- - AGRICULTURE CORE CURRICULUM - - (CLF1000) Advanced Core Cluster: AGRICULTURAL BUSINESS MANAGEMENT (CLF1450) Unit Title: MARKETING ____________________________________________________________________________ (CLF1458) Topic: MARKETING PROCEDURES Time Year(s) AND WORLD TRADE 2 hours 3 ____________________________________________________________________________ Topic Objectives: Upon completion of this lesson the student will be able to: Learning Outcome #: (M-14) - Compare and contrast the marketing system of the United States and other selected trading partners. (M-15) - Compare and contrast the food distribution systems of the United States and Japan. Special Materials and Equipment: Worksheet #1, Handout #1 References: Cramer, J. L., & Jensen C.W. (1988). AGRICULTURAL ECONOMICS AND AGRIBUSINESS (4th ed.). New York, NY: J. Wiley & Sons. Resources: California Department of Food and Agriculture, (1989). California Agriculture Statistical Review and California Agricultural Exports. Available from: 1220 "N" St.,Sacramento, CA 95814. Evaluation: Quiz by instructor TOPIC PRESENTATION: MARKETING PROCEDURES AND WORLD TRADE A. Exporting Agricultural Products to Other Countries 1. Trade associations are concerned with the export of certain products to foreign countries. Most commodities have a marketing cooperative that buys the product from the grower and markets it, either domestically or internationally. a. Example - Factors the almond industry must consider when exporting their product: 1) Virtually all of the almonds produced in the United States are grown in California. Almonds are California's leading food export with 65% of the crop exported internationally. 2) The potential for expansion of the almond export market is limited by trade restrictions imposed by other countries. Below is a table outlining some of the restrictions limiting the growth of this market. COUNTRY TARIFF RATE FOR ALMONDS OTHER LIMITS Argentina 20% for U.S. imports A license is required to import almonds. Australia 10% Duty Brazil 40% for U.S. imports China 100% Tariff Foreign exchange can be handled only by Chinese Government officials. Egypt 70% Tariff Limited imports allowed. EEC 2% for whole almonds 14% for prepared almonds India 136% Tariff Considered a luxury item and taxed accordingly. Israel 15% Duty Japan 4% for fresh almonds Japan has no domestic 8% for roasted almonds almond production. Korea 35% Tariff Philippines 50% Tariff Venezuela 80% Tariff No license is required to import U.S.almonds. 2. It is estimated that if trade barriers were removed, there would be a minimum increase of $5 million for each of the above countries. __________________________________________________________ ACTIVITY: 1. Discuss why countries impose trade barriers on imports? 2. How might a nation encourage trade with one government while discouraging trade with another? 3. Describe the potential effect on the local economy if the above trade barriers are lifted. 4. How does the U.S. go about removing export trade barriers? 5. Does the U.S. levy tariffs on imports from other countries? Explain why it might do this. __________________________________________________________ B. A major agricultural trade policy dispute with the U.S. involves Japan's maintenance of a strict prohibition on the importation of rice. 1. The Food Control System of the Food Agency has strong controls on the production of rice in Japan. It is involved in the establishment of rice prices and in the purchasing and distribution of rice. This pricing procedure demonstrates the political importance and sensitivity of the government's decisions concerning rice. The rice price policy has focused largely on maintaining adequate income for the rice farmers through a system of price supports. In order to control the surplus, the government has been involved in rice, paddy field set aside, and crop diversion programs. 2. The issue of food security or self-sufficiency is important for the Japanese when considering trade policies. Presently, the Japanese are 49 percent self-sufficient in production of food. A recent poll in Japan showed that 75 percent of the respondents believe the statement "Food should be supplied by domestic production as much as possible." Only 14 percent agree with the statement: "Food should be imported if import prices are cheaper than those in Japan." 3. Despite actions by the United States Rice Millers' Association, the Japanese rice market has not been open Japaneese who oppose rice import liberalization emphasize the value of their cultural heritage based on rice, paddy fields, and rural communities. They also emphasize the issue of food security, the economic importance of rice, and the advantages of rice paddies to their environment. 4. Recently, Japan changed its attitude to more fully open markets for farm products. This agreement, along with the Beef and Citrus Pact, illustrates the move to resolve one of longest agricultural trade disputes between the U.S. and Japan. The fact that Japan is the largest agricultural customer of the United States cannot be ignored. C. Japanese Rice Distribution System 1. Rice has always been and continues to be Japan's staple food. Japan's annual rice production amounts to approximately 10 million tons, almost all of which is consumed as food. The amount of rice consumed per person annually amounts to approximately 165 pounds (75 kg.). 2. All of the rice produced and consumed in Japan is controlled by the government under the Starch Food Control Law. About 60% of the rice distributed is known as government- controlled rice which the government purchases from producers and sells to authorized wholesale dealers. ZEN-NOH (National Federation of Agricultural Co-operatives) collects this rice from producers through primary level co-ops and prefectural federations and sells it to the government, with the price determined by the government. 3. The remaining 40% of the rice is known as semi-controlled rice and is sold on behalf of the government to authorized wholesalers, with the price determined by negotiation. Semi-controlled rice is of higher quality and is distributed at a higher price level than that of government-controlled rice. 4. The following outlines the Japanese rice distribution system. a. FARMERS sell to b. PRIMARY CO-OPS who sell to c PREFECTURAL FEDERATIONS who, in turn, sell to d. ZEN-NOH, which distributes rice to wholesalers in accordance with government policy e. WHOLESALERS sell the government controlled (60%) and semi- controlled rice (40%) to f. RETAILERS who in turn sell it to g. CONSUMERS __________________________________________________________ ACTIVITY: 1. Look at the outline (above) of the rice distribution system. Each of the major steps along the route of this system will be represented by various people in the class. All should consider themselves consumers and will need to buy rice. All of the positions to be performed in this activity are described below; read through all of them to be familiar with what takes place throughout the system. Once it is known what role each person will represent, groups should be formed with other members in that position. Look over again the description each particular function in the distribution system. Each group will receive the same amount of money to take care of the transaction, except the farmer group, which will start out with the rice. After the activity is finished, each group should complete the worksheet. Suggestions: 1. Five 1 pound bags of rice is probably the minimum needed. 2. Students can be arranged in groups depending on class size. 3. Provide some guidelines for those students determining prices (government officials, wholesalers, retailers). 4. Students may want to construct signs indicating which group they represent. 5. If time permits, have students switch roles so each person can experience being a wholesaler or retailer. 6. Either the teacher or a student can be the designated banker. 7. After the class has been through the exercise, go through it again without the government setting the price. Allow the ag co-op officials to negotiate directly with the wholesalers on the price. Japanese Rice Distribution Role Play 1. The producer group (farmers) will begin moving the rice through the system. Be sure to have 40% of the rice designated as semi-controlled and 60% government controlled. 2. The ZEN-NOH group (primary level co-ops, prefectural federations) weighs the rice collected from producers. They then give a receipt and money for the rice received. This group must be informed of the established price by the government group before paying the producers. This group can also sell (on behalf of the government) the higher quality, semi-controlled rice directly to wholesalers. They must negotiate the price, which is always higher than the government set price. ZEN-NOH receives payment (from wholesalers) then pays the producers 80%, the government 15%, and keeps 5% for a commission. 3. Wholesalers purchases rice from the government (at set price) or from ZEN-NOH at a negotiated price. This semi-controlled rice is always of higher quality and a higher price. The wholesaler marks up the price before selling to retailers. 4. The government sets the price for 60% of the rice. Its buys from ZEN-NOH and sells to wholesalers at pricers lower than at what it was purchased. It receives 15% of the negotiated price of semi-controlled rice from ZEN-NOH. 5. Retailers buy both types of rice from wholesalers. They mark up the price and then sell to consumers. 6. Consumers - The Japanese consumer eats approximately 165 pounds/year (75 kg). In today's activity, he/she will purchase about one week's consumption (about three pounds). __________________________________________________________ WORKSHEET #1 - RICE DISTRIBUTION 1. What role did you perform in this exercise? 2. How much money did you earn or lose in this position? 3. Which segments of this system would mark up the price to earn a profit? 4. Name two ways this system is similar to the distribution of food products in the U.S. Name two ways that it is different. 5. The current price of rice at the local store is ________/lb. What would the cost of rice be for one year per person at the current U.S. price? (price/lb X 165). 6. If you were living in Japan, what changes would you recommend take place in this distribution system? How would these benefit all consumers? 7. Name a food item you eat weekly. 8. Home much does it cost? 9. How much would it cost if you were living in Japan? (X 3) 10. Multiply the cost of the Japanese by 52 to see what it would cost to eat that item for one year. 11. If you (or your parents) had to spend considerably more money to eat, how would this affect your standard of living? (What would you spend less on in order to have enough money for food?) 12/11/91 EEZ/ez #%&C