oversight

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)

                 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
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