SAES-422 Multistate Research Activity Accomplishments Report
Sections
Status: Approved
Basic Information
- Project No. and Title: S222 : Fruit and Vegetable Supply-Chain Management, Innovations, and Competitiveness
- Period Covered: 01/01/2000 to 12/01/2000
- Date of Report: 02/28/2002
- Annual Meeting Dates: 10/15/2000 to 10/15/2000
Participants
Adrian, John* - Alabama; Cook, Roberta* - California; Carmen, Hoy - California; Toensmeyer, Carl* - Delaware; Calvin, Linda - ERS; Fairchild, Gary - Florida; Taylor, Tim - Florida; Van Sickle, John* - Florida; Zimet, David - Florida; Wycocki, Al - Florida; Epperson, James* - Georgia; Guenthner, Joe* - Idaho; Woods, Tim* - Kentucky; Hinson, Roger* - Louisiana; Criner, George - Maine; Cheng, Hsaing-tai* - Maine; Ricks, Donald* - Michigan; Bateman, Lanny* - Mississippi; Uva, Wen-Fei* - New York; Govindasamy, Ramu* - New Jersey; Brumfield, Robin - New Jersey; Estes, Edmond* - North Carolina; Schatzer, Joe* - Oklahoma; Brooker, John* - Tennessee; Morse, Steve* - Texas; Schotzko, Tom* - Washington * Voting Member
Individuals provided state reports, updating participants on research developments and emerging issues and project possibilities. Discussion continued with the recent International Horticulture Conference that involved several participants‘ projects. The Free Session sponsored by the S-222 group at the American Association of Agricultural Economics meeting was also discussed, including opportunities to pursue a similar program in the future. An large IFAFS grant was awarded to Tennessee, with participation from researchers in North Carolina, Georgia, and Kentucky to examine structural changes in the produce industry. Survey methods were discussed along with ways to broadly communicate the results.
Accomplishments
Objective 1. To assess the evolution of Supply-Chain Management in the fruit and vegetable sector, identifying strategic organizational and marketing implications for firms and specific commodity subsectors.
Supply Chain Management
A study led by Cook (CA) and Calvin (ERS) describing the market structure and evolving marketing practices of the US fresh fruit and vegetable sector was conducted. Key commodities were selected to capture the diversity of the fresh produce sector. These included California/Arizona lettuce and bagged salads, California table grapes and oranges, Florida and California tomatoes, and Florida grapefruit. This study includes analysis of the state of development of supply chain management approaches, including contracts, the evolution of trade practices in general, including new fees and services requested by retailers, changes in marketing channels and buyer concentration, and the implications for firms. Personal interviews with firms (under 10 per commodity) were conducted to capture primary data. A total of 57 shippers were interviewed for the study, 30 California firms by this researcher. The research was carried out in 2000 with a forthcoming publication in January 2001.
Supply chain management issues in tart cherries (MI) were examined through new marketing order coordination mechanisms, as well as looking at fruit industries more generally. Marketing alternatives for fruit and vegetable producers were explored (AL) exploring opportunities to close the producer-consumer gap. Strategic alliances and joint ventures continue to be an important aspect of supply chain management, even with international trade (CA). Distribution costs were examined in LA.
Marketing strategies for small-scale producers was the focus of a TN study. Retailing issues studies included scanner data issues and promotion of local products.
An analysis was made and a paper written on supply chain management in fruit industries. This paper was presented at an international conference of horticultural economists on supply chain management for horticultural industries in various parts of the world. The analysis for the paper included integration of supply chain management of the vertical marketing chain, customer market research and quality improvement strategies. This was illustrated with case examples from research with the apple
industry. This work was published in a journal of the International Society for Horticultural Science.
Potential Impacts
Large buyers of all types represent a considerable share of total shipper sales, implying that shippers may have less power in negotiating with buyers over prices and requests for fees and services. For commodity shippers in 1999, their 4 largest customers comprised from 22 to 45 percent of sales to all types of buyers. For their part, retail buyers reported more concentrated purchases with their top 4 suppliers providing from 85 to 97 percent of total purchases depending on the product. As retailers source from fewer suppliers, shippers will likely become more account-oriented in their marketing strategies, providing products and services tailored to the needs of specific large accounts. These trends may be consistent with greater payment of fees; as the value of the business generated by individual accounts grows, suppliers may feel increased incentives to comply with fees and services to gain or keep the business.
Both shippers and retailers agree that the incidence and costs of fees and services are increasing. Shippers are particularly alarmed at the rapid escalation in requests for new types of fees and services in the last 5 years. The most controversial fees are slotting fees. We found that shippers paid slotting fees only in the fresh-cut produce side of the produce industry, rather than the commodity side. No commodity firms interviewed paid slotting fees, although several had received requests and a few lost accounts for not complying. Commodity shippers fear that slotting fees will become standard practice in their industries now that they have been introduced into one section of the produce department. Some bagged salad firms have shifted to selling private-label product rather than their own brands because slotting fees are not used in that segment of the industry.
Current concern focuses on the potential for slotting fees to enter the commodity side of the fresh produce industry. However, all types of fees can affect a firm‘s bottom line. Commodity firms did pay fees, and they are increasing. In 1999, fees of all types averaged about 1-2 percent of sales for commodity shippers, but ranged from 1 to 8 percent for bagged salad shippers. Given low margins in the fresh produce shipping industry, these fees may be sufficient to determine whether a firm earns a profit or loses money over the course of a season. Hence, this research demonstrates that a focus on slotting fees is far too narrow when examining the incidence of fees on shippers.
This information will be used in the current national policy debate on the impacts of retail consolidation on California fresh produce shippers. The FTC, Department of Justice, USDA, Congress and industry trade associations are considering the study results.
Objective 2. To analyze the relative competitiveness of fruit and vegetable subsectors, either regionally, nationally, and/or globally, using new and established analytical paradigms which incorporate theories from business schools and other fields.
Competitiveness
Committee members from CA used industrial organization theory to analyze changing relative competitive positions within the N. American fresh produce industry. Porter‘s theories of clusters and the new economics of competition were a central part of the approach. The use by firms of strategic alliances and joint ventures as a strategy for improving competitiveness was examined. Both interviews with firms and an extensive literature review were conducted.
Research examining methods for enhancing farm-level competitiveness in sweet corn (NY) and blueberries (ME) and organic produce in general (NJ) was completed. International trade and competitiveness was examined for onions, walnuts, and pecans (GA), and post-NAFTA trade policies for produce (CA).
The economics of generic advertizing for apples (WA) and trade in the apple juice concentrate (WA) continued as important topics with implications for the competitiveness of Washington apples.
The competitiveness, industry performance and growth potentials for the U.S. tart cherry industry were studied (MI). A number of strategic directions for improved competitiveness and industry performance in the future were developed in close partnership with the industry. This was done with the
use of strategic planning and supply chain management concepts developed by business schools primarily for application with individual firms--which were in this case adapted for use with the vertical marketing-supply chain of the cherry industry as the whole. A report outlining a set of strategies to improve the industry‘s competitiveness was written in partnership with industry leaders, and was presented to the national industry in a major conference on this topic.
Potential Impacts
The structure of the agrifood sector is evolving dramatically in response to internal and external pressures. The nature of relationships among agrifood organizations at all levels of the food system, from plant and animal genetics through to retail and food-service organizations is changing. Firms are attempting to reduce transaction costs, food safety and other risks, relying less on the spot market, and developing closer ties with suppliers and other partners.
Strategic alliances and joint ventures play an increasingly important role in inter-organizational relationships, allowing firms to capture benefits from new markets more quickly and at lower risk than through horizontal or vertical integration strategies. The rapid rate of change in competitive markets means that companies may not have the time to develop necessary resources and capabilities internally. This is clearly the case among NAFTA participants, as a plethora of alliances were identified in the North American agrifood sector. Incentives to ally will remain and foreign direct investment (FDI) among the NAFTA partners in each other‘s agri-food systems will continue to grow, along with sales of affiliates in their neighbor‘s markets. Firms‘ risk preferences and perceptions, strategic goals and resources will influence their choices of interaction, from spot market transactions to strategic alliances, joint ventures and, integration via mergers and acquisitions. This will in turn shape the future mix of FDI, sales via affiliates, and trade among the NAFTA partners.
This research is being utilized by California agribusiness firms in developing their strategic positioning approaches within North America and beyond. Numerous presentations to industry groups to diffuse the results of these studies were made, including to the 2000 conventions of the Produce Marketing Association and United Fresh Fruit and Vegetable Association.
Marketing strategies, outlook reports, and new approaches for disseminating production data for sweet corn producers in NY, blueberry producers in ME, sweet potato farmers in LA, and vegetable growers in NJ provide continuing help for these regional producer groups.
The research on advertizing and international trade issues for the apple industry was well received by grower groups and was published in trade publications.
Planned Work
The annual meeting of the S-222 group was held in Roanoke, VA, October 15, 2000. The members continue to maintain a close relationship with the Food Distribution Research Society. There also continues an opportunity to continue developing a synergy between the efforts of the S-222 committee and WRCC-72 (Agribusiness and Competitiveness) and NE-165 (Food Marketing). Many members serve on both committees. There are new opportunities to work with ERS programs on marketing orders and government purchases; agency visitors participated in the S-222 meeting.
The S-222 Committee conducted a Free Session at the American Agricultural Economics Association during the annual meetings. Ed Estes (NC) and Jim Epperson organized the session while Gary Fairchild (FL) served as the moderator. Tim Woods (KY) provided an overview of the S-222 activities, project objectives, invited participation by new members. Roberta Cook (CA) discussed major trends in fruits and vegetables for both domestic and international markets. John Brooker (TN) discussed local branding, specifically offering highlights of research evaluating the TN Logo. Don
Ricks (MI) and Woods presented a number of current supply chain management issues, emphasizing recent research in the cherry industry. Al Wysocki (FL) provided some summary comments and discussed some of his work on supply chain management.
Several cooperators are continuing work on an IFAFS project on industry structure and supply chain issues in the produce industry in the South. Several cooperators have also been pursuing funding for an e-commerce project relating to marketing between supply chain participants.
Supply Chain Management
A study led by Cook (CA) and Calvin (ERS) describing the market structure and evolving marketing practices of the US fresh fruit and vegetable sector was conducted. Key commodities were selected to capture the diversity of the fresh produce sector. These included California/Arizona lettuce and bagged salads, California table grapes and oranges, Florida and California tomatoes, and Florida grapefruit. This study includes analysis of the state of development of supply chain management approaches, including contracts, the evolution of trade practices in general, including new fees and services requested by retailers, changes in marketing channels and buyer concentration, and the implications for firms. Personal interviews with firms (under 10 per commodity) were conducted to capture primary data. A total of 57 shippers were interviewed for the study, 30 California firms by this researcher. The research was carried out in 2000 with a forthcoming publication in January 2001.
Supply chain management issues in tart cherries (MI) were examined through new marketing order coordination mechanisms, as well as looking at fruit industries more generally. Marketing alternatives for fruit and vegetable producers were explored (AL) exploring opportunities to close the producer-consumer gap. Strategic alliances and joint ventures continue to be an important aspect of supply chain management, even with international trade (CA). Distribution costs were examined in LA.
Marketing strategies for small-scale producers was the focus of a TN study. Retailing issues studies included scanner data issues and promotion of local products.
An analysis was made and a paper written on supply chain management in fruit industries. This paper was presented at an international conference of horticultural economists on supply chain management for horticultural industries in various parts of the world. The analysis for the paper included integration of supply chain management of the vertical marketing chain, customer market research and quality improvement strategies. This was illustrated with case examples from research with the apple
industry. This work was published in a journal of the International Society for Horticultural Science.
Potential Impacts
Large buyers of all types represent a considerable share of total shipper sales, implying that shippers may have less power in negotiating with buyers over prices and requests for fees and services. For commodity shippers in 1999, their 4 largest customers comprised from 22 to 45 percent of sales to all types of buyers. For their part, retail buyers reported more concentrated purchases with their top 4 suppliers providing from 85 to 97 percent of total purchases depending on the product. As retailers source from fewer suppliers, shippers will likely become more account-oriented in their marketing strategies, providing products and services tailored to the needs of specific large accounts. These trends may be consistent with greater payment of fees; as the value of the business generated by individual accounts grows, suppliers may feel increased incentives to comply with fees and services to gain or keep the business.
Both shippers and retailers agree that the incidence and costs of fees and services are increasing. Shippers are particularly alarmed at the rapid escalation in requests for new types of fees and services in the last 5 years. The most controversial fees are slotting fees. We found that shippers paid slotting fees only in the fresh-cut produce side of the produce industry, rather than the commodity side. No commodity firms interviewed paid slotting fees, although several had received requests and a few lost accounts for not complying. Commodity shippers fear that slotting fees will become standard practice in their industries now that they have been introduced into one section of the produce department. Some bagged salad firms have shifted to selling private-label product rather than their own brands because slotting fees are not used in that segment of the industry.
Current concern focuses on the potential for slotting fees to enter the commodity side of the fresh produce industry. However, all types of fees can affect a firm‘s bottom line. Commodity firms did pay fees, and they are increasing. In 1999, fees of all types averaged about 1-2 percent of sales for commodity shippers, but ranged from 1 to 8 percent for bagged salad shippers. Given low margins in the fresh produce shipping industry, these fees may be sufficient to determine whether a firm earns a profit or loses money over the course of a season. Hence, this research demonstrates that a focus on slotting fees is far too narrow when examining the incidence of fees on shippers.
This information will be used in the current national policy debate on the impacts of retail consolidation on California fresh produce shippers. The FTC, Department of Justice, USDA, Congress and industry trade associations are considering the study results.
Objective 2. To analyze the relative competitiveness of fruit and vegetable subsectors, either regionally, nationally, and/or globally, using new and established analytical paradigms which incorporate theories from business schools and other fields.
Competitiveness
Committee members from CA used industrial organization theory to analyze changing relative competitive positions within the N. American fresh produce industry. Porter‘s theories of clusters and the new economics of competition were a central part of the approach. The use by firms of strategic alliances and joint ventures as a strategy for improving competitiveness was examined. Both interviews with firms and an extensive literature review were conducted.
Research examining methods for enhancing farm-level competitiveness in sweet corn (NY) and blueberries (ME) and organic produce in general (NJ) was completed. International trade and competitiveness was examined for onions, walnuts, and pecans (GA), and post-NAFTA trade policies for produce (CA).
The economics of generic advertizing for apples (WA) and trade in the apple juice concentrate (WA) continued as important topics with implications for the competitiveness of Washington apples.
The competitiveness, industry performance and growth potentials for the U.S. tart cherry industry were studied (MI). A number of strategic directions for improved competitiveness and industry performance in the future were developed in close partnership with the industry. This was done with the
use of strategic planning and supply chain management concepts developed by business schools primarily for application with individual firms--which were in this case adapted for use with the vertical marketing-supply chain of the cherry industry as the whole. A report outlining a set of strategies to improve the industry‘s competitiveness was written in partnership with industry leaders, and was presented to the national industry in a major conference on this topic.
Potential Impacts
The structure of the agrifood sector is evolving dramatically in response to internal and external pressures. The nature of relationships among agrifood organizations at all levels of the food system, from plant and animal genetics through to retail and food-service organizations is changing. Firms are attempting to reduce transaction costs, food safety and other risks, relying less on the spot market, and developing closer ties with suppliers and other partners.
Strategic alliances and joint ventures play an increasingly important role in inter-organizational relationships, allowing firms to capture benefits from new markets more quickly and at lower risk than through horizontal or vertical integration strategies. The rapid rate of change in competitive markets means that companies may not have the time to develop necessary resources and capabilities internally. This is clearly the case among NAFTA participants, as a plethora of alliances were identified in the North American agrifood sector. Incentives to ally will remain and foreign direct investment (FDI) among the NAFTA partners in each other‘s agri-food systems will continue to grow, along with sales of affiliates in their neighbor‘s markets. Firms‘ risk preferences and perceptions, strategic goals and resources will influence their choices of interaction, from spot market transactions to strategic alliances, joint ventures and, integration via mergers and acquisitions. This will in turn shape the future mix of FDI, sales via affiliates, and trade among the NAFTA partners.
This research is being utilized by California agribusiness firms in developing their strategic positioning approaches within North America and beyond. Numerous presentations to industry groups to diffuse the results of these studies were made, including to the 2000 conventions of the Produce Marketing Association and United Fresh Fruit and Vegetable Association.
Marketing strategies, outlook reports, and new approaches for disseminating production data for sweet corn producers in NY, blueberry producers in ME, sweet potato farmers in LA, and vegetable growers in NJ provide continuing help for these regional producer groups.
The research on advertizing and international trade issues for the apple industry was well received by grower groups and was published in trade publications.
Planned Work
The annual meeting of the S-222 group was held in Roanoke, VA, October 15, 2000. The members continue to maintain a close relationship with the Food Distribution Research Society. There also continues an opportunity to continue developing a synergy between the efforts of the S-222 committee and WRCC-72 (Agribusiness and Competitiveness) and NE-165 (Food Marketing). Many members serve on both committees. There are new opportunities to work with ERS programs on marketing orders and government purchases; agency visitors participated in the S-222 meeting.
The S-222 Committee conducted a Free Session at the American Agricultural Economics Association during the annual meetings. Ed Estes (NC) and Jim Epperson organized the session while Gary Fairchild (FL) served as the moderator. Tim Woods (KY) provided an overview of the S-222 activities, project objectives, invited participation by new members. Roberta Cook (CA) discussed major trends in fruits and vegetables for both domestic and international markets. John Brooker (TN) discussed local branding, specifically offering highlights of research evaluating the TN Logo. Don
Ricks (MI) and Woods presented a number of current supply chain management issues, emphasizing recent research in the cherry industry. Al Wysocki (FL) provided some summary comments and discussed some of his work on supply chain management.
Several cooperators are continuing work on an IFAFS project on industry structure and supply chain issues in the produce industry in the South. Several cooperators have also been pursuing funding for an e-commerce project relating to marketing between supply chain participants.