Chinese Taipei's Vegetable Production System and Vegetable Transportation and Distribution Networks
- Purpose of the Study
Due to the effects of crop rotation systems and of the climate, vegetable production in Chinese Taipei has for many years been characterized by a situation in which over-production in winter leads to dramatic price reductions, while in summer vegetables are often in short supply. In particular, during the period immediately after a typhoon or heavy rain in the summer months, both wholesale and retail markets frequently experience severe shortages, accompanied by skyrocketing prices. There have been calls from all sectors for the Fair Trade Commission (FTC) to take action to bring about improvements in this area. For this reason, it is important for the FTC to undertake a comprehensive survey of vegetable production systems, vegetable transportation and distribution networks, and the transaction mechanisms used in the vegetable market, etc. It is anticipated that the FTC can build on its past collaboration with the agricultural authorities to maintain a complete, up-to-date picture of the state of vegetable production, and of supply in demand in both the wholesale and retail markets, thereby ensuring that an accurate picture of supply and demand can be obtained as quickly as possible after typhoons and during other emergency situations, so that appropriate measures can be taken. Since Chinese Taipei's accession to the World Trade Organization (WTO) on January 1, 2002, Chinese Taipei's imports of vegetables have increased steadily; for this study, the FTC has also implemented a preliminary survey of imported vegetable distribution networks, to facilitate dealing with fair trade cases that involve imported vegetables.
As Chinese Taipei's economy has grown, the disparity between producer prices and retail prices in the vegetable market has grown more pronounced; there has been a steady decline in the farmer's share of the consumer's food dollar. With the price of raw materials such as oil continuing to rise over the last few years, there is growing concern over the retail prices that consumers pay for vegetables, price stability, and the widening gap between producer prices and retail prices. Currently, the prices of both vegetables and fruit tend to fluctuate dramatically; a few days of heavy rain is all it takes for prices that had been depressed to shoot up to astronomical levels; price stability and the disparity between producer prices and retail prices are clearly issues of great importance.
The market for vegetables and other agricultural products is characterized by several special features, in terms of both market structure and the way production and sales are carried on; there are significant differences between the agricultural sector and the manufacturing sector. Anti-trust legislation in advanced nations such as the U.S., Germany and Japan allows certain exemptions for the agricultural produce market. Even the U.S., which is normally a fervent supporter of free trade, restricts competition in the agricultural sector for the sake of citizens' well-being; for example, U.S. anti-trust laws do not apply in full to the activities of agricultural and fishermen's cooperatives. It was felt that a comparison of competition law in different countries as it applies to the regulation of trade in agricultural products, supported by case studies, was needed to provide a reference for the handling by the FTC of fair trade cases relating to vegetables and other farm products, and for the formulating of appropriate rules to regulate production, distribution and sales activities by agricultural producers and organizations.
- Conclusions and Recommendations
- Conclusions:
(1) Vegetable production and sales is a highly seasonal business, in which weather conditions have a pronounced impact on supply and demand. The number of vegetable producers is very large, and so is the number of vegetable consumers, so one might assume that the vegetable market would be characterized by near-perfect competition. In reality, however, vegetable wholesaling is characterized by a high level of market concentration, creating an "hourglass" effect in which low levels of concentration in the upstream and downstream segments are offset by high concentration in the middle. This is exacerbated by the limited production volume of most producers and the very low demand of each individual consumer, which put farmers and consumers at a disadvantage; both farmers and consumers tend to suffer far more adverse than positive effects from the violent price fluctuations that characterize the vegetable business. For this reason, most countries provide at least some degree of protection for their agricultural producers, exempting them from some of the provisions of fair trade legislation.
(2) The exemptions from anti-trust law provided by the governments of the advanced nations for their agricultural producers fall into two broad categories: The first is where certain categories or person or organization are exempted from anti-trust law (for example, in the U.S. Article 6 of the Clayton Act states that anti-trust legislation does not apply to mutual aid by agricultural or horticultural organizations undertaken for proper reasons, while Article 28 of Germany's Act Against Restriction of Competition stipulates that agricultural producer organizations are exempted from the Act's provisions); the second is where the law states that anti-trust legislation does not apply to certain types of action permitted by other laws (examples of this type include Japan's Antimonopoly Law, France's Competition Law, and South Korea's Monopoly Regulation and Fair Trade Law.
(3) With regard to actions taken by agricultural cooperatives and other agricultural producer organizations to expand the scale of production and sales, reduce transportation costs and strengthen their bargaining power in the marketplace, Chinese Taipei should follow the example of the U.S., Japan, Germany and the other advanced nations by providing exemptions from competition legislation, aiming to strike a satisfactory balance between the maintenance of free competition and the state's responsibility to protect the well-being of its citizens.
- Recommendations:
(1) Recommendations for the FTC: In order to provide greater stability and predictability in this area, the allowances made for the special characteristics of vegetables and other agricultural products by anti-trust laws in the advanced nations such as the U.S., Germany and Japan should be studied, focusing particularly on: a. Cases where, to benefit from economies of scale, individual family farms sign agreements to engage in collaborative production or other forms of large-scale agricultural production. b. Cases where agricultural producers undertake joint transportation and marketing, with an agricultural cooperative or other farmer's organization arranging joint production, processing, refrigerated storage, administration, direct sales etc. With respect to these types of situation, there should be a clear stipulation that the participants are exempted from the provisions of the Fair Trade Law. In this way, it will be possible to meet the needs of both agricultural policy and competition policy, thereby promoting the stability and prosperity of the agricultural sector and of the economy as a whole.
(2) Recommendations for the regulatory authorities in the agricultural sector:
- Agricultural production and sales volume adjustment policy should be strengthened, with active planning of vegetable production and sales information monitoring and early warning systems. For example, the methods and timetables used for monthly and seasonal vegetable production forecasts should be improved, as should the fresh vegetable wholesale market price information system, and early warning systems should be established for garlic and onion production. Even more importantly, different long- and short-term measures should be adopted with respect to summer and winter vegetable production, to ensure stable production volumes and short-term price stability.
- The disparity between producer prices and retail prices should be reduced. This will require thorough implementation of agricultural product grading regulations, to reduce wastage during transportation and distribution; effective use could also be made of branded marketing as a means of enhancing price stability. Increased guidance and assistance to help farmers' organizations establish joint distribution and marketing and direct sales mechanisms would help to reduce the number of levels of middlemen in the agricultural produce distribution chain.
To reduce unwanted interference in free market operation, it is suggested that the Council of Agriculture should reconsider the necessity for the provisions of Article 21 of the Agricultural Products Market Transactions Law restricting initial wholesale transactions to local wholesale markets. The criteria that must be met by persons wishing to engage in the wholesaling of agricultural products should also be relaxed.