United States General Accounting Office GAO Report to Congressional Requesters ,3‘_ January 1990 INTERNATIONAL TRADE Foreign Market Development for High Value Agricultural Products , National Security and International Affairs Division B-226269 *January 17. 19930 The Honorable Patrick Leahy Chairman, Committee on Agriculture, Nutrition, and Forestry U.S. Senate The Honorable E. (Kika) de la Garza Chairman, Committee on Agriculture U.S. House of Representatives As requested, we developed information regarding U.S. competitor agricultural export marketing of high value products. We concentrated on specific marketing practices, including market research, product development, and market promotion. This report details organizational structure, the relationship between the public and private sectors, funding sources, and market development practices of 12 foreign countries competing with the United States in high value agricultural markets. We also provide a summary of U.S. practices and compare competitor and U.S. programs. Some competitors have more experience in export marketing and adopt different methods of structuring coordination between the public and private sectors. As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 7 days from the date of this letter. At that time we will send copies to interested parties and make copies available to others upon request. Please contact me at 2754812 if you or your staff have any questions concerning the report. The major contributors to this report are listed in appendix V. Allan I. Mendelowitz, Director Trade, Energy, and Finance Issues Executive Summ~ Some foreign competitors, particularly in the European Community, Purpose have highly developed marketing networks in place, which have con- tributed to an expanded share of the lucrative high value agricultural product market. Because information about foreign competitors’ market development programs is limited, the Chairmen of the Senate Committee on Agriculture, Nutrition, and Forestry and the House Committee on Agriculture asked GAO to obtain information about foreign market devel- opment programs, including the roles of the public and private sectors, and to compare foreign and U.S. high value agricultural market development. High value agricultural products include semiprocessed products (e.g, Background coffee and cocoa), highly processed, consumer-oriented products (e.g., milk and chocolate), and unprocessed horticultural products (e.g., fresh fruits and nuts). During the 1970s and the early 1980s world trade in high value products was the fastest growing component of agricultural trade, and high value export growth is expected to continue. While high value trade accounted for 66 percent of world agricultural trade value in 1987, U.S. high value exports accounted for about 48 percent of U.S. agricultural exports. Results in Brief Although we found that most foreign competitors we reviewed spend less on high value market development than the United States, some spend their funds in a highly targeted manner, using an integrated mar- keting approach, which starts with identifying customer needs and moves to the producer who strives to satisfy that need. The Department of Agriculture has invested large sums in foreign market development in recent years but the primary responsibility for conducting foreign mar- ket development activities remains with selected private sector associations. Based on our review of the marketing activities in 12 foreign countries, representing 65 percent of worldwide high value exports, we found that foreign competitors conduct market development through centralized marketing organizations, independent marketing boards, and various combinations of public and private sector institutions. Countries with “independent” marketing organizations which are funded by statutory levies reflect a national commitment to export marketing. Close coopera- tion between the public and private sectors is evident in the manage- ment and funding of some marketing organizations. For some countries, the line between public and private sectors is barely visible. Page 2 GAO/NSIAD90-47 Intemational Trade J%xemtive Summary Some competitor marketing organizations promote virtually all agricul- tural products in both domestic and foreign markets while others promote products of a specific sector. A few foreign competitors conduct market research to determine the appropriate markets and products and work with producers to solve supply and distribution problems, includ- ing issues related to quality control. Trade show participation and retail and consumer promotion are integral to their marketing strategy. They generally evaluate performance informally; when circumstances war- rant, they conduct or contract for formal evaluations to guide planning. Foreign competitors generally differ from the United States in the close- ness between the public and private sectors and do not have the same type of oversight by government agencies that is typical in the United States. Moreover, foreign governments play a larger role both in manag- ing and funding market development organizations. The U.S. govern- ment works with nonprofit private sector trade associations in designing and implementing marketing plans. It shares costs with those firms, gathers information, and evaluates market development activities. Addi- tional oversight is provided by the Congress. Some foreign competitors have a long history of exporting and have GAO’s Analysis developed significant expertise in market development activities. Differ- ent forms of institutions-some managed by a combination of public and private representatives and drawing funds wholly or partially from the public sector-have evolved in those countries. Most countries whose activities we reviewed have either centralized marketing organizations or independent marketing boards; some are managed by public officials while others have a combination of public and private management. For example, West Germany’s central market- ing board is guided indirectly by a council composed of both government and private sector representatives (with a government majority) and is funded by production levies funneled through the Ministry of Agricul- ture. Funding levels and sources also vary. In 1987-1988, Canada spent about $3.2 million while Australian marketing boards and government combined spent at least $130 million on high value agricultural export promotion. The relationship between the private and public sectors is more distant in the United States. Many private U.S. firms conduct market develop- ment with no U.S. government involvement. Some U.S. government offi- cials believe that private sector managers are in the best position to Page 3 GAO/NSLUHO-47 International Trade Jhcutive Summary assess prevailing market conditions; thus, US. government-funded mar- ket development is conducted by selected nonprofit private sector associations which develop marketing plans in consultation with the U.S. government. The Foreign Agricultural Service of the U.S. Depart- ment of Agriculture manages the Targeted Export Assistance and Coop- erator market development programs and funds U.S. market development jointly with the designated associations. In 1988, it spent $97.7 million in high value market development funds. The specific marketing activities undertaken-trade show participation, market research, product development, consumer promotion, retail and consumer advertising, and evaluation-are similar in the majority of U.S. and competitor programs. However, some competitors develop inte- grated marketing strategies; they coordinate market research with pro- duction and distribution capability to meet consumer demand, and they work with producers to develop or adapt products to meet those identi- fied conditions. For example, France’s SOPEXA discovered that British consumers preferred smaller and greener apples than those usually grown by French producers. Based on SOPEXA’S research and guidance, French producers picked their apples earlier and, according to SOPEXA representatives, increased their share of the market. For many reasons, U.S. producers do not coordinate marketing activities with other producers, or marketing organizations, and they do not target markets as do some competitors. They tend to take their product(s) as a given, do research to find a market for their product(s) and develop a marketing plan in consultation with the Department of Agriculture, which allocates federal funds for agricultural foreign market development. Moreover, the Department of Agriculture’s high value foreign market development activities reflect a different role of government in foreign market development than in competitor countries. The Foreign Agricul- tural Service High Value Products Division focuses on export services to all agricultural producers and is essentially a clearinghouse for informa- tion. The Department of Agriculture overall remains bulk commodity- oriented despite the increasing high value product share of total world agricultural exports and the anticipated growth in high value exports over the coming decade. As stated in GAO’S October 1989 report, no Department of Agriculture agency has taken the lead in developing a Department-wide marketing approach to assist U.S. producers to be more marketing-oriented. Page 4 GAO/NSIAD9O-47 International Trade Executive Summary Although the Foreign Agricultural Service has the lead on implementing international trade programs, its programs do not comprise the Depart- ment-wide initiative necessary to lead agribusiness under an integrated marketing strategy. Issues that need to be addressed in developing a Department-wide marketing approach include determining the role of government in foreign market development, including its role in encour- aging producers to become more export-oriented, and the appropriate coordination among Department of Agriculture agencies of market development functions. This report contains no recommendations. Recommendations did not obtain official agency comments on this report but discussed Agency Comments GAO the report with the Director of the High Value Products Division at the Foreign Agricultural Service, and technical comments have been incor- porated where appropriate. Page 6 GAO/NSIAD9047 International Trade Contents Executive Summary 2 Chapter 1 8 Introduction Background 8 Objectives, Scope, and Methodology 11 Chapter 2 14 Structure ad m&ng yI$petitor Countries 14 of Agricultural 20 Marketing Organizations in the Twelve Countries Reviewed Chapter 3 26 Comparison of EC Competitors Coordinate Marketing Strategy With 26 Producers Competitor and U.S. U.S. Concerns About the Roles of the Public and Private 28 Market Development/ Sectors Promotion European Countries Place High Priority on Trade Show 29 Participation HVP Market Development Costs 30 Other Factors Influence Ability to Market HVPs 30 Evaluations Performed Informally 31 Changes in Policy Require Consideration of Many Factors 31 Conclusions 33 Appendixes Appendix I: Major Exporters of High Value Products in 34 1987 Appendix II: Market Information and Related Services 35 Appendix III: Product Promotions in Foreign Markets 41 Appendix IV: U.S. Foreign Market Development and 46 Promotion Activities Appendix V: Major Contributors to This Report 51 Table Table 2.1: Selected Information on Competitor Marketing 22 Organizations as of 1987, 1988, or 1989 Page 6 GAO/NSlAD96-47 International ‘lhde Contents Figures Figure 1.l: Worldwide, EC-12, and U.S. Bulk Agricultural 9 Exports, 1980-1987 Figure 1.2: Worldwide, EC-12, and U.S. HVP Agricultural 10 Exports, 1980-1987 Abbreviations AGREXCO Agricultural Export Company AIMS Agricultural Information and Marketing Service CFCE Centre Francais du Commerce Exterieur CMA Centrale Marketinggesellschaft der deutschen Agrarwirtschaft CMBI Citrus Marketing Board of Israel EC European Community FAS Foreign Agricultural Service HVP high value product ICE Instituto Nazionale per il Commercio Ester0 ICEX Instituto de Commercio Exterior PEMD Program for Export Market Development SOPEXA Societe pour 1’Expansion des Ventes des Produits Agricoles et Alimentaires TEA Targeted Export Assistance Page 7 GAO/NSIAD!3047 International Trade Chapter 1 Introduction Two distinct markets for agricultural products emerged in the 1970s-a Background market for bulk commodities and a market for high value products. Bulk commodities include such products as wheat, corn, and soybeans; little value is added during their processing, and they are shipped to buyers in large quantities. High value products (HVPS) include highly processed, consumer-oriented products (e.g., prepared and preserved meats, milk, butter, cheese, choc- olate, spices, and cigarettes); semiprocessed products (e.g., fresh, chilled and frozen meat, refined sugar, coffee, cocoa, tea, and animal fats); and unprocessed products (e.g., eggs, fresh fruits and nuts, and fresh vegeta- bles). Unlike bulk commodities, HVPS require care in packing and ship- ping, and these costs contribute significantly to HVP~’ total value. HVP marketing requires sophisticated storage, processing, transportation, and distribution networks. During the 1970s and early 198Os, world trade in high value agricultural products was the fastest growing component of international agricul- tural trade, and HVP export growth is expected to continue. Foreign com- petition is strong in HVP markets. The European Community (EC) and several other developed nations captured a large share of the expanding HVP market in the 1970s and 1980s due, in part, to their sizable process- ing infrastructure, excess capacity, and available subsidies. European countries tend to have highly developed trading systems in place and are known for their sophisticated marketing networks. It should be noted that the preponderance of all ECtrade is intra-Ec trade. The share of HVP exports in total U.S. agricultural exports increased from about 30 percent in the late 1970s to about 44 percent ($15.7 bil- lion) in 1988. However, the HVP share of total world agricultural exports in 1987’ was about 66 percent. Figures 1.1 and 1.2 show the relative trade values for agricultural bulk commodities and HVPS. ‘World agricultural export data for 1988 are not yet available. Page 8 GAO/NSIAD90-47 International Trade Chapter 1 IntlWdtMXIOlt Figure 1.1: Worldwide, EC-12, and U.S. Bulk Agricultural Exports, 1980-1987 200 DolkahWlona 140 100 80 00 40 20 0 loB0 1BDl 1m 1oII 1914 lQI#2 19(# lW7 YW - WoddwideBulkExpom ---- EC12 Buk Expum B U.S.BIll(Eqmtta Source. Untted Nations Food and Agncultural Organizahon. Page 9 GAO/NSI.ADM-47 I.nt.ematlonal Trade Chapter 1 Introduction Figure 1.2: Worldwide, EC-12, and U.S. HVP Agricultural Exports, 1980-l 987 - wor!dwideHvPExpom ---- EC12 HVP Exports m U.S. HVP Exports Source United Nations Food and Agncuiture Organization By 1987, both the Netherlands and France outranked the United States in HVP market share, with 11.3 percent and 10 percent, respectively, compared to 9.1 percent for the United States. Moreover, the U.S 1987 average price per ton was $232.80 compared with $637.30 for EC-l%? exports. The lower value per ton of U.S. exports results from a higher volume of bulk commodities in total U.S. exports and different areas of HVP concentration; the EC-~2 HVP exports are primarily consumer-ori- ented, and U.S. HVP exports are primarily semi-processed IWPS.(See app. I for list of HVP exports and world market shares for competitors and the United States. This comparison illustrates the increasing importance of HVP trade to the United States. Compared to an equivalent volume of bulk exports, HVP exports are associated with higher levels of employment, gross economic output, personal income, and government tax revenues. Because high “Includes Belgium, Luxembourg, France, West Germany, Italy, the Netherlands, the United Kingdom, Denmark, Ireland, Greece, Spain and Portugal. Page 10 GAO/NSuDSO-47 lnt.ernatIonaI Trade chapter 1 Introduction value exports involve selling both the agricultural product and the value added to turn it into a more valuable processed item, the concentration of U.S. agricultural exports in bulk and semi-processed products gener- ates less economic value than would a mix with more semi-processed, and highly processed products. In view of the changing world market and the importance of U.S. com- petitiveness in agricultural trade, Congress has become increasingly interested in the potential for expanding HVP exports and in how the role of marketing in U.S. agricultural trade policy must change to address the structural changes in world demand for agricultural products. Thus, the market development practices of U.S. competitors in HVP products may provide examples to guide agricultural marketing decisions in the United States. The Chairmen of the Senate Committee on Agriculture, Nutrition, and Objectives, Scope, and Forestry and the House Committee on Agriculture asked us to review Methodology the market development and promotion activities of the major U.S. com- petitors for HVPexports, specifically (1) product development and pro- motion, (2) the means for identifying developing markets for HVPS,(3) the effectiveness of present methods of disseminating market informa- tion to producers, and (4) the roles for the federal government and the private sector in market development and promotion. Subsequent to the original request, we were asked to compare these activities with those of the United States. To obtain information on U.S. competitors’ HVP marketing activities, we interviewed representatives of 12 foreign governments that the U.S. Department of Agriculture ranked among the top HVP exporters-the United Kingdom, France, Italy, the Netherlands, Denmark, Spain, West Germany, Israel,3 Canada, Australia, New Zealand, and Brazil. Taken together, these 12 countries represented more than 65 percent of world- wide HVP exports in 1987. We interviewed foreign government and other marketing organizations’ representatives posted at foreign consulates (including the United States); for 9 of the 12 countries, we interviewed officials at headquarters locations. To see first-hand the broad spectrum of competitor products at a single trade exhibition, we attended the international food show, SIAL, in Paris in October 1988. We gathered available literature on the HVP marketing activities of competitor coun- tries, including information collected by U.S. agricultural attaches and “Israel is not a major U.S. competitor; however, we included it in our review because its marketing practices are noteworthy. Page 11 GAO/NSIAKMO-47 international Trade chapter 1 Introduction trade officers posted in the countries in our review and filed with the Foreign Agricultural Service at the Department of Agriculture. We report U.N. export data. Although reliable data on foreign governments’ market development expenditures were difficult to obtain, the available data is presented in chapter 2. However, comparing data across coun- tries should be done cautiously due to varying years for which data is reported and varying data sources. We also compared competitor HVP marketing activities in Japan, whose agricultural export market is sec- ond only to that of the United States; a separate report describing those activities is forthcoming. We focused solely on market development and promotion activities-con- sumer promotion, technical assistance, and trade servicing-and excluded consideration of subsidy practices, food aid programs, and market access barriers (such as quotas, non-tariff barriers, and tariffs), all of which have some impact on market development. We recognize that direct comparisons between U.S. and ECmarketing strategies are affected by the EC’Sstatus as a customs union, i.e. a group of nations that have eliminated trade barriers among themselves and imposed a common tariff on all goods imported from all other countries. To compare competitor HVP marketing activities with those of the United States, we examined documents collected during our previous work on U.S. HVP marketing programs4 We also met with Department of Agriculture officials responsible for HVP promotion and consulted pri- vate, nonprofit marketing organizations in the United States to broaden our base of information about certain aspects of U.S. marketing activi- ties. During the fall of 1988, we attended the U.S. Agricultural Export Development Council/Foreign Agricultural Service annual workshop in Washington, DC., and conference in Richmond, Virginia; we also attended a marketing seminar sponsored by the Eastern U.S. Agriculture and Food Export Council in Portland, Maine, in December 1988 and a trade show sponsored by the National Association of State Departments of Agriculture in Boston, Massachusetts, in May 1989. In this report, we do not generalize about marketing practices of a par- ticular country since the national government as well as producer boards conduct marketing activities. Although some countries (e.g., 4SeeAGRICULTURE TRADE: Review of Targeted Export Assistance program (GAO/N&W 88-183) May1988 and INTERNATIONAL TRADE Review of Effectiveness of FAS Cooperator Market Devel- opment Program (GAO/NmD 87-89) Mar. 1987. Page 12 GAO/NSIAD90-47 IntemationaI Trade chapter 1 introduction France and West Germany) have single marketing organizations, we specify those by name to remain consistent. Our fieldwork was conducted between September 1988 and September 1989 according to generally accepted government auditing standards. Due to the nature of our assignment, we did not test for compliance with legal and regulatory requirements or the adequacy of internal controls. As requested, we did not seek official agency comments. However, responsible officials at the Foreign Agricultural Service made technical comments on this report and we incorporated those comments where appropriate. Page 13 GAO/NSIAD90-47 International Trade Structure and Funding of Agricultural Marketing Organizations in the Twelve Countries Reviewed Various public-private partnerships characterize the marketing organi- zations that promote high value agricultural products in the 12 foreign countries we reviewed. These organizations use both public and private resources in varying combinations. In some countries, organizations managed by both public and private sector representatives conduct vir- tually all market development and promotion activities; in others, dif- ferent marketing organizations operated separately by industry and government each conduct promotions. (See app. II for description of competitor market research practices and app. III for description of competitor promotional activities.) Some marketing organizations derive funds from legislated levies, some operate solely with government funds, while others are funded by a combination of public and private monies. Funding levels varied considerably, with 1987-l 988 expendi- tures ranging from $3.2 million (Canada) to at least $130 million (Australia). Major Competitor Countries France The Societe pour 1’Expansion des Ventes des Produits Agricoles et Ali- mentaires (SOPE~A) operates 23 offices in 15 foreign countries. Accord- ing to a US. Foreign Agricultural Service (FM) representative in Paris, SOPEXA gets about 35 to 40 percent of its total budget from the Ministry of Agriculture. SOPEXA representatives told us that the majority of its promotions are generic or nationally oriented. SOPEXA typically pays about 50 percent of promotional costs from its government funds; producers or producer groups who benefit from the promotions pay the other 50 percent from product levies collected. In some markets, SOPEXA also promotes specific brands if its market analysis indicates that generic promotions will not be effective, and it shares costs with the producers involved. The Centre Francais du Commerce Exterieur (CFCE) assists SOPEXA and other government organizations at no charge, but sells its information and reports to non-government organizations on a subsidized basis. The Ministry of Agriculture provided CFCE'S Division of Agricultural Prod- ucts with approximately 30 percent of its 1987 budget with the balance provided by the Ministries of Trade and Finance and user fees. Accord- ing to an FAS representative in Paris, CFCE'S target markets are Europe, Page14 GAO/NSIAD!3O47IntemationalT~ade Chapter 2 !3t~ctureandhndingofAgcku.ltuml MarketingOrganhtlo~intheTWelve countrlea Reviewed Asia, Africa, and the Americas, with research activities increasingly emphasizing Asia and the Middle East. Israel Israel’s government plays a major role in agricultural market develop- ment and promotions. The two largest export companies-the Agricul- tural Export Company (AGREXCD) and the Citrus Marketing Board of Israel (CMBI)--aTe nonprofit organizations jointly owned by the govern- ment and Israeli farmers. AGREXCO promotes agricultural products under the brand name “Car- mel,” which is familiar throughout Europe and represents quality to the trade and consumers. CMBI successfully created a quality image in Euro pean markets using the name “Jaffa” for its citrus products. Both com- panies handle agricultural products from points within Israel through to delivery and promotions in export markets and deduct their expenses from sales revenues before they are distributed to Israeli farmers. The government also contributes funds for other export market develop- ment activities; for example, its export promotion fund seeks to (1) encourage new export initiatives for untried products, (2) develop new methods of packaging to lengthen the storage life of flowers, (3) ensure a minimum income to farmers willing to experiment with new varieties, and (4) develop effective quality control techniques. Italy The Italian government delegates responsibility for foreign market development and promotion of all Italian products to the Instituto Nazionale per il Commercio Ester0 (ICE), an organization funded by the Ministries of Foreign Trade and Agriculture. ICE operates 79 offices in 63 foreign countries. “Consorzi” are associations of Italian businesses organized to carry out varying initiatives, including export promotions for agricultural products. Consorzi which have at least five member companies can receive 50 percent of their expenditures during each of their first 5 operating years from the Ministry of Foreign Trade and 40 percent after 5 years. In 1987 the Ministry of Foreign Trade provided about $2.3 million to agricultural consorzi for export promotions. Spain Spain’s marketing organization, the Instituto de Commercio Exterior (ICEX), promotes all Spanish exports, and agricultural products com- prised 47 percent of its planned 1987 promotions. About 70 percent of Page 16 GAO/NSIAD90-47 Ii~temational Trade Chapter 2 Stn~cture and Funding of Agricultural Marketing Orga&atio~ in the Twelve c.hllltrIea Revie!we!d 1987 promotions was targeted at Organization for Economic Coopera- tion and Development c0untries.l ICEX promotes Spanish products using a national theme, furthering the country image via the “Spania” label and creating an umbrella under which individual producers can promote their own products or brands. ICEX financially assists producers who promote their own products, gen- erally providing about 50 percent of their promotions costs. However, ICEX will provide as much as 75 percent of the promotional costs to pro- ducers beginning to export or to promote in new markets. ICEX generally reduces its assistance as the producer gains experience and confidence or the share of the target market grows. United Kingdom Food From Britain was formed by the Ministry of Agriculture in the early 1980s to centralize the United Kingdom’s market development efforts, similar to those of West Germany and France. It was intended to be funded by both the private and public sectors but met with resistance from the private sector. According to a Food From Britain official, pro- ducers recently have begun to accept the organization and to help fund its operations. About two-thirds of Food From Britain’s 1989 budget will be provided by producer groups or individual producers. West Germany Legislation enacted in 1969 imposed a compulsory levy on producers and processors and established the Marketing Fund and the Centrale Marketinggesellschaft der deutschen Agrarwirtschaft (CMA). The gov- ernment indirectly guides the Fund through the Administrative Council, which is composed of both industry and government representatives, with a government majority. It is governed by a shareholders committee, a board of directors, a coordination council, and numerous specialized committees, primarily staffed with industry representatives. CMA provides national generic promotions for all German agricultural, forestry, trading, and food manufacturing industries, both in Germany and abroad. It represents the entire German agricultural economy from producer to retailer to exporter and, as a result, can work on all levels to ‘Principal members are the United States, Canada, Japan, Australia, New Zealand, and the nations of Western Europe. Page 16 GAO/NSIAD-90-47 International Trade Chapter 2 Structure and Funding of Agricultural Marketing Organhtlons in the Twelve collntrIes Reviewed achieve its market development and promotional aims. CMA also occa- sionally finances promotional campaigns jointly with individual indus- try sectors. Its export promotion activities are guided by offices in seven foreign markets. The Net herlands Although independent commodity boards or industry trade associations are independent and conduct the majority of Dutch agricultural export promotions, funding is mandated through government-imposed levies on producers, wholesalers, processors, and traders. Because the commodity boards represent all producers of a particular commodity, their export promotions are generic; for example, the Dutch Dairy Bureau promotes Dutch gouda cheese rather than any one manufacturer’s brand. The Ministry of Agriculture and Fisheries promotes agricultural prod- ucts generically. In 1988, almost half its budget was slated for partici- pating in international trade exhibitions and another 20 percent for organizing trade contact meetings to bring Dutch exporters and foreign importers together. The Ministry attempts to coordinate the promotional activities of commodity boards or industry trade associations with its activities, but it provides no financial assistance and cannot control their activities. Denmark The Agricultural Marketing Board and several commodity export boards are the primary promoters of Danish agricultural products. The Agricul- tural Marketing Board is an arm of the Agricultural Council, a joint forum for producers, cooperative processing and marketing organiza- tions, and the Royal Danish Agricultural Society and is funded by a small percentage of the production levies collected by the Agricultural Council. It primarily facilitates Danish participation in trade exhibitions, leasing floor space, designing and constructing the display booths, and selling space to commodity export boards or individual producers at reduced rates. Effective January 1, 1988, new legislation limited Ministry funding of export market development activities to exports of new products to new markets. The agricultural sector has been especially affected by this leg- islation, since most of its export markets (primarily EC countries) are old and well established, as are the products sold to these markets. Under the new legislation, the exporter must reimburse a percentage of the government money, based on the level of export sales. Page 17 GAO/NSIALMO-47 International Trade Structure and Funding of Agricul~ Market@ Orgmdratlom ln the Twelve CQontiw Reviewed Danish marketing boards are involved in research, training, quality inspection, and promotions. They also coordinate price leveling activi- ties and sales to countries whose governments control trading. Each board typically promotes generic products and maintains offices in its major markets. Canada The Department of External Affairs carries out Canadian government agricultural export promotion activities through the Program for Export Market Development (PEMD). The PEMD supports generic promotions of products initiated by either the government or industry and funds trade fairs and trade missions. Agriculture Canada, the government agency responsible for technical assistance to agriculture, provides services for raw commodities, horti- culture, and special crops. Although the trade offices offer some techni- cal assistance to exporters, they provide no promotional support. In addition to promotions supported by the federal government, provin- cial governments also finance HW export promotions, which they fund with taxes. Ontario and Alberta are the most. active among the provin- cial governments. Australia The Australian government reorganized agencies with market develop- ment duties in 1985 to form the centralized marketing organization AUSTRADE, a statutory corporation which is now responsible for implementing export programs. The close relationship between the pub- lic and private sectors is illustrated by the management composition of AUSTRADE, which is managed primarily by private sector representa- tives. AUSTRADE trade commissioners work in 41 countries in 54 locations. According to the FAS, Australian government spending on agricultural export market development and promotion increased about 20 percent during fiscal years 1987 and 1988. Marketing boards, which also actively participate in HVP market promotion and research, are required to report to the Ministry of Primary Industry but they decide their own policies. Embassies provide information to the boards on the changes in laws and regulations of foreign governments. The Australian government reimburses eligible expenses of firms exporting domestic products. To participate, a firm must make a Page 18 GAO/NSL4IMO-47 Intemational Trade chapter 2 St~cture and F’nnding of A@icul- Mfwketlng Orgmdzatlona ln the Twelve counties Reviewed “threshold” expenditure of just under $8,000 (U.S. dollars); 70 percent of expenditures above that amount are reimbursed, subject to maximum payments, which decrease over time. The highest maximum is about $157,000 (U.S. dollars). After receiving grants for 2 years, payments in subsequent years are reduced in accordance with a sliding percentage scale. Grants are not provided to firms whose export earnings in the grant year exceed about $16 million (U.S. dollars). According to an Aus- tralian government official, additional compliance requirements have been added as Australia experiments with the most effective way to increase exports. In addition, the Australian government has also introduced a separate business development program in which the government shares business risks, including product research and development, with firms wishing to enter export markets; if successful, the company pays a 10 percent royalty fee. Various Australian foreign market development programs are currently under review. New Zealand The New Zealand government began to reform its export policies in 1985, shifting away from subsidies and export incentives to a policy of market development and promotion. Reforms involved the removal or phasing out of industry supports, including export incentives, import licensing, and farm subsidies. Reforms include the implementation of cost-sharing or charging user fees for government services, as well as the restructuring of government agencies. On December 1,1988, the former Department of Trade and Industry’s International Trade Relations Division joined with the Ministry of For- eign Affairs to form the new Ministry of External Relations and Trade. The New Zealand Trade Development Board, a government agency, was formed from the New Zealand Market Development Board and the New Zealand Trade Commission. The Ministry of External Relations and Trade advises the government and conducts trade negotiations while the Trade Development Board promotes New Zealand goods principally through identifying local importers and conducting market research on a fee basis. According to the FAS, the producer boards receive approximately one- third of their budgets from the government, chiefly as grants for research, and the balance from levies. A government representative sits Page 19 GAO/WAD-99-47 Int.ernatloml Trade Chapter 2 Structnre and Funding of Agricultural Marketing Organbtions ln the Twelve c?mlntrl~ Reviewed on each of the producer boards; however, the representative serves pri- marily as an observer, taking little part in the decisionmaking. Market- ing organizations receive little government assistance for promotion and development. Five producer boards and two or three private companies manage over 70 percent of New Zealand’s agricultural exports. Brazil The highly centralized Brazilian government has a general industrial policy covering both geographic and product development. The govern- ment supports products by region, based in part on regional economic needs. Brazil’s large foreign debt has contributed to its need to export in order to obtain foreign currency. Brazil has encouraged HVP exports by taxing exports of unprocessed commodities at a higher rate than those of processed products. According to the Brazilian Trade Office in the United States, the Brazil- ian government has no specific programs for promoting high value agri- cultural products because its major HVP export, coffee, does not require promotional activities. The government, however, does operate a system of computerized trade leads provided by attaches posted in foreign mar- kets. A Brazilian official states that trade leads are communicated to interested exporters within 72 hours after they are transmitted to Brasilia. The National Agricultural Research System has helped to develop fruit varieties suitable for export markets. The National Association of Fruit and Produce Exporters (Hortinexa), a privately funded organization, was formed in 1979 by producers and exporters of fresh fruit to promote their products in export markets; it provides mostly promo- tional and technical services to exporters. Table 2.1 lists funding, funding sources, and organizations by country. Competitor marketing organizations reflect varying perspectives on the Summary public/private sector relationship. In addition, some marketing organiza- tions promote all products-not just agricultural products-in both domestic and international markets. Four countries (the Netherlands, Denmark, Australia, and New Zealand) have “independent” marketing organizations. However, their funding comes primarily from govern- ment-imposed levies, and thus these organizations appear to reflect a national commitment to export marketing. Some competitors have a combination of public and private organizations performing different Page 20 GAO/NSIALMO47 International Trade Chapter 2 structureandFondineofAgricultural Marketing Orgadzatlo~ ln the Twelve Countries Reviewed marketing functions. Funding levels vary considerably, and the amounts specifically committed to foreign agricultural markets were difficult to identify in some cases. Page 21 GAO/NSLAD9O-47 International Trade chapter 2 Structure and Punding of Agrkultmal Marketing Orgadzatione in the Twelve c4nlntTlee Reviewed Table 2.1: Selected Information on Competitor Marketing Organizations as of 1987,1988, or 1989 Dollars In mllllons Development Country and marketing Management expenditures organization Function composition0 Funding source HVP exports Total France Mtnlstry of Agnculture guides SOPEXA and government government budget unknown $33.6-83.gb ~__- CFCE SOPEXA promotes food and wine government and Min. of Agnculture, $56.2” 83.9” rndustry levies, user fees CFCE information & advice government Min. of Agriculture, 36.7d 61 .2d Trade, and Finance; user fees Israel MIntstry of partial funding for government government budget 4.13e 4.13e Aqrlculture CMBI and AGREXCO; market research CMBI promotes citrus’ government and Min. of Agnculture, 7.59 7 59 industry sales commissions on producers AGREXCO promotes non-citrus and aovernment and Min. of Aariculture. 4.99 4.99 fruit and vegetables’ 1 industry sales &mmissions on producers Italy ICE promotes all products federal and regional Min. of Foreign Trade, 9.3” 57.9” governments, Min. of Agriculture industry Spain ICEX promotes all products qovernment and Secretariat for Trade 30 0’ 120.0’ Industry International Olive 011 Council promotes olive oil industrv members: EC- all member unknown unknown 12, Turkey, Algeria, governments; Yugoslavia, Tunrsra, voluntary funds from Morocco EC and/or Industry - .-__ exporters United Kingdom Food from Britain promotes all products government and Mm. of Aanculture, 8 91 8.9’ - industry produ&rs West Germany 7blA promotes all products government and productlon levles 19.5k 65 lk except wine and fish industry (contmued) Page 22 GAO/NSIAD90-47 International Trade Chapter 2 Structore and Funding of Agricultural Marketlng Organhtlona ln the Twelve Countrle13 Reviewed Development Country and marketing Management expenditures organization Function composition* Funding source HVP exports Total Netherlands Mm of Aonculture and Ftsheries promotes all products government federal budget $5.2’ $5.2’ Dutch Darry Bureau promotes dairy Industry and non- levies on producers, 26.2’ 26.2’ products’ voting government processors, exporters Flower Councrl of Holland promotes flowers/ Industry and non- levies on producers, 7.8’ 7.8l plants’ voting government processors, exporters Ce;t;;,oB,Usreau of Horticultural promotes hortrculture’ industry and non- levees on producers, 8.6’ 8.6’ U voting aovernment processors, exporters Dutch lnformatron Bureau for promotes meat’ Industry and non- levies on producers, 5 0’ 5.0’ Meat voting government processors, exporters Denmark Agrrcultural Marketing Board exhibition and government levies, farmland tax unknown unknown promotion revenue, Swedish . customs duty rebates Export Promotion Councrl supports Danish industry governmment budget 12.4” 73 lr promotions of new products/new markets Danish Bacon and Meat Councrl promotes pork products’ industry production levies 22.5” 22.5” Danish Darry Board promotes dairy industry production levies products’ SAGA Furs of Scandinavia promotes Scandinavian industry member contributions unknown furs’ Canada Dept of External Affairs promotes all products aovernment federal budaet 2.4” 28 0” Aqrrculture Canada technical support oovernment federal budget 1 .op 1.op Australia AUSTRADE assists with trade fairs industry government budget unknown 8.6” and exhibrtrons (continued) Page 23 GAO/NSIAD-90-47 International Trade Chapter 2 Stroctum and Funding of Agricultural Marketing Organhations ln the Twelve Cmntries Reviewed Development Country and marketing Management expenditures organization Function compositiona Funding source HVP exports Total Export Market supports all products government government budget $7.lQ $135 7q Development Grants Scheme Meat & Lwestock Corp promotes meat and government and levies 10.39 10 3q livestock’ industry Wool Corporation promotes wool government and levies 111.7q 1117q industry Dairy Corporation promotes dairy products government and levies 0.7q 0 7q industry Wine and Brandy Corporation promotes wine and government and levies 0 49 0.49 brandy industry New Zealand N Z Trade Development Board promotes all products government government budget 2 1’ 17 if Datry Board promotes dairy products government and Industry-funded, 18 7’ 18 7’ industry government research grants - Meat Producers Board promotes meat government and production levies, 7.9’ 7 9’ products industry government research grants Wool Board promotes wool government and production levies, 45.9’ 45 9’ industry government research grants Klwlfrutt Authority promotes ktwifrult government and production levies, 18.0’ 18 0’ industry qovernment research grants Brazil Ministry of Foretgn Affairs provides trade leads government qovernment budoet unknown unknown and shares cost of - trade fairs Hortinexa promotes fresh fruit Industry lndustrv unknown unknown ‘%efers to cornposItIon of board of directors or overall membershlp Where tndusiry Involved, extent of participation varies bFAS estimate ‘1988 budget calculated using 1988 average annual exchange rate of $1 .OO = FF5 95695 ‘1987 budget calculated using 1987 average annual exchange rate of $1 00 = FF6 0107 eFlscal year April 1987.March 1988 estimated expenditure allocated to CMBI, Agrexco and other market Ing organizattons ‘These orgarwations offer full range of market development and producer assistance QFlscal year April 1987.March 1988 estimate “Fiscal year April 1989.March 1990 budget calculated using Jan -July 1989 average exchange rate of $1 00 = 1,381 2 llre ‘1987 estimated expenditure ‘Fiscal year April 1989.March 1990 budget computed using 1988 average exchange rate of $1 781375 = 1 00 pound kEstlmated annual expenditure calculated using 1987 average annual exchange rate of $1 00 = DMl 7974 Page 24 GAO/NSlAD9O-47 International Trade Chapter 2 Structure and FundIne of &rhltnral Marketing Organhtlons ln the Twelve countries Reviewed ‘1989 estrmated budget calculated usrng 1988 average exchange rate of $1.00 = DFLl.976575. “1987 estimated budget calculated usrng 1987 average exchange rate of $1.00 = DKR6.840 “1988 estimate for Danish commodity boards and calculated using 1988 average exchange rate of $1 00 = DKR6.73125. ‘1987-88 expenditures calculated using 1988 average exchange rate of $1.2307 = $1.06 (Canadian). pBased on Agriculture Canada official’s estrmate 91987-88 expenditures calculated using 1988 average exchange rate of $1 .OO= $0.784225 (Australran). ‘198689 budget calculated usrng 1988 average exchange rate of $0 655975 = $1.00 (New Zealand) Page 26 GAO/NSlAL)-90-47 lntemational Trade Chapter 3 Comparison of Competitor and U.S. Market Development/Promotion Attitudes about the roles of government and the private sector influence the types of competitor marketing organizations. As a result, foreign competitor marketing organizations are structured differently than those in the United States. (See app. IV for a description of U.S. market- ing practices.) In addition, some competitors adopt an integrated mar- keting approach. They coordinate market development from preliminary market research through product development, provide quality control and technical advice to producers to ensure product reli- ability, and participate in trade shows and undertake other consumer promotion. Funding amounts vary considerably for the countries in our review, but many competitors are funded through production levies. Many countries have limited commitments to routine formal program evaluation, but some competitor marketing representatives say their professional expertise enables them to evaluate their success informally by observing changes in market shares, product sales, and client satisfaction. Some foreign competitors have more experience in marketing high value EC Competitors products than the United States and have traditionally specialized in Coordinate Marketing processed foods, which require more sophisticated marketing Strategy With techniques. Producers Some competitors appear to have different marketing objectives than the United States. They have created institutions managed by both pub- lic and private sector representatives to coordinate market development activities, including product research, development, production, and delivery. Some marketing organizations promote virtually all agricul- tural products in both domestic and international markets. Moreover, they display a national orientation to HVP exporting not found among U.S. producers, who retain overall responsibility for planning and exe- cuting marketing plans even when using federal funds. A greater accep- tance of government involvement in the marketplace exists in competitor countries, explaining in part the choice of single marketing organizations funded either by special taxation (production levies in West Germany and France) or general government funds (Italy, the United Kingdom, and Spain). Some competitors appear to have little government involvement in mar- ket promotion, which is conducted primarily by so called independent marketing boards; however, it must be remembered that these market- ing boards reflect a national commitment to export marketing, receiving Page 26 GAO/NSIAD96-47 Intemational Trade Chapter 3 Comparison of Competi~r and U.S. Market Development/Promotion their funding exclusively through government ordained compulsory levies. For example, marketing boards in the Netherlands, a country only twice the size of New Jersey and the largest HVP exporter in the world, have primary responsibility for market promotion and are funded exclusively through compulsory levies. The government budget provided less than 8 percent of the 1989 $66 million export promotion total committed by public and private sectors, and the Ministry of Agri- culture representative on each board is a nonvoting member and does not control board decisions. In France, Denmark, and Israel, marketing organizations use market research to identify consumer demand and then develop appropriate marketing strategies. Sometimes they redesign products or change pack- aging to meet consumer preferences; sometimes they develop new prod- ucts. Some marketing organizations promote virtually all agricultural products (France’s SOPEXA and West Germany’s CMA)and are thus in a unique position to develop specific marketing plans based on current market conditions. Moreover, SOPEXA and CMAmanagements are com- posed of both public and private sector representatives. It should be noted that EC countries operate in a very different cultural environment than that in the United States. They have more experience in exporting and successfully use national images to sell their food products. More- over, they benefit from membership in the EC, a customs union providing preferential treatment to members while applying a common schedule of tariffs to other countries. U.S. HVP marketing takes a different form than in ECcountries. U.S. mar- keting organizations tend to take their products as a given and use mar- ket research to find likely markets; consumer preferences are less likely to influence the product itself. Some U.S. producers are resistant to adapting their product for a specific foreign market. For example, U.S. association representatives stated that U.S. producers lost the Japanese pork market to Danish producers because U.S. producers were unwilling to reduce their portion sizes to suit Japanese preferences. According to some U.S. and foreign marketing representatives, some U.S. producers appear to lack commitment to foreign markets. They have easy access to the large U.S. market and during periods of strong domestic demand may not be able to supply foreign customers. This apparent lack of commitment raises questions about the reliability and dependability of U.S. supply, according to foreign officials we consulted. Some U.S. officials acknowledge this problem but doubt that the govern- ment can change this business practice. Page 27 GAO/NSIAD96-47 lntemational Trade Chapter 3 Comparison of Competitor and U.S. Market Development/Promotion Some foreign officials noted that U.S. marketing sometimes lacks crea- tivity in presentation and imagination. One French marketing profes- sional noted that “In France, we sell a dream; the United States sells a product.” Representatives of several countries noted that price is not necessarily the major determinant of HVP sales; consumers are often willing to pay a premium for high-quality products, and marketing suc- cess often depends on a sophisticated approach based on consumer pref- erences. Judging from marketing displays at the 1988 SIAL food show in Paris, some U.S. exhibitors paid little attention to creating attractive dis- plays; some brought jars of condiments, opened them up, and popped in a plastic spoon for taste testers. Some competitors had elaborate dis- plays; the Netherlands had unified booths for all exhibitors using flow- ers (which are counted as HVPS) for added appeal and many had sophisticated displays which emphasized style; few provided actual samples for visitors to eat. Some private U.S. firms conduct market development activities with no U.S. Concerns About government funding. U.S. trade associations have primary responsibility the Roles of the Public for U.S. government-funded trade promotion; FM facilitates and over- and Private Sectors sees these activities. The U.S. government collects and disseminates market information and participates in the Cooperator and Targeted Export Assistance (TEA) programs, which are cooperatively funded by the federal government and private nonprofit trade associations. FAS programs are subject to oversight by the Department of Agriculture and the Congress. Foreign competitors have less oversight of their program operations due possibly to their organizational structure and the traditional relation- ship between the public and private sectors. Their managers frequently include both government and private sector representatives, and their system of government may be less oriented to public accountability. One competitor marketing representative claimed that managing competing constituent claims was not a concern for him. Several foreign represent- atives told us they had selectively informed exporters of market oppor- tunities on occasion without concerns about equal access complaints from other exporters. They view this as using their professional exper- tise to match appropriate importers and exporters. These representa- tives believe that uniform dissemination of information is preferable but not always practical. The traditional relationship between the U.S. private and public sectors is marked by separation. Government representatives do not participate Page 28 GAO/NSIADW47 International Trade Chapter 3 Comparison of Competitor and U.S. Market Development/Promotion in private organizations’ decisions, and private sector representatives typically do not participate in government decisions (although these representatives are periodically consulted). The Cooperator and TEA pro- grams depart from this traditional relationship by establishing a joint relationship between the government and nonprofit associations to carry out foreign market development activities for U.S. agricultural products. Moreover, the public/private agricultural sector relationship appears to be unique in foreign market development in that we are una- ware of any other business sector that has a joint program of support analogous to that under the Cooperator and TEA programs.* U.S. govern- ment officials work closely with this association network and FAS guide- lines broadly define permissible expenditures and program requirements. Concerns in the United States about public/private relationships center on non-discriminatory access to federal funds (i.e., equal access based on established criteria). Government agencies are expected not to give pref- erential treatment to anyone. In our May 1988 report, we raised con- cerns about the close relationship between FAS and nonprofit trade associations that may have preferential access to federal funds through their long association with FM. One example of the EC’Sintegrated HVP marketing strategy is the strong European Countries commitment to trade exhibition participation in foreign markets; for Place High Priority on example, France’s SOPEXA participates in 50 major exhibitions in 15 Trade Show - countries each year. Some European countries take a long-term view of the impact of trade show participation and view it as a matter of Participation national pride. This commitment was evident at the major food show we attended, where European products were expertly displayed with a great deal of attention to detail. Moreover, according to one U.S. associa- tion representative, Europeans prepare differently for trade shows by making contacts with potential clients and setting up appointments well in advance of trade shows. U.S. participation in trade exhibitions has had a lower priority. FAS per- sonnel have voiced concern about such participation, stating that in- store promotion is more cost-effective than trade exhibitions. In 1988, FAS spent approximately $2.5 million for 22 trade exhibitions, including ‘The 1988 Trade and Competitiveness Act authorized the Secretary of Commerce to establish a Coop erator program to promote U.S. non-agricultural exports; however. the Department of Commerce has not requested funds to implement this program Page 29 GAO/NSIAD90-47 International Trade Chapter 3 Comparison of Competitor and U.S. Market Development/Promotion one major U.S. exhibition. A US. trade association representative stated that U.S. producers prefer to wait until the exhibition to make sales con- tacts A National Association of State Departments of Agriculture repre- sentative stated that many U.S. exhibitors prepare inadequately for trade shows; they are unable to quote prices which take into account the cost of insurance and freight. He observed that such ill-prepared exhibi- tors should not participate in trade shows because foreign buyers depend on accurate projections of actual costs. Annual consumer-oriented HVP funding among foreign competitor mar- HVP Market keting organizations (excluding Brazil, which provided us with limited Development Costs data) varies considerably. For example, Australia’s Wool Corporation alone spent almost $112 million while Canada spent $3.2 million in 1987-1988.” In comparison, U.S. funding totaled approximately $97.7 million in 1988. The majority of EC HVP exports are traded within EC borders, where the Other Factors system of cultural values, customs, and languages are well known Influence Ability to among traders. Moreover, ECtransportation and distribution systems Market HVPs facilitate HVP trading. U.S. HVP exporters face a difficult task in learning foreign market conditions and becoming adept at dealing with European traders. High transportation and storage costs also affect the competi- tiveness of their products. The United States has a competitive advantage in the production of bulk commodities (wheat, corn, feedgrains, etc.), and its agricultural policy has historically emphasized these products. Although the seven FAS com- modity divisions cover HVPS, FAS appears to remain oriented toward bulk commodities. Its HVP Division provides services to HVP exporters (see app. III), but HVP marketing support is spread across all the divisions. In addition, U.S. infrastructure is adapted to bulk commodity needs; for example, the U.S. rail transportation system has made adjustments to realize scale economies in handling large volumes of raw grain exports. Trade liberalization is also clearly an important issue for HVP exports. Trade barriers tend to be lower for raw materials, which serve as inputs for a further stage of processing. Nontariff barriers, quotas, and high ‘We were unable to collect budget data for the same vears for all countries revlewed. The budget data for Spain. Australia, Israel. and Canada were for 19&; for fiance. Denmark. West Germany, and Sew Zealand, 1988; and for the ITnited Kingdom. Italy. and the Netherlands. 1989. In addition, we have no data for Brazil. Page 30 GAO/NSIAlMO-47 International Trade Chapter 3 Comparison of Competitor and U.S. Market Development/Promotion tariffs protect domestic processing industries, and marketing strategies will not overcome them. The ECmarket unification scheduled for 1992 also provides some incentive for foreign firms to locate production facil- ities within ECborders rather than face barriers. Several representatives of competitor countries noted that one of a government’s most impor- tant market development functions is to negotiate the removal of these trade barriers. Member countries of the General Agreement on Tariffs and Trade are currently engaged in an effort to liberalize world trade in agriculture at the Uruguay Round of the multilateral trade negotiations. Evaluation of market development activities contributes to market suc- Evaluations cess. Linking past performance with the planning stage of marketing Performed Informally bnngs + the process full circle, thus maintaining a system of feedback based on market information. Knowing what has effectively contributed to creating and/or maintaining demand for a product helps in designing even more effective plans. Each marketing activity contributes to the system and requires evaluation, both individually and in its relationship to the whole. Evaluation, as a process, thus permits the marketing organization to function effectively and permits the organization to con- tinue functioning effectively regardless of organizational changes in structure or staffing. Formal evaluation based on program objectives and measurable goals is not given high priority by competitors or the United States. Marketing professionals stress the intuitive evaluation they perform based on their many years of experience. Many point to the difficulty of testing the marginal effect of specific marketing activities on sales, but some also judge the relative success of marketing programs by using such meas- ures as number of trade contacts made at a trade exhibition, results of consumer awareness surveys before and after a particular promotion, or number of new products that grocery stores are willing to stock after a promotion. GAO raised concerns in our March 1987 and May 1988 reports that FAS could improve its evaluation procedures. FAS is in the process of modifying its evaluation requirements. Changes in Policy A comparison of U.S. and competitor activities for increasing HVP exports draws attention implicitly to the advisability of altering invest- Require Consideration ment in HVP production and government-funded marketing programs in of Many Factors the United States. The assumption that increasing such investment will increase total economic activity is not accepted by all analysts, some of whom question whether diverting labor and capital into HVP exports will Page 31 GAO/NSIAD-9047 International Trade chapter 3 Ca~~puhn of CompeMor and U.S. Market Dwelopment/Promotlon increase the gross national product. Some analysts assert that, since the United States possesses a comparative advantage in the production of bulk commodities, it should continue to specialize in that production. However, in recent years, the United States has faced increased compe- tition as other countries, especially in the EC,have increased their bulk commodity production and used subsidies to increase their bulk com- modity exports. Other analysts state that increased HVPSwould create more jobs and not necessarily at the expense of employment in the bulk commodity sector. Another advantage is the relative steady growth of HVP markets. During the worldwide recession in the early 198Os, growth in HVP trade did not decline as severely as trade in bulk commodities. Moreover, these ana- lysts observe that the United States is currently exporting HVP sector jobs and that exporting the processed product would increase overall employment in the United States and contribute relatively more than bulk commodity production to the U.S. economy. According to the Economics Research Service of the Department of Agri- culture, export statistics greatly understate the foreign presence of U.S. food processors. Some large US. processors have alternative ways of penetrating foreign markets; for example, they have formed joint ven- tures, licensed their products, or invested in foreign production facili- ties. Although the resulting products are not counted as U.S. exports, some income is repatriated to the United States. Firms operating in this manner avoid tariff and nontariff barriers, develop relationships with foreign regulators, and learn local preferences. Smaller U.S. HVP export- ers who are unable to undertake foreign investment also have opportu- nities to identify and to develop export markets for specialty products and for market niches too small to interest the largest firms. U.S. commitment to increased HVP marketing is uncertain. In 1983, an Economic Research Service report noted that maintaining or increasing the lo-percent world INP market share would depend on more aggres- sive marketing and trade liberalization. The report stated that “With its extensive agricultural resource base and processing capacity, the United States could easily expand its HVP exports sharply without sacrificing leadership in the market for bulk farm products.” The Food Security Act of 1985 authorized the TEAprogram to promote U.S. exports, and TEA funds have benefited HVP exporters. For example, Page 32 GAO/NSIAIWO-47 IntemationaI Trade Cllapter 3 Comparison of Competitor and U.S. Market Development/Promotion in 1988, about 76 percent of TEA funds benefited HVPexporters3 How- ever, the scheduled expiration of the TEAprogram in 1990, the continu- ing FASemphasis on bulk commodities, and the current structure of the HVPDivision at FAS demonstrate the lack of an integrated marketing strategy to increase the U.S. share of the world HVPmarket. As we stated in an earlier report,4 no Department of Agriculture agency has taken the lead in developing a Department-wide marketing approach. Although FAShas the lead in implementing international trade programs, its programs do not comprise the Department-wide initiative necessary to lead agribusiness under an integrated marketing strategy. Although most foreign competitors in our review spend less on high Conclusions value market development activities than the United States, some spend their funds in a more highly targeted manner, using an integrated mar- keting approach and emphasizing the use of market research to tailor promotions to consumer demand. However, no U.S. Department of Agri- culture agency has taken the lead in developing a Department-wide mar- keting approach to assist U.S. producers to be more marketing-oriented. Issues that need to be addressed in developing such an approach include determining the role of government in foreign market development, including its role in encouraging producers to become more export-ori- ented, and the appropriate coordination among Department of Agricul- ture agencies of effective market development functions. “Based on an FAS estimate of TEA expenditures broken down into initial processing stage products and HVPs. It should be noted that the HVP category is quite broad and not confined to consumer- oriented products, which are the focus of competitor HVP marketing. “U.S. DEPARTMENT OF AGRICULTIIRE: Interim Report on Ways to Enhance Management (GAO/ tiCED-90-19),Oct 1989. Page 33 GAO/NSW90-47 International Trade M&r Exportem of High Value Products in 1987 pValue of export Percent of Exporter (in billion@) world total Major products Netherlands $18.54 11.3 Meats, dairy products, fresh vegetables France 16.47 10.0 Alcoholic beverages, dairy products, meats Unrted States 15.02 9.1 Animal byproducts, . tobacco, meats West Germany 12.81 7.8 Dairy products, meats, alcoholic beverages Unrted Krngdom 8.37 5.1 Alcoholic beverages, meats, animal byproducts Italy 699 4.3 Alcoholic beverages, cereals, processed vegetables Denmark 5.56 3.4 Meats, dairy products, animal byproducts Australia 5.47 3.3 Animal byproducts, meats, dairy products Sparn 5.17 3.1 Processed and dried fruit, processed vegetables, alcoholic beverages Brazil 4.89 3.0 Oilseed meals, processed and dried fruits, meats New Zealand 3.76 2.3 Meats, animal byproducts, dairy products Canada 3.33 2.0 Meats, alcoholic beverages, animal byproducts Israel 0.72 0.4 Fresh fruit, processed and dried fruit, meats Worldwide HVP exoorts $164.49 Page 34 GAO/NSI.ADW7 lnt.ematlonaI Trade AppendIs 11 Market Information and Related Services All of the marketing organizations we studied believe that market infor- mation is the foundation for building market development strategies and making promotion plans. Market information helps them to l identify potential markets, . modify products to meet consumer demand, and l choose a promotions approach. To identify potential markets, the marketing organizations use trade Identifying and contacts, consultants, and their own representatives’ expertise and col- Understanding lect or purchase general market and consumer demographics informa- Potential Mtirkets tion-market population, consumer purchasing power, the competitive situation, consumption patterns- from data-gathering or statistical organizations. The International Olive Oil Council, a trade organization composed of 17 olive oil exporting and importing countries, used market research to determine the potential for increased olive oil sales in the United States. It subsequently established offices and targeted its promotion activities in potential markets identified by the research. A Council representative believes that this approach was instrumental in increasing U.S. imports of olive oil from 32,000 to 60,000 tons in the last several years. Understanding how the identified market operates-its distribution and retail systems and who to contact-is another important part of market research; for example, 10 of the 200 German retail companies represent about one-third of the German market. Most of the marketing organizations we studied employ representatives in foreign markets who have many years of experience in both the mar- ket and in promotions. In addition, some have ongoing relationships with importer and retailer representatives there. Some marketing orga- nizations, however, hire consultants to provide additional information on the peculiarities of each market environment; for example, the Dutch Dairy Bureau contracts for market research which is used to determine the potential for its products, to develop its marketing plans, and to determine its required budget. Although a few of the countries we visited rely on traditional products Matching Products to for export, most conduct additional market research about specific con- Consumer Demand sumer demand to help producers prepare or revise their exports to meet Page 36 GAO/NS~90-47 International Trade Appendix II Market Information and Related Services the identified demand. Marketing organizations in three countries in particular, France, Denmark, and Israel, believe that matching exports to market demand is an important factor in successful market develop- ment programs. For example, a few years ago, France’s SOPEXA targeted France’s share of the British apple market for expansion. However, rather than use promotions to increase demand for existing apple exports, SOPEXA chose to determine exactly what apple consumers wanted. Using many sources of information, consumer preference research, demographics, and CFCE market information, SOPEXA deter- mined that British consumers preferred an apple a bit greener and smaller than French producers normally grew. To encourage French apple producers to meet this demand, SOPEXA met with them and explained that they could increase their British market share by picking their apples sooner than usual, when they were greener and smaller. Based on the evidence provided by SOPEXA'S market research, the producers decided to revise production, and SOPEXA repre- sentatives told us that French producers’ share of the British apple mar- ket did increase. The Danish Bacon and Meat Council modifies its products to accommo- date specific market preferences. For example, the Council’s market research has shown that Japanese consumers prefer pork cuts only of a certain size and shape. Rather than trying to convince them to buy a different cut, Danish producers ensure that pork exported to Japan meets these specifications. Market research by the Israel’s CMBI has shown that traditional citrus products have saturated most foreign markets and that markets prefer new and exotic varieties, so CMBI has focused in recent years on develop- ing new varieties, such as easy-peeling oranges and limquats (a hybrid of the lime and kumquat). Such targeted development clearly requires risk, large investment, many years of research, and commitment by pro- ducers to grow the new varieties. Choosing a Promotions Most marketing organizations we studied depend on market information to decide how to approach a market, determine what promotions tech- Approach niques are likely to be successful, and tailor their strategies to each product and each market. For example, Israel’s AGREXCO used marketing information several years ago to introduce the avocado to European markets. AGREXCO determined that the German market looked very promising for avocados, but it also found that German consumers are Page 36 GAO/NSIAD90-47 Intematiohal Trade Appendix Ii Market Information and Related Services very conservative and generally buy only traditional products. There- fore, AGREXCO designed its approach to overcome German consumers’ traditions by embarking on a 5-year promotions program designed to educate consumers and the trade about avocados, including how they are grown, how to store them, and how to prepare them. The marketing organizations we reviewed maintain systems to commu- Other Services to nicate market information to producers and to match them to potential Exporters importers. In addition, they provide technical assistance to ensure that exported products meet the packaging, labeling, and import require- ments of each market and work with producers to ensure that exported products are of high quality. Information and Trade France, the Netherlands, West Germany, and Israel use what appear to Lead Systems be the most thorough systems of providing market information to pro- ducers and assisting with trade leads. Many of the remaining countries maintain trade lead systems to match exporters and importers. France’s CFCE publishes a periodical summarizing all the information it has gathered for a particular agricultural sector, maintains a library in Paris to which producers can gain access by paying a small fee, and has a counseling office to provide information to potential exporters. In addition, CFCE arranges seminars to provide French producers with information on foreign markets. SOPEXA also publishes and distributes information, including directories of exporters which it sends to foreign markets; a monthly update on what France’s competition is doing; regu- lar newsletters with details of promotion activities conducted by each SOPEXA office; and lists of importers, wholesalers, retailers, and journalists. The Dutch Ministry of Agriculture organizes “Information Days,” oppor- tunities for government agricultural attaches and other foreign market specialists to talk with Dutch producers and exporters about exporting products to their respective markets. The Ministry’s Messages from Abroad contains general market information and periodically is sent to all Dutch producers. To reach even the smallest farmers or producers, Ministry representatives conduct “Information Evenings” in local rural areas to explain their activities to promote Dutch agricultural products. Page 37 GAO/WXADW7 International Trade Appendix Jl Market Information and Belated Services Germany’s CMApublishes a handbook for those with limited export experience and an agricultural export newspaper, conducts export semi- nars and export manager workshops, and makes available over 1,000 market research reports on 100 countries. The Israeli Ministry of Agriculture’s market research department pub- lishes a monthly magazine, Export Markets, which summarizes the agri- cultural press in various markets, discusses new varieties and competition, and informs producers what they should grow to meet var- ious market demand for the long term. Assistance With Market The marketing organizations we reviewed believe it is important to help Regulations and exporters learn about the laws, regulations, and requirements of each potential market and to help them revise their products accordingly Requirements before they attempt to enter foreign markets. Marketing organizations in 11 of the 12 countries (Brazil is the only exception) provide this service to some degree, but France, Germany, and Israel have specific agencies or branches that routinely collect and disseminate such market information. France’s CFCE collects information on foreign market requirements and regulations from government repre- sentatives at French embassies abroad and through its ongoing market research. CFCE disseminates the information through a library in Paris, monthly publications, and a counseling office. The manager of Ger- many’s CMAExport Marketing Division claims that CMAhas one of the best libraries of agriculture and food industry market research studies in the world, including information on foreign food laws. The Israeli Ministry of Agriculture’s market research department routinely collects similar information and provides it to producers through its monthly publication and its Information Center in Tel Aviv. Most organizations in the remaining eight countries help producers with a market’s laws, regulations, and requirements, generally upon request. In Spain, Italy, and the United Kingdom, quasi-governmental marketing organizations assist producers with packaging, labeling, or import regu- lations. In the Netherlands, the Ministry of Agriculture and Fisheries works with producers to solve problems or provide specific information. In Denmark, the government can provide assistance through its agricul- tural attaches and Danish commodity boards, and industry associations help their members to comply with market requirements when they request help. Page 38 GAO/NSIAD-9047 Lnternational Trade Appendix II Market information and Related Services Quality Control Assistance Germany’s CMAhas developed a quality seal to help guarantee that Ger- man exports are of high quality. To maintain credibility for the seal, independent testing facilities use very strict standards when testing a product for the CMAquality seal. In fact, typically only one-third of Ger- man products are able to meet the standards. CMArelies heavily on the quality image the seal provides as it promotes its products both domesti- cally and abroad. Because Israel’s AGREXCO and CMBI depend on their Carmel and Jaffa labels to convey a quality image to consumers, quality control at all levels of Israeli production is paramount. The Israeli Ministry of Agri- culture’s extension services keep the government and the commodity export boards informed of what is happening on the farm and enable the boards to assist growers with quality control problems when required. Israeli products are also inspected for quality at packing sta- tions, at Israel’s air and sea ports, and at their final destinations. The marketing organizations we studied work with their representatives Developing a in foreign markets and with producers in designing coordinated market Coordinated Strategy development strategies and ensuring that the levels of planned promo- tions is commensurate with product supplies. Organizations which have representatives in foreign markets generally ask them to propose effective promotion activities for their markets and use the proposals in designing market development strategies for all markets. These representatives generally have many years of experi- ence and a thorough understanding of their markets’ environment and can give their headquarters organizations valuable advice on what pro- motions activities best suit the markets. Producers and marketing orga- nizations work together to develop overall export market development strategies and ensure that the planned levels of promotion activity in all markets is commensurate with product supplies. For example, the Dutch Dairy Bureau uses the help of product working groups composed of industry representatives who are product or market specialists. The Bureau office manager in Paris, for example, discusses the cheese marketing plan with representatives of the cheese working group in the French market before presenting his plan to the next level, the advisory committee. Coordinating producer and marketing organiza- tion efforts is also an objective of the Bureau’s board of directors; it includes exporters, wholesalers, and producers who meet several times Page 39 GAO/N!SL4D90-47 International Trade Appendix II Market Information and Reiated !3ervices each year to decide how much funding will be provided for dairy prod- uct promotions. A lack of cooperation between producers and the marketing organiza- tions and commitment from producers can result in unreliable product supplies. The executive director of Food from Britain told us that British farmers and producers traditionally showed an interest in export mar- kets only when their production was higher than expected or when domestic demand was down. In addition, they hesitated to cooperate with a marketing organization promoting all British products because they thought their competition within the United Kingdom would increase. Many marketing organizations we reviewed conduct market research Conclusions through their worldwide market intelligence networks. They develop information about market opportunities and work to link exporters with potential importers. They also provide important information about for- eign regulations and quality control standards essential to exporters. Some governments also provide label clearance services to reduce bureaucratic delays and to facilitate export marketing. Independent marketing organizations also collect market information, conduct mar- ket research to identify market demand, and disseminate market infor- mation; this information enables exporters to develop appropriate products and promotion plans. Page 40 GAO/NSIAD-9047 International Trade Anpendix III Product Promotions in Foreign Markets Conducting promotions directed at the food trade is an important step to Retail Education help ensure that a country’s products are available to the consumer by influencing the trade to import, distribute, and present products at the retail level. Marketing organizations use trade exhibitions for making contacts with importers, distributors, and retailers. They use public relations activities and trade visits to show that their products are of high quality and that exporters can supply adequate quantities. Trade Exhibitions Trade exhibitions are used to introduce products and establish contacts with the import trade in each foreign market. Exhibitions are an oppor- tunity for exporters to meet importers, distributors, and the trade press; initiate working relationships; and write product orders. Marketing organizations typically assist their exporters to participate in trade exhibitions by acquiring floor space, building display booths as part of a national display, and renting the booths to the exporters- often a price at below cost to encourage participation. For example, the Israeli Ministry of Agriculture rents space to its exhibitors at 50 percent of the costs. The number of exhibitions a marketing organization participates in gen- erally varies and can depend on the number of markets the organization targets for development. For example, Food From Britain concentrates on trade exhibitions to the four countries it targets for market develop ment; SOPEXA, which has a much wider range of market development activities, participated in 50 major exhibitions in 15 countries and con- ducted 60 solo shows or mini-exhibitions worldwide in 1988. Marketing organizations in each of the countries we reviewed partici- pate in the international trade exhibitions held during alternate years in Cologne, Germany, and Paris, France, which are among the largest exhi- bitions for food products and generally attract large numbers of exhibi- tors and visitors. At least four of the marketing organizations also conduct their own exhibitions, which are referred to as “solo” exhibitions within foreign markets. They generally invite importers, distributors, retailers, and journalists; however, they sometimes invite restaurateurs, caterers, and hotel managers to sample the products and see them prepared in various recipes. Solo exhibitions can focus on promoting a single product line in a market or can promote a wide range of products in order to introduce new products to a single importer. Germany’s CMAuses solo exhibitions Page 41 GAO/N!3IAD-9&47IntemationaI ‘Thule Appendix III Product Promotions in Foreign Markets to reach importers that do not attend the other trade exhibitions. A CMA representative in London told us that he considers solo exhibitions as an effective trade promotion method because about 60 percent of the con- tacts made result in sales agreements. Influencing the Retail To command the attention of retailers, marketing organizations gener- Trade ally advertise in trade publications and about half of them publish their own newsletters, brochures, or catalogs which are provided to the trade. At least one marketing organization from each of the countries we reviewed arranges informational trips to the producing country for trade representatives from each market and sometimes for trade jour- nalists. We were told that these trips can increase the foreign trade’s awareness of a country’s products, help it understand how they are grown or produced, and help convince it that the products are of high quality and can be consistently supplied. The visits can include tours of production areas and processing plants, dinners at which the products are served, and demonstrations of product marketing in the host country. Some marketing organizations also use special events or activities to influence the trade. For example, Foods From Spain took chefs who spe- cialize in regional-unique cooking to its target markets to prepare din- ners and talk with the trade and journalists about Spanish specialties and the use of Spanish agriculture products. For the U.S. trade, the Flower Council of Holland gives Dutch design shows-evenings which include dinner, cocktails, and a flower show. The Dutch Meat Board in Britain published a book of recipes by well-known chefs and launched it with a dinner at a hotel for journalists, restaurateurs, and caterers. France’s SOPEXA conducts seminars in hotel and catering colleges to promote French agriculture products to the trade; because specialty des- ignations are highly regarded by industry representatives, SOPEXA awards wholesalers, retailers, journalists, catering school teachers, and wine stewards a degree designating them as “experts in French cuisine.” Consumer Promotions A marketing organization generally conducts the type and extent of con- sumer promotion activities consistent with the organization’s status and strategy in the market. Consumer promotions include in-store promo- tion, and television, radio, and print advertising. Page 42 GAO/NSIAD-90-47 International Trade Appendix Ill product Promotions in Foreign Markets In-Store Promotions In-store promotions (1) influence the consumer at the point of purchase, a critical decision point for many food products, (2) help to promote a country image for agricultural products, and (3) can be geared to either individual product sectors or to a country’s entire range of products. Promoters can combine several activities-product demonstrations, competitions, and advertising. Marketing organizations’ direct involve- ment in store promotions varies from just providing funds to participat- ing in every phase of promotion. For example, the Danish Bacon and Meat Council office in the British market provides funds to its producer representatives who manage the store promotions. France’s SOPEXA has the most involvement in store promotions; its full-time merchandising team in some markets introduces the products and the promotions mate- rials to the retailers, educates and trains sales personnel, and supervises and assists in promotion and display of the products. Consumer Advertising Although advertising is generally generic in nature, officials in four of the marketing organizations told us that their promotions provide an umbrella under which individual exporters can promote their branded products. In addition, officials from one organization said they also con- duct brand-specific promotions but the exporter must pay all the costs. Advertising of national brands or labels is also used by the Danish Dairy Board for butter, Spain’s ICE for produce, and Israel’s AGREXCO and the CMBI for produce and fruit. (These brands or labels, however, are availa- ble to all their country’s producers if the products meet the quality standards.) Marketing representatives tailor the promotion programs to each mar- ket. France’s SOPEXA used consumer advertising as a significant compo- nent of a 5-year campaign it conducted to establish French prunes in the Netherlands market. About 34 percent of the promotion campaign’s costs were spent on consumer advertisements which projected a high quality product image to complement the public relations and store pro- motion activities. As a result, SOPEXA tripled French prune exports to the Dutch market, according to a SOPEXA representative. Evaluations Evaluation of market development and promotion activities is vital to market success. Linking assessments of past performance with the plan- ning stage of new marketing initiatives brings the process full cycle, thus maintaining a system of feedback on marketing success. Knowing what has effectively contributed to creating and/or maintaining demand for a product is essential for designing even more effective plans for the Page 43 GAO/NSIAD90-47 IntemationaI Trade Appendix lIl product Promotions in Foreign Markets future. Each marketing activity contributes to the system and requires evaluation, both individually and in its relationship to the whole. Evalu- ation, as a process, thus provides the basis for improving and/or contin- uing effective performance. The marketing organizations we reviewed generally conduct informal evaluations each year. Their evaluation approach varies, but they gen- erally consider image and consumer awareness of their products, sales, and market share. Organization representatives cautioned us that evalu- ation data may not accurately reflect the effectiveness of their market development activities because factors outside their control can affect consumer opinions and product sales. Representatives from marketing organizations in 11 countries told us that they do market research to identify changes in the consumers’ awareness or image of their products. This can involve collecting infor- mation from consumer panels or attitude surveys. Four marketing organization representatives specified that they use professional agen- cies in the markets to perform this research. Nine organizations consider the results of these studies in conjunction with sales or market share information. In total, eleven marketing orga- nizations consider sales or market share gained during the year in evalu- ating the success of their promotion programs. For example, the Danish Dairy Board compares sales and market share to targets set at the begin- ning of the year. One organization specified that it uses sales data in its evaluation for a market only if it establishes a relationship between sales and its promotion activity. To do this it uses selected retail stores as “check points” to determine the correlation between promotions and sales. In addition, three marketing organizations use sales data to evalu- ate the success of store promotions; however, they also use other infor- mation such as data from the exporters and the retailers, additional promotion expenses incurred on the promotions, and opinions on how well the promotions were conducted. Evaluations are generally informal rather than definitive measures of success. Only four organizations set goals for their promotion programs and used them in evaluating their results. Most organizations do not set goals for changes in consumer perceptions, sales, or market share because exchange rates, independent promotion efforts by exporters, changes in product quality, and price changes by the exporters or the Page 44 GAO/NSIAD90-47 International Trade Appendix III Product Promotions in Fore&u Markets competitors may also produce these changes. For example, representa- tives of two marketing organizations cited the impact of glycol being dis- covered in European wines; although their products did not have a problem and the promotions being conducted at the time were well planned and executed, the glycol publicity hurt the quality image of all European wines and their sales diminished. Many of the marketing organizations we reviewed use their national Conclusions image to project the appeal of quality products. Although France’s SOPEXA promotes both generic and branded products, most promote their products generically, for example, Danish cheese. They emphasize the national identity and promote their products in a variety of media, including newspapers, newsletters, and trade publications. After retail- ers devote shelf space to their products, promoters next persuade con- sumers by using in-store promotions, cooking demonstrations, point-of- purchase materials, and newspaper and magazine advertising. Although conducted informally, program evaluation may permit marketing orga- nizations to judge their success and develop future promotion programs based on past experience in the market. Page 46 GAO/NSIAD-90-47 International Trade Appendix IV U.S. Foreign Market Development and Promotion Activities U.S. nonprofit trade associations assume primary responsibility for mar- Organizational keting activities in foreign markets. These associations serve producers, Funding and Structure farmers, and farm-related interests, or trade associations and generally promote a single commodity or group of related commodities, e.g., live- stock, and they assess market conditions and choose activities consistent with their products and export objectives. Although the Department of Commerce provides marketing support for some HVPS (primarily marine fish and shellfish), the FAS has the lead government role in market development and promotion. The FAS administers the Cooperator Market Development and the TEA programs, the major sources of support for U.S. HVP market development, through its seven divisions. One of these divisions-the High Value Products Division-is tasked with developing and implementing policies, services, and programs to increase the competitiveness of U.S. processed foods in foreign markets. In addition to processing some TEA applications, the Division provides export services and technical assistance to HVP exporters. Central to the overall FAS market development and promotion effort is the FAS worldwide network of agricultural attaches, counselors, and trade officers. FAS attaches’ are located in 65 posts covering more than 100 countries and in 14 overseas trade offices. The government and the private sector share costs; FAS estimates that it gave nonprofit associations $97.7 million for HVP market development and promotion in 1988. The associations also receive funds from mem- ber associations though annual membership fees or, in some cases, through state-authorized taxes on production. The regional associations representing state departments of agriculture are funded by contribu- tions from USDA, the states and private firms. Market Development Based on our previous audit work and more recent interviews with approximately 30 nonprofit trade associations, these associations’ mar- and Promotion ket development activities in foreign markets and in the United States Activities include market research, trade exhibitions, trade missions, advertising, distribution of point-of-purchase materials, and consumer promotion. FAS funds these activities under the Cooperator Market Development and the TEA programs. ’ Hereafter in this report, attache refers to attaches, counselors, and trade officers Page 46 GAO/NSiALM@47 International Trade Appendix IV U.S. Foreign Market Development and Promotion Activities The Cooperator Program2 The U.S. market development program, the Cooperator Market Develop ment program, was created by Congress in 1954 to expand foreign mar- kets for growing surpluses of U.S. agricultural products. Using a combination of private and public funds, the Cooperator program pro- vides support in the form of cash to about 50 cooperators. According to FAS, these associations represent an estimated 2.4 million farmers, 1,500 U.S. cooperatives, more than 8,700 processors and handlers, and 2,000 forest product companies. They represent producers of low value bulk commodities, high value food products, and forest products. State and regional associations representing the interests of state departments of agriculture also receive export promotion funds from FAS under its Cooperator and TEA programs. Market development and promotion activities undertaken by the non- profit trade associations are aimed at increasing both consumer and commercial uses of U.S. agricultural commodities and their derivatives by overcoming constraints to exports. Activities are not designed to make sales but to achieve long-term market access, and they fall into the general categories of technical assistance, trade servicing, and consumer promotion. FAS funds the associations through project agreements which describe the basic working relationship and program and financial obligations of each party. The Cooperator Program requires contributions from par- ticipants in the form of cash or goods and services above the amount that would have been spent in the absence of federal funds. In fiscal year 1988, FAS spent $29.0 million for the Cooperator program, $17.0 million of which FAS estimates was for HWS. The Targeted Export Authorized by the Food Security Act of 1985, the TEA program3 assists Assistance Program U.S. producers in developing foreign markets and promoting exports. The Department of Agriculture chose to implement the TEAprogram as a foreign market development program modeled on the Cooperator pro- gram to conform to provisions of the General Agreement on Tariffs and Trade, which permits market development, as well as to assist such high ‘For a detailed explanation of the Cooperator program, see our report INTERNATIONAL TRADE: Review of Effectiveness of FAS Cooperator Market Development Program, (GAO/NSL4D 87-89) Mar. 1987. 3For a detailed explanation of the TEA program, see our report AGRICULTURE TRADE: Review of Targeted Export Assistance Program, (GAO/N&D 8%183), May 1988. Page 47 GAO/NSIAIMO-47 InternationaI Trade Appendix IV U.S. Foreign Market Development and Promotion Activities value horticultural crops as fruits and nuts, whose commodity groups claimed that their export problems had not been addressed. The TEA program provides funds to counter or offset the effects of unfair foreign trade practices. A private sector participant must estab- lish that the agricultural commodity it promotes has been adversely affected by an unfair foreign trade practice, is in adequate supply in the United States, and is at least of 50 percent U.S. origin. Priority is given to those products for which favorable section 301 actions have been granted by the U.S. Trade Representative.4 TEA promotional activities include both branded and generic promotions. A limited number of private U.S. firms promote HVPS through branded promotions, and trade associations (including regional export organiza- tions) conduct generic promotional programs. Reimbursable expenses include market research designed to increase export sales, advertising, distribution of point-of-purchase materials, trade exhibitions, and con- sumer promotion. Participants are required to evaluate activities and report the evaluation findings to FAS. The TEA program uses Commodity Credit Corporation commodity certifi- cates or CCC funds, and fiscal year 1988 TFLA program HVP expenditures amounted to about $77.5 million with a budget ceiling of $110 million and an approved 1989 budget of $200 million. The High Value Products Division, with 1988 expenditures of about $3.2 Export Services million, serves exporters by coordinating trade exhibitions, providing trade leads, disseminating market information, and giving technical advice on foreign regulations. In fiscal year 1988, it coordinated 22 trade shows, including one in the United States for exporters seeking foreign market contacts. The Agricultural Information and Marketing Services (AIMS) provides a computerized communication system for transmitting trade leads, i.e.. information on specific market opportunities, from attaches to private firms wishing to export. FAS attaches provide trade leads, which domes- tic producers can access electronically within 24 hours. Two private 4Section 301 of the Trade Act of 1974, as amended, gives the President broad powers to enforce 1-S. trade rights granted by trade agreements and to attempt to eliminate acts, policies. or practices of a foreign government that are ur\justifiable. discriminatory, or unreasonable and that restrict VS. trade or violate international trade agreements. For more details, see our report INTERNATIONAL TRADE: Combating I.nfair Foreign Trade Practices (GAO/NSLAD-87-100) Mar. 1987. Page 48 GAO/NSIAWO47 International Trade Appendix IV US. Foreign Market Development and Promotion Activities consultants offer this service at annual fees of $300 to $500. However, U.S. firms can also obtain these trade leads at lower cost by subscribing to either the Journal of Commerce, published weekly at an annual fee of $205 or Export Briefs, published weekly at an annual fee of $75. AIMS also maintains a data base, which permits it to provide buyer lists of foreign buyers for particular commodities by country as well as lists of buyers in particular countries. Other AIMSpublications include newslet- ters, international marketing profiles, executive export services, and buyer alert notices. The Export Product Review Program provides advance label clearance of products destined for export to ensure that the label meets regulatory requirements in the targeted market. The HVPDivision also funds pri- vate sector participation in trade exhibitions in foreign countries to promote U.S. HVPS.This service is coordinated at Washington headquar- ters and includes considerable involvement of U.S. attaches posted in the foreign markets where the exhibitions take place. U.S. firms pay a portion of the total costs; FM arranges for the space and coordinates transportation and customs clearance of sample products. The HVP Division released the first in its new Retail Studies in October 1989. This series of reports produced by outside consultants will focus on a limited number of markets, providing essential information about those markets’ financial, distribution, and retail sectors important to U.S. HVP eXpOr&!rS. The HVP Division processes TEA requests of several HVP trade as.socia- tions, one national, and four regional trade associations representing state departments of agriculture. The Division will also serve as execu- tive secretariat to an additional Agricultural Technical Advisory Com- mittee being jointly established by the Department of Agriculture and the Office of the U.S. Trade Representative in the interagency process to coordinate U.S. agricultural policy with the private sector. The Commit- tee’s charge is to provide technical advice on processed food issues. U.S. Agricultural An important part of FM support of market development and promotion is the FAS worldwide network of agricultural attaches, who handle all Representation matters of trade information needs, food aid, and technical programs Overseas and file reports on world agricultural production, trade, and consump- tion of farm commodities. In addition, attaches prepare annual work- plans describing developments affecting the agricultural markets in Page 49 GAO/NSIAIMO47 International Trade Appendix N US. Foreign Market Development and Promotion Activities their host countries. They also write country project statements describ- ing the market situation and specific market development activities planned for the year and their costs. Commodity experts and economists at headquarters analyze these reports, and FAS makes this information public through radio, electronic transmission, magazines, and circulars. Publications include the monthly AgExporter, the 20 Circular Series, and a Weekly Roundup on world production and trade. States participate in market development and promotion through pro- States Also Promote grams managed by (1) state or quasi-state agencies, (2) one of the four HVPs in Foreign regional organization9 representing state departments of agriculture, Markets and (3) the National Association of State Departments of Agriculture. All 50 states and the four territories belong to the regional associations, which conduct generic promotions for HWS and administer the FAS High Value Export Incentive Program under the TEA program. Approximately half of all states promote exports individually; some states also maintain overseas offices. The FAS Trade Assistance and Planning Office provides information on Trade Assistance and export opportunities for U.S. agricultural products as well as foreign Planning Office economic, demographic, regulatory, and production data. In addition, it provides information concerning available programs to those U.S. exporters who believe they have been injured by unfair trade practices. The office also provides three general annual reports to Congress relat- ing to its operations; recommended U.S. policy goals for agricultural trade and projected spending levels for international activities of the Department of Agriculture, and the policies of foreign governments and market opportunities for U.S. agricultural exports. ‘The regional associations are the Eastern U.S. Agricultural and Food Export buncil. Inc., the Mid- America International Agri-trade Council, the Southern U.S. Trade Association, and the Western U.S. Agricultural Trade Association. Page 50 GAO/NSIAD9047 International Trade Appendix V Major Contributors to This Report Phillip J. Thomas, Assistant Director National Security and Judith K. Knepper, Evaluator-in-Charge International Affairs Christi PI;.Murray, Evaluator Division, Washington, D.C. Gail A. Brown, Evaluator European Office James R. Hamilton, Evaluator Karla Springer-Hamilton, Evaluator Far East Office David J. Wise, Evaluator (483503) Page 51 GAO/NSlAD-!4647 International Trade --.- Requests for copies of GAO reports should be sent to: U.S. General Accounting Office Post Office Box 6015 Gaithersburg, Maryland 20877 Telephone 202-275-6241 The fit five copies of each report are free. Additional copies are $2.00 each. There is a 25% discount on orders for 166 or more copies mailed to a single address. 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International Trade: Foreign Market Development for High Value Agricultural Products
Published by the Government Accountability Office on 1990-01-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)