February/March, 2001

From the Editor

The Opportunistic Exporter

Americans are typically lazy exporters. There are exceptions, of course, but many U.S. companies view the export market principally as a dumping ground for sizes, varieties and products that the U.S. market won’t buy. Other U.S. producers simply don’t bother pursuing export business as long as they can sell out domestically.

That is why news reports that the U.S. economy is in for a rough spot can translate into opportunities for non-U.S. buyers.

So far the U.S. economy has not met the classic definition for a recession — two consecutive quarters of declining Gross National Product. But growth has shrunk to almost zero and the stock market declines, which have been substantial, are certainly leaving people feeling much poorer than they did a year ago.

This decline in stock market values is the flipside of the much-vaunted “wealth effect” — the theory that even if incomes didn’t rise significantly, people who saw their stock portfolios or retirement accounts bulging felt themselves much wealthier and thus would feel freer to borrow and spend.

Today, of course, with the NASDAQ (an index of stocks heavy in high-tech) down over 60% from its peak, and most other indexes down 20% or more, the fear is that the reverse wealth effect will kick in and lead consumers to retrench.

For non-U.S. buyers of U.S. food and ag products, it spells a lot more attention in coming months. Whether in producing a commodity item or running a branded manufacturing line, in many cases the profit margin comes from the last few percentage points of business.

So, a food producer may sell 80% of his production domestically and be stuck with the rest, but what that producer does with that final 20% is the key to his profitability. Dump it — and the year is a loss. Selling it domestically can be difficult, especially in a depressed market. Perhaps even more important, though, is that selling that last 20% domestically may mean cutting prices substantially.

Consider the following scenario: a lettuce producer may be able to sell 80% of his crop to supermarket chains at a profitable price. To sell the remaining 20% domestically is a recipe for disaster. If he goes back to his existing customers and asks them to buy more, they will usually explain that they can only buy more if they offer a special price to the consumers. But to do that, the retailers need a better price on not only the additional purchase, but on all the lettuce they were already sold at regular prices. So selling the customer more means turning already-made profitable sales into losers.

Alternatively, the lettuce producer could consign the excess production to wholesalers. But these wholesalers would then sell cheaply to independent retailers who would then undercut the supermarket chains that bought at full price.

The demands for price adjustments and the general lousy market created by this type of selling make producers desperate for an alternative. For many, the export market is the perfect alternative. If that lettuce producer can sell its excess production in export markets, even if the producer receives less than its domestic business, that export business can be a life-saver.

So companies that never had any interest in exporting may suddenly be knocking at your door.

This is all good news for buyers of U.S. food and agricultural products — but it comes with a few caveats. Remember that only a small percentage of these new exports will turn into reliable long-term suppliers with a commitment to supplying you and your market. When the U.S. economy heats up again, or when weather or other conditions restrict supply, many may abandon you and your market.

Also note that many products are tricky to export, and these newfound exporters may not have the experience to do the job right. You may be able (and need to) to advise them on some things — labeling and local legal requirements, for example, but as an importer, you may not know the tricks of the trade on some items. How thick must an export carton be to hold up on the journey? At what temperature must a product be maintained when it is being transported by truck across the United States? You may not know these things, and, for the most part, domestic shippers learn them the hard way — through expensive experience — so don’t expect a novice player to know them either.

That is why if you are dealing with an opportunistic exporter, it is often a good idea to use a trader who has shipped that item before and knows the business.

In the United States, business people are spoiled; the vast domestic market has made export an afterthought for all too many businesses. But with the economy as it is, even the most conservative of producers will be looking for additional business.  EXP