Spring, 2004

From the Editor

Alternative Buying

This issue of American Food and Ag Exporter focuses on the many ways that state, regional and private organizations can help a buyer of American food and agricultural products. If you were to add in the programs of the Foreign Agricultural Service, a part of the United States Department of Agriculture, you would have an extraordinary battalion of support for U.S. exporters and an incredible service industry at the disposal of buyers of U.S. products.

But numerous options and endless opportunities can complicate final decisions. What kind of supplier is best? Should you buy from a producer or from an independent exporter?

Most big buyers purchase direct. Conventional wisdom would say that working directly with a producer drives costs out of the system. It seems to make sense, but isn’t always so in all circumstances.

The kind of supplier you require depends on the kind of buyer you are. If you buy one product only, buy it consistently and buy it in large quantities, it makes sense to get to know the producers as well as possible. This may involve going beyond companies that reach out to you.

Let us use produce as an example. If you buy Indian River grapefruit, you will probably want to get domestic U.S. produce publications (Produce Business, the largest circulation publication in the business, is our sister publication) and attend produce conventions and trade shows in the United States (the Produce Marketing Association convention is the largest such event in the world). Beyond this you will want to visit growing areas and meet with growers, packers and shippers.

And though knowing the business and the players is always advisable, buying direct from the source does not ensure a better deal.

When it comes to quality, producers want to sell what they produce. The temptation is strong to sell something that, while adequate, may not be the best available. To use our produce example, not every grower always has the best produce.

Even when it comes to price, things are also not so clear. Although in theory an independent exporter is an extra layer of cost, in practice this isn’t always so. After all, everything the independent exporter has to do, from checking credit to handling sales, still has to get done.

In addition the domestic supplier is usually taking additional risks to ship for export. Perhaps a longer transit time means increased risk of claims or, quite typically, credit issues are caused by the simple fact that the buyer is beyond the reach of the U.S. court system.

In any case, very often producers are not prepared to sell for export at the same price they sell at domestically. They intend to charge an “exporter’s profit” on top of the domestic price.

This exporter’s profit may be more or less than an independent exporter’s charges. And an independent exporter, being well versed on the market and a large buyer who fills orders for many customers, may receive a lower domestic price than a non-U.S. buyer. Sometimes, an independent exporter, who buys many different sizes and grades for different clients around the world, can use these orders to get product when it would otherwise be unavailable.

Of course, it never hurts to have direct connections if for no other reason than to check prices. But don’t start with the assumption that a direct relationship is always less expensive.

Other situations tend to make independent exporters a more desirable source of supply. Let us say your market supports your importing some white onions for Easter but grapes, apples and pears just before Christmas. Sometimes you catch a good market for carrots, and when there is rain, you need lettuce air freighted quickly.

Buying can become a full time job. Just to buy one item, you might need to be in touch with several packing and shipping facilities several times a day. If you buy from more than one state or region, these numbers can easily double or triple. Multiply the number of contacts by the number of products, and the work involved is tremendous.

Many times an independent exporter makes sense if you buy multiple products. The exporter can amortize the cost of his procurement operation over a large order base — one customer has to maintain its own buying staff. This alone can make an exporter less expensive.

Sometimes a buyer doesn’t have a choice. If you are buying mixed trailers of lots of items, you need a consolidator. Whether the items are fresh produce or grocery, the manufacturers won’t sell in small quantities, so you need to buy from someone proficient in procuring these products and consolidating them for mixed loads.

The various federal, state, regional and private programs can help keep the focus on the ultimate buyer, the consumer in your country.

Many times, importers buying from the United States focus on procurement as if saving five cents per case were the key to success. Sometimes it is. But far more often, your energy and intellect could be better applied by focusing on building consumer demand for the product.

And here is an area where the help available really is bounded only by the limitations of your own creativity.  EXP