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Lost: Boxmakers’ Opportunity to Package Agricultural Goods Worth $9 Billion

By AICC Staff

December 4, 2017

Independent converters work smart and hard to satisfy customers’ day-to-day needs. So, it is easy to understand that less attention might be focused on the larger macroeconomic forces affecting their fortunes. Nonetheless, broad economic trends have the potential to alter the competitive playing field. Few are more significant than currency exchange rates.

width=300The rising strength of the U.S. dollar measured against currencies of the nation’s trading partners is one of the most relevant economic set points affecting independent corrugators’ fortunes. The top chart on the right shows the relationship between the U.S. dollar and a broad trade-weighted aggregation of trading partner currencies since 2010. The data are shown as an index, with the average exchange rate in 1997 equal to 100. Between 2010 and the middle of 2014, the exchange rate averaged around its initial value of 100, with oscillations of 5 percent or less.

However, starting in the middle of 2014 and ending last year, the U.S. dollar became steadily stronger, establishing a new trading range some 23 percent higher than before. Since then, there have been some ups and down, including the most recent 8 percent decline as early optimism surrounding the new administration’s economic initiatives has faded. Nonetheless, the U.S. dollar today remains fully 20 percent stronger than justified by economic fundamentals that have not changed significantly since 2014.

width=300The stronger dollar makes imports less expensive for consumers, and thus more competitive with domestically produced goods, while squeezing margins on goods exported from the U.S. and reducing export opportunities for U.S. producers.

The agricultural sector of the U.S. economy has been impacted significantly by this exchange-rate swing. The rest of this article examines the impact of changes in international trade of packageable agricultural goods. These are meat and produce categories that consumed almost 17 percent of last year’s corrugated shipments, according to the Fibre Box Association. Fresh and processed fruits and vegetables, tree nuts, subprimal meat cuts, processed meats, and poultry are included in this assemblage.

The table below shows the trade balance (exports minus imports) for important packageable agricultural goods in 2013, before the U.S. dollar soared, and in 2016, when the dollar remained some 20 percent above levels justified by economic fundamentals. It shows how almost $9 billion of packaging opportunities evaporated in just three short years, as the trade balance declined from a surplus of $8.7 billion to a deficit of $257 million.

width=300Trade deteriorated in every category of packageable agricultural goods. Between 2013 and 2016, the trade balance for fruits, vegetables, and tree nuts declined by $5.7 billion, led by a $4.4 billion decline in fruit trade. During that period, trade in beef cuts and processed beef declined by $1.4 billion, and poultry trade deteriorated by $1.5 billion.

The table on the bottom of Page 4 focuses on exports of agricultural commodities important to suppliers of corrugated packaging.

Exports of vegetables and tree nuts managed to eke out small gains between 2013 and 2016, but fruit exports declined by 3.3 percent per year, only partially due to insect damage to the Florida citrus crop. Exports of poultry were hardest hit, declining by 13.5 percent, on average, during each of the three years under review. Overall, these exports declined by $1.9 billion as the U.S. dollar strengthened during 2014–2016, a decline of 2 percent per year on average.

The growth in imports of these goods was significantly more damaging than the decline in exports. While export losses were limited to 2 percent per year, imports rose at a 9.0 percent average annual rate between 2013 and 2016. This import surge led to a loss of $7.1 billion in packaging opportunities for domestic boxmakers, as shown in the table below.

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Imports of fruits, vegetables, and tree nuts combined increased by 8.7 percent per year during the past three years. Imports of fresh and processed fruit rose by $3.7 billion, an average annual increase of 10.4 percent. Imports of tree nuts, one area in which U.S. farmers have been able to maintain a trade surplus, almost doubled in the past three years, rising at 20.3 percent each year, on average. Fresh and preserved vegetable imports grew at 5.6 percent per year.

Imports of meat and poultry grew even faster than the sector total, rising at 9.9 percent per year. Most of the damage was concentrated in the beef sector, where imports grew by $1.4 billion, or 12.1 percent per year, on average.

What this analysis confirms is that broad macroeconomic measures, particularly currency exchange rates, can have a profound impact on the market opportunities for independent boxmakers.


PortraitDick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.

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