| Barry
Krissoff
Maurice
Landes
Marketing
costs and margins—the difference
between prices paid by importers and
those paid by consumers—can be
at least as effective a barrier to trade
as tariff and nontariff measures. Marketing
costs include packing, handling, transport,
storage, losses, fees and taxes, and
other charges involved in moving agricultural
products from port to retail market.
Marketing margins reflect the portion
of the difference between importer and
consumer prices not accounted for by
marketing costs. These include returns
(or profits) to international traders,
wholesalers, retailers, and other intermediaries
in the supply chain, as well as unaccounted
costs. Investments in supply chain infrastructure
and competition among firms tend to
reduce marketing costs and margins.
ERS estimated the marketing costs and margins
for two countries that protect their apple
markets from foreign competition through
high tariffs and nontariff barriers: Japan
and India.
Estimates for Japan were based on data from
the USDA’s Foreign Agricultural Service
(FAS) office in Tokyo and reflect conditions
in 2001––Japan did not import
U.S. apples between 2002 and 2004. FAS sources
included Japan’s customs trade statistics
and information from Japanese traders. Data
on India’s apple market were obtained
from published sources of market price data
and interviews with growers, contractors,
wholesalers, and retailers of U.S. apples
sold in the Delhi market during 2003.
For Japan, the import price of a U.S.
apple accounts for the largest share
of the consumer price of imported apples—about
40 percent. Marketing margins received
by importers, wholesalers, and retailers
equal 33 percent of the retail price.
Costs of customs storage and clearing,
transportation to the wholesaler and
retailer, and repacking into smaller
units before delivery to supermarkets
total about 17 percent of the consumer
price. Japan imposes a 17-percent ad
valorem import tariff and a 5-percent
consumer tax (at the border and on top
of the tariff), which together total
approximately 9 percent of the retail
price for apple imports.
In India, margins account for the largest
share of the consumer price for imported
apples––about 51 percent.
The import price accounts for the next
largest share of the consumer price,
about 25 percent, and India’s
high, 50-percent tariff on imported
apples accounts for about 13 percent.
Estimated marketing costs account for
the remaining 10 percent. Marketing
costs are low because there is no grading,
processing, packaging, or other forms
of value addition in the Indian marketing
chain, and because traders report negligible
losses in marketing imported apples.
In emerging markets such as India, the
lack of investment in infrastructure
and the lack of competition may result
in relatively high costs and margins.
Marketing margins—profits and
unaccounted costs in the marketing system—account
for a large share of the consumer price
of imported apples in both Japan and
India. Measures to reduce margins, possibly
through increased competition or more
integration of the various stages in
the supply and marketing system, could
lead to lower retail prices and higher
demand for imported apples. In these
cases, the impact of tariffs on trade
appears less significant than that of
marketing margins and costs, but high
tariffs—by raising the price—have
a cascading effect on costs and margins,
and may also inhibit competition that
would reduce margins.
For more information
. . .
Resolution
of the U.S.-Japan Apple Dispute: New
Opportunities for Trade, by Linda
Calvin and Barry Krissoff, FTS-318-01,
USDA, Economic Research Service, October
2005.
Prospects
for India’s Emerging Apple Market,
by Satish Y. Deodhar, Maurice Landes, and
Barry Krissoff, FTS-319-01, USDA, Economic
Research Service, January 2006.
See also the ERS
Briefing Room on Fruit
and Tree Nuts.
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