Wheat Export Promotion Works

January 31, 2010 06:00 PM

Linda H. Smith, AgWeb Business and Marketing Editor
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U.S. wheat growers sell more outside our borders because of export promotion, according to a new study by Harry M. Kaiser, Cornell University economist. Based on records from 1975 through 2007, he found that "Overseas demand for U.S. wheat is highly responsive to export promotion.”
His findings:
  • If export promotion spending was reduced by 50% between 2000 and 2007, exports would have been 17%--or 4.7 million metric tons (173 million bushels) a year lower. That's a total of 37.4 million metric tons (1.37 billion bushels) lower.
  • Because wheat growers provide half the funding for promotion (USDA-FAS the other half), the net benefit of export promotion ranges from 19 times to 37 times, with an average of 23 times their investment.
  • Looking at marginal returns to export promotion, each additional $1 invested returns $7.72 to $17.38, with a reasonable midpoint of $9.95.
These results are more positive than those found in other studies for soybeans, rice, or sorghum.
Disappointingly, Kaiser adds that the benefit of promotion does not seem to carry over from one year to another.
The value of the U.S. dollar tops the list of other factors that are important in determining exports:
Demand factor   Elasticity*
Value of U.S. dollar   -1.80
Competing country export quantity -0.72
U.S. price/competing country price -0.61
Importing countries' GDP 0.32
U.S. export promotion 0.29
* Elasticities measure the percentage change in wheat exports given a 1% change in each demand factor, holding all other factors constant. A negative number means when the factor rises, exports fall. For instance if U.S. wheat price rises 1% relative to competitors, our wheat exports fall 0.61%.
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You can e-mail Linda Smith at lsmith@farmjournal.com.

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