Competitiveness In International Food Markets

Maurey E Bredahl

• Publisher: CRC Press
• Year: 2019
• ISBN:
  9780429710650
• Edition: 1
• Topic: Biological Sciences
• Subtopic: Biology
• Index: Biological Sciences

The successful completion of the GATT negotiations and the North American Free Trade Agreement and the completion of the EC Internal Market mean that food and agricultural sectors must become internationally competitive. Firms, farm organizations, and governments are seeking to identify strategies and public policies that will increase their compet

Part One
Introduction

1
Introduction

Maury E. Bredahl, Philip C. Abbott, and Michael R. Reed

The papers in this book were originally presented ata symposium sponsored by the International Agricultural Trade Research Consortium: Competitiveness in International Food Markets. The conference, and the selection of papers presented, grew out of our investigation of agricultural and food product high-value-added trade sponsored by the Council on Agricultural Science and Technology (CAST).¹ The project was selected by CAST because of its belief that the United States was performing rather poorly in those markets. Our assignment was to identify and analyze the factors affecting performance of the United States in international markets for high-value-added products.

We received enthusiastic support for the CAST project and the IATRC conference from Canadian colleagues. With the implementation of the Canadian-U.S. free trade agreementand the negotiation of the North American Free Trade Agreement, competitiveness, or more correctly, a feared lack of competitivetiess, has become a Canadian national obsession. That concern is evidenced by the formation of the Agri-food Competitiveness Council, the creation of a Competitiveness Branch in Agriculture Canada, and by a host of government and private sector sponsored studies on competitiveness.

Despite the widespread interest in competitiveness in North America, we found, with a few notable exceptions, a curious lack of conceptual models and of empirical studies to synthesize for the CAST project. We found many studies that bemoaned the fact that the unit value of food exports from the United States was about half that of world trade in food products and about one-fourth that of the exports from the European Community. The poor trade performance was attributed to a lack of focus and effort by U.S. agribusiness firms, subsidization by the European Community, giving European firms an unfair advantage, and by farmers producing to the specifications of government programs rather than for markets. Most of these studies favored government programs to expand U.S. high-valued food exports, often through a proposed subsidization of further processing.

Other studies simply dismissed the issue of competitiveness outright. North American farmers were argued to be the most efficient in the world, and given the richness of the natural resource endowment, the exportation of unprocessed bulk commodities was deemed to be natural and to be expected as that is the outcome predicted by comparative advantage. These studies focused on crop production almost to the exclusion of other types of food production, and the judgments were often based on absolute advantage, not on relative costs as dictated by the theory of comparative advantage.

Not only was the received theory misused, and so a number of wrong answers reached, but also we found the underlying theory and models deficient because a number of “real world” trade flows could not explained. Although trade varies from year to year, the United States is the largest exporter of beef and the world’s second largest importer; the European Community is the second or third largest importer and exporter of beef. Taiwan and Denmark, two small nations with few natural resources, are the largest suppliers of pork to Japan, holding over 80 percent of that market between them. The United States and France, two nations with large cereal and oilseed surpluses, have not been important in international pork and poultry markets. Yet, traditional trade theory suggests that nations export those products using their most abundant and cheapest resource.

The second chapter summarizes these issues. It reviews several definitions of competitiveness, the wrong answers found in economic literature and the popular press, and the potential contributions and shortcomings of trade theory. A number of “right questions” are asked, and a continuum of factors affecting competitiveness are identified. A conceptual framework based on economic activities leading to certain end-use characteristics in products, termed “the four economies of agriculture,” is developed for evaluating the importance of several factors to agricultural competitiveness.

A basic question in the selection of an operational definition of competitiveness and in the selection of analytical techniques and models to address U.S. or Canadian performance in high-value-added agricultural trade is the appropriate unit of observations. Critics of trade theory point out that firms trade, nations don’t; that firms make investment and marketing decisions, nations don’t; and that firms compete in international markets, nations don’t.

We did find that the business strategy literature developed interesting concepts, however ad hoc, that have been largely ignored by all but a small part of the agricultural economics profession. Market structure and firm strategy clearly affect export performance, and nonprice factors may be of greater importance than price in explaining superior performance by some countries in international markets. The contribution of the business strategy literature and the importance of nonprice factors is developed in the second section: Conceptual Foundations and Assessments from Business Strategies.

The lead-off paper by van Duren, Martín and Westgren makesan important step forward in integrating the business strategy literature with economic theory and develops a conceptual framework for evaluating sector competitiveness. With that said, the conceptual framework lacks the rigor and mathematical precision favored by most trade economists. The second paper by Allen and Pierson illustrates the range of nonprice factors that can affect performance in any market. However masterful their written presentation, it could not possibly approach their colorful and lively presentation at the conference. The paper departs even further from a stylized conceptual framework than the van Duren, Martin and Westgren paper. Some trade economists will likely find the paper “fuzzy” and of little value in conceptualizing a mathematical or empirical trade model intending to capture the effects of nonprice factors. The final chapter in this section, by Reed, finds evidence that nonprice factors play an important role in explaining U.S. agricultural and food exports using more traditional econometric techniques.

Critics of the business strategy approach point out the very factors that are important in explaining competitiveness are taken as given in business strategy literature. Lau points out that the three principle sources of economic progress are growth of the stock of capital and labor and technical progress. A business strategy approach takes as given the very factors that most trade economists expect to explain. An explicit intent of the conference was to bring these two very different lines of thought together.

The emergence of trade models under the rubric of the “New Trade Theory” •and analyses that key on differentiated products, economies of scale, and market power provided the rationale for the next section: Conceptual Foundations and Assessments from Trade and Macroeconomic Theory. The intent was to review developments in these areas and in the process to explore the degree of comparability with the explanations of the business strategy approach. The first paper by Ethier reviews the evolution of trade models and the recent development of theoretical models to address product differentiation, direct foreign investment, and technology diffusion.

In a stimulating paper very much in the tradition of macroeconomic analysis, Lau investigates the importance of economies of scale and the growth of productivity in selected developed countries. Sheldon and McCorriston, in the tradition of theoretical trade models, argue that analysis of economic growth requires a dynamic framework and conclude that sectoral market share is not an important indicator of economic growth and competitiveness. Endogenous technical change is seen as key to the evolution of competitiveness. Policy intervention to augment economic growth in some sectors may be beneficial, but an interventionist response to other nations’ actions may not be warranted. The final paper in this section by Kalaitzandonakes, Gehrke and Bredahl argues that competition from imports stimulates productivity growth. Empirical evidence of sharply different rates of growth for the Florida winter vegetable industry is presented.

The fourth section, Assessments of the Competitiveness of National Food Sectors, draws together several studies of the competitiveness of the food and agricultural sectors of the United States, Canada, New Zealand, and Denmark. The definition of competitiveness varies greatly among the country analyses, but a common theme is the micro level idea that competitiveness is the ability to profitably gain and maintain market share. McDonald and Lee touch upon many issues the United States is struggling with — trade barriers on agricultural products, value-added versus bulk exporting, and in-bound versus outbound direct foreign investment. The overall theme, however, focuses on U.S. productivity levels versus Brazil and the European Community. Handy and Henderson show the importance of multinational corporations in world food markets and analyze their behavior relative to location of production, product lines, and earnings.

Three papers address competitiveness in Canada. Miner argues that there is a substantial linkage between high border controls (at the federal and provincial levels) and a lack of competitiveness in many Canadian food subsectors. His analysis indicates that Canadian firms are less competitive than their U.S. counterparts and the gap in productivity between the two nations is increasing. Hazledine develops a new measure of competitiveness — market mass—to compare Canadian with U.S. processors. He then links factors associated with high levels of market mass (or competitiveness) and finds that such subsectors are not particularly associated with superior export performance, productivity levels, degree of protection, or industry concentration. The paper, by Brink and Ash, focuses on how the competitiveness issue has shaped policy choices in Canada. Their conclusion is that governments should concentrate on providing a social and economic environment conducive to increased competition and upgrading the capabilities of labor and other resources.

The final two papers concern countries that are very export-oriented: New Zealand and Denmark. Lattimore presents the New Zealand policy towards competitiveness: Let the world market (and all its distortions) tell producers what they should produce without domestic distortions. This has worked well in many areas of New Zealand agriculture, and the country seems poised for major agricultural growth if world trade is liberalized. Walter-Jørgensen argues that the Danes do best in agricultural markets where government intervention is minimal. He believes that those Danish industries are competitive because of focused differentiation (focusing on a small number of differentiated products where world markets are large, product quality can be controlled easily, and productivity is important). It is interesting that Walter-Jørgensen is the only author to address wages in measuring competitiveness.

The final section of the book is a collection of papers by scholars given the responsibility to evaluate the lessons learned and to draw inferences of the value of competitiveness from the conference. The commentary of White provides an interesting analogy of competitiveness to healthfulness. He does not find the concept to be sufficiently rigorous to be very useful in economic analysis. Bullock, on the other hand, expresses the view that competitiveness, however defined, focuses attention on a new and different set of issues that he terms a new research paradigm. He argues that a number of important issues are not being addressed by agricultural economists at land-grant colleges and that a competitiveness-based paradigm identifies those issues. McCalla likens the two analytical approaches, marketing versus trade theory, presented at the conference to two distinct camps that don’t talk to each other. He presents an interesting contrast to the very different ways that a traditional trade economist analyzes an issue with that of a “marketer” or an economist drawing from the industrial organization literature.

Our most important conclusion is that analysis and models must fit the problem or issue. Using nation-level concepts to reach conclusions at the sector or firm level, as is often the case, is clearly inappropriate, and using firm-level concepts to explain national competitiveness and to reach policy recommendations is just as inappropriate. The symposium offered trade economists and business strategists the opportunity to begin bridging the wide gulf between them.

Notes

1. We are greatly in the debt of Dr. Stanley Wilson, the former Executive Director of CAST, for his support.

Part Two
Conceptual Foundations and Assessments from Business Strategies

2
Competitiveness: Definitions, Useful Concepts, and Issues

Philip C. Abbott and Maury E. Bredahl

Defining Competitiveness

A number of definitions of competitiveness, depending on the level of the analysis (unit of observation: nation, sector, or firm), the good analyzed, (commodity or differentiated product), and the intent of the analysis (policy prescription, sector productivity growth, export performance, etc.), have been proposed. The following illustrate this diversity:

What we should mean by competitiveness, and thus the principal goal of our economic policy, is the ability to sustain, in a global economy, an acceptable growth in the real standard of living of the population with an acceptably fair distribution, while efficiently providing employment for substantially all who can and wish to work, and doing so without reducing the growth potential in the standard of living of future generations (Landau, 1992, p. 6).

Seeking to explain “competitiveness” at the national level, then, is to answer the wrong question. What we must understand is the determinants of productivity and the rate of productivity growth. To find answers, we mu...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Preface
• PART ONE INTRODUCTION
• PART TWO CONCEPTUAL FOUNDATIONS AND ASSESSMENTS FROM BUSINESS STRATEGIES
• PART THREE CONCEPTUAL FOUNDATIONS AND ASSESSMENTS FROM TRADE AND MACROECONOMIC THEORY
• PART FOUR ASSESSMENTS OF THE COMPETITIVENESS OF NATIONAL FOOD SECTORS
• PART FIVE COMMENTARY AND IMPLICATIONS
• About the Contributors
• About the Book and Editors
• Index