chapter7

International Food Marketingand Trade : 

International Food Marketing and Trade AGEC 220 Chapter 7

Food Trade Questions:: 

Food Trade Questions: What Products Should We Sell Abroad? What Products Should the U.S. Specialize In and Export? What Prevents Our Selling More Abroad? How Can We Increase Our Competitive Position In World Food Markets? What Foods Should the U.S. Import?

Importance of Trade to American Agriculture: 

Importance of Trade to American Agriculture Exports = 30% of Farmers’ Cash Receipts (1 in three acres are exported) World’s Largest Food Exporter; 14% of World Food Trade) Positive Food Trade Balance (Exports-Imports) Imports = 12% of U.S. Food Supply

Farm Prices Closely Follow Agr. Exports (Fig. 7-1): 

Farm Prices Closely Follow Agr. Exports (Fig. 7-1) Exports Index of farm prices

Slide6: 

1998 1990 1972 1982 1940 1918

Reasons For Growth of U.S. Agr. Exports: 

Reasons For Growth of U.S. Agr. Exports Rising World Incomes Increased World Specialization Changing World Diets, Preferences Improved Communications, Transportation Trade Liberalization (GATT, NAFTA, WTO) Aggressive Trade Promotions by Industry, Government U.S. Farm Efficiency (we are low cost)

Agr. Exports To Rise in FY2002: 

Agr. Exports To Rise in FY2002 Agr. exports of $55B, first increase since 1996 ($18B bulk, $32B value-added) Reasons for trade turnaround: Global economic recovery (especially Asia) Falling value of dollar (against Asian currencies) But another record U.S. agr. imports: $40B U.S. Agr. Trade Surplus of $14.5 continues historically low

U.S. Farm Product Exports, 2001 (Figure 7-3): 

U.S. Farm Product Exports, 2001 (Figure 7-3) Grains and Feeds $13.8 Billion Corn 5.5 Wheat, flour 3.3 Hort. Products 7.3 Soybeans 5.1 Cigarettes, tobacco 4.3 Beef, Hides 3.1 Poultry 1.1 Pet Food 0.6 Cotton 2.1 Pork 0.3

U.S. Farm Product Exports, 1999 (Table 7-2): 

U.S. Farm Product Exports, 1999 (Table 7-2) Japan $8.4 Billion Canada 6.8 Mexico 6.2 Korea 2.2 Netherlands 1.7 Taiwan 1.6 Russia 1.1

Importance of U.S. Exports, By Commodities, 1997: 

Importance of U.S. Exports, By Commodities, 1997 Wheat Tobacco Beef Grains

Share of U.S. Agr. Exports,By Stage of Processing: 

Share of U.S. Agr. Exports, By Stage of Processing Bulk Products Final Consumer Products

U.S. Farm Exports As A Share of Farm Output, 1935-1999: 

U.S. Farm Exports As A Share of Farm Output, 1935-1999 A good trend for farmers

U.S. Food Imports: 

U.S. Food Imports 12% of U.S. Food Supply , Growing Supplementary Imports (60%) Compete With U.S. Products: Meat, Grain, Dairy, Fruits, Vegs. Complementary Imports (40%) Non-Competitive: Bananas, Spices, Coffee, Tea

Agricultural Trade BalanceExports - Imports: 

Agricultural Trade Balance Exports - Imports Imports Exports Trade Balance

Why Do We Trade?: 

Why Do We Trade? Demand Expansion……Farmers Diet Diversity…………Consumers Humanitarian Assistance International Relations Economic Reasons: Specialization, Division of Labor Exchange Efficiency, Higher Standard of Living

Why Is Trade Important Today?: 

Why Is Trade Important Today? Today Your Competitor Is Not Only the Guy Across the Street But Also the Guy Across the Ocean

“Trade Is A Two Way Street”: 

“Trade Is A Two Way Street” There must be willing buyers and sellers, connected by a marketing system You have to be willing to buy something if you want to sell something You have to know the rules of the road You can get run over if you are not careful

First Rule of Trade: 

First Rule of Trade A Nation’s Standard of Living Is Determined By What It Consumes, Not What It Produces Through Trade, Nations Can Consume Products Which They Don’t Produce

Indirect Production: 

Indirect Production Direct Production: Produce Sugar Indirect Production: Produce Wheat Consume Sugar Sell Wheat For Sugar Consume Sugar

The Trade Iceberg: 

The Trade Iceberg Exports, Imports Specialization, Division of Labor Efficient Resource Allocation Gain From Trade Higher Standard of Living

Why Trade?: 

Why Trade? Countries Have Different Resource Endowments Countries Have Comparative Advantages In Producing Different Products Specialization and Division of Labor Product Cost and Price Differentials Law of One Price and Trade Flows More Efficient World Resource Allocation Improved Living Standards

Principal of Comparative Advantage: 

Principal of Comparative Advantage There Are Economic Gains (Lower Costs or Higher Output) When Nations Specialize In Producing and Exporting Products For Which Their Resources Give Them a Comparative Advantage And They Trade These Products With Other Nations

The Comparative Advantage Rule: 

The Comparative Advantage Rule Export What We Do Best Import the Rest Alternative: Exports Are Good, Imports Are Bad!

Comparative Vs.Absolute Advantage: 

Comparative Vs. Absolute Advantage Absolute Advantage: Does America or Canada Produce Wheat More Efficiently? (Nation-to-Nation Comparison) Comparative Advantage: To Get More Sugar, Should America Produce Sugar or Corn? (Within Country Product-to-Product Comparison

Comparative vs. AbsoluteHuman Beings: 

Comparative vs. Absolute Human Beings Absolute Advantage Statements: John is Better Than Jim America is Better Than Brazil Comparative Advantage Statements: Do Your Best With What You Have Be All That You Can Be Give Me Your Best Shot

Calculating CA and AA: 

Calculating CA and AA Two Nation, Two Product World Corn Rice U.S. Japan 100 Bu/A 1 Ton/A 50 Bu/A 2 Tons/A CA ratios AA ratios 1C=.01R 1R=100C 1C=.04R 1R=25C U/J=2 J/U=.5 U/J=.5 J/U=2

Comparative Advantage May = Absolute Advantage: 

Comparative Advantage May = Absolute Advantage Corn Rice U.S. Japan 100 Bu/A 1 Ton/A 50 Bu/A 2 Tons/A AAdv CAdv AAdv CAdv

Slide29: 

Compar. Adv. Is Not Necessarily an Abs. Adv. Corn Rice U.S. Japan 100 Bu/A 3 Tons/A 50 Bu/A 2 Tons/A AAdv CAdv CAdv AAdv

Comparative Advantage Rules: 

Comparative Advantage Rules Comparative, Not Absolute, Advantage Determines Specialization and Trade Every Country (Region) Has A CA in Something (not necessarily food) CA is Determined By Resources, But Can Be Changed An AA Product Is Not Necessarily a CA Product and Vice Versa

U.S. Comparative Advantage Products: 

U.S. Comparative Advantage Products Strong Comparative Advantage Corn, SB Wheat. Sorghum Barley Tobacco Poultry Possible CA Rice Cotton Oats Beef Pork Comparative Disadvantage Sugar Peanuts Lamb Wool Mfg. Dairy These are debatable

The Gain From Trade: 

The Gain From Trade GAIN = The Increase In Output (Or Savings In Inputs) When Nations Specialize and Trade Rather Than Attempt to Be Self-Sufficient Corn Rice US Japan 100 50 1 2 Output: Self Sufficiency: 150C + 3R Spec. and Trade: 200C + 4R Gain: 50C+1R

Demonstration: The GainFrom Trade: 

Demonstration: The Gain From Trade Output Per Hour Wheatland Cowland Wheat Beef 50 Bu. 25 Bu. 60 Lbs. 40 Lbs. Reg. Need 100 Bu 120 Lb If Self Sufficient: Wheat 100/50 + 100/25= 6 hours Beef 120/60 + 120/40 = 5 hours If Spec. and Trade: Wheat 200/50 = 4 hours Beef 240/40= 6 hours

Sources of the GainsFrom Trade: 

Sources of the Gains From Trade Operational Efficiency Gains Larger Markets Specialization, Division of Labor Pricing Efficiency Gains Competitive Discipline Improved World Resource Allocation Public Gains Consumer Choice

Trade and the Lawof One Price: 

Trade and the Law of One Price Exporter Importer Pe Pi P Q P Q D S D S Pworld D’ S’

Trade Views: 

Trade Views Free trade, one of the greatest blessings which a government can confer on its people, is in almost every country unpopular. Thomas Babington There are no free traders among the world’s agricultural trading nations…all governments intervene in agriculture. U.S. Dept. of Agr.

Slide37: 

No Nation Was Ever Ruined By Trade B. Franklin

Alternative Trade Policies: 

Alternative Trade Policies Closed Economy No Trade Autarky Self Sufficiency Protection From Trade Open Economy Specialization Open markets Dependency Mixed System

Free Trade Attitudes: 

Free Trade Attitudes Trade Benefits: Increased Variety Lower Consumer Prices Higher Quality???? Trade Costs: Loss of Jobs, Income Loss of Independence Adjustment Costs But maybe more jobs and income in the long run

Why Do We ResistFree Trade?: 

Why Do We Resist Free Trade? Nationalism, National Security Economic Parochialism: Keep Money in the Country. Protect Wages Fear of Change, Comfort Concern For Adjustment Costs To Avoid Foreign Competition Barriers Are Profitable…For a Few

Barriers to Trade: 

Barriers to Trade Tariffs (taxes on imports) Import Restrictions, Quotas, Licenses Buy Local Requirements State Traders, Government Trade Cartels Industry Subsidies Embargoes, Export Restrictions Export Subsidies, Dumping Exchange Rate Distortions

U.S. Tariffs, by Commodities: 

U.S. Tariffs, by Commodities

Trading Homogeneous(Fungible) Commodities: 

Trading Homogeneous (Fungible) Commodities World Wheat Usage World Wheat Supply US Wheat Canadian Wheat Russian Wheat Hi Price Lo Price

Why Trade EmbargoesDon’t Work: 

Why Trade Embargoes Don’t Work Russia Canada America Third Country

U.S. Govt. Export Promotion Programs: 

U.S. Govt. Export Promotion Programs Market Development Program Technical Assistance to Exporters Consumer Promotions EEP Export Enhancement Program Export Discounts, Subsidies EIP Export Incentive Program (Branded Products) TEA Targeted Export Assistance Programs Regain Lost Export Markets Trade Retaliation

Exchange RatesHow Much Is That In Dollars?: 

Exchange Rates How Much Is That In Dollars? Exchange Rate: The Rate at Which One Currency Can Be Exchanged For Another Dollar-Yen Exchange Rate: $1 = 120 Japanese Yen 1 Yen = 1 / 120 = $.0083 = .8 cents 1 $ = 1 / .0083 = 120 yen

The Changing Value of the Dollar, 1974-96: 

The Changing Value of the Dollar, 1974-96 Stable 1987-2000

What Influences Exchange Rates?: 

What Influences Exchange Rates? Inflation, Confidence In Currency Monetary Policy, Interest Rates Trade Balances Others?

Trade and the Valueof the Dollar: 

Trade and the Value of the Dollar Cost of US Exports To Foreigners Cost of US Imports To Americans Rising $ Falling $ Exports fall Exports rise Imports rise Imports fall

Exchange Rates and Prices: 

Exchange Rates and Prices 1997: Exchange Rate $1 = 144 yen US Japan Price of US wheat $4/bu. 4(144)=576 yen Price of Japan truck $10,000 1,440,000 yen 1998: (falling dollar, stronger yen) Exchange Rate $1 = 130 yen Price of US wheat $4/bu. 4(130)=520 yen Price of Japan truck $11,077 1,440,000 yen