DOCUMENT RESUME

ED 416 142 SO 027 927

AUTHOR Welch, Mary A., Ed.TITLE Adding Value to Indiana's Commodities.INSTITUTION Purdue Univ., West Lafayette, IN. School of Agriculture.PUB DATE 1995-00-00NOTE 25p.; For other booklets in this series, see SO 027 918-929.

Some photographs may not reproduce well. Printed on coloredpaper.

AVAILABLE FROM School of Agriculture, Office of Academic Programs, PurdueUniversity, 1140 Agricultural Administration Building, WestLafayette, IN 47907-1140.

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JOURNAL CIT Economic Issues for Food, Agriculture, and NaturalResources; n10 Fall 1995

EDRS PRICE MF01/PC01 Plus Postage.DESCRIPTORS *Agriculture; *Economics; Food; *Food Processing

Occupations; *Marketing; *Natural Resources; SecondaryEducation; Social Studies; *Technology

IDENTIFIERS *Indiana; *Value Added

ABSTRACTFood processing plants are adding value to bulk and

intermediate products to sell overseas. The Asian Pacific Rim economiesconstituted the largest market for consumer food products in 1993. This shifttoward consumer food imports in this area is due co more womffn workingoutside the home, the internationalization of populations, and dramaticchanges in demographics. The important trade factors for the U.S. are:continued success as the most efficient food processors in the world anddevelopment of materials and processes to extend the shelf-life of products.The booklet concludes with a student quiz. (EH)

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CONOMICfor Food, Agricultureand Natural Resources

Adding Valueto Indiana'sCommodities

ISSUES

PURDUE UNIVERSITY SCHOOL OF AGRICULTURE FALL 1995, NO. 1

U.S. Consumer F Ex s:

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About the cover: Art for thecover is provided courtesy ofthe Foreign AgriculturalService (FAS). China set arecord of $49 million in .direct U.S. consumer foodexports, with an estimated$185-200 million re-exportedvia Hong Ko'hg. While notfeatured on the cover, thiswould make China the 10thlargest country market forU.S. Consumer foods.Particularly popular aresnack foods including treenuts, chips, candies, bever-ages, french fries and chickenfeet.

The information in this publication is based on a seminar thatRobert Tse gave at Purdue University. Tse has a master of science degreefrom Purdue's Department of Agricultural Economics and a juris doctorfrom Boston College. He is a global export analyst of U.S. consumerfood products, and he tracks and analyzes demographic factors andconsumer behavior trends that impact demand and competitiveness ofU.S. agricultural exports. Consulted by industry, state departments ofagriculture, and other institutions on export market potential, Tseconducts strategic marketing sessions and provides presentations onglobal markets at industry-and university conferences. Product andcountry market analyses are published in Agricultural Trade Highlights

and AgExporter.Tse has provided updated technical reports and information to

complete this edition of ECONOMIC ISSUES for Food, Agriculture &Natural Resources. His professional and technical assistance is greatlyappreciated.

Robert Tse, in Guangihou (near HongKong) in southern China. Tse is anagricultrual economist for the ForeignAgricultural Service, an agency of the'United States Department of Agriculturein Washington, D.C.

ECONOMIC ISSUES for Food, Agriculture and Natural Resources ispublished by the Office of Academic Programs, Mary A. Welch, editor.Fall 1995, No. 10

3

..Adding Value to.Indiana's Commodities

CONSUMER FOOD EXPORTSneanmore jobs and a more favorable balance oftra. de for the United States.

Szechuan chicken, Hunan beef; Pekingduckdo these foods sound familiar? Look ata world atlas. Thesefoods get their names fromprovinces in China.

Americans have learned to like American-ized versions of Chinese cuisine; these disheshave become popular as restaurant and frozenmeal items in the United.States. Italian andMexican foods have become even morepopular. How did this happen?

The population of the United Statesreflects the immigration of diverse ethnicgroups which have shared their traditionalcuisine as they settled throughout thecountry. Thus, Americans have developed ataste for rice dishes, pizza, and tacos, to namea few.

American foods have also become popularin other countries. Fast-food restaurants havebecome well-liked around.the world, espe-cially among children and teenagers. Thereare many reasons to applaud the changingtastes of the Japanese, Taiwanese, Germans,Italians, and Russians who have learned tolike American foods: The distribution ofAmerican.fast-food chains often introducesU.S.-style food to other countries, whichresults in exported products such as beef,chicken, and frozen french Aies from theUnited States.

Food products have traditionally beencategorized as bulk, intermediate and con-sumer foods.

BULK products (corn, wheat, soybeans)are transported in grain ships to othercountries where they are converted tolivestock feed (using CQM), bread (usingwheat), or tofu (using soybeans), for use inthose countries.

43

INTERMEDIATE products have had someprocessing applied to a bulk product, but arenot ready for final consumption. Forexample, oil is extracted from soybeans (avaluable crop raised in Indiana), and thenrefined to produce a high-quality vegetableoil which is used in a multitude of processedfoods. This oil is extracted by pressing the oilfrom the soybean. The by-product (what'sleft,after the oil is extracted) is a granularsubstance called soybean meal. Soybeanmeal is sold to livestock producers who use itas a high-protein additive for cattle and hogfeed.'

CONSUMER FOODS are foods ready forhuman consumption. If we follow theexample of soybeans (as bulk), soybean meal,a component of cattle feed (as intermediate),then ribeye steak.would be a consumer foodproduct. Consumer foods are generallydefined as products that are ready to eat orready to cook. Basically, any product foundin the supermarket is a consumer food..

U.S. exports of consumer products areincreasing according to studies from theForeign AgricultUral Service (FAS), an agencyof the United States Department of Agricul-ture. Consumer food products show a steadyrise as seen in Figure 1, as compared to bulkand intermediate exports. These data areprepared by Robert Tse, an agriculturaleconomist for FAS who earned a master'sdegree in agricultural economics from PurdueUniversity in 1991.

To illustrate this growth, Figure 2 tracks theincrease of U.S. consumer food exports andtrends through the year 2000. In terms of sales,consumer food exports could reach $26 billionby the year 2000.

From 1987 to 1993, exports of U.S.consumer food products increased nearly oneand one-half times, according to Tse. Theleading export is red meat, which has in-creased over $2 billion dollars since 1987. As

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

8,000,000

0.

Value of U.S. Agricultural Exports 1970-93Rising Meat Exports Key Part of Consumer Food Growth

1970 1972 1974 1976 1979 1110 1918 1904 1990 111131

Calendar YearTEIDForeign Agricultural Service

seen in Figure 3 (see page 6), other consumeritems highly favored in overseas markets arefresh fruits, vegetables, snack foods, pet food,and poultry. The shift in composition of U.S.agricultural exports from bulk and intermedi-ate products to consumer food products isgood news to farm producers, as well as to foodprocessors.

Food processors are adding value to bulkand intermediate products to sell overseas. For

1010 1992

1993 Estimate

Figure 1

Figure 2

Best Market Prospects for Consumer FoodsU.S. Exports Could Reach $26 Billion by 2000

JapanCanada

Mexico

Hong Kong,South KoreaTaiwan

EU

SingaporeASEAN-4 (Malaysia, Thailand,Philippines, Indonesia).Saudi Arab & other Gulf StatesCaribbean islandsAustralia i"WILD CARD: China

Noe: Projections for 1996- 2000099W on Clivent trend anal," Not 09611 USDA F0,110111

10

5

987 89 91 93 95 97 99

I Pac RimMIEUMNACIROW.

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Strong and Broad-Based Export Gainsfor U.S. Consumer Foods

1994 Closes with Most Products, at New Record Highs!

'Red Meat'Fresh Fruit

'Processed F & V*Poultry Meat

Tee Nuts"Snack Foods

'Fresh VegetablesDaily Products -12%,

'Pet Food .4.1416

'Wine & Beer '4,40%

F&V Juices'Breakfast Foods ,+45%

'Proc. Red Meats 15%

Nursery 4%

Figure 3

,.11%

'4%4%,

*21%SSA B

+14%

.6%

44114

III 1993

U 1994

0 200 400 600 800 1,0001.2001,4001,6001,8002,0002.200 .

$ Million

-example, cattle producers buy soybean meal.(intermediate), to feed animals, which

'converts to meat. Meat packers buy cattle toprocess into chilled or frozen. beef productspurchased by Japanese and Korean supermar-kets or fast -food restaurants servinghamburgers in Hong Kong,,MOscow, MexicoCity, or Tokyo.

As exports of processed foods continue toincrease, U.S. exports of grain and mealshipped to overseas markets in the form ofbeef, pork, and poultry help enlarge theconsumer food export market. Recent analysesby FAS, and the agribusiness communityconclude that indirect sales are the fastestgrowing segment of bulk commodity exports,and such sales will. become even more impor-tant through the end of this century.

Figure 2 (see page 5), also lists the bestmarket prospects for U.S. consumer foodexports. Of the top six markets, four are AsianPacific Rim-economies. These marketswarrant serioul attention for producers andprocessors when considering new productsthat serve a cultural niche. The other bestmarket prospects are Canada and Mexico,bOth part of the .Ainerican Pacific Rim.

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EXPLORING MARKET OPPORTUNITIES: , The Blue Diamond Growers.Almond Cooperative was interested in ggneratinggreater exports to Ja-pan. They developed a packaged product of slicedtalmonds and driedbaby sardines far the Japanese school lunch program. How would youlike this item served in your school cafeteria? The Japanese studentsliked this product; moreover, when they took samples home, their par-ents liked it even better than the students! Therefore, Blue Diamondestablished a special niche, and is exporting a larger volume of almondsas a result of studying a culture and deciding how to adapt its product.Looking for increased opportunities through a better understanding ofculture and eating habits is a very important part of any business hopingto find new markets overseas.

. Let's focus on the Asian Pacific Rim econo-mies (Japan, Hong Kong, South Korea, Taiwan,Singapore, Malaysian Thailand, Indonesia,Philippines, E.runai, and China), which consti-tute the largest market ($5.9 billion) forconsumer food products.in 1993. As shown inFigure 4, the Asian PacifiC Rim leads the U.S.export market.for consumer foods. Japan is theleader, followed by the "Four Tigers," Hong Kong,South Korea, Taiwan, and Singapore. Eventhough small, the ASEAN-4 (Malaysia, Thai-land, Indonesia, Philippines) is growing. China isknown at FAS as the "wild card" (see Figure 5 onpage 8). There is a giant potential, but it isunclear hpw imports will develop in China. Figure 4

Pacific Rim is Leading RegionalMarket for U.S. Contumer Foods

Nearly $7 Billion Record in 1994

Australia111 Japan El 4 Tigers III AaEAN.4 °mania Other

084 85 .6 87 88 89 90 gl 92 93 94 ,-

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Best' Prospects WILD CARD: ChinaDirect U.S. exports of consumerfoods reaches record $49 million in'94, at least another $240 million ,

transshipped throughHong KongHighest economic growth In Asia,concentrated In coastal provincesTarget markets: GuangdongProvince, Shanghai, BeijingUrban population of over 300 million.Potential customers estimated at200 million; 83 million earn 10-40K/yr(PPPadjusted)Brand name consciousRising demand for conveniencefoods (i.e., canned soup, nuts,chips). Frozen chicken replace freshSpread of fast food restaurants andsupermarkets in urban areasTrade barriers major impediment

Figure 5

Market Potential Becoming a Reality$ 18111on

60

40

x

20

10

01987 88 VS 90 64 92 99 94

Consumer FoodsCent IL& ,* *arsy

What is driving Otis shift toward consumer foodimports in this part of the world?

More women are working outside thehome. Rising household incomes and moredisposable income cause a demand forconvenience foods which are affordable. Withless time for food preparation and morefamilies eating separately due to busy sched-ules, there is an increased need forconvenience foods. The trade-off betweenconvenience and price is tipped firmly towardConvenience. This trend is expected tocontinue.

Internationalization of populations. Thepopularity of U.S.,culture spreads instantly viasatellite television. Programs like Dynasty, LALaw, Twin Peaks, MTV, and Hollywoodmovies such as Jurasic Park and the Flints tonesflash across the world. American televisionprograms, movies, and music videos are astaple on local TV throughout the world.Where else could you see Gone with the Wind,dubbed In Chinese, but on Chinese satellitetelevision in Shanghai? Also, higher stan-dardsof living have allowed more people fromthe Asian Pacific Rim to travel outside theirarea, and many have visited.the UnitedStates. Young people (ages 18-35) are the

dEST COPY AVAILAULt 5

trend setters. They are the "buyers," and asthey return to their homes after visiting andstudying in the United States, they take tastes'for-Western foods back with them. Studies areshOwing that diets of Pacific Rim people areshifting from rice-based to.wheat-basedproducts, -especially in the cereal and snackfood categories. Pacific Rim children, liketheir American counterparts, love McDonald'shamburgers and the Colonel's chicken.Children everywhere take their parents tofast-food restaurants.

Demographics have changed dramatically.The number of people living in one householdis shrinking, the number.of households with alone resident is increasing, and more peopleare eating out. This translates to a greaterdemand for smaller portions.

To gauge possible ftiture demand ofconvenience food products, FAS tracks the,proportion of hoUseholds with microwaveovens, an indicator of potential markets forconvenience and frozen, food products. Table 1shows the percentage of Asian PacifiC Rimhouseholds owning microwave ovens. Thesedata indicate the market is available, and theopportunity is extensive for frozen and

- microwavable food products.The number of Western-style supermarkets

and convenience stores is another factorcreating an opportunity for storage anddistribution of these products. These outletsgive exporters a better facility to marketproducts, and the shopper more convenience inpurchasing products. These stores also changetraditional distribution patterns. The largersupermarkets and chains are able to buy directlyfrom U.S. distributors due to greater volume, Table 1

Area

JapanHong KongTaiwanTaipei (urban sector of Taiwan).

Percent of householdsowning a microwave oven

80 (or greater)5020 (and increasing)45

10

10

thus eliminating layers of middle marketers inprevious distribution channels..The complex-distribution.syste,ms in many:foreign marketshave limited U.S. consumer foodexports in thepast.

INDIANA AGFACT: Of the fast-growing convenience markets, a $100million item is microwavable popcorn. This is an important factor forIndiana exports since Indiana is the number one producer of popcorn inthe United States (1992 U.S. Department of Commerce census).

,To address the importance for Indianaexports in 'light of these changes, FASmeasures grain sales in terms of meat exports.Instead of calculating only grain or meal solddirectly overseas, the exports of grain.and.meal shipped in the form of beef, pork, andpoultry are measured.

Figure 6 shows how export.action of bulkgrain has increased from about three percentin terms of meat exports in 1987 to 11 percentin 1993 -94. The oilseed meal equivalent ofmeat is even greater (Figure 7), increasingfrom six percent to 18 percent during the sametime period. Both direct and indirect catego-ries 4feedstuffs and meat) will continue So riseover the next several years, according to FASprojections. According to Tse, failure to

Figure 6Percent

16

14

12

10

8

6

4

2

01 70 1972 1974

Based on Volume

Grain Equivalent of Meat

Ware of Total Coarse Grain Exports

1979 1971 1990 1982 1984 1988 nee 1990 1992 1994 me

Calendar Year

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Order form for free reprints ofECONOMIC ISSUES for Food, Agriculture

and Natural Resources

If you wish up review and/or use this series in your classroom,complete and return this order form. These reprints are availableto you free of charge, compliments of the Office of AcademicPrograms, School of Agriculture, Purdue University.

No. 10 Export AdvantageAdding Value to Indiana's ExportsFall 1995

United States' agricultural exports are shifting from bulk grain andmeal commodities to high-value fresh or frozen meat and poultryproducts. Find out what is causing this shift, what well-establishedand new world markets are emerging, and what this means for thefood processing industry in the United States.

quantity

No. 9 Food Processing and MarketingNew Directions,New Opportunities Spring 1995

Through a joint effort of economic analysis and technology, thedying tomato processing industry in the Midwest, which had lost amajor comparative advantage to California, was revitalized. Dis-

cover how the process of aseptic processing allowed the tomatoindustry to greatly increase its economies of scale and become themost competitive in the world.

quantity

No. 8 Using Economics and Genetics to Produce LeanerPork Spring 1994

A careful study of swine genetics and efficiency of productionfactors has helped producers select breeding stock to provideleaner meat without increasing production cost. This issue helpsstudents understand the concept of net present value.

quantity

No. 7 Strategic Marketing for Agribusiness Winter 1993

By understanding the marketing planning process and the eco-nomics of consumer buying decisions, managers of food andagricultural businesses can make better decisions to help theirbusinesses become more profitable. In a case study format, thisissue helps students understand the concept of demand elasticity.

quantity

No. 6 Economic Development for CommunitiesWinter 1992

Explore with students how successful economic development in acommunity involves an effort to export products and services toother communities, states, or nations and thus import dollars tothe community.

quantity

13

No. 5 Agricultural Chemical and Fertilizer Storage RulesCosts and Benefits of Insuring Cleaner Water forIndiana Fall 1991

Better understand costs of complying with regulations to ensurecontainment of chemical spills in relation to environmental costs.The concept of a public good is illustrated in this issue.

quantity

No. 4 Economic Effects of Technological Advances inAgriculture Fa111990

A better understanding of agricultural economic concepts helpsAmericans become better food buyers, be more knowledgeableabout food values, and appreciate their relatively cheap, high-quality food supply. Study how the use of biotechnology hasmicroeconomic implications for the animal industries and con-sumers. Supply and demand curves illustrate the determination ofthe pork price, and quantities produced and consumed as a resultof one biotechnical development in the swine industry.

quantity

No. 3 International Trade in a Global EnvironmentSpring 1990

Many factors affecting U.S. trade are beyond our control. How-ever, the United States and its citizens do control macro economicpolicy, trade policy and domestic farm policy. Market, commandand traditional economies, opportunity cost, along with othertrade concepts including GATT (General Agreements on Tradeand Tariffs), are discussed.

quantity14

No. 2 Commodities Trading--An Essential Economic ToolFalUVVinter 1989.90

This issue discusses the use of commodities trading (futures con-tracts and options) as an important economic tool to benefit bothbuyers and sellers in today's agricultural and natural resourcesmarketing environment.

quantity

No. 1 Value AddedAdding Economic Value in the FoodIndustry Spring 1989 (first in the series)

The concept of value added is discussed using the pork product,sausage, to add value by making frozen pizzas. Questions discussedinclude jobs created by value added processes and using valueadded to calculate Gross Domestic Product.

quantity

From: Name

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Mail form to: Mary A. WelchPurdue UniversitySchool of Agriculture1140 AGADWest Lafayette IN 47907-1140

Fax number: (317) 494-8477Phone number: (317) 494-8470

Of !seed Meal Equivalent of Meat

1 70 1972 1974 19711 1973 . 1940 1982 1984 1960 1969 1990 1902 1994 1999 1906

Basedon Voluine Calendar Year

Figure 7.include these indirect sales underestimates thetotal export value of grain and meal.

In order to create a more accurate pictureof total exports, all three categories should beconsidered. In 1993, consumer foods ac-'counted for 34 percent of total U.S.agricultural exports, up from 12 percent in1.980. Sinde 1985, consumer food exportsincreased .an average of 16 percent each year.Ih1994, the, value of consumer food exports isexpected to set another record for the eighthconsecutive year. Projected trends indicatethat consumer food exports could be equal tobulk exports in value by the end by the year2000 (see Figure 1).

CoUntries with purchasibg power forconsumer food will buy these products at thelowest available cost. According to McKinsey& Company, an independent resear'ch firm,the-United States is the most efficientproducer of processed foods in the world (seeFigure 8 9n page.12).

Japan has a competitive advantage in steeland automobiles, while the Philippines,Taiwan, Indonesia, and China IiaVe.a coin-petitlye advantage for textiles and clothing.Consumers throughout the world will shop for

1,6!ACT rtnrn AvAlLpoLit.

11

. Auto Cars

Auto Par Is

Metal Working

, Steel

Computer

Cnsmr. Electncs.

Beer

Soap

Food

Figure 8

Comparative Advantage in U.S. Food ManufacturingProductivity vs..Competitors

Food manufacturing Is where U.S. lead Is greatest

I. JapanON Germany

0 20 30' 60 80 100 120 140 160

. 1990 Man-Hour Productivity Index (U.S. = 100).Source: McKinsey & Company Manufacturing Productivity (Oct. 1993)

Value. Therefore, the United States has thecompetitive advantage in selling processedfood products at a very favorable cost.

An important.trade factor for the U.S. is tocontinue being the most efficient foodprocessors in the world. At Purdue University,the Department of Food Science, and Depart-ment of Agricultural' and Biological

iEngineering play an important role in support-ing this effort through research to keep thistechnology at or ahead of demand. PhillipNelson, department head, cites two projectsthat Purdue's Department of Food Sciencerecently developed to help assure this com-petitive position. Both of these processesinvolve "aseptic packaging," a process of fastapplication of heat to the food product, aquick cool down, and placement of theproduct in sterile air-tight storage containers.This process extends the shelf life. Asepticprocessing of the following two products hasallowed food manufacturers to benefit fromthis research pioneered at Purdue.

Eggs. In the past, a liquid egg mixture hasbeen shipped and stored frozen until needed.Shipping and storing frozen products is anexpellsive process. The Purdue asepticprocessing and packaging allows the egg

BEST COPY AVAILABLE 17

mixture to be refrigerated (not frozen) for anextended time. This is more convenient andless costly to U.S. food processors making snackcakes and cookies for export.

Tomatoes. The Purdue "aseptic" processallows processors to store diced tomatoes atroom temperature in 55-gallon drum-size plasticbags awaiting processing. These diced tomatoesare used lo-make salsas, pizza sauce, catsup, andother tomato-based products for export.

By maintaining the highest food processingeffeciency in the world, food companies will beless likely to move plants overseas, as otherindustries have done, but rather to process inthe United States (adding value) and thenexport the products.

In the past, trade barriers in the form oftariffs restricted some exports. Since the mid-1980s, economic trade liberalization andtechnological developments have favored theexport of meat products relative to feed grains.The General Agreement on Tariffs and Trade(GATT) and its successor organization, TheWorld Trade Organization (WTO), continue topress for reducing agricultural trade barriers.This would provide the United States andother agricultural-exporting countries theopportunity to help establish policies toincrease export opportunities for agriculturalproducts. The Beef-Citrus Agreement. withJapan and South Korea opened two markets forU.S. meat exports, and thereby lowered thecost of U.S. meat through lower tariffs. TheNorth American Free Trade Agreement(NAFTA) opened trade opportunities withMexico, a rapidly growing market (see Figure 9on page 14).

This growth of consumer power in Mexicoand Canada, and the rising influence-of theprosperous urban middle-class consumers of theAsian Pacific Rim constitute a giant opportu-nity for U.S. food producers and processors.

More Jobs in Rural America. It is estimatedthat the shift toward greater exports of high-

Q.1_ 0

13

14

Figure; 9

value foods such as chilled pork from Delphi,Indiana, and corn chips from Frankfort,Indiana, has a major and beneficial implica-tion for the rural economies of the UnitedStates. A measure often used to show growthin any economy is the number of jobs created.Growing exports for fresh. and frozen red meatand poultry increase a domestic demand forfeed grain'and oilseed meals. The incomemultiplier effect from high-value exports isgreater than from bulk commodity exports(2.88 versus. 1.86).

The multiplier effect is exemplified in meatexports. Meat processing plants generateincreased business for Companies engaged in,packaging, refrigerating equipment, andwrapping products to produce a high-qualitymeat product for export.

This means dollar-for-dollar, high-valueexports generate more jobs than exportingbulk commodities. Two recent analysesconducted by Cargill; Inc. and Dermot Hayes,professor at Iowa State University, concludethat if the United 'States exported meat ratherthan feed grains used to produce meat, U.S.agricultural employment would increaseapproximately 50 percent.

Mexico Emerges as Third Largest CountryMarket for U.S. Consumer Food ExportsDouble-Digit Growth Led to Numerous New Records in '94

'Red Meats (Wiz)Poultry Meat

Dairy Pi'oducts*Fresh Fruit

'Snack Foods'Processed F&V

'Proc. Red Meats'Fresh Vegetables'Breakfast Foods

'Pet Foods'Wine and Beer

Tree Nuts'Nursery

*F&V Juices

1427

.12%

.4%

42%

.40%

.40%

.61%

.34%.2%

.37% S49%.

44%27%

Ill 1993

El1994

0 50 100 150 200 250

$ Million

Note: ' Indicates record exports in '94'

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300 350

.46%

400

This study also estimates that meaterports-already generate approximately 200,000' jobs.This represents 10.5 percent of all.jobs in themeat, poultry, and dairy industries. Finally, thecontinued growth of U.S. meat exports creates_20,000 to 30,000 new jobs each year. Becausethe meat and poultry-processing, industries arelocated in rural areas throughout the UnitedStates, these additional jobs have a majorpositive impact On U.S. rural' communities.

Summary

Agricultural exports are shifting in formfrom bulk grain and meal commodities to high-value fresh or frozen meat and poultry.products.The impact of this shift fOr Indiana, fOrexample, is that hogs can be produced usingIndiana-grown corn (adding value to the corn)and exported as meat pm:ducts..

The United States is one of the mostcompetitive processors of food products in theworld, and it is important that its food compa-niescontinue this competitive edge. This helpsassure that processing plants continue to find itmore profitable to process foods in the UnitedStates, and export the processed product, ratherthan build processing facilities overseas.

Purdue University is providing an importantcomponent in the fOod chain by developingthe newest technologies for processors tostay competitive in world markets.

Raw food materials produced in rural areasrepresent good news for communities inIndiana, as well as the rural United States.Many processing plants are located near farmsand the commodities they produce. Jobs arecreated helping to revitalize rural communities,adding value to export markets for the United-States.

Providing new and expanded export marketsfor corn and soybeansimportant economiccrops for Indianais significant for rural areas inthe state. As demand for meat exports and othervalue-added products increases, jobs are created

2C15

16

in a community. This has a ripple effect, asadded employment for the value-added industryalso creates demand for goods and services,required to support the industry. Together, thisdemand for exported goods serves to revitalizecommunities.

Bill Schiek

William A. Schiek also contributed valu-able insight and technical analysis to thispublication. As an assistant professor ofagricultural economics at Purdue University,Schiek's special areas are agribusiness manage-

_ ment and agricultural marketing. His researchfocuses on questions related to improvingefficiency in food marketing and distribution aswell as on marketing and firm-level decisionmaking in food business. Schiek teachesundergraduate and,graduate courses ininternational marketing and marketingresearch methods.

AGNOTE: There are.widespread career opportunities for professionals

in the food industry to research, analyze, manage, and. communicate

information about the food, agricultural resource system. Let purdue's

School of Agriculture show you how.

2'

prpr A F

Quiz

1. According to the 1990 study of McKinsey & Company (Figure 8), which ofthe following productivity statements are true?A. The U.S. is equal in productivity to Japan and Germany in metal working.B. German beer is produced more efficiently than either Japanese or U.S. beer.C. Soap is produced about as efficiently in-Germany. as food is in the U.S.D. The U.S. is more efficient than either Germany or Japan in processing

food.E. A and D are correct.F. All of the above are correct.

2. According to the.FAS (Foreign Agricultural Service), a group of economiesas referred to as the Four Tigers. Why do you think this name-is used?A. There are many endangered species of tigers running wild these countries.B. These economies have increased standards of living allowing them to

purchase processed food goods from the U.at a rapidly growing rate ofspeed. .

C. China, Malaysia, Philippines, and Thailand are the fastest growingeconomies in the, entire Pacific Rim.

D. B and C are both correct.

3. Which of the following explanations of "shift in the composition of U.S.agricultural products" best describes meat exports?A. The process of exporting intermediate products such as soybean meal allows

farmers in Japan to grow better quality pork by feeding this meal to theirhogs.

B. The U.S. is exporting more and more bulk corn by growing cattle in theU.S., processing meat products and exporting meat to overseas markets.

C. The U.S. is providing valuable technology by exporting food processingequipment to overseas markets.

D. The U.S. is losing overseas markets by moving processing plants tocountries in order to take advantage of lower labor costs.

E. Only A and B are correct.

4. According to FAS projections, which of the following are true?A. Both direct and indirect categories of feed grains are expected to continue

to rise over the next several years.B. Projected trends indicate that consumer food exports could be equal to bulk

exports in value by the year 2000.C. If projections hold true, U.S. sales of consumer food products by the year

. 2000 will be more than four times the volume exported in 1984.D. Only A and B are correct.E. A,B,and C are all true.F. None are true.

Which of the,following are considered Pacific Rim Countries?A. Japan, South Korea, Phillipines, and Mexico.B. Japan, China, Thailand, and Indonesia.C. Mexico, Canada, and Japan.D. Japan and the Four Tigers.E. All of the above. 2 2 17

6. Which of the following has NOT had an effect on growing warkets inthe Asian Pacific Rim countries? .

A. The Asian people's desire 'to eat rice-based snack products.B. Families eating separately.C. More people living alone.D. The viewing of LA Law and The Flintstones.E. Travel to the United States.E The number of households owning microwave ovens.

7. How does the Department of -Food Science at Purdue University help theUnited States maintain a comparative advantage in processed foodproducts?A. By developing high-quality products that companies can replicate by

mass production to sell to overseas markets.B. By advising fast-food restaurants on which products to provide-to their

- overseas customers.C. By giving nutritional advice to countries overseas.D. By developing efficient processes that will allow food manufacturers to

compete with o!her countries: processed food products.8. FAS is

A. Food Agricultural Science, a department of the USDA.B. An agency of the USDA providing information to help U.S. companies

better understand overseas markets.C. Foreign Agricultural Service, a division of USAID to help combat unfair

trade practices.D. All of the above are true.

9. The North American Free Trade Agreement (NAFTA)A. Has opened trade with Canada, allowing Canada to recently surpass

Japan as the number one importer of U.S. processed food products.

B. Is already failing because Mexico does not have a strong enough middleclass population to support many purchases of U.S. food exports.

C. Has already shown a positive impact on U.S. trade with Mexico becauseof recent increased standards of living in Mexico.

D. None of the above are true.

10. Asceptic processing and packaging developed at Purdue University hasbeen a big help to food manufacturers byA. Allowing Purdue's name to appear on the packaging.B. .Allowing packaged prodticts to be stored a longer time without spoiling.C. Developing tankers to transport fresh food products in a similar way that

oil is transported.D. Providing new products that can be test marketed in overseas markets.

E. All of the above are true.

ANSWERS: 1-E, 2-B, 3-B, 4-D, 5-E, 6-A, 7-D, 8-B, 9-C, 10-B

18BEST COPY AVAIL t.

Reminders from the Office of Academic ProgramsMultiple reprints of ECONOMIC ISSUES for Food, Agriculture &

Natural Resources are available from Mary A. Welch.

Adding Value to Indiana's Commodities, Fall 1995, No. 10

Food Processing and Marketing, New DirectionsNew Opportunities,Spring, 1995, No. 9

Using Economics and Genetics to Produce Leaner Pork, Spring .1994,

No. 8Strategic Marketing for Agribusiness, Winter 1993, No. 7

Economic Development for Communities, Winter, 1992, No.-6

Agricultural Chemical and Fertilizer Storage Rules Cost and Benefitsof Insuring Cleaner Water for Indiana, Fall 1991, No. 5

EconOmic Effects of Technological Advances in Agriculture, Fall 1990,

No. 4International Trade in a Global Environment, Spring 1990, No. 3

Commodities Tradingan Essential Economi.E Tool, Fall/Winter1989-90, No. 2

Value-Added in the Food Industry, Spring 1989, No. 1

Return the order form in center of publication or call for FREEreprints of this and previous ECONOMIC ISSUES for Food,.AgriCulture and Natural Resources.

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