Abstract - USDA Rural Development · Agricultural Cooperative Service U.S. Department of Agriculture This report describes the different aspects of exporting that a U.S. agricul-

Abstract

Guide for Prospective Agricultural Cooperative Exporters

Alan D. BorstAgricultural Cooperative ServiceU.S. Department of Agriculture

This report describes the different aspects of exporting that a U.S. agricul-tural cooperative must consider to develop a successful export program. tFirst, the steps involved in making the decision to export are covered.Then, information on various sources of assistance is given, along with ,information on how to contact them. Next, features of export marketingstrategy-the export plan, sales outlets, market research, product prepara-tion, promotion, and government export incentives-are discussed.Components of making the sale-the terms of sale, pricing, export finance,and regulatory concerns-are also included. Finally, postsaleactivities-documentation, packing, transportation, risk management, andbuyer relations-are described.

Keywords: cooperatives, agricultural exports.

ACS Research Report 93

September 1990

Preface

This report is solely a guide-not a complete manual or blueprint of oper-ations-for any individual cooperative wishing to export. Its objectivesare to (1) help co-op management, personnel, and members with little orno experience in exporting to gain a better understanding of the exportprocess, and (2) provide a basic reference tool for both experienced andnovice exporters.

As a guide, this report is not intended for use in resolving misunderstand-ings or disputes that might arise between parties involved in a particularexport transaction. Nor does the mention of a private firm or product con-stitute endorsement by USDA.

The author acknowledges the contribution of Donald E. Hirsch.’

‘Donald E. Hirsch, Export Marketing Guide for Cooperatives, U.S. Department ofAgriculture, Farmer Cooperative Service, FCS Marketing Research Report 1074, March

1977.

Contents

HIGHLIGHTS .**.....*...........*..............,...,..........,...........................................iv

MAKING THE DECISION TO EXPORT ...................................................... 1Assessing Export Potential .................................................................. 1The Decisionmaking Process ............................................................... 1Commitment to Exporting ................................................................... 3

SOURCES OF ASSISTANCE ....................................................................... 3Foreign Agricultural Service (FAS) ..................................................... 3Agricultural Cooperative Service (ACS) .............................................. 6Other U.S. Department of Agriculture Agencies ................................. 7U.S. Department of Commerce (DOC) ................................................. 9State Sources of Assistance ................................................................. 9Other Sources of Assistance ................................................................ 9

EXPORT MARKETING STRATEGY ............................................................ 9Preparing an Export Plan ..................................................................... 9Equipment and Procedures for Exporting ......................................... 10Sales Outlets and Distribution Channels .......................................... 11

Market Research ................................................................................. 13Relations With Foreign Sales Agents ................................................ 15Product Preparation ........................................................................... 16Promotion ........................................................................................... 17U.S. Government Export Incentives ..................................................17

MAKING THE SALE . . . . . . . . . . . . . . . . ..*............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Relations With Foreign Buyers .......................................................... 18Delivery Terms of Sale ....................................................................... 21Pricing ................................................................................................ 24Sales Offer and Contract .................................................................... 25Payment Terms of Sale ....................................................................... 27Regulatory Concerns .......................................................................... 30

COMPLETING THE EXPORT TRANSACTION ........................................ 31Freight Forwarders ............................................................................. 31Documentation ................................................................................... 32Packing ............................................................................................... 33Transportation .................................................................................... 34Risk Management ............................................................................... 35Buyer Relations and Feedback .......................................................... 38

SELECTED BIBLIOGRAPHY . ..I,.................................................................39

ii

LIST OF FIGURESFigure I-The Export Decision-Issues to Consider .......................... 2Figure Z-Outline for a Cooperative Export Plan ............................. 10Figure 3Individual Buyer Interview Record .................................. 19Figure &-Information Needed for Sales Offer.................................. 21

APPENDIX:ACS International Trade Program (ITP) Publications *.*.....*................**.,** 39

Highlights

Export markets offer some agricultural cooperatives the chance to signifi-cantly increase sales and earnings. Success in domestic sales is one indi-cation that a cooperative may have potential in foreign markets.

The co-op’s management, board of directors, and membership should allbe fully committed to any export marketing program.

There are several sources of assistance for prospective co-op exporters.The Foreign Agricultural Service of the U.S. Department of Agriculture(USDA) is the major provider of assistance to US. agricultural exporters.The Agricultural Cooperative Service (and other USDA agencies), otherFederal agencies, State departments of agriculture, and various privatesources are also available to cooperatives seeking assistance with export-ing.

Once a cooperative has decided to initiate an export program, an exportplan stating constraints, goals, and strategy should be drawn up.

Cooperatives may choose how involved they want to become in themechanics of their export sales. They may sell either to direct export salesoutlets-agents or buyers-or to indirect salesoutlets-intermediaries-which then directly export the products them-selves.

Cooperatives need to do market research to facilitate the selection of tar-geted markets.

A cooperative with continuing sales to a selected foreign market will usu-ally be represented by a foreign sales agent in that market. Because oftheir knowledge and presence in the foreign market, these agents are ableto provide many important services for the co-op exporter.

To satisfy the needs of a foreign buyer or to comply with the import regu-lations of a foreign country, a cooperative may find it necessary to modifyits product(s).

Trade shows, direct mailings, price and nonprice promotion, and mediaadvertising are all promotion options that a cooperative can use to devel-op a foreign market for its products.

Cooperative exporters need to maintain communication and good rela-tions with serious foreign buyers. Personal visits by co-op managementand export staff are an important part of this process.

iv

For any export transaction, the cooperative and the foreign buyer mustagree on price and other terms of sale-including those for payment anddelivery-in the final sales contract.

The National Bank for Cooperatives (CoBank) offers co-op exporters acomplete line of international financial services. Many other commercialbanks with international departments can also serve the needs of co-opexporters.

Cooperatives must be familiar with both U.S. export regulations and theimport regulations of the foreign countries to which they ship products.

Unless a cooperative has its own export department, it may benefit fromusing the services of an export freight forwarder to handle the details ofexport shipping, including transportation and documentation.

A cooperative exporter will benefit from practicing risk management-identifying sources and degrees of risk that the co-op faces, analyzing itscapacity to absorb losses, and developing strategies to deal with thoserisks.

Physical risk can be handled through obtaining adequate marine insurancecoverage. Commercial and political risks can be minimized by negotiatingfavorable sales terms with the foreign buyer, checking the foreign buyer’scredit, and taking out adequate credit insurance. Foreign exchange riskscan be managed by demanding payment in U.S. dollars or by arranging ahedging contract with a commercial bank.

Guide for Prospective AgriculturalCooperative Exporters

MAKING THE DECISION TO EXPORT

There are many good reasons foragricultural cooperatives to consider exporting.By expanding their sales into foreign markets,cooperatives can benefit from economies of scalein processing, marketing, and distribution.

With increased sales, fixed costs can bespread over more units of production, and anyexcess capacity that exists can be reduced. As aresult, a cooperative may find that it can operatemore efficiently, lower its costs of production,and become more competitive-even in itsdomestic markets. A successful export programcan significantly increase the earnings of an agri-cultural marketing cooperative.

Foreign markets may also represent newsources of demand for products that have stableor declining demand in the United States.

In a basic way, export marketing is the sameas domestic marketing. The exporter has to sellthe products or services that buyers want, andwhere, when, and how they want them. Thereare, however, significant differences that must betaken into account by a potential exporting coop-erative. Trade barriers, international transporta-tion, documentation, financing, payment collec-tion, insurance, and customs procedures aresome of the major aspects of an export transac-tion that will differ from a domestic transaction.

Although the potential for selling productsin foreign markets should be considered, export-ing is not always a viable marketing option for acooperative.

Assessing Export Potential

One of the most basic ways to measure aproduct’s potential in foreign markets is its suc-cess in domestic markets. If a cooperative’sproduct has sold well in the United States, thereis a good chance that it will be successful inthose foreign markets where similar needs andconditions exist. In such situations, there may‘vc: ‘itire i3r 71-o -rree-& !i-ra wrs3-~~s;l?rg %!r& -fl-&&~.

Trade statistics and commodity reports cangive a preliminary indication of markets for aparticular commodity in most countries.Production and trade statistics and situation andoutlook reports are available for most commodi-ties from the U.S. Department of Agriculture

(USDA). Expert advice on the export potential ofa product or commodity is available fromUSDA’s Foreign Agricultural Service (FAS) andfrom State departments of agriculture. A moredetailed discussion of export assistance is givenin the next section, “Sources of Assistance.”

Once a cooperative has determined that oneor more of its products has export potential,more indepth research is necessary for specifictargeted foreign markets. This is discussed in“Market Research.”

The Decisionmaking Process

The decisionmaking process in an exportingcooperative deserves special consideration, Adecision to make an initial trial shipment to aforeign destination appears to be a policy matterrequiring board action. A decision to develop anew export program, however, or to significantlychange an existing export program more likelyrequires prior approval by the membership.

Membership should be involved in deci-sionmaking, but international trade is highlycompetitive and tends to be more secretive thandomestic trade. Premature disclosure of specificmarket objectives, names of buyers, or exactsales terms may be more helpful to competitorsthan to a co-op’s general membership.

Thus a board of directors must make exportpolicy decisions, review the results of its exportprogram, and keep the membership informed.The board, however, may have to delegate moreauthority to management and staff responsiblefor export sales than would be needed for adomestic marketing program. This is generallyso because there are fewer persons with theknowledge and expertise to deal with technicalproblems involved in exporting,

A critically important step in planning anexport program is to develop broad consensusamong the board of directors and managementon the co-op’s goals, capabilities, and con-straints. Answering’the questions in “figure 1 is agood way to start. The questions are presentedto help key people in the cooperative focus onimportant issues to consider before deciding toexport.

1

1. With what countries has business already been con- 1. Is an adequate volume of the selected commodityducted (or from what countries have inquiries available from interested producers in a relativelyalready been received)? compact geographic area?

2. 2.

3.

4.

5.

6.

Which agricultural commodities or products arementioned most often?List the sales inquiries of each buyer by product andby country.Is the trend of sales and inquiries up or down?Which U.S. and foreign suppliers are the main com-petitors? 3.

What general and specific lessons have been learned 4*from past export experiences? 5.

Will it be necessary to build or lease additional portfacilities in the co-op’s supply area or at a loadingport? If so, can these be obtained at locations thatare satisfactory with respect to the supply area,inland transportation, export shipping, and otherfactors?

II. Management, Staff, Board Members,and Producer-Members

1.

2.

W h o w i l l b e r e s p o n s i b l e f o r t h e o r g a n i z a t i o n a n dstaffing of export operations? 6.To what extent is the cooperative now organized andstructured to handle exporting operations? Can itadminister export sales and arrange for internationalshipping? Should it join with other cooperatives to

Will filling export orders hurt domestic sales?What will be the costs of additional production?What are the usual problems in the domestic mar-keting of this commodity (such as wide fluctuationsin volume, quality, varieties, or prices of product:inventory carryovers, etc.)? How difficult will it befor the cooperative to handle these problems in serv-ing foreign markets on a continuing basis?How do the costs of handling the commodity andtransporting it to a satisfactory loading port comparewith those in competing production areas of theUnited States? How about the relative cost of deliv-ering the commodity to a foreign discharge port?

3.

4.

pool export efforts? 7.

H o w

2

3

4’

program and then stick with the program throughouta trial period of reasonable length? Is strong farm 5.

leadership available?

essary to develop budget estimates to show antici-pated capital requirements, sources of capital, oper-ating costs, payments to members, etc.)What amount of capital can be tied up in exportoperations?What level of export department operating costs canbe supported?How are the initial expenses of export efforts to beallocated?What other new development plans are in the worksthat may compete with export plans?By what date must an export effort pay for itself?

Figure l--The Export Declslon-lssues to ConsldeP

I. Experience Ill. Productlon and Marketing

6.

2 This figure was adapted from A Basic Guide to Exporting, U.S. Department of Commerce, September 1986, p. 3.

2

Commitment to Exporting

There are different degrees of commitmentamong cooperatives involved in the export mar-ket. Moving from the most aggressive to themost passive approach to export market develop-ment, four approaches have been identified: 2

Export Market Developer - Views exportmarketing as an integral component of overallmarketing strategy and has a long-term commit-ment to develop foreign customers and servethem on the same basis as domestic customers.

Occasional Exporter - Has occasional exportsales, but is willing to regularly commitresources to preserve export marketing options.

Surplus Exporter - Seeks export markets inyears of excess domestic supplies.

Passive Exporter - Responds to exportopportunities if sought out by foreign buyers,and if there will be little interference withdomestic marketing efforts.

All of these approaches are acceptable. Theexpectations of a cooperative, however, shouldbe in line with its commitment to foreign buyers.Importers will rely on their regular and mostcommitted suppliers first and then fill any addi-tional needs by purchasing from less committedsuppliers.

A cooperative also chooses the degree towhich it handles each export transaction. It maysell directly to a foreign buyer or indirectly to anintermediary, such as a trading company, whichthen transacts with foreign buyers.

Direct exporting requires the cooperative toassume greater risks and to handle more of thearrangements, but it may give the cooperative alarger share of the marketing margin. Optionsavailable under direct and indirect exporting arethoroughly discussed in “Sales Outlets andDistribution Channels.”

SOURCES OF ASSISTANCE

Agricultural cooperatives that are interestedin exporting their products to foreign markets

3 Newman, Mark D. and Riley, Harold M.,Coordinating Exports by Farmer Cooperatives, U.S.Department of Agriculture, Agricultural CooperativeService, Research Report 15, September 3982.

may obtain assistance from various sources. Theinitial problem for a cooperative that has little orno experience in exporting is to determine whatinformation is available and from which sources.

Foreign Agricultural Service

Cooperatives seeking export assistance fromthe Federal Government should begin theirsearch at the Foreign Agricultural Service (FAS)of the U.S. Department of Agriculture (USDA).FAS has primary responsibility for internationaltrade, foreign market development, and foreignaffairs with respect to agricultural products.

The following is a brief description of FASand some of its programs that may be of particu-lar interest to cooperatives. Addresses and tele-phone numbers for various services are includ-ed.*

l’bade Assistance

The Trade Assistance and Planning Office(TAPO) provides a single point of contact forcooperatives that are new, established, or poten-tial exporters. The TAP0 provides foreign mar-ket information and/or assistance on procedures,initiatives, corrective measures, and marketingapproaches necessary to successfully sell in for-eign markets. Information is available on overallmarket opportunities for U.S. farm exports andon U.S. Government programs and servicesaimed to maintain and expand foreign marketsfor American agricultural products.

Co-op exporters who believe they have beeninjured by unfair trade practices with respect totrade in agricultural commodities and productscan obtain assistance from the TAPO. The Officecompiles and makes readily available informa-tion concerning trade practices carried out byother countries, and remedies under U.S. lawthat might be available to persons injured byunfair trade practices.

In addition, the Office staff may refer acooperative to sources of information that can

*If a listed USDA telephone number is incorrect,the general number for any USDA agency can beobtained by calling the USDA Locator Service at (202)447-USDA. The correct number for any section ofthat agency can then be obtained by calling its generalnumber.

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help it solve its particular problems. They maybe contacted at:

Trade Assistance and Planning OfficeForeign Agricultural ServiceU.S. Department of Agriculture3101 Park Center Drive, Suite 1103Alexandria, VA 22302Telephone: (703) 756-6001FAX: (703) 756-6124

Marketing Lnfomation and Statistics

Historical data on the volume and value ofinternational agricultural trade flows can helpcooperatives to recognize important exporttrends. The Trade and Economic InformationDivision of FAS collects such data, along withinformation on prices, market share, and manyother economic indicators. Cooperatives seek-ing such information for their marketing plan orother purposes may contact:

Trade and EconomicInformation DivisionForeign Agricultural ServiceU.S. Department of AgricultureRoom 6506-SWashington, DC 20250-1000Telephone: (202) 382-1294

Another useful source of marketing infor-mation is reports filed by FAS attaches who areconstantly monitoring foreign agricultural mar-kets. These reports are useful for cooperativesseeking information about competing firms inspecified foreign markets. Cooperatives mayobtain any of these reports by contacting the:

Reports OfficerForeign Agricultural ServiceU.S. Department of AgricultureRoom 6078-SWashington, DC 20250-1000Telephone: (202) 382-9509

nude Shows

FAS coordinates the US. national pavilionsat major international trade shows: it can assistco-op exhibitors with obtaining a booth, advance

publicity, product shipment, and customs clear-ance.

Trade fair exhibits are a well-establishedmeans of introducing and promoting food prod-ucts in foreign markets. Personal contacts aremade with potential buyers. Sales may be con-summated on the spot or a basis for future salesmay be developed. Each exhibitor pays a fee forboth space, use of pavilion facilities, and otherservices. There must be full-time representationat most kinds of exhibits.

The principal kinds of trade exhibits are (1)international food shows, (2) agent foodexhibits, (3) hotel-restaurant-institutionalexhibits or demonstrations, (4) catalog shows,(5) product displays managed by agriculturalattaches, and (6) livestock shows.

Cooperatives seeking information on inter-national trade shows and how to participate inthem should contact the:

Trade Show OfficeForeign Agricultural ServiceU.S. Department of AgricultureRoom 4647-SWashington, DC 20250-1000Telephone: (202) 245-5182

Export Product Review

Cooperatives that want to ensure that theirproduct meets the labeling and ingredientrequirements of a particular foreign country maywish to have their products evaluated throughthe Export Product Review Program of FAS. TheU.S. agricultural attache will use the productlabel and ingredient list to check with foreigngovernment officials to make certain that theproduct can be cleared for import. As part ofthe review, U.S. agricultural attaches may com-ment on the potential marketability of the prod-uct. There is a charge of $75 per label/countryfor this service. For more information, contactthe:

Export Product Review ProgramForeign Agricultural ServiceU.S. Department of AgricultureRoom 4647-SWashington, DC 20250-1000Telephone: (202) 475-3408

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FAS Attaches

Agricultural counselors, attaches, trade offi-cers, and other FAS officers are stationed atabout 80 U.S. embassies and consulates aroundthe world. These counselors and attaches assem-ble information on (a) the production and uti-lization of agricultural commodities and (b) gov-ernmental policies and programs related toagriculture in the country (or countries) to whichthey are assigned. They also supervise U.S. mar-ket development activities in the country andassemble information about marketing opportu-nities and competition for U.S. agricultural com-modities.

Counselors and attaches often help U.S.exporters make contact with foreign businessesand government officials. This service is espe-cially helpful to a cooperative when it isattempting to establish or expand an export salesprogram.

Bade Leads

tide Ofices

In addition to the presence of FAS officersat U.S. embassies and consulates worldwide,FAS maintains 15 U.S. agricultural trade officesin major foreign markets. These offices couldserve as a “home base” for co-op executives andstaff that are visiting foreign markets. Desks,telephones, and secretarial support are available.For more information on U.S. agricultural tradeoffices contact the:

Foreign Agricultural AffairsAssistant AdministratorForeign Agricultural ServiceU.S. Department of AgricultureRoom 4951-SWashington, DC 20250-1000Telephone: (202) 447-6138

Ag Export Connections @EC)

AEC provides foreign trade opportunitiesand contacts to exporters of U.S. agriculturalproducts by (a) collecting and publicizing infor-mation on foreign buyers and (b) advertising U.S.export availability. AEC offers these export mar-keting services: Trade Leads, Buyer Alert, andForeign Buyer Lists.

FAS agricultural counselors, attaches, andtrade officers worldwide locate trade leads andreport them to AEC. Cooperatives may receivethese leads in three ways. One alternative is tocontact the following commercial networks:

Agridata Resources, Inc330 East KilbournMilwaukee, WI 53203Tel: (800) 558-9044

AT1 NetCSU Fresno, Cati OfficeMail Stop 115Fresno, CA 93740-0115Tel: (209) 294-4872(209) 294-2361

Another alternative is to subscribe toExport Briefs, a weekly bulletin which lists allexport leads for that week. Upcoming tradeshows and foreign trade developments are alsohighlighted. To subscribe ($75 per year) contact:

High Value Products Services DivisionForeign Agricultural ServiceU.S. Department of AgricultureRoom 4647-SWashington, DC 20250-1000Telephone: (202) 475-3416

Finally, cooperatives may subscribe to theJournal of Commerce, a newspaper which pub-lishes selected trade leads.

The trade leads provide sufficient informa-tion to enable a U.S. cooperative to select foreignfirms for further consideration as buyers oragents. U.S. firms may also use commodity list-ings of foreign buyers for direct mail advertising.

Buyer Alert

Through this free service, U.S. agriculturalexporters may advertise their products in mar-kets around the world on a weekly basis. Usingtelecommunications, the AEC staff inWashington, DC, forwards product announce-ments to potential foreign buyers through FAS’overseas offices. For more information you may

5

contact the High Value Products ServicesDivision of FAS at the same address as above, orcall (202) 475-3421.

Foreign Buyer Lists

AEC maintains a database of about 13,000foreign buyers from over 70 countries. Lists maybe formatted to provide foreign buyers by prod-uct for all countries or by country for all prod-ucts. Cooperatives can use these lists to matchtheir products with prospective buyers. Listsprovide company name, contact, address, tele-phone, and FAX, telex, or cable where applica-ble. Lists are $15.00 each. For more informa-tion contact the High Value Products ServicesDivision at the same address as above, or call(202) 447-7103.

USDA Technical Office

The Technical Office informs US. agricul-tural exporters about proposed changes in thehealth, quality, and packaging standards of for-eign governments. As with trade leads, informa-tion on such matters is published in the FASweekly bulletin Export Briefs and is releasedthrough the two commercial computer networkscited above. Information for subscribing toeither source is given under “Trade Leads.”

Cooperatives having questions about theagricultural standards of either the United Statesor foreign countries should contact theTechnical Office, which keeps extensive andconstantly updated files on proposed and exist-ing U.S. and foreign regulations. The Office is acooperative effort between FAS and theAgricultural Research Service. Inquiries may besent to:

USDA Technical OfficeBuilding 1072BARC-EastBeltsville, MD 20705Telephone: (301) 344-2651

Publications

FAS produces many publications and peri-odicals that will prove useful to cooperativeexporters. Two publications that are especially

important are the Food and Agricultural ExportDirectory and the Dictionary of InternationalAgricultural Trade. * Two FAS periodicals thatcooperative exporters should consider receivingare :

AgExporter - A monthly magazine provid-ing information on foreign markets and opportu-nities for U.S. agricultural exporters.

Foreign Agricultural Circulars - Reportsproviding U.S. agricultural exporters with infor-mation on the needs of foreign buyers, changingconsumer preferences, trade policy issues, andthe supply and demand situation in foreigncountries. Circulars are available for most majorcrops. They are published periodically and areavailable by subscription.

A list of FAS publications, and informationon how to order them, is available from the FASInformation Division. The address is:

Information DivisionForeign Agricultural ServiceU.S. Department of AgricultureRoom 5920-SWashington, DC 20250-1000Telephone: (202) 447-7937

Agricultuml Coopem five Service

The Agricultural Cooperative Service (ACS)of the USDA concentrates on the problems andopportunities of U.S. agricultural cooperatives.ACS staff assist cooperatives by providing (1)research reports and other publications thataddress broad topics and (2) technical assistancestudies that are aimed at solving specific prob-lems of one or more cooperatives. The ACSresearch reports and other publications areavailable to the public: technical assistancereports are only distributed to the cooperativesfor which they were done.

To get a catalog of ACS publications and anorder form, write to:

USDA/ACS/PublicationsP.O. Box 96576Washington, DC 20090-6576

*These and other publications of particularimportance for co-op exporters are listed in theselected bibliography at the end of this report,

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The International Trade Program (ITP),located in the Cooperative Marketing Division ofACS, is responsible for all agency activities thatcontain international trade as a principal compo-nent. ITP agricultural economists conductresearch on topics that are related to coopera-tives engaged in international trade. Recent ITPpublications are listed in the appendix.

Any cooperative(s) seeking technical assis-tance from ACS must send a written request tothe administrator stating the nature of theproblem(s). Requests will be considered on acase-by-case basis. Typically, technical assis-tance studies have addressed matters of businessorganization, operating efficiency, and the eco-nomic feasibility of obtaining new facilities oradding new products or services. ACS does notcurrently charge for technical assistance studies.

Requests for technical assistance should bemailed to the:

AdministratorAgricultural Cooperative ServiceU.S. Department of AgricultureP.O. Box 96576Washington, DC 20090-6576

ACS also conducts research concerned withimproving the organizational structure and oper-ations of cooperatives in general. These studiescan be of value to all cooperatives, includingthose that export. In addition to research andtechnical assistance, ACS publishes the monthlymagazine Farmer Coopem tives.

Agricultural Marketing Service @MS)

Some foreign governments may requireUSDA certification that shipments of agriculturalproducts bound for their country meet specifiedquality levels. Similarly, a foreign buyer mayrequest USDA certification that a shipment beingexported to them meets contract specifications.A cooperative facing either situation can getthese inspection services, on a user-fee basis,from the Food Quality Acceptance Service(FQAS) of AMS. FQAS certification may bemade a part of the purchase contract.

FQAS certification is available for exportshipments of dairy products, poultry and eggs,fruit and vegetables, and meats. Cooperatives

can contact the following offices for informationon FQAS inspection services:

Dairy Grading BranchDairy DivisionUSDA/AMSRoom 2750-SP.O. Box 96456Washington, DC 20090-6456Telephone: (202) 382-9382

Meat Grading andCertification BranchLivestock and SeedDivisionUSDAIAMSRoom 2638-SP.O. Box 96456Washington, DC 20090-6456Telephone: (202) 382-1113

Fresh Products BranchFruit and Vegetable DivisionUSDAIAMSRoom 2750-SP.O. Box 96456Washington, DC 20090-6456Telephone: (202) 447-5870

Grading BranchPoultry DivisionUSDAIAMSRoom 3938-SP.O. Box 96456Washington, DC 20090-6456Telephone: (202) 447-3271

Processed Products BranchFruit and Vegetable DivisionUSDA/AMSRoom 0711-SP.O. Box 96456Washington, DC 20090-6456Telephone: (202) 447-4693

Agricultural Research Service (ARS)

ARS can provide co-op exporters withresearch and information on product selection,packaging, storage, refrigeration, and transporta-tion of export shipments. To get more informa-

7

tion about ARS and their publications andreports, contact the:

Information StaffAgricultural Research ServiceU.S. Department of AgricultureRoom 307, Building 005, BARC-WestBeltsville, MD 20705Telephone: (301) 344-2264

Animal and Plant Health kiwpection Service(APHIS)

APHIS can help co-op exporters complywith the import requirements of foreign coun-tries. Through pre-export inspection, APHIScan certify that the export shipment is free ofinjurious pests and/or diseases. For informationon APHIS health and sanitary inspection andcertification, contact one of the followingoffices:

USDA/APHIS/PPQExport Certification UnitStaffRoom 669Federal Center Building6605 Belcrest RoadHyattsville, MD 20780Telephone: (301) 436-8537

USDAIAPHISIVSImport-Export OperationsRoom 764Federal Center Building6605 Belcrest RoadHyattsville, MD 20780Telephone: (301) 436-8590

Economic Research Service (ERS)

Cooperatives seeking economic informationon foreign agriculture or world commodity mar-kets can read ERS publications and technicalreports. The Agricultural Trade and AnalysisDivision of ERS analyzes world agriculturalcommodity markets. It also forecasts utilization,stocks, trade, and prices of internationally trad-ed agricultural commodities for the world,regions, and individual countries. For more

information about ERS publications and techni-cal reports, write to the:

Information StaffEconomic Research ServiceU.S. Department of Agriculture1301 New York Avenue, NW., Room 208Washington, DC 20005-4788Telephone: (202) 786-1512

Federal Grain Inspection Service (FGIS)

Almost all grain being exported from theUnited States must be officially inspected andweighed. FGIS or delegated state agencies per-form these services for a fee. Their InternationalMonitoring Staff responds to complaints fromforeign buyers about either quality or weight ofU.S. grain. In addition, they can provide U.S.exporters with technical information about U.S.grain quality standards and inspection andweighing procedures.

FGIS provides, on a fee basis, other tests forexport shipments of grain and related commodi-ties, such as measuring aflatoxin levels in cornor protein content in wheat, or inspection ofrice, pulses, and processed grain products. Forfurther information, contact the:

Federal Grain Inspection ServiceU.S. Department of AgricultureRoom 1095-SP.O. Box 96454Washington, DC 20090-6454Telephone: (202) 382-0216

Food Safety and lkpection Service (FSIS)

All meat and poultry being exported fromthe United States must be inspected by FSIS.All meat must be certified and most countriesrequire that poultry products also be certified.FSIS reinspects meat and poultry at the time ofexport certification to ensure that the shipmentis properly labeled and inspected and meets allrequirements of the importing country. There isno fee for standard FSIS inspections of meat.FSIS will charge a fee for all poultry certifica-tion and for meat if the importing countryrequires a special certification.

8

FSIS also provides information to exportersabout foreign import requirements for meat andpoultry. For further information, contact the:

Export Coordination DivisionFood Safety and Inspection ServiceU.S. Department of AgricultureRoom 0019-SWashington, DC 20250-1000Telephone: (202) 447-9051

Ofice of lhnsportation (OT)

Cooperative exporters with internationaltransportation problems or questions shouldcontact OT’s International Division. TheDivision provides technical assistance toexporters and puts out research publications oninternational transportation matters. Co-ops cancontact OT at:

Director, International DivisionP.O. Box 96575Office of TransportationU.S. Department of AgricultureWashington, DC 20090-6575Telephone: (202) 245-5304

US. Department of Commerce

The International Trade Administrationwithin the U.S. Department of Commerce (DOC)provides many of the same services for nonagri-cultural exporters as FAS does for agriculturalexporters. These include identification of for-eign market opportunities, market research,sponsorship of foreign trade missions, participa-tion in foreign trade shows, export counseling,and reports on foreign buyers. DOC also hasresponsibility for assisting exporters of seafoodand agricultural equipment.

DOC has a number of publications on gener-al exporting subjects that could be helpful for co-op exporters. For more details on export publi-cations call (202) 377-3808.

State Sources ofAssistance

All 50 States have trade professionals whoare responsible for assisting agriculturalexporters, and most are within the marketing

divisions of their State departments of agricul-ture. State contacts for agricultural export assis-tance are listed in FAS’ Food and AgriculturalExport Directory

Other Sources of Assistance

Many other government and private sourcesprovide export assistance, e.g., the InternationalBanking Division of CoBank, other commercialbanks with international departments, interna-tional credit rating companies, commodity tradeassociations, port authorities, and air and oceanshipping lines.

EXPORT MARKETING STRATEGY

Preparing an Export Plan

Once a cooperative makes the decision toexport, it should develop a written plan. Thepurpose of an export plan is to outline relevantfacts, constraints, and goals and to set forth thecooperative’s export strategy. It should includespecific objectives with time schedules forimplementation and standards for evaluating theperformance of the export program.

One key to developing a successful plan isthe participation of those co-op management andstaff members who will be involved in exportoperations. All components of the export planshould be agreed upon by those who will ulti-mately be responsible for their execution. Awritten plan is important because it clarifies thepositions and states the commitment of co-opboard members and management with regard tothe export program.

The first time an export plan is made, theefforts should be kept simple. The initial plan-ning efforts can produce much information andinsight that can later be incorporated into moresophisticated planning. An export plan shouldbe a working document that can be used as amanagement tool. The objectives of the planshould be used to evaluate the performance ofthe export program. As more information andexperience are gained, the cooperative can modi-fy the plan and make it more specific.

Cooperatives that intend to export directlywill need a more complex and detailed export

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plan than those planning to make only indirectexport sales. A basic outline of a general exportplan is presented in figure 2 below.

Equipment and Procedures for Exporting

The following office procedures and equip-ment are especially important for export market-ing:

Facsimile (Fm Machine

The FAX machine is rapidly displacingtelex equipment as the preferred means of trans-mitting material to foreign countries.* It can

*Though telex equipment is still being used bysome smaller foreign buyers, it is questionablewhether a new-to-exporting cooperative should investin it.

Flgure 2-Outline for a Cooperative Export Plan4

Table of Contents

Executive Summary (one or two pages maximum)

Introduction: Why the Cooperative Should Export

An Export Policy Commitment Statement

Situation/Background Analysis

Agricultural Commodities or ProductsOperationsPersonnel and Export OrganizationResources of the CooperativeIndustry Structure, Competition, and Demand

The Marketing Component

Identification, Evaluation, and Selection of TargetedMarkets

Product Selection and PricingDistribution MethodsTerms and Conditions on Which Sales Will Be MadeInternal Organization and Procedures

send written messages and documents fasterthan a telex machine and can transmit thingsthat a telex cannot, such as charts, graphic mate-rial, or anything else on paper. A FAX dupli-cates material just as a photocopier does andthen transmits the image over long-distancephone lines to the other party’s FAX.

Calculations

It is important to be able to calculate thecubic measurements of any container (or item)in order to figure its volume. This is done bymultiplying three numbers: the length times thewidth times the height or depth of the container(or item) = its cubic measurement.

Whatever linear unit (e.g., inches, centime-ters) is used to measure length, width, andheight will be the cubic unit of measurement.

Sales Goals: Profit (Loss) ForecastsTactics: Action Steps

Countries Where Cooperative Has Special AdvantagesPrimary Targeted CountriesSecondary Targeted CountriesIndirect Marketing Efforts

Export Budget

Pro Forma Financial Statements

Implementation Schedule

Follow upPeriodic Operational/Management Review (Evaluating

Results When Compared to Goals Set in Plan)

Appendices-Background Data on Targeted Countriesand Markets

Market Statistics: Historical and ProjectedBackground FactsCompetitive Environment

4 This figure was adapted from A Basic Guide to Exporting, U.S. Department of Commerce, September 1986, p. 4

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For example, if length, width, and height aremeasured in centimeters, then the volume willbe measured in cubic centimeters. Cubic mea-surements are necessary for figuring out packingand loading details and shipping rates.

Shipping weights

Three weights are used in export shipping:(1) net weight, which is the weight of the prod-uct without its packaging and container: (2) tareweight, which is the weight of the packaging andcontainer without the product: and (3) grossweight, which is the total weight of the product,packaging, and container.

Measures

Export staff should be able to convert impe-rial units of measure into metric units and viceversa. Almost all foreign countries use the met-ric system.

Couriers

For urgent letters or packages that must besent to a foreign destination, the export staffshould be familiar with available courier ser-vices.

Postage

Cooperatives can obtain information onrates for international mail service at a US. postoffice.

Sales Outlets and Distribution Channels

For some foreign markets there are numer-ous buyers or agents that could potentiallyimport a shipment from a cooperative. In others,there may be only one importer-e.g., a state-controlled trading company-with which a coop-erative could deal. Each entity connected with aforeign market to which a cooperative couldpotentially sell an export shipment can be con-sidered a “sales outlet” for that cooperative.

Each sales outlet is part of a “distributionchannel” in its foreign market. A distributionchannel is the series of buyers, or agents andbuyers, that control a commodity in sequence as

it passes from the cooperative to the end user.The agents and buyers of a chain may performmany marketing functions before the commodityreaches the ultimate consumer, including trans-portation, storage, packaging, and merchandis-ing.

Export Definitions

To officials of the U.S. Department ofCommerce, the U.S. Customs Service, and mostother Federal agencies involved in the exportprocess, the meanings of “export shipment” and“exporter” are clear. An export shipment is ashipment that leaves a U.S. port en route to a for-eign destination, including Canada or Mexico.The exporter is the party who takes legal respon-sibility for the export shipment by signing theshipper’s export declaration and other requireddocumentation.

In practice, defining “export shipment” and“exporter” is less clear-cut. Many cooperativesprepare and package products for foreign cus-tomers and have recognized brand names in for-eign markets. But they use an intermediary tosell their products overseas. These cooperativesusually consider such sales as exports, regardlessof which party fills out the required documents.

In addition, not all shipments of U.S. com-modities that ultimately arrive at foreign destina-tions are considered exports. The followingthree types of sales would generally not be con-sidered export sales: (1) shipments to U.S. terri-torial possessions, such as Puerto Rico, Guam,and the Virgin Islands: (2) shipments to the U.S.Armed Forces or U.S. diplomatic missionsabroad for their use: and (3) shipments to beused as supplies aboard ocean and air carriersengaged in international commerce.

Direct vs. Indirect Export Sales

Traditionally, a distinction has been madebetween “direct” export sales-those made toforeign buyers or agents-and “indirect” exportsales-those made to intermediaries who thendirectly export the product. The degree to whicha cooperative makes an export sale through itsown personnel and facilities determines whetherthe sale is classified as direct or indirect.

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Opportunities for direct exporting varywith commodity and industry. Moreover, oppor-tunities vary with individual transactions.Cooperatives capable of making direct exportsales will make indirect ones when it is moreprofitable to do so.

Sales made to, or through, the followingtypes of firms are classified as either indirect ordirect export sales. These definitions may varybetween persons and according to the circum-stances in which they are used.

Indirect Export Sales

Export Management Company (EMC)-AnEMC is an export facilitator that may perform allof the management functions and administrativetasks involved in conducting an export market-ing program. Thus it can, in effect, act as a co-op’s export department. It may work for a com-mission, retainer, or retainer plus commission.It may have other clients with noncompetitivecommodities. Its offices are located in the U.S.An EMC generally does not buy or sell com-modities but, in some instances, it may financeexport sales.

Export Trading Company (ETC)-In con-trast to an EMC, an ETC is an export intermedi-ary that typically takes title to the commoditiesthat it exports. Cooperatives and investor-owned competitors can form their own ETC.The Export Trading Company Act, passed in1982, grants limited antitrust protection forgroups of producers that engage in specifiedtrade activities. The distinctions between anEMC and ETC are diminishing as each increas-ingly provide services that are typical of theother.

The Export Trading Company Act of 1982 isexplained in greater detail in “RegulatoryConcerns.”

Export Merchant-The export merchantpurchases commodities directly from U.S. foodhandling firms. The commodities are labeled,packed, and marked as the merchant specifies.The export merchant then sells them to foreignbuyers, assumes the necessary risks, and seeksto make a profit. The merchant’s offices arelocated in the United States.

Export Commission Agent-This type ofdomestic firm represents foreign companies.

Acting as an agent for a foreign buyer, it willlocate a U.S. supplier, purchase commoditiesneeded, and receive a commission from the for-eign firm.

Foreign Government Buying Agent-Someforeign governments have agents located in theUnited States that exclusively serve them andbuy various commodities as requested by them.

International Trading Company-This firmspecializes in purchasing commodities in onecountry, selling them in one or more countries,and handling all international shipping arrange-ments. A few very large international tradingcompanies handle most exports of US. grain:they also have foreign sources of supply. Allsales to such firms are considered indirect.

Several large Japanese trading companiesmaintain offices in the United States and othercountries. In addition to agricultural products,they market industrial commodities and-unlikethe more generalized trading companies-areprimarily concerned with exporting Japanesecommodities and importing U.S. and other for-eign-source commodities for use in Japan,

In a sale where a U.S. cooperative sells acommodity to a Japanese trading company and(1) the cooperative is responsible for delivery ofthe commodity to a U.S. or Japanese port and (2)the commodity is destined for use in Japan, thenthe Japanese company is acting as a foreignimporter rather than as an intermediary (asdefined in this report). Such a sale may be clas-sified as a direct export sale. In other circum-stances, a sale to a Japanese trading companymay be considered an indirect export sale.

Direct Export Sales

Export Broker-An export broker is a US.firm whose main function is to bring importerand exporter together. A broker will typicallyhave a very small staff, perhaps only one or twopersons. Offices are small and are located in theUnited States, usually at a port.

The broker is not a party to export transac-tions, although its services may result in a salethat may otherwise not have been made. It mayalso provide some limited advisory assistance tothe exporter. The broker receives a commissionfrom the exporter for each sale it arranges andworks with all buyers and exporters with which

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it can establish contact. The broker does not buyor sell commodities or finance export sales. Thecooperative exporter has essentially the samesales responsibilities that it would have in theabsence of the broker.

If a co-op makes a sale through a broker to afirm that subsequently exports the productsdirectly, such a sale would be considered indi-rect.

Foreign Sales Agent-The term “foreignsales agent” is used interchangeably with “for-eign sales representative.” It signifies a specialrelationship between the U.S. exporter and a for-eign firm. The agent works under a contract thatspecifies the rate of commission (when applica-ble), defines the sales territory, and lays outother working arrangements. The agent does notusually represent the cooperative on an exclu-sive basis, but its other clients should have non-competitive commodities.

There are two types of foreign sales agents:an import agent and a foreign distributor. Theimport broker is a foreign firm that brings togeth-er a U.S. supplier and a foreign buyer. A foreigndistributor purchases a commodity for its “ownaccount” and then resells it to other buyers fur-ther along in distribution channels. Both typesof agents are located in the major foreign marketsthat they cover.

Foreign Retailer or Retailer Association-Aforeign retail food chain, or a foreign associationformed to purchase supplies for distribution toaffiliated chain stores or independent foodstores, may buy commodities direct from a U.S.food cooperative.

End User-An end user is a foreign firm orindividual who is the last purchaser of a co-op’sproduct in the form in which it was exportedfrom the United States. Thus a foreign consumermay be the end user of fresh oranges, a bakerymay be the end user of canned cherries, or a tex-tile mill may be the end user of a bale of cotton.

Foreign Government Agency-A foreigngovernment purchasing agency may buy com-modities direct from a cooperative with deliveryto be made at a U.S. loading port or a designatedforeign discharge port. In some foreign coun-tries, importing is handled through a governmentmonopoly, frequently called a “state-controlledtrading company.”

Market Research

After management has appraised theresources and the competitive strengths andweaknesses of the cooperative and has deter-mined that it may be feasible to initiate orexpand an export program, market research isneeded to facilitate the selection of targeted mar-kets. This research will help managementdesign a feasible export plan.

The U.S. l’kade Data Classi’cation System

Federal Government agencies use a series oftrade data classification schedules to categorizeU.S. export data. A cooperative export staff willbenefit from learning the code numbers that areused for their export product(s). With thesenumbers, staff members are in a better positionto fill out custom and census reports and otherrequired export documentation and to locatetrade and marketing statistics.

The United States recently joined the major-ity of its trading partners in adopting theHarmonized Commodity Description and CodingSystem for classifying trade data. More widelyknown as the Harmonized System (HS), it isorganized into 22 sections: the first 4 cover mostagricultural goods.

Under the HS, each agricultural product isassigned a six-digit code number. U.S. trade dataclassification schedules are currently beingrevised to be in accordance with the HS. Beyondthe first six digits, however, each country isallowed to have its own coding system.

The following U.S. trade data classificationschedules are especially significant for U.S.exporters:

Schedule B-These numbers are used forreporting export shipments on the shipper’sexport declaration and other required documen-tation. All U.S. export shipments are originallyrecorded and classified by their schedule B num-bers. The data for all other U.S. export classifi-cation systems are transformed from schedule Bdata.

Schedule B code numbers are the mostimportant for the cooperative staff to identify.Code numbers for individual products can beobtained by contacting the:

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Foreign Trade DivisionBureau of the CensusWashington, DC 20233

Standard Industrial Classification(SIC&This classification code is used by theBureau of the Census and the U.S. Departmentof Commerce (DOC) for analyses of domesticcommerce. The Bureau of the Census, however,transforms schedule B data into an approxima-tion of the SIC-format in order to facilitate com-parisons of domestic and international markets.Many government agencies and private firmsuse the SIC-format to organize their statisticsand reports on foreign markets.

SIC code numbers for individual productsare listed in the Bureau of the Census publica-tion Standard Industrial Classification Manual,which can be found in most research libraries.

Standard International lhdeClassification (SIX&This system was devisedby the United Nations to organize and report for-eign trade data for all countries. SITC data arecommonly used for comparing the internationaltrade of different countries.

Targeting Pofen tial Foreign Markets

Cooperatives may find the following proce-dures useful for selecting targeted markets?

Screen Potential Markets

Step 1 - Obtain agricultural trade statisticsthat show the global marketing trends for theagricultural commodity your cooperative isplanning to export. As noted in the previoussection “Sources of Assistance,” FAS is anexcellent source for such data.

Step 2 - Identify 5 to 10 large and fast-grow-ing markets for this commodity. ‘IYade trendsfor these markets should be examined for thepast 3-5 years.

Step 3 - Identify some smaller but fast-emerging markets that may provide opportuni-ties. If the market is just beginning to open up,

5These suggestions are adapted from A BasicGuide to Exporting, U.S. Department of Commerce,September 1986.

there may be fewer competitors than in estab-lished markets.

Step 4 - Target three to five of the most sta-tistically promising markets for further assess-ment. Consult with FAS staff, other supplierswith experience in those countries, freight for-warders, and others to help refine targeted mar-kets.

Assess Targeted Markets

Step 1 - Examine trends for the commodityin more detail, as well as trends regarding relat-ed commodities that could influence demand.Calculate overall consumption of the productand the amount accounted for by imports foreach targeted market.

Step 2 - Determine the sources of competi-tion, including the extent of domestic produc-tion and the major foreign suppliers for each tar-geted market.

Step 3 - Analyze factors affecting marketingand use of the commodity in each market,including end-user sectors, distribution chan-nels, cultural idiosyncracies, and business prac-tices.

Step 4 - For each targeted market, identifyany foreign trade barriers (tariff or nontariff) forthe commodity. Check for U.S. barriers, such asexport controls, that may affect exports to any ofthe targeted markets.

Step 5 - Identify any U.S. or foreign govern-ment incentives to promote exporting of thecommodity.

After analyzing the information, the cooper-ative can select one or two of the most promis-ing markets as primary export targeted markets,and a few others as secondary targets. Again,FAS staff and other sources of assistance canhelp any cooperative with export market selec-tion,

Cooperatives assessing alternative exportmarkets should give special attention to (1) thesupply-demand situation and (2) the alternativedistribution channels of each country:

1. Supply-Demand Situation - The potentialfor exporting a U.S. agricultural commodity to aforeign country is affected by changes in thesupply and effective demand for the commodity

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in both that foreign country and in the rest of theworld.

Data should be assembled to show trendsand developments on a seasonal and annualbasis for shipments to the selected foreign coun-try. Included should be data showing trends inthe volumes, values, and prices of the foreigncountry’s imports of the commodity from theUnited States and other sources, and trends inthe domestic production and consumption of theforeign country.

This should be supplemented, at a latterstage, by information on:

l The way in which the commodity is con-sumed in the foreign country:

l Consumption habits of consumer groups(classified according to race, religion, age,income, and rural or urban location):

l Variations in demand according to factorssuch as product quality and packaging:

l The trend in consumer purchasing power,recent or anticipated changes in import restric-tions and other trade barriers:

l Outlook for preferential arrangementsbetween the foreign country and other countries:

l Nature and intensity of competition pro-vided by domestic supplier firms:

l The major kinds of importers, i.e., bro-kers, distributors, end users, etc.;

l The export capabilities and probable com-petitive impact in this market of suppliers locat-ed in other countries.

Cooperatives should also consider the phys-ical facilities of the selected foreign country. Arethe port facilities sufficient for discharging thecommodity? Are storage facilities adequate atthe port and inland? What is the situation withrespect to transportation facilities? Is the supplyof labor required for handling the commoditylarge enough, competent, and stable?

Finally, political instability or anti-U.S. sen-timent in the foreign country may limit the mar-ket potential of the country.

2. Alternative Distribution Channels - Therelative merits of each distribution channelshould be considered before an exporting coop-erative commits itself to any one of them. Thefollowing questions should be considered:

l Through what channels flow commoditiesof the kinds handled by the cooperative?

l How important is each channel in termsof volume and margin?

l How well is it supplied by domestic andforeign firms?

l How difficult would it be for the coopera-tive to gain entry?

l Have some marketing opportunities beenoverlooked by other U.S. suppliers?

l Have other U.S. suppliers tried to graspcertain apparent opportunities but failed? If so,why?

An exporting cooperative must select thoseforeign importers and foreign sales agents thathave the experience and contacts needed todevelop sales through the distribution channel(s)with the greatest potential for the cooperative’sproducts.

Relations With Foreign Sales Agents

Some foreign sales agents operate importbusinesses and buy products from the exportsuppliers they represent, while others offer agentrepresentation as brokers who work on commis-sion. With either type, an exclusive agreementcan be established. The agent as broker permitsmore control over pricing but requires transac-tions with several different buyers.

A cooperative will usually have no morethan one foreign sales agent in a designated for-eign market. Similarly, the agent will typicallynot handle the same commodities for other U.S.suppliers, unless the cooperative gives prior con-sent in each instance.

The cooperative is the shipper and bears theresponsibility for all major decisions in develop-ing and maintaining the export program, but anagent can provide some or all of the followingservices:

l Obtain information from various sourcesto aid in selection of dependable buyers:

l Arrange for the shipment of sample quan-tities of the co-op’s products and deliver or sendthem to potential buyers;

l Estimate all costs, beyond the U.S. load-ing port, to be incurred in an export sale of theco-op’s products:

l Sell the co-op’s commodities, subject tofinal confirmation by the home office, to foreignbuyers:

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l Reserve space on vessels to provide foroverseas delivery of the products:

l Meet with foreign buyers or their agentssoon after an initial shipment of the co-op’sproduct is received to discuss all aspects of thesale and delivery:

l Resolve misunderstandings (if any)between buyer and seller:

l Provide a detailed accounting of allexpenses incurred on behalf of the cooperative:

l Assist the cooperative, if necessary, incollection of payments for shipments to foreignbuyers:

l Regularly call on both established andpotential buyers and assist them with promo-tional activities designed to increase sales of theco-op’s products:

l Keep the cooperative informed about reg-ulations and actions of foreign governments andother important information that may affect thecooperative’s exports to that market:

l Handle promotion of the co-op’s prod-ucts.

In most instances, the export sales functionshould be centered in the cooperative’s ownexport sales unit. The export sales managermust maintain close and effective working rela-tions with the co-op’s foreign sales agents.

Cooperatives may or may not wish to havean agreement with their foreign sales agent inwritten form. In practice, some co-op exportersinsist upon written agreements with all of theirforeign sales agents. Some refuse to enter intoany such agreements, and some decide on acase-by-case basis, depending upon a number ofvariables such as the agent’s preference, the con-tract laws of the agent’s country, and the busi-ness traditions of that country with regard tocontracts.

The responsibilities and obligations of eachparty, the division of decisionmaking authority,terms of compensation for the representative,and the geographic area to be served by the rep-resentative are all key points to cover in anyagreement reached with an agent, whether it iswritten or verbal.

Attention should also be given to avoidingconflict with U.S. laws and those of the countrywhere the agent is based.

Product Preparation

A cooperative may have to modify itsexport products to conform to foreign govern-ment regulations, geographic and climatic con-ditions, importer preferences, or standards ofliving in the importing market. Product modifi-cation may also facilitate export shipping,

A cooperative may not have to modify itsproduct if consumers in the importing markethave similar demographic characteristics ortastes, if the product is unique, if a brand nameidentity has been established in the foreign mar-ket, or if the product is a commodity with few orno distinguishing features.

Many foreign countries have agriculturalstandards which may force co-op exporters tomodify their products. These regulations serveto:

l protect the safety and health of the coun-try’s citizens:

l force the importer to comply with thequality requirements of the country:

l protect agricultural producers from for-eign competition.

As is mentioned, co-op exporters can findout about the agricultural standards of foreigncountries by contacting the USDA TechnicalOffice.

When deciding on the branding and label-ing of export products, cooperatives must con-sider if:

l international brand names are importantto promote and distinguish the product orwhether local brands or private labels would domore to heighten local interest:

l the colors used on labels and packagesare offensive or attractive to consumers in thetargeted market:

l labels can be produced in official or cus-tomary languages, if required by law or practice;

l it is necessary to provide information onproduct content or country of origin:

l weights and measures are stated in localunits:

A cooperative may find that building inter-national recognition for a brand is expensive.Protection for brand names varies from onecountry to another, and in some countries thereare barriers to the use of foreign brands or trade-marks. In other countries, piracy of U.S.

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exporters’ brand names and counterfeiting oftheir products are widespread.

To protect its products and brand names, acooperative must comply with local laws onpatents, copyrights, and trademarks. A coopera-tive may benefit from consulting with local attor-neys or consultants from the targeted market.

Promotion

Promotion can be an important part ofexport market development for some coopera-tives. Promotion activities include foreign tradeshows, direct mailings, price and nonprice pro-motions, and media advertising. Activities willvary significantly in expense, and some will bemore appropriate than others for reaching a cer-tain audience.

Trade shows and direct mailings are usefulfor reaching potential foreign buyers or foreignsales agents. Media advertising and price andnonprice promotion are more appropriate forreaching foreign consumers. In general, mediaadvertising is more expensive, and to get themaximum benefit from it, the cooperative musthave a long-term commitment to that foreignmarket.

A cooperative should work closely with itsforeign sales agent(s) or other foreign contacts indeveloping any promotion campaigns or materi-als aimed at foreign markets. As noted earlier,the USDA’s Foreign Agricultural Service (FAS)offers extensive promotion assistance to agricul-tural exporters.

Participation in international trade showsand foreign sales missions are two ways for acooperative to promote its products to buyersand agents in a foreign market. FAS is heavilyinvolved in both of these promotion activities.

A major means of advertising in foreignmarkets is by direct-mail brochures or correspon-dence. A cooperative can target a specific audi-ence in a direct-mail campaign, depending uponthe quality and size of its mailing list. Allbrochures or letters should have essential materi-al translated into the foreign language of theaudience. As noted, FAS can provide coopera-tives with foreign-buyer mailing lists by productor country.

Price promotions include coupons andsales. Nonprice promotions include (1) point-of-

sale activities, such as instore demonstrations,free samples, displays and posters, and pam-phlets with nutritional information or recipesand (2) promotional events, such as contests,pageants, and sporting events.

For most foreign markets, cooperatives canchoose to advertise in any of a wide variety oftrade and consumer publications. Publishers fre-quently offer marketing assistance to exporters,including specific recommendations on promot-ing their products in specific foreign markets.

A cooperative may also use television orradio to promote its products in foreign markets.In areas where programs may be seen and heardin public places, television and radio promotionsoffer one of the few means of bringing an adver-tising message to a large number of people. Inmany countries, particularly in Latin America,various forms of outdoor advertising (billboards,posters, electric signs, etc.) are widely used toreach the mass audience.

Because of the specialized knowledgerequired to advertise and promote successfullyin foreign markets, cooperatives may wish to usethe services of a U.S. advertising agency withoffices or correspondents abroad. Some of theseagencies handle nothing but foreign advertising.In addition, some marketing consultants special-ize in the problems unique to selling in foreignmarkets. Cooperatives can get information onU.S. advertising agencies that handle foreignaccounts by contacting the:

International Advertising Association, Inc.4 75 Fifth AvenueNew York, NY 10017

Such information is also available from theannual international edition of Advertising Age.

U.S. Government Export Incentives

Cooperative exporters can take advantage ofa number of Government export incentives,including foreign sales corporations, “drawback”refunds of customs duties, and foreign tradezones.

Foreign Sales Corporations

A foreign sales corporation (FSC), whichcan be formed by one or more U.S. firms with

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export interests, can obtain a corporate taxexemption on 15 to 32 percent of the incomegenerated from the export of products grown,processed, or made in the United States. (Up to50 percent of the export product’s inputs may beimported.) An FSC can function as a principal,buying and selling for its own account, or as acommission agent.

An FSC must incorporate and maintain itsmajor office in either a qualified foreign country(one having an exchange of tax information pro-gram with the United States) or one of four U.S.possessions-the U.S. Virgin Islands, Guam,American Samoa, or the Commonwealth ofNorthern Mariana Islands. In addition, an FSCmust keep its books of account at its foreignoffice, although duplicates of certain recordsmust also be kept in the United States. The FSCcan have no more than 25 shareholders: and itmay issue common, but not preferred, stock.Further, at least one member of the board ofdirectors must not be a U.S. resident. Finally, itmust file an election to become an FSC with theInternal Revenue Service.

For an export transaction to qualify for taxbenefits, certain related activities and costs mustbe handled by the FSC outside of U.S. customsterritory, either directly or through its agents. Ata minimum, it must either solicit, negotiate, ormake the contract with the foreign buyer. Inaddition, it must pay for some of the followingfive sales activities: advertising and promotion,processing of customers orders and arranging fordelivery, international transportation, billingand collection, and assumption of credit risk.The FSC may choose to assume either 50 per-cent of the total costs of all five activities or 85percent of the total costs of any two of the five.

As an alternative to a regular FSC, exportersmay form a “small” FSC, which is exempt frommany of the requirements that apply to the for-mer’s transactions and operations. Such an FSCmay have no more than $5 million in qualifyingexport sales.

Another option for exporters is to form anInterest Charge-Domestic International SalesCorporation (IC-DISC). With this type of DISC,94 percent of up to $10 million in export salescan be deferred as taxable income. IC-DISCshareholders must pay yearly interest charges, atTreasury bill rates, on the deferred taxes. In

effect, IC-DISC tax deferral benefits allow smallexporters to “borrow” from the U.S. Treasury atrelatively favorable interest rates.

For more information on FSC’s, contact theOffice of Trade Finance of the U.S. Departmentof Commerce at (202) 377-4471.

Drawback of Custom Duties

“Drawback” is a form of tax relief in whicha customs duty is refunded, in part or in total,because of the particular use made of the com-modity on which the duty was collected. Someagricultural marketing cooperatives import com-modities for use as inputs in the manufacture oftheir products. They are eligible for drawback,less 1 percent for customs costs, on any dutiespaid for inputs used in the manufacture of prod-ucts which are exported. For more informationon drawbacks, contact the Drawback and BondsBranch of the U.S. Customs Service at (202) 566-5856.

Foreign Tkade Zones

Foreign trade zones (or free trade zones) aresites located throughout the United States thatare considered outside of US. customs territory.Cooperatives can use these zones to acceleratethe export status of their shipments for purposesof customs drawback. In addition, importedcommodity inputs can be storedsorted, graded,or otherwise processed before being brought intoU.S. customs territory. Finally, cooperatives canmanufacture export-bound products that useimported inputs in the zone, and thus avoidpaying any duties in the first place.

MAKING THE SALE

Relations with Foreign Buyers

Requirements of Foreign Buyers

Information on the current commodityinterests of selected foreign importers can beobtained through FAX, letter, cable, or telephoneby a cooperative that has established personal

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contact with each importer. It is also possible,though more difficult if there has been no per-sonal contact, to find out through correspon-dence exactly what a buyer’s preferences orneeds are with respect to product specifications,container and package specifications, importrestrictions and requirements, shipping require-ments, supply schedule, and terms of sale.

Cooperatives need to make direct and per-sonal contacts with foreign buyers to gain adeeper insight into the nature of a market, andthe economic, political, and social forces at workwithin it. One or more co-op staff members withexport responsibilities should visit foreign mar-kets to learn about them firsthand.

Many important questions can best beanswered through personal interviews with for-eign buyers. Some of these important questionsare: What are the attitudes and opinions of indi-vidual foreign business persons regarding theUnited States, its agricultural commodities, andits agricultural cooperatives? How favorable orunfavorable is the foreign market environmentfor maintaining or increasing purchases of yourco-op’s products? What changes are likely?

Figure 3 is an illustration of a form that maybe helpful for summarizing information obtainedduring an interview with a foreign buyer.

Figure 34ndivldual Buyer Interview Record 6

(A) Name and address of firm:

(B) Phone:FAX:

(C) Names and titles of key individuals:

03 Kind of import business:Functions performed:Kinds and numbers of customers/sales outlets:

(El Markets served:

VI Physical facilities:

G)

M

Size of business (approx):Number of employees:Total annual $ volume:Annual import $ volume:

US. foods now handledKinds of foods and packs:Names of firms with which deal regularly:Kinds of sales arrangements:

(I) US. foods for which new sources desiredKinds of foods and packs:Kinds of sales arrangements:

(J) Other information:

Last personal interview with coop

Date:Rep(s) of buyer:Rep(s) of co-op:

6 This figure is adapted from Hirsch, Donald E., Export Marketing Guide for Cooperatives, U.S. Department of Agriculture,FCS Marketing Research Report 1074, March 1977, p. 30.

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Elements of a Sale

The foreign buyer is interested in four basicelements of a sale: product, price, performance,and profit.

A foreign buyer usually wants to study asample of the co-op’s product. The cooperativeshould provide a sample which is representativeof the type of product that it can supply regular-ly and in quantity, rather than a selection of itsvery best quality products. Many foreign buy-ers, especially in Western Europe and Japan,stress uniformity in quality. They want thesame quality-whether of size or grade-in eachshipment they receive.

For food products sold under the co-op’sbrand name, a foreign buyer will often seekexclusive use of that brand name within its salesterritory. This is to enable the buyer to profitfrom its sales and from its efforts to promote thatbrand. The cooperative may benefit from grant-ing the buyer such exclusive use.

The foreign buyer seeks to buy at the lowestpracticable price. If the buyer is dependableand interested in developing a continuing busi-ness, then the buyer can recognize the stake thatthe cooperative has, as well as its own benefit,in settling on a price that reflects the competi-tive market situation in relation to the qualityand quantity of the product sold. A cooperativeis generally well advised to stay away from the“fast buck” buyers who are interested in “one-shot” deals or who specialize in “distress sales.”

Performance by the co-op supplier isimportant to the foreign buyer. The productshipped should conform to the product anddelivery specifications of the sales agreement.The buyer also wants a dependable supply.

Adverse weather during the production sea-son, or other factors, often cause year-to-yearfluctuations in the volume of a commodity mar-keted by a cooperative. An exporting coopera-tive has three basic alternatives with respect toits export sales program during the years ofshort supply. It can:

l Tell a foreign buyer that it is not interest-ed in sales to the buyer’s market during the cur-rent marketing year.

l Quote a price to the foreign buyer that issufficiently higher than that available in the U.S.domestic market, or in other foreign markets, to

make a sale financially attractive to the coopera-tive.

l Guarantee in advance that the foreignbuyer will receive a specified minimum propor-tion of the cooperative’s supply. For example,the cooperative may guarantee that the propor-tion available to the buyer during the currentmarketing year would be the same proportionthat it purchased during the previous year.

Under this arrangement, the buyer wouldhave a smaller quantity available to it in abso-lute terms but would have an assured share ofthe co-op’s supply. The buyer could still sell toits customers, though in reduced quantities.Price could also be guaranteed in advance. Themaximum might be based on the current price ofthe co-op’s product in that foreign market or inthe U.S. market.

The first of these alternatives is not appro-priate for a cooperative that is interested indeveloping or maintaining an export presence inthat foreign market.

The third alternative may be in the long-term interest of the cooperative, especially if theco-op is selling a product under its own brandname or that of the buyer. This kind of supplyguarantee on the part of the cooperative during ayear of short supply may well lead to a requestthat the buyer make a similar quantity-and-pricepurchase guarantee for years when the coopera-tive has unusually large quantities of product tomarket.

Agreement on Terms

After selection of a market and a potentialbuyer, there are still many details to be workedout in developing a sale. The major items maybe summarized as follows:

1. The buyer’s preferences with respect toproduct specifications, including variety, pricelevels, size and kind of shipping container, sea-son of year during which deliveries are desired,quantities per shipment and per season, anddelivery and payment terms of sale.

2. Import restrictions and requirementswith respect to labels and markings on packingcontainers: import periods, licenses, quotas, andlevies: and documents such as certificate of ori-gin, grade inspection certificate, or certificate ofcomposition or viability.

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3. Shipping requirements, particularly tem-perature and humidity. In addition, the avail-ability, frequency, dependability, and compara-tive costs of various modes of ocean or airtransportation.

4. Costs to be incurred by shipper in prepar-ing an export shipment and also the costs fromthe time the shipment leaves the local shippingpoint until the time and place at which the buyertakes title.

Clear communication is a necessity in inter-national trade. The buyer and exporter mustagree on all the terms of a sale if it is to be con-summated to the satisfaction of both parties.Specifying details explicitly and in writing mini-mizes opportunities for misunderstanding.

The task of getting agreement on all possiblepoints of issue can be simplified by advanceplanning. Figure 4 is a checklist of informationthat will be needed by a buyer and a seller tocomplete a sales offer.

Many communications between seller andbuyer can be handled by FAX, mail, cable, ortelephone. A new-to-exporting cooperative willsoon find that acquisition of, or access to,telecommunication facilities, especially a FAXmachine, is essential to its business.

Speed, as well as accuracy, is needed incommunications with a potential foreign buyerthat has made a serious offer. If buyers feel thattheir inquiries are not receiving adequate atten-tion, they may turn to competing U.S. and for-eign suppliers. Moreover, many foreign buyersinitially contact more than one supplier whenthey need to arrange a purchase. The need forprompt action by the cooperative is also neces-sary in this situation.

Delivery Terms of Sale

A key aspect of any export sale is the loca-tion at which the title and risk of a shipment istransferred from the exporter to the importer. Todesignate that point, it is customary to use one ofseveral delivery terms of sale which is almostalways expressed as an abbreviation. Each deliv-ery term of sale defines the respective duties andliabilities of the exporter and the importer.

While there is no official agreement amongcountries, the 14 delivery terms of sale currentlydefined by the International Chamber ofCommerce (ICC), known as the “incoterms,” are

widely regarded as the standard around theworld. The ICC periodically updates the defini-tions of the incoterms and has added new onesto keep up with developments in internationaltrade, such as the rise of intermodal transporta-tion.

Some shippers still quote delivery terms ofsale from the Revised American Foreign 7YadeDefinitions-1941. Although there is little dif-ference in terms from either source, it is saferand more precise to use incoterms.

For any export sale, it is critical that boththe exporter and the foreign buyer have a com-mon understanding regarding the delivery termsof sale. For this reason, the co-op export staffshould be familiar with the incoterms beforepreparing a quotation or a pro forma invoice.

A guide defining the 14 incoterms in detailis available from ICC. A smaller booklet describ-ing the incoterms without diagrams and illustra-tions is also available. For current prices andordering information, contact:

ICC Publishing Corporation, Inc.801 Second Avenue Suite 1204New York, N.Y. 10017

The four most frequently quoted trade termsfor agricultural commodities and their commonthree-letter abbreviations are: “free alongsideship” (FAS), “free on board” (FOB), “cost andfreight” (C&F) and “cost, insurance, and freight”(CIF). Working with the United Nations, the ICChas given each incoterm a standardized three-let-ter abbreviation known as its international code.FAS, FOB, and CIF remain the same, but C&Fhas been changed to CFR.

These terms are briefly described below, butany person who is responsible for developingexport sales needs a more detailed knowledge ofthese and the other incoterms.

Fme Alongside Ship

Under the FAS trade term, the exporterassumes all risks and pays all expenses throughplacing the shipment on a dock ready for loadingat a port specified by the importer. At this point,the importer takes title and assumes liability(i.e., assumes the risks of loss or damage to thegoods) for the shipment from that moment. Theimporter must also contract for the carrier and

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pay for the costs of clearing the shipment forexport, loading it into the vessel, and all subse-quent expenses.

Free on Board (FOB)

Under the FOB term, the exporter aisumesall risks and pays all expenses through loadingthe shipment into the holds of the vessel at a

Figure AInformation Needed for Sales Offer7

This checklist applies to raw and pro-cessed foods in general; not all itemsare pertinent to any given commodity.

KEY:BP - Buyer to express preferencesBI - Buyer to provide informationneeded by sellerSP - Seller to express preferencesSI - Seller to provide informationneeded by buyer

COMMODITY

1. Kind (BP, SI)2. Variety (BP, SI)3. Fresh, frozen, canned, or

dehydrated (BP, SI)4. End use (BP, SI)

PRODUCT SPECIFICATIONS

5. Grade(s) (BP, SI)6. Composition (BP, SI)7. Minimum and/or maximum percent

moisture (BP, SI)8. Size (raw product) (BP, SI)8. Size of particles (processed product)

(BP, SI)10. Shape (raw product) (BP, SI)11. Appearance (BP, SI)12. Flavor (BP, SI)13. Brix (processed product) (BP, SI)14. Brand name(s) (BP, SI)15. Special process or handling (BP, SI)

CONTAINER AND PACKAGESPECIFICATIONS

16. Packing container:a. Kind-Carton of given number of lay-

ers, double corrugated or triple wall,or specified test weight; outer “mas-ter” or “telescope” carton (BP, SI)

b. Strapping-Plastic tape or metalband (SI)

c. Waterproof or other lining, packing

material, cell pack or other trays,special wrappings (SI)

d. Gross and net weights (SI)e. Length, width, height, and/or cubic

measurement (SI)f. Special markings required (BI)

17. Individual package:a. Kind (BP, SI)b. Size (SI)c. Net weight (SI)d. Number per packing container (BP,

SI)e. Special imprints or labels required

(BI)

18. Minimum truckload, carlot, or vancontainerload-

a. Number of packing containers (SI)b. Gross weight of packing containers

(SI)

22. Certificate of origin (BI)23. Grade certificate (BI)

SHIPPING REQUIREMENTS

26. Mode of transportation (BP, SI)27. Dry, ventilated, or reefer space (BP,

SI)28. Temperature and humidity (BP, SI)

S U P P L Y S C H E D U L E

2% Approximate beginning and endingdates supply desired or available( B P , S I )

30. Date first shipment desired (BP, SP)31. Quantity desired or available for

f i r s t s h i p m e n t ( B P , S P )32. Quantity desired or available in

next 12 months (BP, SP)33. Number of shipments desired in

next 12 months (BP, SP)

TERMS OF SALE

34. Loading port(s) (BP, SP)35. Discharge port(s) (BP, SP)36. Indicated price; FAS, FOB, CFR,

CIF, or other delivery term of sale;n a m e d p o r t ( B P , S I )

37. Firm price for specified period, orprice subject to final confirmation( S I )

38. Quantity firm for specified period,or quantity subject to prior sale (SI)

39. Payment term of sale (BP, SP)40. Discounts by seller for cash, quanti-

ty, or other conditions (BP, SI)41. Promotional allowances by

seller-cash or product (BP, SI)42. Rate of commission to be included

for importer if acting as an agentrather than as actual buyer (BI)

D I S T R I B U T I O N

43. Geographic area involved (BI)44. Distribution channels (BI)

specified area(s) (BP, SI)

PROMOTIONAL ITEMSSUPPLIED BY SELLER

47. Samples of labels (BP, SI)48. Printed materials on characteristics,

promotion, merchandising, and/oruse of product (BP, SI)

7 This fIgwe is adapted from Hirsch, Donald E., Export Marketing Guide for Cooperatives, U.S. Department of Agriculture,FCS Marketing Research Report 1074, March 1977, p. 33-4

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port specified by the importer. The major differ-ence from FAS conditions is that the exportertakes responsibility for, and bears the costs of,clearing the goods for export. The importer takestitle and assumes liability for the shipment at themoment it “passes the ship’s rail.” The importerpays for freight and all subsequent costs, includ-ing loading costs if they are included in freight:otherwise the exporter pays for loading.

If either the cooperative or the buyer desiresflexibility in selecting a loading port, a generalarea, such as U.S. Gulf, may be specified ratherthan a single port.

Since 1976, ICC has had the separateincoterm “FOB Airport” (FOA) for FOB ship-ments that are transported by air carriers. Thedifference between this and FOB is that title andliability are transferred when the goods aredelivered to the air carrier at the airport ofdeparture, rather than when they are loaded ontothe aircraft.

Cost and Fmigh t (CFR)

The “cost” is the value of the shipmentwhen it is loaded aboard an ocean carrier at theU.S. port of embarkation, and “freight” is thecost of transportation to a named foreign port ofdestination or specified geographic range of for-eign ports. Under CFR the exporter pays allcosts (except insurance) through unloading theshipment over the vessel’s rail at the foreign portof destination. The importer, however, assumesliability when the shipment is loaded at the U.S.port and pays for marine insurance to cover theshipment.

Cost, Jimrance, and Freight (CLFJ

Under CIF conditions, the exporter pays allcosts, including insurance, through unloadingthe shipment over the vessel’s rail at the foreignport of destination. The difference between CIFand CFR terms is that the exporter pays formarine insurance coverage. The importer, how-ever, still assumes liability for the shipmentwhen it is loaded at the U.S. port.

Other lixotenns

There are nine other less-frequently-usedincoterms defined by the ICC. The title, interna-

tional code abbreviation, and a summary of con-ditions for each of these incoterms are listedbelow. They are presented in order of increasinginvolvement and cost for the exporter.

Ex Works (EXW)-_The seller is only respon-sible for making the shipment available at itspremises. The buyer must make all of the exportarrangements and bear all of the costs and risks.“Works” is a generic term which could meanwarehouse, plant, or any other point where prod-ucts are produced or stored, thus “ex ware-house” and “ex plant” are two of many possiblevariations of the term.

Free Carrier (FI?C)_This term was adoptedin 1980 to meet the needs of exporters that useintermodal transport, such as shipping by con-tainers that are carried by rail car or truck, andthen directly loaded into air or ocean carriers.The seller fulfills its obligation by delivering theshipment to the buyer’s carrier at a terminalsomewhere between the seller’s premises and thecarrier’s port.

Free on Rail (FOR)/Free on Truck (FOT)-The seller’s primary duties here are to deliverthe shipment to the railway. Both “truck” and“rail” refer to transport by train (truck heremeans a railroad freight car). The buyer assumesall costs and risks for the shipment after it hasbeen delivered to the railway dispatching station(or in the case of full freight-car loads, after theshipment has been loaded aboard cars arrangedby the seller).

Freight or Carriage Paid To (OCPtAs witha CFR sale, the exporter is responsible for payingfreight and cost to the foreign destination, whilethe buyer must obtain and pay for marine insur-ance. CFR only applies to ocean carriers, howev-er, while OCP can apply to any mode of interna-tional transport. OCP sales also differ from CFRin that the exporter assumes all risks for theshipment until it is delivered to the first carrier,not the ship’s rail. This is used with intermodalshipments where the first carrier of a containerwill be a truck, freight car, or barge.

Freight or Carriage and Insurance Paid To(UP)- This term has the same conditions asOCP, except that the exporter is responsible formarine insurance coverage.

Ex Ship (EXS&-For EXS sales, the exporteris obligated to deliver the shipment on board anocean carrier to the designated foreign port ofdestination. As with a CFR sale, it pays all costs

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up to the point where the shipment is unloaded.Unlike a CFR sale, however, the exporter alsoassumes all risks to that point. It is up to theexporter to obtain any marine insurance cover-age that it wants for its shipment.

Ex Quay (EXQ&This term has the sameconditions as EXS, except that the exporter mustpay the costs and assume the risks of unloadingthe shipment and clearing it, for import with theforeign government.

Delivered At Frontier (DAF)-Under thisterm, the exporter assumes all costs and risks forthe shipment up to the point where it is deliv-ered to the border of the foreign country speci-fied by the importer and cleared for export.DAF is intended to be used for shipments thatare transported by railway or road, though itmay be used with any mode of transportation.

Delivered Duty Paid (DDP)-The oppositeof EXW, the exporter assumes all costs and risksfor the shipment until it is delivered to a pointspecified by the importer inside the foreigncountry. The exporter is responsible for unload-ing the goods, clearing them for import, andtransporting them to the designated point.

Pricing

The basic objective of export pricing is thesame as domestic pricing-to have the pricehigh enough to provide a net margin for thecooperative but low enough to induce foreignimporters to buy the commodity.

Alternative Methods

The following export pricing methods aresome that can be used by a cooperative seekingto establish a continuing export marketing pro-gram (in contrast to periodic surplus disposalactivities):

1. Take the EXW plant price for a domesticsale and add all costs involved in preparing theproduct for export and in moving it to the pointwhere the title is transferred to the foreignbuyer. This is the simplest method of pricing,which is commonly used by many cooperatives,especially the smaller ones or those new toexporting.

2. Take the price arrived at under alterna-tive 1 and deduct the average cost of domestic

selling and advertising. (The cost of foreign sell-ing-and advertising, if any-would be includedin the price developed under alternative 1.)This modification results in a more realistic aswell as a slightly lower export price.

3. Calculate the marginal cost of producingthe commodity for the export market: this is theaverage cost of each additional unit produced inexcess of the quantity desired for the domesticmarket.

This alternative has much greater applica-tion for industrial products than for agriculturalproducts because the industrial producer nor-mally has much greater control over the annualsupply of its commodity. It may, however, beconsidered by a cooperative that purchases sup-plies of an agricultural commodity on the spotmarket to supplement quantities received fromproducer-members. It may also have signifi-cance in long-range planning for any exportingcooperative.

Calculate the proportions of the total vol-ume of the product that are to be sold domesti-cally and in foreign markets at competitiveprices in order to have the highest possible pricefor the cooperative’s total output of the product.

It may not be desirable to adhere to thispricing procedure on a seasonal or annual basisbecause it can lead to an in-and-out export salesprogram that prevents development of relativelystable foreign markets for the co-op’s product.Recapturing lost markets can be both difficultand expensive. It also may be difficult to calcu-late the total output value in the long run, butthis technique deserves consideration as ameans of maximizing returns to producer-mem-bers. There must be a balance between shortrunand longrun considerations.

4. Another pricing technique is to guaranteean established foreign buyer who offers attrac-tive long-term sales opportunities (especially fora branded product) a certain proportion of theco-op’s annual volume of production. A price orrange of prices could be agreed upon ahead oftime.

5. Finally, “introductory” pricing has aplace in export marketing as well as in domesticmarketing. Exceptionally low prices during aninitial sales effort may encourage more potentialusers to try a product. They may find that they

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like it and are willing to pay a competitive pricefor it. To avoid misunderstandings, it may bedesirable to indicate that the introductory priceis a temporary bargain price.

Some degree of flexibility in agriculturalpricing is needed. Sales conditions varybetween buyers and markets and over time.Foreign sales are extremely important to somecooperatives but not to others. Prices are highlyvolatile for some commodities but quite stablefor others. The levels of competitive prices in aforeign market may be quite well known amongsellers of some commodities (e.g., wheat) whilesellers of other commodities (e.g., fresh cranber-ries) may have relatively few sources of priceinformation. Thus, there is no set pattern foragricultural export pricing.

Estimating Costs

The marketing margin is necessarily widerfor export shipments than for domestic ship-ments. This creates pressure on cooperatives tocontrol export marketing costs and to completeexport transactions as efficiently as possible.

An efficient cost accounting system isessential. It enables a co-op manager to developrealistic price quotations for both foreign anddomestic sales. Once a cooperative has estab-lished a basic value for its commodity, the coop-erative can begin to consider export marketingcosts.

Sales Offer and Contract

An export sale, like a domestic sale,involves both a sales offer and a sales contract.These are likely, however, to be more formal andprecise documents in exporting than in domesticmarketing.

A few cooperatives regularly issue pricelists to established foreign customers. Most,however, begin negotiations with a more formalsales offer. Sometimes the foreign buyer willmake the initial contact by inquiring whether agiven quantity of a specified commodity is avail-able, submitting a detailed purchase offer,including a designated purchase price, or issuinga tender.

A “tender” is a formal bid by an individualbuyer to purchase-or a formal offer by an indi-

vidual exporter to sell-a specified quantity of aselected commodity under prescribed condi-tions. A “public tender” to buy is open to allqualified suppliers, whereas a “private tender”to buy is open to selected suppliers only.

A sale to a foreign government or its repre-sentative usually involves a tender to buy thatspecifies the characteristics of the commodity,shipping arrangements, and payment provisions.Many export sales of grain, soybeans, and live-stock have been made in response to tenders.

Sales Offer

An export sales offer includes a price quota-tion and a description of the product, specifies aquantity, or range in quantity, of product avail-able, and specifies shipping arrangements andpayment terms.

The foreign buyer will’need to know thenumber of individual items to be handled, suchas bags or cases of designated size or weight. Inorder to arrange for transportation and to esti-mate its cost, the buyer will need to know thegross and net shipping weights and the cubicvolume of each packing unit and the total ship-ment. The buyer may also need the dimensionsof each packing unit.

In some instances, an exporting cooperativemay wish to offer various options. These mayrelate to the form in which the product will beshipped, packaging, mode of transportation,shipping date, price discounts related to quantityor payment in cash, or other details.

The foreign buyer will also need to knowthe approximate date that the shipment can beloaded at a U.S. port or be expected to arrive at aforeign discharge port. When a sale is complet-ed, the buyer will need definite information.

A sales offer is usually qualified by settingan expiration date or by inclusion of the term“subject to confirmation.” The objective in eachcase is to give the cooperative some flexibility incase of a sudden rise in domestic or foreign mar-ket prices for the commodity, development ofanother sales opportunity with more favorableterms, or the acceptance of offers by a number ofbuyers that result in more orders than the coop-erative can fill.

It is customary to receive counteroffers frombuyers that seek to purchase supplies of a com-

25

modity at a lower price than that offered by theexporter. This is a part of the sales negotiationprocess. In some instances, an exporter willanticipate such a reaction and set its first offer-ing price at a higher level than it expects toreceive. This can backfire, however, if the buyersimply purchases from another lower pricedsource.

In all its decisions with respect to price andother terms of sale, an exporting cooperativewill base its decision on both current and long-term assessments of its supply situation andalternative sales possibilities. If delivery andpayment are not to be made promptly, specialconsideration will have to be given to develop-ments that may occur before delivery and pay-ment are made.

A “pro forma invoice” is often supplied to aforeign buyer clearly interested in making a pur-chase. This is a temporary document that (1)enumerates terms of sale that tentatively havebeen agreed to by both the cooperative and thebuyer; (2) provides estimates of shipping specifi-cations, costs, and dates: and (3) assists thebuyer to meet certain requirements that mayexist in its country. For example, the buyer mayneed an import license and may need to presenta pro forma invoice to receive one.

Sometimes the importer will accept theterms of a pro forma invoice and commit, byFAX, letter, or other means, to a purchase onthose terms. In other cases, the importer willsubmit a formal export order. The provisions ofan export order are similar to those of a proforma invoice, but it is a document prepared bythe buyer rather than the exporter.

An export order is often used when therehas been no prior agreement on such matters asspecifying the documents to be handled by thebuyer, foreign bank references, U.S. trade refer-ences, and the form and nature of markings oneach shipping container that are required by thebuyer.

Most of the information in the buyer’sexport order may be entered on a special formcalled a “house order.” The purpose is to have auniform way of summarizing informationreceived in export orders from various buyers.This simplifies the internal handling of theinformation by the cooperative.

Sales Contract

Each export sale should be confirmed inwriting in some manner. Both buyer andexporter must be firmly committed. A sales con-tract is the safest way to form and record a con-tractual agreement.

The sales contract may be in essentially thesame format as the pro forma invoice. However,it must be signed by both parties. This type ofagreement is generally satisfactory in a continu-ing sales program involving a dependable for-eign buyer. In other cases, however, more detailmay be necessary. Sometimes, for example, pro-vision should be made to compensate for animpending change in the exchange rates of theU.S. dollar and the importer’s currency.

A more detailed contract may be necessaryif the buyer has limited experience with importsof U.S. agricultural commodities or is new to thetrade. For example, in a sale on Cost andFreight (CFR) delivery terms, it may be to theadvantage of the cooperative to explicitly statein the contract that the buyer will obtain andpay for the necessary marine insurance. Thetime and place at which ownership transfersfrom exporter to importer should also be speci-fied. In a CFR sale this would normally occurwhen the commodity is unloaded over the ship’srail.

The other terms of sale-commodity speci-fications, packing, payment, shipment, docu-ments-may be described in greater detail thanwas necessary on the pro forma invoice.Further, it may be appropriate to state in thecontract that the seller will make delivery asscheduled, unless there is some extraordinaryevent resulting from nature or unforeseenhuman acts, such as storms at sea or at port,shipwreck, strikes, riots, civil commotions, oracts of war.

In some countries it is customary to havethe sales contract expressed in English. In othercountries, however, it may be necessary to usethe local language. Great care must be taken tobe certain that a translation has the same mean-ing as a contract expressed in English. Evenwithin the same language, words and phraseswill vary in meaning between dialects.

Sometimes misunderstandings, or accusa-tions of noncompliance with the terms of a sales

26

contract, lead to disputes between exporter andforeign buyer. The procedures for resolving suchdisputes varies greatly according to circum-stances and the individual importer and foreigncountry involved.

In any sales contract each party seeks toobtain a maximum degree of flexibility for itselfand a minimum for the other party. The opti-mum result is a workable compromise.

Payment Timns of Sale

There are several basic ways in which acooperative can arrange to receive payment froma foreign buyer. As with delivery terms, theimporter and the exporter must agree upon apayment term of sale in the sales contract. Thispayment term will define the rights and obliga-tions of each party with respect to payment forthe export shipment.

One matter on which both parties mustagree is the currency in which the exporter is tobe paid. Cooperatives usually demand paymentin U.S. dollars. This avoids the risk and compli-cations of accepting payment in a foreign curren-cy, which must then be exchanged for U.S. cur-rency. In certain instances, however, being ableto accept payment in a foreign currency may givea cooperative an advantage over competing sup-pliers.

Each party wishes to minimize its risk expo-sure in the transaction, and each wants termsmost favorable to itself. The importer wants todelay paying for the shipment as long as it can,while the exporter wants to receive payment assoon as possible.The payment terms of sale thata cooperative can offer to foreign buyers can giveit a competitive edge over competing suppliers.Before determining which payment terms of saleare acceptable to the cooperative, the export staffshould consult with an international banker.The following payment terms of sale arearranged in order from the least risky to the mostrisky for the exporter:

Cash in Advance-Receiving paymentbefore sending the shipment would seem idealfor the exporter, but importers are reluctant to dothis for obvious reasons. They lose use of thosefunds for the period of time it takes for the ship-ment to arrive, and they must trust the exporterto deliver the shipment in accordance with con-tract specifications.

Letters of Credit (LOCJ--An export letter ofcredit is a document issued by a bank at theimporter’s request in favor of the exporter. Itprovides the issuing bank’s promise to pay aspecified amount of money contingent upon theexporter’s presentation of certain documentsrelated to the transaction. The documents con-firm that conditions stated in the letter of cred-it-e.g., terms of sale, shipping date, insurancecoverage, etc.-have been met.

An LOC may be either irrevocable, whichmeans that it cannot be altered or canceled with-out the consent of all parties concerned, or revo-cable, meaning it can be altered or canceled sole-ly at the buyer’s request. When an LOC isirrevocable, the bank must pay, even if the buyerdefaults. In practice, nearly all LOC’s are irrevo-cable.

If an LOC is confirmed by a U.S. bank, theexporter is assured payment by that bank, even ifthe buyer’s foreign bank defaults.

Drafts and Documentary Collection:Documents Against Payment (D/P) andDocuments Against Acceptance (D/A&In thecontext of an export sale, a draft is an order fromthe exporter to the foreign buyer to make pay-ment for the commodities being shipped. It is afinancial document drawn by the exporter,through a bank, against the assets of the importerfor the value of the export shipment. It is similarto an LOC, but it is less secure because theexporter has no recourse to the bank if the buyerdefaults.

A “clean draft” is one that is sent to theimporter’s bank without any of the transactiondocumentation, while a “documentary draft” issent with the documents attached.

There are three types of drafts commonlyused in export transactions: (1) A “sight draft”requires that the importer promptly pay thevalue of the draft: (2) a “time draft” requires thatthe importer pay within a specified period oftime, such as 30, 60, or 90 days after acceptingthe draft: and (3) a “date draft” requires paymentby a date that is specified on the draft, regardlessof when the draft is accepted by the importer.An importer can delay paying either sight ortime drafts by delaying acceptance of the draft.Such delays can be prevented by using a datedraft.

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Under D/P terms, payment is to be made atsight of the completed documents. This methodinvolves the use of a sight or date draft: it isused when sellers wish to retain control of theshipment either for credit reasons or for the pur-pose of title retention.

A bank acts as intermediary and is present-ed with the original bill of lading endorsed bythe shipper and other documents (packing lists,consular invoices, insurance certificates, etc.)that are not released to the importer until pay-ment of the draft. The advantage of this methodis that the exporter retains title to the goodsuntil payment is made. The disadvantage is thatthe importer can refuse to pay the draft and theexporter is then responsible for shipping thegoods back to the United States at its ownexpense or reselling the shipment to a thirdparty in the foreign country.

D/A terms are similar to D/P terms, exceptthat the importer is only required to agree to paythe draft by a specified future date in order toreceive title and other documents to the ship-ment. Time or date drafts are used in thesetransactions.

Cash Against Documents (CAD)-CAD issimilar to D/P, but instead of using a sight draft,the sales offer and contract will provide for“cash against documents” or “cash against docu-ments at first presentation.” These phrasesmean that the buyer is to pay promptly as soonas the bill of lading, invoice, and other docu-ments are received at its designated bank. Nofinancial documents or drafts, however, are sentto the designated bank. This method of collec-tion can be used to avoid paying taxes on finan-cial documents, or in those cases when theimporting country does not use drafts.

The necessary documents are airmailed tothe foreign bank, and payment is made directlyto the exporter, its agent, or its bank. Under thisarrangement, the U.S. bank normally performsno special services, has no responsibility for col-lection of payment, and does not receive a spe-cial fee for such services.

A relatively small U.S. exporter workingwith an export agent that has close personal con-tacts and experience with foreign buyers mayrely on the agent to select buyers with high cred-

it and performance ratings to which sales can bemade on CAD basis.

Open Account-This method of paymentinvolves having the commodities shipped to theforeign importer who takes the title according tothe delivery term of sale. Payment is made atsome future date, such as 30 days after delivery,or at the end of each month if deliveries aremade frequently. In effect, the exporter is mak-ing an interest-free loan for the value of theshipment from the time of the delivery untilpayment is made.

Consignmen t-In a consignment sale, thecommodity is shipped to the foreign importerand payment to the U.S. exporter is deferreduntil the importer has resold the commodity.The importer provides a statement showing thegross sales value, its expenses, its commission,and the amount due the exporter.

For the exporter, this is a high-risk methodof payment. If there is a sharp drop in price onthe foreign market, exceptional deterioration ofa perishable product, or an inaccurate cost state-ment from an unscrupulous importer, theexporter may not receive enough money to coverits international freight expenses. Conversely,for the importer this is a low-risk situation. Theimporter cannot lose money except underextraordinary circumstances where the receiptsfrom sales are less than expenses.

Barter and Coun tertrade-Countertrade isan arrangement for payment or financing by ameans other than a currency-for-goods basis.Barter-goods directly traded for goods-is themost basic form of countertrade.

Barter transactions are more frequentlyarranged with importers from developing andcentrally planned countries. Many of thesecountries either have currencies that are weakrelative to the U.S. dollar or “soft” currenciesthat are not accepted in world trade.

This method is not popular with U.S.exporters because it increases transaction costs,requires additional management time and plan-ning, and is characterized by detailed contractrequirements. The ideal countertrade arrange-ment for a cooperative would be where itreceives goods that it can use internally or sellto members.

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Alternative Methods of Financing an Export Sale

Banker’s Acceptance (BAJ-When a cooper-ative concludes an export sale where a letter ofcredit or documentary collection is used, it canemploy banker’s acceptance (BA) financing toreceive immediate payment. A bank creates aBA when it formally accepts, or agrees to pay, aletter of credit or draft that calls for paymentfrom a buyer at a future date. An exporter mayeither keep the BA document until it matures,and then present it to the bank for full payment,or sell it to the bank or an investor at a discount-ed amount.

BA’s are negotiable instruments which aremarketed as short-term investments. Banks canuse BA financing to provide credit to their cus-tomers without requiring the use of their ownfunds.

Fo$aiting/Factoring-Exporters who usethese methods of export finance sell their tradedebts or assign their rights to claim payment to abank, forfaiting house, or factoring house. Thecooperative that uses these methods will haveimproved liquidity because its balance sheet willnot show new contingent liabilities. Moreover,these methods eliminate the cooperative’s needfor Eximbank guarantees, thereby saving admin-istrative costs and premium fees.

Forfaiting differs from factoring in two basicways. First, forfaiting is used for financing anindividual export sales transaction, while factor-ing can be used for financing either an individu-al transaction or a group of them. Second, theforfaiter has no recourse to the exporter in thecase of nonpayment by the foreign buyer, whilethe factorer may or may not have such recourse,depending upon the terms of the factoring trans-action.

Minimizing Credit Risk

Cooperatives can minimize the credit risksof an export transaction in three ways: (1) negoti-ate payment terms of sale that offer it reasonablesecurity, (2) obtain adequate commercial creditinsurance, and (3) investigate the credit historyof a foreign buyer. These subjects are explainedin the next section under “Commercial andPolitical Risk. ”

Sources of International Finance

CoBank-The National Bank forCooperatives (CoBank) offers a complete range ofinternational financial services to US. agricul-tural cooperative exporters through itsInternational Banking Division (IBD), includingexport financing, foreign exchange services,funds transfer, and country risk analysis.

Cooperatives can finance their export trans-actions through CoBank in a variety of ways.CoBank offers direct documentary collection andletter of credit (LOC) services. In addition, it canprovide banker’s acceptance, forfaiting, and fac-toring services.

If a cooperative does agree to accept pay-ment in a foreign currency, it can sell that cur-rency to CoBank for U.S. dollars. To counter therisk of a loss from fluctuations in foreignexchange rates, the cooperative can also enterinto a “hedging” contract with CoBank for thefuture sale of the foreign exchange at a specifiedrate of exchange. Hedging contracts areexplained in the next section under “ForeignExchange Risks.”

CoBank can send funds for any co-op cus-tomer for payment or transfer to individuals orbusinesses abroad. It has a number of reciprocaldepository accounts with correspondent banks toassist with this service.

IBD economists and credit officers evaluatethe risks of lending to a foreign country by con-sidering political and social factors, domesticeconomic and balance of payments performance,ability and willingness to service their foreigndebt, and various financial ratios.

Finally, CoBank is a major participant in theUSDA Export Credit Guarantee Programs, GSM-102 and GSM-103, which are explained under“Commercial and Political Risks.”

Other Commercial Banks-There are severalhundred commercial banks in the United Statesthat have international departments, but a greatnumber of those do not find it profitable to servesmall- or medium-sized exporters. Cooperativesseeking a bank for international financial ser-vices should carefully consider if the bank isgenuinely interested in serving an agriculturalbusiness of their size.

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When considering a prospective bank, acooperative should ask the following questions:

l What is the size and experience of theinternational department?

l What are the charges for confirming a let-ter of credit, processing drafts, collecting pay-ment, or other services that the cooperative willrequire?

l Can the bank provide buyer credit reportsand country risk analysis?

l Does it have experience with U.S. andState government financing programs that sup-port agricultural export transactions (such as theUSDA Export Credit Guarantee Programs)?

l What other services can it provide?

Regulatory Concerns

Cooperative exporters need to be aware ofboth U.S. and foreign trade regulations thataffect their foreign sales, Below are briefdescriptions of some of the more important U.S.export regulations. Sources of information onforeign import regulations are listed in the sec-ond section of this report, “Sources ofAssistance.” This guide does not offer detailson any of these regulations. Cooperatives withquestions on these and other U.S. trade regula-tions should consult with a freight forwarder, anattorney, or the U.S. Department of Commerce(DOC).

U.S. Export Regulations

Export Licenses-For reasons of nationalsecurity, foreign policy, nuclear non-prolifera-tion, or domestic shortages of certain products,the Bureau of Export Administration (BXA)within the Department of Commerce controlsexports through a system of export licensing.Licenses are granted for transactions, not firms.There are two types of export licenses-validat-ed and general.

A validated license is a specific grant ofauthority from the Federal Government to a par-ticular exporter to export a specific product. Anexporter must apply for such a license. They aregranted on a case-by-case basis for either a sin-gle transaction or for a specified period of time.

Export shipments requiring such licenses cannotbe made without prior approval.

A general license is a broad grant of author-ity to all exporters for certain categories ofgoods. Export shipments that can be madeunder general license authorization do not needprior approval. Exporters do not have to applyfor such licenses.

Cooperatives that make direct export salesneed to be aware of which licenses they need foreach transaction. This guide does not includethe procedures for determining which license isappropriate. Cooperatives with questions aboutexport licenses should contact the:

Bureau of Export AdministrationExporter Assistance StaffOffice of Export LicensingRoom 1099DU.S. Department of CommerceWashington, DC 20230Telephone: (202) 377-4811

Antiboycott Regulations-It is against U.S.law for an exporter to participate in a foreignboycott or other restrictive trade practices fos-tered by foreign countries against countries thatare friendly to the United States. In addition,U.S. exporters must report when foreign govern-ments request their participation in a such aboycott. Cooperatives with questions aboutcomplying with antiboycott regulations shouldcontact the:

Office of Antiboycott ComplianceRoom 3886International Trade AdministrationU.S. Department of CommerceWashington, DC 20230Telephone: (202) 377-2381

Antitrust Lows-Exporters need to be awareof, and comply with, the antitrust laws of boththe United States and the importing country,Under U.S. antitrust law, business practices arejudged by two legal standards. Some practices,called “per se” violations, are conclusively ille-gal: these include price-fixing agreements andconspiracies, divisions of markets by competi-

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tom, and certain group boycotts and tyingarrangements.

Most practices are judged under a secondlegal standard, the “rule of reason.” Under thisstandard, for a practice to be found in violationof the law, it must be shown that the actoccurred and had an anticompetitive effect.Many factors are considered, including businessjustification of the practice, its impact on pricesand output in the market, barriers to entry, andthe market shares of the parties.

The Export Trading Company Act of 1982offers exporters certain protections fromantitrust regulations. Competing cooperativesand investor-owned suppliers seeking to estab-lish an export trading company (ETC) can applyfor a Certificate of Review from the U.S.Department of Commerce. A certificate can beissued if it is determined that the proposedexport trade activities and methods of operationwill not significantly diminish domestic compe-tition or result in a restraint of trade within theUnited States.

For the conduct described in the certificate,the ETC will have immunity from Governmentantitrust suits: and in private party actions, lia-bility will be reduced from triple to single dam-ages. For more information on ETC’s, contactthe:

Office of Export Trading Company AffairsRoom 5618U.S. Department of CommerceWashington, DC 20230Telephone: (202) 377-5131

Antidiversion Clause-To help ensure thatU.S. export shipments only go to legally autho-rized destinations, the Federal Governmentrequires a “destination control statement” on thecommercial invoice and bill of lading for almostall export shipments. Exceptions are shipmentsintended for consumption in Canada and ship-ments being made under certain general licenses.

Intellectual Property Rights-Trade marks,patents, and trade secrets are all considered“intellectual properties.” Cooperatives withintellectual properties to protect should investi-gate the intellectual property laws of a foreigncountry before they start exporting to that mar-ket.

Foreign Corrupt Practices Act (FCPA)-TheFCPA prohibits payments, offers of payments, orgifts to government officials, political parties, orpolitical candidates of a foreign country if madefor the purpose of obtained, retaining, or direct-ing business to any person. The act also estab-lishes recordkeeping and internal accountingcontrol requirements that firms must follow,

Foreign Import Regulations

When evaluating a prospective foreign mar-ket, co-ops should be familiar with any importbarriers that may adversely affect their exports.As mentioned earlier in “Sources of Assistance,”the Trade Assistance and Planning Office (TAPO)of the USDA Foreign Agricultural Service moni-tors the agricultural trade barriers of foreign gov-ernments. Cooperatives seeking information onnontechnical trade barriers in a specific foreignmarket should contact them, while those withquestions or comments about proposed or exist-ing foreign government standards should contactthe USDA Technical Office (TO). Information oncontacting either TAP0 or TO is given above in“Sources of Assistance.”

COMPLETING THE EXPORT TRANSACTION

Freight Forwarders

The details of export shipping are oftenhandled by an “export” freight forwarder (alsoreferred to as an “international” or “foreign”freight forwarder). The forwarder acts as anagent for the exporter in moving cargo to foreigndestinations.

Freight forwarders are a key link in theexport marketing chain. They (1) provide infor-mation to exporters about foreign market regula-tions and practices, including packaging andlabeling requirements: (2) assist with domesticand international transportation arrangements;and (3) assist with the preparation and handlingof various documents. They may also arrange formarine insurance and suggest sources of finan-cial assistance.

Freight forwarders help exporters transporttheir shipments efficiently. To do this, theymust know exactly what is expected of them.Following discussions of a proposed shipment,

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an exporter should prepare a set of “shippinginstructions” that describes the documents theforwarder is to prepare, the services the for-warder is to perform, and the manner in whichthe shipment is to be handled and stowed by thecarriers for inland and overseas transportation.The forwarder may respond with a completedform indicating “acknowledgment of shippinginstructions.”

Freight forwarders operate on a fee basispaid by the exporter and often receive an addi-tional percentage of the freight charge from thecarrier. The forwarder’s fees vary and consist ofan agreed-upon amount plus documentationcharges.

All freight forwarders must be licensed bythe Federal Maritime Commission (FMC) to han-dle ocean freight at U.S. ports and by theInternational Air Transport Association (IATA)to handle air freight in the United States.

A cooperative with a large volume ofexports may create its own export department toprepare documents and to make transportationarrangements to its established sales outlets.For many cooperatives, however, there is nosubstitute for a freight forwarder.

Additional information on freight for-warders may be obtained from port authorities,banks, or the National Customs Brokers andForwarders Association of America located at:

One World Trade Center STE 1109New York, NY 10048Telephone: (212) 432-0050

Documentation

In international trade, a “document” is animportant paper providing certain essentialinformation pertaining to a specific shipmentmoving internationally. In some instances, it isproof that designated commodity or shippingrequirements have been met. Use of a printedform is customary and in some cases mandatory.

A “document” differs from other businessforms in that it is seen by two or more business-es or regulatory entities. For example, any or allof the following might view a document pre-pared by or for an exporter: the freight for-warder, the U.S. Department of Agriculture, the

U.S. Department of Commerce, the U.S. CustomsService, the carrier(s), a foreign governmentimport inspection or control agency, the foreignimporter, the foreign bank, or the U.S. bank.

Some of the documents most frequentlyused in agricultural exporting are describedbelow and others, as noted, are covered else-where.

Bill of Lading-A bill of lading is a contractbetween the owner of the shipment and the car-rier. There are two types: a “straight” bill of lad-ing, which is nonnegotiable and must be sentstraight to the consignee, and the negotiable or“shipper’s order” bill of lading, which is a nego-tiable document that must be endorsed by theshipper. The former is typically used for ship-ments that are made on an open account, whilethe latter is used for letter of credit or documen-tary collection transactions.

A bill of lading is referred to as “clean”when it does not have any adverse notationsmade by the carrier relating to the condition ofthe shipment. This can serve as proof that ashipment was actually loaded and received bythe carrier and that the carrier had no reserva-tions about the shipment’s condition.

Commercial InvoiceA commercial invoiceis an itemized account, prepared by the exporterfor the buyer, that specifies the kind and quanti-ty of commodity shipped, the national origin ofthe commodity, mode of international shipping,carrier loading date, export markings used, des-tination of shipment, delivery and paymentterms, destination control statement, and prices,discounts, and total amount of money due to theexporter. It includes the name and address ofthe shipper and of the consignee (buyer or itsagent), and reference numbers and date of sale.It is also a request that payment be made.

The buyer needs the commercial invoice toprove that it owns the shipment and to arrangefor payment to the exporter. In addition, someforeign governments use it to assess customsduties.

Certificate of Origin-A certificate of origincertifies the country from which a shipmentoriginated. It is required by some foreign gov-ernments even when such information is provid-ed on the commercial invoice.

Inspection Certificate-There are severalkinds of inspection certificates, including phy-

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tosanitary certificates declaring that fruits andvegetables are free of diseases, health certificatesreporting the condition of livestock, and gradecertificates certifying that a shipment of agricul-tural goods meets certain quality criteria. Thesecertificates can all be used to assure foreign gov-ernments that a shipment meets their technicalregulations.

As mentioned earlier in “Sources ofAssistance,” Food Quality Acceptance Servicecertification can be used to assure a foreignbuyer that its shipment has been prepared inaccordance with contract specifications.

Shipper’s Export Declaration(SEDtRequired for export shipments largerthan $500, SED is a document used both for U.S.Government statistical purposes and for movinga shipment through U.S. customs. Each com-modity being exported must be identified with aSchedule B number. (Schedule B numbers areexplained in “Market Research.“)

Dock and Warehouse Receipts-Dock andwarehouse receipts are used to transfer account-ability when a shipment is moved by a domesticcarrier to the port of embarkation and left withthe international carrier for export.

Export Packing List-See “Packing.”Export License-See “Regulatory Concerns.”Insurance Certificate-An insurance certifi-

cate is a negotiable instrument which must beendorsed before it is sent to a bank, along withother documentation. If the exporter providesinsurance, this certificate states the type and theamount of coverage.

Destination Control Statemen t-A destina-tion control statement lists the countries towhich the shipment may be sent. When applica-ble, it will appear on the commercial invoice, thebill of lading, and the shipper’s export declara-tion.

Export Order-See “Sales Offer andContract. ”

Pro Forma Invoice-See “Sales Offer andContract.”

Shipping Instructions-See “FreightForwarder. ”

Packing

The first step in export packing is to assem-ble the kind and quantity of commodity needed.

The second step is to pack the commodityaccording to specifications given in the finalsales agreement (contract).

Special labels with information expressedin a foreign language and weights and measureslisted in metric terms might be needed on con-sumer-size, and even larger, packages.

Both the export package and the outer con-tainer should be designed and filled with thegoal of minimizing product losses. Causes ofsuch losses include excessive movement of theproduct within the container or too much weighton the product, as with fresh apples and peach-es. Moisture damage, to wheat flour for exam-ple, is another problem. Some perishables maybe damaged by excessively high or low tempera-tures.

The threat of pilferage of products, such asoranges that can be easily consumed on the spotor high-value products that can be moved rathereasily and sold for cash, requires special packingand handling precautions.

Export shipping places extra stress andstrain on the packages and containers. A slingmay be used to hoist commodities over a ship’srail, or conveyors or chutes may provide arugged ride into or out of a ship’s hold. Ridingthe waves tends to be rougher than riding therails. And handling and storage practices andfacilities at an unloading port may further testthe packing.

Each export container must be carefullymarked on at least two sides to be sure it gets toits destination. In many cases the buyer willrequest use of its shipping mark. Standard sym-bols and foreign phrases help to ensure properhandling. An export freight forwarder can help acooperative make sure that all necessary mark-ings are made in the proper form.

An export packing list should be preparedwhich lists information about each package orcontainer. The export packing list itemizes thecontents: the net, tare, and gross weights: themeasurements: and the volume of space requiredfor each package. In addition, the list shouldinclude illustrations of the shipping marks.

The packing list has two uses: (1) It is usedfor calculating the cubic space required for ship-ping. This calculation is made by the exporter’sshipping department or a freight forwarder. (2)It serves as a checklist to ensure that the cargo

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received is as described on the list: such check-ing is made by representatives of the carrier(s),port authorities at the loading port, customs offi-cials at both the U.S. loading port and the for-eign port of destination, and the buyer.

lhnsportation

The domestic transportation of an exportshipment may be handled in much the sameway as that of any domestic shipment. It mayoften be arranged by a co-op’s domestic trafficdepartment. However, selecting the U.S. portwhere the export shipment will be sent, deliver-ing it there, and arranging any internationaltransportation for it will require additionalexpertise. For cooperatives, this may come fromeither a freight forwarder or the co-op’s exportdepartment.

The development of intermodal shipping-exporting in containers that can be efficientlyhandled by different types of carriers-has revo-lutionized the export shipping process. Now,under one bill of lading, a co-op’s export ship-ment can be transported in containers by train,truck, or barge to an U.S. airport or seaport andthen transported by ocean or air carrier to its for-eign destination. This is typically more effi-cient, and the shipments are far more protectedfrom damage and pilferage.

Shipments may be transported to overseasdestinations by either ocean or air carrier. Fordestinations in North or South America, railroador truck may also be used. The vast majority ofagricultural exports are shipped overseas byocean carriers.

Ocean Carriers-Cooperatives seeking theservics of an ocean carrier have three basic alter-natives. The first two are variations of a com-mon carrier, and the third is a private carrier.

A common carrier is a firm that transportsshipments to specified destinations for statedfreight rates. In the case of an ocean carrier, it isa steamship line that provides regularly sched-uled service between selected ports and publish-es uniform freight rates and contract conditions.By U.S. Government regulation, a common carri-er is required to carry all goods offered if accom-modations are available and the established rate

is paid. A common carrier may operate as eitherpart of a “conference line” or independently.

1. Conference Carrier-A conference carrieris a member of a “conference line,” which is agroup of common carriers serving the same traderoute(s). The conference line sets uniformfreight rates and establishes certain trade prac-tices for all of its member carriers. Exportersthat contract with a conference line may obtain alower shipping rate than if they did not have acontract. They are committed, however, to ship-ping most or all of their cargo that is bound fordestinations served by the conference on mem-ber vessels.

2. Independent Carrier-An independentcarrier is a common carrier operating outside ofa conference line and making shipping arrange-ments on a space-available basis. When inde-pendent carriers are in direct competition withconference lines, they usually charge lower thanconference rates.

3. Private Carrier-A private carrier, or“tramp ship,” is a vessel without fixeditineraries or schedules. Individual exportersnegotiate contracts with a private carrier’s own-ers.

The type of carrier that a cooperativeselects will depend upon the nature of the indi-vidual export shipment, the pattern of the coop-erative’s exports over time, and the generalavailability and efficiency of service offered bythe different types of carriers.

Cooperatives selecting common carriersmust “book” space (sign a “booking contract” toreserve space) for a cargo of a given size on aspecific vessel. The booking contract is bindingto the extent that the carrier has the right tocharge for reserved space that is not used, or tocharge for reservations canceled without ade-quate notice.

Transport rates can be highly complex andcan be based on commodity type, value perfreight ton, weight as distinct from volume,weight or volume (whichever gives the highestyield to the carrier), volume as distinct fromweight, a percentage of the value of the goods, orper-unit prices for unusual or awkward loads.

There are significant variations in trans-porting less than shipload quantities. Someagricultural products may be shipped in ordi-

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nary dry cargo space, while others may requirecontrolled atmosphere facilities or “reefer” space(refrigerated holds). Shipments may also betransported in van containers, either refrigeratedor unrefrigerated, on specially designed contain-er ships or on the decks of conventional ships.

nansporting a shipment from a U.S. port toa foreign port may not end the exporter’s trans-portation responsibilities. Sometimes the leastexpensive way to make shipments to severalbuyers is to consolidate them into a singletransocean shipment. Arrangements can bemade for “drop” shipments to various foreignbuyers, either from one or several foreign dis-charge ports.

Many countries have “foreign trade zones”or “free trade zones” where quantities of a com-modity can be stored, processed, or exhibitedwithout payment of customs duties. Sometimesit is possible to ship large volumes of a commod-ity to such a zone and then reship smaller lots tobuyers in other markets. In this way, both thecost of shipping and the payment of customsduties are kept to a minimum.

Air carriers are another option for co-opexporters. Although they charge higher ratesthan ocean carriers, their costs may be offset bylower domestic shipping costs (by using a localairport rather than a coastal seaport) and quickerdelivery times. In addition, shipments of agri-cultural goods are typically exposed to less phys-ical risk on air carriers, and thus marine insur-ance costs are likely to be lower. Air carriersmay be especially useful to cooperatives export-ing perishable high-value agricultural products.

As mentioned in “Sources of Assistance,”cooperatives can get transportation assistancefrom USDA’s Office of nansportation (OT).

Risk Management

Sound risk management involves identify-ing sources and degrees of risk that the exportingcooperative faces, analyzing the co-op’s capacityto accept varying degrees of risk given its goalsand abilities to absorb losses, and developingstrategies that are compatible with those goalsand available resources.

The four types of risk associated withexport transactions are physical, price and cost,commercial and political, and foreign exchange.

Physical Risk

Marine cargo insurance (or simply marineinsurance) policies offer protection to shippersagainst financial losses resulting from the loss of,or damage to, the exported goods while in transitfrom one destination to another. It is advisablefor a exporter to obtain marine insurance cover-age on its shipments because (1) carriers, underlaw, have very limited liability: and (2) if theexport sale is being financed, the bank or inter-mediary will usually insist that the shipment,which serves as collateral, be adequately insuredwhile in transit.

Arranging the Insurance-The exporter isresponsible for arranging insurance coverage foreach sale that is made on CIF delivery terms. Ifthe export sale is made on CFR, FOB, or FASthen the buyer assumes responsibility for insur-ance.

In these situations, however, the exportermay still wish to arrange the insurance becausethen it may be assured that (1) adequate insur-ance coverage has been obtained: (2) any claimswill be paid without the difficulties of foreignlitigation or foreign currency exchange: and (3)banks and other financial intermediaries will besatisfied, since insurance documentation is lessreadily available to them when the importerarranges the insurance.

In addition, the exporter may arrange forinsurance that covers the shipment for the entirevoyage. This simplifies the collection of claimsbecause there are no rival parties to disputeresponsibility of coverage. The exporter mayturn the insurance policy over to the foreignbuyer with the titles and other documentation,The payment of the insurance premium may bemade as specified in the delivery terms of sale,regardless of which party arranges the insurance.

Marine insurance brokers are intermediariesthat help exporters to obtain adequate insurancecoverage at reasonable rates. In addition, theyhelp exporters to settle claims. Exporters paybrokers to act as their agents, while marineinsurance companies pay brokers a commissionfor each of their policies that the brokers place.

Adequate Coverage and Cost-The exactamount of insurance needed by an exportingcooperative can be determined in consultationwith a marine insurance broker. The rates

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charged by most marine cargo insurance compa-nies depend upon a number of factors, includingthe type of coverage desired, shipping routes,types of conveyances, nature of commoditiesbeing exported, and duration of voyage.

qpes of Marine Cargo Insurance-Anexporter has three options for insuring an exportshipment: (1) obtain a “specific policy” to covereach shipment, (2) obtain an “open policy” tocover all shipments during a specified period, or(3) arrange to have its shipments covered by afreight forwarder’s open policy.

There are four types of losses recognized bymarine insurance underwriters:

1. Total loss-an entire shipment isdestroyed or not salvageable.

2. Total loss of part of a shipment-some,but not all of the separate parts, units, or pack-ages of a shipment are totally lost.

3. Particular average loss-a shipment ispartly lost or damaged.

4. General average loss-a shipment is vol-untarily sacrificed in the interests of the carrierand other shippers (e.g., part of a shipment isdamaged by firefighters who save the ship andother cargo.)

The word “average,” as used in the insur-ance industry, means “partial loss.” Marineinsurance policies offer different types of cover-age, depending upon the type of loss suffered.

The three most common types of marineinsurance coverage are “free of particular aver-age” (FPA), “with particular average” (WPA),and “all risks” (AR).

FPA is the least comprehensive policy ingeneral use which covers total losses and gener-al average losses, but not particular average loss-es. Two more liberal variations of FPA exist:FPA-American conditions and FPA-English con-ditions. Both of these variations offer all theprotection of a normal FPA policy, along withcoverage of partial losses occurring aboard a ves-sel that has been stranded, sunk, burned, or incollision at some point during its voyage. UnderFPA-American conditions, however, it is neces-sary for the partial loss to have been directlycaused by stranding, sinking, burning, or colli-sion, while under FPA-English conditions nosuch direct loss need be established for coverageto be extended.

WPA is a more comprehensive policy thatoffers all the protection of FPA policies, pluscoverage for particular average losses, such as apartial loss resulting from salt water damage.

AR is the most comprehensive and expen-sive type of marine cargo insurance: it offersprotection from most external causes of physicalloss. Exceptions include losses from delay,product deterioration, loss of market, strikes,riots, civil commotions, and war. It should benoted that insurance coverage against virtuallyany cause of damage can be obtained for theright price.

Loss Prevention Service--Many brokers andmarine insurance companies offer a loss preven-tion service, usually at no charge to the exportersince it benefits both parties. It may be to theexporter’s advantage to select an insurance com-pany or broker that offers such a service becauseit assists in keeping down losses, and thus pre-mium rates.

Pricing Risk

Unpredictable variation in the prices of thecommodities being exported and in the prices ofmarketing services which the exporter is using,notably transportation, can each be significantsources of risk. Such price variation may resultin either financial losses or unrealized profitopportunities for the co-op exporter.

Some cooperatives mitigate the pricing riskof their export sales by hedging through futuresmarkets. For cooperatives exporting commodi-ties that are not traded in organized futures mar-kets, forward contracts or the holding of inven-tories may be used to help reduce such riskexposure.

Exporters are also exposed to fluctuatingocean freight rates. A cooperative, or group ofcooperatives, can reduce the risk of loss fromsuch rate fluctuation through either charteringor acquiring a vessel. Either option, however,would require significant expertise, capital, andexport sales volume.

Commercial and Political Risk

Cooperatives making export sales face therisk that the importer will fail to pay for theshipment. Such default problems may result

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either from commercial factors such as economicdeterioration in the buyer’s area, unanticipatedcompetition, or fluctuations in demand, or frompolitical factors such as war, riots, or seizure ofshipment by a foreign government.

Market knowledge and contacts are essen-tial to evaluate and reduce commercial creditrisks in individual export transactions. Theexporter, or an intermediary in its service,should have access to credit reports on potentialimporters and should be able to analyze themand follow up on any difficulties encountered inreceipt of payment.

Further, the exporter may benefit from dis-cussions with other firms that have done busi-ness with a prospective importer.

An exporter may also reduce the commer-cial risks of default by negotiating for relativelyfavorable payment terms of sale, such as requir-ing the importer to pay in advance or to post anirrevocable letter of credit in favor of theexporter.

In addition, the exporter may obtain com-mercial credit insurance. Coverage for both com-mercial and political risks is available throughthe Foreign Credit Insurance Association (FCIA).The FCIA is an association of over 50 majorproperty, casualty, and marine insurance compa-nies operating in cooperation with, and as anagent of, the Export-Import Bank of the U.S.(Eximbank).

The FCIA offers U.S. agricultural exportersthree types of policies:

1. Short-term single-buyer policy-Coveringeither single or multiple shipments under a salescontract, a short-term single-buyer policy is cus-tom written for the terms of an individual exporttransaction, The standard policy period duringwhich shipments can be made is generally 3months, though it may be up to 12 months formultiple shipments. Coverage applies to creditsales to a foreign buyer, or export letters of creditopened by a foreign issuing bank, for U.S. goodsproduced and shipped from the United Statesduring the policy period. Cover is generally pro-vided for credit terms of up to 180 days, thoughit may be extended for up to 360 days for exportsales of bulk agricultural commodities.Percentages of cover are equalized for both com-mercial and political risks: for bulk agricultural

commodities, 98 percent: for sovereign obligers(foreign governments), 100 percent: for letter ofcredit transactions, 95 percent: and for privatesector obligers, 90 percent.

2. Short-term multibuyer export policy-Generally written to cover shipments for a l-yearperiod, a short-term multibuyer policy isdesigned to cover a “reasonable spread” of anexporter’s eligible sales. (What constitutes a“reasonable spread” is specified in the policy.)At the inception and each annual renewal of thepolicy, the exporter may choose to cover either95 percent of commercial risks and 100 percentof political risks or 95 percent of each risk. Thispolicy insures short-term sales with repaymentterms generally up to 180 days. Coverageapplies to the gross invoice amount and, in somecases, to the buyer’s interest obligation for a lim-ited time at FCIA-specified rates. This policydoes contain a deductible feature. Export creditsales of some agricultural commodities may beinsured under this policy with terms extended to1 year (if needed), and with commercial coverageincreased to 98 percent.

(3) New-to-export policy-Designed forfirms just beginning to export, a new-to-exportpolicy offers enhanced commercial risk protec-tion for the first 2 years, which includes 95 per-cent commercial coverage, 100 percent politicalcoverage, and no deductible. To .be eligible forthis policy, a cooperative must not have haddirect FCIA coverage for 2 years preceding thedate of application.

Cooperatives seeking more informationabout FCIA policies may contact the FCIA attheir central headquarters in New York City(telephone: (212) 306-5000). There are also FCIAregional marketing offices located in Chicago,Houston, Los Angeles, Miami, and New YorkCity.

Cooperatives may also reduce the commer-cial and political credit risks of their export saletransactions by obtaining coverage from theExport Credit Guarantee Program (GSM-102) orthe Intermediate Credit Guarantee Program(GSM-103). The intent of these programs, whichare both operated by USDA’s Commodity CreditCorporation (CCC), is to increase U.S. agricultur-al exports by stimulating U.S. bank financing offoreign purchases. Payment guarantees are pro-vided to the exporting firm, which may then

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assign them to a U.S. financial intermediary thatfinances the export sale.

GSM-102 guarantees are issued for exportcredit sales with terms of 6 months to 3 years.GSM-103, a more recent and smaller program,offers guarantees for export credit sales withterms of 3 to 10 years. For a transaction to beeligible for program coverage, the foreign buyer’sbank must issue an irrevocable letter of credit infavor of the exporter covering the U.S. portvalue (FOB value) of the shipment. In general,the programs cover 98 percent of the U.S. portvalue of the shipment and a certain amount ofthe interest.

CCC will consider offering program guaran-tees to any export credit sale of U.S. agriculturalgoods that furthers its longrun market develop-ment objectives. Requests for program coverageare considered on a case-by-case basis.

For more details on these credit guaranteeprograms, contact the General Sales Manager,Export Credits, Foreign Agricultural Service(telephone: (202) 447-3224).

Foreign Exchange Risk

In all export transactions, foreign curren-cies must be exchanged, normally through com-mercial banks. There is always the risk that therelative value between the dollar and theimporter’s currency could change between thetime that the sale is made and the payment isreceived. If the exporting cooperative is accept-ing payment in a foreign currency, it is assumingthe risk that the relative value of the dollarcould fall against that of the importer’s currency,thus causing a financial loss for the cooperative.There is also the chance that the relative valueof the dollar could rise against that of theimporter’s currency, in which case the coopera-tive would reap a financial gain. Most coopera-tives, however, are not interested in speculatingon foreign exchange fluctuations and would pre-fer to avoid such risks.

One way of avoiding this foreign exchangerisk is to quote prices and require payment indollars. This is the method that has been tradi-tionally used by cooperative exporters. Thismethod requires the importer to make the cur-rency exchange and to face the risks that go withit. It may improve the competitive position of

the cooperative, however, to be able to makeexport sales in foreign currencies. Many foreignsuppliers and large trading companies that arecompeting with cooperatives routinely acceptforeign currencies.

If the importer wishes to make payment ina foreign currency, then the cooperative shouldconsult an international banker before negotiat-ing the sales contract. The bank can give adviceon the foreign exchange risks that exist for a spe-cific currency.

In addition, most international bankingdepartments can help a cooperative exporterhedge against foreign exchange risk by agreeingto purchase the foreign currency at a fixed dollarprice, regardless of the exchange rate at the time.When this type of hedging is done, the bankassumes the foreign exchange risks in return fora fee or discount on the transaction. The cost ofthese bank services should be included in theprice quotation.

Buyer Relations and Feedback

It is often necessary for the exporting firmto go beyond secondary sources when seekinginformation that is critical to its position in for-eign markets. Sales figures may accuratelyreflect how well the firm is doing today, but theyare not always good indicators of future sales,changing market conditions, customer needs, oruntapped market opportunities.

Sources for this kind of information includeagents or distributors located in foreign markets;the firm’s sales staff, who may periodically visitforeign markets: or an export management ortrading company. In addition, the exportingfirm may benefit from sending high-level execu-tives to visit foreign markets.

Such firsthand visits offer several potentialadvantages. It is important for those makingdecisions about export sales and strategy to get aflavor of foreign markets. Such visits may shedlight on how the products are being received,what the competition is doing, and other foreignmarketing details. Complaints or problems thatmight not show up in a report or message maycome out over lunch. A FAX message or anoccasional visit by a subordinate employee maynot convince foreign contacts of the seriousnessof the co-op exporter’s intentions.

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Executives or staff who travel to foreignmarkets should acquire, through reading or train-ing, a basic knowledge of the business culture,management attitudes, business methods, andconsumer habits of the importing country.

There is no substitute for a good workingrelationship with foreign buyers. A co-op’s for-eign sales agent frequently plays a central role bystaying in contact with foreign buyers and deal-ing with any of their complaints.

SELECTED BIBLIOGRAPHY

International Chamber of Commerce, Guide toIncoterms, New York, N.Y.: ICC PublishingCorporation, 1980.

International Chamber of Commerce, Incoterms,New York, N.Y.: ICC Publishing Corporation,1980.

US. Department of Agriculture, ForeignAgricultural Service, Dictionary of InternationalAgricultural Trade, Agriculture Handbook No.411, Washington, DC, June 1988.

U.S. Department of Agriculture, ForeignAgricultural Service, Food and AgriculturalExport Directory 1990, MiscellaneousPublication No. 1481, Washington, DC, August1990.

U.S. Department of Agriculture, Office of‘Transportation, Export Handbook for U.S.Agricultural Products, Agricultural HandbookNo. 593, Washington, DC, March 1985.

APPENDIX: ACS INTERNATIONAL TRADEPROGRAM (ITP) PUBLICATIONS

1, Agricultural Exports by Cooperatives, 1985.ACS Research Report 66, Tracey L. Kennedy andArvin R. Bunker, 1987. (13 pp.)

Cooperatives exporting agricultural products aredescribed in terms of number, value of exportsby commodity and destination, and share of U.S.agricultural exports.

Price: Domestic-$1.25; foreign-$1.50

2. Directory of U.S. Agricultural CooperativeExporters. Service Report 21, ITP Group, 1989.(33 pp.1

Lists U.S. agricultural cooperatives that export,or have the capability of exporting, commoditiesto other countries. One section is indexed bytype of product. The other section lists thecooperatives in alphabetical order, includingcomplete address, individual contact, communi-cation numbers, and the commodities availablefor export.


3. Export Market Development by AgriculturalCommodity Development Programs. ACSResearch Report 79, Karen J. Spatz, 1989. (30 pp.)

This report describes how farmers’ products arepromoted in international trade, who does thepromoting, and at what costs. The report dis-cusses promotion programs carried out by gov-ernment and private industry groups.


4. Grain Exporting Economies: Port ElevatorCost Simulations. ACS Research Report 56,Magid A. Dagher. Bruce J. Reynolds, and LynnW. Robbins, 1986. (24 pp.)

Significant economies of size are often attributedto grain exporting, but until recently empiricalestimation had been lacking. An economic-engi-neering technique is used to simulate cost curvesfor port elevators over a range of capacities forboth shortrun and longrun costs.


5. Imports by Cooperatives, 1986. ACS ResearchReport 74, Karen J. Spatz, 1988. (7 pp.)Activities of 28 cooperatives are reported interms of import values by origin, commodity,and shares. Commodity reviews cover fruits andvegetables and farm supplies.


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6. Marketing High-Value Food Products in theAsian Pacific. ACS Research Report 85, Bruce J.Reynolds, Steven C. Schmidt, and Alan J.Malter, 1990. (28 pp.)

Export marketing of branded and nonperishablefood products is examined for several AsianPacific countries.


7. Using Export Companies to ExpandCooperatives’ Foreign Sales. ACS ResearchReport 52, Arvin R. Bunker and Tracy L.Kennedy, 1985. (17 pp.)

Discussion of export management companiescovers services and products handled: marketcoverage: fees, margins, and costs: ownershipand financial structure; and advantages and dis-advantages.


These publications may be ordered from ACS.Please make check or money order payable toAgricultural Cooperative Service. Mail yourorder to:

USDA/ACS/PublicationsP.O. Box 96576Washington, DC 20090-6576

*U.S. Government Printing Office : 1990 - 517-013/27589

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U.S. Department of AgricultureAgricultural Cooperative ServiceP.O. Box 96576

Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) provides research, management, andeducational assistance to cooperatives to strengthen the economic position of farmersand other rural residents. It works directly with cooperative leaders and Federal andState agencies to improve organization, leadership, and operation of cooperatives andto give guidance to further development.

The agency (1 ) helps farmers and other rural residents develop cooperatives to obtainsupplies and services at lower cost and to get better prices for products they sell; (2)advises rural residents on developing existing resources through cooperative action toenhance rural living; (3) helps cooperatives improve services and operating efficiency;(4) informs members, directors, employees, and the public on how cooperatives workand benefit their members and their communities; and (5) encourages internationalcooperative programs.

ACS publishes research and educational materials and issues Farmer Cooperativesmagazine. All programs and activities are conducted on a nondiscriminatory basis,without regard to race, creed, color, sex, age, marital status, handicap, or nationalorigin.