THE COMPETITION IN 1997

U.S. and Competitor Expenditures on Export Promotion and
Export Subsidies for Agricultural, Forestry and Fishery Products

Introduction:

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 have oriented 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 programs such as the Market Access Program (MAP) and the 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 European Union are also addressed in this report.

Major 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, timber and fish 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. Often, producer financing is accomplished through statutory fees on sales or exports. Government assistance to export market promotion is "green box" (not subject to discipline under the WTO Agreement on Agriculture).

Export market promotion encompasses a wide range of activities, including:

1. Advertising on radio, television and in print media. This includes generic ads designed to reinforce an image for all products from a country, such as New Zealand’s campaign promoting its food as natural, and ads for individual 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.
2. Trade show participation. These include major international shows such as ANUGA or FOODEX as well as smaller exhibitions sponsored by individual countries in a foreign market. Trade show participation is an important way to introduce new products to a lot of buyers and make new contacts. Most countries facilitate the participation of their exporters and producer associations in trade shows, often absorbing some of the costs.
3. Public relations, including food editors’ columns, event sponsorship and other "free" advertising.
4. National branding. This involves promotion of a national brand name, such as "Australia Fresh" which independent exporters are allowed to use on their products, usually for a fee. Often, these are associated with specific standards which must be met before the brand name can be used.
5. In-store and menu promotions and tastings. This includes activities geared to food retailers and wholesalers or restaurants in the importing country, including the provision of promotional and display materials and recipe guides. Samples are often given out in supermarkets. Wine tastings are a common promotion tool for wine.
6. Trade missions and reverse trade missions. Trade missions are visits by exporters to the importing country. Reverse trade missions are 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.
7. Technical assistance. This can range from invitations to specialists to attend training courses or related technical seminars in the exporting country to demonstrations in the importing country to facilitate the use of a specific commodity. Examples include 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 $7.1 billion in 1997 reflects continued low export subsidies for grains, but stable subsidies for other products.

Countries Chosen for the Study:

28 foreign countries were chosen for this study. The traditional exporters of the EU were included: 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, Japan, Korea, New Zealand, Norway, South Africa, Thailand and Turkey. New additions this year are Hong Kong, Malaysia, Mexico, Singapore, Switzerland and Taiwan. Japan, Hong Kong, Mexico, Singapore and Taiwan are major importers and are included to provide insight into competitor practices in the market place. For the same reason, a section has been added to most of the country reports describing competitor activities in that market. Finally, a section on the United States has been added which highlights key USDA programs as well as foreign promotion activities in the United States.

Estimated Market Promotion and Direct Export Subsidy Expenditures:

Expenditures on market promotion activities for agricultural product exports by 28 agricultural nations studied are estimated at just over $924 million in 1996/97. Government allocations account for about 32 percent of promotion expenditures, while producer and industry assessments and other fees make up the remaining 68 percent ($624.8 million). Market promotion by EU countries is estimated at $364.6 million in 1996/97, while expenditures for other major exporting countries totaled an estimated $559.3 million. Direct export subsidies for 1996/97 were estimated at $7.734 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 1997 budget allowed for export subsidies for meat and poultry ($2.3 billion), dairy products ($1.9 billion), sugar ($1.5 billion), processed foods ($630 million), grains including rice ($466 million), fresh fruits and vegetables ($89 million), wine ($57 million) and olive oil ($50 million).

EU export market promotion expenditures: This year’s report shows a similar distribution between government and industry financing as last year’s report; about 41 percent government and 59 percent industry. Total export promotion funding, not including export subsidies, is also similar; $364.6 million this year compared to $350.2 million last year. An increase in the reported level of promotion spending for Italy offsets a reduction in the reported spending level for France compared to last year’s report. However, both of these changes are due to changes in reporting methods, rather than any major change in European budgets. Italy is higher because estimates of total expenditures are being used instead of just the national budget. France is lower because government expenditures for overhead costs for export promotion have been excluded this year, but were included last year. The central marketing and promotion associations in European countries such as Germany and the Netherlands France are financed primarily by producer/marketer assessments and user fees. Market promotions by Spain and Greece are predominantly government-financed. UK and Italian government expenditures, both national and regional, are on a similar level with those of agribusiness in the financing and development of export promotions. UK promotions were down from last year primarily because of the limits on British beef exports due to BSE concerns. Brussels reported that the EU market promotion budget exceeded $100 million in 1997. However, the bulk of that funding was designated for generic promotions with the EU and was not included in Table 1.

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 and from retained earnings, but also receive some funding from their respective governments. Australia and New Zealand have significantly increased their export promotion expenditures in recent years, particularly in Asia and in Latin America. 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 smaller companies. Switzerland and India’s governments cover most of the costs of their export promotion activities. Malaysia’s palm oil and forest products export committees are funded by producer assessments on palm oil and export taxes on forest products. Norway’s Seafood Export Council 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 Canada, Norway, Switzerland, Taiwan and Turkey also subsidize their agricultural exports, albeit at much lower levels than the EU. Switzerland spent more than $300 million to subsidize its exports of dairy products and beef in 1996, while Canada, Norway, Taiwan and Turkey spent an estimated $115.6 million, $72 million, $15 million, $21 million, and $50 million, respectively, in 1996/97 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. 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, wine, fresh fruits and dairy products are the most important products promoted in Asia. However, both European countries and Australia and New Zealand have directed more export promotion resources towards Asia and Latin America in recent years.

Future directions for export promotion: European countries are increasing their promotion activities in Asia and Latin America, as well as in Eastern Europe. In the case of Latin America, this strategy is complemented by efforts to negotiate free trade agreements. Recently announced changes to the laws governing New Zealand’s corporations and promotion boards could encourage the boards to be more accountable to their producers. South Africa is developing a new export promotion strategy now that its export subsidies have ended.

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. Thailand is working on a new food law which will help to ensure that its exported food products are up to international standards.

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 many of their agricultural products through marketing boards. Many of these boards have exclusive control over 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 financing where information is available.

Export bans and export taxes: Several countries have used export disincentives for primary products to reduce the cost of raw materials in their domestic market, making their exported processed products more competitive. Examples are differential export taxes in Argentina and Brazil, which have largely been eliminated in recent years, and Indonesian restrictions on log exports.

Table 1 summarizes competitor market promotion and direct export subsidy expenditures by country. The market promotion expenditures presented in Table 1 attempt to replicate U.S. expenditures for the USDA Foreign Market Development and Market Access Programs. Unless expressly stated, the market promotion expenditure estimates exclude expenditures for the operation of overseas offices and the statistical reporting-type activities of foreign government agencies involved in export promotion. Market promotion expenditures generally do not capture the costs associated with regional or local government promotions because this information usually is unavailable to the FAS Posts. Table 1 also includes estimates of direct export subsidies for the EU, Canada, Norway, Switzerland, Taiwan and Turkey. Direct export subsidies in Table 1 are estimated at $7.734 billion compared with market promotion expenditures of an estimated $978 million.

Last modified: Monday, August 29, 2005