1.

Discuss some of the opportunities for smaller agribusinesses in the international

marketplace.

It’s not only the multinational conglomerates finding opportunities and success in the
international marketplace. Small agribusinesses have found niches in serving needs around
the world. Their active pursuit of placing and developing products for international markets
has in many cases met with great success. While large companies reap the benefits of deep
pockets — economies of scale and greater returns on their investment in research and
development — smaller agribusiness fi rms are often more flexible, allowing them to adapt
to the changing structure and demands of the international food industry. As with all business
in the international marketplace, successful global business endeavors by the small fi rm
require an understanding of the unique characteristics and structures of the customer in each
given instance (Connor and Schiek 1997 ).

Although countless factors influence the global marketplace during any business day, a few
key factors have helped increase the number of opportunities for small agribusiness fi rms in
the international arena. First, emerging markets have entered into the world trade picture at a
rate unequaled since post-World War II. Those markets are opening up to conduct business
with international suppliers, partners, etc. These nations include those in Eastern Europe,
other countries of the former USSR, India, Latin America, China, and other Asian countries.
Many African countries are moving continually closer to allowing or welcoming business
from outside their borders.

The second key factor opening doors of world markets for smaller businesses is technology.
Simply put, today’s small food and agribusinesses are often “well wired” — connected via
the internet by computer, modem, email, telephone, cell phone, and fax — making them very
competitive with much larger fi rms for emerging-market growth potential. Essentially, the
world is truly available to creative, innovative businesses. However, unlike the world market
of post-World War II when the multinational companies controlled these markets, markets
today are often open to the best competitors. Companies that succeed will be flexible enough
to adapt to constant change and adjust to an array of challenges. Those companies are often
the small, agile companies.

2. Developed and developing countries have differing characteristics regarding the

demand for food. Discuss these differences and some of their implications for
agribusiness firms.

U.S. food and agribusiness industries continue to gain momentum in international markets
even though most food is consumed in the country in which it is produced. According to a
recent USDA Economic Research Service report, the United States has a 24 percent share of
world commercial processed food sales (www.ers.usda.gov/publications/aib794/aib794g.
pdf). The United States remains the world leader in exports of agricultural commodities and
at the same time is an increasingly important player in the exporting and importing of food
and food products.
The growing population in the global market The Food and Agriculture Organization (FAO)
of the United Nations defines food security as the state of affairs where all people at all times
have access to safe and nutritious food to maintain a healthy and active life. World
population in 2010 was roughly 6.7 billion people. While population is growing more slowly
than forecast a few years ago, it is still predicted that it will be a number of years before
population growth stabilizes. Predictions of future populations put the global population
between 8 and 12 billion by 2050 with nearly all the growth expected in the developing
world.

Given these population growth estimates, there is little doubt that food demand will increase
significantly in the years ahead. Many experts estimate the growing population will mean
that a doubling of food production will be necessary during the next 30 years. Of course,
food demand is more than just population — income to buy food is also important. So, the
realized increase in demand for food will depend on both population growth and income
growth. With respect to income, the world continues to grow more polarized. There is a
greater disparity among the “haves” and the “have-nots.” While the number of people in the
low-income bracket grows faster than the total world population, the share of income
controlled by the upper-income bracket of the population has also been rising significantly.
This phenomenon is measured by the “Gini coefficient.” This metric is a number between 0
and 1, where 0 corresponds with perfect equality (where everyone has the same income) and
1 corresponds with perfect inequality (where one person has all the income and everyone else
has zero income). Figure 5.3 shows countries scored by Gini coefficient.

U.S. agribusiness trade and investment grows abroad The U.S. food industry is growing
— and it is growing abroad. Two key factors responsible for that growth are trade and
investment. International trade, both imports and exports of food and food products, is
increasing faster than domestic sales. The United States Department of Agriculture reported
that U.S. agricultural exports in fi scal year 2009 were $98.6 billion (USDA ERS). In
contrast, agricultural imports into the United States in 2009 were $76.2 billion, leaving a
surplus in U.S. agricultural trade of $22.4 billion ( www.ers.usda.gov/Data/ FATUS ).

The U.S. agricultural industry is dependent on the export market. Today, roughly 30 cents of
every $1 earned on agricultural products comes from exports. Strong export competition
continues to influence the projected trends in the export market. Strengthening global
economic growth may provide a foundation for gains in trade and U.S. agricultural exports.
These factors point to the possibility of rising market prices, increases in farm income, and
stability in the financial condition of the U.S. agricultural sector.

Finally, growth prospects for U.S. agricultural exports, particularly in the consumer food
products area, are shifting. As growth in the markets of developed countries such as Canada,
Japan, and the European Union slows over time, developing countries and their strong
growth economies have become targets for increased food exports. Interestingly, the
competitive market and characteristics of consumer food products between developed
countries and developing countries differ. The successful international marketer must address
such differences.
3. Define food security and discuss how and why it affects agribusiness.

The Food and Agriculture Organization (FAO) of the United Nations defines food security as
the state of affairs where all people at all times have access to safe and nutritious food to
maintain a healthy and active life. World population in 2010 was roughly 6.7 billion people.
While population is growing more slowly than forecast a few years ago, it is still predicted
that it will be a number of years before population growth stabilizes. Predictions of future
populations put the global population between 8 and 12 billion by 2050 with nearly all the
growth expected in the developing world.

Given these population growth estimates, there is little doubt that food demand will increase
significantly in the years ahead. Many experts estimate the growing population will mean
that a doubling of food production will be necessary during the next 30 years. Of course,
food demand is more than just population — income to buy food is also important. So, the
realized increase in demand for food will depend on both population growth and income
growth. With respect to income, the world continues to grow more polarized. There is a
greater disparity among the “haves” and the “have-nots.” While the number of people in the
low-income bracket grows faster than the total world population, the share of income
controlled by the upper-income bracket of the population has also been rising significantly.
This phenomenon is measured by the “Gini coefficient.” This metric is a number between 0
and 1, where 0 corresponds with perfect equality (where everyone has the same income) and
1 corresponds with perfect inequality (where one person has all the income and everyone else
has zero income). Figure 5.3 shows countries scored by Gini coefficient.

4. Exporting is one strategy firms can use to enter foreign markets. Discuss the
differences between indirect and direct exporting.

Exporting. There are two general means used to export an agribusiness’s products: indirect
and direct exporting. Most agribusinesses, especially those with little international marketing
experience, initially enter the global market via indirect exporting.
Indirect exporting uses a trading company or an export management company to handle the
logistics of exporting. These trading experts manage the exporting and importing procedures
and regulations, and they use their established relationships with buyers and distributors to
distribute the product. Advantages offered through working with a trading company include
the expertise, knowledge, experience, and connections in the market. These trading
companies’ networks within the distribution channels can be extremely useful to first-time
exporters. Although overall, using indirect exporting may reduce profitability, many fi rms
perceive this to be a low-risk strategy that entails substantially lower investment.
Direct exporting is where the agribusiness itself handles the details of exporting their
product. At this point, the fi rm conducts research, establishes contacts in the country, and
sets up its distribution channels. Firms often open an overseas sales office to manage the
operations in that country. Direct exporting involves investments and salaries for the items
mentioned previously. In turn, the potential for profits is much higher, and the firm can exert
more control over product distribution.

In general, the advantages of exporting (over the other methods) are lower risk, lower fixed
 costs (compared to investing in a new plant in a country), and increased speed in reaching the
global market. Several U.S. government agencies assist exporters as well. The disadvantages
of exporting are primarily managing the trade barriers or protectionism that may exist in a
country. Regulations, inspections, tariffs, and quotas are just some of the barriers that may be
encountered, as well as less control and long distribution channels. Control over pricing,
promotion, distribution, and quality are some of the other problems that may be experienced.
As a result, agribusinesses wanting more control and lower costs may decide to look at
licensing or direct investment as a means of entering a country’s market.

5. Discuss some of the advantages and disadvantages of using a joint venture to enter
a foreign market.

As the global marketplace becomes reality to an ever-increasing number of agribusinesses,

an evolutionary process becomes evident. This evolution may take place by design or by
happenstance, immediately or over a course of years. However, many observers point to
three phases of evolution as a fi rm moves from a domestic to a global perspective.

Some companies arrive in the international market via detour — some even by accident.
Introduction to the international market for these companies may be the result of an
interaction with an international buyer or perhaps an export company. Often, in these cases,
the international market is not treated any differently than the domestic market. Changes to
the product, the marketing, and so forth are not made to fi t the international market — firms
simply sell what they have always sold, but to a new, international customer group.

However, over time, many of those same firms shift to purposeful rather than incidental
marketing of their products abroad and enter the second phase of the evolution. This means a
deeper level of involvement, assigning resources specifically to developing markets in
specific countries, looking for opportunities in production and distribution of the products,
etc. This phase of the evolution of the global firm is known as the export marketing phase.
Here, the business conducted internationally is viewed as a sideline to the normal domestic
endeavor, but it is recognized as a separate and unique business.

The third phase emerges when a firm truly develops a global perspective, and manages its
business accordingly. Decision-making at all levels is done in a global context. Production
and raw material sourcing decisions are optimized around the world, marketing similarities
are exploited globally, and the firm may focus on building global brands. Managers move
across borders regularly to better understand the nuances of running a global enterprise. For
all three phases of evolution, decisions about market entry must be made — how do food and
agribusiness firms enter other countries?