1 International Symposium Agribusiness Management towards Strengthening Agricultural Development and Trade III : Agribusiness Research on Marketing and Trade Fruit Marketing System in Taiwan by Joyce Jong-Wen Wann Multiple Cropping Center, Chiang Mai University National Chung Hsing University The Ministry of Agriculture and Cooperatives 2001
2 III : Fruits Marketing System in Taiwan 235 Fruit Marketing System in Taiwan Joyce Jong-Wen Wann 1 I. History of Taiwan Agricultural Marketing The development of Taiwan s agricultural sector since World War II has been impressive. Government programs, farmers efforts, as well as favorable domestic and international market conditions have contributed to agricultural growth and progress during this period. Immediately after the war, the government promoted increased farm production, aiming to achieve pre-war levels. The pre-war level of production was reached after ten years of intensive and continued effort. Government measures then focused on the modernization of the agricultural marketing system. Major government efforts to promote agricultural market development during the 1950s included the following: 1) Construction of rice warehouses for farmers associations to improve storage conditions. Most rice warehouses were badly damaged during the wartime. 2) Construction of packing houses for fruits and vegetables in the major producing areas to facilitate improved handling during assembly, grading, and packing of perishable commodities by small farmers. 3) Construction of assembly markets in the main production areas and terminal markets in consumption centers for agricultural commodities to accommodate concentrated, open, and expanding market transactions. 4) Encouragement of cooperative marketing of hogs, fruits, and vegetables to enable small farmers to participate in the marketing process directly. 5) Improvement in the management and operations of the marketing business handled by cooperatives. 6) Improvement in grading and packing at the shipping point to enhance market value. 7) Training of marketing personnel to equip them with modern marketing knowledge and 1 Professor, Department of Agriucultural Economics,National Chung Hsing University, Taiwan.
3 236 Agribusiness Management towards Strengthening Agricultural Development and Trade expertise. 8) Collection and dissemination of market information to help marketing participants make efficient marketing decisions. 9) Promotion of large-scale retailing of perishable commodities to modernize retailing. The above-mentioned measures constitute basic elements for agricultural market development and contributed significantly to the improvement of agricultural marketing in Taiwan. However, terminal wholesale markets, which play an important role in the marketing system, were neglected. Rules and Regulations Prior to 1980, the organization, operation, and management of wholesale markets for agricultural commodities including fruits and vegetables, livestock, and fish were governed by the Regulations Governing the Management of Wholesale Markets for Agricultural Products, promulgated by the provincial government and the Taipei municipal government. These were administrative orders and had limited power for enforcement. On August 5, 1981, the President signed the national Agricultural Commodities Market Transaction Law In contrast to the original regulations, which covered only matters related to wholesale markets, the new law covers all marketing functions, from assembly to retailing. In addition, this law has the legal power for enforcement. The provisions of the market transaction law include government marketing planning, cooperative marketing, wholesale transaction, and retail transactions. Most of this law 23 articles out of 35 is related to wholesale markets. The important stipulations of the law regarding the wholesale market are as follows: 1) The operational entity of a wholesale market should be a farmers organization; legal entity organized by the local government and farmers associations jointly; legal entity organized by the local government; or legal entity organized by the government, farmers organizations, and shippers of agricultural products. 2) The wholesale market is authorized to use public or expropriated private land as the market site. 3) Growers, farmers organizations, agribusiness enterprises, shippers, and importers can register with markets to become suppliers.
4 III : Fruits Marketing System in Taiwan 237 4) Retailers, secondary wholesalers, shippers, exporters, processors, and institutional consumers, after obtaining a license from the competent government authorities, can be buyers or wholesalers at the wholesale market. 5) The seller or buyer should not be the buyer or seller concurrently in the same wholesale market. 6) Transactions in the wholesale market should be carried out by auction, bilateral price negotiation, posted-price, or open tender method. 7) The wholesale market may collect service charges from sellers and buyers within the limit approved by the national and municipal government. In the by-laws, the ceiling of the service charge is stipulated as 5% for fruits and vegetables, 2.5% for fish, and 1.5% for livestock and meat. Effective performance of wholesale markets in the capital city is critical to a wellcoordinated national trade network for fresh fruits and vegetables. Wholesale markets move agricultural products from farmers to consumers and exporters, and channel the distribution of imports to widely dispersed consumers at a reasonable price. Transactions in wholesale markets and signals to farmers and farmers associations about the profitability of crop mixes, merits of increasing shipments of particular commodities, and possible advantages of direct shipments to the marketplace. Taiwan s experience with agricultural marketing development in general, and with wholesale marketplace improvement in particular, provides lessons for other developing countries striving to solve similar problems. 2. Taiwan s Fruit Marketing System 2.1 Sources of Fruits Domestic production Fruits are rapidly growing farm enterprises within Taiwan s relatively declining agriculture. The index number of fruit production, taking 1996 as the base, increased from 6.2 in 1952 to 91.5 in This implies that during the last four decades, fruit production has expanded by nearly seventeen-fold. The area of land devoted to fruit production in 1998 was 227,144 hectares, yielding 2.37 million metric tons of fruits. Both the harvested area and production have increased steadily during the past two decades (Table 1). This trend is
5 238 Agribusiness Management towards Strengthening Agricultural Development and Trade expected to continue. In 1998, fruits accounted for 20.38% of the total value of farm production. The breakdown of fruit production in 1993 and 1998 is presented in Table 2. A subtropical and tropical country, Taiwan produces many kinds of fruits in roughly equal quantities. The most important are bananas, pineapples, and citrus fruits, which combine to account for one-third of total production. Other important fruits include mangos, grapes, papayas, betel nuts, guavas, longans, and pears. Production of bananas and pineapples has been declining, and citrus fruit production has been stagnated; yet other higher-value items have been growing steadily. Table 3 provides the value of fruit production by variety in 1993 and Significant decline of value was found in grapes, while most fruits have made some growth in its production value. International Trade The main market for Taiwan fruits is domestic. In 1998, a total of 101,347 tons (or about 4.3% of total domestic production) was exported, while 433,139 tons (or 18.3% of total domestic production) was imported. Total volume of fruits exports continuously increased from 1973 until 1981, then it began fluctuating downward year after year. Imports of fruits, in contrast, have increased steadily and reached the US$300 million mark in Before 1987, export earning from fruits showed a surplus. But starting in 1988, Taiwan became a net importing country of fruits. Imported fruits are beginning to claim a substantial share in both volume and value in the Taiwan market for fruits (Table 4 and Table 5). With declining competitiveness in the international fruit market due to domestic wage increases and shortages in farm labor, exports of fruits are expected to decrease and imports to grow significantly. Currently, most of the imports are fresh temperate fruits, including apples, peaches, grapes, plums, cherry, citrus fruits, nectannes, and kiwi fruits. Imports of tropical fruits such as durian, mangosteen and rambutan are trivial, either in quantity or in value. The United States is the primary supplier of Taiwan s fruit imports in volume and variety excepting the kiwi fruits and tropical fruits. Details are shown in Table 6 and Table 7. In addition, the species of fruits imported is increasing which reflects that the domestic fruits market is tending to be more differentiated.
6 III : Fruits Marketing System in Taiwan 239 Table 1 Planted Area, Harvested Area and Production of Fruits, Year Planted Areas Harvested Areas Total Production (1,000 ha) (1,000 ha) (1,000 ha) , , , , , , , , , , , , , , , , , , Source: Taiwan Agriculture Yearbook, Department of Agriculture and Forestry, Taiwan Provincial Government.
7 240 Agribusiness Management towards Strengthening Agricultural Development and Trade Table 2 Production of Fruits by Type, 1993 & 1998 Items Procuction (1,000 M.T.) % Procuction (1,000 M.T.) % Bananas Pineapples Citrus-Ponkans Citrus-Tankans Wentan Pomelos Citrus-Liuchengs Grape fruits Longans Mangos Betel nuts Guavas Wax apples Grapes Lichees Pears Papayas Others Total 2, , Sources: Taiwan Agricultural Yearbook, 1994 & 1999 Edition, Department of Agriculture and Forestry, Taiwan Provincial Government, June 1994 & June 1999.
8 III : Fruits Marketing System in Taiwan 241 Table 3 Production Value of Fruits by Type, 1993 & 1998 Items NT$ million % NT$ million % Bananas 1, , Pineapples 3, , Citrus-Ponkans 1, , Citrus-Tankans WentanPomelos , Citrus-Liuchengs 1, , Grape fruits Longans 1, , Mangos 4, , Betel nuts 10, , Guavas 1, , Wax apples 2, , Grapes 3, , Lichees 1, , Pears 2, , Papayas 1, , Others 9, , Sources: Total 49, , Taiwan Agricultural Yearbook, 1994 & 1999 Edition, Department of Agriculture and Forestry, Taiwan Provincial Government, June 1994 & June 1999.
9 242 Agribusiness Management towards Strengthening Agricultural Development and Trade Table 4 Value of Exports, Imports, and Balance of Trade for Fresh and Processed Fruits, Unit: US $1,000 Year Export Import Balance (1) (2) (1)-(2) ,534 54,692 81, ,396 71,962 73, , ,638 49, , ,301-1, , ,597-31, , , , , ,812-52, , , , , , , , , , , , , , , , , , , , , ,312 Sources: Agricultural Trade Statistics of Republic of China, 1998, Council of Agriculture, Executive Yuan, April 1999.
10 III : Fruits Marketing System in Taiwan 243 Table 5 Volume of Exports, Imports, and Balance of Trade for Fresh and Processed Fruits, Unit : M.T. Year Export Import Balance of Trade (1) (2) (1)-(2) ,940 84, , , ,249 79, , ,501 20, , ,576-6, , ,802-43, , , , , ,089-82, , , , , , , , , , , , , , , , , , , , , ,792 Sources: Agricultural Trade Statistics of Republic of Ghina, 1998, Council of Agriculture, Executive Yuan, April Note: The Standard Classification of Commodities for the Republic of China was revised to adopt the Harmonized Commodity Description and Coding System, thus only data from 1985 onward are presented.
11 244 Agribusiness Management towards Strengthening Agricultural Development and Trade Table 6 Imports of Fresh Fruits by Type and Major Sources of Supply (1999) Type Import Source Type Import Source (MT) (%) (MT) (%) Indonesia (58.15) USA (86.49) Thailand (40.91) Chile ( 5.87) Unit: MT; % Mangosteens 5,653 Malaysia ( 0.77) Cherries 8,522 New Zealand (4.03) USA (0.09) Canada (1.89) Chile ( 0.05) Australia (1.71) India ( 0.04) Sweden ( 0.01) USA (97.21) USA (92.77) Chile ( 2.24) Citrus 21,680 South Africa (4.17) Peaches 11,773 Australia ( 0.52) Australia ( 3.06) New Zealand ( 0.03) Canada ( 0.01) USA (83.74) Grapefruits 21,472 U S.A (99.67) Nectarines 24,777 Australia (12.13) South Africa (0 33) New Zealand (2.19) Chile( 1.94) US A (96 32) USA (91.39) Grapes 15,782 Chile ( 3.62) Plums 16,442 Australia ( 5.66) Indonesia ( 0.06) Chile ( 2.95) USA (79.99) New Zealand ( 0.01) Chile (9.08) New Zealand (57.25) New Zealand (5.81) Italy (15.34) Australia (1.43) France (13.99) Apples 136,627 Japan (1.31) Kiwifruits 12,092 USA( 9.17) Sources: South Africa (0.87) Australia ( 3.33) Canada (0.72) Chile ( 0.91) France (0.72) Mainland (0.07) Monthly Statistics of Exports and Imports, the Republic of China Taiwan District, 1999, the Statistics Department Directorate General of Customs Ministry of Finance, 2000.
12 III : Fruits Marketing System in Taiwan 245 Table 7 Values of Fresh Fruit Imports by Type and Major Sources of Supply (1999) Type Value Source Type Value Source (NT$1000) (%) (NT$1000) (%) Indonesia(65.48) USA (81.49) Thailand(33.63) Chile ( 7.25) Mangosteens 226,238 Malaysia( 0.74) Cherries 578,047 New Zealand ( 6.65) USA (0.07) Australia ( 2.62) Chile(0.04) Canada( 1.98) India( 0.03) Switzerland( 0.02) USA (96.45) USA (92.58) Chile ( 2.77) Citrus 293,391 South Africa( 4.58) Peaches 461,442 Australia ( 0.73) Australia ( 2.85) New Zealand ( 0.04) Canada ( 0.01) USA (79.31) Grapefruits 320,882 USA (99.63) Nectarines 644,762 Australia (15.03) South Afiica ( 0.37)) Chile ( 3.17) New Zealand (2.50) USA (96.44) USA (89.41) Grapes 563,385 Chile ( 3.44) Plums 378,078 Australia ( 6.96) Indonesia ( 0.12) Chile ( 3.62) New Zealand ( 0.02) New Zealand ( 7.15) New Zealand (58.24) Japan (2.47) Italy (13.57) Apples 2,667,789 Australia (1.47) Kiwifruits 480,015 France (14.01) South Africa (0.92) USA (9.91) France ( 0.65) Australia ( 3.49) Canada (0.63) Chile (0.79) Mainland( 0.08) Sources: Monthly Statistics of Exports and Imports, the Republic of China Taiwan District, 1999, the Statistics Department Directorate General of Customs Ministry of Finance, 2000.
13 246 Agribusiness Management towards Strengthening Agricultural Development and Trade 2.2 Structure of Fruit Marketing Today, nearly 95% of fruits grown in Taiwan move to domestic markets through different channels, each associated with various marketing stages (Figure 1). The virtual agricultural products market is developing rapidly along with increasingly prosperous electronic commerce. However, local fresh fruits are mostly marketed via the following three channels: 1) The shippers channel: farmer shipper wholesaler jobber/ retailer consumer This channel is also called the traditional channel and is typical to all fruits grown in Taiwan. It is the longest marketing channel, for fresh fruits would be transferred at least four times before reaching consumers hands. Today, this channel accounts for about 70% of total fruit marketing. 2) Farmers cooperative marketing channel: farmers' cooperative wholesale market jobber, retailer consumer This channel was created in June 1973 by the government for helping local farmer cooperatives to ship fresh products jointly, from production areas to consumption places, via those fruit and vegetable wholesale markets. 3) Direct marketing channel: farmers' cooperative produce packing/distribution center supermarket chains consumer This channel was established in This channel, which has increased importance in recent years, consists of the selling of produce by grower cooperatives directly to retail stores, restaurants, and institutions. Although it is not strictly farmer-to-consumer direct marketing, the aim is to stabilize farm income and reduce the marketing margins. On the other hand, the marketing system of imported fruits is rather simple. Importers normally distribute imported fruits to wholesalers directly, only a few sold to large institutional consumption units or jobbers.
14 Taiwan Fruit Marketing Cooperative Exporting Hypermarkets Fruit Specialty Stores Farms Farmers Farmers Associations Farmer Organizations Shippers Jobbers Retailers Wet Markets Supermarkets Consumers Stall Vendors Others E-Commerce Virtual Markets Figure 1 Marketing Channels of Fruits in Taiwan
15 248 Agribusiness Management towards Strengthening Agricultural Development and Trade 3. Organizations of Fruits Marketing In Taiwan, most fruit growers are small-scale, usually lacking market information and marketing capital, so shippers in the traditional marketing channel normally dominate the terms of the marketing trade. In order to improve produce marketing, the government assisted and guided Farmer organizations, to carry out cooperative marketing programs for shipping fruits and vegetables to the wholesale markets in major consumption areas after The government has also made great efforts to improve the transaction practices for produce, to assist group farmers financially in building assembling lots and purchasing equipment, as well as to develop better grading and packing methods. Hence, cooperative marketing has been widely adopted by the producers in major growing areas. The township farmers associations, the agricultural production cooperatives and the Taiwan Fruit Marketing Cooperative are the three main organizations handling fruits cooperative marketing. The three together consist of more than 300 fruit cooperative units. In 1998, the total volume of cooperative fruits marketing was 157,143 M.T., of which 75% was shipped to the Taipei market and 23.5% the Sanchung market. The market share of fruits by cooperative marketing in Taipei and Sanchung was 53% and 24%, respectively. 4. Consumption Patterns In 1998, per capita consumption, more precisely food availability as measured in the food balance sheets, was 57 kilograms of rice, 105 kilograms of vegetables, 135 kilograms of fruits, and 79 kilograms of meats (Table 8). During the past two decades, rice consumption has decreased dramatically, from 100 kilograms in 1980 to 58 kilograms in The consumption of fruits, and meats, in contrast, has increased significantly, from 70 kilograms, and 43 kilograms in 1980 to 135 kilograms, and 79 kilograms respectively in The general trend is away from starchy foods including rice and sweet potatoes toward more vitamin-rich foods, such as vegetables and fruits, and more protein-and fat-rich foods, such as meats. The average nutrition intake from all foods in 1997 was 3,129 calories of energy, 101 grams of protein, and 131 grams of fat per day. The changing food consumption pattern can be explained by increasing incomes and rising living standards of the general public. According to a nationwide consumption survey conducted by Asian Vegetable Research and Development Center in 1998, the daily per capita expenditure made on food is NT$ 139. Twenty-two percent of the daily food expenditure goes to vegetables, 18% each to fruits, fish, meat, 4% to rice, 5% to other cereals, 6% to milk, eggs, and beans, and 8% to other foods.
16 III : Fruits Marketing System in Taiwan 249 Table 8 Per Capita Availability of Selected Food Items, Unit: Kg Year Rice (Polished) Vegetables Fruits Meat Source: Taiwan Food Balance Sheet, Council of Agriculture. Note: Availability Production lmports Exports ± Changes in Stocks Losses and Shrinkages. 5. Efficiency of Fruits Marketing The efficiency of the fruit marketing system has often been criticized due to increasing marketing margins, poor packing methods, high wastage, and inconsistent grading. In general, pricing efficiency, performance of wholesale markets, and progress of cooperative marketing are the issues most agricultural economists would choose for examining the status of marketing efficiency.
17 250 Agribusiness Management towards Strengthening Agricultural Development and Trade 5.1 Pricing Efficiency Empirical studies have found that fruit markets are not competitive because of incomplete farm-wholesale-retail price transmission and asymmetric bargaining powers between sellers and buyers. On the other hand, fruit retailers are often suspected of possessing a certain degree of market power since they usually adopt either constant or fixed proportion in the mark-up of prices. The traditional approach to analyse these issues is to decompose marketing margins into costs, transportation losses, and gross return based on survey data. Subsequently, retailers average net returns are estimated in order to determine whether they receive normal or excessive returns. Since selling fruit is a labour-intensive activity and is mostly a family business, net returns earned by fruit retailers are hard to estimate. Thus, it can be expected that such accounting-based studies are not able to provide a convincing conclusion regarding pricing efficiency. 5.2 Performance of Wholesale Markets Presently, there are 63 fruit and vegetable wholesale markets in Taiwan, established and owned either by the local government, farmers associations, or as joint ventures between the two. These markets are nonprofit organizations with the primary goal of serving farmers. Among the 63 fruit and vegetable wholesale markets, only three have entirely adopted an auction system, the others are mainly of the price negotiating type. The importance of wholesale markets has continuously risen, especially in the value of transaction during the last decade. Currently, approximately 50% of annual fruit production is traded via wholesale markets. Most fruit and vegetable wholesale markets in the consumption areas face serious space problems. More than twenty years of experience with the wholesale market operated by Taipei Agricultural Products Marketing Corporation, for example, has demonstrated the shortage of facilities for auction, trading, and packing, as well as environmental deterioration due to surrounding traffic congestion. On the other hand, some wholesale markets in the production area have faced shrinking volume of trading due to structural changes in the industry and/or the increasing role of cooperative marketing. There are also markets, which have through the illegal activities of management authorities, all but lost their original wholesale function.
18 III : Fruits Marketing System in Taiwan Performance of Cooperative Marketing Cooperative marketing in Taiwan has been promoted in some fashion for more than twenty years. Since the inauguration of the Taiwan Fruit and Vegetable Corporation (renamed in 1984 as the Taipei Agricultural Product Marketing Corporation), volumes handled by fruit cooperative marketing have increased annually, and the market share in terms of total production has gradually increased from less than 1% in 1980 to over 6% in While wholesale markets in consumption areas are the major outlets for products marketed by farmers' cooperative, nearly 80% of the fruits from cooperatives are concentrated in the two Taipei wholesale markets. This situation indicates that the number of outlets for products marketed by farmer cooperatives is limited. Meanwhile, the performance of cooperative marketing has been unsatisfactory, despite implementing production planning since Inconsistent grading and packing of cooperative produce has yet to be corrected. 6. Conclusion and Policy Implications 6.1 Impacts of Agricultural Trade Liberalization The World Trade Organization (WTO) has established rules for reducing or eliminating both tariff and non-tariff trade bafflers. Taiwan is preparing to participate in WTO. Therefore, competitions in both international and domestic markets for agricultural products can be expected to increase. How rapid growth in fruits imports would affect the farm sector and what kind of action fruit growers could take to survive become important tasks for the authorities to deal with. 6.2 The Impacts of Changing Business Organization and Operation Apart from the traditional family firm, the growing supermarket chains, fruit specialty stores and discount wholesale stores control increasingly more marketing function in the fruit distribution system. Effects of increased market competition on producers, agribusiness, marketers and consumers need to be investigated. 6.3 The Benefit of Direct Marketing on Farmers and Consumers As created in 1991, direct marketing for produce is believed to be more efficient than other marketing channels. In fact, there is no sufficient evidence to support this belief so far. Moreover, most farmers with relatively small production feel they should concentrate on farming rather than involve themselves in marketing.
19 252 Agribusiness Management towards Strengthening Agricultural Development and Trade 6.4 Preferences of Consumers Consumption behavior for fruits has been a neglected area of research. Nevertheless, understanding the features of fruit consumption is critical to the success of the fruit industry. To persist the demand for domestic grown fruits, more sophisticated packing methods and products, with better quality, and pesticide-safe are the key factors to pay attention to. Besides, a complete consumption information system of agricultural products needs to be established sooner or later. Reference Council of Agriculture, 1999, Taiwan Food Balance Sheet. Various issues, Executive Yuan, Taipei, Taiwan, R.O.C.., 1998, Taiwan Food Balance Sheet. Various issue, Executive Yuan, Taipei,Tiwan, R.O.C.. Department of Agriculture and Forestry, 1999, Taiwan Provincial Government, Taiwan Agricultural Yearbook, Various issues, Nantou, Taiwan, R.O.C.., 1994, Tiwan Provicial Government, Taiwan Agricultural Yearbook, Various issues, Nantou, Taiwan, R.O.C.., Taiwan Provincial Government, Taiwan Area Agricultural Products Wholesale Market Yearbook, various issues, Nantou, Taiwan, R.O.C..