THE COMPETITION IN 1996:
SELECTED EXPENDITURES FOR EXPORT SUBSIDIES AND EXPORT MARKET PROMOTION ACTIVITIES OF MAJOR U.S. COMPETITORS IN GLOBAL MARKETS FOR AGRICULTURAL AND FOOD PRODUCTS
U.S. exports of high-value and consumer-ready foods have increased steadily in recent years, but will continue to face stiff competition in major importing markets. Many exporting countries have announced ambitious export goals and are reorienting their export programs to attract larger numbers of small- and medium-size firms to exporting. The chief export policy tools employed by exporting countries are: direct export subsidies, export market promotion (development) programs, export credit and credit guarantee programs, and statutory marketing boards.
This report focuses on other countries' market development programs and activities which are similar to those of the U.S. Department of Agriculture's Market Access Program (MAP) and Foreign Market Development (FMD) Program. Because of their continuing impact on the marketing environment for agricultural products, the direct export subsidies of major subsidizing countries such as the EU also are addressed in this report.
|Major Types of Market Development and Promotion Activities|
|Countries Chose for the Study|
|Estimated Export Subsidy and Export Market Promotion Expenditures|
|Table 1: Competitor's 1996 Expenditures on Agricultural Export Market Promotion and Export Subsidies|
|Table 2: Market Promotion and Export Subsidies: United States and Competitors, 1995/96|
|Other Export Assistance Policies Not Included in this Report|
|Expenditures and Activities by EU Member Countries|
|Expenditures and Activities of Other Competitor Countries|
Export Market Promotion Activities: Export market promotion activities are widespread in developed and, to a lesser extent, middle-income countries. In many countries, governments work as partners with agricultural producers and food processors. In some countries, producers finance the bulk of the promotions, while in others, the government is more active in financing the promotions. Government assistance to export market promotion is "green box" (not subject to discipline under the GATT 1994).
Export market promotion encompasses a wide range of activities, including:
Radio, television and print media advertising of commodities and products. This activity often includes compilation and printing of major national "Supplements" in target countries at special occasions such as the "National Day" or the visit of the head of state or similar high level dignitaries.
Public relations, including food editors' columns and other "free" advertising.
Brand promotion highlighting the uniqueness of the product in terms of taste, quality, newness, association with the country of origin, etc.
Instore generic, branded or combination promotions of products from the exporting country. Activities geared to food retailers and wholesalers in the importing country, including the provision of promotional and display materials and recipe guides.
Participation in local or international food shows or consumer fairs in the importing country, including point-of-sale sampling.
Invitations to foreign buyers, including trade delegations to the exporting country to visit producers, processors or packers and to visit with important public or private sector officials. High level trade representations to foreign countries to support food and agricultural exports.
Arranging for traveling food shows and selling teams in importing countries.
General advertising of the quality image or the virtues of the exporting country such as the "Clean Food" from Australia slogan or the "Food from Britain" slogan from the United Kingdom.
Invitations to specialists, such as the health inspection service in the buying country, to attend training courses or related technical seminars in the exporting country. Other technical assistance activities to facilitate the use of the commodity such as baking or meat cutting seminars.
Export Subsidies: Under the Uruguay Round Agreement, direct export subsidies (price reductions) were disciplined. The United States, the European Union (EU), and other developed countries must reduce their export subsidies over 6 years by 36 percent of a 1986-90 base period subsidy value and 21 percent of base period volume. However, the EU retains a very significant advantage in its budgetary ceiling for export subsidies. The EU budget for export subsidies of $9 billion in 1996 reflects declining export subsidies for grains, but stable subsidies for other products (within export subsidy commitment levels).
Exporting Countries Chosen for the Study: The 23 countries chosen for the study are the traditional exporters of the EU: Denmark, France, Germany, Greece, Ireland, Italy, the Netherlands, Spain, and the United Kingdom. Other competitors included in the study are: Argentina, Australia, Brazil, Canada, Chile, China, India, New Zealand and Turkey. New additions this year are Japan, Korea, Norway, South Africa and Thailand.
Estimated Market Promotion and Direct Export Subsidy Expenditures: Expenditures on market promotion activities for agricultural product exports by 23 agricultural exporting nations are estimated at just over $745.3 million in 1995/96. Government allocations account for 35 percent of promotion expenditures, while producer and industry assessments and other fees make up the remaining 65 percent ($488.7 million). Market promotion by EU countries is estimated at $350.2 million in 1995/96, while expenditures for other major exporting countries totaled an estimated $395.1 million. Direct export subsidies for 1995/96 were estimated at $9.135 billion.
EU export subsidies: The member countries of the EU compete with the United States in the broadest array of agricultural products. Many EU agricultural product exports benefit from the EU's direct export subsidies and compete for market share through price. The EU's 1996 budget allowed for export subsidies for grains and grain products of $1.3 billion, sugar ($1.9 billion); fresh fruits and vegetables ($125 million), processed fruits and vegetables ($18 million), wine ($72 million), dairy products ($2.5 billion); meats and meat products ($2.4 billion); and other processed foods ($752 million). Over 85 percent of the EU's 1996 planned budget for export subsidies was for exports of high-value products; the remainder was allocated for exports of grains and grain products.
EU export market promotion expenditures: Improved reporting of EU market promotion funding yielded a higher ratio of government-to-private sector funding for European countries' export market promotions compared with that of last year's report. In general, export market promotion expenditures by selected European countries and their producers are about the same as last year's spending. However, FAS posts reported that the EU awarded regional support funds to the Greek and Irish export promotion agencies to assist export market development activities. Thus, government funding by the EU is estimated at $147 million in 1995/96 and accounts for 42 percent of total EU government and producer funding. The remaining 58 percent of the expenditures for export market promotion are funded by producer boards and other fees. The central marketing and promotion associations in European countries such as Germany, the Netherlands and the United Kingdom are financed primarily by producer assessments and user fees. Market promotions by Spain and Italy (both national and regional) are predominantly government-financed. The French government is a strong partner to French agribusiness in the financing and development of France's export promotions.
Other exporters' market promotion activities: Among the other exporters, Australia, Canada and New Zealand have strong national government promotion agencies and rely heavily on their statutory marketing boards to carry out market development activities for producers of specific agricultural products. These quasi-governmental agencies generate most of their promotion funds from producer and industry levies, but also receive some funding from their respective governments. The Australian government continues its support for small- and medium-size firms through its Export Market Development Grants Scheme. The Canadian national and provincial governments also are marshaling scarce funds to assist producer boards and food processors. Norway's Seafood Export Council, a relative newcomer to promotion since its establishment in 1991, is funded by the export registrations and assessments on fishery products collected by the Norwegian Customs Authority. Government assistance for export market promotion of agricultural products is relatively low in Argentina, Brazil, Chile, China, Japan, Korea, Thailand and Turkey.
Other exporters' direct export subsidies: The EU remains the chief user of export subsidies in world markets. However, the governments of India, Norway, South Africa, Thailand and Turkey also subsidize their agricultural exports, albeit at much lower levels than the EU. Norway spent about $83 million to subsidize its exports of dairy products, meats, and other products in 1995, while India, South Africa, Thailand and Turkey spent an estimated $1.1 million, $15 million, $6 million, and $30 million, respectively, in 1995 for direct export subsidies.
Chief countries and commodities targeted for competitors' promotions: A general review of the information provided by FAS posts and other sources indicates that the United States' major competition for consumers' food budgets in Western Europe is other European countries, while Australia, Canada and New Zealand, and other Asian countries are the chief competition in Japan, Korea, Hong Kong and other major Asian countries. The United States also is the single-largest market for promotions of European and Canadian food products. Based on the information provided, European competitors promote a wide range of products in Europe, although processed meats, dairy products, wines, fruits and vegetables and other processed products are important in European markets. Meats, grains and dairy products are the most important products promoted in Asia.
Future directions for export promotion: The producers and governments of several countries are stepping back to review their programs. The French government is reviewing its overall export promotion strategies. Possible changes to the laws governing New Zealand's corporations and promotion boards could encourage the boards to be more accountable to their producers. Italian rice millers tried unsuccessfully to overturn mandatory assessments for rice that fund a rice promotion board.
In spite of the EU's large expenditures for export subsidies, their reduction under the GATT 1994 is causing some EU member countries to rethink their price-based marketing strategies. For example, Denmark has developed a marketing strategy which extolls the quality of its products and the ethical treatment of their animals and of the people working in their food processing industries. This strategy is reflected in brochures and other promotional materials.
Some countries have established new authorities to help their businesses compete in export markets. Australia reportedly formed a trading company in Japan through AUSTRADE, its international promotion arm, for the promotion in Japan of Australian-origin processed products.
International Collective Generic Promotion: Most of the export market promotion covered in this report is funded and administered by national governments and producer boards. However, the United Nations Food and Agriculture Organization (FAO) has implemented an international generic promotion program for tea, which it will administer in conjunction with various tea-producing countries. The promotion effort will be conducted in coordination with scientific research on the health benefits of black tea. The cost of the entire package is expected to be $5.18 million, with about $2 million of the program cost covered by the FAO tea-producing members and the rest covered by FAO. (These estimates are not included in Table 1.) FAO also is reviewing an international generic citrus program.
Other Policies Used to Encourage Exports: The authorities and export-related practices of statutory marketing boards and export credit/credit guarantee programs also are important policy tools for exporting countries. These programs are noted in the country summaries and their importance in relation to export market development is discussed when information is available. No expenditure estimates for these policies were included in Table 1.
Export marketing boards: The producers of exporting nations such as Australia, Canada, and New Zealand sell their agricultural products through marketing boards. Many of these boards control the export marketing of their designated products. Some also are authorized to make long-term sales contracts with the governments of importing countries. Some of the Australian and New Zealand boards are authorized to enter into joint ventures with firms in importing countries. For example, the Australian Wheat Board invested in a flour mill in Shenzhen, China, and helped to finance a flour mill to be built by the government of Vietnam. Most of the statutory marketing boards also conduct advertising and promotion activities and are particularly effective at melding generic promotions (advertising and retail promotions, trade servicing and technical assistance) with the typical sales activities such as retailer discounting, negotiation of shelf space in retail stores, sales agreements with millers and processors, and credit financing.
Export credit guarantees: Many nations offer or guarantee financing for agricultural products. The report touches on government or quasi-government credit agencies when the agency guarantees loans to exporters for market promotion activities. For example, the French financing agency COFACE (Compagnie Francaise d'Assurances pour le Commerce Exterieur) guarantees short-term loans to exporters to cover the costs of trade fair participation and other market development activities.
Future Competition Reports: FAS' attaches and Agricultural Trade Officers' reports of competitor practices have contributed significantly to the development of a "baseline" of estimated expenditures for these policies and activities. Some additional areas of coverage would make this report more useful to policy makers.
The report now captures market promotion and export subsidy expenditures and activities for the major exporting countries, as well as some major importing countries (Japan, Korea, Hong Kong). The larger importing countries provide valuable insights into the expenditures of major agricultural exporters. Information from the posts in these countries should continue to be reported, and expenditure estimates should be refined. Information from other countries should be reevaluated in light of those countries' contributions to the baseline of expenditures for export market promotion, export subsidies and other types of export assistance.
The costs of operating overseas trade offices and their role in export market promotion for agricultural products will be requested next year. This is a challenging request since some countries' trade offices emphasize agricultural product promotion, while others focus more on the promotion of manufactured goods and financial services.
In many countries, particularly EU countries, national government promotion agencies are delegating export market promotion funding and administration to regional governments. Reporting of the expenditures and promotion activities of regional and local governments and chambers of commerce will become more important in the future.
Many FAS posts provided some indications of government funding for production, tax, and other incentives which encourage exports of agricultural products. Enhanced reporting in this area also will contribute to a better baseline.
Reporting of national marketing strategies may be just as important as the level of expenditure since the marketing strategy provides insight into the promotion message advanced by national governments. FAS will continue to request that its posts report on competitors' published marketing campaigns and national strategies.
Contact: FAS AgExport Services: (202) 720-6343 or Karen Ackerman (Economic Research Service):(202) 501-8511