CONTENTS

Export Promotion and Import Demand for U.S. Red Meat in Selected Pacific Rim Countries

Editor's Notes

Assessing the Effectiveness of MPP Meat Advertising and Promotion in the Japanese Market

Director’s Corner

Next Meeting

Assessing the Effectiveness of MPP Meat Advertising and
Promotion in the Japanese Market

by Allison Comeau, Ron C. Mittelhammer, and Thomas I. Wahl

The U.S. government allocates millions of dollars annually to fund advertising and promotion programs in overseas markets. One such current program is the Market Promotion Program (MPP) which is sponsored by the Foreign Agriculture Service (FAS).

Many U.S. producers have attempted to introduce their products into the Japanese market because of the potentially large demand for high quality U.S. products. Meat producers in the U.S. understand this potential and have applied to the FAS for MPP funds to assist them in their advertising and promotional efforts. Through the use of these advertising and promotion monies, U.S. producers are aiming to increase both the value and market share of their products relative to the value and market shares of competing suppliers.

Assessing the effectiveness of advertising and promotion dollars is an important undertaking for both the FAS and the producer groups that fund such programs. In particular, the results of such an assessment are key to the development of future programs and/or amendments to current programs. The focus of this study is to provide an assessment of the effectiveness of promotion and advertising efforts in enhancing U.S. meat demand in the Japanese market.

Although Japan has been an area of consumer demand research for some time, there has been little explicit research done on the effectiveness of advertising and promotion of U.S. meat products in Japan. There are many alternative models, however, that have been used to analyze the demand for meat in this market. These have been developed by numerous authors and summarized by Smallwood, Haidacher, and Blaylock (1989), who categorize the research that has been done into two distinct groups, those that focus on income and price responses, and those that focus on income and socioeconomic determinants. The research in this paper adds to the literature in the first group by constructing an econometric model of the effects of MPP and Targeted Export Assistance (TEA) advertising and promotion expenditures on the demand for U.S. meats in Japan.

In order to assist U.S. producers in entering and expanding foreign markets, the U.S. government implemented a program known as the Market Promotion Program (MPP ) that is overseen by the Foreign Agricultural Service (FAS). The MPP group.allocates monies directly to producer groups for generic and branded advertising, and promotion programs in foreign countries with the goal of enhancing the market share of U.S. producers relative to competing suppliers.

The MPP was authorized by the Food, Agriculture, Conservation, and Trade Act of 1990 and replaced the Targeted Export Assistance (TEA) Program. Like the TEA that it replaced in 1990 and the Foreign Market Development (FMD) program that has existed since 1955, the MPP takes a long term market development approach intended to encourage the development, maintenance, and expansion of commercial export markets for U.S. food and agricultural products. Prior to 1986, the FAS had only devoted $6 million a year to these programs through the FMD, whereas by 1991 the FAS commitment had grown to $148 million of which $143 was in TEA/MPP funds and $5 million in FMD funds.

The main goal of the MPP, market development, is broader than the goal of the TEA program which was to counter or offset the adverse effect of unfair foreign trade practices on U.S. agricultural commodity exports. However, many of the guidelines that govern the MPP are very similar to those that governed the TEA program. In order to qualify for the MPP funds, eligible trade organizations must submit marketing plans to the FAS that meet established guidelines, which include a degree of matching funds supplied by the organization. Also, within these guidelines is the need to prove that unfair trade practices exist that hinder demand growth of U.S. commodities in the market in question. The funding of the advertising/promotional activities is shared by the USDA and the trade or producer. If the trade/producer group does not contribute matching funding, then monies will be unavailable from the FAS. In the area of beef and pork promotion, the U.S. Meat Export Federation (USMEF), and in the case of poultry, the USA Poultry and Egg Export Council (PEEC), are the commodity group representatives that are responsible for securing the advertising/promotion funds from the FAS. These funds are then used to carry out generic advertising/promotion campaigns in Japan. The advertising/promotion funds that were received by these two organizations were relatively small until 1987, which is the year in which the allocated monies increased substantially. Based on an inverse AIDS model of Japanese consumer demand for meat analyzed in this study, it can be concluded that MPP/TEA advertising and promotion expenditures in support of U.S. beef demand has been a significant success in strengthening Japanese demand for U.S. beef. Furthermore, the positive effect of these expenditures did not dissipate in the period in which the expenditures occurred, but rather exhibited positive carryover effects in subsequent periods. Insufficient evidence was found to make a similar claim regarding advertising and promotion expenditures in support of either U.S. pork or U.S. poultry demand.

One cannot conclude on the basis of this study that pork and poultry advertising and promotion expenditure is necessarily ineffective in supporting the demand for U.S. pork and poultry. It may be the case that such expenditures have served to protect or maintain market share in the face of competition from other domestic and foreign suppliers, even though such efforts, at the level they were conducted, have not expanded market share. It is known that Australia, New Zealand, and other foreign competitors actively promote their meat products in Japan, and in the absence of the availability of data on these competitive advertising and promotion activities, the share-protecting aspects of advertising and promotion activities can not be appropriately modeled or assessed. In fact a zero impact of expenditures in the context of the current model in consistent with the maintenance of market shares.

It should also be noted that the MPP/TEA program in support of U.S. beef demand is notably larger in scope than either the pork or poultry program. In particular,the beef program is nearly three times the size of the poultry program and over four times the size of the pork program. It may be that the latter two programs have not achieved the critical size necessary to have market-share expanding effects on consumer demand.

Finally, as with all econometric studies, the results of the analysis are dependent on the data used and the functional forms of the models estimated. While the model appeared to fit the historical data very well, and although the IAIDS model utilized in the analysis is a flexible functional form, there are a number of other flexible functional form choices that could be investigated. Also, enriching the data set with information relating to competitors’ advertising and promotion efforts would provide an expanded context within which to judge the effectiveness MPP/TEA expenditures. The authors were unable to secure data on foreign competitors’ advertising and promotion efforts. It could be profitable for future research to investigate the sensitivity of the conclusions contained in this paper to other forms of demand systems and to other methods of accounting for advertising effort within the demand systems. Securing data regarding foreign competitors’ advertising and promotion efforts could also lead to refined analyses of the effectiveness of MPP/TEA efforts that may enhance or alter the conclusions of the current study.

Reference:

Smallwood, D.M., R.C. Haidacher, and J.R. Blaylock.
“A Review of the Research Literature on Meat Demand.” in The Economics of Meat Demand, R.C. Buse, Ed. (1989):93-124.