What it Means for U.S. Exporters
U.S. exports of processed food & beverages increased 17% in 2010 to US$56.2 billion. U.S. exports of ALL goods rose 21% to $1.28 trillion, and the U.S. surpassed Germany as the world’s #2 exporter behind China. Despite the chronic U.S. unemployment rate, manufacturing jobs in our country grew 0.9% in 2010. This makes even a cynic ponder, “Is the U.S. back in the export game?”
Even prior to the uprisings in the Middle East and Africa, demand for U.S. food exports had increased significantly. For example, this year China became a net importer of corn, placing a high demand on U.S. exports and thus raising prices. Corn, the largest U.S. agricultural crop worth $48.6 billion in 2009, has seen prices rise 82% in the last 12 months. Similarly, soybeans — the second largest U.S. crop valued at $31.8 billion — have seen a 46% price rise. Wheat prices have increased 73%, the fourth largest U.S. crop worth $10.6 billion.
Since most consumers in developing markets buy raw foods such as bulk sugar and wheat, increases in commodity prices have affected them more severely than consumers in the developed world who buy processed, packaged foods. Escalating food prices recently have fomented some of the protests in the Middle East and Africa. Thus, some countries are buying huge quantities of U.S. food in order to cut food inflation and quell social unrest. The United Nations recently warned, “Food exporting countries are â€˜strongly advised’ not to restrict shipments to prevent â€˜more uncertainty and disruption’ in world markets.”1
What can U.S. food and beverage processors do to position themselves successfully to exploit new markets in the Middle East and Africa? We can foresee events in several developing markets in the days and weeks ahead. In January, protesters in Tunisia toppled the government of President Zine El Abidine Ben Ali, who had ruled with an iron fist for 23 years. We then saw Egypt’s Hosni Mubarak toppled after 30 years in power. There are now populist revolutions sweeping the Middle East and Africa, including Libya (Moammar Kadafi has ruled for 42 years); Morocco (King Mohammad VI holds absolute authority); Yemen (President Ali Abdullah Saleh has ruled this poorest Arab nation for 32 years); Bahrain (majority Shiite protesters are demanding the Sunni monarchy give up its near absolute control in this strategic country where the U.S. Navy parks it’s Fifth Fleet); Jordan (King Abdullah II faces protesters demanding greater political freedoms); and even Kuwait (descendants of desert nomads are demanding citizenship and its resulting benefits in this oil-rich kingdom). Algeria, Syria and Saudi Arabia may soon face similar revolts. Finally, despite the hard-line Islamic regime blocking Facebook and Twitter and jamming satellites, Iran is facing internal strife from its restless young citizens although managing it in a much more violent manner than was seen in Egypt.
It is prudent to assume that many new developing markets in the Middle East and Africa will open to U.S. food and beverage products in the near future. It would behoove U.S. companies to prepare for the eventual opening of these markets with millions of newly-minted middle class consumers eager to taste U.S. food and beverage products. Such preparation can include understanding the import regulations, conducting research on the most promising markets, tailoring products and packaging to be compliant with import and retail regulations, and gaining Halal certification through agencies such as the Islamic Food and Nutrition Council of America (IFANCAÂ®). The worldwide halal market is estimated to be worth US$580 billion.2
One market U.S exporters should consider is Egypt. Egypt’s population of 80 million people has a per capita GDP of US$6,000 on a purchasing power parity basis. Total food and agriculture imports are US$11 billion, with the U.S. having an 18% market share. The U.S. has a $3 billion trade surplus with Egypt. Most of Egypt’s U.S. imports are commodities such as wheat, poultry and corn. However, Egypt imports $230 million annually of U.S. consumer food and beverage products. Egypt’s GDP growth is forecast to be about 5%, due in part to a large population increase of 2% annually. Like many developing markets, the increasing number of women entering the work force pushes the demand for convenience-based food. Finally, the rapid escalation of hypermarkets such as Carrefour has led to the omnipresence of consumer packaged goods imports.
All trends point toward burgeoning consumer food and beverage markets in the Middle East and Africa. While U.S. private businesses are investing in these growth markets, governments can help our exporters. A free trade agreement with Egypt and other Middle East countries not only would offer U.S. exporters access to these markets but would also give U.S. food and beverages preferential treatment vs. European and other producers. Helping these developing markets prosper and trade freely with the U.S. will also assist in preventing war and cultivating peaceful relations in one of the world’s most volatile and strategic regions.
AMI will blog about the Food & Beverage industry next week from the Gulfood show in Dubai, UAE.
1 “Food Riots Spur Demand of U.S. Exports,” Bloomberg, January 26, 2011
2 World Halal Forum, 2009