Taiwan Today

Major fluctuations in seasonal vegetable prices are quite common in Taiwan and constitute one of the major problems facing the industry. When prices rose sharply in the middle of April this year, media reports focused a great deal of at­tention on the issue, eliciting a public outcry for an official investigation. Local experts in the public and private sectors have suggested a number of possible causes, among which exploitation by middlemen and shortages due to bad weather were the most frequently cited.

Stabilization of supply and prices has so far proved elusive. The Free China Review invited a number of experts from the vegetable industry, academia, and the government to discuss the problem. The panel discussion, which was held on June 9, 1992, included Wu Chung-chi (吳忠吉), deputy secretary-general, Consumers’ Foundation and professor of economics, National Taiwan University; Chang Kuei-ching (張癸清), vice general manager, Taipei Agricultural Products Mar­keting Corp.; Huang Yu-tsai (黃有才), chief, Agricultural Marketing Division, Farmers' Service Department, Council of Agriculture; Kuo Tsung-chin (郭聰欽), deputy-director, Taipei City Market Administration, Taipei City Government; and Shih Chun-yao (施純堯), Chang Chin-chung (張錦鐘), and Kao Pin-shu (高品樹), all directors, Taipei Vegetable Association. Excerpts from the discussion follow.

Wu Chung-chi: In discussing veg­etable prices, there are a couple of points that need to be clarified. First, the rapid appreciation of the NT dollar and inflation have a lot to do with price increases. Are vegetable prices alone too high, or are prices uniformly high in Taiwan? Unless we understand the problem, there's no point in discussing it.

Though vegetable prices might be considered high, the cost of food consti­tutes a smaller portion of today's rising incomes. When I was young, people were happy with greasy food. But for health reasons, they now want to eat more veg­etables. Supply and demand have changed in the last few decades.

We must also examine the gap be­tween retail and wholesale prices, and the difference in retail prices at traditional markets and supermarkets. Relatively speaking, the supply of vegetables is de­creasing. If we compare the price of vegetables with that of pork, then the rise in vegetable prices will be more obvious.

The whole transport and marketing system must also be reviewed. Are farm­ers the victims of a monopoly? Is it pos­sible to further liberalize the system? There's no denying that transportation and land costs are rising. The Six-Year National Development Plan may have an impact on prices because of the vast amount of labor being recruited.

I don't mean to say that the current transport and marketing system definitely involves exploitation by middlemen. I think perhaps the experts invited here from business and government may be able to shed some light on these problems.

Chang Kuei-ching: Recently, there has been a lot of media coverage about the cost of vegetables in Taipei. Roughly speaking, one-eighth of the island's vegetables are transported to and sold in Taipei, and 70-80 percent of that supply is produced in the central and southern parts of the island. Transportation costs have risen sharply over the years. It now costs four cents per kilo to transport vegetables from Chiayi to Taipei.

But there are other expenses, too. Loading and unloading produce, and transportation from wholesale to retail markets all cost money. There is also damage and spoilage to be considered, and there are costs for dumping what can't be sold. Most days, thirty to forty metric tons are dumped. Given these costs, higher prices in Taipei would seem justified.

When I hear people say "exploitation by middlemen," I feel uncomfortable. Our distribution and marketing system—which includes the Shared Transport and Marketing (STM) network run by farmers' as­sociations, the Direct Transport and Marketing (DTM) network run by the farm­ers themselves, as well as those run by small inland shippers—is typical of coun­tries like Japan and South Korea where small-scale farming is practiced. There are indeed some problems, but so far the present system is the best we've got.

Although the government has been promoting the DTM network, I don't think it's necessarily better than our present system. I wonder if implementation of the DTM system will actually be effective in bringing prices down, especially since the present system is not the major factor in high prices. The idea that vegetables should be cheap needs to be changed. In the past, low prices were the result of overproduction. When prices fluctuate, people tend to blame the middlemen.

Why do prices seem so high these days? People are less willing to grow veg­etables and there is a labor shortage in the countryside. Only old people farm these days. And the cost of farm labor is very high. Both farming and marketing are done on a small scale. Shippers, wholesalers, and retailers all have to make a profit.

Wu Chung-chi: What is done with the damaged and spoiled produce? Is it just thrown away or is it used to feed pigs or as fertilizer? How are vegetables purchased in the production areas, and how is the process different from that at large wholesale mar­kets like the Taipei Agricultural Products Marketing Corp. (TAPMC)?

Chang Kuei-ching: Damaged and spoiled produce is disposed of as garbage. In Taipei alone, it amounts to about thirty metric tons per day. Disposing of this waste costs money. We therefore instruct farmers to do the grading in the production area. In this way we hope to reduce the waste in Taipei by one-third and leave the damaged produce in the production areas to be used as fertilizer. At present, many farmers do not clean and grade their vegetables before shipping them here. They have always done it this way, but the situation is worse now because there is a shortage of labor in the fields.

Wu Chung-chi: But the labor short­age started twenty years ago.

Chang Kuei-ching: The problem is even more serious now. In the past, there was no need to spend money on farm labor. Farmers always exchanged labor. I'd help you for ten days, then you'd help me for ten days. Today, there is just not that kind of cooperation or closeness.

The government has been encourag­ing growers of the same crop to pool and transport their vegetables to Taipei together. This method can save money and is more efficient. But farmers are unwilling to do so because they each think their produce is better than others.

Wu Chung-chi: When is the price decided, at the production area or at TAPMC and other wholesale markets?

Chang Kuei-ching: Prices are set after the produce is auctioned at TAPMC.

Wu Chung-chi: Why isn't it done at the production area?

Chang Kuei-ching: If prices were set in the production area, what would happen if the TAPMC auction prices were higher?

Wu Chung-chi: You mean that you are just commissioned to sell the products?

Chang Kuei-ching: Right. TAPMC doesn't really buy and sell as a middleman.

Huang Yu-tsai: Actually, produce is distributed and marketed in two different ways. TAPMC handles about one-eighth of the island's total output, half of which is delivered through the STM network. TAPMC fixes the bottom price based on the prices of the past few days. The auction is held without the growers present. After the auction, payment is remitted to the farmers. All vegetables not handled by TAPMC and similar markets are sold at the production area and prices are negotiated directly with the farmers. In other words, the price of about 90 percent of all veg­etables is decided in the production area. However, the TAPMC price is used as an index by all farmers when negotiating with purchasing agents.

Chang Chin-chung: As a middle­man, I would like to set the record straight. It has been suggested that veg­etables can be sold directly to the markets without going through middlemen. It won't work. Why? Take Hsilo for exam­ple. If the Hsilo Farmers' Association sets up a market in Taipei, it can only provide a limited variety of vegetables. However, TAPMC is able to bring together vegetables from all over Taiwan. The variety is great—you name it, they've got it. That's why dealers are willing to come to TAPMC.

Regional marketing centers have been set up before in Taipei by farmers' associations from different parts of the island. But they were not successful. First of all, they offered a limited variety of produce. To solve the problem, some of them came to TAPMC to buy vegetables for resale to their customers. They even told their customers that the vegetables were supplied by their producers.

Second, the staff of regional marketing centers is not as professional as that of TAPMC. Regional centers are also subsi­dized by the central government. It was a mistake to set up regional selling centers in Taipei. Besides, rent is very high in Taipei. It is just not cost-effective for every pro­duction area to set up its own market.

Chang Kuei-ching: Some people complain there are too many middlemen involved in the business. According to the Agricultural Products Transaction Act, anyone able to meet industry qualifications can become a dealer. There has never been any limit set on the number of purchasing agents, dealers, and other middlemen. It makes sense to say that the market will be more competitive if more people are in­volved. But too much competition for a limited volume can also result in everyone cutting prices just to make a small profit. A farmer may sell 150 kilos of cabbage at forty cents per kilo. In order to be more competitive, he may lower the price to thirty cents per kilo. If he can sell 300 kilos a day, he can still make a good profit through volume selling.

Wu Chung-chi: That's just a sup­position. If you restrict the number of people entering the field, perhaps the situation will be better.

Chang Kuei-ching: At present there are no restrictions, though there may be some for fruit dealers.

Huang Yu-tsai: There is no restric­tion on the number of dealers at the TAPMC. The only limitation is the actual physical size of the market. In other words, the number of dealers is determined by space. But there is no actual limit.

Shih Chun-yao: I think the govern­ment policy with regard to auctioning agricultural produce is all right. However, every year we middlemen are blamed for seasonal price fluctuations. Consumers criticize us if prices go up; farmers criti­cize us if prices go down. But there are a number of costs involved in shipping vegetables from southern Taiwan to Tai­pei which contribute to the cost of produce. From Pingtung to Taipei, the transportation fee for one kilo of vegetables is seven cents, and from Changhua to Taipei, five cents. Each basket of cabbage costs US$1.20. Once the vegetables reach TAPMC, the charges for unloading are twenty-five cents per 100 kilos. A dealer also has to pay TAPMC US$6 in manage­ment fees if the trade volume reaches US$400. Then there is the business tax. And losses due to damage and spoilage must also be included.

Weather is another very important factor in the fluctuation of vegetable prices. Heavy rainfall is more worrisome than typhoons. Typhoons can't destroy all the vegetables on the island, but ten days of rain will ruin most crops. Heavy rains mean shortages and higher prices for consumers. Take pak choi for example. About 500 tons arrive in Taipei everyday. In April, however, when the rains start, the amount decreases. How can anyone expect the price to remain constant?

Some dealers sign contracts with hotels, restaurants, and other enterprises. If the quantity of produce on the market decreases, dealers with contract obligations still have to provide their clients with the promised quantities. Dealers may get eighty cents per kilo from restaurants, but how much will they lose if they have to pay US$2 after a period of heavy rain­fall? Middlemen can also suffer losses when prices go up.

There are other losses as well. To make leafy greens marketable, for exam­ple, we have to remove all damaged outer leaves and dump them. The proportion of damaged produce depends on the type of vegetable and the weather. On sunny days, the damage runs to 30 percent. But heavy rainfall can raise that figure to 50 percent. At least thirty tons were dumped today and more than eighteen tons yesterday.

Part of the problem is the labor shortage. A decade ago, ten workers were employed to harvest one truckload of Chinese cabbage. But now, only two or three workers do the job. They pull veg­etables out of the soil carelessly without removing yellow or rotten leaves. As a result, more waste arrives in Taipei. Farmers in the south should do more. Unwanted leaves can be used as fertilizer.

Today, one kilo of bitter melon costs about US$2. Some say the price of bitter melon sold in April was too high. When the price of high-quality bitter melon hits US$4 per kilo, the lowest grade runs about eighty cents. But the lowest grade includes the rotten ones. So how can their prices be compared? Besides, even if vegetables ap­pear perfect at the field, they get bumped around and bruised on the way to Taipei.

The accusation that middlemen are exploiters is unfair. Every morning the TAPMC auction is held. It is public, so who can play tricks? There is a standard pro­cedure that is followed when making transactions. Dealers who violate TAPMC regulations can be barred and their license can be revoked. The regulations are strict.

Huang Yu-tsai: Retail prices for vegetables are dependent upon production and distribution costs. Production costs in­clude seeds, fertilizers, pesticides, and farm wages. Since growing vegetables is a laborious task, only a family with enough hands can profitably engage in vegetable farming because they won't have to hire outside labor; an old couple, though, would be better off growing rice. Distribution costs include transportation fees and the wages of middlemen and retailers. From 1986 to 1991, the cost of labor more than doubled. In the same period, the price of vegetables increased by half. The wages of many people are included in the price of vegetables. Naturally, prices in Taiwan are higher than in Southeast Asia and mainland China, where labor is cheap. But prices are also higher than in the United States and Canada, where vegetables are cultivated on a large scale using mechanization. Prices in Taiwan are more comparable to those in Europe and Japan.

The fluctuation of prices is due to supply and demand. The major problem with our industry is not that prices are too high, but rather prices are not stable. The COA is studying how to stabilize the dras­tic fluctuations in supply and price. One solution is to build protective structures to protect vegetables from being destroyed by typhoons and rain. Another possible solution is to raise more root crops which can be stored until needed. When ty­phoons come, these vegetables can be used to supply the market.

The traditional marketing system begins with the farmers and includes the purchasing agents, wholesalers, various middlemen, retailers, and finally the consumers. Obviously, for its small scale, this sort of distribution and marketing system involves too many people, and they all have to make a living. There are more people working in the distribution channels than in the fields.

Another problem is that the propor­tion of leafy vegetables that is damaged is large. Consumption of greens such as pak choi and spinach is on the rise. On the other hand, consumers are eating fewer radishes and other root vegetables. In some countries, people eat a lot of beans and carrots, as well as frozen and canned vegetables which can be stored for a long time. People in Taiwan don't like them. They want fresh produce, especially leafy greens which are highly perishable and easily ruined by bad weather. Demand is not elastic. When the supply is insufficient, the price goes up immediately.

In Taiwan, only supermarkets mark prices. In most places, they are not marked at all. Under these circumstances, only people in the marketing business are well-informed. Farmers and buyers are at a disadvantage. One solution to this problem is to diversify the distribution channels. We help farmers' groups set up STM networks to compete with the purchasing agents in the traditional distribu­tion system. Farmers now have two channels for selling their produce. They can go through the STM network or through purchasing agents.

Distribution channels are too complex. To solve this problem, more supermarkets should get involved in distribution. The whole system can be simplified and the scale enlarged. The structure of the whole­sale market system should also be improved. Right now, it is our goal to upgrade all the island's wholesale markets. This is a complicated task which involves the revision of laws and the support of the various levels of local government. We also want to computerize the TAPMC.

In the meantime, we have to teach farmers how to grade and package their produce. This is important for the promotion of com­puterization in the future, which will permit price information to be disseminated more rapidly. Every afternoon, prices can be faxed back to the production areas. Presently only a few farmers who use the STM network have access to price information right after the auction. We hope all farmers will have early access to this information. It will be more convenient for them when it comes to bar­gaining with the purchasing agents.

Vegetable prices are set by supply and demand. The distribution and marketing systems have long been criticized as being unhealthy. We have worked very hard to improve them, but manpower is limited. Cooperation at each level of government and a public consensus is needed to get the job done.

Kao Pin-shu: I would like to make a suggestion. Price fluctuations for major crops are small but for the more unusual vegetables, the range can be quite large. Consumers tend to be particularly sensi­tive to the price fluctuations of the less common varieties. Maybe the COA can set up a vegetable market price index, just like the stock market index, which will give a fair account of prices.

Wu Chung-chi: I think it's more important for us to think about stabilizing vegetable prices than to keep prices at artificially low levels. The government should encourage direct sales but should not provide subsidies. Packaging and grading should be done at production ar­eas; otherwise, the amount of waste and resulting disposal costs will be a problem in the big cities. Prices should be decided at the production areas. In other words, the Taipei Vegetable Association cannot represent farmers. In this way, farmers will have a better chance to bargain.

Chang Kuei-ching: Grading should be done in the production area. Take Chinese cabbage for example. More than a dozen major production areas supply Taipei. The price of the highest quality cabbage is five or six times that of the lowest quality. From this we can see how important grading is.

The instability of prices is an impor­tant issue. There is one strange thing about Taiwan consumers. Although they com­plain about high vegetable prices, a lot of them will still buy bitter melon even when the retail price rises above US$9 per kilo. My wife is one of them. They are foolish. I really doubt people in Japan or the United States would pay such high prices.

People here are wasteful. It is not uncommon for a banquet in a restaurant to cost around US$400. Often, one-third of the food at such a meal is untouched, including the vegetables used as garnishes. This is a terrible waste. Such eating habits must be changed. People should learn that they do not have to eat expensive vegetables. When leafy greens are expensive, especially during the typhoon season, we can eat potatoes, carrots, onions, or canned and frozen vegetables.

The variety of produce available in Taiwan is much greater than in Japan, Singapore, or the United States. Take peppers for example, we have about six­teen species. This is why the vegetable marketing business in Taipei is so complicated and difficult to run. Nobody in distribution, marketing, or in government circles is happy to see a precipitous fall or a sudden rise in prices.

Computerization of the market might be useful, but I think it's impossible to install computers. The total area of the Taipei Fruit and Vegetable Market is only five hectares. It's too small even for veg­etable stands, let alone computers.

Chang Chin-chung: How can you expect dealers to learn how to use com­puters when some of them are illiterate? People wonder why we cannot control production if the information and communications system is so developed. There is no way to control agricultural production because it is influenced by the weather. It simply is not fair to blame high prices on middlemen. In some cases we can control prices. Root crops such as carrots and potatoes can be refrigerated and kept until needed. Because they can be stored, prices won't fluctuate as much—they won't shoot up overnight nor will the bottom fall out due to overpro­duction. Prices can be maintained at a fairly steady level.

Kao Pin-shu: I suggest that when the government investigates vegetable prices in Taiwan, they should check prices at several different retail markets. Prices vary according to quality. Take the Taipei Nanmen Market for instance. The dealers there are the first to arrive at TAPMC in the morning to buy vegetables because they want the best. All markets purchase veg­etables based on the needs and buying power of their customers. Some consum­ers are satisfied with lower-grade pro­duce. The government should collect price information from different markets for a fair comparison. From what I read in the papers, it seems that the markets sur­veyed by the government were mostly those selling the highest quality, most expensive produce. Their prices are higher because each item has been carefully selected and packaged for sale. Naturally they are going to charge more. Most people don't realize this. They tend to believe that price fluctuations are caused by the exploitation of middlemen.

Shih Chun-yao: I would like to add that Taipei consumers are different from those in other cities. It seems that the higher the price, the more they want to buy. They don't care if vegetables are expensive or not, as long as they are fresh and taste good.

I agree that farmers should sell their produce directly to consumers. But what does direct sales mean? Does it mean that farmers must sell from door to door? That would be 100 percent direct sales. Or does it mean that farmers have to go through a farmers' association? That's not really di­rect sales.

Kuo Tsung-chin: I agree that veg­etables are high priced. Taiwan residents consumed 143,000 tons of vegetables in the first five months of 1991 at an average price of fifty cents per kilo. By May of this year, 187,000 tons of vegetables had already been consumed, but the average price was sixty cents per kilo. According to our study, the wholesale price of veg­etables increased 20 percent from 1990 to 1991. Why is that? One reason is that vegetables command a good price in Taipei. Many farmers in southern Taiwan believe that their produce will fetch a good price at TAPMC.

On April 18 this year it was reported that prices were on the rise. As of April 17, the average price was still seventy cents per kilo, but the very next day the average jumped to almost one dollar. It so happens that April 18 was a Saturday, and the markets were closed the next day on account of the holiday. The market should have had more vegetables on hand for the festivities. But there were only 1,200 tons in the markets, slightly more than on a normal day. When demand is greater than supply, prices are sure to go up. Ever since April, the local papers have carried daily reports on the fluctuation of prices. For a while it seemed they went up eve­ryday. People began to get nervous when the figure hit eighty cents per kilo. There were extenuating circumstances for the brief fluctuation.

A constant problem for the industry is the amount of damaged produce. By the time vegetables make it to the retail mar­kets, a large proportion of them are damaged and cannot be sold. We went to southern Taiwan to get a clear picture of the situation. Indeed, the proportion of damaged produce generated is large. A two-and-a-half-acre farm can produce five tons of cabbage but only three tons will ever be eaten. With so much waste, prices will certainly go up. Many people don't understand this.

Growers don't understand consumers, and consumers don't understand growers. Vegetable farmers in southern Taiwan often complain that whenever prices go up just a fraction, consumers in Taipei grum­ble. Farmers complain that consumers don't want them to make a profit. Consumers should not compare this year's prices with those of last year. They should be more reasonable. If prices are lower than expected, consumers should not be happy. Sure, they are lucky for getting cheap veg­etables, but they should think of how little farmers are making by selling their produce at such low prices.

Farmers work very hard but have no idea about cost and profit. Vegetable farmers are really not very professional and they are often not well informed about the market. Most of them are old and quite stubborn and they usually won't take advice. They don't take precautions to protect their crops. They'd rather leave them exposed to heavy rains than spend the money to construct protective shelters.

There are still a great number of growers who sell their produce the old-fashioned way. Instead of selling through a well-organized wholesale market, they wait for dealers to come to them. The function of wholesale markets should be strengthened. TAPMC is perhaps the best organized wholesale market in Taiwan. But even it is not completely successful. It has not been able to fully balance supply and demand.

However, TAPMC has been quite in­strumental in stabilizing prices. It has led other markets to control prices. It is essential to set up more markets like TAPMC around Taiwan. Similar markets exist but none of them function as well. If vegeta­ble farmers feel they can trust a whole­saler, they will come without being asked.

It is easy to get farmers to grow veg­etables. The problem is that not all of the vegetables will be consumed. Consumer eating habits are fickle. There are more than one hundred kinds of vegetables available at TAPMC, and prices are generally low. But some vegetables are not produced in large quantities and they command higher prices. This influences the average price of produce. Besides, Chinese love to have a variety of vegeta­bles on the table. Perhaps we should change our eating habits.

Chang Kuei-ching: Vegetable prices are high only from June to September. The rest of the year, prices are actually very low. Ten years ago, the average price for a kilo of vegetables was about twenty-eight cents, today it is only around forty cents.

Chang Chin-chung: Some people have suggested importing vegetables as one way to keep prices down. We cannot import vegetables such as Chinese cab­bage because too many local farmers grow it. If imports were allowed, farmers would be on the streets in a minute to protest. We can import vegetables like onions because they are not grown all year round. After a successful harvest we have enough to export. But during the typhoon season we can import them.

Chang Kuei-ching: There are no restrictions on imports. Most of the vegetables currently imported are from Hong Kong, Japan, Thailand, the United States, and mainland China. Celery, lettuce, and cabbage are all imported. The quantities are very small, and account for only 3 percent of the total sales volume in Taipei. People here consume a lot of leafy greens year-round. During the typhoon season, when prices are high, people start calling for imports of such vegetables. But, it is almost impossible for Taiwan to import them. Three years, ago, we imported Chinese cabbage from Japan. It took eighteen days to ship the cabbage here—yet it only takes about twenty days for a crop of pak choi to be produced for the market. By the time leafy greens arrive here by ship, the market may be glutted and the prices al­ready down.

Huang Yu-tsai: In fact, any vegeta­bles other than dried mushrooms, garlic, and dried day lily blossoms, can be imported without permission from the COA. But no vegetables from mainland China are allowed into the island. The same is true of countries where certain plant diseases are common. The main reason vegetables are not imported into Taiwan is because of unsafe pesticide levels and diseases. Importation is not a solution.