CONTENTS

Export Promotion and Import Demand for U.S. Red Meat in Selected Pacific Rim Countries

Editor's Notes

Assessing the Effectiveness of MPP Meat Advertising and Promotion in the Japanese Market

Director’s Corner

Next Meeting

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Export Promotion and Import Demand for U.S. Red Meat
In Selected Pacific Rim Countries

by Cong Tru Le, Harry M.Kaiser, and William G. Tomek

The Foreign Agricultural Service (FAS) of the U.S. Department of Agriculture (USDA) administers two major nonprice export promotion programs: the Foreign Market Development program (FMD) and the Targeted Export Assistance program (TEA). In the research reported in this article, we evaluate FMD and TEA expenditures for promoting red meat exports from the U.S. to four newly industrialized countries: Hong Kong, South Korea, Singapore, and Taiwan. Since second- and third-party expenditures cannot be obtained, our analysis is limited to promotion expenditures made by FAS.

In our research, a single equation model is used to estimate the impact of various factors on the import demand for U.S. red meat in Pacific Rim countries. The number of time-series observations available on promotion expenditures is small (1984-94), and consequently country data are pooled to estimate an import demand equation. The dependent variable is per capita imports of red meat (beef, veal, and pork) measured in U.S. dollars. The variables hypothesized to impact per capita import demand include: the price ratio of U.S. red meat to average price of red meat imports from other countries, U.S. poultry price divided by the average poultry price imported from other countries, real per capita gross domestic product in U.S. dollars, an exchange rate index to account for the exchange rate effect on import demand, domestic production of red meat in metric tons per person, and current and one year lagged values of U.S. export promotion expenditures for red meat in U.S. dollars per thousand people deflated by the CPI for the country.

All data on promotion are actual amounts spent for the period of 1984-1994. Due to limited categorization of data by FAS, only a portion of FAS’s promotion expenditure is available for each country. Therefore, the estimated promotion elasticities in this research should be considered as upper bounds of the true parameters. All data used in the study are on an annual (calendar year) basis. The original data set contains 11 time-series observations for each of the
countries. As noted above, a lagged export promotion variable is used so that one observation is lost for each country. Intercept and slope dummy variables on the promotion variables are used so that the effects of promotion on each of the four countries can be differentiated. See Le, Kaiser, and Tomek for additional details on the model and data sources.

The estimated import demand equation for the four countries is presented in Table 1. The separate columns show the differing country intercept coefficients and promotion slope coefficients. The estimated coefficients measure the percentage change in per capita import value given a one percent change in the specific variable, holding all other demand variables constant. The estimated elasticity of per capita import value with respect to own-price ratio was -0.0092, but was not statistically different from zero. In contrast, the estimated coefficient for the substitute (poultry) price ratio was positive with a value of 0.43 and was statistically significant from zero. The lack of an important own-price effect may reflect the omission of a variable to represent fish or other possible problems in the data set.

The elasticity of per capita import demand with respect to income was estimated to be 0.93, and was statistically significant. The relatively large effect of income on U.S. import demand seems logical, i.e., as income increases, countries (especially those more industrialized) are more willing to spend their foreign exchange to import high-value food products like red meat. The exchange rate index had a logical negative effect (-0.81) on the import demand of U.S. red meat, but was not statistically significant. Domestic production of red meat also had a negative and statistically significant effect on import demand and was the most elastic factor affecting import demand of red meat with a value of -1.01. Domestically-produced red meat is an important substitute for imported red meat. Current promotion expenditures had a positive effect in Taiwan and South Korea, but were only statistically important in South Korea. The elasticities for import demand with respect to current promotion expenditures for South Korea and Taiwan were 0.453 and 0.033, respectively. In contrast, promotion expenditures had a negative, but statistically insignificant, impact on import demand of red meat in Hong Kong and Singapore. Since export promotion can have a carryover effect, promotion expenditures lagged one year, were also included as independent variables. Lagged expenditures had a positive and statistically significant effect in South Korea, and were positive, but not significant in Singapore. Lagged promotion expenditures were negative, but statistically insignificant in Hong Kong and Taiwan. The sums of current lagged promotion elasticities were –0.019 for Hong Kong, 0.598 for South Korea, 0.034 for Singapore, and 0.047 for Taiwan.

A logical question to ask is, what would have happened if promotion expenditures were reallocated by taking money from less effective markets and putting it into the effective one? Following this reasoning, nine scenarios were simulated over the sample period, 1985 to 1994. First, 10 percent of current promotion expenditures was taken out of Hong Kong, Singapore, and Taiwan and the resulting money put into export promotion in South Korea. Second, the estimated import demand equations for each country were used to predict the new import demand for each country under the new allocation of promotion expenditures. The process was repeated in 10 percent increments until the marginal rate of return for promotion became zero, or promotion expenditures approached 100 percent in South Korea.

When the promotion expenditures were reallocated to the South Korean market, U.S. export sales increased dramatically. In the baseline scenario, the import value for South Korea was $20.52 per capita. This value reached $52.02 when Korea received 90 percent of the three remaining markets' promotion expenditures-- a 156 percent increase. Moreover, since South Korea has the largest population in the four markets, the effect on U.S. export sales of red meat was large; specifically, total import values increased from $884.83 million in the baseline to $2.24 billion in the 90 percent scenario, a 159 percent increase. In contrast, the total import values in Singapore and Taiwan decreased in response to the declining of promotion expenditures. Comparing the ninth scenario to the baseline, values decreased from $82.84 million to $64.88 million and from $153.10 million to $136.29 million for Singapore and Taiwan, respectively. However, the loss of export revenue in these two countries was only $34.77 million compared to the gain of $1.36 billion in South Korea. Therefore, reallocating export promotion from the three countries to South Korea was estimated to be profitable.

In summary, this study suggests that U.S. red meat export promotion has had a positive impact in South Korea, but not in the other three NICs of the Pacific Rim. Moreover, our simulations suggest the total value of U.S. red meat exports would have increased by about $1.32 billion from 1985 to 1994 had promotion expenditures in Hong Kong, Singapore, and Taiwan been reduced 90 percent with the proceeds invested in the South Korean market. This represented an increase of 102 percent in the value of exports to these four countries.

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Variables	Hong Kong	South Korea	Singapore	Taiwan
Constant	-7.2664 7.7786	(-1.2087) (-1.3079)	-8.3378 -7.7624	(-1.3931) (-1.330)
(Price Ratio)	-0.0092 0.0092	(-0.036) (-0.036)	-0.0092 -0.0092	(-0.036) (-0.036)
(Poultry Price Ratio)	0.4281 0.4281	(2.2823) (2.2823)	0.4281 0.4281	(2.2823) (2.2823)
(Per Capita GDP)	0.9337 0.9337	(3.7155) (3.7155)	0.9337 0.9337	(3.7155) (3.7155)
(Exchange Rate Index)	-0.8148 0.8148	(-0.834) (-0.834)	-0.8148 -0.8148	(-0.834) (-0.834)
(Domestic Production)	-1.0067 1.0067	(-2.444) (-2.444)	-1.0067 -1.0067	(-2.444) (-2.444)
(Current Promotion)	-0.0174 0.0725	(-0.553) (-0.791)	0.4529 0.0329	(11.574) (0.8459)
(Lagged Promotion)	-0.0019 0.1061	(-0.060) (1.2473)	0.1452 0.0139	(3.0009) (0.4358)
Note: Figures in parenthesis are t-values = 0.975 Adjusted = 0.957