December, 2004

Fruits of Thought

Export Opportunity

The new year will mark a significant chapter in the history books of the U.S. agriculture industry as it is projected to be the first year in which imports of agricultural products will exceed exports.

Although a big part of the switch is explained by low wheat prices caused by large crops, it is at least psychologically disturbing that the United States should be in a deficit on ag products. After all, with our vast expanses of rich soil, diverse climates, highly educated farmers and access to top technology, there is this little voice in the back of the American psyche saying that if we can’t win here, where can we win?

While we can count on much public concern over this turn of events, we should be pleased that we in the produce industry can play a part in increasing exports and thus, perhaps, in reversing the situation.

Some of the work is being done for us already as the dollar declines. This tends to make U.S. products more competitive. It even means that items that didn’t make sense to import from the U.S. at all may suddenly find new markets.

After President Nixon de-linked the dollar from the gold standard and the dollar dropped substantially, my father, who was a substantial produce exporter, was often visited by foreigners who were looking for opportunities in the United States, particularly asking what produce items they could possibly buy here in the U.S.A.

To some extent a depressed currency is sufficient to change the world. If the French, because the currency is favorable, try importing red grapefruit from Florida and Texas and find they really like it, a lot of the business will continue on even if the currency goes back up 30 percent. For the most part, however, a depressed currency creates some temporary opportunities and raises the interests of foreign buyers, but long term success in export depends on an attitude that few American produce shippers ever quite grasp.

It is a shame really, but the same vastness of our nation that helps make us so powerful and rich also creates the insular habits of mind that lead us to forget about export — unless we really need it.

So whereas a Dutch boy interested in business naturally thinks about selling Germany, France and Indonesia and sees the whole world as his market, just as naturally that little boy tends to keep those attitudes as he becomes a man and moves into the business world. On the other hand, young Americans are more likely to set their ambitions on selling the vastness of the United States, and they keep that attitude with them as they go into the business world.

As such, importers often complain that American shippers treat them like prostitutes, to be used when needed and ignored thereafter. If a crop is long and the domestic market can’t absorb the volume at a profitable price, American visitors flood the importers’ offices, anxious to take them to lunch. Then, after much profitable business, next year’s shorter crop means that the shippers forget their foreign friends and send all the crop to their “real customers” like Safeway and Kroger.

There are exceptions of course. The Japanese were famous for dangling so much money before the Washington State cherry shippers that the first cherries were always sent to Japan. And an item like white grapefruit has been desperately dependent on Japanese patronage for years.

These are the exceptions though that merely proves the rule: American shippers cover the needs of the American market, year in and year out and neglect foreign markets when they are not immediately profitable.

This attitude reduces long-term market share, encourages competitors to grow and reduces long-term profitability. The most successful exporting countries are, like Chile, relatively small in population and thus not in a position to cherrypick markets. No matter how low U.S. prices get this winter for grapes, it is very unlikely that Chile won’t ship to the United States simply because it has nowhere else to go.

It is fine to opportunistically sell overseas, but building long-term markets depends on riding foreign markets in good times and bad just as one would the domestic market.

Maybe it means allocating 2 percent of your production to Scandinavia as a base even if markets are weak. This way you develop promotions, relationships with the importers and chains, consumer preference, etc. On surplus years, a market that has been developed in this way will handle more volume at higher prices than a market you’ve been out of for five years since the last bumper crop.

Of course, U.S. retailers and foodservice operators may need an awakening if this new attitude takes hold. It has long been a truism that the very best perishable product always gets shipped furthest away. This is partly because the quality product can withstand the journey, partly because by the time transit and duties are paid the f.o.b. product price is often a small percentage of the delivered value and so it is worth paying a little more to get the best.

Not everyone can get the best, however, and if shippers really get serious about export, companies that may be important players in the U.S. market may find that the best products are not available, having been snapped up by foreign buyers. It may make some buyers yearn for an agricultural trade deficit.  pb