Market Share in International Processed Food Markets Declining for the United States

October 11, 1995

Market Share in International Processed Food Markets Declining for the United States

According to a report just released, the United States has been consistently losing market share in international markets for processed, or high-value-added, food products. To many, this indicates that the international competitiveness of the U.S. food processing industry is eroding. The report was released by the Council for Agricultural Science and Technology (CAST), a leading consortium of more than 30 professional scientific societies.

Dr. Maury Bredahl, director of the Center for International Trade Expansion at the University of Missouri and chair of the CAST task force report Competitiveness of U.S. Agriculture and the Balance of Payments, explains why increasing exports of processed food products is so important. "If commodities are processed in the United States, business activity increases here, employment and personal income rises, the tax base broadens, and the balance of trade improves. On the other hand, if foreign countries process U.S. commodities, these benefits are realized abroad."

According to author Philip C. Abbott, professor of agricultural economics at Purdue University, "Agricultural export earnings this year are at record levels. But gains are largely due to commodity price increases following bad weather globally and increased foreign demand. Exports of high-value and processed food products are also increasing but more slowly than in competing countries."

The authors report that the unit value, or average price, of exports from the United States was below that of exports from countries like France and The Netherlands, which are the world's largest exporters of processed food products. Although the percentage has declined recently, about half of U.S. exports still consists of low-value-added commodities.

What Determines Competitiveness

The CAST study identifies several determinants of the competitive position of the United States in international food markets. Several economy-wide factors, exchange and interest rates, and growth in productivity and efficiency have important effects. But competitiveness factors important in international commodity markets are different from the factors important in international processed food markets.

Natural resources such as fertile soils and favorable climate, and cost reducing technologies are crucial for competitiveness in international commodity markets. Product characteristics, quality enhancing technologies, product innovations, regulatory environment, and trade policies play more important roles in the processed food markets. And often food processors require that characteristics desired in the final product be imparted at the farm.

How Competitiveness Can Be Improved

According to University of Kentucky agricultural economics professor Dr. Michael Reed, one of the report's authors, "The U.S. agricultural industry needs to do a better job of assessing international needs for specific food products if it wants to be more competitive."

The authors point to a need among Land Grant universities and experiment stations to link research priorities with economic payoffs to the entire food system, including processing. Firms are seeking technologies for delivering products at a time and place and in a form demanded by foreign consumers. Experiment stations must choose between downsizing and increasing collaboration on research with a payoff to individual firms.

The report notes that research and government policies should help small and mid-sized firms because they are especially likely to access foreign markets through exports. Large U.S. food multinationals are more likely to access foreign markets through subsidiaries than by exporting from their U.S. operations.

Export subsidies on agricultural commodities are of limited benefit to farmers and exporters. Benefits are exceeded greatly by costs to taxpayers and costs to consumers and processors through higher prices, and often are distributed unequally. The tendency of farmers and food processors to produce for government programs decreases the competitiveness of the U.S. food system at home and abroad. Public resources are better aimed at improving the information infrastructure and research base used by exporting firms and agriculture.

 

Competitiveness of U.S. Agriculture and the Balance of Trade is available for $12.00 from CAST, 4420 West Lincoln Way, Ames, IA 50014-3447, (515) 292-2125. CAST identifies food and fiber, environmental, and other agricultural issues and interprets related scientific research information for legislators, regulators, and the media for use in public policy decision making. CAST is a nonprofit organization of 30 scientific societies and many individual, student, company, nonprofit, and associate society members.