B-l040 August 1965 \ Agricultural Market Development Abroad Iliiiu min-ii» TEXAS A&M UNIVERSITY College Sfofion, Texas TEXAS AGRICULTURAL EXPERIMENT STATION, R. E. Patterson, Director CONTENTS Summary .......................................................................................................................... .- 3 Introduction .................................................................................................................... .. 4 Changing Patterns of International Trade ............................................................ .- 5 Motives for Trade ................................................................................................ .. 5 General Agreement on Tariffs and Trade ............................................ ....... .. 5 Developing Economies ............................................................................ ....... -_ 6 Agricultural Surplus and New Legislation .............................................................. .- 6 Agricultural Surplus ............................................................................................. .- 6 Agricultural Surplus and Exports .............................................................. .- 6 Legislation and the Surplus ................................................................................ .. 7 Agricultural Trade Development and Assistance Act .................................. .. 8 Market Development ..................................................................................... .. 8 Type of U. S. Cooperator ............................................................................ -. 9 A Feasibility Model to Determine Market Potentials .......................................... --l0 Order I(A) (United States) ................................................................................ ..ll Section l. Adequate U. S. Surplus Production .................................... -.ll Projected Land Needs .......................................................................... ..ll Surplus ..................................................................................................... .-ll Congressional Policy .............................................................................. __l2 Future Farm Programs ........................................................................ __l2 Section 2. Favorable Competitive Position ............................................ __l2 Price .......................................................................................................... .-l2 Legislation Affecting Export Pricing ................................................ __l2 Transportation ....................................................................................... .-l4 Section 3. Packaging and Transportation .............................................. ..l4 Order I(B) (Foreign Country) .......................................................................... ..l5 Section 1. Restrictions to Trade in a Foreign Country ...................... "l5 Political ................................ .................................................................. _-l5 Tariffs ...................................................................................................... .-l5 Import Quotas ........................................................................................ _.l5 Variable Levies ....................................................................................... ..l6 Conditional Imports .............................................................................. ..l6 Advance Deposits ................................................................................... --l6 Import Licensing ................................................................................... .-l6 Bilateral Agreements ............................................................................. -.l6 Health Regulations ............................................................................... --l6 Social Factors .......................................................................................... --l7 Section 2. Production Deficit in a Potential Market .......................... ..l7 Population ............................................................................................... ..l9 Section 3. Conversion of Foreign Currencies to Dollars .................. --l9 Order II (Foreign Countries) .......................................................................... ..2l Section l. Adequate Port, Storage and Transportation Facilities .... ..2l Section 2. Capital for Storage and Distribution .................................. __22 Section 3. Adequate Retail Outlets ........................................................ .23 Different Extremes of the Market .................................................... -23 Order III (Foreign Country) ............................................................................ --24 U. S. Promotion Pattern .............................................................................. -.24 Italian Media ................................................................................................. _-24 Trade Fairs ..................................................................................................... .-24 Promotion in Italy ........................................................................................ --24 Conclusion ....................................................................................................................... -25 Free Trade ............................................................................................................... --25 Agriculture and the Balance of Payments ...................................................... .25 Changing Trade Patterns .................................................................................... ..25 New Dimensions in Market Development ...................................................... ..25 A Model for Market Feasibility ........................................................................ .-26 Bibliography .................................................................................................................... --26 SUJWMAR Y The concept of market development activities t0 increase - the sale of U. S. agricultural commodities in foreign countries is not new. U. S. exporters have applied their skills to this end since the early years of this nation, but the patterns for successful market development have changed as trade condi- tions changed. This study sets up a model for determining the prob- ability of successful market development efforts involving sales for dollars of U. S. agricultural commodities in foreign countries. The model consists of ten sections. The first six sections are the most crucial because they involve factors which a U. S. exporter cannot alter to a significant degree. The first three sections consider conditions in the United States and involve (l) adequate U. S. surplus production, (2) favorable competi- tive position and packaging and transportation. The second three sections involve foreign countries and are (1) restrictions to trade in a foreign country, (2) production defi- cits in a potential market and conversions of foreign cur- rencies to dollars. The remaining four sections are relatively less critical, although conditions within each prospective market will de- termine their importance to the total performance of the market development program. They can be a definite deter- rent under special circumstances. These sections are (1) ade- quate port, storage and transportation facilities, (2) capital for storage and distribution, adequate retail outlets and (4) foreign promotion potential. izaifiaai a axlaaaaa-aiiaai aiaiii; iiiifii. iAgricu ltuml Market Development Abroad James E. Kirby and John G. McNeely* he purpose of this study is to establish guidelines market promotion. The (Qiffice of Foreign a for determining the probability of success of mar- cultural Relations had been largely a fact-gath ket development effortsinvolving sales of U. S. agri- organization which also represented U. S. agricul, cultural commodities in foreign countries. in foreign negotiations. Also, most trade and 7 cultural producer groups were without expe_ in large-scale promotions in markets abroad. f‘) lack of experience on which to pattern an int tional program resulted in a new approach, th asking trade and commodity groups to coo p with the government to promote foreign marke; Market development has been stimulated by the Trade Development and Assistance Act of 1954, more familiarly known as Public Law 480. This act was the culmination of political pressures resulting from mounting surpluses in certain government-owned agricultural commodities. The purposes of this leg- . islation were declared to be: Some commodity producers and handlers had: tional organizations while others did not. The i modity groups organized and consolidated forces, and cooperative efforts in market prom between government and industry began. The wide promotional work created an interest a‘ foreign buyers in U. S. agricultural commodities . to expand international trade among the United States and friendly nations, to facilitate the convertibility of currency, to promote the economic stability of American agriculture and the national welfare, to make maxlmum efficient use of Slirplus agrl? 111' served as an impetus for U. S. producer and A tural commodities produced 1n the United h - f - k - B t States b rovidin a means whereb sur lus groups to re-en-lp aslze- Omlgn mar -etlng'- y 1' . lty p1 g d.t. . y fpth 1961, the Foreign Agricultural Service, FAS, r » agrlclu urak forum? l w; m excils? , O e ed that more than 60 associations, referred to -‘ usua mar e mg O suc Commo H165 may A operators, had initiated joint market develops be sold through private trade channels and foreign currencies accepted in payment t therefor. It is further the policy to use for- In 1959, after almost 5 years of market prom. efforts in more than 50 countries. eign currencies which accrue to the United work, the FAS sought an impartial evaluation 0 States under this act to expand international results of market development work in specified z trade, to encourage economic development, tries. Texas A&M University, one of three land- to purchase strategic materials, to pay U. S. universities selected to conduct the evaluation, obligations abroad, to promote collective directed to review the Italian program. The? strength and to foster in other ways the for- pose of the evaluation was to determine the ' eign policy of the United States. tiveness of U. S. market development work in y, The project included a review of the coope], agreements with commodity groups representing E cotton, poultry, wheat, soybeans and feed The act contained more significant aspects such as a new attitude toward U. S. foreign sales designated in the term “market development.” This recognized the new role of the United States int€rests' as a policy leader in foreign trading by calling for The eonelusions reaehed from the Italian I increasing foreign consumption but prohibiting indicated that some of the effectiveness of n" dumping WOLlld injure the €COI1OII1l€S Of OIhGT devgigpmgnt wQrk was minimized bgcauge Qf friendly nations. Additionally, it established a means (l) inadequate knowledge of social and /or ec whereby the continuing domestic, economic and polit- Conditions in the Country or (2) a laek of or , ical problem of farm surpluses could be used to fur- knowledge eoheerhihg the best method to use " ther the foreign policies of the United States. ting the program underway and developing it. Of special note, the act. called for cooperative This report projects the findings of the Ii effort by industry andvgovernment in providing the study and, through the use of the model (Fi i.’ planning and work force for market development formulates a framework whereby a privatef“ ZICIlVlIllCS in {Offilgfl COLIIIUTCS. The Dfiipflft- Cgmmgdity Qrg-anizatign can determine’ prior ment Of Agriculture, charged ZIdIIIlIIlStCTlHg th€ establishing a market devglopnlent prog-r i I act, had little experience that fitted it for foreign probability of sueeess_ 1t will also provide a *Respectively, Extension economist and professor, Department grounil for underitanding Changing patterlisl _ of Agricultural Economics and Sociology. WTIIBUOIIEII trade III £116 early 19603, and Wlll _ 4 ‘(- i7 relative to the conditions in the United “hich instituted the legislative pressures for ely re-entering foreign markets. The Euro- [lnomic Community is not integrated into Y~ CHANGING PATTERNS ‘F INTERNATIONAL TRADE ational trade as we know it today is only a _i dred years old and its justification, beyond 'ding one of profit, has changed in different g'c eras. Some changes have taken place in tterns in recent years that are affecting the isales of U. S. agricultural commodities. Such f. also influence the approach to effective mar- ‘, lopment work and must be considered when ning the likelihood of the successful promo- _ U. S. agricultural commodities in foreign es. Motives for Trade g basic reason for trade between people of ‘int nations is to satisfy man's wants. Goods tbe offered at prices which prospective buyers d will pay. However, price does not necessari- A ta free market situation because many of the (i of trade may be noneconomic. Considera- _'f international trading necessitates a view of I as a trader and the motives by which na- =as traders, influence international commerce. iter World War I the United States was cata- i) B?» into the world economic scene in a new inter- qal role as a creditor nation. The expansion 'ustry and agriculture during the war produced g er goods in excess of domestic needs. As a ‘i, U. S. foreign commerce expanded generally jg the l920’s with the stimulation of private lend- ‘broad. As competing foreign products threat- ~U. S. domestic markets, the political title of iso- iiism and protectionism brought increased tar- 1 The Smoot-Hawley Tariff Act of 1930 was the ‘point of U. S. tariff levels and invoked retalia- (by other countries. The U. S. depression and a nuing world economic crisis laid the ground- for the repeal of the Smoot-Hawley Act in 1934 the passage of the Reciprocal Trade Agreement .1 This new act marked a beginning of a liberal l- policy based on reciprocal trade agreements. f _ he Trade Expansion Act of 1962 was the culmin- ‘l of a continuing trend toward freer U. S. trade. - legislation was part designed for trade nego- 'ons with the European Common Market. It pro- authority to the President to abolish all trade fictions between the European Common Market g the United States on those commodities in which two trading areas had 80 percent of the world e. Generally, it gave the executive branch of the U. S. government the right to reduce tariffs by 5O percent in negotiated agreements with other coun- tries. President Kennedy indicated the direction as well as expected results of U. S. foreign policy in remarks made October ll, 1962 on signing the Trade Expansion Act. This act recognizes, fully and completely, that we cannot protect our economy by stag- nating behind tariff walls but that the best protection possible is a mutual lowering of tariff barriers among friendly nations so that all may benefit from a free flow of goods. Increased economic activity resulting from increased trade will provide more job op- portunities for our workers. Our industry, our agriculture, our mining will benefit from increased export opportunities as other na- tions agree to lower tariffs. Increased ex- ports and imports will benefit our ports, steamship lines and air lines as they handle an increased amount of trade. Lowering of our tariffs will provide an increased flow of goods for our American consumers. Our in- dustries will be stimulated by increased ex- port opportunities and by freer competition with the industries of other nations for an even greater effort to develop an efficient, economic and productive system. The results can bring a dynamic new era of growth. General Agreement on Tariffs and Trade An influential factor in moving countries of the world toward freer trade is the General Agreement on Tariffs and Trade (GATT). This agreement, signed by 23 countries, went into effect on January 1, 1948, and is not the result of a formal organization but comes from an international conference provid- ing the means by which countries can discuss their trade differences. GATT has three major functions: (1) It pro- vides the means whereby tariff concessions may be reciprocally exchanged by member countries; (2) it sets down a code of trading rules to guide the con- duct of international trade; and it provides the forum for discussion of international trade problems and disputes. The sixth round of GATT negotiations began May 4, 1964 and is unofficially termed “The Ken- nedy Round.” In the spring of 1963 there was a general endorsement of the goals of the'sixth round at a GATT ministerial meeting. These goals are (1) a significant reduction in tariff levels among the principal trading countries, (2) liberalization of agree- ments for agricultural products to promote an ex- pansion in agricultural trade and (3) arrangements to improve export prospects for developing countries. 5 iiiiég-Q Secretary Freeman outlined the basic approach of the United States, which is termed “market shar- Y! mg. This approach recognizes the universal income problems of farmers and the need for nations to improve the income of their farm- ers. It recognizes that one country’s do- mestic farm program will be different from another country's farm program. It respects the world's centuries-old commercial trading system and recognizes the right of all coun- tries to participate in commercial trade and the general need for lowering barriers to the flow of commercial trade . . . to make the commercial trading system serve all nations better it calls for a fair sharing of markets based on long-standing practices . . . Developing Economies Adding a new dimension to the motivation of trading is the increase in volume of products going to countries with what is now termed “developing econ- omies." The motivation is an unstated intermingling of profits, assistance for political alliances and altru- ism. Elrod outlines the broad goal for the United States as follows: . . . (l) reduce and use constructively U. S. agricultural surpluses by expanding exports to low-income countries; (2) strengthen for- eign agricultural trade and develop foreign markets; accelerate economic develop- ment in the recipient countries for increased national and international security; and (4) provide higher nutritional standards for greater human energy potentials. The magnitude of the trade between the United States and such economies is indicated in the total Public Law 480 expenditures between July l0, 1954 and December 31, 1963 of $13,582 million under Title I as published by the House Committee on Agricul- ture. The export market value, including ocean freight, was $9,526 million. Title II expenditures in the same period, providing emergency relief require- ments, amounted to more than $1 billion. Whatever the motivation, it is evident that such trading is important for certain commodities. Recipi- ent countries sometimes use P.L. 480 commodities to increase their own net revenue as well as to bol- ster their currency and improve their balance of payments. The hard currency generated sometimes is used for the purchase of goods from nations other than the United States. An example of increasing a country’s net revenue is the case of Spanish olive oil. In 1960, Spain purchased U. S. soybean oil with non-convertible currencies of P.L. 480 and sold it domestically as an inexpensive substitute salad oil 6 while exporting its own traditional salad oil f0 currency and a considerable profit. - Tunisia is an example of hard currency gen for purchases from other nations. Wheat und 480 is shipped to Tunisia. Under the progri the Tunisian government’s aid to unemplo _ the laborer is paid in part by a, daily measure of} wheat. The hard wheat ‘grown domestically processing into macaroni and spaghetti then v_ shipped to France which needs it to upgrade wheat. French francs thus generated create a; able balance of payments whereby French n» continue to flow into their traditional Tu market. * AGRICULTURAL SURPLUS AND NEW LEGISLATION The consideration of an expansion of mark?) U. S. agricultural products raises the question y‘ source of supply to fulfill the increased d’ This study assumes that the domestic price supply will remain stable to the extent that crease in price, as a result of increased deman not be so great that the competitive position in A trade will be jeopardized. For this reason, a disc of the source of supply of agricultural comm for foreign sales is pertinent, and surplus is s, source from an economic sense. Agricultural Surplus Surplus is described by the U. S. Departm Agriculture as an amount of a commodity " “. . . may reasonably be expected” to be in ex domestic requirements, adequate carryover and pated exports for dollars as determined b: Secretary of Agriculture. The surplus about g the USDA is concerned relates to those comm” whose production has been supported at a above those of world markets. It follows th' price of these surplus products must be low_ dispose of them in world trade channels. This study also concerns U. S. commodities. price is competitive in world trade but whose wide distribution reflects the imperfections of, petition. A; Agricultural Surplus and Exports Agricultural surpluses in the modern sei overabundance have given new meaning to the" and have caused great difficulties economicallf politically. These surpluses sometimes appear‘. a particular phenomenon of this new techno age. Such is not the case. American farm l produced a surplus for exportation since the years of colonization of the New World. Sin mid-nineteenth century the American farm ec has been geared to production for export. i ‘is export surplus furnishes large amounts of Al and fiber to Europe and other parts of the l} for more than a century. It has been a means "ch the United States, since Colonial times, has 4 ed for those goods not produced within its Irs. It was the means by which capital for econ- * growth of a young American nation in the eenth and early twentieth century was made Able by the older and wealthier nations. icultural exports accounted for more than I fourths of the U. S. export trade between the pl War and the early l890’s, Figure 1. By 1910 iamount had dropped to about one-half. The e continued after World War I and through epression of the thirties, reaching a low of 9 per- I in 1940-41. Following World War II, agricultur- i ports were boosted through the use of lend-lease ;foreign aid. Subsidies and other programs since have stimulated agricultural exports to about 20- rcent of the U. S. total exports in recent years, 1e 1. ioreign demand expansion through regular mar- channels did not play a major role in proposed l ions to the surplus until recent years. Most early ‘ial legislation was built around dumping Cu and two-price plans. Current legislation has ' asized market development. Legislation and the Surplus he principal difficulty faced by Congress rela- 1 to agriculture in 1954 was a general glut of farm odities owned by the government. The short- 1 problem was to dispose of the stored surplus in oo f5° " lAgricult-tllrucll j 20 o i'rce: USDA. I870 I880 I890 I900 I910 re 1. Value of U. S. agricultural exports as a percent of total U. S. exports 1865-1960. TABLE 1. VALUE AND RELATIVE PERCENT OF AGRICULTURAL AND TOTAL FOREIGN TRADE OF THE UNITED STATES, 1953-64 Domestic exports Imports (for consumption) Y 1 . Percent . _ Percent ear Ailsizlill- Total ag ricul- Agata?‘ Total agricul- tural tural Million dollars Percent Million dollars Percent 1953 2,847 15,652 18 4,183 10,779 39 1954 3,054 14,978 20 3,961 10,240 39 1955 3,199 15,413 21 3,971 11,337 35 1956 4,170 18,940 22 3,950 12,516 32 1957 4,506 20,671 22 3,952 12,921 31 1958 3,855 17,693 22 3,881 12,750 3O 1959 3,955 17,383 23 4,099 14,987 27 1960 4,832 20,299 24 3,824 14,652 26 1961 5,024 20,629 24 3,691 14,357 26 1962 5,034 21,359 24 3,868 16,249 24 1963 5,584 22,922 24 4,011 17,014 24 19642 6,348 25,987 24 4,082 18,622 22 Source: USDA. 1Year ending December 31. 2Preliminary. a manner acceptable both economically and political- ly to taxpayers. With this limitation, the only alter- native was to recultivate the export trade that had di- minished after 1930 when support levels had priced the principal American farm commodities above world market prices. On July l0, 1954, Congress passed an act relating to foreign trade in agricultural products. The main purpose was to increase foreign consumption of U. S. surplus farm commodities. This was the new empha- sis on demand expansion as opposed to dumping. Renewed interest by the United States in export markets presented many potential difficulties among Nonogriculturcll I920 I930 I940 I950 I960 foreign producers of agricultural commodities. Not only could the dumping of U. S. surplus commodities on the world markets cause a price break, but also many less well developed economies were in no posi- tion to buy producer items from the United States if we either disrupted their agricultural markets or decreased export revenue by sharply lowering the world price. The problem was how to sell the U. S. surplus in world markets without disrupting world trade. Many countries could use additional amounts of food, but they could not bid for dollars in international ex- change to buy producer goods from the United States. The Congressional answer to this problem was not to convert the foreign currency from the sale of surplus commodities, but to use it in the foreign country for specific goods and services in what would amount to barter and in some cases donations. Overriding all other purposes was a dominant diplomatic note of caution that the United States should not cure its domestic farm ills at the risk of losing the friendly alliance of nations within its politi- cal orbit. With these and other factors to consider, the bill was enacted into law as the “Agricultural Trade Development and Assistance Act of 1954.” Agricultural Trade Development and Assistance Act This law is commonly referred to as Public Law 480. In negotiating and carrying out agreements with friendly foreign nations to provide for the sale of surplus agricultural commodities under the act, the President was requested to take appropriate steps to assure that private trade channels were used to the maximum extent practicable. Also, he was to give special consideration to utilizing the authority and funds provided to develop and expand market de- mand abroad for agricultural commodities with ap- propriate emphasis on underdeveloped and new mar- ket areas. Market Development Executive Order No. 10,460 of September 9, 1954 designated USDA as the agency to carry out the pro- visions of Section 104 (a) of the act, “To help devel- op new markets of U. S. agricultural commodities on a mutually benefiting basis.” The USDA immediately set forth definitions of the terms of the law. Accordingly, the phrase “de- velop new markets” is defined to include the main- tenance or expansion of an existing foreign market for agricultural commodities as well as the creation of an entirely new market. Market development for a particular U. S. agricultural commodity may be either for that U. S. commodity directly, or for that commodity from all sources when it may be expected that U. S. exports 0f the commodity will benefit 8 _ were industrywide or nationwide in membe‘, thereby. The phrase “United States agricu commodities” is defined to include both raw: processed commodities of the types that origin A U. S. farms. For example, both fresh and pr oranges are included. Agricultural commoditi not have to be in U. S. government inventori. listed as surplus in the United States to be el for inclusion in Section l04(a)§e projects. ” The basic plan of operation was to con l project to a limited area, such as a single coun A project would be undertaken only if ther a promise of contributing “to the effective cre expansion or maintenance of markets abroad U. S. agricultural commodities. Primary em; at all times will be on commercial markets." A The emphasis placed on commercial markets special significance. The market promotion I was intended to give every opportunity for U. S. f modity groups to assume leadership in the p j tional work and, at the same time, to allay the if of the agricultural trade at home and abroad ‘ normal marketing channels would be interru This was stipulated in the law as the limitation; der which the President was to negotiate such a. ments. To accomplish this end, USDA sought ‘ii operation of representative private trade groups i and scope. Actually, the USDA was without” vious experience in directing foreign market O( opment work. For this reason the original plans directives as outlined by FAS were without prece These original plans and directives were the c) bution of a group of specialists drawn largely r the ranks of USDA and assembled into a f0 market development team. 3 The market development program was di into three principal areas: market promotion,“ ket assistance and marketing research and surv The area of market promotion covers a range of activities aimed at expanding and t! taining markets for U. S. agricultural commoditi foreign countries, with primary emphasis on in ing both industrial and consumer uses of parti products so there will be a larger market in w U. S. producers and exporters may participate. In the area of market assistance, the emphasis to be placed on helping foreign importers, wholesalers and retailers solve any technical prob associated with their particular activities. ' The third area of market research and su _ called for (l) short-term surveys relating to dev ing the programs, (2) short-range economic res of a more detailed nature that would support! posed programs or existing projects, (3) a stu _ market problems to assist in adapting U. S. es t0 the foreign country, (4) long-range econ- Qresearch to assist FAS and trade in economic 'ng and (5) research in the physical sciences as .1. and cautious generalization to include al- lany type of study of the physical sciencesnot j_ duplicated. j e of the most unusual aspects of the market de- ent program is that the agricultural industry government joined forces to promote the sale of . farm commodities in foreign countries. Equal- I ificant is the instigation of a trade expansion A am by government instead of by commodity While this is not without precedent in history, ‘a significant modern change in the responsibili- 5 d scope that government has assumed. project participation, FAS sought to rely upon esentative private trade groups in the United and foreign countries as cooperators to carry i Section lO4(a) projects to the maximum extent ible. The cooperators were required to make a i cial contribution to a development project that iuded, at the minimum, the dollar cost for main- ping that part of the cooperators program in the ted States where these foreign P.L. 480 funds ld not be spent. In the long run, it was hoped it the U. S. agricultural industry would assume all vncial responsibilities for an aggressive, continuing t otional program to sell surplus commodities joad with FAS acting only in an advisory capacity. Subsequent developments, however, have enlarged ’s responsibilities under P.L. 480. Mounting sur- ' es, despite significant increases in foreign agri- tural exports, have brought pressures emphasizing itain other aspects of the program not directly a ponsibility of FAS. This emphasis is in the use agricultural surpluses for economic development friendly foreign allies. This aspect of P.L. 480 significant because it affects the amount of funds A erated by the sale of commodities. This money en becomes available for market development work. Public Law 86-341 provides that, from sales pro- ds and loan repayments, no less than the equiva- _nt of 5 percent of the total sales made after Septem- xr 21, 1959 shall be made available in advance for arket development activities. Emp-hasis is given to tafning agreements with purchasing countries for a niiersion of a portion of sale proceeds to currencies , third countries where funds are needed to carry on arket development projects. The earlier result Had been that funds were some- ' es available in larger amounts to areas that did require as much money in terms of the size and tential of the market development program. This w was intended to allow foreign allocation of funds o those areas where the largest programs, in terms of e markets potential, were in operation. Type of U. S. Cooperator The following commodity groups indicate the type of organizations with which FAS entered into Italian market development activities. 1. The National Cotton Council (superseded by Cotton Council International on January l, 1957) signed during May 1955 to promote cotton. 2. The Nebraska Wheat Growers Association signed the original agreement to promote wheat and was superseded in October 1959 by the Great Plains Wheat Market Development Association, Inc. 3. The Soybean Council of America signed co- operator agreements with FAS in March 1957 to pro- mote soybeans and soybean products. 4. The Institute of American Poultry Industries signed its agreement in June 1958 to promote the sale of U. S. poultry in Italy. 5. The Grain Sorghum Producers Association entered into an agreement in December 1958 to pro- mote grain sorghum. The project was broadened in June 1960 to promote all U. S. feed grains and a new agreement was entered into with the Feed Grains Council of the United States. The manner in which each cooperator group start- ed its individual market development project follow- ed a similar pattern in each country. The program agreement for a foreign currency market develop- ment program was made between the cooperator and FAS and contained a general understanding with regard to “the fields of activity, areas of operation and other conditions . . .” A single director for a country usually was designated, but this was not always the case. Some directors worked on separate programs in several countries. The early period, after estab- lishment in a country, often was devoted to getting acquainted with the market of the country and at- tempting to establish some rapport with individuals associated with the importing trade. The methods used by program directors varied considerably between countries as well as between commodities. However, in the early phases of P.L. 480 market development work, considerable reliance was placed on individuals, with heavy responsibilities given to the U. S. agricultural attache to determine the best method to use in approaching the trade. During this early phase, cooperators operated un- der rather loosely defined’ areas of responsibility with a general lack of directive as to the precise pur- pose of activities, source of advice or guidance. The degree to which coordination was effectuated among the various activities appeared related to the cooper- ator’s experience in international trade. The Cotton Council International, for example, never seemed to doubt the wisdom of its decisions in market develop- ment activities or the direction its promotional efforts 9 should take. Hovvever, the wheat and feed grain promotional efforts received little or no help from the experienced U. S. grain trade. The promotional program was instigated by newly formed producer groups having almost no experience in storing, han- dling and merchandizing the basic commodity. For this reason the early phases of the wheat and feed grain program were less sophisticated than the cotton program. A FEASIBILITY MODEL TO . DETERMINE MARKET POTENTIA ; The previous discussion provided a backgro p for consideration of a model to evaluate the pros ‘ of increasing foreign trade for U. S. agricult commodities. The model, Figure 2, is designed , ten separate factors considered _~important to incre 7 sale of U. S. farm commodities in foreign count _ Order I(A) (United States) Q; ii 1 2 3 " Adequate Favorable Packaging U.S. Surplus Competitive and Production Position Transportation Order I(B) (Foreign Country) 1 2 3 Restrictions Production Conversion to Trade Deficit in a of Foreign in a Potential Currencies Foreign Country Market to Dollars Order II (Foreign Country) I 1 2 3 Adequate Port, Capital for Adequate Storage and Storage Retail L Transportation and Outlets .5 Facilities Distribution E Order III (Foreign Country) Foreign Promotion Figure 2. A feasibility model for U. S. agricultural market development work in foreign countries. 1O ACREAGE OF HARVESTED CROPS, CROPLAND HARVESTED, >~' USED FOR CROPS AND TOTAL CROPLAND FOR 1954, PROJECTED REQUIREMENTS FOR 19801 Type of 1980 Change cropland 1954 1959 proiection 1959-80 I -- — — Million acres — —- — "i5. acres’ 2,271 2,271 ‘v crops harvesteda 346 330 288 —42 i le cropped’ 7 7 6 — 1 harvested 339 323 282 —41 uro 12 10 11 + 1 k - summer fallow 29 29 24 — 5 . y cropland - for crops 380 362 317 —45 vement and ‘cropland 19 3o 21 - 9 '1 used for pasture 66 66 69 + 3 cropland 465 458 407 — 51 USDA, A Land and Water Resource Policy for the United States Department of Agriculture, Washington, D. C., pre- pared by the Land and Water Policy Committee, January ._; 1962, pps. 101 and 106. ‘ mber of acres needed is based on the following estimates of i on, income, exports, farm technology and other factors: Population projection is 247 million for 1980 and is the median figure used in the studies by the Senate Select Com- mittee on National Water Resources, p. 101. Index of disposable personal income (Index 1960 = 100) is estimated to be 212 in 1980, p. 96. Exports for 1980 were estimated at a volume 40 to 45 percent above 1960 exports, p. 97. Crop yields, water requirements and other factors affecting estimated output in 1980 were based largely on the pro- _ iection of trends during the decade of the 1950’s, p. 95. A e includes Hawaii and Alaska. Y of crops harvested include double-cropped acres. ,1 designation of these factors as being important j. ket development work is the result of a study i: in Italy in 1960 by Stelly and Kirby of Texas ‘A University. i vrder I(A) is concerned with three domestic limi- j» to trading which are: Section l — Adequate R Surplus Production, Section 2 — Favorable Com- 'tive Position and Section 3 -— Packaging and I sportation. ‘Order I(B) is involved with three factors limiting e in a foreign country. These are: Section 1 — trictions to trade in a foreign country, Section 2 — uction deficit in a potential market and Section Conversion of foreign currencies to dollars. All i parts of Order I must be favorable before further f; ideration is advisable because the exporting firm little control over them. Information for this ion of the model may be obtained from the U. S. vernment and other agencies in the United States. _, this reason, the determination of feasibility for S. market development is relatively inexpensive i this point. Otherif-factors in the model require a ~dy of the market situation in the foreign country. Order I(A) (United States) ‘ tion l. Adequate U. S. Surplus Production ‘ This is the keystone to foreign market expansion cause without a product to sell there is no need for market development. A favorable finding for a specific U. S. agricultural commodity requires that such commodity be in adequate supply to furnish in- creased amounts to an expanding foreign market. Projected Land Needs The total land area of the 50 states shown in Ta- ble 2 is 2,271 million acres; about 458 million of this is classified as cropland. About 80 percent of the 458 million is used for crops; cropland pasture accounts for 14 percent, and soil improvement and idle crop- land make up about 7 percent. The projection of cropland requirements for crops in 1980 estimates a reduced need of 51 'million acres despite an estimated population increase of 67 million and an export vol- ume 40 to 45 percent above the 1960 level. Surplus From what present use, in the distribution of agricultural commodities during a marketing year, will increased foreign sales be taken? In order that the domestic price level of U. S. commodities remains stable, the increased export sales must originate from a portion of the export distribution system already using part of the production or have a demonstrated capability of production expansion at the existing domestic price level. For wheat, cotton and grain sorghum, it is that part termed surplus by USDA which “may reasonably be expected” to be in excess of domestic requirements, adequate carryover and anticipated exports for dollars, as determined by the Secretary of Agriculture. Government programs are presently channeling commodities into foreign trade in significant amounts through Public Laws 480 and 87-195. Public Law 480 exports include sales for foreign currency, fam- ine and other emergency relief, foreign donations, barter and long-term supply and dollar credit sales. The source of the commodities to fulfill these export commitments is from the surplus stocks of U. S. production. Public Law 87-195, Act for International Develop- ment (AID), was passed by the Eighty-seventh Con- gress for the purpose of making assistance available to foreign countries, upon request, for “. . . the crea- tion of an environment in which energies of the peo- ple of the world can be devoted to constructive pur- poses, free of pressure and erosion by the adversaries of freedom . . . assistance under this part should be complemented by the furnishing under any other Act of surplus agricultural commodities and by disposal of excess property under this and other Acts.” Information from Table 3 shows that agricultural commodities which move under the aforementioned government programs are a substantial part of the total agricultural export trade and accounted for one- third of total foreign sales in the fiscal years of 1954- 55 through 1961-62. ll TABLE 3. U. S. AGRICULTURAL EXPORTS UNDER SPECIFIED GOV- ERNMENT-FINANCED PROGRAMS, EXPORTS OUTSIDE GOVERNMENT- FINANCED PROGRAMS (COMMERCIAL SALES FOR DOLLARS) AND TOTAL AGRICULTURAL EXPORTS——VALUE BY AREA OF DESTINATION, YEARS ENDING JUNE 30, 1955-19621 Total agricultural Total agricultural . Total exports under exports outside . Area . . . . agricultural spec|f|ed govern- specified govern- expofls ment programs ment programs —- -- — —- Thousand dollars —— -— -— -— Total U. S. exports 1954-55 866,230 2,278,049 3,144,279 1955-56 1,373,599 2,119,009 3,492,608 1956-57 1,957,059 2,766,712 4,723,771 1957-58 1,250,961 2,751,352 4,002,313 1958-59 1,253,766 2,464,944 3,718,710 1959-60 1,313,708 3,213,351 4,527,059 1960-61 1,556,948 3,388,636 4,945,584 1961-62 1,633,542 3,505,295 5,138,837 Source: USDA, ERS, Foreign Agricultural Trade, Washington, D. C., April 1963, p. 50. lPublic Law 480, Titles I, II, III, IV; Public Law 87-195, Sec. 402. Accordingly, using the definition of surplus in P.L. 480, those commodities presently being exported from surplus stocks under specified U. S. govern- ment programs may be transferred to dollar sales because such dollar sales now have precedence over stock movements originating from surpluses. If a for- eign market sales increase occurs, the required saleable supplies can come from surplus stocks. Congressional Policy Because the availability of the supply of surplus stocks depends on legislative measures, it seems ad- visable to consider the policy and attitudes of the U. S. Congress. The Eighty-seventh Congress stated its policy toward surpluses in Section 402 of the Food and Agriculture Act of 1962. It directed the Secre- tary of Agriculture and the Commodity Credit Cor- poration to adopt policies designed to minimize the acquisition of stocks by CCC and encourage the mar- keting of farm commodities through private trade channels. Chairman Harold D. Cooley, House Committee on Agriculture of the Eighty-seventh Congress, ex- pressed the sentiment of that committee toward U. S. surpluses as follows: . thiscommittee wants to get rid of the surpluses. We want to get out of the ware- house business and sell the commodities, food and fiber. We have given to the Depart- ment of Agriculture every authority that has been requested here, and yet you still have a surplus problem. Future Farm Programs Another consideration in the availability of sur- plus production lies in the adoption of a future farm program in the United States that would significant- ly reduce the amount of farm commodities produced. Some agricultural economists believe that by use of 12 government programs sufficient resources can < ’ moved out of agriculture to significantly reduce t agricultural production. However, Bird points that many resources already have been taken out agriculture but know-how is increasing at such a that the resources left in American agriculture I regroup and go on producing a surplus. Bit concurs when he attributes the 40 percent increas crop yields during 1940-61 to the greater use of 3 lizer, better plant varieties, more and better i cals and machinery and more skillful farming. tainly the U. S. farm programs of the past 1' not been completely successful in reducing slfr’, production. ' Thus, U. S. land resources for growing food Y fiber are not in maximum production, and projei demands are expected to employ even less of the t acreage than is presently in cropland use. About third of U. S. agricultural exports are drawn t? surplus production and dispersed through gov ment programs which Congress believes to be i desirable than sales for dollars. Additionally, t», economists see no significant lessening of the i‘ supply of agricultural production in the fu t Therefore, it appears that adequate supplies of U * agricultural commodities will be available in the.‘ ture and from this supply a sufficient amount, 1' ' termed surplus commodities, will be available to‘ port for dollar sales. 7 Section 2. Favorable Competitive Position The purpose of Section 2 is to determine the petitive position that U. S. products hold in I markets relative to other world suppliers. This - will be analyzed from the U. S. position on ex prices, transportation costs and other compe A factors affecting U. S. sales, such as quality consi trons. - Price Serious imbalances in the supply and t; situation for several agricultural commodities; peared in the early 1950's. Farm price support grams tended to hold U. S. export prices at a9 , higher than prices of other world suppliers. By. the imbalance between domestic and world r brought increasing U. S. stocks of storables and ~ _ ing prices of both storables and nonstorables. ;. legislative means chosen to expand exports intensify use of already existing legislation plus tion of new acts. They provided the means by prices were equated between the U. S. domesti the lower world market price for certain agricu products. i? Legislation Affecting Export Pricing U. S. government export programs initiat encourage the export of farm commodities i classified into two broad groups: programs '1 the export of farm commodities through mmercial channels and those which com- pfthe government's assistance to the economies jping countries. The first category is of significance to this study. n 32 of Public Law 320 was passed by the ourth Congress in 1935. This act provided amount of money be appropriated each year <3 30 percent of the duties collected under the ‘aws during the period January 1 to Decem- A Among other purposes it authorized the to use the funds to “ . encourage the ex- n of agricultural commodities and products by the payment of benefits in connection with rtation thereof or of indemnities for losses at in connection with such exportation . . . . 'on 205 of the Agricultural Act of 1956 author- - appropriation of $500 million to enable the i’ to carry out the provisions of Section 32 expanded scale. One limitation was that not pan half of the sum could be devoted to a sin- ll odity or product in any one fiscal year. ‘t Agricultural Act of 1949 limited the ccc in 1 of its stored commodities to a sale price not ‘lthan 5 percent above the current support price v ch commodities plus reasonable carrying A One exception affecting the movement of wned commodities in export trade was Section j which allowed CCC-owned agricultural com- _'es to be sold into foreign trade channels at less §the minimum figure at which the same com- » could be sold to domestic buyers. The prod- cluded under the act were, . . any commodity ‘J or controlled . . by the CCC. ‘it 1956, the CCC inaugurated its first payment- d export program for wheat under authority of .1 harter Act of 1948. Under this program, cer- ence between the domestic and world price of commodity after proof of export of the com- ,'ty from private stock. These certificates are mable in wheat from CCC stocks. n 1958, corn was placed on the same type program _ was followed in the same year by barley, oats, 7t sorghum, rye, rice and cotton. Nonfat dry milk {placed on the list in 1962. Export subsidy pay- L ts now are made in cash on wheat flour and cot- products and in kind for the other commodities. il inauguration of“ the payment-in-kind program, CCC sold the bull; of its commodities for export lompetitive bids or announced export prices. Another CCC. function is the extension of credit .commercial firms exporting certain farm com- ities and products. Payment for such products y be deferred up to 36 months. lites are issued to exporters equal in value to the i The Export Bank, as an independent agency of the U. S. government, also finances imports and exports by extending credit to private enterprises and foreign governments purchasing U. S. goods and services including farm commodities. Such loans are made for periods of 12 to 15 months and are repayable in dollars. On February 5, 1962, the Export Bank, in cooperation with the Foreign Credit Insurance Association, announced a new credit insurance program for U. S. exporters. It will insure both industrial and agricultural exporters against commercial and political risks on short term trans- actions. Other programs have the similar purpose of dis- posing of U. S. surplus commodities plus the aim to complement foreign economic assistance for un- derdeveloped countries. The Mutual Security Acts of 1951 and 1952 made some surplus commodities available for foreign use. An amendment to this Act made by the Congress in 1953 (Section 550) was a new type of disposal program. It provided the Secretary of Agriculture not less than $100 million nor more than $250 million with which he could fi- nance the sale of surplus agricultural commodities to foreign countries allowing them to pay for such goods in their own currency. The foreign currencies collected in payments could not be transferred into the United States. In 1955, Section 402 foreign cur- rency sales replaced the original Section 550 program under the Mutual Security Act. While the Agricultural Act of 1949 provided the machinery for surplus disposal, the U. S. trade em- phasis up to 1950 was mainly in supplying the needs of war-torn economies. The Mutual Security Acts of 1951 and 1952 were directed toward strengthening the economies of underdeveloped countries. The non- convertible currency amendment in 1953 made it possible for a greater number of countries to pur- chase CCC commodities. But a still newer phase was opening in 1953 because the problem of excess stocks could no longer be ignored. Surplus disposal con- siderations began in earnest and were marked by new problems. The Agricultural Trade Development and As- sistance Act of 1954, known as P.L. 480, emerged as a definite attempt to dispose of mounting surpluses and to increase foreign markets for those commodi- ties. This act was an extension of the Agricultural Act of 1949 as it related to the movement of surplus commodities into foreign trade at prices lower than domestic prices. The amendment to the Mutual Security Act of 1951 which allowed the acceptance of foreign currencies without conversion into dollars was made more specific and more comprehensive in P.L. 480. Barter operations under CCC involve the ex- change of surplus commodities for strategic or off- 13 shore construction programs of the U. S. government, or for materials which can be used in U. S. foreign aid programs. Legislative authorizations include the CCC Charter Act and the Agricultural Acts of 1949, 1954 and 1956. Title III of P.L. 480 broadened the authority of the barter program. Wheat, cotton and feed grains are the major commodities exported for barter. Other programs operating with the aim of economic assistance to developing economies include commodity grants and donations. Transportation The previously-stated assumption is that market development activities concerned with this model are to increase dollar sales abroad. Since the emphasis is on hard money transactions, the movement of U. S. commodities in ocean shipping must use ships whose rates will allow them to meet foreign competition. Agricultural commodities exported under certain government-to-government export programs are re- quired by law to ship a certain percent of the volume in U. S. bottoms. The legislation requiring this sup- port of U. S. shipping is the Cargo Preference Act (P.L. 664), passed by Congress on August 26, 1954. Its purpose was “for the transportation of a substantial portion of waterborne cargoes in United States-flag vessels.” . . . whenever the United States shall procure, contract for, or otherwise obtain for its own account, or shall furnish to or for the ac- count of any foreign nation without provi- sion for reimbursement, any equipment, ma- terials, or commodities, within or without the United States, or shall advance funds or credits or guarantee the convertibility of for- eign currencies in connection with the fur- nishing of such equipment, materials, or com- modities, the appropriate agency or agen- cies shall take such steps as may be necessary and practicable to assure that at least 50 per centum of the gross tonnage of such equip- ment, materials, or commodities (computed separately for dry bulk carriers, dry cargo liners, and tankers), which may be transport- ed on ocean vessels shall be transported on privately, owned United States-flag commer- cial vessels, to the extent such vessels are available at fair and reasonable rates for United States-flag commercial vessels in such manner as will insure a fair and reasonable participation of United States-flag commer- cial vessels in such cargoes by geographic areas. . . . An amendment to the Trade Development and Assistance Act, P.L. 480, Title IV, was approved Sep- tember 21, 1959 and provided for long-term supply and dollar credits to foreign governments. A sub- sequent amendment in 1963 extended the lending 14 “Section 3. Packaging and Transportation limitations to include U. S. and foreign private e . prise entities of friendly nations. At least 50 per of the tonnage shipped for dollars, under this tit amended, also must move in privately owned U flag commercial vessels. I While the 1963 amendment restricts the choi ship used when dollar sales. are financed thr Title IV arrangements, otherlsales for dollars in _ ditional market channels are not restricted. Be his choice of ships, (whether of U. S. or foreign ; try, of conference or tramp rates) can ‘be made f the U. S. exporter for dollar sales is considered!‘ “transportation competitive.” I i When selling U. S. agricultural commol abroad there is a complex interdependence bet- the preparation of a product to be moved long tances without damage and the types of trans tion facilities in which the product may move. i, of these will be affected by transportation p0 ‘ and regulations, rates and costs. Within the lit tions imposed by these factors is the amount of w. nology that can be economically applied to the t i aging and movement of the commodity consisj with the economies necessary to meet competii from other U. S. and world traders. “A When considering the costs associated with g oping a foreign market, limitations t0 the app tion of unused technology and to the amount of nology being developed and its potential for im ing the U. S. competitive position in the future =_ be recognized. f‘ The USDA, state experiment stations, industry; other organizations conducted about 350 man-yep research in fiscal 1962 on the improvement of L portation and storage facilities. i From these efforts evolves improved techn that may be economically employed immediately] undetermined amount is inapplicable because‘ current price structure of the product makes th plication cost of the technology too high. This ' ently inapplicable technology forms the unus serve that must await either a price change or co -; uting refinements to make applications econo ly feasible. A One example of the‘ dynamic nature of the portation of U. S. farm commodities is the more; 26,000 tons of agricultural air freight moved b I major airlines in 1961. This was a substanti crease over the amount moved in 1959. Man line officials believe the new turboprop pla i signed for cargo, coupled with improved handling facilities, will reduce freight rates to-I 15 cents per ton-mile compared with their prese of 20 cents, which is about the same as rail w‘ Such transportation by fast air freight could-T ime some quality problems of fruits and -.~ in overseas shipments via water transpor- “here refrigeration, container and stowing l have seriously affected the market for U. S. jpassumed that the U. S. exporter of agricultur- , ts now is using all the technology that can be employed at current price levels. There- 7 product or commodity will be produced, and transported in the same form as U. S. _rs and foreign buyers now are accustomed 'ng it. Preason for making technology static is that the techniques do not always provide the most figures for cost projections. This does not i future technological change in an established after profit spreads have been determined by 'ce. However, for this study, the costs for for- livery of U. S. products should be based on g and transporting conditions which the f» knows from experience can be met. Order I(B) (Foreign Country) I has been determined in the three previous sec- at a U. S. exporter of agricultural products is f§v0rable competitive position with other world ‘rs to furnish a commodity to a foreign coun- en the next logical step is to determine the pility of the foreign consumer, whether the ‘A tive market is sufficiently large to warrant the ‘itures necessary to develop the market and _- the foreign currency received for the U. S. i» t can be converted into dollars at an equitable f exchange. ‘p. 1. Restrictions to Trade in a Foreign Country -e first foreign barrier to trade with a country y is its import regulations. Such regulations ‘function of the government of that country, and, Atrictive in nature, may range from measures to te the quantity of foreign goods being imported 5irect prohibition on certain imports. A second int to import trade that may be non-political in _’ e but nonetheless effective is the social customs fltraditions of a country. When either of these 'ctive forces prohibits trade in a U. S. product o achieving an economically feasible volume of , then such a prospective market is considered -- unfavorable for market development work. use this model is primarily concerned with dollar 1 by private firms}; such firms must consider they e no ability to change foreign regulations through rnment-to-government negotiations. Addition- i, some social attributes of a foreign country which 't trade are considered to be beyond the power E private firm to alter to the degree that a signifi- i ly larger volume of trade is possible. Political Political restrictions to trade encompass two facets of vital importance to the ability of firms to place their product competitively on a foreign market. First, there are restrictions to trade from tariffs, im- port quotas and embargoes, variable levies and gate- price systems, conditional imports, advance deposits, import licensing and bilateral agreements. Second- ly, there are monopsonies and monopolies of a prod- uct’s purchase and distribution system within a coun- try. This may include private business operating under government authority, state trading agencies or quasi-government agencies. Import discrimination and preferential treatment also may complement re- strictive practices which affect free trade with all countries and may be a function of any of the three areas in which monopoly and monopsony operate. In some countries, any consideration of the statu- tory limitations discussed under political restrictions are superfluous because factors such as efficiency of domestic production, consumer preference for the domestic product and transportation costs limit econ- omically feasible trade. Tariffs Tariffs may serve two purposes of notable impor- tance to the importation of products. They may be used for raising revenue or protecting both agricultur- al and non-agricultural industries. If a tariff is used to raise revenue for a country and is applied to all foreign countries alike, the level of the tariff must be considered. When properly ap- plied for revenue purposes, a tariff should be low enough to not significantly reduce the. volume of trade. There must be a further consideration of whether the tariff has been in effect long enough that an equilibrium in supply and demand at the higher price level caused by the tariff has been reach- ed, and whether the current level of import demands includes the prevailing tariff structure. If the tariff allows a desirable volume of trade under stable con- ditions and is applied to all importers without dis- crimination, it is not considered a limiting factor to successful market development. However, if the purpose of the tariff is to protect the country's agricultural industries, and the level is sufficiently high that a notable expansion of domestic production is taking place at a price equal to or lower than the U. S. domestic price plus transportation to the proposed foreign markets, and further expansion of production in the country is possible through arable land availability — then market development work should not be undertaken. Import Quotas Import quotas are a notable deterrent to the ex- pansion of commodity markets within a country. Tariffs, in theory, do not close access to a market in a l5 physical sense, though the high level of the tariffs may serve to accomplish the same purpose. The quota system, however, physically limits importation and may prevent a volume of import sales sufficient- ly large to justify market development expenditures. There are varying kinds of quota arrangements in- cluding a combination of tariff payments plus limita- tions in the quantity of produce permitted to enter a country. Variable Levies Variable levies and gate-price systems are consider- ed to be a trade barrier because, with variation of the import tax, they have an impact upon the quantity of a product imported. For example, the European Economic Community now is using a variable levy system on grain imports to give protection to the domestic price support by control of the volume of trade. Conditional Imports Conditional imports are demonstrated by domestic mixing regulations. Such regulations require that a portion of the domestic production of an agricultural commodity be used in preparation of food or feed for the retail trade. In domestic use, this limitation makes imports dependent upon the internal condi- tions of a country’s productivity, utilization, price and other factors. Advance Deposits Advance deposits on imports are considered bar- riers when used in a discriminatory manner against the U. S. agricultural exporter. Import Licensing Import licensing is a deterrent to market develop- ment if such licenses are not granted automatically to all responsible importing countries. Discrimina- tory issuance can work against U. S exporters even after a market has been established for a number of years. Failure to receive a license could mean a loss not only of sales volume but also the investment in the development of the market. Bilateral Agreements Bilateral agreements also may limit market devel- opment workfor U. S. commodities where the United States is not a party to the arrangement. Health Regulations Health and sanitary regulations can be used as barriers to trade, although their existence does not necessarily indicate their use for this purpose. Only when such regulations are used in a discriminatory manner should they be considered as restraints to trade. Another restriction which can influence the ex- pansion of markets for U. S. agriculture is control of the use of a country’s available foreign exchange by 16 A restrictions deals with monopoly in a foreign cou ' ‘ under monopolistic and monopsonistic condi ' directing the types of import purchases to be f Although it often acts as a stabilizer for the domi economy, plus channeling imports to producer g‘ rather than consumer goods, this is a restraint to tr and its use is sometimes discriminatory. I All the aforementioned political restrictions A capable of restraining trade with foreign count Their effectiveness depends loin the degree of a: cation. A recognition of a changing trend in 1 ernment by relaxation of the severity of applica may be sufficient cause to temporarily ignore vi cal restrictions and undertake market develo » work. Italy, during the Fascist regime, soughtf government policy to encourage wheat productiol a level of self sufficiency. This was accompli ~7 but at a high production cost necessary to support expansion program on poorer grades of land pl L to wheat. Import restrictions on wheat were pro itory. During the decade 1950-60 there was a s » reversal of this policy because Italy’s wheat was ‘ only very high in price compared with world mar but the bulk of it was of a low quality protein w changing domestic consumption patterns no l0 i“ demanded. The change in policy, however, I gradual one to allow the domestic farm economy, make its adjustment. Market development work 3 must adjust its program to the gradual change. The second part of the discussion of poli Such a monopoly may be a private organization o ating under government authority, state agenci’ quasi-government agencies. Of equal importan the monopsonistic aspect of such agencies which 3 exert strong downward price pressures on pur because of the magnitude of their buying pof Market development work for U. S. commodi must be of a limited nature and will depend upori conditions within each country. For example, was a state trader in wheat until July l, 1963 wh went under the variable levy-gate price systems ofj Common Agricultural Policy of the European i omic Community. During Italy’s postwar reconsj tion, U. S. aid under the Marshall Plan and P.L.1 purchases for non-convertible currencies were if sively used for procuring U. S. wheat. Duringl period, a limited program by U. S. market de ’ ment workers was carried on with educational p, showing that the United States could furnish the of wheat Italians needed. When Italy reached a . tion in late 1960 where it was ready to purchase i, for dollars, U. S. market development work lai foundation for purchases through educational j on specifications allowing Italian buyers to meetf exacting need for supplemental wheat. The t; tional work was limited in scope and was toward those individuals who selected the wheat I, the time came for the state to buy. Thus, whem p state traders in a commodity that is unidenti- Ito the public, it is necessary to direct market ment work toward a relatively few individuals. (r other hand, if a commodity is identifiable to I umer, the development work could be direct- public, expecting public demand to exert - on state purchasers. In either case, a limited u of market development activity is more ap- Ite under circumstances of monopoly or mon- , because conditions may exist that are beyond ntrol of the U. S. exporter to overcome. He therefore, hedge his investments in such a "t by shifting part of the promotional resources ther country whose markets will have a better to reflect the additional effort in market devel- t work. ‘Iiactors i, e second broad category of restrictions to trade social factors which act to restrict or limit i‘ For example, religious considerations would unwise any attempt to expand the sales of such l1 ts as pork to Israel or beef to the Hindus of v However, there are more subtle consumer ences which strongly resist expanded sales. For ile, the Italian housewife has diplayed a deter- preference in poultry purchases to those chick- _ ose fat is heavily yellow pigmented. She also A- onstrated a preference for the bird prepared f- ket by bleeding and plucking the feathers e preference for the yellow pigmented bird is ‘Ihich produces the yellow skin and fat pigmen- j The housewife has come to associate the . ed bird with this appearance. Her preference ' er encouraged by the domestic poultry indus- trong ties of trade with Argentina which fur- the bulk of such corn. {h Italian housewife’s preference for the bird (ted with only the feathers removed results ‘the inability of the domestic poultry market to Y a differently-dressed bird to the buyer through stem of unrefrigerated outlets by street vendors i e lack of refrigeration in the home. Poultry I these conditions is. perishable. The Italian l r is a canny buyer who has learned to protect ealth of her household. She insists on freshly- ,7 poultry, and some buyers lay claim to the abili- determine how recently the bird has been killed i deterioration of the eyes and the condition of ucosa within the mouth. Therefore, the head ‘e bird is important from a health standpoint as as that the head, feet and entrails are used in (to stretch the household budget. . e broad-breasted American bird with lighter _nted fat, prepared for the consumer by eviscera- 3 nd removal of head and feet, has been regarded iult of the feeding for many years of La Plata _ with suspicion in Italy. Additionally, the frozen bird which can be transported to Italy from the Unit- ed States is also regarded with skepticism. With the establishment of supermarkets in Italy there is evidence of change in the buying habits of the Italian consumer. However, this change will oc- cur gradually over a long period. In the short run, an American firm could not support a market devel- opment program for U. S. frozen poultry. Such an example demonstrates a foreign consumer preference that must be recognized as a deterrent to market development work. These preferences may be as varied as the cultures which produced them and, therefore, resist any effort to be handily cate- gorized. However, they should be considered when studying foreign market feasibility and should be given equal weight with political restrictions acting as deterrents to trade. Thus, both political and social forces exert critical influence upon market develop- ment work. The political forces are more tangible and predictive; they are also more handily studied through experience with similar measures used by other nations. Conversely, social forces are a product of the people of a country and become infinitely more complex because each individual contributes some separate understanding to the make-up of the total tradition. Over time these two forces may become separately indistinguishable since either may con- tribute to the formation of the other. The establish- ment of a predictably successful market development program depends on whether either political or social measures or both currently allow a volume of trade that is sufficiently large to make such a market profit- able. If the market is not currently using a sufficient- ly large export volume, as a result of such barriers, then the market potential must be considered un- favorable because the removal of such barriers is such a slow process that a private firm cannot afford the time and cost involved. Section 2. Production Deficit in a Potential Market To determine the potential of a foreign country as a market for a U. S. agricultural product there should be an evaluation of the physical ability of that country to fulfill its own needs from domestic production. This physical ability is influenced by (l) availability of arable land, (2) whether the coun- try’s government is directing a concerted effort to increase yields and expand acreages of a specific com- modity, (3) the country’s population trends which can indicate developing consumption patterns and (4) the rate of economic growth and development which may indicate how much the consumer can buy as well as the expected dietary changes associated with changing income levels. However, for this model the most important consideration in determin- ing the foreign market's potential for expanded sales is the amount currently being imported. This im- 17 port level will indicate the degree to which domestic production is supplying the market and whether the production deficit is of sufficient magnitude to con- sider the investment in market development work. It is assumed that countries or firms already sup- plying such a market will continue to be competitive. The new U. S. supplier in the market can expect to share the market and must determine when such an expected share is sufficiently large to consider the investment in market development work. World trends in population and economic growth and development indicate an increased potential for U. S. agricultural exports. A study by Christensen and Mackie concerned with foreign economic growth and development points out that in recent years the best markets for U. S. agricultural products have been Japan, the United Kingdom, West Germany, Canada and the Netherlands, all highly developed economies. Over the long term they believe that the less-devel- oped countries are potential customers for much larg- er quantities of U. S. products. Figures 3 and 4 demonstrate how changes in the compound annual income growth rates in developed and less-developed countries have been associated with changes in imports of all products. Changes in U. S. National income _ I i’ I/,/l/"‘I/'_ II_ - IOO __‘ BO —-- _ _ 2 a - A11 imports, from all countries ,2. - | I 3 6O _ 3 . I ( _ _ >. . 1 l u) 4O —i ——- 1 1 a ‘L Agricultural imports from all countriesz _ Z t- |\ .-.-»-* G! Z0 D 8 _ 2 1 s - ’ _-_ .-.- '° - 4Z1’: ' — B g t ' a 1 1 1 - Q 6‘ A11 imports from United States ‘ii é _ - 0 4 1 . n - ' . ma] . l ,1 ' . | I I I — Agricultural imports from United States — ,1|I|I|I|I| I950 I952 I954 I956 I958 I960 I962 Figure 3. Total income and imports of developed countries.‘ Source: Raymond P. Christensen and Arthur B. Mackie, “For- eign Economic Development and Agricultural Trade,” Foreign Agricultural Trade, Washington, D. C., Economic Research Service, September 1963. ‘Includes countries of Western Europe, Canada, Australia, New Zealand, Japan and Republic of South Africa. 2Income and imports of the United States are excluded. 18 imports are compared with changes in impo’ other countries. For developed countries, total income and im increased at the same rate, 6.8 percent a year, d’ 1950-61, Figure 3. Imports from the United "T increased 6.5 percent annually, slightly less tha rate for all imports. Agricultural imports frog countries increased at the ratie of 4.7 percent "p those from the United States increased at the r7 rate of 3.3 percent per year. I In the less-developed countries, total impor the United States increased only 3.8 percent those from other countries increased 5.1 percent ure 4. The growth rate of income was 5.2 p compared with the developed countries’ rate '1 percent. Agricultural imports from all cou increased 1.9 percent while those from the U States increased 5.5 percent. Rapid expansi agri-cultural imports to the less-developed cou is attributed by Christensen and Mackie to I fluence of P.L. 480 exports. Their study indicates that if the 1950-61 g i rates for income and trade continue, by 1980 the I value of agricultural products exported from, United States will be 2.3 times larger than in I" ZOO National income I m0 ._-Q |,-4""‘ ' ‘F’ ' BO 6O I- 4O All imports from all countries—-—— “ 0 I -O O 2o Li? IO a I Agricultural imports from all countries . \ l * ' . o- . -——U _- _..___Q_ . n ° .1 -""'" 7-‘ ____-1—— o Q O | I 4 A11 imports from United States OO- BILLION DOLLARS (CURRENT U.$. VALUE) 2 Agricultural imports from United States- O g 0 1 ' I ,7?” a i-ii o ' 1| I II _ I I I I I I950 I952 I954 I956 I958 I960 ’ Figure 4. Total income and imports of less-developed n»? Source: Raymond P. Christensen and Arthur B. Mac" eign Economic Development and Agricultural Trade," r Agricultural Trade, Washington, D. C., Economic ' Service, September 1963. ,_ llncludes all countries in Africa (except Republic o, Africa), Asia (except Japan and Communist Asia) a x America. i ‘.1 9% __».. from $4.3 billion in 1960 t0 $9.8 billion . tion growth is another significant area of tion when estimating future agricultural world markets. While income and trade tes have only a tacit recognition of popula- eases, there is a close relationship between d for agricultural exports determined by in- f: trade trends and demand determined by a lation’s projected food needs. ‘cl, in a discussion of population growth and l s, projects the population growth rate for ‘loped countries at 2.4 percent to 1970. This a ice that of the developed countries. If this fpopulation growth is maintained until the ithis century, it is estimated the world food 10uld need to be doubled by 1980 and tripled ear 2000. production has been increasing in most areas orld. Food production in 1960-61, when com- " ith the 5-year period centered around 1950, aggregate increase of about 35 percent in ‘q a erica, 38 percent in the Far East, 42 per- lithe Near East and 23 percent in Africa. For ‘a Europe the increase was 40 percent, and in Europe and the Soviet Union the increase is (a to be 50 percent. In North Africa the in- was only 20 percent over the l950’s, due in f efforts to restrict production. i iel points out that despite the gains in produc- ' uring the past decade, food production levels Vita in most underdeveloped regions have not the levels reached before World War II; n some high income countries even larger food es may emerge during the current decade. 'dence indicates that demand for food is increas- d will continue to do so in the years ahead; and jagricultural production is also increasing, it is jpected to equal the food needs in most of the ‘eveloped regions of the world. Therefore, on ld-wide basis there are opportunities for in- ' sale of U. S. agricultural products because of §ation growth. ‘pansion of sales of U. S. agricultural products g cted to come from an increase in the economic rate which may provide increased incomes for i rchase of food, population growth with its phys- "reeds for more food and sales to customers pres- I being supplied by." competing export nations. ipulation and economic growth rates are plus "rs for increases in a foreign country’s market. ithe current volume of imports is a more import- ionsideration in the short run because it indicates n relative self-sufficiency. Therefore, market de- velopment work can be considered economically feasi- ble in an area where the volume supplied by competi- tors is sufficiently large to allow a profitable opera- tion with only a share of the total imports. Section 3. Conversion of Foreign Currencies to Dollars A cardinal requirement of any competitive busi- ness firm is that it receives payment for goods and services. When a U. S. trader exports to other coun- tries, he is faced with the additionalproblem of converting foreign currencies into dollars. This sec- tion of Order I concerns the determination of a for- eign currency’s ability to be converted into dollars at a favorable rate of exchange. Many factors influence the rate of exchange of a country besides the visible and invisible importation and exportation of its merchandise. Domestic inter- est rates on money can influence foreign exchange rates. For example, a low level of short-term interest rates in the United States can cause a substantial out- flow of short-term capital. Such an exodus of dollars to other countries tends to cause a lower U. S. ex- change rate. Governmental extravagance, unbal- anced budgets, industrial disruption, wars and rumors of wars and excessive speculation in foreign exchange all tend to adversely affect the exchange rate of a country’s currency. Such factors which adversely af- fect a country's financial position also can be changed with varying degrees of swiftness in ways that influ- ence the country’s ability to meet its international obligations. Southard, in a discussion of the relative interna- tional position of U. S. currency, points out that no ~ country escapes from the continuing struggle to main- tain domestic monetary stability and reasonable equi- librium in its balance of payments. The weak and the strong alike, the industrial and the undeveloped countries, all share this common problem. To develop a classification of the relative strength of foreign currencies, Rice and Elrod used the quantitative factors to reflect some of the pre- viously mentioned influences which are more quali- tative in character. The major variables used in determining their ratings are (1) amount and trend of foreign exchange reserves, (2) proportion of such reserves representing a borrowed component, (3) ex- port receipts and their trends, (4) export-import bal- ance (5) balance of payments position, (6) external debt obligation and its relative claim, short-term and long-term, against either receipts and / or reserves, (7) currency under- or over-valuation, (8) foreign assets and (9) vulnerability to volatile cyclical swings. They point to the absence of exact mathematical formula- tions to “infallibly” measure the relative categories they developed in analyzing a country’s financial posi- tion. However, they believe their analysis to be more precise than expected from the broad definition of the 19 categories. Table 4 shows their classification of the countries of the world. Those countries whose 1962 report is rated Excellent or Good (G) meet the qualification of this section of the model where mar- ket development activities may be undertaken with the expectation of receiving in payment a currency that can be converted into dollars. In countries classi- fied Fair (F), market development investments should be limited and be dependent upon plus factors from TABLE 4. COUNTRIES OF THE WORLD CLASSIFIED ACCORDING TO EXTERNAL FINANCIAL POSITION‘ (Country designations as shown in U. S. Foreign Trade Statistics) I. Excellent (E) Financial Position: Large foreign exchange holdings, more than ample to pay for usual imports; balance of payments situation satisfactory or favorable; outlook favorable. Current rating Previous ratings Country Sept. June Feb. March I963 I963 I962 I96I Australia E E E E Austria E E E E Bahrain, State of E E E E Belgium-Luxembourg E E E E Canada E G E E France E E E E Germany, Federal Republic of E E E E Italy E E E E Kuwait E E E E Netherlands E E E E Panama E E E E Saudi Arabia E E E G Spain E G G P Sweden E E E G Switzerland E E E E United Kingdom E E E E II. Good (G) Financial Position: Exchange holdings, if prudently managed, are adequate to meet current import needs without difficulty; balance of payments situation stabilized; outlook either favorable or stable and without maior adverse elements. Current rating Previous ratings Country Se-pt. June Feb. March I963 I963 I962 I961 Denmark El Salvador Ireland Israel Japan Lebanon Libya Malaya, Federation of’ Mexico Netherlands Antilles‘ New Zealand and Western Samoa Nigeria Norway Portugal Rhodesia and Nyasaland, Federation of South Africa, Republic of Sudan Surinam (Netherlands Guiana)‘ Thafland Venezuela 0000 000 0000000 0000 000 0000000 0 000'" 000 “00'"000 -n 0000 000 10m1000 000 0Q 0 000 0Q 0 000 0'11 000 -n'l'l 20 III. Fair (F) Financial Position: Experiencing payments di which limit the ability to import freely; reserves ei g barely sufficient to maintain essential import needs, i outlook tolerable to favorable or (b) currently adequ A deteriorating, with no indication of reversal of the t K ance of payments situation either basically weak, or d to unfavorable. Current rating Previous ratings Jpn} Feb. ' M' Country Se-pt. ‘ v I963 I963 I962 I9 Afghanistan F F F Algeria F F Burma F F F China (Taiwan) F P P Costa Rica F F F Dominican Republic F F P Eucador F F F Ethiopia F F F Finland F F F Free Territory of Trieste, Palestine and Arabia Peninsula Statesz F F F Ghana F F G Greece F F P Guatemala F F F Honduras F F F Iran F F F Iraq F F F Jamaica F P Liberia F F G Nicaragua F F F Peru F F F Philippines, Republic of F F F Tanganyika F F Uganda F F IV. Poor (P) Financial Position: Exchange holdings low or d __ balance of payment situation ‘unfavorable and earnings ficient for import needs; deficit financed by drawing d l. reserves and/or foreign borrowing and assistance; capability severely limited; foreign indebtedness often‘. outlook uncertain or unfavorable. a Current rating Sept. June Feb. M I963 I963 I962 I‘ I Previous ratings Country Argentina Bolivia Brazil Burundi Cambodia Ceylon Chile Colombia Congo (Leopoldville) Cuba Cyprus Guinea Haiti Iceland India Indonesia, Republic of Jordan Korea, Republic of Laos Mali Morocco Nepal Pakistan Paraguay Rwanda Sierra Leone Somali Republic Syrian Arab Republic Tunisia 11111111111111111111111111111 1111111111111111111111111111‘ “U111 1111 111111111111111 1111 l; 4—Continued P P P _Arab Republic . t) P P P P p. P P P P m, South P P P P P P P P g via French African Territories?’ 75, meroon _ lagasy Republic (Madagascar) _ , estem Africa, n.e.c." "' Dahomey Ivory Coast Mauritania Niger i. Senegal i T090 A‘ Upper Volta ‘Western Equatorial Africa, n.e.c.‘ Central African Republic Chad Congo (Brazzaville) y Gabon _ : Gabrielle P. Rice and Warrick E. Elrod, Jr., “External Financial i Positions of Foreign Countries," Foreign Agricultural Trade of the United States, Washington, D. C., USDA, ERS, July-August ‘I963, p. 43. >_ two exceptions, dependent overseas territories and depart- V , including Trust Territories and the Canal Zone, are considered i, the same category as the mother country. The exceptions are ~ rlands Antilles and Surinam, which hold their foreign exchange _- tely from the mother country and exercise a high degree of v_ ndence in its situation. ;Arabia Peninsula States, on which very little information is - ble, include Yemen, Oman, Qatar and Trucial Shiekdoms. 4 n exchange assets of these newly independent states are held lly in Paris under ioint control with France. Data on the __ nts of such assets are not available. Balance of payments J ation is fragmentary. Dollars and other non-franc exchange freely obtainable from the central pool within the limits of nl non-franc earnings; exchange beyond these limits is obtain- vionly under special arrangements requiring French agreement. w of (a) these “pay-as-you-go" exchange arrangements, (b) lly limited and potentially vulnerable exchange earnings and p tentially large requirements for economic development, these i 'es may as a practical matter be considered in Poor or Fair _ al financial position. __- . means not elsewhere classified. sections of the model for acceptance as a good i cial risk. Countries listed as Poor (P) should be considered for the investment of market devel- ent work by a private exporter of U. S. agricultur- _ mmodities. The better course for a firm or in- A with limits in market development funds is make investments in market development work there is a greater probability of receiving fav- Able convertible currencies in payment over a long- i» riod of time. L" l4 Order II (Foreign Countries) If it has been determined by use of the model ough Order I that conditions‘ for market develop- gt for a U. S. agriciiltural product are favorable, g further consideration of somewhat less critical ors concerned with foreign distribution is neces- These factors should be considered as a trade errent in a different perspective since conditions in each country will determine their importance tithe total performance of the market development program. Each part of Order I must be answered favorably if market development work is to be under- taken because the individual U. S. exporter has no control over its limitations. However, Order II rec- ognizes that adjustments in program management, because of limitations, are not only possible but neces- sary for a programs success. Order II deals with three broad factors: physical movement of the product into the foreign country, distribution within that country and retail outlets. In Section 2 of Order I it was determined whether the price for the U. S. commodity would be competi- tive with other exporters at the border of the foreign country. From that point of importation the product must be moved with competitive efficiency at prices that will compete with other exporters. As indicated, there are alternatives in achieving the three above ob- jectives. The final judgment, however, will be the cost of achievement and whether the product at the end use will be price competitive. Section 1. Adequate Port, Storage and Transportation Facilities The purpose of this section is to call attention to port, storage and transportation facilities that may be inadequate for the most effective movement of U. S. products abroad and therefore, a detrimental factor to successful market development. Adequacy of these individual facilities becomes a matter of degree, and the final acceptance of their combined adequacy is determined by whether or not the commodity can be offered to the customer at a price competitive for the quality. Factors to consider when selecting a port to service a market in a foreign country are (1) facilities to dock the larger freighters of the U. S.-European trade routes, (2) shelter and geographic location to allow a year-round access to unloading facilities, (3) unload- ing facilities to allow the discharge of cargo in suf- ficiently short time to meet delivery commitments and keep costs at a competitive level with other ex- porters, (4) dockside storage large enough to accom- modate a whole cargo and (5) a port connected by sufficient rail and/ or truck routes to inland markets to allow delivery of the commodity to the utilizer at competitive prices. U. S. commodity exporters are sometimes at a competitive disadvantage where a small port facility is the best location to service a specific market. For example, freighters on the Atlantic routes from the United States usually are larger than the coastal steamers that handle some cotton trade in the Medi- terranean. The coastal steamers are of sufficiently shallow draft to unload their cargoes at dockside in many small Italian ports where larger vessels must transfer their cargo onto lighters resulting in higher unloading costs. 21 Seasonal weather variations must be considered when planning for a regular delivery schedule for commodities overseas. Certain northern ports are closed by ice during winter months, and this influence affects deliveries of farm commodities longer than the period of freezing because unloading facilities are sometimes in heavy demand for other types of cargo. There are advantages to many of the ports such as specific unloading and storage facilities for certain types of cargo. While these factors may be adequate, there can be an overtaxing of the port's capacity. On December 1, 1960-, Genoa, Italy, had such a backlog of grain ships in harbor that wheat ships arriving on that day would be required to wait almost 60 days for unloading because of crowded seasonal port and dis- tribution facilities. Evidence that this condition in grains continues to exist came when the Italian direc- tor of the Soybean Council of America reported that U. S. soybean sales to Italy would be limited in 1964 because total grain imports of all kinds would tax Italy’s handling facilities. Dockside storage facilities are important for at least two reasons. First is the advantage in quick un- loading of cargo. An allowance in shipping costs is made for the time necessary to unload once the freighter is alongside the pier. Any saving in this time eventually will lessen the cost of transportation. To hold a ship over an alloted time results in demur- rage and higher costs. On November l0, 1960, a 15,000 ton freighter with a full wheat cargo from Gal- veston was being held in the Port of Naples for several more days than normally would be required for un- loading because the 40,000-ton port terminal was full. All grain for out-shipment into Italy by truck and rail was sacked, and the sacking and shipping were relatively slow compared to the unloading rate. A second importance of dockside storage is to maintain product quality. Many difficulties resulted from inadequate or inaccessible facilities in transporting a small shipment of frozen poultry into Italy in 1960. The inadequate facilities for storing and transporting the frozen products after being unloaded from the ship allowed the poultry to thaw. Before being dis- played, it was necessary to resack and refreeze the dressed and individually wrapped birds, resulting in a significant loss in product quality and appearance. Larger and busier ports often have the advantage of railroads and other types of transportation into the inland markets which have been built up over time with the development of the port. An advantage exists over the smaller ports when countrywide dis- tribution is necessary. Inland transportation is not usually a problem from the larger and busier ports of Europe but may become a significant limitation to newer markets in some less developed countries. The problems associated with the unloading, stor- age and distribution of agricultural products in for- Z2 eign countries may be as familiarly simple as in United States or as complex and difficult as a‘ wildering combination of different languages, ties and working conditions can make it. Of im ance to successful market development work is a ~_ ful study of these factors and an evaluation of, effects of their limitations on market develop work. The failure of theseafifgnctions in mark‘ can cause a loss of quality and 5i failure of depenf delivery schedules. i Section 2. Capital for Storage and Distribution i Distribution of agricultural commodities in ' volume in a foreign country is an established fun of the marketing system, although the distrib @ of foreign products may be new or may bring,‘ problems to the existing systems. One existing of lem in foreign trading considered important t0 . study is sufficient capital in the hands of the im r and / or distributor to finance the large shipmen? ocean transportation and the storage of an ade, amount to provide continuous supply. i‘ If the importer is a state trader as was the It wheat buyer in 1960, then this section and thos yond this have no significance. If, however, the v exporter can either choose a distributor or ins a his own distribution system, then this section j importance to him. i: As indicated in the previous section, the exis“; of physical transportation, storage and distrib facilities for agricultural commodities are important to market development. These are o, value if a distributor does not use them to pr the foreign purchaser a dependably available r of supply. To accomplish this usually requir storage of a U. S. commodity in an amount suffi to fulfill quantity needs of the market betwee port shipments. The amount of capital ne depends on the value of the commodity, the qu‘, used, the length of time between shipments an cost of storage considering both bulk and the fa u necessary to maintain quality. 5 Emphasis on providing the foreign utilizer a supply from storage within his country is a dep‘ from some past patterns of export trade. There ', recognition among those seeking to increase y‘; sales for U. S. products that better service to i foreign outlets will increase sales. Providing a sf of a commodity to a foreign market inside the r and past the time-consuming “red tape” of p5 is a definite service and an encouragement’ creased use. For example, most Italian feed.‘ facturers consider the purchase of Argenti Plata corn to be easier than buying U. S. yello i because it can be obtained without “red ta; supplies were more dependably available. i tina’s corn has been distributed in Italy for years. The Sources of supply for th€ Italian bu I and often come from warehouses within Plata corn purchases in Italy are no more it small feed manufacturers than purchases p’c corn. led mill operator in northern Italy indicat- _,rest in U. S. protein meal but pointed out pment from the United States necessitated flhis operating capital longer than do local , careful scheduling of his mill operation e months to be sure that the U. S. shipment’s ould coincide with mill needs and a great ":1 “red tape” connected with importing. A ms associated with providing a dependable f agricultural commodities to foreign buyers itically important as they are to the U. S. p_.market if market development work is to ins in sales. The foreign distributor must ficient capital to handle large shipments and these shipments to provide a steady flow iquality products to the market. The difficul- lciated with adequate capital for importers l. agricultural commodities are recognized by g with the passage of a recent amendment I~ IV of P.L. 4-80 authorizing the Secretary of gture to enter into long-term dollar credit sales ‘ents with U. S. and private trading entities. l this arrangement, negotiations are carried on ‘es agreements are signed between the U. S. gov- t and the private companies in the foreign es. 4e physical supply of a U. S. agricultural com- , in a foreign country is not a guarantee of ac- ce of the product by the foreign utilizer. How- has been illustrated that such a supply has i advantages over booking orders for shipments lfthe United States. If the storage of a ready l for a foreign market is feasible, then the capital i ce such an undertaking is necessary to success- “arket development work. in 3. Adequate Retail Outlets A’ e term “adequate” designates that the foreign I outlet should possess the resources and the mer- ‘izing willingness to sell agricultural commodi- ,0 the consumer. esources in this instance include the facilities of ,il firm, such as refrigeration and other physical pment, necessary to handle the particular form product shipped from the United States. For yple, Italian retail food outlets in 1960 were large- I; eet markets and small shops and could not han- fU. S. frozen foods: that when thawed out would iorate rapidly in quality and appearance. They e inadequate outlets for this type of product. “Merchandizing willingness is defined as an attitude lithe foreign merchant indicating he is favorably fposed toward selling the U. S. product. Many U. S. products have met sales resistance because the retailer was unfamiliar with the product and unwill- ing to “push” sales. Soybean oil as a salad oil in Italy met some early resistance by retailers partly because it was so cheap as compared with olive oil and partly because it was believed nothing could replace olive oil for that purpose. There is no best pattern for all successful market development work in all foreign countries any more than there is one type of adequate retail outlet for one U. S. product in all foreign countries. The pros- pective U. S. exporter must make a study of the mar- ket outlets and determine whether enough stores have physical facilities necessary to preserve the quality of the product. An examination of the consumer market can de- termine how to prepare best the U. S. product for the peculiarities of a particular foreign consumer within the limitations of being cost competitive. La- bels printed in the language of the country, and weight information given in the familiar measure of the market can help overcome resistance of the merchant to handling the product. The president of a U. S. firm doing business in international commerce sug- gests that to be successful a U. S. exporter should know as much as possible about the customs, mores, traditions and history of a country. This avoids the embarrassments and resulting diseconomies that come from ignoring national pride, flouting custom and calling people “stupid” because their habits and tra- ditions differ from ours. Different Extremes of the Market There are wide differences in the demands on a retailer in different markets. Australia is one exam- ple of a market that offers little change from U. S. markets. Language, legal and political structure, standard of living, way of life, and particu- larly willingness to consume are comparable or rapidly becoming so. Research, advertis- ing agencies, media, channels of distribution, and other elements of the marketing func- tion are familiar and easy for Americans to use. Ewing points out that important differences do exist. Australian retailers welcome salesmen cordial- ly as “visitors from on outside world they seldom see but like to hear about . . . itis sometimes alleged that they divide orders with a sense of fair play if not of logic.” Though there is the strong similarity, there are differences that must be recognized if market development work is to be successful. Dunn considers that the French retailer must sat- isfy a most difficult, hard-to-predict customer who is somewhat different from his or her counterpart in any other country. 2.3 His store is something of a social institution, with many of the attributes of a “club.” The proprietor is sometimes as much a social director as a businessman. He must keep his members (his loyal customers) happy, and is often relatively unconcerned about en- larging his circle of customers. A formidable barrier to marketing progress is the reluctance of the French consumer to accept the standardization implicit in mass production and mass marketing. This offers difficulties to some U. S. products where prepackaging is desirable for ship- ping or quality maintenance. It is recognized that only a part of U. S. agricultur- al commodities going into foreign markets will retain U. S. identity. It is also true that many U. S. export- ers will consider that their foreign customer is the foreign processor of U. S. agricultural raw materials. However, the final consumer cannot be ignored, and technological assistance and attention to the needs of consumer marketing among retail outlets may both increase consumption and engender good will among retailers. The U. S. cotton industry, for ex- ample, promoted all cotton at the consumer level in certain foreign countries. The promotion in part was to encourage the consumer and the retailer to accept cotton as a fabric that has “class” appeal as well as the appeal for traditional uses such as absorb- ency or sturdiness. The result was increased per capita consumption which makes friends of retailers. The patterns of retailing within a country are many and may vary. Such variations may change the sales of U. S. commodities in different countries as well as different parts of the same country. Some resistance to the product by the foreign merchant may be overcome in time by promotion and educa- tion. However, a strictly limiting factor may be the inadequacy of physical facilities to provide the con- sumer a quality product at competitive prices. Order III (Foreign Country) This order attempts to determine if a market in a foreign country has adequate means for introduction and/or promotion of a U. S. commodity. The as- sumption of this section is that advertising and sales promotion are a part of successful selling in foreign countries. The media necessary to adequate promotion are not designated in this study because there are differ- ent means of accomplishing the same purpose in dif- ferent countries and in different cultures. “Ade- quate” promotional media means that, whatever the outlet used, the market’s consumer can be reached effectively with information about the U. S. product. U. S. Promotion Pattern Western European countries now are employing product promotional techniques through advertising 24 media similar to the methods developed in the U‘ States and in some cases are obtaining help from advertising agencies. l Germany, for example, had five U. S. adver agencies helping promote sales in 1961, and, acc p to Time magazine, her own agencies reflect adoption of U. S. techniques by borrowing advertising terms. Their agencies are staffed b cialists, such as . . . “der Layouter, der Texter, an Media-Mann. They work up die Marketing " sition and test it on einem Consumer Panel. goes over they prepare ein guter slogan. The‘; make die Presentation to der Client.” 3 It was reported earlier that Australia has Q for advertising promotion comparable in cover the United States. Ewing states that other n‘; ties to the United States also exist. ~- Like retailing and other aspects of adver ‘l ing, Australian advertisements and comm cials are characterized by a wide use of Ame ;.p_ icanisms. Despite the over-all improveme in technical standards in recent years, age cies and advertising departments still borro freely from the United States and Englan, i Italian Media __ Italy has all the principal advertising rfv common use in the United States. However, are differences in relative amounts of expend‘ in Italy compared to the United States. g Trade Fairs Trade fairs are a classical means of prof" market development in Italy. This is true in ‘a Europe. There are many fairs in Italy of diil‘ types and sizes, ranging from those of interna; scope to small local fairs. Many fairs have dev’ . into specialized exhibits. Krugmann indica trend in Europe is away from the general exhi'_ He points out that the specialized fairs have dev into the most important trading centers in é’; It has become a place where trading is per between groups representing the world's leadinl ers and sellers. ‘l I‘ Promotion in Italy Market development work for agricultur modities in Italy has been assisted by advertisi’ promotion. A promotional effort with the so l tion of Madison Avenue is not necessarily co to be the most desirable means of increasin The size of the market and the clientele invol affect the choice of the type of promotion. _, fication of the familiar U. S. sales pitch may I sary to fit into a pattern acceptable to the buyer. This indicates the importance of A what is best about the U. S. selling program t"; ing locally what is needed to be most effective- lcountry. To do this, one must know the of advertising media in a foreign country ’ motion of U. S. agricultural commodities. CONCLUSION it development activities to increase the sale jgricultural commodities in foreign countries few concept. The U. S. exporter has applied this end since the early years of this na- “the patterns for successful market develop- 2e changed as trade conditions have changed. trading, like domestic trading, is influenced ll"living force” of its transactions between However, the complexity of dealing with h different political, social and economic set- foreign trading subject to influences not "It by the domestic merchant. This study has iphasis to some of the more important influ- actors in foreign trade. A Free Trade omists are in general agreement on the ad- h" of free trade between countries. The United j modern times set its course toward freer ' 1934 with the passage of the Reciprocal fAgreement Act. In 1962 the passage of the fExpansion Act gave more recent evidence of 'nuation of the U. S. policy of freer and ex- : g trade. if 'culture and the Balance of Payments ‘ position of the U. S. balance of payments is affected by the exportation of agricultural ”ities. In calendar years 1960-63 these com- ies constituted 24 percent of the total U. S. t sales; in 1962-63 the same percent was the level ‘_ port purchases of agricultural commodities. significantly, while agricultural imports have ed at about the same level over the past decade, ipercentage of total imports has decreased, and f’ same period the agricultural exports have in- ‘~- in amount as well as in their percentage of ital. This export position demonstrates the im- ce of the agricultural export trade to the "nce-of-payment position of the United States. Changing Trade Patterns t has been suggested that there is a changing ' rn of foreign trade. It is not suggested that the jtical, economic and social forces are new, but that are being applied in new combinations which A’ ence trade. Such new combinations require a t} appraisal of existing approaches to the develop- it of foreign markets. (An example of changing patterns of foreign trade demonstrated in the policy taken by the United. States in the Kennedy Round of the GATT negotia- tions in Geneva. The U. S. position seeks an appor- tionment of existing markets somewhat in the same framework as the International Wheat Agreement. The purpose is, in part, to remove the sharp market price fluctuations that have characterized interna- tional commodity trade in certain past periods. Whatever the final outcome of the negotiations, the fact that this position is posed by the most economical- ly influential nation in the world will affect trading patterns as other nations make their decisions to accept or reject the proposal. Another potentially vital force in international trade is the yet unknown factor of what now appears a change of course to increase trade by the Soviet Union and the satellite countries. These factors, like the changes occuring through GATT negotiations, are beyond the power of individual firms or com- modity organizations to alter significantly. These groups must be sensitive to the limitations of the greater political powers under which they must oper- ate and must adjust their business accordingly. A somewhat more limited concept of marketing and of change is that of a U. S. commodity organiza- tion or a private business firm seeking to maintain or expand its markets abroad. Developments in technol- ogy of communication have rendered obsolete the con- cept of an isolated market competed for by the few, or a supply of resource riches available to the few for the development of a product. The newer concept is of a commodity produced by several countries with vary- ing degrees of efficiency that must be sold and not merely offered to the many customers. Such selling implies a price competitively correct for the quality of goods offered. Equally significant, this selling properly considers the importance of service to a mar- ket with the best application of the art of promotion as well as the best use of scientific achievements of marketing technology. Such an application of resources has the tacit im- plication of expecting to supply and service this mar- ket over a long time period. Market development work for the long time period is advocated. However, the judgement of a market’s favorable acceptability for promotion is based on a relatively shorter period because of limited resources. The expenditure of resources necessary to expand the sale of U. S. agri- cultural commodities or to maintain existing sales can be justified only on the basis of continuing markets. New Dimensions in Market Development The development of foreign markets for U. S. agricultural products assumed new dimensions as a result of the Trade Development and Assistance Act of 1954. The new dimensions are the cooperative action of government and industry as a team effort 2.5 and the active promotion of U. S. agricultural com- modities within a foreign country. The initial efforts of government and industry often were highly successful but sometimes were defi- nite failures. There was an insufficient number of U. S. citizens knowledgeable in foreign trading in the early years of promotional work after 1954. Some efforts were characterized more by willingness than by skill, resulting in some wasted effort. However, the total program had-significant impact on the in- creased sale of U. S. agricultural commodities. A Model for Market Feasibility Considering that the impetus for market develop- ment will continue, this study is designed as a frame- work whereby U. S. agricultural exporters may con- sider systematically the feasibility of selling U. S. commodities or products in a foreign market. 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