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Wheat export promotional dollars go further
U.S. wheat producers have more proof that their promotional dollars are hard at work on their behalf. A study recently released by U.S. Wheat Associates showed a return of $23 for every $1 invested in overseas promotions of U.S. wheat from 2000 to 2007. The results of the economic analysis of wheat export promotion were announced at the joint board meeting of U.S. Wheat and National Association of Wheat Growers in Washington, D.C., Jan. 24. The study was commissioned by U.S. Wheat and funded by the U.S. Department of Agriculture Foreign Agricultural Service Market Access Program. Harry M. Kaiser, the Gellert Family professor of applied economics and management at Cornell and director of the Cornell Commodity Promotion Research Program, designed and conducted the research. "The study showed U.S. wheat export promotion had a large and beneficial impact for producers and the economy that far exceeded its cost," Kaiser said. "One of the econometric models we used showed that the overall average revenue benefit to the entire wheat industry from the combined producer and FAS expenditures was estimated to be about $115 for each dollar spent." The study also predicted that increasing the promotion investment has the potential for even greater returns to wheat producers, the wheat supply chain, and the U.S. economy. The methodology used in the study accounted for several factors affecting wheat export demand in the foreign market, such as U.S. wheat prices; competing country wheat prices; exchange rates; competing country wheat exports; income and wheat export promotion expenditures. There were four key questions answered by the research. First, Kaiser and his team studied the responsiveness of the import demand for U.S. wheat in the world market and for selected important countries with respect to U.S. wheat export promotion. They reported overseas demand for U.S. wheat is highly responsive to export promotion spending and is highly effective relative to other commodities. The macro model indicated a one-percent change in export promotion changed exports more than 0.295 percent. Next, the researchers looked at what would happen to U.S. wheat exports if export promotion spending in selected countries was reduced by half. They found between 2000 and 2007 exports would have been 17.1 percent lower, or a loss of 37.4 million metric tons (1.374 billion bushels). That came to about 4.7 million metric tons (or 172.7 million bushels) per year that could have been lost by reducing promotion spending. The researchers also wanted to find out how the gain in export net revenue compared to the costs of promotion. They found wheat producers provide about 50 percent of total annual export promotion investment directly or through in-kind contributions, with USDA-FAS paying the other 50 percent. On average, wheat producers spend $1 on wheat export promotion that eventually increases their total gross revenue by $95 to $186. In 2007 the average investment was just 0.27 percent of the value of wheat exports, which is exceedingly small relative to the product value, according to the report. The team found a net margin factor for wheat producers (the portion of a revenue boost that winds up in the producers' pockets) equal to 10 percent. Therefore, for a small investment, net producer revenue ranged from $96.1 million to $188 million per year, averaging $117 million. The total annual gross return for the entire wheat industry was $961 million to $1.8 billion. Finally, the team looked at the marginal return of export promotion programs and what would happen with just a one-percent increase in export promotion expenditures. They found for each additional $1 invested in promotion, U.S. wheat producers would receive marginal returns of $7.72 to $17.38. The study also looked at the benefit-to-cost ratio of selected countries that import U.S. wheat. The marginal rate of return for $1 spent on promotion in Mexico showed an increase in net revenue of $33.98. Egypt followed with a marginal rate of return of $20.60, and Nigeria was third with a return of $18.71. "Our organization is accountable to wheat producers and other taxpayers who fund the market development work we do," USW President Alan Tracy said. "Dr. Kaiser's research methods are well respected, so we are very confident about the analysis and very pleased with the results." USW commissioned a similar study five years ago that showed wheat exports would decline by 28 percent with no promotion investment. FAS conducted a study in 2006 with similar results as well. The full study can be found online at www.uswheat.org. Jennifer M. Latzke can be reached by phone at 620-227-1807, or by e-mail at jlatzke@hpj.com.
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