Why There is a Public/Private Partnership

 

The very nature of agricultural products requires that there be a public/private partnership in order to succeed in the export marketplace. Because of the generic nature of agricultural products, participation by individual export marketing firms in market promotions is limited.  Most U.S. agricultural products are raw, bulk commodities: wheat, corn, soybeans, cotton, cattle or hogs.  Some of these products, like corn, barley or soybean meal for animal feed, never reach the consumer directly.  Others are available only after processing, as is the case with flour or bread, margarine and cooking oil, beef and pork, cotton products.  The high-value products, such as fresh fruits and vegetables and fish and forestry products, also require some additional processing before they reach the consumer.

 

A farmer may sell his product to several firms that compete with each other. Thus, even the largest multinational grain or oilseed exporting firm or a small niche organic producer derives little profit from spending large sums of money on market development, because such action simultaneously develops markets for its competitors.

 

In some cases, brand promotions work - but only if one organization promotes a product grown by many farmers.  Specialty crops, in particular, can be successfully promoted and identified by a production region, such as California table grapes, Florida orange juice and California almonds.

 

When production exceeds domestic demand, outlets for the farmers' production need to be identified.  This is not something that a farmer has the ability or the inclination to pursue and thus the organizations to which the farmers belong become the source of these efforts.  With their reliance on grower dues and support in varying degrees, even these organizations are not in a position to risk their growers' dollars in an effort to open up new markets so a partnership is necessary.  Also, government intervention is often an essential requirement in order to overcome barriers to trade like tariffs, quotas, sanitary/phytosanitary issues and the like and the overseas offices of the Foreign Agricultural Service (FAS) prove instrumental in accomplishing those tasks.

 

It should be emphasized that these are cost-share programs under which farmers and other participants are required to contribute as much as a 100 percent match of their own resources to be eligible.  It has been and continues to be an excellent example of an effective public-private partnership.  While government is an important partner in this effort, industry funds are now estimated to represent almost 60 percent of total annual spending on market development and promotion, up from roughly 45 percent in 1996 and less than 30 percent in 1991.  Clearly, U.S. producers and industry are committed to the program.

 

By any measure, these programs have been tremendously successful and extremely cost-effective in helping maintain and expand U.S. agricultural exports, protect and create American jobs, strengthen farm income and help to offset the government-supported advantages afforded foreign competitors.  MAP is one of the few tools U.S. agriculture has to compete in the international marketplace, and is even more important today as our competitors continue to use their considerable financial resources to gain market share.

 

Foreign Trade: The Developmental Story

 

Agricultural products face many obstacles abroad.  In addition to the fierce competition posed by other countries' export subsidies, U.S. exporters often find themselves thwarted by restrictions imposed by the importing countries' governments.  These restrictions may take the form of trade barriers like tariffs, but there are also numerous sanitary/phytosanitary and safety regulations that vary significantly from country to country and generally are not based on sound science but rather on protecting an indigenous crop.  This factor alone forces U.S. exporters to deal with the maze of foreign government agencies that write and interpret various rules governing imports and retail sales of food products.  This is not something that can be done by industry alone.

 

The ultimate trade barrier, though, may be the actual consumer.  The exporter must find a means of convincing this audience that U.S. products are worth trying.  To get to the consumer, several layers of the marketing system have to be penetrated.  The importer needs to be convinced that it is worth his while to work with the exporter to acquire the product.  The processor, if there is one, needs to be convinced that the cost to add value to the product will be recoverable and often-times needs technical assistance with incorporating the U.S. variety into a particular consumer product.  The retailer needs to be convinced to carry the product and if there is a premium for that product, to pay it.  Convincing all of these elements takes time and education and requires a commitment to see the process through to its conclusion - the successful sale of U.S. goods to that market.

 

All this means that developing export markets for U.S. agricultural products is very complex, time and resource-intensive and long-term.  U.S. exporters have to convince multiple foreign agencies, organizations and purchasers that U.S. products are of excellent quality, grown under the most stringent guidelines for sustainability and food safety and produced in ample quantities; that handling, transporting and processing will not affect the continued high quality or timeliness of delivery; and that U.S. products are priced competitively or well worth any premium that must be paid for them.

 

When a food-borne illness is identified the impact that it has on trade is immediate and often devastating.  The U.S. government must weigh in at this point to attempt to negotiate a satisfactory strategy to reintroduce the food to the banned market.  At the same time, the industry is doing what it can to re-establish its bona fides with the market through educational, scientific and academic efforts.

 

All of these are formidable challenges and may be too overwhelming for a single industry.  By partnering with the U.S. government, the outcomes are more likely to be positive because of the ability to sustain a presence in a market and to rely on and coordinate the skill sets of both the industry and government.

 

How U.S. Agriculture is Matching Participation With These Programs

 

U.S. farmers are at a distinct disadvantage in the global marketplace because until the passage of the FY2002 Farm Bill (Farm Security and Rural Investment Act of 2002), U.S. expenditures for market development under the FMD and MAP programs had been steadily declining.  This very small investment has been used to great advantage by the cooperators to achieve a higher market share in the face of increasing competition.  These dollars have been leveraged by the government and increasingly matched by the producers themselves.  The farmers are beginning to feel the ever-shrinking circle of their disposable income, however:  If there are insufficient public funds for U.S. producers to take advantage of the available global marketplace opportunities, they will have less money (and less incentive) to add to the shrinking government pool of resources, which decreases the effectiveness of the market development, access and promotion programs, thereby precluding the ability to grow new export markets to take the surplus supply of their products.  Consider the flip-side:  New growth markets are identified, government and industry resources are used to develop and access those markets, demand for the product is achieved, the surplus product has a foreign destination, prices for the commodity rise and the family farm becomes another growing segment of the U.S. economy.

 

As detailed in Global Insight Inc.'s 2006 study: A Cost Benefit Analysis of USDA's International Market Development Program:

 

MAP and FMD are public-private partnerships.  Using program allocation formulas that stress the importance of industry contributions to receive government funds, USDA has administered the programs to boost the overall level of market development (government and industry funds combined).  Government funds attract, not replace, industry funds.  As a result, total partnership spending has grown 150% in the past decade to over $500 million projected for 2007. This growth is largely due to sharp increases in industry contributions (up 222%) which have grown twice as fast as government funding under MAP and FMD (which rose 95%).  While government is an important partner, industry funds are now estimated to represent 59 percent of total annual spending, up from 46% in 1996 and less than 30% in 1991 which demonstrates industry commitment to the effort.  The sharpest gains in partnership spending occurred during the 2002 Farm Bill, rising by over $200 million in 2007 from 2001 levels as both government and industry spending increased.

 

How Strategies Are Developed

 

The format by which and through which an international market development strategy is developed is called the Unified Export Strategy (UES).  This document incorporates nearly all of the funding resources for which an organization may make a request.  (These development tools are described in the following section.)  The UES is a "living" document in that it is always under review and refinement as new opportunities appear or as alterations to current strategies need to be made due to changing needs, changing attitudes, changing world views or in-country government-endorsed constraints to trade.

 

An extremely high level of coordination among all parties to this multi-year strategic development takes place annually.  The participants and their member organizations assess the previous year's outcomes and determine to what extent they have moved the organization's long-term strategic goals forward and make adjustments to address any impediments that they have identified.  These are discussed with the marketing specialists in each of the requisite branches of the Office of Trade Programs/Foreign Agricultural Service and by the agricultural attachés in the countries or regions where the activities are proposed.  The agricultural attachés also produce annual reports of in-country opportunities and constraints that they have identified which also are included in the discussions and deliberations by the participants and their member organizations.  In addition, the participants generally have other sources of market information from either in-country representatives or importers/processors/retailers that is also incorporated into the strategies.  Depending upon what has been identified as impediments to trade, the trade policy specialists within FAS or the sanitary/phytosanitary specialists with the Animal and Plant Health Inspection Service (APHIS) add their thoughts and suggestions to the process.  This constant strategic evolution means that the agricultural community is responding to whatever opportunities or threats are presented over time.  The multi-year nature of these strategies allows the industry to plan successfully to utilize the taxpayer dollars in a cost-effective and efficient manner.

 

The industry members demonstrate the obvious value of these efforts by supporting them with the investment of hard-earned farmer contributions.  The participants leverage the public sector funds that support these strategies to stimulate a supplementary private sector commitment of industry funds.  Over the years these industry contributions have grown, even during a period when the public funds were shrinking.  This commitment of industry funds is a statement of the value that the industries place in the opportunities provided by these programs.

How the Programs Work

 

Under the FMD and MAP programs, CCC funds, apportioned by the Office of Management and Budget (OMB), are used to partially reimburse Cooperators conducting approved overseas development and promotion activities.  Preference is given to U.S. agricultural and trade groups that represent an entire industry or are nationwide in membership and scope.

 

Since their creation, FMD and MAP have proven to be tremendously successful and extremely cost-effective in helping to boost U.S. agricultural exports, to develop, maintain and expand U.S. agricultural markets, to protect and create American jobs, to strengthen farm income and to help offset the government-supported advantages afforded foreign competitors.  Since the introduction of MAP in 1985, U.S. agricultural exports have increased by nearly 300 percent, and today over 1 million Americans have jobs that depend on these exports.  According to USDA, each $1 billion in agricultural exports supports 8,000 to 9,000 U.S. jobs.  Thousands of small to medium size enterprises throughout the country, including family farms, depend on FMD and MAP program activities for export markets.

 

Each year USDA announces the availability of the programs during an application period and publishes it in the Federal Register.  Strategic plans are developed by the agricultural industries and the resulting proposals for the FMD and MAP programs are submitted to USDA as part of the Unified Export Strategy process that allows applicants to request funding from various USDA market development programs through a single strategically coordinated proposal.  Each of the programs is governed by regulations that define program requirements, including cost-sharing, strategic planning, reimbursement procedures, records and reporting requirements and evaluations.

 

The application for each program undergoes a competitive review process based on criteria specified in the Federal Register announcement.  Funds are awarded to those applicants that demonstrate effective performance based on a clear, long-term strategic plan.  Upon approval, FAS sets a program funding level and signs a program agreement with each approved applicant.  All cooperators must keep an itemized list of expenses incurred during the program year and submit them to FAS for reimbursement.  All expenses are subject to audits and cooperators are held accountable for maintaining proper documentation for the program.  Participants are required to certify that the federal program funds supplement - and do not replace - private sector funds.

 

In the case of MAP program funds, agricultural cooperatives and small businesses can receive assistance under the branded program.  To conduct branded product promotion activities, individual companies must provide at least 50% of the funding.  MAP regulations limit the promotion of branded products in a single country to no more than five years.

 

What Our Competitors Are Doing

 

The U.S. exporters are not the only marketers in the world to realize that a long-term commitment is necessary to achieve any market penetration.  If the truth be told, the U.S. has taught the rest of the world how to do it.  Now, the competitors to the U.S. have begun to imitate our efforts in earnest and with greater funding behind them.

 

American agriculture and American workers continue to face increasingly strong foreign competition supported by government sponsored activities.  In recent years, the EU and other foreign competitors have devoted considerable resources to various market development activities to promote their exports of agricultural, forestry, and fishery products.  A significant portion of these activities is carried out in the United States.  Because market promotion programs are permitted under World Trade Organization (WTO) rules, such programs are increasingly seen as a centerpiece of a winning strategy in the international trade battleground.  Many competitor countries have announced ambitious trade goals, are completing a dizzying array of Free Trade Agreements and are shaping export programs to target these new growth markets and bring new companies into the export arena.

 

The U.S. has a strong farm economy with incredible potential and has demonstrated the power of that potential with ever-increasing volume and value of exports.  FY2014 saw U.S. agricultural exports hit an all-time high of $152.5 billion.  This has been accomplished using the U.S. government resources leveraged to bring in industry/producer dollars but even then, the U.S. falls far below what our competitors are investing.

 

Additional Funding Advantages for U.S. Agricultural Producers/U.S. Economy

 

According to the IHS Global Market Strategy study completed in 2006 and updated in 2010, should funding for these programs increase, there would be wide-spread benefits to the farm and overall economies, including job creation through support of ancillary industries.  As detailed in Global Insight Inc.'s 2006 study: A Cost Benefit Analysis of USDA's International Market Development Program:

  • Market development expenditures have a positive and significant impact in both bulk and high value U.S export share.  Specifically, over the long run, a one-percent increase in market development outlays would result in an expanded U.S. bulk market share of 0.145 percent, and a larger U.S. high-value market share of 0.199 percent holding price constant.
  • Market development has a long-run impact on both product sectors, but an important difference was discovered with respect to the lagged impact of market development spending. While both export categories see export benefits well beyond the original year of the investment, high-value agricultural products experience returns for more than seven years, while bulk commodities see returns for about three years.
  • An assessment of the likely halo, or indirect, effect of market development substantiates its existence. It is significant and could represent a sizable portion of the total market development effect on agricultural products. Assuming that 80 percent of commodities in 80 percent of markets receive direct market development, the halo effect is estimated to be 40 percent. This is a positive externality that has not previously been recognized.