US exporters on the offensive to maintain, build market share

(Editor’s note: This is the fifth and final article in a new series of Agri-Pulse in-depth stories, “Export or Bust,” dealing with the challenges and opportunities for U.S. agriculture when it comes to selling more commodities and value-added products to overseas customers.)

John Baize was on a mission to sell more U.S. soybean oil in Egypt. But there was a problem, according to the government buyer who was charged with procurement of edible oils in that country. Their citizens were buying cottonseed and sunflower oil from other countries because they thought soybean oil smelled “fishy.”

“I handed him a bottle of Wesson oil, made from U.S. soybeans,” recalls the oilseed consultant about the meeting that took place in the early 1990s. “And I asked him to go home and have his wife cook something with it. The next day, he wanted to learn how refineries in his country could produce the same thing.”

Since that time, demand for U.S. soybean oil in Egypt has grown from about 22,000 tons to 720,000 tons last year.

“All it took was letting him taste good soybean oil and getting someone to show him how to make it in his own country,” Baize added. “That’s just one of the things you can do to help consumers in an entire country use a product they haven’t used before.”

Of course, obtaining market access, building relationships with buyers and developing new export sales to other countries is not quick or easy.

“You don’t just make a deal with the first phone call,” emphasizes Jim Sutter, CEO of the U.S. Soybean Export Council (USSEC). “In China, it took 36 years of trying to build up markets and relationships with marketers. Many years went by before a single soybean was sold.”

The American Soybean Association first opened an office in Beijing in 1982 – a time when China had the largest swine herd in the world but most of it was fed in backyards with a ration that did not include soybean meal. China also produces more fresh water fish than the rest of the world combined, and none of its fish feed included soybean meal 20 years ago. 

Through a long-term and comprehensive program to demonstrate the value of soy-based feeds, ASA and the U.S. Soybean Export Council helped build demand for soybeans to the level China imports today.  Since 1995, while feed use in China grew by 140 percent, soybean meal used in animal feed rose an unprecedented 839 percent.  And we've seen the amount of soybean meal used in aquaculture feeds grow from zero just 20 years ago to 7 million metric tons this year.

Soybeans are just one of hundreds of commodities and specialty products that are in search of new international markets.

Since the 1950s, U.S. farmers and agribusinesses have tirelessly worked with officials from USDA (and since the 1960s, a special trade representative) to tear down barriers, open export markets, and build sales that ultimately support farm income and American jobs. They’ve used a variety of tools and programs, including two USDA cost-share programs that, in partnership with farmer-funded checkoff dollars, have played a vital role in expanding U.S. farm sales abroad: the Market Access Program (MAP) and the Foreign Market Development (FMD) Program. (For the entire list of USDA market development and food aid programs, click here.)

The far-reaching outcomes - from apples to nuts, pork to soybeans and wine - are noteworthy for farmers and the broader U.S. economy. Every $1 billion in agricultural export revenue supports 8,100 jobs, according to USDA’s Economic Research Service. That equaled about 1.1 million American jobs in 2017.

And with net farm income forecast to decrease $4.3 billion from 2017 to $59.5 billion in 2018, farm exports play an especially important role in supporting markets for farmers and ranchers. As a share of total gross farm receipts, U.S. agricultural exports were projected to account for 33.4 percent of gross cash earnings in 2017, according to the Congressional Research Service (CRS).

Of course, the percentage of U.S. production that’s exported varies by commodity and product (see chart below).

Little wonder then that many farmers are incredibly worried about the Trump administration’s efforts to renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico, and potentially impose steep tariffs on Chinese products.

The top three markets for U.S. agricultural exports are China, Canada, and Mexico, in that order. Together, these three countries are expected to account for $65.6 billion, or 47 percent of total U.S. agricultural exports in FY 2017, according to CRS. For some commodities, like soybeans, the impact of a potential trade battle could be extremely severe.

“China purchases 61 percent of total U.S. soybean exports, and more than 30 percent of overall U.S. soybean production. In short, trade with China matters and is vital not only to the hundreds of thousands of U.S. soybean producers but the rural economies and communities that depend on them,” noted ASA President and Iowa farmer John Heisdorffer.

The value of U.S. soybean exports to China has grown surged from $414 million in 1996 to roughly $14 billion in 2017. Potential tariffs would put years of work to expand markets, and the livelihoods of thousands of U.S. farmers, in jeopardy, ASA noted in recent comments submitted to the U.S. Trade Representative.

While negotiations continue with Mexico and Canada on NAFTA and talks with Chinese officials are scheduled for later this week, some growers are already feeling the pain. On Feb. 4, China launched an investigation into what officials there described as potential dumping of U.S. sorghum at low prices, thereby hurting Chinese farmers. A preliminary ruling by China's Commerce Ministry required importers to post bonds of 178.6 percent of the value of sorghum exports to cover possible anti-dumping duties until the investigation is complete. Additionally, Chinese customs are ramping up inspection checks on fresh fruit and pork imports from the U.S.

Last year, the U.S. pork industry exported $1.1 billion of product to China, making that country the number-two value market for U.S. pork.

Competitors ramp up

Competitors recognize the potential openings that may result from inaction or trade spats and are forging ahead - sealing deals and breaking down barriers in markets near and dear to the U.S. For example, the European Union (EU) and Japan concluded negotiations to create the world’s largest economic area in December. And last month, the EU and Mexico announced plans to eliminate tariffs for almost all goods traded between their respective countries.

Adding to the challenges: Competitors in foreign countries receive substantially more public support than U.S. farmers and agricultural exporters when it comes to boosting their exports. In 2011, competing government support for agricultural exports from just 12 countries and the European Union central government (not including individual member states) was $700 million per year, according to AgExportsCount, a coalition of over 75 organizations representing farmers and ranchers, fishermen and forest-product producers, cooperatives, small businesses, regional trade organizations and state departments of agriculture.

“For comparison, the U.S. budgets approximately $235 million annually in public funds through MAP and FMD for agricultural export promotion and market development,” the group noted. They are supporting efforts in the next farm bill to significantly ramp up funding, including a bill introduced by Sen. Angus King, I-Maine, the “Cultivating Revitalization by Expanding American Agricultural Trade and Exports Act” that would steadily raise MAP funding from $200 million for 2018 to $400 million for 2023. FMD funding would also double from $34.5 million for 2018 to $69 million for 2023.

Programs like MAP and FMD are “absolutely essential,” says Dan Halstrom, U.S. Meat Export Federation president and CEO. “Without this funding, it would be very difficult to maintain market share in established markets or to expand the presence of U.S. red meat into emerging markets. These investments are especially important for assisting small and medium-sized businesses that want to expand into the export markets, but do not yet have company personnel or resources located in international markets.” 

Playing offense

But despite all the growing international competition and market uncertainty, don’t expect U.S. producers to duck and run. If anything, farmers and ranchers, along with their export-focused organizations and their federal partners, are working even harder around the globe to build relationships and further expand their access to international markets.

“We’re leaving no stone unturned,” emphasized USDA's Undersecretary for Trade and Foreign Agricultural Affairs Ted McKinney, who has been working on building new export opportunities and traveling the globe from almost the day he was sworn into office. “I think the “secret sauce” -  if I can use that phrase - is really going to be the time you spend with trading partners ... the degree to which you take an ag trade mission the ... the degree to which I, or others like me, are there and showing that interest.”

McKinney says USDA is not dropping its focus on major markets like China, Japan or Korea, but “it doesn’t have to be one of those very, very largest of countries to have potential.” For example, he cited a recent trip to Guatemala, which was an “all-time high ag trade mission in the history of the Foreign Ag Service.”

That trip yielded $30 million in projected 12-month export sales for a host of U.S. farm and food products ranging from seafood to fresh produce to flavorings to bulk commodities, according to USDA. Representatives from 30 U.S. companies, four trade associations and seven state departments of agriculture joined McKinney on the Feb. 26-March 2 mission, where they participated in 450 business-to-business meetings with potential customers from Guatemala, Honduras and El Salvador.

Here are some other examples where American organizations continue to build or expand markets:

Remarkable rebound

When the South Korean beef market first reopened in 2008, following the BSE-related suspension of trade, there was still a great deal of misinformation circulating in Korea about the safety and quality of U.S. beef. As a result, it was difficult to persuade retailers and restaurants to feature, or even carry, U.S. beef, Halstrom said.

But USMEF, working with the U.S. meat industry and U.S. trade officials, made a concerted effort to overcome these obstacles, and now South Korea is one of U.S. beef's greatest success stories. Last year exports reached a record $1.2 billion, and South Koreans consume more U.S. beef per capita than in any other international market.

Recently, USMEF – with funds from the Beef Checkoff program -  partnered with the largest grocery chain in in South Korea to conduct a series of educational sessions for retail meat department managers. The E-Mart steak cooking class helped promote thick-cut and dry-aged steaks while offering new ideas for preparing U.S. beef. After the demonstration, each E-Mart employee had a chance to cook and taste a U.S. beef striploin steak.

“Beef in Korea has for many years been marinated for bulgogi and braised for soup and stew,” said Jihae Yang, USMEF director in Korea. “However, beef consumption trends have rapidly changed in the past couple of years, with an increasing demand for steak.”

BTA opens apple opportunities

Prior to 2001, Vietnam’s doors were basically shut to US apples because the government applied tariffs of about 40 percent, recalls Rebecca Lyons, International Marketing Director for the Washington Apple Commission. “That just makes it very difficult to compete in a market, especially a developing country market like Vietnam.

But the combination of a new Bilateral Trade Agreement (BTA), the MAP and funds collected from growers, the Washington Apple Commission’s market development efforts took off.

“We went from just a few tens of thousands of dollars to now – the market is really worth over $20 million,” Lyons said. “And it keeps climbing every year. It’s very much a market with huge potential.

“Clearly, if we don’t have market access, it doesn’t matter how wonderful our marketing program is. We first and foremost need to get into a market,” with no or low tariffs, she adds. 

But building markets also requires experts who understand the market potential. Lyons says that Vietnam is different than many other export markets in that they prefer the sweeter Gala apple, as opposed to most other export markets which prefer the hearty Red Delicious. And the Vietnamese are also willing to pay the higher price for quality Galas.

“Production of Gala is increasing in the state of Washington. So, it dovetails very nicely with the direction of our industry with production – in terms of the price they’re willing to pay,” Lyons explained.

The WAC runs 25 international programs building international demand for apples and the commission’s largest export market is Mexico, consuming just under 10 percent of their apple crop. Canada used to be the number two market - until India emerged.

“Sometimes world events will go in our favor,” Lyons said. India banned the import of many products from China this year, including their apples, on June 1, 2017 and demand for Washington apples exploded. However, China is now looking at other markets, “so that affects us in Southeast Asia as well.”

“It truly is a global market and apple production is increasing on a global scale. So not just China, which is the world’s largest producer of apples, but also places like the European Union are increasing their production after being down this year,” Lyons said. “We are facing competition in all of our markets. And it is so critical to be able to support what we’ve gained, what we’ve been able to develop in these markets.

Sustainable soy relationships

In countries like Indonesia, US soybeans are clearly a preferred choice for buyers, explains USSEC CEO Jim Sutter.

“No one delivers quality like US soybean growers,” he adds.

But there are plenty of competitors who would like take US market share so USSEC is always on the offensive, “looking to differentiate our product from that of our competitors around the world and to build preference for US soy,” says Jim Miller, past USSEC chairman and a Nebraska farmer. That includes providing technical expertise, workshops and plenty of relationship building.

Miller was in New Zealand for an Ag Leadership Summit last fall that brings together key buyers and speakers from around the globe to discuss soybean sustainability, quality and “why we are a reliable supplier of U.S. soy to the world,” Miller told Agri-Pulse. The event was funded by federal and checkoff funds.

“It’s also very important to build relationships with our customers around the world…..so that the international customer is more interested in wanting to purchase U.S. soy versus soy from our competitors in South America.

Southeast Asia, with about 675 million people, is a key market for the US soybean industry. 

“They are a very young population. And they are going to continue to want to have a higher protein diet in the future,” Miller said. “It’s just a great opportunity for us to get soy protein into this region so that they are better able to feed their animals and provide a better animal protein source of food for these young consumers.”

Any time the international customer can visit one-on-one with a farmer or hear a farmer’s story from the U.S. first-hand, it helps them build confidence and trust in what the US farmer is producing, Miller says.

“When we can tell them how we are producing our crops in a sustainable manner - because of the rules, laws and regulations that we have in the U.S. - it gives them a better understanding of where that sustainability assurance protocol comes from and it just helps build that trust in the American farmer and the value of the U.S. product.

Ultimately, Miller says meetings like this “build preference for the U.S. soy versus our South American competitors.”

Winning wine stories

Now that the U.S. has withdrawn from the Trans-Pacific Partnership and the Japan-EU Economic Partnership Agreement, all of the U.S.' wine region competitors will enter Japan duty free by 2019 while the full 15 percent import duty will continue to be charged on California wines, said Ken-ichi Hori, the Wine Institute’s Japan trade director. “U.S. wine importers in Japan hope the U.S. will establish a Free Trade Agreement with Japan as soon as possible to abolish the heavy import duty disadvantage of U.S. wines, which will help the entire American wine category grow in Japan.”

But in the meantime, the Wine Institute is working on numerous promotions to win and expand other international markets. For example, the popular California Wine Fair in Toronto was attended by more than 1,000 trade and media members last month.

The event offered a chance to enjoy a selection of more than 400 premium wines from 100 of California’s top producers, from all the major wine-growing regions of the Golden State. And part of the proceeds went to Second Harvest food rescue.

“Despite a flat wine market in Canada and ongoing exchange rate challenges, Canada remains the top dollar value market for California wines. Canadian consumers have confidence in the quality and value offered by California wineries whose wines are successful in all price segments,” according to Rick Slomka, Wine Institute trade director for Canada. U.S. wines were the number-one table wine category by value in Canada in 2017 for the fourth consecutive year with almost $1.1 billion Canadian dollars n retail sales.

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