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Foreign affairs: co-op leaders share strategies for pursuing global markets.

Article Excerpt
Like other markets, agricultural trade is becoming increasingly international. Hence, dealing with the globalization of agricultural commerce was the theme of the 2005 Annual Farmer Cooperatives Conference, held Nov. 7 and 8 in Minneapolis.

As barriers to international trade, capital flow and communication come down, U.S. cooperatives today are facing up to the necessity of building business relationships outside of our borders to remain competitive. Presenters at the conference, sponsored by the University of Wisconsin Center for Cooperatives, offered hope and useful suggestions for participating in the international business arena. But none of them said that doing so will be easy.

Participants may have felt that they left the gathering with more questions than answers; the picture they were presented was one of increasing change--offering new opportunities, but also greater risk and uncertainty.

Now what?

Terry N. Barr, chief economist with the National Council of Farmer Cooperatives, presented co-op leaders with this question: "The market in which you had prepared to compete no longer exists! Now what?"

Barr argued that world markets are changing quickly and drastically, that "the rise of China and India is the most important economic force in the world," and that the continued growth of those countries will result in massive changes to the world economy. He said that customers are taking advantage of increasing competition to demand more services and better quality. Lower transportation costs and increasingly efficient communications are breaking down barriers not only to the flow of goods and services, but to capital and knowledge as well. In fact, capital moves more quickly than physical goods.

As a result, said Barr, U.S. ag cooperatives will have to participate in riskier overseas markets, make new partnerships with foreign firms, and even invest in overseas ventures to properly serve their members.

Unfortunately, the huge reductions in transportation and communications costs that have encouraged more Asian imports into the U.S. market have not stimulated as rapid a growth in U.S. exports.

While large volumes of imported goods from Asia send many dollars overseas, those dollars often don't return as payments for U.S. exports. A combination of factors has created this situation. The government of China has provided significant stimulus to investment over consumption and uses high tariffs on imported goods to protect domestic industries, such as agriculture. At the same time, the income and purchasing power of the Chinese consumers is low and their savings rates are very high.

As a result, the money American consumers spend on foreign goods is used to purchase U.S. financial assets, such as Treasury bonds and other securities. Barr pointed out that this is part of a conscious growth strategy on the...