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September 7, 2001

Increasing exports:
USDA unveils three-step strategy

By Lana Robinson
Field Editor

The strong dollar, aggressive competition from WTO players, and over-reliance on mature markets are the three top reasons a USDA Foreign Agricultural Service economist believes the U.S. is lagging behind on ag exports.

Speaking to a packed house at the recent Texas Agricultural Summit in Lubbock, USDA/FAS Economist Michael Dwyer painted a not-so-pretty picture of the current export situation and outlined steps the agency proposes to turn it around.

"Ag exports are increasingly vital to the U.S. farmer," Dwyer told agricultural producers and industry leaders attending the two-day conference. "Domestic demand is pretty flat. Farm incomes drop without the growth component of farm exports. When exports rise, prices rise. Income rises. It's trending up. The problem is our competition's exports are rising faster than our own. U.S. ag export numbers are down to 18 percent. Our market share of world exports is in a negative trend. Our closest competition in 1981 was the EU (European Union). We're still slightly ahead, but the trend is not positive when you are losing to competitors. In two to three years, we will lose our mantle to the EU. Australia, New Zealand and Brazil are also coming on strong. Our competition is spending more money on market development. We must do more than just open markets. We need to develop markets."

Dwyer said USDA has the goal of increasing U.S. market share of ag exports from 18 percent to 22 percent, or $15 billion, by 2010.

"That will mean $3.5 billion to $4 billion more net farm income, all from the marketplace. We want to leverage gains and focus activities. Asia and Latin America are gaining shares in fast-growing markets without losing," the economist said.

USDA's three-step strategy

USDA's three-step strategy includes trade negotiations, combined with increased exports, and increased marketing intelligence.

"We want to take advantage of the opportunity for trade liberalization. We want to develop new markets, regionally in five regions. Out of 130 regional trade pacts in the world, we are a party to only two," he said.

Dwyer noted the aggressive competition the U.S. faces in a WTO context. He pointed out that EU producers earn $100 billion from the marketplace, but 80 percent of their global export activities are subsidized. Still, he said the strong dollar is the single biggest reason the U.S. has lost market share to its global competitors.

"It's just too expensive in those markets. The EU currency has been reduced by 25 percent. Currencies in Canada and Australia are at a record low. There's really nothing USDA can do about that. A strong dollar keeps inflation and interest rates low, and makes imports cheap," said Dwyer. "But there are some things we can do. We must aggressively seek trade reform. What we absolutely, positively must have is Trade Promotion Authority (TPA). If we could negotiate with the FTAA (Free Trade Areas of the Americas), it would increase our exports by 3 percent...We also need to review and adjust our export programs. The world is a different place today. It's very market-oriented and consumer-driven. Food safety is an issue. We need to educate the consumer. Right now, the debate is being done by one side. We need to educate with facts. We have the flexibility to shift funds from the Export Enhancement Program (EEP), which is hardly used at all, to other programs. We need to determine appropriate program levels, to make our domestic programs and export programs complementary and WTO compliant."

Growing markets eyed

Another weakness identified by USDA/FAS, according to Dwyer, is that the U.S. relies too much on sales to six major "mature" markets—nations such as Japan—with little or no upside growth potential.

"Japan remains our largest ag export market. It's not a growth market, but we must continue to develop it. But what we really need is to find new markets that are growing faster than the world rate of growth. China is that number 1 market. Out of 1.2 billion people, 35 million are middle income. That will be 500 million in seven years. That is like adding another Japan. This is a market we have to succeed in," Dwyer insisted.

Dwyer called South Korea "a major high-value market in the future" and said Southeast Asia's economies are coming back, and should not be ignored.

"India has the world's largest middle class. They allow no imports in. If they lower the barriers, India will become a major market in the next 10 years," he predicted. "In 1998-1999, exports to Mexico and Canada continued to rise to record levels. We export about $1 billion to Central America, which has an emerging middle class. Brazil is the `engine of growth of South America.' It is the fastest growing market.

"Iran has had its political difficulties, but it's one of the largest importers," Dwyer continued, suggesting the U.S. should liberalize trade policies to take advantage of that market. "Turkey has a growing middle class. Egypt also. In Russia, the middle class is coming back. The EU has seen better days. We sell them soybeans, cotton, high value products to the tune of $6.5 billion and $7 billion to Mexico."

Dwyer said consumer food products have the most potential for export. In 1999, those overtook bulk commodities. The U.S. sold $22 billion of high value products (meats, fresh fruits and processed foods). He predicts that category of ag exports to reach $76 billion by 2010.

"This new global requires new thinking—`strategic' planning, not `central' planning. We must get into a growth market. And we are relying on industry group input," he said. "Lastly, we need to match tools to tasks, and see which yield the most benefits."