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The combined European Union (EU) is the largest economic bloc on the planet, with 491 million consumers. It should be a major market for U.S. food and beverage exporters now and in the near future, right? However, we should analyze critically this assumption given the prevailing issues facing the EU today.
The pressure for fiscal discipline is great in Europe. Particularly among the PIIGS members (Portugal, Ireland, Italy, Greece and Spain), there are rising debt levels, high unemployment (18.8% in Spain last month), diminishing global competitiveness, and the potential need for a financial bailout of these members from stronger EU countries such as Germany and France.
U.S. exporters have enjoyed a weakening U.S. dollar vs. the Euro in the past several months. As recently as November 25 U.S. exporters were giving thanks to a Euro of US$1.51. The euro is currently at about US$1.35, a 9-month low and 8% decrease from its recent high. This directly impacts the price of U.S. exports in Europe, and causes not only our products to be less competitive but also EU importers to seek alternative sources of supply (for example Asia and Latin America). Given the debt crisis in Europe, a slower economic recovery than the U.S. and most other markets, and the expectation that the European Central Bank (ECB) will raise interest rates later than the U.S. Federal Reserve, U.S. exporters should expect the weakening Euro trend to continue.
Given this scenario, what strategies should U.S. exporters employ? Firstly, there is a need to diversify away from a Euro-centric export view to new, higher-growth markets such as Asia and the Middle East. Second, all costs in the export supply chain should be reviewed critically: are you receiving the lowest possible freight rates? Are your products classified correctly in the EU, thereby minimizing duty rates? Are you loading all fixed costs into your export products, or do you view exports as a marginal business which is incremental to your corporate P&L?
Finally, and most importantly, have you assessed your current distribution partners in the EU? Are you certain that existing partners in Europe are promoting your products effectively given potentially higher price points? Are you maximizing your EU distribution to gain critical mass and hence lower your market pricing?
U.S. food and beverage exporters today face a new paradigm in global markets. Consumers and the retail trade change more frequently, and products come in and out of favor quickly. Exporters need to be aware of these changes and affect them positively rather than allow these changes to impact them adversely. By being pro-active and staying ahead of the inevitable market changes, U.S. exporters will enjoy long-term, sustainable success and higher sales.