Characteristics of Firms Engaged in Fruit and Vegetable Trade (RB 434) University of Georgia Extension The primary objectives of this research are (1) to determine, in depth, the nature and characteristics of U.S. and Latin American firms engaged in fruit and vegetable trade and (2) to determine, in depth, barriers to trade encountered by these firms. This information should be useful to firms already trading internationally in fruits and vegetables and those looking for international opportunities. The information should provide important insights into the conduct of business operations, and inroads and obstacles to trading fruits and vegetables between Latin America and the United States. Policy makers should also be able to use this information to accommodate smoother trading relations among countries. 2017-03-28 14:57:36.157 2006-06-02 14:32:32.0 Characteristics of Firms Engaged in Fruit and Vegetable Trade | Publications | UGA Extension Skip to content

Characteristics of Firms Engaged in Fruit and Vegetable Trade (RB 434)

Download PDF

L. Rebeca Marin, James E. Epperson, and Glenn C. W. Ames

Introduction

Agricultural trade within the Western Hemisphere which includes Canada, the United States, Latin America, and the Caribbean has continued to increase over the past several years. The Western Hemisphere, contains 14 percent of the world's population, 31 percent of global wealth, and is one of the largest emerging trade blocks. Approximately one fourth of its exports and about one half of the imports are within the hemisphere (U.S. Department of Agriculture, June 1994).

U.S. exports to the rest of the Western Hemisphere are primarily bulk commodities including wheat, rice, coarse grains, soybeans, and cotton. U.S. imports are largely horticultural and tropical commodities such as coffee, bananas, cut flowers, vegetables, and fruits (U.S. Department of Agriculture, June 1994).

Historically, U.S. fruit and vegetable exports have been largely directed to Canada. In recent years U.S. exports of fruits and vegetables have expanded to other regions of the world. In the last 10 years, total U.S. exports of fruits and vegetables increased from $2.6 billion in 1984 to $8.1 billion in 1994. They now represent 18.6 percent by value or 5.2 percent by volume of total agricultural exports. Imports have also increased from $2.9 billion in 1984 to $7.3 billion in 1994, representing 27.8 percent by value or 16.3 percent by volume of total agricultural products imported (U.S. Department of Agriculture, August 1985 and August 1995).

In 1994, about 10 percent of total U.S. fruit exports and 15 percent of total U.S. vegetable exports by value went to Latin America (table 1), while of total U.S. imports, 50 percent of vegetables and 59 percent of fruits came from Latin America (table 2) (U.S. Department of Agriculture, June 1995).

Table 1. Latin American Markets for U.S. Fruit and Vegetable Exports by Value in Dollars for the Period January-December, 1994.
Country or Region Value of Fruit Exports
($1,000)
Value of Vegetable Exports
($1,000)
World $2,598,138 $3,875,036
Latin America 265,767 586,036
Mexico 184,501 262,554
Central America 26,116 48,297
Guatemala 5,633 9,517
Honduras 2,095 7,346
Costa Rica 8,214 4,432
Panama 7,303 17,216
Caribbean 13,897 157,651
South America 41,253 117,534
Colombia 7,820 20,032
Venezuela 7,588 17,955
Chile 188 5,498
Argentina 1,447 16,792
Source: U.S. Department of Agriculture, June 1995

Table 2. Latin American Sources of U.S. Fruit and Vegetable Imports by Value in Dollars for the Period January-December, 1994.
Country or Region Value of Fruit Imports
($1,000)
Value of Vegetable Imports
($1,000)
World $1,495,304 $2,730,776
Latin America 889,289 1,363,691
Mexico 357,709 1,124,813
Central America 131,128 93,661
Guatemala 22,762 41,799
Honduras 27,948 4,341
Costa Rica 69,464 40,808
Caribbean 19,454 35,678
South America 380,999 109,539
Chile 340,826 46,437
Argentina 14,766 13,721
Source: U.S. Department of Agriculture, June 1995

The primary Latin American markets for U.S. products were Mexico, Panama, Colombia, and Venezuela, while the major suppliers of U.S. imports were Mexico, Chile, Costa Rica, and Guatemala. From 1994 to 1995, U.S. imports of vegetables rose 15 percent by value and fruit imports rose 6 percent by value. The continued increase in trade of fruit and vegetable products suggests that the markets and supply sources for these commodities may have potential growth in the Western Hemisphere and other world markets.

Several factors have contributed to this growth in trade. Communications have improved considerably in the last decade, reducing the time it takes to negotiate terms of trade, as well as the time needed to process and carry out orders. Many advances have also been made for storing, handling, and processing of products, enabling them to be transported rapidly across borders without spoilage (U.S. Department of Agriculture, June 1994).

The creation of bilateral and multilateral free trade agreements in the Western Hemisphere has also helped to increase the flow of these agricultural products across borders. An example is the creation of the Caribbean Basin Initiative (CBI) in 1983 which "stimulated investment, production, and exports of Caribbean and Central American agricultural products," thus increasing the value of U.S. imports of these products by 5 to 10 percent per year (U.S. Department of Agriculture, June 1994). The CBI, NAFTA (North American Free Trade Agreement) and other free trade agreements in harmony with the goals of the General Agreement on Tariffs and Trade (GATT) pursue the reduction of customs duties or protective tariffs imposed on products at national frontiers.

The agreements also eliminate nontariff barriers such as importing/exporting licensing requirements, import/export restrictions, and contradictory sanitary and phytosanitary standards which directly impede the entry of imports into a country (Bolin; Hillman; Thrupp). The reduction of trade barriers is very important to firms engaged in the fruit and vegetable trade.

Objectives

The primary objectives of this research are (1) to determine in depth, the nature and characteristics of U.S. and Latin American firms engaged in fruit and vegetable trade and (2) to determine in depth, barriers to trade encountered by these firms. This information should be useful to firms already trading internationally in fruits and vegetables and those looking for international opportunities. The information should provide important insights into the conduct of business operations, inroads and obstacles to trading fruits and vegetables between Latin America and the United States. Policy makers should also be able to use this information to accommodate smoother trading relations among countries.

Procedure

The data for this analysis were gathered by designing and carrying out two different surveys. One survey was sent to U.S. companies that engage in fruit and vegetable trade with Latin America. The second survey (in Spanish) was sent to Latin American companies that trade in fruits and vegetables with the United States. The data were then analyzed to reveal common characteristics among exporters and importers by primary trading origin - U.S. and Latin American.

Data Base

A list of companies which appeared to be engaged in trade with Latin America and their addresses were collected through The Blue Book. A total of 800 survey questionnaires were sent out to companies in various states, particularly California, Texas, Florida, Washington, and Arizona. These are the primary states with substantial volumes of fruits and vegetables moving in and/or out of the United States. Several companies were no longer engaged in trade with Latin America while others had moved leaving no forwarding address. These obstacles decreased the sample size resulting in 63 usable questionnaires.

For Latin American firms, the design of the questionnaire was the same as that for the U.S. companies, although written in Spanish to obtain a higher response rate. The list of companies was collected by contacting the regional U.S. Agricultural Trade Offices in Mexico, Guatemala, Costa Rica, Argentina, Chile, Ecuador, Dominican Republic, Colombia, and Venezuela. These regional offices covered additional countries also. Other sources included the IPL (Intercom Projects, Ltd.) Enterprises, Inc. (The Central American Business Directory), telephone companies in El Salvador and Guatemala, and El Directorio de Oferta Exportable de El Salvador. A list of 200 Latin American firms was formed from these sources. Forty-six completed questionnaires were received by fax or mail.

Results of the Survey Responses

U.S. Company Responses

This section is a presentation of survey results taken from the 63 questionnaires received from U.S. companies engaged in fruit and vegetable trade with Latin America. Their organizational structure revealed that over three-fifths of the respondents were corporations, while 12.5 percent were partly owned by Latin American companies (table 3). Almost one-fifth were owned by individuals, all U.S. citizens except for one Colombian. Another one-fifth were partnerships, with nearly 20 percent of them having at least one Latin American partner. Only one company surveyed was registered as a cooperative. There was some evidence of Latin American ownership of U.S. companies that trade in fruits and vegetables.

Table 3. Organizational Structure of U.S. Companies.
Structure Frequency Affiliation Frequency
Individual Owner 12 (18.75%) Citizenship
U.S. 11 (91.67%)
Colombian 1 (8.33%)
Partnership 11 (17.19%    
Yes 2 (18.18%)
No 9 (81.81%)
Corporation 40 (62.50%) Share Owned by Latin American Co.
0.00% 35 (87.50%)
50.00% 2 (5.00%)
100.00% 3 (7.50%)
Cooperative 1 (1.56%)    
Note: Percentages calculated by number of responses.
Source: Results from survey of U.S. companies.

Regarding the methods used for export sales to Latin American markets, it was found that three-fourths of the sales were made directly through either a wholesale distributor, a retail outlet, an agent, or some other form not specified by the respondents. The most frequent sales pattern was via a wholesale distributor, followed by a retail outlet (table 4).

Table 4. Method of Sales to and Purchases from Latin America.
Transaction Method of Transaction Frequency
Sales (Exports) Direct 28 (75.68%)
Wholesale Distributor 14 (63.64%)
Retail Outlet 4 (18.18%)
Agent 2 (9.09%)
Other 2 (9.09%)
Indirect
Purchases (Imports)
Direct 47 (90.38%)
Agent 12 (41.38%)
Wholesale Distributor 10 (34.48%)
Retail Outlet 0
Other 7 (24.14%)
Indirect 5 (9.62%)
Note: Percentages calculated by number of responses.
Source: Results from survey of U.S. companies.

For fruit and vegetable imports, the responses were somewhat different. Direct purchases were still preferred almost 10 times over indirect purchases. However, an agent was most widely used, about two-fifths of the time for direct purchasing, followed by a wholesale distributor, just over one-third of the time.

The decision-making responsibilities of exporting firms varied widely. Over three-fifths of the companies with exporting functions had exporting departments or specific persons in charge of exporting (table 5). Half of the exporting companies appeared to be decentralized with respect to exporting since the decision to export was either taken by a specific person in charge of exports or by the head of the export department. About 15 percent of the companies placed the responsibility on the general manager, and only 29 percent relied on the president of the company for making such decisions. Freight forwarding agents were used by about 28 percent of the exporting companies.

Table 5. How an Export Order Is Carried Out Inside the Company.
Export Decision Making Frequency
Company Contains/Uses:
Person in Charge of Exporting 26 (32.10%)
Exporting Department 24 (29.63%)
Freight Forwarding Agent 23 (28.40%)
Other 8 (9.88%)
Decision to Export Made By:
Person in Charge of Exports 22 (31.88%)
President of Company 20 (28.99%)
Head of Department 13 (18.84%)
General Manager 10 (14.49%)
Other 4 (5.80%)
Note: Percentages calculated by number of responses.
Source: Results from survey of U.S. companies.

Of the companies involved in exporting, about one-third of their total produce was exported (table 6). About 40 percent of those exports went to Latin American countries, mostly Mexico and Brazil. However, for those companies involved in importing, over half of their produce was purchased abroad. Between 84 and 90 percent of the imports came from Latin American countries along, mainly Chile, Mexico, and Guatemala. These companies relied heavily on Latin American suppliers for most, if not all, of their produce.

Table 6. Percentage of Total Fruit and Vegetable Volume Exported and Imported by U.S. Companies.
Exporters/Importers Fruits Vegetables
————— percent —————
Exporters
Total Volume Exported 32.48 33.53
Exports to Latin America 38.46 42.88
Importers
Total Volume Imported 51.76 59.68
Imports from Latin America 84.07 90.39
Source: Results from survey of U.S. companies.

The Demand for Fruit and Vegetable Imports

The demand for imports and exports varied by season as expected. For about 44 percent of the imports the demand was year round, compared to only about one-fourth for exports (table 7). For almost 49 percent of the imports, the demand was only for the peak season from October to June, while the demand for exports was between June to November (45 percent).

Table 7. U.S. Company Indication of Time Frame for Greatest Import and Export Demands as a Percentage of Total Produce Volume.
Time Frame Imports from Latin America Exports to Latin America
————— percent —————
Year Round 43.92 25.38
Peak Demanda 48.63 45.01
Rest of Yearb 7.45 29.61
a Peak demand for imports was from October to June, while for exports it was from June to November.
b For imports, the Rest of the Year was comprised of July to September, while for exports it was from December to May.
Source: Results from survey of U.S. companies.

Business Relations with Latin American Firms

Importers were generally satisfied with their Latin American suppliers (table 8). Only 6.25 percent found the service less than satisfactory. However, respondents offered suggestions about how service could be improved. Quality control (over 31 percent of the comments) was the most frequently-mentioned service problem. This was followed by standardizing sizes, weights, and packaging. Also better knowledge of the U.S. market, including the cultural differences and making payments on time accounted for 10 percent of their comments. Among the "other" comments were such things as conforming with U.S. chemical residue regulations, having better communications including speaking English and sending representatives to the United States, and having better pre-cooling and cooling facilities.

Table 8. Experience of U.S. Companies with Latin American Suppliers and Improvements Needed.
Rating and Needed Improvements Frequency
Rating of Experience
Satisfactory 34 (70.83%)
Marginal 11 (22.92%)
Less than Satisfactory 3 (6.25%)
Improvements Needed
Quality Control 19 (31.67%)
Standardization 6 (10.00%)
Know U.S. Market 6 (10.00%)
Payments on Time 6 (10.00%)
Shipments on Time 4 (6.67%)
Other 19 (31.67%)
Note: Percentages calculated by number of responses.
Source: Results from survey of U.S. companies.

Decision to Import a Product

Getting involved with a certain area of the world or a specific country is generally preceded by a series of decisions. The factors that influence these decisions can be an array of aspects such as those summarized in table 9. In the survey, the U.S. companies pointed out that almost 30 percent of the time, the most relevant factor for importing from Latin America was the ability to provide consistent quality. The ability to provide shipments within a specified time frame and the ability to provide adequate volume, each accounted for about one-fifth of the comments. Price was relevant about 17 percent of the time. However, as mentioned by some of the respondents, to maintain a business relationship in the long run, incorporation of all of these factors plus honesty and flexibility are necessary. The other responses were timely and correct documentation, products that are allowed into the west coast of the United States, and U.S. market demand.

Table 9. Factors Influencing the Firm's Decision to Import a Product from Latin America.
Factors Responses
———percent———
Ability to Provide Consistent Quality 29.21
Ability to Provide Shipments within Time Frame 21.39
Ability to Provide Adequate Volume 19.22
Price 16.78
Special Packaging 11.38
Other 2.02
Total 100.00
Note: Percentages calculated by number of responses. Method used came from Hogg and Craig, 1978, pp. 269-278.
Source: Results from survey of U.S. companies.

For trading with a particular country, the factors influencing a firm's decisions become more specific as shown in table 10. The most influential of these factors, over one-fourth of the time, was having had previous transactions with a given country. The next most important factor was having been contacted by the buyer or seller from a specific country. These were followed by any type of restriction (seasonal tariffs, standard tariffs, or nontariff barriers) that might hinder trade. Exchange rates were important mostly for exporting due to weaker or volatile currencies against the dollar.

Table 10. Factors Influencing the Firm's Decision to Export/ Import Commodities to/from Specific Counties in Latin America, as a Percentage of Total Responses by Exports and Imports.
Factors Exports Imports
—————percent—————
Previous Transactions 26.91 28.85
Contacted by Buyer/Seller 22.82 26.39
Restrictions 21.83 21.25
Exchange Rates 19.13 11.65
Other 9.31 11.86
Total 100.00 100.00
Note: Percentages calculated by number of responses. Method used came from Hogg and Craig, 1978, pp. 269-278.
Source: Results from survey of U.S. companies.

Sources of Market Information

How the surveyed firms obtained market information was assessed and is presented in table 11. The most popular response, accounting for 40 percent of the total, was relationship contacts or networking with several contacts such as clients, suppliers and traders or exporters by phone, fax, or word of mouth. The second most popular response was trade publications such as industry newspapers, magazines, and newsletters. This was followed by public organizations such as the U.S. Department of Agriculture and, more specifically, the Foreign Agricultural Service. The rest of the sources were market news reports, visits to the country in question or offices in that country, and satellite down-link via a DTN (Data Transmission Network Corporation) machine operating in the United States and Mexico. The Chamber of Commerce, own marketing analysis, the World Trade Center in Tacoma, Washington and private services were listed under "other" market information sources.

Table 11. Sources of International Market Information.
Sources Frequency
Relationship Contacts 40 (40.40%)
Trade Publications 16 (16.16%)
Public Organizations 13 (13.13%)
Market News Report 5 (5.05%)
Visits to Country 5 (5.05%)
DTNa 4 (4.04%)
Other 16 (16.16%)
Note: Percentages calculated by number of responses.
a DTN - Data Transmission Network Corporation.
Source: Results from survey of U.S. companies.

The question regarding sources of market information was further explored for greater detail (table 12). Knowledge of electronic information systems and benefits was assessed. It was found that only about one-third of the respondents knew of such systems. Those mentioned were DTN, e-mail, Internet, the California Department of Food and Agriculture, and the U.S. Department of Agriculture through the Office of International Cooperation and Development. These were ranked as very beneficial and reliable sources of information. Of the respondents unaware of any such systems (two-thirds), 70 percent of them indicated that an electronic information system would be beneficial to their company.

Status and Revision History
Published on Feb 2, 2009
Re-published on Apr 21, 2009
Reviewed on Apr 25, 2012
Reviewed on Mar 28, 2017

Table 12. Benefits of an Electronic Information System.