U.S. wheat producers invested an average of about $10 million per year to promote their products overseas between 2000 and 2007, and for every one of those dollars they received $23 back in increased net revenue.
That is the principal conclusion of a new economic analysis of wheat export promotion released by U.S. Wheat Associates (USW), the wheat industry’s export market development organization.
USW commissioned the study with funding from the USDA/Foreign Agricultural Service (FAS) Market Access Program. Harry M. Kaiser, the Gellert Family Professor of Applied Economics and Management at Cornell and director of the Cornell Commodity Promotion Research Program (CCPRP), designed and conducted the research using established methods he and the CCPRP team developed.
“The study showed that U.S. wheat export promotion had a large and beneficial impact for producers and the economy that far exceeded its cost,” Kaiser said. “One of the econometric models we used showed the overall average revenue benefit to the entire wheat industry from the combined producer and FAS expenditures was estimated to be about $115 for each dollar spent.” The study also predicted that increasing the promotion investment has the potential for even greater returns to wheat producers, the wheat supply chain, and the U.S. economy.
Kaiser quantified the impact of wheat export promotion through a model that accounts for several factors affecting commodity export demand. The study determined that cutting promotion by 50 percent between 2000 and 2007 would have reduced wheat exports by 17.1 percent, a total export loss equal to almost 1.4 billion bushels or almost 172.7 million bushels per year. The value of that loss was determined, then compared to total wheat export promotion cost to calculate a series of benefit-to-cost ratios (BCR). The producer BCR from the total promotion cost averaged 11.5 to 1. Because producers contributed about half the total in checkoff dollars and in-kind support, the BCR for their half of the spending averaged about 23 to 1.
“Our organization is accountable to wheat producers and other taxpayers who fund the market development work we do,” USW President Alan Tracy said. “Kaiser’s research methods are well respected, so we are very confident about the analysis and very pleased with the results.” Tracy said the findings were similar to results from a study USW commissioned five years ago showing that wheat exports would decline by 28 percent with no promotion investment, and to a study FAS conducted in 2006.
USW will use additional results from the study to help plan and manage its future activities. The organization has posted full study results on its Web site, http://www.uswheat.org.