Business and Economics: Trading with U.S. on Agricultural Produce

Date: Dec 5, 2019
Category: Informative

The food market is one that never comes to a halt, based on the ever rising global population that needs something to eat on daily basis. What makes it even more attractive is the fact that the people are first migrating to cities thus requiring the farmers to provide with food. Basically food market is defined by several factors including population, income, and the productivity of the area someone resides in. despite the fact that people will always need something to feed on whether they have money or not, it does not pre-empt the importance of agribusiness. 

Food business is one of the oldest and the largest all over the world with each region producing and exporting its best. Nevertheless, given the similarities of food items grown by various farmers and countries, a stiff competition emerges. In terms of population, Asian continent carries the biggest share with over half the global population leaving in this region. Africa is at the second position followed by Europe, North America, South America and Oceania in that order. On the land mass, Asia is on the lead again with Africa at number two. Then comes North and South America, Europe and Oceania correspondingly. However, despite holding the vast pieces of land, it does not mean that their agricultural productivity is as high.

 

In fact, a continent like Africa and particularly the Sub-Saharan region has been a net importer despite sitting on arable lands and dependable rainfall, as well as sources of irrigation (Iafrate). Besides the land mass and the population another key factor in business is an economy of a country or a region. In that regard, North America leads, followed by Europe, South America, Asia, Oceania and African in that order. That means that the populations in the leading regions have much higher purchasing power than the poor ones and hence possibility of high returns from their markets. 

Further, the communities in the poor nations such as in Africa has majority residing in rural areas and hugely depend on subsistence farming. Majority of the farmers have not adopted irrigation and other modern farming methods that would see their productivity rise. In fact their farming techniques are still dependent on rain farming. However, despite the above economic analysis, it is important to note that the so called poor continents are recording higher growth and hence vital in business considerations.

Advantages of Each Region

  • Africa

African continent has recorded the highest economic growth rate in the world in recent years. That means that business returns will be similarly on the rise (Africa Development Bank). Again, the continent has the second biggest population which would provide a key market for food products from the United States. Besides, the trade with the continent is well protected under the AGOA (African Growth and Opportunity Act) that has cemented trade between the United States and the continent (Thomas-Greenfield). Although some nations may not qualify for that, virtually all African nations have friendly trade ties with the U.S, thus ease of doing business. Finally, the region tops the world in net exports for food products.

  • Asia

The advantage of making food exports to Asia involves the enormous population of the region. That means there is huge possibility of having the exported goods purchased in large quantities. Secondly, the continent holds position two for the average economic growth rate depicting that businesses operating within the region will experience growth. Further, with exclusion of some countries, the American government signed the Trans-Pacific Partnership that among other things allowed food products to be exported to these countries. Furthermore, using the pacific route, the region neighbors America. In fact, with presence of U.S islands in the area, the country could be view a regional player more than intruder. 

  • Europe

The continent is top in human development index with only challenge being from North America. That means the consumer purchasing power is high enough to allow them purchase the commodities in the markets. Again, the continental infrastructure is well developed for enhanced transportation and communication. Besides, the negotiations with the continent largely involve continental body the European Union thus offering the best trade negotiations. When permission is granted, the investor or trader is free to do their business all over without necessarily getting into secondary negotiations. Finally, the population here is high as well and there is positive perception of the American products.

  • South America

The continent neighbors America and has rooted cultural connections that would allow easy penetration of the American products. Currently there do not exist any trade agreement with the South America though in some cases it could be found. Again, there have been concessions with the Caribbean states on some level of trade with America.

  • Oceania

United States cooperation with Oceania is deep rooted and there exist several trade agreements that support economic relations among them. As most of these Oceania countries are located in the pacific, they are involved in the Trans Pacific Partnership that was signed in 2015. However, it is yet to be ratified.

  • North America

The continent is the home of United States with the country accounting for much of the transactions in the region. Moreover, there is the North America Free Trade Area (NAFTA) that comprises of the three countries United States, Mexico and Canada. All the three are economically and politically stable with almost full certainty on continued business cooperation. Again the infrastructural development is good thus easing cost of doing business. 

Disadvantages

  • Africa

The region has a history of conflicts and political instability which eventually lead to economic turmoil. Again, with the violence, corruption and economic mismanagement, people are left destitute and thus low purchases in the market. Additionally, the economies are not stable and there is poor infrastructural development. 

  • Asia

Despite this being a huge and viable market, there exists stiff competition from other regional players that would make it difficult to penetrate the market. Again, the food culture in the region is quite different and thus one would require local expertise to satisfy consumer preferences. The final disadvantage would be language barrier.

  • Europe

The continent fairly produces agricultural products and foods. In reality most of the countries in the block has surpluses to their produce which in turn they export. As such, it would be difficult to make a good market in the region. Further, governments in the continent have offered their farmers subsidies thus cushioning them from foreign competition. Furthermore, being a Free Trade Area on its own light gives a competitive advantage to member countries over the United States.

  • North and South America

Most of the food products produced in these regions is similar to those in America. It would therefore be a hard task to transport and compete with businesses across the border that may have similar but cheaper goods. Again, much of the population in the continent is already within the United States.

  • Oceania

The region has a small market. The total population of the region is about 30 million people and thus not big enough for expected returns considering there are other players in the region.

Best Alternatives

At this point, the best market to adopt would be the Asian one. That is based on the increasing growth rate as well as the consumer purchasing power. Further, the region and specifically china is experiencing increasing demands for food and agricultural produce to satisfy the growing population. Similarly, that is being experienced across Asia where infrastructural development is also taking place quite fast thus easing cost of doing business.