US trade surplus in processed foods expected to continue - includes related article

The United States is among the world leaders in both exports and imports of processed foods and beverages. U.S. processed food firms buy and sell in a near trillion-dollar worldwide market for all goods. The appeal of U.S. brand names, influence of U.S. multinational firms abroad, and leading role played by the United States in global commerce suggest a major role for the United States in processed food trade for years to come.

In 1994, the United States exported $25.8 billion worth of processed foods. Five industries have accounted for half of these exports in recent years. Most produce minimally processed products, such as fresh and frozen meats, frozen fish, soybean oil, and canned fruits and vegetables. The dominance of these industries reflects U.S. efficiency in field crops and meat and poultry production.

The fastest growing processed food and beverage exports over the past few years have been in industries with relatively low trade volumes. Many of these exports are highly processed, brand-name products, such as frozen bakery products, chewing gum, and soft drinks. Their growth reflects rising incomes, changing demographics, and the westernization of eating habits in many developing countries. These factors have led to increases in demand for U.S. foods and beverages.

"Processed" Foods Cover a Wide Territory

This article covers exports and imports listed in the Standard Industrial Classification code 20 (known as SIC-20) - processed foods, beverages, and related products. SIC-20 is comprised of 48 food processing industries. Products from SIC-20 industries are often referred to as "value-added" - meaning that some combination of labor, technology, and materials has been applied to raw commodity inputs, such as wheat and yeast, in order to transform them into products like breads or pastries. The processing may be minor, as in the case of canned fruits and vegetables, or may be quite extensive, as in the conversion of cocoa, sugar, milk, and nuts into candy bars.

Some processed foods are sold at a number of value-added levels. For example, beef sold "on hoof" is listed as a raw commodity and would not be included in SIC-20. However, as beef moves through various distribution channels toward the consumer, it becomes a processed product - whether it is sold as carcass beef, as boxed beef, or as a shrink-wrapped steak in the grocer's display case. Many processed foods are brand-name products from well-known companies (such as Pillsbury or Hersheys). However, a number of processed food products reflect very little product differentiation between various suppliers (such as milk, soybean oil, or animal feed).

Trade Surpluses Began in 1991

With exports exceeding imports for the first time, the U.S. processed food industry turned a comer in 1991, posting a net trade surplus of $156 million (table 1). Previously, trade deficits in processed foods and beverages were standard, on the order of $5 billion per year in the mid-1980's. Then, U.S. exports of processed foods more than doubled between 1985 and 1992, reducing those deficits during the late 1980's and finally reversing them in the early 1990's. Imports also grew, but at a slower pace, increasing only 37 percent during this same time period.

Eleven food processing industries generated $1 billion trade surpluses over the 5-year period of 1990-94 (table 2). (We report 5-year combined totals to more accurately reflect the rankings of U.S. food processing industries and trading partners for the entire 1990-94 period.) Four of these 11 industries were grain mill processors (wet corn milling, rice milling, prepared animal feeds, and flour and grain mill products), 2 were meat processors (meatpacking and poultry processing), and 2 were fats and oils manufacturers (soybean oil mills and animal and marine fats). Together, these eight industries reflect the strength of U.S. competitiveness in field crops and meat and poultry production. The two industries most responsible for the surplus in food products trade were soybean oil mills and meatpacking, with $8.1 billion and $7.9 billion trade surpluses, respectively, during 1990-94. Wet corn milling and poultry processing also averaged over $1 billion per year in trade surpluses during that period.

Five industries averaged over $1 billion per year in export sales between 1990 and 1994: meatpacking (including hides and skins), prepared and frozen fish (hereafter designated as "frozen fish"), soybean oil mills, wet corn milling, and poultry processing. Together, they accounted for half of total U.S. processed food exports during 1990-94. Meatpacking alone, at $22.4 billion in export sales, accounted for 20 percent (table 3). Sixteen industries were responsible for over 80 percent of U.S. processed food exports.

Of the 11 food processing industries with billion-dollar trade surpluses during 1990-94, only 7 were also top-10 exporters. That is, three industries (frozen fish, canned fruits and vegetables, and the miscellaneous category) were among the largest export industries, but also were large importers relative to their export activity. In fact, the frozen fish industry was the largest contributor to the deficit in processed food trade despite being the second-largest export industry.

Five U.S. food processing industries averaged over $1 billion per year in imports during 1990-94: frozen fish; meatpacking; canned fruits and vegetables; distilled and blended spirits; and wines, brandy, and brandy spirits. Together, these constituted 54 percent of total U.S. processed food imports during 1990-94, with frozen fish alone accounting for 22 percent of the U.S. total. The top 12 industries accounted for over 80 percent of all U.S. processed food imports.

Smaller Industries Posted Higher Growth Rates

Among the 10 leading export industries, the largest export increases in the last few years were in poultry [TABULAR DATA FOR TABLE 1 OMITTED] processing, with a 75-percent increase in 1993/94 (combined years) over 1991/92, and the miscellaneous category with an 83-percent increase. "Miscellaneous" industries include prepared foods and miscellaneous food specialties not elsewhere classified, and such diverse products as leavening compounds, peanut butter, tea, spices, vinegar, and cider.

Table 2

Table 4

More details on these data sets and the pairing process can be found in Processed Food Trade Concordance (AH-707), by Walter B. Epps and J. Michael Harris, USDA, ERS, March 1995. Call toll-free 1-800-999-6779 for price and ordering information.

The authors are agricultural economists with the Food and Consumer Economics Division, Economic Research Service, USDA. Ruppel is currently a Visiting Associate Professor in the Food and Resource Economics Department at the University of Delaware.

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