bagged salads and other fresh-cut products has led to concerns by commodity shippers that they will soon become standard practice for commodities as well. However, only three lettuce shippers reported that they had been asked to pay slotting fees by one or more retail buyers. One of the three initially complied with the request, but it is unclear whether the slotting fee was for commodities or value-added products. The firm later evaluated the cost to the company and decided it was not worth it. All three firms that received a request to pay slotting fees decided not to pay and lost the account. Slotting fees paid by shippers for their branded bagged salads and other value-added products may have a negative indirect effect on commodity shippers. A few bagged salad firms also carry a broad product line of commodity products. Some shippers claimed that when such a firm negotiates a contract with retailers for its branded bagged salads and/or other value-added products, they may also negotiate terms favoring their commodity products. One lettuce shipper reported losing a retail account to another shipper that had negotiated a joint value-added/commodity contract. Other lettuce firms were concerned about being able to compete. More traditional fees, such as per unit rebates and volume discounts, were paid by a majority of interviewed lettuce shippers (table B-3). Some retailers often, though not universally, charge a rebate (a per-unit fee) for all commodity products they purchase, effectively lowering the f.o.b. price by a set amount. Volume discounts offered by shippers, or negotiated between shippers and retailers, give retailers an incentive to maintain a long-term relationship with a particular shipper--as the retailer buys more cartons over time, the volume discount increases, thus lowering the per unit cost. Interviewed shippers reported that per unit fees typically range from 10 cents to 25 cents per carton. Several firms also reported paying advertising allowances and providing free products (typically for new store openings). Shipper reactions to fees vary. Some simply pay and attempt to compete on price and nonprice services. Others who pay are careful to ensure that all payments are accounted for on invoices so that growers and any other parties with financial interest in their operations will have complete records of payments. Some rely as much as possible on their reputations for quality and service to give them a competitive edge. Fees in Foodservice As mentioned earlier, produce shippers sell to a variety of market channels of which grocery retailers and mass merchandisers are just a part. Per carton fees on lettuce and other vegetables sold to foodservice firms are commonplace. The ability to negotiate these fees with foodservice firms may be even more constrained than with supermarket chains. Many shippers stated that one foodservice company charges a nonnegotiable 48 cents per carton. Another foodservice firm billed its suppliers a flat fee of $200 per invoice to induce shippers to become EDI (electronic data interchange) compliant with them, allowing electronic sharing of orders and invoices. Even with commodity items, foodservice firms typically contract with shippers, and fees are part of the terms of the contract. For most shippers, the volume sold to foodservice buyers is proportionally larger than the value of foodservice sales, because foodservice pays less per unit than retail operations. Consolidation of foodservice firms may not be as contentious for shippers because foodservice demand is relatively stable year- round even at high or low prices. In economic terms, foodservice demand appears to be fairly inelastic 3/----- ----- 3/ A good is inelastic if a 1-percent change in price results in less than a 1-percent change in quantity demanded. ----- because of relatively fixed menus at fixed prices. Finally, for most firms, the percentage of sales to foodservice buyers has grown, but is still less than the percentage of sales to retail buyers. Services Lettuce and bagged salad shippers complied with most of the requested types of services (table B-4). This high compliance rate has two components. First, some of the bagged salad firms offered services, such as EDI and category management, to their customers. Second, lettuce firms generally complied with the services requested by retailers. Product quality and timely services were often mentioned as a way to distinguish a firm from its competition and to cement ongoing relationships. Most of the interviewed lettuce and bagged salad firms had requests from retailers for third-party food safety certification. A few shippers already had been using third-party certification for a decade or more. Others had developed in-house food safety programs. Some of those with their own programs view third-party certification as redundant and unnecessary, particularly when the standards and suggested certifiers differed among retailers. Only one of the firms had not complied with requests for third-party certification. Opinions on the impact of third-party certification differed among shippers, six firms considered the impact as beneficial to their firms and three considered it harmful. Ten lettuce and bagged salad firms used EDI. A few of the bagged salad shippers indicated that they actively offered EDI to their customers, while the more commodity-oriented shippers waited for customers to ask for the service. All of the firms asked to use EDI complied with the request. A couple of lettuce firms were not yet using EDI, but were planning to do so by the end of 2000, because they wanted to be ready when customers asked. Firms generally viewed EDIs impact as either neutral or beneficial. A couple of the bagged salad firms interviewed indicated a conscious shift from their own branded products to private label processing and sales--for both retail and foodservice. In metropolitan areas where incumbent bagged salad firms already enjoy relatively large retail market shares, a firm with a smaller market share may find that private labels (retailers house brands) are a lower cost alternative to introducing and promoting their own branded products. Retailers that have their own brands do not require fees to acquire refrigerated shelf space. Several lettuce firms also indicated they supplied private label commodities, such as iceberg lettuce, to some of their customers, including retail chains and foodservice firms. In some cases, production of private label products was a significant portion of the firms business. In others, shippers provided private label services for one or two accounts. Evolving Relationships Among Shippers and Retailers During the interviews, lettuce and bagged salad shippers were asked their opinions about possible changes that might have occurred in their sales and marketing relationships with retailers between 1994 and 1999. They were also asked whether the change was a consequence of retail consolidation and whether the impact on the firm was beneficial, neutral, or harmful. Eight shippers mentioned that the number of retail buyers had declined since 1994, and most of those pointed to retail consolidation as the reason. Four firms generally had the same number of retail accounts, while one had more customers. The relative size of individual accounts as a percentage of gross revenue is increasing for many shippers. Some firms have a rule of thumb that no single account should exceed 5 percent of gross revenues, but it is becoming increasingly difficult for some firms not to violate that guideline. Seven shippers indicated that their negotiating strength with retail buyers had decreased, and the impact on the firm was harmful. Six of those seven cited retail consolidation as the reason. Two of the four firms that had no change in the number of accounts also reported no change in their negotiating power. Four lettuce shippers were more concerned in 1999 about losing retailers business than in 1994; all four cited retail consolidation and indicated that the impact was harmful. Two firms reported no change, and one saw a decrease. Load rejections were on the rise for five firms, while four reported no change. Several lettuce shippers mentioned that retailers seem to over-order and then reject what they do not need. Others saw a general lack of knowledge of the produce industry and lack of adequately trained personnel in purchasing and receiving departments as possible explanations. Most who reported more load rejections saw retail consolidation as the cause and the impact on the firm as harmful. Ten shippers responded to a question about pressure for shipper consolidation; all 10 had commodities as a significant portion of their product mix. Eight firms reported that they were feeling increased pressure, while two reported no change. Several shippers mentioned that retail consolidation was one of the contributing factors, but by no means the only one. The impact on the firms varied; four said the increased pressure for shipper consolidation was harmful, two said it was neutral, and two (one medium-sized and one large shipper) said it was beneficial. Conclusions Mixed-vegetable shippers and processors offer a diverse product mix and are involved in various marketing channels. In addition to iceberg, leaf, and romaine lettuce, commodity firms may sell as many as 75 commodities, including broccoli, cauliflower, celery, and green onions. Many see a market advantage in offering one-stop shopping to their customers. Many firms also engage in processing, which can range from small operations that minimally process the vegetables--resulting in cello-packed hearts of romaine and broccoli florets--to sophisticated processing plants that blend lettuce and other ingredients to produce salad blends and kits packaged in patented films. Shippers typically market their products to a wide array of buyers: retail supermarkets, mass merchandise stores, foodservice firms, wholesale markets, brokers, and exporters. While some firms specialize with particular types of customers, others consciously diversify across marketing channels. The relationship between shippers and retailers has changed, but only partly due to retail consolidation. Changes in technology, such as the advent of EDI and bagged salad films, and increased consumer demand for convenience, product diversity, and year- round availability also have influenced shipper-retailer relations. In response to these and other changes, relationships are becoming more formalized. For example, buyers are developing preferred supplier arrangements with shippers, written contracts are more common, mass merchandisers are making shippers responsible for tracking sales and replenishing inventory, and shippers are providing category management. Shippers have developed internal business strategies and external arrangements with other shippers, such as co-packing and consolidated marketing offices, in response to the changing nature of sales and marketing. Shippers were asked about fees and services in 1999 and 5 years earlier. Interviewed lettuce and bagged salad firms provided more fees and services to retail buyers in 1999 than they did in 1994. Some of the fees, such as rebates and volume discounts, are longstanding trade practices, while others, such as slotting and pay-to-stay fees, are new since 1994. Most of the bagged salad shippers paid slotting fees, either in response to retailer requests or to remain competitive. Three lettuce shippers reported that they had been asked to pay slotting fees by one or more retail buyers, and all three eventually lost the accounts when they refused to comply. These results are consistent with those found for other studied commodities (grapes, grapefruit, oranges, and tomatoes); some commodity shippers were asked to pay fees, although none paid slotting or pay-to-stay fees in 1999, and some lost accounts as a result (Calvin et al.). Slotting fees paid by shippers for fresh-cut and value-added products may have some spillover effects on commodity shippers. A few firms offer both commodity and fresh-cut products and, in negotiating a contract with retailers for fresh-cut, may be able to secure favorable terms for their commodity products. More traditional fees, such as per-unit rebates and volume discounts, were paid by a majority of interviewed lettuce shippers. Shippers were unwilling or unable to report on the annual costs of all these fees. However, even if the fees are a small share of shipper sales, given the low margins often experienced by produce shippers, they may determine whether a firm earns a profit or loses money. Services were a less contentious topic than fees. Some of the bagged salad firms offer services, such as EDI and category management, to their customers. Lettuce firms generally complied with the services requested by retailers. Product quality and timely services were often mentioned as a way to distinguish a firm from its competition and to cement ongoing relationships. References Calvin, Linda and Roberta Cook (coordinators), Mark Denbaly, Carolyn Dimitri, Lewrene Glaser, Charles Handy, Mark Jekanowski, Phil Kaufman, Barry Krissoff, Gary Thompson, and Suzanne Thornsbury. U.S. Fresh Fruit and Vegetable Marketing: Emerging Trade Practices, Trends, and Issues, AER-795. U.S. Department of Agriculture, Economic Research Service, January 2001, 52 pp. Glaser, Lewrene, Gary Lucier, and Gary Thompson. Lettuce: In & Out of the Bag. Agricultural Outlook, AGO-280, U.S. Department of Agriculture, Economic Research Service, April 2001, pp. 10-13. Glaser, Lewrene K., Gary D. Thompson, and Charles R. Handy. Recent Changes in Marketing and Trade Practices in the U.S. Lettuce and Fresh-Cut Vegetable Industries. U.S. Department of Agriculture, Economic Research Service, forthcoming. Sullivan, Mary. Slotting Allowances and the Market for New Products. Journal of Law and Economics, Vol. 90, 1997, pp. 461-493. END_OF_FILE