AGRICULTURAL OUTLOOK                              November 22, 2000
December  2000, ERS-AO-277
               Approved by the World Agricultural Outlook Board
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Food Assistance Programs & Poverty Rates in Mexico
     A major food assistance initiative in Mexico--Progresa--is
aimed at alleviating the chronic poverty faced by many Mexicans.
About 40 percent of families in Mexico are poor, but this doesn't
reflect the variation in poverty rates across states--from 21
percent to 63 percent. The five most rural states are those with
the highest poverty rates, while several of the states with
relatively low poverty rates are near the U.S. border. The
government of Mexico has indicated its commitment to eradicate
poverty and improve the well-being of families in both the short
and long run, with particular emphasis on the poorer states.
     
     In addition to distributing direct food assistance, the
Progresa program provides children with scholarship and financial
support for school supplies and offers free basic health services
to families. To the extent that Progresa helps alleviate poverty
in Mexico, especially in rural areas where most of the benefits
are targeted, Mexico could eventually become a larger market for
U.S. agricultural and other products as incomes rise.
Craig Gundersen (202)694-5425; cggunder@ers.usda.gov

Technology & Food System Productivity in APEC Economies
     Technology will play a key role in raising food-sector
productivity to keep pace with population growth and rising
affluence in the APEC region in the long term.  A report released
at APEC's 12th Ministerial Meeting in Brunei on November 12-13
indicates that technology will be essential in raising yields at
the farm level and reducing losses, enhancing quality and
freshness, and increasing the speed of delivery to consumers. The
availability of new biotech methods may help offset diminishing
returns from traditional plant breeding programs and help meet
rising demand for greater quantities of food and dietary
upgrading.

     Incorporating information technology into the food supply
system will provide greater access to markets for farmers,
increased flows of information for market participants,
opportunities for enhanced efficiency for businesses, and better
services for consumers. Technologies applied to marketing and
processing food products can reduce waste and inefficiencies in
the food system. Technology development and adoption is likely to
be key in supporting the region's food supply system,
particularly with the rapid urbanization in Asia.
William Coyle (202) 694-5216; wcoyle@ers.usda.gov

Americans Relish Cucumbers

     Cucumber use in the U.S. climbed steadily since the 1960's,
with consumption reaching 3 billion pounds in 1999. Per capita
use of cucumbers has risen during each of the past four decades,
reaching 10.3 pounds in the 1990's. Sixty percent of cucumbers
are consumed in fresh form, mostly at home. The remaining 40
percent is consumed as pickled products, with one-third used in
fast foods, largely reflecting sandwich use (e.g., hamburgers)
and associated condiment demand (relishes).

     U.S. cucumber production totaled 2.4 billion pounds in 1999-
-about equally split between the fresh and processing markets.
Average annual farm value was $361 million during 1997-99.
Florida is the leading cucumber state, producing 19 percent of
the nation's output during 1997-99, with Michigan a close second
and California ranking third. During the 1990's, about 8 percent
of the fresh-market volume was exported. Gary Lucier (202) 694-
5253; glucier@ers.usda.gov

World Cotton Market: A Decade of Change

     Global cotton consumption is forecast to reach a record high
in 2000/01, after stagnating during much of the 1990's.  The
upturn in global cotton consumption is led by the developing
economies of China, Pakistan, and India.  In China, recent
liberalization of the cotton sector and sales of government-held
stocks have fueled a surge in cotton consumption. In wealthier
countries, including the U.S., cotton consumption by textile
producers is expected to decline as textile and apparel exports
from developing Asian countries continue to displace domestic
production.

     For 2000/01, U.S. cotton production and demand are forecast
to rise from the previous year.  U.S. cotton production is
currently forecast at 17.5 million 480-pound bales, or 3 percent
above 1999.  Increased demand for U.S. cotton is led by exports,
forecast at 7.6 million bales--13 percent above 1999.  U.S.
cotton consumption by domestic textile mills is projected at 10
million bales, the lowest since 1991.  Stephen MacDonald (202)
694-5305; stephenm@ers.usda.gov

Conservation Reserve Enhancement Program: A Federal-State
Partnership

     The Conservation Reserve Enhancement Program (CREP), which
allows states to supplement Federal incentives offered to farmers
under the Conservation Reserve Program (CRP), has played a role
in encouraging land retirement for conservation purposes in some
states.  In Maryland, for instance, almost half of the CRP
enrollment has occurred under the CREP. The 3-year-old CREP helps
participating states address more state-specific goals and target
conservation practices that may not be enrollable under the CRP.
The 13 states that currently participate in CREP offer a mix of
Federal and state enrollment incentives, including cost sharing,
rental payments, and up-front payments.  However, the lack of
clear relationships between economic incentives and CREP
enrollment progress indicates that non-financial considerations
may also play a role in determining program enrollment.
 Mark E. Smith (202) 694-5490; mesmith@ers.usda.gov

     
BRIEF

SPECIALTY CROPS

Citrus Production Unchanged in 2000/01; Good Quality Expected

The 2000/01 citrus crop is expected to be about the same size as
last year, with losses in California balanced by gains in Arizona
and Texas. California's citrus growers expect a 7-percent drop
from 1999/2000, with reductions coming in oranges and tangerines.
Florida's growers expect a 1-percent increase overall, with a
larger orange crop, but smaller crops of grapefruit, tangerines,
temples, and tangelos. Texas and Arizona, the smallest citrus-
producing states, are expected to have the largest gains. Texas'
citrus crop is projected to be 11 percent above last year, with
increases in both its orange and grapefruit crops. Arizona's
citrus crop estimate indicates an improved grapefruit crop and a
larger lemon crop.

The orange crop for 2000/01 is forecast at 13.1 million tons, the
same as last year. Florida's orange crop, estimated at 10.8
million tons, will be 3 percent above last year. Texas' orange
crop is expected up 15 percent, increasing for the second
consecutive year. Offsetting these increases, the California and
Arizona orange crops, the major source of fresh oranges to the
U.S. market, are expected to be down--12 percent in California
and 2 percent in Arizona. Much of the decline is attributed to
smaller fruit set this year.

Reduced demand affected California's Valencia growers in
1999/2000. Increased competition from other fruit, including
navel oranges from Southern Hemisphere countries, forced
California's Valencia growers to switch to processors instead of
marketing to the much more lucrative fresh market. While fresh
orange imports still account for only a small portion of domestic
consumption, the domestic fresh Valencia crop could be pressured
by the increased availability of navel orange imports during the
summer--when previously they were not available in the U.S.
market--as well as by a consumer preference for navels.

On the positive side, California's navel oranges are reported to
be large this year, a boon for marketing since purchasers in both
the domestic and international markets prefer larger sized fruit.
The large-size fruit should help boost demand in Japan, the major
overseas market for U.S. navels. The tighter supply and higher
demand for fresh oranges should also boost grower prices for the
navel crop.

Although this season's Florida orange crop is not expected to be
as large as the record crop of 1997/98, the supply of orange
juice may exceed the previous record. Very high beginning stocks
coming into the new marketing year, in addition to this year's
expected second-largest production, could put orange juice
supplies at 1.8 million single-strength equivalent gallons.

Stocks began high in 2000/01 for not-from-concentrate (NFC)
orange juice, despite the increased popularity of this product.
About 40 percent of the crop last year went into producing NFC,
the largest proportion so far. Movement, however, was sluggish,
and processors were left with large stocks. Processors may be
forced to beef up their promotions this coming season to sell NFC
orange juice, especially early in the season, to move it out of
storage. As a result, consumers may see lower retail prices.

While NFC has become the orange juice of choice at the retail
level, 60 percent of last year's Florida orange crop went into
making frozen concentrated orange juice (FCOJ). FCOJ is sold at
the retail level as well as to institutions and food services,
and processors who reconstitute the juice and sell it chilled.
Movement was good in 1999/2000 for FCOJ, and stocks ended only 4
percent above the year before. The situation coming into this
year may result in more oranges going into FCOJ, at least at the
beginning of the harvest, and less into making NFC orange juice.

Brazil, the world's largest orange juice producer and the major
exporter of orange juice, is projected to produce less juice in
2000/01 due to a smaller crop. Unfavorable weather conditions
during flowering and fruit set resulted in smaller sized fruit
and slowed maturity, which delayed harvesting. USDA estimates
that the smaller crop will result in Brazil's orange juice
production declining by 18 percent. Although higher beginning
global juice stocks coming into the new season will buffer the
decline in Brazil's total orange juice supply, the decline is
sufficient to reduce expected world orange juice supplies by 3
percent--despite the projected increase from Florida--and could
be felt at the consumer level around the world. Brazil's exports
are expected to drop 9 percent from last year, in part from
reduced import demand in the U.S. because of this season's larger
crop and stable import demand in the European Union.

Grapefruit production is expected to be lower in 2000/01 because
of a smaller crop from Florida, where growers have been removing
grapefruit trees in response to low prices in the recent past. As
a result, the number of bearing trees has declined, reducing crop
size.

Fruit size is reported to be similar to last year for white
grapefruit and slightly smaller for red grapefruit. Florida's
grapefruit are said to be of high quality with minimal blemishes.
Small fruit size may hurt prices, especially in the international
market where larger fruit command higher prices. Their good
appearance, however, should help marketing. Grower prices for
processing grapefruit should also be lower this year because
processors have started the year with large stocks and will not
demand as much fruit as last year. Overall grapefruit grower
prices may fall this year, after experiencing only 1 good year
following several years of very low prices.

Lemon production in the U.S. is forecast to be the highest in 3
years. Quality of the lemon crops in both California and Arizona
is said to be excellent, which should bring producers good prices
despite the larger supply. For the first time, the U.S. allowed
Argentine lemons to be imported into certain areas in the summer
of 2000. The ruling expands the areas in 2002 and in 2004 will
allow them to be shipped to all parts of the country, provided
there have been no pest problems.

Argentine lemons will enter the U.S. mostly during the summer
months when demand is the highest. Even so, the competition may
eventually bring down prices at a time when domestic growers
expect to get their best prices. To maintain their market
position, some larger domestic shippers have become involved in
marketing Argentine lemons.

Temple, tangelo, and tangerine crops are expected to be smaller
in 2000/01. Florida's tangerine crop is lower than last year's
record crop but still higher than the year before, and there
should be an ample supply for this winter. The U.S. market can
expect to continue to see Spanish clementines alongside
tangerines in supermarkets. Americans have come to like
clementines because they are easily peeled and seedless.

Citrus exports to China, which began in 2000, will continue to
expand. High-quality navel and Valencia oranges, plus grapefruit
and lemons, probably have the greatest potential for export
growth. Beginning in the 2000/01 season, China's Citrus Agreement
calls for additional counties in Florida and California to
qualify for exports to China. Exports to the Philippines,
especially of grapefruit, are also expected to rise.

Susan Pollack (202) 694-5251
pollack@ers.usda.gov

BRIEF

SPECIALTY CROPS

2000 U.S. Grape Crop to Hit Record High; Demand Up for Fresh
Grapes and Wines

U.S. growers are producing more grapes in 2000 and selling them
for less, offering consumers a bountiful supply of lower-priced,
good-quality, fresh-market grapes and grape products. USDA
forecasts a 20-percent rise in this year's grape production over
1999, surpassing the 1997 record. Harvests are up 24 percent in
California, which grows more than 90 percent of the country's
grapes, and 2 percent in Washington state, the second-largest
U.S. producer.

More land in grapes in the two states and California's favorable
weather account for this year's bumper crop. Growers in both
states have increased their grape-bearing acreage in the 1990's,
with California's up 15 percent. In the rest of the country, the
total crop has dropped 5 percent, reflecting large declines in
New York and Pennsylvania, where wet conditions this year caused
mildew and insect problems and where some vineyards showed stress
from last year's drought and heavy crop.

Although grapes are the fourth most popular fresh fruit among
U.S. consumers, ample supplies of both citrus fruit and summer
stone fruit (peaches, plums, and nectarines) have upped the
competition in the domestic market, pushing prices down for fresh-
market grapes for both growers and consumers. During the 1990's,
more than 80 percent of U.S. fresh-market consumption was
domestically produced. Grower prices for fresh-market grapes from
May through September were 24 percent lower than in the same
period a year ago--an average $636 per ton. Retail prices for
fresh Thompson seedless grapes dropped an average of  8 percent
from last season (June to September).

Mostly influenced by higher, good-quality production and lower
prices, consumption of U.S. fresh grapes in both the domestic and
export markets is expected higher during the 2000/01 season (May
to April), mirroring last season's increases. U.S. consumption--
estimated at 8.2 pounds per capita in 1999/2000--should rise by
about 7 percent in 2000/01.

Nearly 30 percent of fresh-market grape production was exported
during the 1990's. Exports of fresh grapes for this year (May to
August) have already posted a 34-percent gain over the same
period last season. Driving up exports were improved economic
conditions in major export markets, including Canada, Hong Kong,
Mexico, and the Philippines, as well as other Asian markets like
Singapore, China, Thailand, and Indonesia. The industry is
optimistic that next season California could begin shipping table
grapes to Australia, until now a closed market, at an estimated 1
million boxes per year--enough to put Australia among the top
five markets for California grapes.

About 86 percent of the nation's grapes are processed--more than
half for wine, more than a fourth for raisins, and the remainder
for juice and canning. In California, where growers will harvest
larger crops in every variety of grapes, only 12 percent are
table-type grapes, while 47 percent are wine-type grapes and 42
percent are raisin-type. Washington processes virtually all of
its grapes--about two-thirds for juice and one-third for wine.

According to the Wine Institute, California now produces more
than 90 percent of U.S. wine grapes. In recent years, growers
there have greatly increased the acreage they devote to wine
grape production, with many vineyards adopting new technologies
that produce higher yields and better-tasting wine. Last year,
wine grape varieties accounted for well over half of the state's
total grape acreage, an increase of 29 percent during the 1990's.
Bearing acreage for wine grapes increased 10 percent from the
previous year--to 424,000 acres--and nonbearing acreage increased
about 7 percent--to 130,000 acres.

California vineyards can expect to harvest a record 6.4 billion
pounds of wine grapes in 2000, a result of higher yields and
recent new plantings of premium wine varieties that have reached
bearing age. Prominent wine grape varieties are Chardonnay and
French Colombard for white wine, and Cabernet Sauvignon,
Zinfandel, and Merlot for red wine. Increases in bearing acreage
last year were greatest for Merlot (up 30 percent), Cabernet
Sauvignon (up 16 percent), and Chardonnay (up 15 percent).
Although California's growth appears to be strong, the state's
grape industry faces a threat from Pierce's disease, a bacterial
blight transmitted by insects (glassy-winged sharpshooters) and
capable of destroying an entire grape-growing area. Until this
disease is eradicated, the industry will remain vulnerable to the
losses it can cause.

With about one-third of Washington state's total grape output
processed for wine, the state's wine sector is growing at a
healthy rate. According to the Washington Agricultural Statistics
Service, total wine grape acreage more than doubled between 1993
and 1999 (from 11,100 acres to 24,000), while  bearing acreage
increased by more than half (from 10,200 acres to 17,000). The
state crushes all of its Concord and Niagara grapes for juice.

U.S. wine exports rose 4 percent in 1999 to a record 70 million
gallons, with the United Kingdom, Canada, Japan, and the
Netherlands accounting for more than two-thirds of shipments.
Imports increased slightly over 1998 (less than 1 percent),
coming mostly from the European Union, Chile, and Australia.

Increasing supplies of high-quality wines, stronger national
economies, heightened awareness of the health benefits of
moderate wine consumption, and market promotion efforts continue
to encourage demand for U.S. wines both here and abroad. Exports
of U.S. wine and imports into the country rose during the first 8
months of 2000 (up 5 percent and 13 percent), indicating the
continuing strength of the market for domestic wine producers and
grape growers.

U.S. raisin exports fell 28 percent and domestic consumption of
raisins declined by 2 percent during 1999/2000. The supply of
raisins in the U.S. fell last season as a result of reduced
domestic shipments and a 30-percent downturn in imports. Partly
responsible for the decline in imports were smaller raisin crops
in Chile, South Africa, Greece, Turkey, and Mexico, which reduced
overall world supplies.

Raisin exporters are optimistic for the 2000/01 season, in light
of a recent upward trend. According to the Raisin Administrative
Committee, California raisin shipments abroad (excluding Canada)
in August and September were up 12 percent over the same period
in 1999. This change reflects significant increases in demand
from the United Kingdom, Germany, Korea, Taiwan, the Netherlands,
and Denmark.

Agnes Perez (202) 694-5255
acperez@ers.usda.gov


COMMODITY SPOTLIGHT

World Cotton Market: A Decade of Change

With the 2000 U.S. cotton harvest nearly complete, the spotlight
has shifted from supply indications to demand expectations.
Record global cotton consumption is forecast this season,
continuing the rebound from 1998's decline in the wake of the
Asian financial crisis. Although consumption by U.S. cotton mills
is forecast to weaken slightly this season as a result of rising
textile and apparel (clothing) imports, the United States is
expected to export an above-average share of raw cotton to the
world market. The result is a more robust market outlook as U.S.
and world cotton stocks are expected to become tighter in the
2000/01 marketing year (August-July).

As the global cotton economy enters the first decade of the
2000's, global consumption of cotton is once more on the rebound.
World cotton consumption had stagnated in the 1990's due to slow
global economic growth during the early part of the decade, the
collapse of the Soviet Union's textile industry, soaring
polyester consumption in the late 1990's, and the Asian financial
crisis which sent a shock wave through the Asian-dominated
textile industry. Cotton consumption was particularly stagnant in
China and Pakistan, the two leading sources of increased
consumption during the 1980's. However, during 1999/2000 and
2000/2001, China and Pakistan once again lead the world in
consumption growth, polyester consumption gains have slowed, and
Russia's textile industry is beginning to recover. For now, world
cotton consumption seems to be on an upward path, benefiting U.S.
exports.

U.S. Cotton Crop
Increases in 2000

Despite drought conditions this summer in many U.S. cotton
producing areas and the subsequent 13-percent loss in planted
area, U.S. all-cotton production in 2000 is currently forecast at
17.5 million 480-pound bales, 3 percent above 1999. Although 1999
production problems were fresh in cotton producers' minds earlier
this spring, the outlook for profitable alternatives was limited.
The cotton marketing loan program--which supplied a significant
portion of producers' incomes in 1999--also provided an incentive
for U.S. farmers to plant additional area to cotton in 2000.
Favorable springtime weather allowed producers to plant 15.5
million acres of cotton this year, the second-largest U.S. cotton
area in nearly four decades and 4 percent more than in 1999.

The U.S. national average yield in 2000 is estimated at 622
pounds per harvested acre, above 1999 but below the 5-year
average. With beginning stocks at 3.9 million bales, the latest
production projection places total supplies for the 2000 season
at 21.5 million bales, 2 percent above a year earlier. Total
demand for U.S. cotton is also projected to climb this season,
with higher exports more than offsetting slightly lower domestic
mill use (projected at 10.0 million bales). U.S. cotton exports
are forecast to increase significantly in 2000 to 7.6 million
bales, 13 percent above last season. Smaller crops in Central
Asia and West Africa--the principal U.S. competitors--and an
improved outlook for world mill use are factors expected to boost
foreign demand for U.S. cotton this season.

The U.S. cotton industry is beginning the new decade with a
second consecutive year of growing export volume and export
share, just as it was 10 years earlier. But during this time, the
U.S. and global cotton markets have experienced profound changes.
A decade ago, for example, China and Japan were the leading
importers of U.S. cotton, but in 2000/01 Mexico and Turkey are
expected to be the most important markets for U.S. cotton.

Continued growth of U.S. cotton textile and apparel imports has
also placed tremendous pressure on the U.S. cotton textile
industry, forcing some participants to limit output, relocate, or
close altogether. At the same time, however, more U.S. cotton is
contained in these finished imported products than ever before,
due largely to the North American Free Trade Agreement (NAFTA)
and the Caribbean Basin Initiative (CBI). These agreements have
provided a "home" for U.S. raw cotton and cotton products used in
apparel manufacturing--an outlet that might otherwise not have
been available. This trend is likely to continue into the
foreseeable future.

Income Growth & Liberalization
Fuel Changes

The shift in U.S. trade patterns since 1990 illustrates changes
that have occurred in global markets during the last decade.
Another example is the trend--which predates the 1990's--toward
increased textile production and apparel exports by lower income
countries, and the associated decline of cotton fiber use by
textile mills in wealthier markets. In 1990, Japan, the European
Union, and the Newly Industrialized Countries (NIC's) of South
Korea, Taiwan, and Hong Kong accounted for 17 percent of world
cotton fiber consumption. By 1999/2000, their share had dropped
to 10 percent.

Among wealthier countries, the United States is an exception to
the general shift away from cotton fiber use for domestic textile
production, with output climbing by 16 percent between 1990 and
2000. The expanding U.S. economy and consumer promotion--under
the world's only significant cotton promotion program--
contributed to the gain by driving up consumer demand for cotton
products by 60 percent in the 1990's. Nearly 60 percent of the 20-
million-bale U.S. demand for clothing and other products is met
by imports. But free trade with Canada and Mexico provides new
opportunities for U.S. textile exports, sustaining textile
production despite rising imports.

NAFTA enabled U.S. textile mills to indirectly capture a growing
share of U.S. consumer demand for apparel by creating trade and
investment partnerships with Mexico, where apparel production and
exports to the U.S. have soared. Specifically, U.S. mills have
used raw cotton to produce capital-intensive intermediate textile
products--such as fabrics--for export to Mexico. Mexico, in turn,
produces more labor-intensive apparel products and re-exports
them to the U.S. under preferential market access not available
to Asian apparel product exporters.

The Caribbean and Central America enjoyed similar trade
preferences during the 1990's, and Canada, Mexico, and the
Caribbean Basin accounted for almost 60 percent of the increase
in U.S. cotton product imports during the 1990's. Mexico's use of
raw cotton has also grown significantly, and Mexico is now the
world's largest cotton importer and the largest customer for U.S.
cotton exports.

Market reforms in other parts of the world, such as India, Latin
America, and the former Soviet Union (FSU) have also had a large
impact on cotton production and consumption in the last decade.
Debt problems and economic contraction throughout much of the
developing world during the 1980's--and the contrasting stellar
growth of export-oriented NIC's--led to economic reforms in India
and much of Latin America in the 1990's.

In India, cotton consumption soared as domestic economic growth--
and textile exports--responded positively to reforms. During the
1990's, India's cotton consumption rose 4.6 million bales, and
raw cotton production rose 3.2 million bales. As a result,
India's share of world cotton use rose from 10 percent in 1990 to
15 percent in 1999. In 2000/01, India's consumption is expected
to continue rising, but production is expected to be unchanged
from the year before, in part due to insufficient rain in Gujarat-
-traditionally India's leading cotton producing state.

Although cotton consumption also rose in Latin America in
response to economic liberalization, the removal of policies that
formerly protected cotton growers from competition led to
declining production during the 1990's. Latin America's
production fell as much as 3.2 million bales during the 1990's,
while consumption rose 2.5 million bales. A more limited degree
of liberalization in Central Asia, following the breakup of the
Soviet Union, also resulted in lower cotton production--down 4.6
million bales between 1990 and 2000. Central Asia's production
has stabilized since 1996, but a 500,000-bale decline from the
previous year is foreseen in 2000/01 due to an unprecedented
drought in the region.

In Russia, economic reforms during the 1990's drove cotton
textile production down 85 percent. Russia's transition from
centralized planning has taken a severe toll on its textile
industry, reducing it from the world's fourth largest cotton
consumer in 1990 to 39th in 2000/01.

China Liberalizes
Its Cotton Sector

China undertook a program of general economic reform during the
1980's. With the opening of its economy to trade, China more than
doubled its share of world clothing exports and became the
world's largest cotton producer. Despite these developments, the
liberalization of cotton production in China is actually quite
recent. In 1999/2000--more than a decade after liberalizing
production of other crops--China sanctioned direct sales by
cotton farmers to textile mills, and dropped the price floor that
had guaranteed government procurement prices at a level well
above world prices during much of the 1990's. China had
experimented with similar reforms to the cotton market in the
early 1990's, but a sharp contraction of output in China's
leading producing region immediately forced a reversal in 1993.

Lower procurement prices, a customs service crackdown on
smuggling chemical fibers, an improving Chinese economy, and an
expanding world economy with higher textile exports led to a
surge in China's cotton consumption in 1999/2000. China's rebound
during 1999/2000 was extraordinary: a 3-million-bale increase in
consumption in 1 year completely offset the 2.7 million bale
decline that had stretched out over the previous 7 years.
Government figures on China's yarn output and continued increases
in textile exports suggest cotton consumption will continue to
grow in 2000/01. During the first 8 months of 2000, China's
clothing exports rose 38 percent from a year earlier, and its
cotton fabric exports rose 28 percent on a net basis. At 22.5
million bales, China's 2000/01 cotton consumption is forecast at
a record-high level for the second consecutive year.

To sustain this consumption, China's government has auctioned
about 5 million bales through the newly formed China National
Cotton Exchange. Most of this cotton was from government stocks.
China's inventory levels were a closely guarded secret for many
years, and much uncertainty remains. Through October, the
government has continued to release cotton through auctions to
control prices driven upward by growing textile industry demand.
China may also be seeking to minimize government stocks ahead of
WTO accession--when import competition may make the release of
high priced government stocks problematic--so it is unclear what
the current willingness to release stocks indicates about future
stock and trade policies.

In contrast to the decline in production during China's earlier
cotton market reforms, China's crop is forecast slightly higher
in 2000/01 than in 1999/2000. China's cotton producers correctly
foresaw that early-season 2000/01 price strength would be
sustained through to harvest. Also, weather has been relatively
favorable, and the use of genetically modified cotton in eastern
China helped avoid the substantial losses to bollworms that had
plagued provinces like Shandong and Hebei in the early 1990's. At
18 million bales, China's 2000/01 crop is forecast 400,000 bales
above its 1999/2000 level.

The question for the rest of 2000/01 is whether rising
consumption and falling stocks will necessitate large imports.
China's cotton imports are currently forecast to match its
exports, and any change in China's net trade position has
important ramifications for the rest of the world.

Textile Export Competition
From China & Pakistan

Unlike China, Pakistan's textile industry--the world's fourth
largest--experienced growth throughout most of the 1990's. But
compared with its performance during the 1980's, when cotton
consumption grew 178 percent, growth was a relatively sluggish 24
percent between 1990 and 1998. Pakistan's cotton production, on
the other hand, actually fell during 1990-98, as disease forced
abandonment of high-yielding varieties early in the 1990's.
Recurring insect problems and poor weather continued to depress
cotton production afterwards.

The textile industry suffered a further blow as obligations under
World Trade Organization membership halted export restraints on
raw fiber--ending the domestic industry's preferential access to
locally produced cotton. However, rebounding production since
1998 has spurred the reopening of formerly shuttered textile
enterprises, and further investment has again increased industry
capacity. A 1-million-bale increase in cotton consumption over 2
years is now expected for 2000/01, a 14-percent increase.

About two-thirds of Pakistan's textile output is exported, and
during July-September 2000 Pakistan's yarn exports were about 20
percent higher than a year earlier. Similarly, China's 17-percent
rise in cotton consumption over the last 2 years is translating
into significant competition for textile industries in other
countries. China accounts for about 20 percent of the nearly $200
billion worth of clothing annually exported around the world, and
its exports are undoubtedly increasing faster than world demand.
China alone supplied nearly three-quarters of Japan's January-
July 2000 textile and apparel import growth (up 18 percent
overall from the year before), and about 50 percent of Korea's
import growth. Partly due to these increased shipments from
China, Korea's yarn stocks for the beginning of 2000/01 are
reportedly 50 percent above the 1999/2000 level, and cotton mill
consumption there is likely to shrink.

Competition from lower income countries is also expected to
reduce mill consumption in Taiwan, as local firms shift spinning
to subsidiaries in Vietnam and China. India and Southeast Asian
countries are expected to consume more cotton domestically and
increase textile exports in 2000/01--due in part to depreciating
currencies in these countries. But lower cotton consumption is
foreseen for the industries of Japan, Eastern Europe, the United
States, and much of the European Union as textile exports from
developing Asian countries continue to rise.

Rebounding Cotton Prices
Benefit Southern Hemisphere

Low cotton prices earlier this season have reduced expected
cotton production in some regions, including West Africa and
Mexico, but price movements since then have provided an
opportunity for Southern Hemisphere producers. World cotton
prices have rebounded sharply since their lows in December 1999--
up 40 percent as of September 2000--while the prices of
production alternatives such as corn or soybeans have been
relatively stagnant.

The response to this opportunity is record expected production in
Australia, and a crop in Brazil that is forecast 17 percent above
the previous year. Since 1996, Brazil has had the largest
production gain of any major cotton producing country, and its
expected crop of 3.4 million bales is more than two and a half
times the 1996 level. Although the size of Brazil's crop is
similar to 1990/91 levels, changes to the industry over the past
decade have been substantial. Brazil's economic reforms during
the 1990's have reduced harvests in the states of Parana and Sao
Paulo--where cotton is traditionally hand picked--during the
first half of the decade, but there has been a surge in
mechanized crop production in Mato Grosso and northern Bahia
since 1996.

World gross domestic product (GDP) is likely to expand by 4.2
percent in 2000 and 3.5 percent in 2001--well above the 2.8-
percent average of 1995-99. But world cotton consumption in
2000/01 is expected to increase by a more modest 1.6 percent from
the previous year. If stable economic growth is maintained, the
long-run outlook for cotton consumption should improve.

While world cotton consumption is again growing, and growing in
some familiar locations, the world textile market has changed,
and the U.S. is exporting to different customers than it did 10
years ago. During the coming decade, reform of world textile and
apparel trade under the WTO in 2005 and continued expansion of
clothing output by developing country exporters suggest further
changes are ahead.

Stephen MacDonald (202) 694-5305 and Leslie Meyer (202) 694-5307
stephenm@ers.usda.gov
lmeyer@ers.usda.gov

COMMODITY SPOTLIGHT BOX

Cotton Production Climbs In Southeastern States

In addition to changes in the global market, significant regional
shifts have occurred in U.S. cotton area and production over the
last two decades. In the 1980's, nearly 70 percent of U.S. cotton
area was located in the Southwest and West where land and water
were plentiful. However, recent water concerns in these regions,
and success of the boll weevil eradication program in the
Southeast have led to dramatic gains in area and production in
the Southeast. The share of total upland cotton area in this
region has tripled since the 1980's. As a result, the share of
U.S. cotton area in the Southwest and West has declined from
about 70 percent in 1980 to less than 50 percent in 2000.

The Southeast has shown equally impressive growth in its share of
U.S. cotton production, particularly in relation to the West. In
the 1980's, the Southeast accounted for 7 percent of upland
cotton production, while the West contributed 32 percent. Since
then, the two regions have moved in opposite directions. In 2000,
the latest estimates indicate that the Southeast share of
production is approaching 25 percent of the total while share in
the West has declined to just over 15 percent.


COMMODITY SPOTLIGHT

Americans Relish Cucumbers

Two common phrases--"cool as a cucumber" and "in a pretty pickle"-
-might be used to characterize the two segments that make up the
market for cucumbers, fresh-market sales and processed products.
Demand for fresh-market cucumbers has been on the rise, while
consumption of processed (pickled) cucumbers has been slowing. In
general, however, cucumber use in the U.S. has been growing, with
consumption totaling 3 billion pounds in 1999--up from 2.5
billion 10 years before and continuing the steady climb that
began in the 1960's.

Once considered mere animal fodder, "cukes" are now an important
commercial and garden vegetable. The U.S. produces 4 percent of
the world's cucumbers, ranking fourth behind China, Turkey, and
Iran. The U.S. cucumber industry is unevenly spread across the 50
states, with 171,000 acres and 6,821 farms that ship into the
fresh or processing markets. Cucumbers had an average farm value
of $361 million annually during 1997-99.

Cukes for the Fresh Market
Or Processing

Thought to have originated in India, cucumbers have been
cultivated for thousands of years. Brought to the New World by
Columbus, cucumbers have been cultivated in the U.S. for several
centuries. Cucumbers are members of the cucurbit family and are
related to gourds, gherkins, pumpkins, squash, and watermelon.
Cucumis sativus is the common slicing (including greenhouse) and
pickling species, while cucumis anguria is the gherkin type
common in India and Africa, and is frequently used to make
pickles.

The U.S. produced 2.4 billion pounds of cucumbers for all uses in
1999--about equally split between the fresh and processing
markets. While fresh-market cucumber production has been trending
upward, reaching a record high in 1999, average pickling output
fell 3 percent in the 1990's compared with the 1980's. Fresh-
market cucumbers are grown year-round, while pickling cucumbers
are harvested mainly in the spring and fall.

The three basic classes of cucumbers marketed in the U.S. are
field-grown slicers, greenhouse-grown slicers, and processing
(pickling) cucumbers. Field-grown slicers (cucumbers for the
fresh market) are larger, sweeter, and have thicker skins than
the smaller, thinner skinned pickling varieties that are
straighter than slicing cukes. "English" or "European" cucumbers
are so-called seedless varieties originating in Europe and can be
field grown or produced in hothouses. European varieties tend to
be long, cylindrical, and tender-skinned, and have a milder
flavor than most field-grown slicers.

Shipping-point (farm-gate) prices for fresh-market cucumbers have
averaged about 19 cents per pound over the past 3 years (1997-99)-
-up 9 percent from the previous 3 years. During the same time,
the price of pickling cucumbers at the processing-plant door
averaged 12 cents per pound--up 3 percent from the previous 3
years. In real terms, prices for both fresh and processing
cucumbers have trended downward over the past 30 years--prices
are 20 to 30 percent lower than in 1970, likely reflecting
increases in per acre yields.

Monthly prices for pickles or pickling cucumbers are not
available, but USDA does collect price data on fresh cucumbers.
Prices for fresh cucumbers are generally higher from January to
April because of limited domestic supplies, and lowest in June
when supplies are available from many areas. The farm price
(shipping-point) represents about 25 percent of the retail value
for fresh cucumbers.

Trade is a key component of the U.S. fresh-market cucumber
industry. About 8 percent of fresh-market volume was exported
during the 1990's--virtually the same as the 1980's. However,
export share has been declining since the late 1980's and stood
at 4 percent in 1999. Canada takes 98 percent of U.S. fresh
cucumber exports, but Canada's imports have declined 20 percent
since 1997, possibly reflecting increased consumption of domestic
greenhouse cucumbers.

U.S. pickle exports have been relatively constant over the past 5
years, accounting for 2 percent of pickling cucumber supply--up
from 1 percent or less in the years prior to 1995. The U.S.
exported pickles to 38 countries in 1999, with three-fourths of
the volume going to Canada, South Korea, and the Netherlands.

Imports of fresh cucumbers are highest in January and February
when U.S. production is limited by cool weather, and lowest in
summer during the height of the domestic growing season. Imports
accounted for 38 percent of U.S. fresh cucumber consumption in
the 1990's--up from 37 percent in the 1980's and 30 percent in
the 1970's. The volume of fresh imports in 1999 was 90 percent
larger than in 1990, with the majority shipped from Mexico. Under
terms of the North American Free Trade Agreement (NAFTA), Mexico
faces a small, but declining (15-year phaseout) tariff from March
through May and October through November; in contrast, cucumbers
from Canada enter duty-free all year. The strong U.S. dollar and
the popularity of European-type greenhouse/hydroponic cucumbers
has encouraged imports from Canada to rise fourfold since the mid-
1990's. Imports from Canada now account for 5 percent of U.S.
imported fresh-market cucumbers.

Imports of pickling cucumbers have been on the rise since the mid-
1990's. Prior to 1993, imports accounted for 1 percent or less of
pickling cucumber consumption, but reached a peak of nearly 8
percent in 1999. Recent gains reflect imports of finished
products (pickles ready for immediate consumption) from Canada
and India and a rising volume of bulk unfinished pickles (in
brine, requiring further processing) from Honduras and India.
Bulk unfinished pickle imports totaled 50 million pounds, product
weight, in 1999--up from just 7 million pounds in 1990. Bulk
gherkin imports from India have apparently found favor with both
U.S. and Canadian processors due largely to their low cost and
consistent sizes.

Production Is Concentrated

Florida is the leading cucumber state, producing 19 percent of
the nation's output during 1997-99. Nearly half of Florida's
cucumber crop is grown in Manatee and Palm Beach counties.
Florida is the leading fresh-market supplier and is fourth in
pickling cucumbers. Florida ships fresh cucumbers from October
through June, with a lull in January and February due to the
threat of freezing weather. Imports from Mexico fill this winter
gap.

Michigan is a close second, producing 18 percent of the nation's
cucumbers. One-third of this output comes from Van Buren and
Allegan counties. Michigan is the leader in pickling-cucumber
production, with two-thirds of the state's production going to
several pickle packers, including the nation's largest pickle
manufacturer. Michigan's 455 cucumber farms are also fourth in
fresh-market production, with shipments from late June through
early October.

According to the 1997 Census of Agriculture, third-ranked
California has 431 farms that harvest cucumbers. The Golden State
produces 11 percent of the nation's cucumbers, with three-fourths
for the fresh market. About 80 percent of the state's cucumbers
are shipped from San Diego and San Joaquin counties. Most of
California's fresh-market cucumbers are shipped from May to
November.

In the U.S., there is limited overlap between the fresh and
processing cucumber industries because of differences in
varieties, as well as in production and marketing methods. For
example, all fresh-market cucumbers are harvested by hand, while
many pickling cucumbers are harvested by machine. According to
Pickle Packers International, a national trade association, about
two-thirds of the cucumber crop in the northern U.S. (e.g.,
Michigan), one-third of the crop in the western U.S. (e.g.,
California), and less than 10 percent of the southern cucumber
crop (e.g., North Carolina) are harvested by machine. Another
difference is that the majority of pickling cucumbers is produced
under contract, while most fresh-market cucumbers are sold in the
open (spot) market.

Cucumber Consumption Rising

Nutritionally, cucumbers are about 96 percent water, low in
calories, and free of fat, cholesterol, and sodium. About 100
grams of fresh cucumber (about a cup of slices) contains 10
percent of the daily requirement for vitamin C. (Columbus carried
pickled cucumbers on ocean voyages to help stave off scurvy.) One-
eighth of a cup of pickles also counts as one serving of fruits
and vegetables under the National 5-A-Day program.

Fresh cucumbers are used in a wide variety of salads, but are
also typically consumed as sticks for vegetable platters and
vegetable dips, baked, sliced as a garnish, diced for use in
gazpacho, and blended into other soups. Cucumbers grown for
pickles are also favored by some consumers as a fresh vegetable
because of their tender, thinner skins. Rising fresh-market
consumption likely reflects the popularity of salads, an
increasing interest in greenhouse cucumbers, and the general
trend toward more healthful lifestyles.

Pickled cucumbers are most often used as a sandwich side dish,
but are also a popular snack item right out of the jar. Dozens of
firms across the country produce cucumber pickles and relish.
According to the 1997 Census of Manufacturers, manufacturer
shipments of cucumber pickles and relishes totaled more than $1
billion. Dill cucumber pickles represented about half of this
value, followed by sweet pickles and refrigerated pickles.

Consumers have been moving away from salty foods over the past 15
years, and the pickle industry has been changing to accommodate
them. The average pickle's salt content today is lower than the
1970's and 1980's because fresh-pack pickles are a larger share
of the market and contain less sodium than fermented pickles.
Although low-sodium pickle products have not gained wide
acceptance, the demand for high-grade, mild (low salt and low
acid), refrigerated pickles has increased over the past 10 years,
and packers have responded with a range of products.

Per capita use of cucumbers has risen during each of the past
four decades. Use totaled 10.3 pounds in the 1990's, up from 9.8
in the 1980's, 8.9 in the 1970's and 7.8 pounds in the 1960's.
Pickling use has been on a slow decline since peaking in 1976 at
6.1 pounds per capita. Therefore, fresh-market use has accounted
for all the growth over the past 20 years. Fresh use reached a
record high 6.9 pounds in 1999--44 percent higher than 1989.
Although per capita use of pickling cucumbers has waned during
the past two decades, the 4.2 pounds used per person today is
still greater than at any time before the mid-1960's.

About 60 percent of cucumber consumption is in fresh form with
the remainder in pickled products. Because cucumbers consist
largely of water, they lack the characteristics (primarily
sufficient solids) necessary to be ingredients in commercial
frozen and dehydrated foods. According to the USDA 1994-96
Continuing Survey of Food Intakes by Individuals, 85 percent of
fresh cucumbers are consumed at home. This may reflect limited
uses for fresh cucumbers on standard restaurant menus.

When cucumbers are pickled, the range of uses widens. Reflecting
this, 45 percent of pickled cucumbers are consumed away from
home. One-third of all pickled cucumbers are used in fast foods,
largely in sandwiches (e.g., hamburgers and subs) and associated
condiments (relishes). As for fresh cucumbers in the away-from-
home market, U.S. consumers most often eat fresh cucumbers in
standard "white tablecloth" restaurants (9 percent). In contrast,
these restaurants account for less than 6 percent of pickled
cucumber consumption. Fresh cucumber shippers have been able to
carve only a small niche in the fast-food market, which is
responsible for just 2 percent of fresh cucumber consumption.

Who Eats Cucumbers?

Regional breakdowns indicate that fresh-market cucumbers are most
popular among consumers in the Northeast (a 9-state region
defined by the Census Bureau) and the West (a 13-state region).
Together these two regions account for 42 percent of the nation's
population but 49 percent of fresh cucumber consumption. For
consumers of pickled cucumbers, those in the Midwest and, to a
lesser degree, the South consume proportionately more than other
regions of the country. About 55 percent of fresh cucumbers are
consumed in suburban America, where 47 percent of the nation's
population resides. Both rural and metro area consumers eat less
than their "share," as defined by their percentage of the U.S.
population.

USDA's food-intake survey also gauged cucumber consumption
nationwide by racial group, which revealed some interesting
variations. The survey found that non-Hispanic white and black
consumers show a greater preference for pickles than for fresh
cucumbers. This was especially true of black consumers, who
represent 13 percent of the population but consume less than 6
percent of fresh cucumbers. The opposite was true of Hispanics,
who represent 11 percent of the population but consume 13 percent
of fresh cucumbers and 8 percent of pickled cucumbers. Other
ethnic groups (largely Asian) also favor fresh cucumbers over
pickled products. These consumers account for 4 percent of the
population, but use 10 percent of all fresh cucumbers and 3
percent of total pickled cucumbers.

The wealthiest consumers appear to favor cucumbers the most.
Households with incomes at least three-and-one-half times greater
than poverty-level income (the cut-off point for food stamp
eligibility is 130 percent of the poverty level), who represent
39 percent of the U.S. population, consume 42 percent of both
fresh and pickled cucumbers. The 19 percent of the population who
earn the lowest incomes consume less than their share of both
fresh and processed cucumbers.

Men eat slightly more fresh cucumbers than women--51 percent of
the total consumed. This may largely be explained by the higher
caloric intake of men. In general, the survey indicated that as
consumers age, they tend to eat more fresh vegetables, including
cucumbers. People under the age of 20 represent 30 percent of the
population but consume just 18 percent of all fresh cucumbers.
Both men and women over the age of 20 eat more than their
proportionate share of fresh cucumbers.

Interestingly, for processed cucumbers, the story is nearly
reversed. Men and women under the age of 20 consume a larger
percentage of pickles than fresh cucumbers--25 percent--but still
less than their proportionate share. And consumers over the age
of 60 (16 percent of the population) used just 11 percent of the
pickled cucumbers, likely reflecting the desire to reduce sodium
in their diets. However, the largest consumers of pickles are men
between the ages of 20 and 59. Men in this age group account for
27 percent of the population yet reported consuming 39 percent of
the pickled cucumbers.

Given a strong economy and continued consumer interest in health
and flavor, both sides of the cucumber industry can enter the new
millennium on an optimistic note. Current forecasts indicate  per
capita use should increase for both fresh cucumbers and pickles
in 2000.

Gary Lucier (202) 694-5253 and Biing-Hwan Lin (202) 694-5458
glucier@ers.usda.gov
blin@ers.usda.gov

COMMODITY SPOTLIGHT BOX

Pickle Primer

Along with drying and dehydrating, pickling is one of the oldest
forms of food preservation.  Although many vegetables, including
beets, cabbage, and peppers, are sold in pickled form, the
cucumber is the leading vegetable pickled in the U.S.  Pickling
cucumbers are smaller, have thinner skins, and are straighter
than most slicing cucumbers.  The wide variety of pickle flavors
is made possible by the addition of various herbs, spices, and
seasonings to the pickling liquid.  A substantial volume of
pickling cucumbers is used to produce relish, a popular
condiment.  Most relish is made by chopping cucumbers, acidifying
them with vinegar, adding seasoning, and then packing and
pasteurizing.

There are several types of pickles in the market. Some of these
include:

     Dill-by far the most popular.  The flavor in dill itself
comes from seeds of the plant, which contain the substance
carvone.  Most processors use dillweed oil rather than dill seed
to ensure consistent flavor (the same amount of carvone) from
batch to batch.  Dill pickles are sold as genuine dills, kosher
(which for most consumers means garlic has been added to the
brine), Polish (which are usually slightly spicy, similar to
kosher), German style, and others.

     Sweet-the second-most popular.  These include bread-and-
butter pickles, no-salt pickles, and various sweet-hot varieties.

     Sour and half-sour pickles.  These are fermented and not
pasteurized.

Pickles come in a variety of styles.  Some of these include whole
(gherkins, midgets), halves, quarters, slices, spears, strips,
chips, chunks and sandwich (sliced lengthwise).  Relishes are
sometimes considered another style of pickle.

Pickles can also be identified by production method:

     Refrigerated-accounts for about 20 percent of sales.  These
are fermented under refrigeration using minimal processing, which
keeps them crispy.  These have a short shelf life (about 4
months) compared with other packs.  This method can be used to
produce various dill, half-sour, and sweet pickles, as well as
relish.

     Fresh pack-pickles produced this way tend to be more crisp
and less acidic than processed pickles.  This method is used to
produce kosher dills, chips, spears, halves,  sweet pickles and
relish.  This pack has an 18-month shelf life.

     Processed-the most time-consuming method.  Pickles made this
way are fermented (cured) in bulk brine tanks for 1 to 3 months
and then packed into jars.  This method produces dark green
pickles with a sharp flavor.  Some examples include kosher dills,
genuine (which usually means fermented) dills, sours, and sweet
pickles. This method also provides for the longest shelf life-2
years.  The typical pickle slice on a hamburger is a processed
(fermented) pickle.

COMMODITY SPOTLIGHT BOX

Specialty Cukes

There are several specialty cucumber varieties that largely serve
ethnic markets. Some of these include:

Armenian cucumbers, which are often found in Mediterranean
markets. These cucumbers are green with deep ridges and measure
up to 3 feet long. They are sometimes referred to as snake
cucumbers or snake melons.

Yamato Extra-Long, commonly seen in Oriental food markets, are
dark green, "burpless" (seedless), and can measure up to 2 feet
long.

Lemon cucumbers are American heirloom varieties that resemble
lemons, but are very mild.

FOOD & MARKETING

Food Assistance Programs and Poverty in Mexico

The potential for increases in aggregate food consumption are
much greater in developing countries than in the U.S. and other
developed countries. This possible increase in consumption stands
to benefit U.S. farmers directly. To capitalize on this potential
for increased trade in agricultural goods, U.S. farmers and
exporters can benefit from a thorough understanding of the
current distribution of income in developing countries and
government efforts to improve citizens' well-being in both the
short and long run. This is especially true with respect to U.S.
agricultural producers anticipating sales to markets in Mexico;
following implementation of the North American Free Trade
Agreement, U.S. exports to Mexico have increased at a faster rate
than exports to almost every other country.

This article presents the geographic distribution of poverty in
Mexico and the design of four major food assistance programs. The
discussion focuses on the newest program, Progresa, which was
initiated in 1997.

Distribution of Poverty
In Mexico

In the U.S., poverty is relatively unequally distributed across
certain demographic characteristics. For example, in 1998,
families with children headed by a single mother were much more
likely to be poor than families with children headed by two
parents. However, poverty is relatively equally distributed
across states.

In Mexico, poverty rates also differ across demographic groups.
For example, indigenous people have much higher poverty rates
than nonindigenous people. Variation in poverty rates across
states in Mexico is greater than in the U.S. Poverty rates range
from a low of 21 percent in Baja California to a high of 63
percent in Oaxaca.

The five states with the lowest poverty rates are Baja
California, Baja California Sur, the Distrito Federal, Nuevo
Leon, and Aguascalientes. Two of these states (Baja California
and Nuevo Leon) border the U.S. and a third state (Baja
California Sur) is one state removed from the U.S. border. Three
other border states have low poverty rates as well--Sonora (31
percent), Chihuahua (33 percent), and Coahuila (34 percent). The
other border state, Tamaulipas, however, has a relatively high
poverty rate of 42 percent. In addition to its lower poverty
rate, the Distrito Federal has the second largest population of
any state in Mexico.

The five states with the highest poverty rates--Hidalgo (57
percent), Zacetecas (58 percent), Guerrero (59 percent), Chiapas
(62 percent), and Oaxaca--are the five most rural states (based
on the percentage of people living in cities with more than
15,000 inhabitants). Poverty rates are also high in states
bordering Guatemala. Besides Chiapas, the poverty rate is 52
percent in Tabasco and in Campeche. This is not unexpected since
poverty is more a rural phenomenon in Mexico than it is in the
U.S.

Generally, a direct (positive) relationship exists between per
capita demand for agricultural products and per capita income
within an area. Accordingly, areas with the highest per capita
demand for U.S. agricultural products in Mexico are likely to be
those closest to the U.S., and those with relatively good access
to transportation. Part of the reason for the higher per capita
demand in the border states is the growth of the maquiladora
system that boosts income in those areas (AO September 2000).
Conversely, areas with lower per capita demand are farther from
the U.S. and are less accessible to transportation.

Food Assistance Programs
In Mexico

The governments of the U.S. and Mexico are committed to
eradicating poverty and improving the well-being of families in
both the short and long run. This commitment is reflected in
their expenditures on food assistance programs. In 1998, Mexico's
government spent over 8 billion pesos (about $1.2 billion) on
food assistance programs, while fiscal year 1999 food assistance
expenditures in the U.S. totaled $32 billion, down from a
previous high of $38 billion in 1996.

Before 1997, the three largest food assistance programs in Mexico
were DICONSA (Distribuidora Compaa Nacional De Subsistencias
Populares [CONASUPO]), FIDELIST (Fideicomiso para la Liguidacin
al Subsidio de la Tortilla), and LICONSA (Leche Industrializada
CONASUPO). The primary function of all three is to provide
specific commodities to low-income families. DICONSA establishes
stores with select discounted products for families in low-income
areas;  FIDELIST provides a kilo of tortillas per day to low-
income families; and LICONSA provides milk to children under the
age of 12 in low-income families.

In 1997, Mexico implemented a new assistance program, Progresa,
with three linked components that have direct parallels with U.S.
food assistance programs. First, Progresa provides children with
scholarships and financial support for school supplies. This is
intended to ensure school attendance and to reduce incentives to
seek jobs before completing basic education. Girls receive a
higher allowance than boys, because the drop-out rate among girls
is higher and increasing female education has been seen to lead
to decreases in family size. The U.S. National School Lunch and
Breakfast programs help ensure that students have access to a
safe and nutritious diet that will enhance their educational
achievement.

A second component of Progresa is a basic free health services
package that is provided to all families in the program. Health
is further fostered through education and training in the areas
of health, nutrition, and hygiene. A comparable U.S. effort is
the Special Supplemental Nutrition Program for Women, Infants,
and Children (WIC), which helps improve the health of pregnant,
low-income women through referrals to relevant health and social
services. Neither the educational nor the health services
component of Progresa has a direct effect on food consumption,
but both are intended to increase the long-term income prospects
of lower income Mexican families and, if successful, will
increase the volume and variety of their food purchases.

The third component of Progresa is direct food assistance. On
average, families participating in Progresa receive about 125
pesos per month (about $16 at an exchange rate of 8 pesos per
dollar) to supplement their food purchases. The actual amount
varies by family size. While this may not seem a large sum, it is
a substantial amount of money for a low-income family in Mexico,
where the minimum daily salary in the poorest parts of the
country is approximately 15 pesos. Thus, a family of six
participating in Progresa receives a benefit equivalent to about
11 days of wages per month at the minimum daily salary.

Research in developing countries has indicated that if women
rather than men receive food assistance payments, the money is
much more likely to be used to purchase food for children. As a
consequence, Mexico distributes Progresa food assistance benefits
to the female head of the family.

Unlike other Mexican food assistance programs, Progresa does not
limit the types of food families can purchase in stores. Thus, it
is more akin to the U.S. Food Stamp Program, which also has few
restrictions on food purchases. In addition to these general food
assistance monies, small children and pregnant or lactating women
receive five daily doses of a nutrition supplement that provides
100 percent of required daily micronutrients and 20 percent of
the appropriate caloric intake. This targeting of nutrient
supplements is similar to the WIC program, which is for pregnant
and postpartum women, infants, and children up to age 5.

Since its implementation, Progresa has grown at a fast pace and
eventually will displace the other food assistance programs. In
1997, Progresa served about 400,000 families; by 1999, this
figure had risen to 2.3 million families. While the program has
expanded rapidly, it has done so through a transparent method
that ensures that the communities and individuals most in need
receive benefits. This differs from some of the other food
assistance programs in Mexico that have been criticized for not
reaching those most in need.

Just as in the U.S., food assistance programs in Mexico increase
food consumption. Because a larger share of the average Mexican
family's expenditures is for food, a given increase in income is
likely to induce a relatively larger increase in food
expenditures than in the U.S. Most of the benefits of these
increased expenditures will likely accrue to agricultural
producers in Mexico. But if Mexico increases food imports to meet
the needs of its food assistance programs, U.S. producers will
reap some of the benefits. This increase in exports is further
aided by programs like Progresa. Unlike other programs that limit
food assistance purchases to specific commodities, Progresa,
which has no such restrictions, has the potential to increase
consumption of a variety of foods reflecting consumers' tastes.

From the perspective of U.S. agricultural producers, the biggest
impact of Progresa will probably be through its role in ending
the chronic poverty faced by so many Mexicans, especially those
in rural areas where the majority of Progresa's benefits are
targeted. By increasing the nutrition, health, and education of
children in Mexico, their ability to escape poverty as adults is
dramatically enhanced. With higher incomes in the future,
prospects for increased U.S. exports to Mexico are strengthened.

Craig Gundersen (202)694-5425, Mara Yaez (SAGAR), and Betsey
Kuhn
cggunder@ers.usda.gov
mara_yanez@hotmail.com
bkuhn@ers.usda.gov

FOOD & MARKETING BOX

This article is based on "A Comparison of Food Assistance
Programs in Mexico and the United States," Food Assistance and
Nutrition Research Report Number 6, Economic Research Service,
July 2000. Research activities for the report were funded under
auspices of the Mexico Emerging Markets Program.

FOOD & MARKETING BOX

Targeting Progresa Benefits

Countries generally have limited funds available for improving
the well-being of poor residents. They therefore try to design
programs with effective identification methods to ensure  that
benefits are distributed in a cost-effective manner that still
reaches the intended beneficiaries. Administrative costs of
targeting benefits increase as more precise methods are used.
Even with the most effective methods, some benefits leak to
households not in need of assistance (as defined by the goals of
the program) while missing households more in need.

In Progresa, Mexico has chosen a novel way of avoiding these dual
problems of leakage and undercoverage without spending too much
of its budget on identification procedures. Identification of
Progresa beneficiaries is carried out in three stages. The first
stage is a geographic targeting process to determine the most
impoverished areas. Using a national census, the 1995 Conteo de
Poblacin y Vivienda, the most impoverished areas are identified
based on the percentage of illiterate population age 15 or over;
the percentage of  households without water services, drainage,
electricity, or nondirt floors; the average number of inhabitants
per room; and the percentage of the population employed in the
primary sector.

Unlike U.S. programs, which do not include geographical location
as part of the eligibility criteria for food assistance, Progresa
requires that program participants reside in an identified
impoverished area. This restriction on Progresa participation may
increase undercoverage, but it also reduces administrative costs
of the program.

The second stage of targeting benefits is identifying those most
in need within an area. A census of socioeconomic information of
each household in all the selected localities collects data on
household structure, individual characteristics, occupation,
income of each member of the household, government support
programs received by the members of the household, migration,
health of the members of the household, physical characteristics
of the house, use of the land, and the number of farm animals.
The last stage is presenting the proposed list of beneficiaries
to the community at a public meeting to correct any problems with
inclusion or exclusion of beneficiaries.

FOOD & MARKETING NOTE

Note: Mara Yaez is an economist with Mexico's Secretaria de
Agricultura Ganaderia y Desarrollo Rural (SAGAR). This article
does not necessarily reflect positions of SAGAR.


RESOURCES & ENVIRONMENT

Conservation Reserve Enhancement Program: Early Results from a
Federal-State Partnership

The Conservation Reserve Enhancement Program (CREP) is a 3-year-
old Federal-state partnership designed to encourage eligible farm
operators to adopt specific conservation practices that meet
certain water quality or wildlife-related goals. The 13 states
that currently participate in CREP's have used various types of
incentives to induce potential participants to voluntarily retire
their land.

Given the program's short track record and some programmatic
difficulties, the impact of these incentives on enrollment is
difficult to evaluate, but some incentives do appear to have more
impact than others. Lessons gleaned from existing programs may
help other states design a CREP or provide insights for the
design of similar programs beyond 2002, when authority for the
Secretary of Agriculture to sign new CREP agreements expires
under current law.

What Is the CREP?

The CREP is a joint Federal-state land retirement conservation
program that combines state and Federal resources under current
provisions of USDA's Conservation Reserve Program (CRP). The CREP
is a distinct program that uses CRP authorities to operate. State
authorities sign contracts with local landowners to target
specific state and national conservation and environmental
objectives, such as improving water quality or preserving
wildlife habitat.

Under this arrangement, USDA provides participants who enroll
their land with a set level of cost sharing, the same signing
(enrollment) incentive payment as for "continuous" signup CRP
enrollees, an annual land rental rate (the rental rate plus a
percentage that may vary by conservation practice and individual
CREP agreement), and an annual land maintenance payment. The CREP
allows states to supplement federal incentives, to address more
state-specific goals, and to target certain conservation
practices.

State enrollment incentives have included additional cost sharing
to minimize or eliminate out-of-pocket costs for participants, up-
front enrollment payments, and the option, or requirement, for
participants to extend a conservation contract or provide a
permanent easement. Permanent easements are limited property
rights--in this case designed to keep land in conservation uses--
that are granted by the property owner to the state government.
Under the CRP, the Federal government does not retain an
ownership interest in any easement.

CREP enrollment is usually conducted in the same manner as the
"continuous" CRP signup option. That is, eligible CREP
participants are allowed to sign up at any time without going
through the periodic competitive Environmental Benefits Index
(EBI) ranking process normally used to select potential "general"
CRP participants. Each state defines specific areas (e.g.,
watersheds) or land characteristics (e.g., highly erodible land)
for CREP eligibility, targeting particular goals that coincide
with national objectives--such as improved water quality or
preserving endangered species habitats.

In Maryland, for example, the program is targeted to protect
Chesapeake Bay water quality, which supports Clean Water Act
objectives. In New York, watersheds that supply water to New York
City are targeted to protect the city's drinking water supply,
which coincides with objectives of the Safe Drinking Water Act.
In Washington and Oregon, the focus is on areas that provide
habitat for endangered species.

Who Participates
In the CREP?

Since 1997, 13 states have implemented CREP's. This analysis
includes data on CREP's in Maryland, Illinois, North Carolina,
New York, Delaware, Minnesota, Ohio, Oregon, and Washington, but
excludes data from Pennsylvania, Virginia, Michigan, and Missouri
because of the recent implementation or small number of contracts
recorded in these states. Nine additional states (Arkansas,
Florida, Iowa, Kentucky, Nebraska, North Dakota, Vermont, West
Virginia, and Wisconsin) have CREP proposals under consideration
by USDA's Farm Service Agency, which oversees the program. As of
October 2000, about 103,000 acres had been enrolled in CREP's,
with the largest enrollment in Illinois (about 53,000 acres) and
Maryland (approximately 20,000 acres).

Current enrollment under the CREP is dwarfed by enrollment under
other land conservation programs--general CRP and the continuous
CRP. USDA has committed about $1.7 billion over the 15-year life
of the program to assist the enrollment of almost 1 million acres
under the 13 current CREP agreements. In addition to the large
difference in total enrolled acreage, the CREP differs from the
CRP in several respects, including the size of farms that
participate, the type of land enrolled, and the length of
contracts. These differences in large part reflect distinctions
in the program goals of the general and continuous CRP and the
CREP.

Participants in the CREP have farms that are smaller on average
than those in the general or continuous CRP, which may reflect
farm characteristics in states that operate CREP's. The average
CREP contract size (parcel of land per farm enrolled) is slightly
greater than that under the continuous CRP, but considerably
smaller than under the general CRP. This could be the result of
several factors. The continuous CRP targets relatively small
parcels for specific conservation practices (e.g., filter strips)
that provide a positive environmental impact for a much larger
area. Some CREP states also require that parcels be of a certain
minimum size. In addition, only 6 percent of continuous CRP
signup acreage is enrolled under whole-farm contracts, with the
participant effectively retiring or closing the farm, whereas 12
percent of CREP acreage and one-quarter of general CRP acreage
are under whole farm contracts.

The average CREP contract is longer than that of either the
general or continuous CRP signup because of a minimum 15-year
contract period stipulated by some states. Moreover, CREP acreage
is highly valuable, with an average land rental rate more than
double the rate on CRP acreage. Given that enrollment under the
general signups explicitly considers expected environmental
benefits and costs, expensive land is less likely to be accepted
under the competitive general CRP signups, other things being
equal, than it is under the continuous CRP and the CREP.

Given the recent implementation of the CREP, state-level
environmental results are not yet available. Consequently,
program costs and benefits cannot be adequately evaluated.
Instead, the focus here is on achievement of enrollment goals in
relation to the level and type of incentives across state
programs. But simply examining acreage enrolled in each state
could be a misleading indicator of progress.

The indicators of progress under individual state programs will
be influenced by several factors, such as how long state programs
have been in operation and the size of each state's acreage
enrollment goals. Enrollment goals can vary widely by state
(e.g., Delaware's goal is 6,000 acres and other states have
100,000-acre targets), and some states have just recently
implemented programs. To assess the response of landowners to
enrollment incentives, USDA's Economic Research Service
constructed an unofficial indicator of monthly progress towards
enrollment goals. A state's acreage enrolled is divided by the
acreage goal, and this figure is then divided by the number of
months that each state's program has been in operation.

This progress indicator shows that the pace of enrollment varies
considerably across the nine states for which adequate data
exist. Illinois is the clear leader; New York, Oregon, and
Washington have the slowest relative performance; and Delaware,
North Carolina, Ohio, Maryland, and Minnesota lie in the middle.

Which CREP Incentives
Encourage Enrollment?

The enrollment progress indicator implies that the total per-acre
funding committed to the program by Federal and state authorities
has little bearing on the rate of enrollment. The Illinois and
Oregon CREP's, for example, provide the same level of per-acre
funding, but show very different enrollment progress. Disparity
in per-acre funding levels among states may reflect different
land values, varying costs of implementing conservation
practices, and different amounts of cost sharing.

Three types of incentives are generally provided to potential
participants under the state CREP's. First, cost sharing by
Federal and state governments minimizes or eliminates out-of-
pocket costs to farmers of implementing conservation practices.
Second, USDA offsets the opportunity cost of idling acreage by
providing a base annual rental payment equal to the expected
average rent for cropland with specific soils in each county. An
additional rental-rate incentive, varying by state and
conservation practice, is also provided by USDA. An additional
rental-rate incentive of 20 percent, for example, indicates that
the participant would receive a total of 120 percent of the
land's expected average rental rate based on agricultural uses.

Third, an up-front payment is provided in some states to induce
enrollment. Since April 2000, USDA has provided a Signing
Incentive Payment (SIP) of $10 per acre per year of contract (up
to 15 years) for specific practices under the continuous CRP
signup. This SIP has been included in CREP agreements that have
recently been signed or amended.

Some states also provide their own up-front payments, often a
multiple of the annual per-acre rent. As a condition for such
payments, some states require the participant to enter into an
extended conservation contract or to provide a multiple-year or
permanent easement after the CRP contract expires. Oregon took a
particularly innovative approach to encouraging enrollment by
offering up-front payments to all enrollees with adjoining land
if half of the land along a 5-mile stream segment were enrolled
prior to 2002. Hence, if a group of participants (or single
participant) protects 50 percent of a continuous length of
stream, all receive the bonus. However, enrollment progress in
Oregon has been very slow due to programmatic difficulties and to
concerns over potential land-use restrictions at the end of the
contract.

Several states that rank highly in enrollment progress provide an
up-front payment for those participating in permanent easements
or other supplemental contracts. This raises the question of
whether participants might be cash-strapped farmers who are
willing to idle land for an immediate cash infusion. While
farmers might generally want to avoid long-term land-idling
commitments (to maintain flexibility in case market conditions
change), an additional incentive is that permanent easements may
qualify for certain Federal income and estate tax benefits.
Illinois, North Carolina, Maryland, and Minnesota also provide
state tax benefits for conservation practices for which the CREP
may qualify. Hence, permanent easements may be a viable
conservation option to offer producers.

The levels of rental-rate incentives and cost sharing do not
appear to be strongly associated with enrollment progress. The
Illinois and Minnesota CREP's, for example, provide the lowest
rental-rate incentives, yet fare relatively well in enrollment.
New York, on the other hand, with high rental-rate incentives and
100-percent cost sharing, ranks low in progress. Slow progress in
New York may be due to implementation problems (e.g., a backlog
in completing contracts) rather than a lack of producer response
to economic incentives, but it may also indicate that CREP rental
rates, even with incentives, do not accurately reflect
opportunity costs.

For example, land used to produce high-value commodities--such as
dairy operations in the New York CREP area and many fruit and
vegetable operations within the Oregon and Washington CREP areas-
-may often command higher rents than the rental rates offered by
the CREP. CREP rental rates may not reflect the higher
opportunity cost of idling this land. On the other hand, even
with Illinois' relatively modest rental rate, CREP enrollment
progress in that state indicates the opportunity cost of
participating is covered, or that rental rate incentives may be
of secondary importance to participation. Illinois' success might
also be a reflection of previous work with the "T by 2000"
initiative, a state soil-erosion reduction program.

CRP rental rates are generally based on dry cropland rental
values. CREP's incentives are designed to increase participation
to levels needed to achieve desired results. However, they do not
necessarily provide for full opportunity costs where
nonagricultural factors, such as development potential, are
present.

Oregon offers a range of cost sharing from 75 to 100 percent,
though most acreage qualifies for only 75 percent, which may
explain the state's low enrollment progress. Further information
is needed to clarify how the level of cost sharing and rental-
rate incentives influence CREP enrollment.

Concerns about regulation could be an incentive for producers to
undertake conservation measures. For example, Maryland's
participation may be due in part to the heavy media attention
given to Chesapeake Bay water quality problems, including
outbreaks of Pfiesteria.

Preliminary Conclusions

Enrollment progress under the existing state CREP's has been slow
in some states. States cite a variety of reasons for the slow
enrollment: the need for a broader definition of eligible land
(e.g., to include hayland in New York, fruit and vegetable
acreage in the Northwest); suspension of enrollment due to
depletion of state funds or other reasons; and the need for staff
or funds to market the program and complete CREP farm plans.
Further, farmers may have waited to enroll until related program
revisions that increased enrollment incentives were made public
(which occurred in April 2000).

However, CREP incentives have played a role in encouraging land
retirement for conservation purposes in some states. For example,
in Maryland, almost half of total CRP enrollment has occurred
under the CREP. In Delaware and North Carolina, CREP incentives
have stimulated about 10 percent of total CRP enrollment in the
12 to 18 months that those programs have operated.

Given programmatic difficulties and limited data, it is difficult
to draw clear lessons on the economics of the CREP. However, some
preliminary conclusions may be drawn based on available contract
data. In general, it appears that the way funds are allocated is
more important than how much is allocated. For example, offers of
up-front payments for permanent easements or contract extensions-
-but not necessarily high rental-rate incentives--are associated
with greater enrollment.

That permanent easements appear to be popular under the program
may reflect the desire of some enrollees to exit the sector, or
an interest among some participants whose land has been flooded
(e.g., in Illinois, North Carolina) for a more stable return on
their land. Enrollment to date shows that higher rental rate
incentives are not necessarily associated with greater
enrollment, perhaps because CREP rental rates do not always
reflect opportunity costs. Further information is needed to
assess the extent to which greater cost sharing would raise CREP
enrollment.

The lack of clear relationships between economic incentives and
progress indicates that other, nonfinancial considerations,
including the effectiveness of related state conservation
efforts, may be affecting CREP enrollment progress. With the
resolution of programmatic issues, clearer lessons may be
discerned in the future with respect to the economics of CREP's.

Mark E. Smith (202) 694-5490
mesmith@ers.usda.gov

RESOURCES & ENVIRONMENT BOX

CRP Update

As of October 1, 2000, about 33.3 million acres were enrolled in
the Conservation Reserve Program (CRP) under the general signups,
the continuous CRP, and state CREP's. By comparison, another land
conservation program that also counts wildlife habitat protection
among its goals--the National Wildlife Refuge System--contains
about 15 million acres in the continental United States.

USDA announced in May 2000 the results of the most recent (20th)
general CRP signup, held in January-February. Of the nearly 3.5
million acres offered by landowners, about 2.5 million acres were
accepted for enrollment. Montana, Texas, Washington, North
Dakota, and Iowa (in order of magnitude) together accounted for
about half of the accepted acres. Less than 10 percent of
enrollment was land with contracts due to expire in 2000. This
reflects, in part, the relatively small amount of expiring acres
(420,000 acres).

About two-thirds of acreage enrolled in the 20th CRP signup was
highly erodible land (defined here as land with an erodibility
index of 8 or more), and the average erodibility index of
accepted land was 13. This is slightly higher than for signup 18
(1998) and equal to signup 16 (1997). The Environmental Benefits
Index--the targeting mechanism used to rank and select cropland
to be included in the program--indicates that acreage enrolled in
the most recent signup is expected to provide slightly greater
environmental benefits than acreage in the previous signup.
However, the per-acre cost of enrolled acreage climbed, to $52.76
from $45.50 in the last general signup and $45.15 in signup 16.
This may indicate rising marginal costs to producers of retiring
land for conservation purposes.



SPECIAL ARTICLE

New Technology Raises Food System Productivity in APEC Economies

The fundamental challenge facing the Asia-Pacific Economic
Cooperation (APEC) region in the long term will be raising food
system productivity to keep pace with population growth and
rising affluence. The world will have to produce 40 percent more
grain by 2020, of which 25 percent is needed to meet population
growth and the balance to meet worldwide demand for a more
diverse and resource-intensive diet.

Only about one-fifth of the increase in grain production is
likely to come from expanding land under cultivation. Technology,
therefore, will play a key role in raising yields at the farm
level and reducing losses, enhancing quality and freshness, and
increasing the speed of delivery to consumers. These developments
also promise to widen consumers' choices and raise nutrition
levels.

Technology development and its application in the food system
depend on several diverse elements, including strong public
commitment, public and private sector linkages, and a variety of
supportive programs and policies such as education,
infrastructure development, and extension services. Often,
commitment to the development and application of new technology
is related to overall economic development.  But even in the less
developed parts of the APEC region, there is a definite
commitment to new technology, reflected in the creation of
institutions and in government budgetary commitments.

Some APEC members, such as Singapore and Taiwan, are staking
their futures on becoming centers of technology development.
Singapore, a small city-state of 3 million people, has supported
research leading to the development of high-yield, disease-
resistant crops, poultry, livestock, and fish, and has created
the Institute of Molecular Agrobiology (IMA), the Bioprocessing
Technology Centre (BTC), and the Agri-Bio Park to provide
infrastructure for tropical agrotechnology.  In 1995, the Chinese
Taipei government included biotechnology in a list of 10
important industries eligible for special government assistance,
and a special task force in the Ministry of Economic Affairs has
helped the private sector invest US$700 million (NT$23.1 billion)
in biotech and pharmaceutical projects.

Biotech Beefs Up
Traditional Plant Breeding

The APEC region has a long tradition of contributing to research
on plant breeding. Three international experiment stations in the
region--IRRI (International Rice Research Institute) in the
Philippines, CIMMYIT (International Maize and Wheat Improvement
Center) in Mexico, and CIAT (International Center for Tropical
Agriculture) in Colombia--developed important hybrid grain
varieties in the 1960's and 1970's that have been widely adopted
and have contributed to the near doubling of global grain yields
between 1970 and 2000. The APEC region, a heavy rice-producing
part of the world (about 60 percent of the world total), saw
average rice yields increase from about 2 tons per hectare in
1970 to 3.6 in 2000.

More than 5,000 new crop varieties have been developed in China,
where agricultural R&D focuses on increasing production. An
important example is hybrid rice, which has helped double
production since 1970.

Plant breeding efforts in Indonesia have succeeded in developing
a number of new rice varieties with higher yields and shorter
maturation periods, allowing the harvesting of two to three crops
per year. Besides rice, plant breeders in Indonesia have given
special attention to soybeans and corn. Tissue culture has been
widely used for the propagation of bananas and ornamental plants
such as orchids. The Indonesian government has also sponsored the
development of gene banks for preserving existing plant
varieties.

In Malaysia, plant breeding continues to incorporate desirable
characteristics into new plant varieties of fruits such as
durian, papaya, pineapple, and citrus as well as rice and maize.
Mexico has concentrated on the diffusion of improved grain
varieties and hybrids, not just for increasing yields but also
for encouraging better tolerance of pests and/or adverse weather
conditions, particularly in drought-prone areas.

More recently, biotechnology is ushering in a new era of plant
breeding through genetic modification or engineering. The
availability of new biotech methods may help offset diminishing
returns from traditional plant breeding programs and help meet
rising demand for greater quantities of food from continuing
world population growth and dietary upgrading. New pest-resistant
and herbicide-tolerant crops offer lower input costs and,
sometimes, higher yields.

As of 1999, five principal biotech crops--soybeans, corn, cotton,
canola, and potatoes--were being commercially cultivated in eight
countries (Argentina, Australia, Canada, China, France, Mexico,
Spain, and the U.S.), five of which are APEC members. More than
two-thirds of global biotech production is in the U.S., and makes
up a significant share of U.S. planted area in soybeans, cotton,
and corn.

An international consortium (China, France, Japan, Korea, Taiwan,
Thailand, and the U.S.) is laying the groundwork for developing
and refining genetically modified rice varieties.  The group has
invested heavily in efforts to decode the rice genome. Building
on this research, the public and private sectors have already
developed a number of rice varieties with distinctive
characteristics, some of which will benefit production, others
consumers. Most publicized is "golden" rice, developed by
European researchers and incorporating beta carotene, a source of
vitamin A. Vitamin A deficiency is an important health issue in
low-income areas of the APEC region.

While the agronomic benefits of genetically modified crops may
result in increased production and downward pressures on world
prices, pressures in some markets to segregate biotech
commodities may result in increased trade uncertainty and higher
marketing costs. For example, in some parts of the APEC region,
there are strong demands from consumer organizations for labeling
biotech products. Additionally, adequate procedures for detecting
the presence of biotech commodities and assessing possible risks
are not available in many of the region's developing economies.

A regional bloc in the Asia-Pacific region, ASEAN (Association of
South East Asian Nations), is promoting the establishment of a
National Authority on Genetic Modification (NAGM) to monitor
biotech products in the 10 ASEAN member countries. Each member
will establish its own NAGM--representatives from national
agencies involved in agriculture, trade, economics, environmental
protection, health, and other disciplines--which will review and
approve proposals related to the release of agricultural biotech
products, provide public access to information on planned
releases, and ensure guidelines are consistent with regional and
international practices.

The Expanding Role
Of Information Technology

Use of information technology (IT)--including hardware, software,
communication devices, and the Internet--is becoming commonplace
in both food production and marketing in the developed APEC
economies as well as in urban areas of the less developed
economies.  IT makes markets more efficient by collecting and
disseminating information and data--e.g., weather forecasts and
real-time market news and prices--that improve farm-level
decisionmaking, facilitate online marketing for businesses and
consumers, and enhance communications and processes throughout
the supply chain. Incorporating IT into the food supply chain
provides farmers with greater access to markets, market
participants with increased flows of information, businesses with
opportunities for enhanced efficiency, and consumers with better
services.

Virtual marketplaces for farmers can facilitate purchasing farm
inputs, supplies and equipment, and crop insurance products, as
well as marketing livestock and crops. Virtual markets can
transmit product information, prices, and delivery options from
participating suppliers; cash grain bids from competing buyers;
or other kinds of information via user-friendly but secure
systems. Web sites for conducting farm-related business online
are being organized by major U.S. agriculture-related companies,
as well as by local farm cooperatives and retailers.

APEC economies are investing in a variety of electronic systems
to facilitate transactions on the Internet.  For example,
Taiwan's Council of Agriculture (COA) has allotted US$50 million
(NT$1.5 billion) to a 5-year development plan to build an
agricultural marketing system on the Internet. The Philippines
Department of Agriculture has established the online National
Information Network (NIN) to facilitate communication among
researchers, policymakers, and extension agents, who in turn
communicate with end users. The network includes supply and
demand data and price trends; product standards and consumer
safety data; and credit services.  FoodConnect Australia enables
agri-food businesses to trade and exchange company information
and product specifications electronically in both the domestic
and global markets. A key feature of the system is provision of
export documentation for marketing offshore.

Auctions via the Internet bring purchasers and sellers together
in a virtual marketplace. In the U.S., Internet auctions have
provided a convenient market for some agricultural producers.
However, Australian producers using remote electronic marketing
systems for livestock and wool have encountered some difficulties
in developing adequate product descriptions for trading, and they
indicate that cost savings have been small relative to
traditional marketing systems.

Supply chain management to expedite customs clearance and track
cargo is essential to cutting delivery time and reducing
marketing losses. Canada's ACROSS Customs Clearance System, which
combines electronic data interchange (EDI) with bar-coding
technology, promises to speed customs clearance and reduce
transportation time and costs for shipments into Canada.

Preclearance of goods entering Canada, and a complementary
Canadian Customs initiative that uses Automatic Vehicle
Identification (AVI) technology, will speed the movement of truck
traffic across its borders. Canada, Mexico, and the U.S. are
testing an AVI pilot project that allows trucks equipped with
transponders to pass through border crossings without stopping.
When that technology is in place, only trucks that do not meet
preclearance requirements and those chosen for random checks will
have to stop for inspection, a boon particularly for shippers of
perishable food products.

Sophisticated bar-coding will make massive quantities of data
available to customers and carriers, and enable containers and
vehicles, not just packages, to be tracked. The next step in
transportation tracking is a reusable, affordable, electronic
"smart stamp" that contains information on the shipment, along
with a battery and an antenna, in a casing the size of a large
postage stamp. The electronic stamp attached to a package
transmits data to a nearby scanner to improve tracking and reduce
transportation labor costs.

The consumer marketplace is undergoing a revolution in the more
developed areas of the APEC region.  For example, in Australia,
several operational retail food internet sites provide
information to consumers largely by suppliers advertising
products and by providing access to small business marketers. On
a larger scale, two of Australia's major supermarket chains,
Woolworths and Coles Myer, are developing sites where consumers
can order products for home delivery at a specified time.
Australian winemakers have invested heavily in Internet
marketing. For example, Cellarmasters' online sales reached US$61
million (A$95 million) in 1999 and the company's goal is a 20-
percent online sales share by 2001. Fosters Brewing Group has
reportedly invested US$62 million (A$100 million) in
international Internet operations and a Californian wine club.

If, as some believe, a technology starts having a significant
effect on productivity when it reaches a 50-percent penetration
rate, many APEC economies have a long way to go but a large
potential for future benefits.  Rapid growth in Internet use in
Asia is projected, but online communication is still very
limited, particularly in China and Southeast Asia. Internet usage
is much more common in the developed economies and in the city-
states of Hong Kong/China and Singapore. In rural areas of
developing economies, however, Internet access is less likely,
except where large national and multinational agribusinesses are
located--e.g., Dole, Del Monte, and San Miguel operations in the
Philippines. Rural usage remains heaviest in the U.S., where the
number of farms with Internet access doubled between 1997 and
1999 (AO September 2000). As many as 43 percent of U.S. farms
with annual sales over $100,000 and 85 percent of U.S. farmers
between the ages of 25 and 45 reported Internet access.

Increasing Efficiency & Cutting Waste

Increasing the efficiency of the food system is another
significant way technology can raise the quantity and quality of
the food supply. Developed market consumers require 10,000 gross
daily calories to support a 3,000-calorie-a-day diet.  Some of
the loss can be attributed to grain conversion in meat
production, but a majority stems from waste and inefficiencies in
the food system, including significant losses at the household
level. Post-harvest losses are a problem across the APEC region
(AO September 1999), with most losses in low-income economies
occurring along the food supply chain--e.g., spoilage during
transportation because of lack of refrigeration--but occurring at
the end of the chain in high-income economies--e.g., waste and
spoilage in homes and at food service establishments.

The combination of Asia's largely rural population and prospects
for rapid urbanization in the next 20 years suggests a crucial
need for developing and adopting marketing innovations to
increase efficiency of food delivery. New technologies being
applied in the region reduce processing, handling, and
transportation costs, as well as cut delivery times and extend
the shelf life and storability of food products.

In North America, transportation and logistics innovations have
become commercially feasible. New intermodal technologies--such
as double-stacking rail containers, reinforced trailers that are
pulled directly by locomotives, and more fuel-efficient rail
power--are now potentially cost competitive because lower trade
barriers have increased cross-border trade and made economies of
scale possible.

In packaging, consumer demand for easy-to-open, well-labeled,
portable, environmentally friendly packaging has given rise to
various types of resealable packages. In particular, the
popularity of plastic "zipper" technologies is growing rapidly.
Use of flexible polymer packaging has soared because of
advantages to both consumers and food processors.

The meat processing industry is undergoing a large-scale shift to
case-ready flexible packaging. This promises to reduce costs,
contamination, and food losses throughout the supply chain. A
combination of breathable films and new sealants now make it easy
to achieve a 3-week shelf life for perishable products. Cans,
glass jars, and boxes will lose share to flexibles, which offer
fewer problems with broken seals, sharp edges, and breakage.

A joint venture between Meat New Zealand and private industry has
developed the world's first robotic technology for meat
processing. Future meat processing plants are expected to combine
manual operations with automated, robot-assisted sections and
fully robotic operations. Research is continuing into machine
vision systems that locate large pieces of carcass, grasp
individual pieces with a robot-mounted gripper, and move the
pieces to the boning room for further processing.

In an effort to expand the reach of chilled food exports, New
Zealand has developed a process that not only extends the chilled
storage life of a product, but also improves the product by
enhancing its color, flavor, and tenderness. Equipment and
packaging have been developed to allow a wide range of products
to be packed, from carcasses and large cuts to case-ready retail
packs. In the case of fish, bulk fillets or whole fish can be
processed along with retail-ready packs.

In lower income parts of the APEC region, such as Indonesia, a
wide range of food processing technology is employed, from
simple, traditional methods used by small enterprises and home
industry to modern high-tech methods used by big national and
multinational corporations. Although the market share of modern
supermarkets and superstores offering modern processed foods has
grown very fast in major cities in recent years, traditional
markets offering traditionally processed foods are still dominant
in both urban and rural areas of the country.

Regional Outlook
For Food System Technologies

For many years, policy reform and strong economic growth in the
APEC region have succeeded in reducing the percentage of the
population identified as hungry. Technology advances alone will
not end hunger, but they will bring increased efficiency to
complement those efforts.

Adoption of biotech seed for food crops is limited beyond the
U.S., and there is considerable uncertainty about future biotech
adoption. Even in the U.S., the move by several agribusinesses to
limit their purchases of some biotech products suggests
uncertainty about these commodities that could continue at least
in the short term, or until stronger scientific evidence offsets
consumers' wariness. Many of the developing economies in the
region are likely to continue with the more traditional yield-
enhancing technologies in agriculture. A brighter outlook for
nonfood biotech commodities is evidenced by the expanded use of
insect-resistant (Bt) cotton in Australia, China, and the U.S.

Use of the Internet in the less developed economies of the APEC
region's food system is still in the early stages; in the
developed economies, 50 percent or more of the population enjoys
Internet access. Projected rates of adoption of IT in some of the
less developed parts of APEC such as China are rapid but still at
a very low level. Modest infrastructure requirements of IT make
it accessible to less developed areas, and adoption is likely to
have an expanding and positive impact on efficiency in the
region's food system, in both developed and less developed areas.

Technologies related to marketing and processing food products,
in combination with IT, are likely to be key to the outlook for
the region's food supply system, particularly in supporting the
rapid process of urbanization in Asia. Urban population in the
APEC region now surpasses 1.1 billion--more than 45 percent of
the region's total population--and is growing at twice the

overall rate of population growth. Meeting the food needs of
these vast urban areas, particularly in the less developed parts
of the region, will depend on adequate investment in food
distribution systems, food processing capacity, storage and
marketing facilities, and innovations that make these systems
more efficient.

William Coyle (202) 694-5216, Brad Gilmour (Agriculture and
Agrifood Canada), and Charles Handy
wcoyle@ers.usda.gov

SPECIAL ARTICLE BOX

Biotech Highlights in APEC Economies

Australia is closely examining the potential for genetically
modified crops, but their studies remain at the trial stage for
most products. To date, Australia has conducted some 70 field
trials of biotech crops, primarily cotton, canola, clover, and
field peas. In 1999, almost 30 percent of Australia's total
cotton area--an estimated 120,000 hectares--was sown with insect-
resistant (Bt) varieties. In September 2000, the commercial
release of herbicide-tolerant (Roundup Ready) cotton was
approved.

The Office of the Gene Technology Regulator in Australia manages
potential risks to consumers and the environment from genetic
manipulation, and establishes appropriate safeguards. The
Australia-New Zealand Food Authority requires mandatory labeling
of biotech foods "in circumstances where the nature of the food
has been significantly changed with respect to its nutritional
quality, composition, allergenicity, or end use."

Canada's competitive biotech strength lies in development and
commercialization of canola. More than 50 percent of canola
acreage now is in biotech varieties. Canada has a number of plant
biotech startups (Performance Plants, Prairie Plants, SemBioSys,
DNA Landmarks), in addition to the large multinational seed
companies.

In Chile, initial biotech research efforts were in potatoes, but
current efforts are in the fruit sector. No commercial product
developed from local research is yet available.

The use of insect-resistant cotton in China has expanded to
400,000 hectares in 2000. In addition to cotton, China is
commercially producing biotech varieties of tomatoes, sweet
peppers, and petunias. Rice, soybeans, potatoes, corn and colored
cotton are in the field trial stage.

Following the required review by Japan's Agricultural Standards
Research Committee and a 1-year moratorium, biotech labeling is
scheduled to begin in Japan in April 2001. Carnations are the
only biotech crop being commercially produced; rice, tomatoes,
melons, broccoli and cucumbers are in the development stage.

Since 1991, Korea has introduced several biotech crops into field
trials, including herbicide-tolerant rice and insect- and virus-
resistant cabbage, as well as virus-resistant red peppers,
cucumbers, and potatoes. Korea will implement biotech labeling in
June 2001.

The current New Zealand government opposes the use of genetic
modification in all forms, even in field trials. A Royal
Commission of Inquiry into genetic engineering has been
established to investigate this topic further. Their findings are
due in May 2001.

Peru's Ministry of Agriculture is developing virus-free potatoes
and strawberries. Efforts are also directed at protecting Peru's
diverse germplasm.

There has been no commercial production of biotech crops in the
Philippines to date. Strong environmental activist groups,
however, have asked the courts to prohibit the field testing of
Bt corn and vitamin A-enriched rice.

Likewise, Thailand so far has no commercial production of biotech
crops. Varieties of tomatoes, cotton, and corn are in the field
trial stage and papaya and chili peppers are in the development
stage. Some processed food products in Thailand are facing
resistance from foreign buyers--e.g., canned tuna packed in
soybean oil derived from imported biotech soybeans and meat from
poultry fed imported corn and meal from biotech material. An
agricultural declaration ratified in January 2000 limits the use
of biotech seeds in Thailand to research purposes and prohibits
commercial sale. Field tests of biotech cotton are under way.

The U.S. is the world leader in commercial production and in use
of biotech crops, but evidence indicates that the rate of biotech
adoption in the U.S. slowed in 2000. Uncertainty about the
marketability of biotech crops has increased, in part because
some large food processors--e.g., J.R. Simplot (potatoes), Frito-
Lay, and Gerber--do not purchase biotech products, and some
important foreign markets have labeling requirements (e.g., the
EU) or will impose them in the near future (e.g., Japan and
Korea).

SPECIAL ARTICLE NOTES

This article is based on Pacific Food Outlook, 2000-01, a report
released at the APEC Ministerial Meeting in Brunei, November 12-
14, 2000.

To order a copy of the report, Pacific Food Outlook, 2000-01,
contact the U.S. National Committee for Pacific Economic
Cooperation at www.pecc.org/food. Cost is US$20.00.

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