Labor Arbitrage, Fruit And Vegetable Imports, And Supply Chain Resiliency

Manufacturing Labor Arbitrage, Fruit And Vegetable Imports, And Supply Chain Resiliency Willy Shih Senior Contributor Opinions expressed by Forbes Contributors are their own. I teach at Harvard Business School, and I write about manufacturing Following New! Follow this author to stay notified about their latest stories. Got it! Nov 7, 2022, 06:42am EST | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin Migrant Workers Harvesting California Strawberries (Photo by David Butow/Corbis via Getty Images) Corbis via Getty Images The U.

S. Department of Agriculture reported the latest trade data on Friday, and fruit and vegetable imports rose strongly once again. Since I typically write about manufacturing, why have we suddenly switched to fruits and vegetables? The reason is that the backstory behind fruit and vegetable imports is the same as the story behind the offshoring of manufacturing.

With all the talk recently about far-flung supply chains and supply chain resiliency for manufactured goods, we have to ask if the same story is developing here. I started researching this story when I picked up a Chilean grown apple this fall, right when the U. S.

should have been at the height of its domestic harvest. Why did this apple come from Chile instead of Massachusetts or Washington State? My assumption had always been that the major driver of fresh fruit and vegetable imports was the desire of consumers to enjoy seasonal produce out of season. But this apple was hardly out of season, if anything it was out of season for Chile.

How could it possibly make sense to ship apples that far when so many are grown locally? The agricultural trade data showed that fresh and frozen fruit imports were up 16% year on year in September, prepared or frozen fruits were up 26%, and fruit juice imports were up 36%. This is part of an upward trend that goes back two decades, one that has accelerated since 2019. Not surprisingly, Mexico, Peru, and Chile are the top three sources of fresh and frozen fruits.

What may be surprising is that Canada ranks sixth. For fresh vegetables, Mexico ranks first, but Canada ranks second and the European Union (EU-27) trails in a distant third place. The way to understand what is going on underneath these numbers is to look at two key concepts that underpin global trade in manufactured goods, and recognize that the same factors are at play.

Tradability . Goods and services are tradable to the extent that they can be produced remotely from the market where they are consumed. For fresh fruits and vegetables, tradability has always been limited by their perishability.

Here technology – in the form of specialized shipping containers – has played a major role. Climacteric fruits , those that continue to ripen after they are picked, can have their ripening retarded by shipping them in controlled atmosphere containers. These fruits include apples, bananas, mangos, papayas, pears, apricots, peaches, plums, avocados, plantains, guava, nectarines, passion fruit, blueberries, and cantaloupes.

These fruits also respond to ethylene gas as a ripening hormone, so by scrubbing the ethylene and controlling the atmosphere in the shipping container, they can be shipped long distances or held for a long time. Then when you want the fruit to ripen, you release ethylene gas into the container. For non-climacteric fruits and most vegetables, it is simply a matter of controlling the temperature in the shipping container.

Refrigerated containers (“reefers”) and trucks do this job well. High value fruits and vegetables may also be shipped by air cargo. There is a large trade in vegetables and cut flowers from Kenya and Ethiopia to Europe, or from Columbia and parts of South America to North America.

Over the last few decades, transportation technology has dramatically increased the tradability of fresh fruits and vegetables. MORE FOR YOU The Inside Story Of Papa John’s Toxic Culture Biden Promises ‘No More Drilling’ Just Days After Demanding More Drilling Avington Park Reopens As A Unique Party Palace For The 21st Century Labor arbitrage is the movement of jobs for the production of goods or services from high-cost regions to low-cost regions. It has been facilitated by the reduction of shipping costs over time and the erosion of trade barriers.

Labor arbitrage was the driving force behind the offshoring of manufacturing from high-cost countries like the U. S. to low cost countries like China at the beginning of the 2000s.

And as long as technology can make fruits and vegetables tradable over long distances, then labor arbitrage can come into play. Here we have a dilemma. The U.

S. is blessed with some of the best agricultural growing regions in the world, yet Americans in general do not want to endure the back-breaking labor of picking fruits and vegetables. We have to bring in migrant farm labor, and that is expensive.

The National Council of Agricultural Employers (NCAE), in a letter to the Department of Labor earlier this year compared agricultural wages of $1. 50 per hour in Mexico to between $11. 99 – 17.

51 per hour for farm workers who were working in the U. S. under an H-2A visa.

The U. S. costs had to be supplemented with an additional $4.

00 – 8. 00 per hour for providing housing, meals or cooking facilities, visa expenses, and other costs. Thus you could be looking at more than $25.

00 per hour to pick strawberries in California, and the NCAE took issue with the way these mandated wages were being calculated. Notably, costs in Canada were lower than the U. S.

as well. An apple grower in British Columbia paid $12. 16 per hour while across the border an apple grower in Washington State paid $17.

41 plus the adders for housing and meals, etc. And that’s why apples sold in Washington State might come from British Columbia. This is the same logic for why iPhones are assembled in Asia.

Labor costs are lower. Productivity . This leads to a third point, which is the role of automation and anything that can improve labor productivity.

For certain fruits and vegetables, mechanization has already taken hold. California tomatoes for processing have long been harvested mechanically, and domestic production is substantial. This is exactly like in a factory: if you are going to be at a labor cost disadvantage, you need to increase your productivity with automation or some other means.

American farmers who raise grains like wheat and corn are amazingly productive, thanks to automation and scale. Now we need robots that can pick strawberries. Finally, it behooves us to look at supply chain resiliency.

During the pandemic, we saw that dependence on distant production sources exposed supply chains to disruption. As our fresh fruit and vegetable imports continue to climb, we had better hope for some mechanization innovations that boost domestic productivity. Otherwise our fruit and vegetable supply chains are destined to become less and less resilient.

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