Export for Small & Medium Sized Companies
Main Reasons for Change in the World Market
The Importance of Exporting to the Firm
The Basic Differences Between Domestic Business and Exporting
Overview of Trade Statistics and Data
Export Service Providers
Export Assistance Agencies
Opportunities and Challenges Within This Field
Today, the opportunities to export consumer-oriented and value-added food and agricultural products are great. In fact, there has probably never been a better time for small and medium-sized companies to begin exporting.
The following section will help you to determine if now is the right time for your company to begin or expand its exports.
Global Markets Are Consumer-Oriented
Many world markets are considered “global” markets, and more markets are becoming global every year. Global markets have: access to communication and transportation systems, knowledge of overseas travel and products, an increased level of education and wealth and a more democratic society with an interest in imported goods. Global marketing is often based upon standardization of products rather than adapting to each individual export market. However, culture, government regulation and distinctly different business practices and distribution channels are still areas where local adaptation may be necessary.
Food exports from the United States have often been stereotyped as commodity products – with little value added and shipped in mass quantities. U.S. exports today are changing that perception. Today’s value added food exports have taken the lead in dollar value, if not volume. For example, U.S. exports not only include field corn, but also salsa-flavored microwave popcorn.
The process of selling food is unique compared to other consumer products. In many markets, food and beverage choices are more sensitive to particular tastes and cultures than need. Price plays a factor. But successfully developing a market also requires marketing, promotion and education to food manufacturers, importers and consumers. Each process should emphasize your product’s competitive advantages.
The following “drivers” have increased trade opportunities for small and medium-sized exporters of value-added food products from the United States:
Lowering Tariffs and Non-Tariff Trade Barriers
Food and agricultural products are produced in all countries, and thus are sensitive to both tariff and non-tariff barriers. The tariff is often referred to as the “duty” on a product, but technically duties make up the large part of the tariff as well as many other customs procedures and regulations. The duty on an imported product is usually measured as a percentage of its invoice value, inclusive of both shipping and insurance costs. This is often referred to as the “landed cost.”
Duties make it more expensive to import certain products, and decrease the chances of success in a market. A non-tariff barrier may include regulations such as: quotas (which limit the amount of product allowed into a country), inspections, higher currency conversion rates for importers and other bureaucratic policies designed to keep certain products out of the country. Non-tariff barriers often favor locally produced goods. Duties (tariffs) and non-tariff trade barriers continue to fall because of organizations like the World Trade Organization (WTO) and Bilateral Free Trade Agreements such as NAFTA, creating more opportunities for U.S. exporters than ever before.
Free Trade vs. Fair Trade
A free trade agreement is a pact made between two or more countries to eliminate tariffs and non-tariff barriers affecting trade between them. The WTO is not designed as a free trade agreement, but one where the member countries treat each other fairly in trade issues. Many member nations of the WTO are in specific free trade agreements with each other and use those agreements to negotiate trade issues before going to the WTO for assistance.
The World Trade Organization – Fair Trade Agreement
The WTO is an administrative body that directs the General Agreement of Tariffs and Trade (GATT). GATT creates a more level playing field between member countries by providing them access to the Most Favored Nations (MFN) rate of duty. MFN duties are usually the country’s lowest, if not otherwise specified in a free trade agreement. The United States is a member of the WTO.
Currently, the “Doha” round of negotiations is underway. One of the main issues of these talks is on trade in agriculture, with the goal of raising third world incomes by generating more food and agricultural exports to industrialized nations. As third world incomes rise, trade opportunities should increase for the industrialized nations as well. Although they are contested on many fronts and subject to occasional stalls, the talks continue and are expected to for some time. The forecast is for decreased duties; however, there is still a long way to go before achieving equality.
Bilateral Free Trade Agreements
The U.S. is involved in a number of bi-lateral free trade agreements. The North American Free Trade Agreement (NAFTA) allows almost every product to be traded free from duties. NAFTA has made the region that includes the U.S, Canada and Mexico the world’s largest trading block. Canada and Mexico are our largest trading partners, with nearly $2.5 billion in trade crossing the borders each day. In 2007, U.S. exports of value-added, consumer-oriented food industry products amounted to nearly $17 billion.
Other free trade agreements either completed or under negotiations include:
Information on trade agreements are subject to constant update. To keep abreast of the latest developments click here.
Improvements in Distribution
Distribution channels around the world are opening to new types of products and meeting the demands of consumers with increased buying power. Many large supermarkets and hypermarkets now have their own purchasing agents who specialize in food items. Most of these buyers also have their own logistics system and are able to source directly from the manufacturer, which allows them to control costs and work directly with producers.
Importers, wholesalers, distributors and retailers of value-added food products have more access to U.S. dollars than in the past, which makes payment quicker, more efficient and less risky. The devaluation of the U.S. dollar in the last few years has made U.S. products much more affordable, although that is always subject to change. As the dollar is getting stronger, orders from importers are becoming smaller and more frequent, making the invoice value lower and lowering the risk of non-payment.
Increase in Consolidations
Many importers “consolidate” small orders from multiple vendors into one container for shipping at key ports of export across the U.S. This is because exports of value-added products do not usually ship in large quantities and consolidation lowers costs on their import customs clearance at the destination. This also helps the small and medium-sized exporter by placing less demand on capacity and reducing responsibility for the shipment.
Improvements in Transportation Technology
Increases in transportation technology have made global shipping more efficient, with shorter transit times, increased tracking capability and less delay and damage. The containerships grow larger with each generation. In the future, containerships will consolidate their routes to fewer locations with more containers, rather than serving offline ports with smaller ships.
Increased Export Assistance
Export assistance providers, both public and private, have greatly increased their capabilities with extensive networks around the world. This allows for better communication, more accurate and timely information and a higher quality of market research and advice than ever before. As a result, international trade has increased tremendously. In other sections, you will learn more about what support systems are available to you and how and when to use them.
The United States has a huge trade deficit, which means we import far more than we export. In 2007, the U.S. trade deficit had lowered slightly to $790.6 billion from $818.1 billion in 2006. The good news for the American economy and food exporters is that we have a trade surplus in the export of agricultural products. In 2007, the U.S. exported $89.9 billion of food and agricultural products and imported $71.9 billion, a surplus of $18 billion. The devalued dollar has helped in this area, but the U.S. produces many foods more efficiently than other nations, and has a number of comparative advantages to use in this industry.
Government trade statistics show that employees of companies that export have more job security and additional skills due to their international work. They are also more likely to earn higher wages. In summary, exporting benefits the company, its employees and the U.S. as a whole.
There are many distinct differences between domestic and international business that should be appreciated to be a successful exporter.
Although global business runs on a 24-hour clock, much of the world is at work while we sleep. Before modern communications, this was a challenge. However, with technology, these obstacles have been dramatically reduced. Today, even trade promotions are conducted “virtually” between countries.
Despite globalization, culture is the main difference between domestic and international business. This element requires study, insight, appreciation and patience. Each market has distinct ideas on business practices, negotiations, thinking and decision-making styles and concepts of time, which a U.S. exporter must appreciate and understand in order to be successful. Also, the “American businessperson must understand how the world perceives them to prepare for and adapt to the expectations of others.”
Exporters must be careful of product branding and marketing. The name of a product is especially important. For example, Americans realize that a gourmet confection called “Death by Chocolate” means that is good enough “to die for.” However, the same name would be interpreted very differently in China, Peru or Bulgaria. Consideration should also be given to colors, packaging, sizes and shapes.
The relationship between currencies is an important part of a small business exporter’s strategy. When a foreign currency “strengthens” against the U.S. dollar as many have in the past few years, it means that currency can buy more of a dollar in a conversion, and U.S. exports should increase. Conversely, when the currency “weakens” against the dollar, it takes more currency to convert into dollars, causing U.S. exports to decline.
These declines are often temporary and do not mean that market are closed, so exporters must continue to monitor the situation and be prepared for new opportunities as they arrive. An integral part of a small business exporter’s strategy must include appreciating the relationship between the buyer’s currency and that of the U.S. dollar. A devalued U.S. dollar makes U.S. products and shipping costs less expensive, as they do currently. On the other hand, imports become more expensive and the chance of inflation increases. Although the current economic forecast is for the dollar to generally appreciate against most currencies, it will still remain weak by historical standards. Companies should always be prepared to deal with any correction in currency conversion that increases their customer’s purchasing power.
As mentioned earlier, the combination of consolidated shipments, lower invoice values, easier access to dollars, improved communications and more sophisticated and capable buyers have made the export business less risky and cumbersome for U.S. exporters.
There are several important differences to consider in methods of payment in international trade. Domestically, suppliers often extend 30 days credit or open account to qualified customers. A supplier in the export business may be asked to extend those terms to 60 or even 90 days on open account an international buyer. Longer transit times and currency conversion requirements may extend the payment timeline.
Exporters need to consider payment options carefully and consider asking for cash in advance, partial payments or control the consignment with the use of a documentary collection or letter of credit in order to minimize risk. These last two methods involve securing the title documents to the goods, which represent ownership, until the buyer pays for the shipment or endorses a contract to do so within a specific time frame.
All governments have their own set of rules for international trade. When exporting food products (especially dairy, meats, fruits and vegetables), a U.S. exporter must adhere to certain requirements. The importer’s country will also have sanitary, labeling, ingredient and nutritional regulations.
Due to the variety of controls, compliance rarely comes from one source. It is recommended to follow the instruction of the importer, who most likely is in close contact with their customs broker. The customs broker will know exactly what is required for a successful customs clearance.
Shipping & Insurance
Since value-added food and agricultural exports travel much further than domestic shipments, they may be exposed to rigors of additional handling, temperature variables and other weather-related elements. They may also travel in an “Intermodal” fashion, which means by one or more trucks, vessels, aircrafts or trains, between origin and destination.
International insurance also differs. Most domestic shipments are rated on a “per pound” basis. International marine cargo insurance (a term also used for air freight) is separated from the freight price, uses the metric system, is rated by $100 increments and has many options for coverage. Fresh and frozen products have additional coverage options. In some cases, an importer may handle all of the logistics from the supplier’s location to the ultimate destination. In other situations, an exporter may be asked to make the arrangements and to add those fees to their invoice. The second option requires the exporter to have a working knowledge of the logistics of international trade, especially in regards to international trade terms.
Border Crossing Procedures
Border crossing procedures vary between countries. When exporting to Canada or Mexico, most cargo goes by truck or rail; however, the similarities end there. U.S. shipping companies including freight forwarders consider Canada to be more of a “domestic” extension of the U.S., and handle it that way. Mexico is considered to be an “international” destination. Shipments to Canada are still different from shipping domestically, and require documents for customs clearance. Mexico has a more detailed customs procedure, as the transfer to title must usually take place at the border crossing and the U.S. exporter is almost never allowed to own the goods in Mexico. Canadian customs clearance usually takes hours, while the same procedure in Mexico can take a few days.
An exporter needs to be aware of the differences in customs procedures in countries across continents. Plenty of help is available through research reports, service providers such as freight forwarders and shipping lines, couriers such as UPS and FedEx and your overseas customer and their customs broker.
A great way to understand these procedures is to visit a prospective port of import while traveling. It can provide a competitive edge in doing business with another country. Combining such a visit with attending a trade show or trade mission in the specific country is a good way to achieve such a goal.
Exports usually require additional documentation. Thorough, timely and professionally prepared documentation is one of the keys to success in the export business and cannot be undervalued as nonsense or nuisance. Documentation often depends on the country of import, specific trade agreement or regulation, the value of the shipment, the method of payment and mode of transport and usually includes the following:
Each document will be further discussed in the following sections.
In 2007, exports of value-added, consumer-oriented food products were $34.9 billion, an increase of 16% from the $30.0 billion in 2006. The average annual increase in exports over the past five years has been nearly $2.3 billion. That represents an increase of 48% since 2003.
The top regional markets for U.S. exports of consumer ready food products were in 2007 were as follows:
NAFTA: $15.6 billion
European Union 27: $3.8 billion
China & Hong Kong: $1.8 billion
Southeast Asia: $1.6 billion
Former Soviet Union 12: $1.3 billion
Caribbean Islands: $1.0 billion
Middle East: $1.0 billion
South America: $584 million
Central America: $581 million
A Closer Look: 2007 Export Data
To further analyze export values of value-added, consumer-oriented food products, consider some of last year’s final figures.
Edible preparations of meat (beef, pork, poultry, fish and seafood) which has been prepared and preserved and is ready to eat: $1.3 billion, an increase of $145million from 2006.
Fresh and processed cheese: $395.1million with the #1 destination being Mexico, who imported $130.3 million of these products.
Dried fruits and mixtures of fruits and nuts: $280 million up from $222.4 million in 2006.
Sugar confectionery (including white chocolate, but without cocoa): $312 million up from $291 million in 2006.
Chocolate (and other food products containing cocoa packed for retail sales): $775 million up from $678.6 million in 2006.
Pasta (and couscous): $248.6million up from $212.4million in 2006.
Prepared and preserved vegetables, fruits, nuts or other plant parts: $3.0 billion, up from $2.7 billion in 2006.
Frozen French fried potatoes: $551 million with the #1 market being Japan, who imported $198.5 million in 2007.
Sauces, condiments and seasonings: $493 million up from $395.6million in 2006.
Wine of fresh grapes: $904.7 million up from $835.5 million in 2006. The #1 market for wine is the UK who imported $281.3 million in 2007, up from $268.5 million in 2006.
Dog and cat food for retail sale: $1.04 billion up from $968 million in 2006.
Bread, pastries and savory snack foods: $797.8 million, up from $664.6 million in 2006.
If your product is mentioned above and you are not currently exporting, you might want to further investigate your international sales potential.
You may begin with the question, “Why are all of these products being sold around the world?”
The top ten importing countries in 2007 were:
Canada, Mexico, Japan, South Korea, Russian Federation, China, United Kingdom, Hong Kong, and the Netherlands.
Countries ranked 11-20 are:
Germany, Australia, Philippines, Spain, Belgium-Luxembourg, Italy, Singapore, United Arab Emirates, Malaysia and India
Other notable facts include:
Factors Driving Foreign Demand:
These are impressive statistics. However, it is important to understand the forces that have made these opportunities possible. These “drivers of globalization” have spurred demand and include:
Successful bilateral free trade agreements, increased globalization of markets and the interest of importers to work directly with U.S. producers continue to create business opportunities for small and medium-sized, value-added, consumer-oriented exports. Opportunities are further increased by support from export service providers and export assistance providers.
The following section will provide an overview of both export service providers and export assistance providers. The main difference between the two is that service providers operate to make a profit and export assistance providers operate on a governmental or not-for-profit basis.
There are a variety of resources available to help U.S. companies develop a successful export business. It is important for a firm to realize that it cannot complete the entire export process by itself. A firm needs to develop a team of trade professionals to provide it with advice, information and support as well as timely and professional services.
The following is an overview of the most frequently used export service providers:
International banks play an integral part of your business and can provide insight into: methods of payment, credit risks, credit checks and the processing of buyer payments on checks, wire transfers, documentary collections and letters of credit. If your local bank does not have an international department, you may need to work with another bank for assistance with trade transactions.
International Freight Forwarders
These firms are very helpful in providing transportation prices, documentation and handling of shipments between the origin of shipment and the ultimate destination. The forwarder can recommend the best method of transportation and insurance as well as documentary and regulatory requirements. Freight forwarders often have their own offices or agents in key ports around the world, often with customs brokers on staff. This enables them to provide valuable information about the customs clearance process, duties and even provide delivery to the importer’s facility as well.
Another valuable service offered is the “consolidation” of cargo. This is the process by which multiple shipments of like kind can be merged into one larger shipment, allowing for a lower freight rate and increasing integrity in transit. Forwarders that provide consolidation services publish their own rates and issue their own bills of lading.
A consolidator may or may not be a licensed freight forwarder, as he/she might use the services of a forwarder after receiving cargo and combining it with others bound for the same destination. The consolidation may be entirely consigned to one buyer or to multiple buyers. A consolidator may be an export management or trading company that frequently exports to a country and has space available to sell you or may be in the business of representing one or more importers in a country and providing them with logistical support for a fee. A consolidator only publishes rates and issues bills of lading if he/she is licensed to do so.
Export Management or Trading Companies
Many companies that might be referred to as consolidators are in the business of exporting products on behalf of the producers for their own account. They may represent a producer of a food product, acting as their “export department” and be compensated for the sales they generate and services they provide. Conversely, they might actually purchase the goods from the producer and re-sell them overseas. It is then a question of title or ownership of the goods when they are exported.
Export Management or Export Trading Companies are a viable means for producers to gain international market share and brand recognition, while giving them time to become more familiar with the process themselves. These firms often have established channels of distribution in the select country and industry or product knowledge as well as experience in exporting.
Any firm that issues its own bill of lading as a contract of carriage for transport is technically considered a “carrier.” In the export business, a carrier is often referred to as the vessel, truck or aircraft that is providing the “main carriage.” This is the transportation between the port of export and the port of import, or the origin and destination on the bill of lading. Ocean carriers work directly with exporters if they have enough cargo for an entire container, but do not usually do the work of freight forwarders or provide consolidation services unless they have a specific service to do so.
Air carriers are valuable in the shipment of samples or smaller perishable products, especially integrated couriers such as FedEx, or UPS. They also do not act as freight forwarders, so it is important to also use the services of a forwarder for more complex transactions.
These companies can provide forwarding services, consolidations or even international transportation, depending on their structure. Typically logistics companies provide ground transportation, warehousing, packing and labeling services. However, some have grown in other areas and may virtually provide any type of service an exporter needs, either directly or indirectly.
Selecting which service providers to use depends on the type of products being exported, special handling requirements, mode of transport and value of the goods, destination and insurance requirements and the directives of the buyer.
Export Assistance Agencies
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The #1 goal of an export assistance agency is to help make your export program profitable. Its mission, regardless of its funding source, is to assist in building your export business by providing market information, promotional opportunities, consultation on export strategy and referrals to service providers and importers from around the world. Export assistance agencies may charge a fee, but it is often small and for cost recovery.
The following is a list of export assistance agencies that focus on food and agricultural products - more specifically - value-added, consumer-oriented products.
United States Department of Agriculture
The United States Department of Agriculture (USDA) supports Americans with a variety of programs related to food and agriculture. It provides many of the health and sanitary certificates required by law to export meat, dairy, fresh fruits, vegetables and other products. Many importers require USDA certificates for customs clearance. For more information on the USDA’s services click here.
Foreign Agricultural Service
The Foreign Agricultural Service (FAS) is the international marketing division of the USDA. Its duties include:
The FAS supports U.S. agricultural interests through its network of counselors, attachés and trade officers stationed abroad and its analysts, marketing specialists, negotiators and related specialists in Washington, D.C.
Trade offices in key markets are known as Agricultural Trade Offices (ATOs). These offices function as service centers for American exporters and foreign buyers seeking market information. They are often instrumental in matching U.S. suppliers with local importers.
Trade information is sent to Washington, D.C. daily by FAS personnel and is used to develop and hone strategies to increase market access, identify and work to reduce foreign trade barriers and to improve U.S. farm and food products’ competitive position around the world. FAS analysts prepare production forecasts, assess export marketing opportunities and track changes in policies that affect U.S. agricultural exports. To access the FAS website, click here.
State Departments of Agriculture
Each State Department of Agriculture performs a variety of services related to food safety and security, education, policymaking and implementation important to their consumers and producers of food and agricultural products. Many states employ staff that can help explain regulatory requirements and provide marketing research and promotional event information.
State Departments of Agriculture are members of the State Regional Trade Groups, and work closely with them as well as FAS in coordinating export assistance services for companies within their specific state or region.
State Regional Trade Groups
State Regional Trade Groups (SRTGs) are not-for-profit trade development organizations which are regionally located throughout the U.S. Their mission is to help U.S. food producers, processors and exporters market their products internationally. SRTGs are funded by USDA’s Foreign Agricultural Service, the State Departments of Agriculture and the private industry.
SRTGs provide a wide range of programs and services designed to assist companies throughout the entire exporting process. From understanding export basics to targeting top markets to meeting potential distributors in a market, the SRTGs are on hand to help every step of the way. To find out about the specific programs offered by the SRTG in your region, follow the links below:
The following sections will explore SRTG services offered in detail and provide specific information on how and when to access these programs as part of your overall export strategy.
There are many things to consider when starting or expanding an export business. Many developments in the world of exports have been to the benefit of the small and medium-sized businesses. As importers have become more sophisticated, communication and logistics barriers have been lowered. In addition, many buyers are looking for new and innovative products to bring to the market – this trend often favors the smaller exporter.
Increased capabilities in global communications and travel, as well as carefully designed promotions and support from export assistance agencies have made it far more likely for the small and medium-sized exporter to succeed. Changes in distribution patterns, increased consolidations and capabilities of export service and assistance providers now allow smaller companies to operate like those of a much larger size.
Some benefits of exporting include:
Increased sales: Nearly 95% of the world’s population resides outside of the U.S., which means additional sales growth is very likely from exporting.
Economies of scale: By producing at capacity, fixed costs are lowered per unit, especially if little or no product adaptation is required.
Reduced risk: Exporting diversifies risk over a wider field and helps protect business in the event of a domestic slow down.
Knowledge and experience: The knowledge gained from exporting to one country can often be applied to other regions of the world.
Higher profit margins: Niche and specialty products may face less competition and therefore, sell for a higher price. Additionally, export sales volumes are often larger than the domestic equivalent.
Public relations: Exporting success creates manufacturing jobs and offers experiences which may be interesting to local media – a plus for your company.
Many of the differences between exporting and domestic business are considered to be challenges. The most frequently cited challenges include:
Increased costs: Initial costs of travel, communications, sample shipments, education and translations can be more expensive than domestic business.
Increased efforts: Exporting requires a long-term commitment to success and instant sales are highly unlikely.
Cultural differences: In many cases, your relationship with the buyer impacts sales as much as the actual product. Understanding the buyer’s culture is a key to success.
Learning curve: There is a lot to learn, but there is also a lot of support to help you along the way.
Paperwork: Exporting is a “Business of Details.” You will find that most of the details include some form of documentation.
Regulation: Both the U.S. and the importer have rules and regulations to follow. These rules may test your patience, but are not impossible to work with. Although the WTO and Bilateral Free Trade Agreements are helping, it will take time before duties and other requirements are no longer barriers.
Payment considerations: Who is paying, how much are they paying and when payment is to be made are all considerations that should be decided before any export shipment is released.
For more detailed exporting information relative to your specific business please register for our Food Export Helpline™ service. There are always specific issues and questions that are unique to your company, products, and export markets. With the Food Export Helpline™, you’ll speak with an industry expert who’ll put his more than 20 years of experience to work for you. There are no canned answers, only insightful, customized advice specifically for you.
Click here for the Food Export Helpline
Or, register for our Market Builder program. This service provides customized, in-market research to help you determine if a market is right for your product. Exporters can find new distributors or importers, receive valuable feedback about their product and gain industry insights on topics such as the distribution process and import regulations and restrictions for 18 international markets.