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Measuring the Effectiveness of U.S.

Rice Export
Promotion Programs
Pimbucha Rusmevichientong
Cooperative Promotion Department, Ministry of Agriculture and Cooperatives of
Thailand, Bangkok, Thailand. E-mail: pimbucha_r@cpd.go.th, pr223@cornell.edu
Harry M. Kaiser
Department of Applied Economics and Management, Cornell University, Ithaca,
14853-7801 New York. E-mail: hmk2@cornell.edu
ABSTRACT
Three issues are examined relating to U.S. rice export promotion. First, the responsiveness of
U.S. rice export demand with respect to U.S. rice export promotion is measured to determine
the quantity impacts of these programs. Second, the overall effectiveness of the programs is
examined in terms of whether the benets exceed the cost. Finally, the optimality of U.S. rice
export promotion in terms of expenditure levels is investigated. A double logarithmic
econometric export demand equation is estimated to compute the export promotion elasticity
while controlling for other demand determinants such as own price, the export price of
competing countries, incomes, and exchange rates. Average benetcost ratios are computed
for U.S. rice export promotion based on a range of excess supply own-price elasticities to
compute the effectiveness of the programs. Finally, a marginal simulation analysis is
conducted to explore the optimality of the investment in rice export promotion. [JEL Codes:
Q17, Q18, Q13]. r 2009 Wiley Periodicals, Inc.

1. INTRODUCTION
Since 1984, the U.S. government has used export promotion as a means to increase
rice exports to other countries. Three main types of government programs have been
used to encourage expansion of U.S. rice exports. First, the U.S. sells rice on
concessional credit terms and donates rice to needy countries bilaterally or through
the World Food Program (P.L. 480, Section 416(b), Food for Progress).1 Second, the
U.S. Department of Agriculture (USDA) provides export credit guarantees for
commercial nancing of U.S. agricultural exports (GSM-102, GSM-103, and
Supplier Credit Guarantee Program). Finally, USDA funds the creation, expansion,
and maintenance of foreign markets for U.S. rice through its market development
programs (the Market Access Program and the Foreign Market Development
Program). Several other USDA programs, such as the Emerging Market Program,
the Quality Samples Pilot Program, the Cochran Fellowship Program, and the
Section 108 Program also support U.S. rice exports.
The focus of the research reported here is on the effectiveness of the USDAs
market development programs for U.S. rice exports. The Market Access and
Foreign Market Development Programs (MAP and FMDP) are partnerships
between the U.S. government (through the Foreign Agricultural Service [FAS]) and
numerous nonprot private-sector commodity and regional associations. The
1

Detailed information on all these programs is provided at http://www.fas.usda.gov.

r 2009 Wiley Periodicals, Inc.


Agribusiness, Vol. 25 (2) 215230 (2009)
Published online in Wiley InterScience (www.interscience.wiley.com).
DOI: 10.1002/agr.20197

215

216 RUSMEVICHIENTONG AND KAISER

FMDP is the oldest of these market development programs and is also known as the
cooperator program. Created in 1955, FMDP embodies the FASs primary goal of
developing, maintaining, and expanding long-term export markets for U.S.
agricultural products. Under the partnership, FAS/USDA and the cooperators
pool their technical and nancial resources to conduct market development activities
outside the United States. The cooperators compete for USDA funding annually
based on the activities they propose. A past cooperator that has succeeded in
expanding export markets and contributed a substantial amount of its own funds is
more likely to get increased funding. Under FMDP, only generic promotions are
funded. Thirty-two cooperator groups received funding in 1997, covering a broad
range of agricultural commodities. One half of the $27.5 million invested by the U.S.
government that year under FMDP was spent on feed grains, wheat, and soybeans.
Most of the remaining funds went to forest product, meat, rice, and poultry
exporters.
MAP began in 1985 as the Targeted Export Assistance Program (TEAP), which
was created by the 1985 Farm Bill to offset adverse impacts from other countries
unfair trade practices on U.S. agricultural exporters. The 1990 Farm Bill replaced
TEAP with the Market Promotion Program (MPP) and shifted the focus of the
effort from compensating applicants for unfair trade to increasing U.S. agricultural
exports in promising foreign markets. The 1996 Farm Bill changed the programs
name to the Market Access Program. Like FMDP, MAP helps U.S. producers,
exporters, private companies, and other trade organizations nance promotional
activities for U.S. agricultural products. Although it funds many of the same types of
activities as the FMDP, MAP is intended for shorter-term, consumer-oriented
promotions. It is primarily used for high-value and processed products whereas
FMDP is geared towards bulk products. Unlike FMDP, branded promotions are
permitted under MAP. Both MAP and FMDP use funds from USDAs Commodity
Credit Corporation.
There are two private cooperators for U.S. rice export promotion: USA Rice
Federation (USARF) and U.S. Rice Producers Association (USRPA). Each group
receives program funds for promoting rice exports. USARF is a collection of
producer, miller, and allied industry groups whose mission is to increase rice
consumption domestically and abroad and includes the U.S. Rice Producers Group,
the U.S. Rice Millers Association, the USA Rice Council and the USA Rice
Merchants Association. Like the USARF, the USRPA has as one of its objectives
enhancing domestic and international consumption of U.S. rice; U.S. Rice Producers
is a producer group. Both USARF and USRPA are publicprivate cost-share
programs, and together they generate more than $4 million annually to promote
U.S. rice of all varieties. For 2000, FAS supported USARF with nearly $2 million
from MAP and almost $1.8 million from FMDP, accounting for 2.2% and 5.2%,
respectively, of the programs total allocations (Wang, 2005). The USARF has
supplemented its request for nearly $6 million in MAP and FMDP funds with an
additional $1.9 million in special programming requests.
MAP funding for the U.S. rice industry topped $2.9 million in 2004 and reached
$4.7 million in 2006. However, rice industry allocations from FMDP dropped from
$1.8 million in 2003 to $1.7 million in 2004 and further declined to $1.46 million in
2006. International rice promotion has been focused on educating foreign consumers
about the nutrition of rice and emphasizes the high quality, versatility, and
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U.S. RICE EXPORT PROMOTION PROGRAMS 217

dependability of U.S. rice. FMDP has a statutory baseline total allocation


for all agricultural commodities of around $34 million. MAP funding, however,
is legislated to grow over the life of the Farm Bill. It reached the goal
level established by the 1990 Food, Agriculture, Conservation, and Trade Act of
$200 million in 2006. The proportion of MAP money allocated to the U.S. rice
industry has declined over time. U.S. rice exports share of the world market
decreased from 20% of global rice exports in the 1980s to 14% in the 1990s, and
only 12% in the current decade (Patricio Mendez del Villar, personal
communication, 2007).
There are three objectives of this research. The rst is to measure empirically the
responsiveness of demand for U.S. rice exports with respect to U.S. rice export
promotion. The second is to evaluate the overall effectiveness of rice exportpromotion programs in terms of benets relative to costs. Finally, the optimality of
export promotion expenditure levels is investigated by computing a marginal benetcost ratio.
2. PREVIOUS RESEARCH
Numerous studies have investigated the impact of export promotion programs on
demand for U.S. agricultural commodities. Table 1 provides a synopsis of 16 export
promotion studies in terms of key assumptions, techniques used, and results. The
studies are organized by commodity studied. Although not exhaustive, the list
provides a good representation of the literature, and most have been published in
peer-reviewed publications. The majority of the studies have looked specically at
one commodity and country, e.g., U.S. raisin export promotion in Japan. These
partial equilibrium studies have examined the direct (and in some cases indirect)
impact of export promotion on demand for a specic commodity and have varied in
the estimation techniques used (e.g., a single equation versus a system of equations),
specication of the functional form (e.g., linear versus logarithmic), and the variables
included in the model.
The majority of studies have used single-equation estimation, usually ordinary
least squares. Ideally, an import (or export) demand model includes own price, the
price of exports from competing countries, incomes, exchange rates, population
demographics, trade barrier measures, own-export promotion, and promotion of
competing exports. Unfortunately, it is not always possible to obtain data for all of
these factors. Information about promotion by other countries, for example, is
usually very difcult to obtain and has not been included in any study known to us.
In other cases, studies had to be based on partial measures for important variables
such as U.S. export promotion expenditures. Many of the studies have included only
FAS expenditures for this variable because data on private industry promotion were
not available. In such cases, the estimates of promotions impact on demand could
be biased upwards.
Although a statistically signicant and positive promotion elasticity is a necessary
condition for export promotion to be protable, it is not a sufcient condition.
Promotion, to be protable, must increase the exported products price sufciently to
cover the per-unit cost of producing, shipping, and promoting the commodity in the
foreign market. Hence, the essential task of the economist in measuring returns to
export promotion is determining the price effect of the demand shift. This
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Japan 5 0.029
UK 5 0.133

Yes
Assumed no
promotion
price impact
Peer reviewed Yes

U.S. Fresh grapefruit

Yes

Yes

MGBCRs
France 5 7.44
Germany 5 37.10
Japan 5 5.61
Netherlands 5 51.92
UK 5 7.64
Yes

Promotion
France 5 0.014
elasticities not Germany 5 0.044
given
Japan 5 0.014
Netherlands 5 0.302
UK 5 0.014

Yes

U.S. Apples

Yes

MGBCRs
Japan 5 5.02
Netherlands 5 6.65
France 5 4.13
Canada 5 no
promotion
Yes

Japan 5 0.109
Netherlands 5 0.153
France 5 0.234

Yes

Yes

MGBCR 5 60.0

Apples 5 0.51

Export demand,
single equation

Armah and Epperson Fuller, Bello, and


Rosson, Hammig,
(1997)
Capps (1992)
and Jones (1986)
Industry and FAS
FAS three-party
Industry and FAS
programs
program and TEAP
programs
France, UK, Germany, Japan, Canada,
All countries
Japan, Netherlands
France, Netherlands
in which U.S. had
programs
19841992 (panel data) 19691988 quarterly
19721981

U.S. Orange juice

19731982
(panel data)
Import demand, Export demand, single Import demand,
single equation equation
single equation

Singapore 5 0.055
UK 5 0.016
For all countries,
Estimated
Japan
MGBCR 5
benetcost AGBCR 5 5.13
5.51
ratios
MGBCR 5 0.42
UK AGBCR 5 15.29
MGBCR 5 3.19

Estimated
promotion
elasticities

U.S. Orange juice

Kaiser, Liu, and


Lee and Brown
Consignado (2003) (1986)
Industry and
Three-party
FAS programs
program
Japan, UK
13 European
countries

California raisins

Key Results From Economic Impact Studies on U.S. Export Promotion

Activities
evaluated
U.S. export
promotion
in:
Period of
19651998
estimation
Type of model Import demand,
single equation

Study

TABLE 1.

Yes

NA

NA

Import demand,
LES-AIDS
demand
systems

19621993

Richards and
Patterson (1998)
Industry and
FAS programs
Singapore, UK

U.S. Apples

218 RUSMEVICHIENTONG AND KAISER

Single equation,
export demand
0.21

Agribusiness

No
Assumed no
promotion
price impact
Peer reviewed Yes

Philippines 5 0.26
Thailand 5 0.045
Taiwan 5 0.54
ABCR: 4.19.4
Estimated
benetcost MBCR: 4.14.2
ratios

Estimated
promotion
elasticities

Industry and FAS


programs
Asian countries

Activities
evaluated
U.S. export
promotion
in:
Period of
estimation
Type of model

19761994

Alston et al.
(1997)

Calif. table
grapes

Continued

Study

TABLE 1.

Yes

Yes

Yes

MGBCR
Asia 5 6.45
EU 5 6.75

Third-party
MGBCRs
Japan 5 1.29
Philippines 5
11.77
Thailand 5 16.36
Yes

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No

Yes

MGBCR 5 5.85

$1000 in promotion
increased exports by
4.5 tons

19861996
(monthly data)
Event analysis

Industry and FAS


programs
Japan

Weiss, Green, and


Havenner (1996)

Onunkwo and
Epperson (2000)
Industry and FAS
programs
Asia, EU

U.S. Walnuts

U.S. Pecans

19861996
(panel data)
Import demand, Export demand,
single equation
single equation
Third party
Asia 5 0.98
Japan 5 0.03
EU 5 0.06
Philippines 5
0.53
Thailand 5 0.87

Lanclos,
Devodoss, and
Guenthner (1997)
Industry and
FAS programs
Japan, Mexico,
Philippines,
Thailand
19781993

U.S. Frozen
Potatoes

Yes

Yes

MGBCRs
Japan 5 4.95
Taiwan 5 5.94
Hong Kong 5
3.69

FAS, FMDP, and


MPP
Japan, Taiwan, Hong
Kong, Singapore,
South Korea
19861992
(panel data)
Import demand,
single equation
Three models range
from 0.2788
to 0.85

Halliburton and
Henneberry (1995)

U.S. Almonds

Yes

NA

NA

Armington trade
model
Japan 5 0.53
South Korea 5
0.045
Hong Kong 5
0.21

19651985

Six countries in
the Pacic Rim

Solomon and
Kinnucan
(1993)
FAS programs

U.S. Cotton

U.S. RICE EXPORT PROMOTION PROGRAMS 219

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MGBCR for beef ranged


from 15.56 to 18.11
Yes

Yes

Yes

Yes

Yes

SOYMOD world
market model
Soybeans: EU 5 0.0234
Japan 5 0.0367
ROW 5 0.068
Soy meal: EU 5 0.0445
Japan 5 0.0733
ROW 5 0.0516
Soy oil: EU 5 0.0446
Japan 5 0.0323
ROW 5 0.0156
AGBCR:13.5 (19781989)
5.3 (19901994)
11.3 (19781994)
No

Inverse almost ideal


demand system
Japan price exibilities wrt
promotion ranged from
0.11 to 0.128

MGBCR 5 15.62 to 47.32


for all four countries

19691996

19731994

Williams et al.
(1998)
Industry and FAS
programs
EU, Japan, ROW

U.S. Soybeans

No

Yes

AGBCR 5 16.0

Short-run 5 0.0135
Long-run 5 0.15

Armington trade model

19751992

World

FAS programs

Dwyer (1995)

All U.S. Food Exports

Note. FAS 5 Foreign Agricultural Service; TEAP 5 Targeted Export Assistance Program; LES-AIDS 5 linear expenditure system-almost ideal demand system;
U.S. 5 United States; UK 5 United Kingdom; AGBCR 5 average gross benetcost ratio; MGBCR 5 marginal gross benetcost ratio; NA 5 not applicable;
FMDP 5 Foreign Market Development Program; MPP 5 Market Promotion Program; EU 5 European Union; ROW 5 rest of world. Statistically signicant at
conventional signicance levels, i.e., at least the 10% level.

Estimated
benetcost
ratios
Assumed no
promotion price
impact
Peer reviewed

Estimated
promotion
elasticities

Period of
estimation
Type of model

Japan

South Korea, Taiwan,


Hong Kong,
Singapore
19841994
(panel data)
Import demand, single
equations
Korea 5 0.598
HK 5 0.019
Taiwan 5 0.047
Singapore 5 0.034

U.S. Red Meat


Comeau, Mittelhammer, and
Wahl (1997)
FAS, MPP, and TEAP

U.S. Red Meat

Le, Kaiser, and Tomek


(1998)
FAS, FMDP, and TEAP

Continued

Activities
evaluated
U.S. export
promotion in:

Study

TABLE 1.

220 RUSMEVICHIENTONG AND KAISER

U.S. RICE EXPORT PROMOTION PROGRAMS 221

requires specication of the supply side of the market. If the supply curve for
any of the markets in question is horizontal, there can be no price effect
from promotion and thus no benet to U.S. producers in terms of increased
producer surplus. Thus, an implicit assumption of export promotion evaluations is
that the U.S. is a large country in the sense that its export levels affect the
market price.
Once the price effect of promotion has been determined, the benet to producers
is calculated using the change in producer surplus. To obtain a benetcost ratio
(BCR), the gain in producer surplus is divided by some measure of promotion cost,
either total outlays for promotion or producer incidence of promotion costs. The
majority of studies to date have computed BCRs by simulating an export demand
model with the assumption that supply is perfectly price elastic. The problem with such
studies is that if supply is perfectly elastic, then price is constant, allowing for no
change in producer surplus. In essence, these studies equate gains in export revenue
with gains in producer surplus, which is not true when supply is perfectly elastic
(Kinnucan & Mryland, 2001).
The majority of studies reviewed here show a positive relationship between
export promotion expenditures and export demand. For example, of the 16 studies
listed in Table 1 that analyzed individual commodities, eight found statistically
signicant, positive export promotion effects for all of the countries and
commodities evaluated. The remaining seven studies obtained mixed results, with
some commodities and/or importing countries demonstrating no measurable
demand effect.
What is less clear from the literature is the economic benets of export
promotion. Although many of the studies report BCRs, most of those ratios are
based on revenue gains rather than on gains in producer surplus, the preferred
metric. Indeed, of the 16 studies shown in Table 1, only two incorporated a supply
response in the simulation of BCRs. Also, the majority of the studies estimated
marginal rather than average BCRs. In determining private or social returns to
promotion, the relevant metric is the average BCR because it measures the return to
all dollars expended, not simply the last dollar. Marginal BCRs are more
appropriate for determining whether the level of promotion was too low or too
high relative to the economic optimum. Of the 16 studies listed in Table 1, only three
estimated an average BCR.
In the current study, we use a single-equation, instrumental-variable regression
approach to estimate export demand for U.S. rice. The constant price assumption
(horizontal supply function) is relaxed by introducing an equation with a constant
elasticity for excess supply and average BCRs are computed for a range of assumed
own-price elasticities of excess supply. We also compute and report condence
intervals for the BCRs. Finally, we estimate marginal BCRs to explore the optimality
of rice export promotion. The details of the methods used to evaluate rice export
promotion in this study are addressed next.
3. ECONOMETRIC MODEL AND DATA
In this study, we estimate an export demand equation for U.S. rice in logarithmic
form using annual data for 1984 through 2005. A longer time series would have been
preferable, but there was no U.S. rice export-promotion program prior to 1984. At
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222 RUSMEVICHIENTONG AND KAISER

the advice of a reviewer, rice exports from Japan, South Korea, and Taiwan were
deleted because U.S. rice export promotion is not targeted to these countries, and
there were World Trade Organization (WTO) sales to these countries from
19952005 and therefore export promotion had no impact on these sales. To net
out the effect of other U.S. export programs that enhance U.S. rice exports (e.g.,
Export Enhancement Program, PL480, Section 416(b), Food for Education, Food
for Progress, and CCC African relief exports), the dependent variable is U.S. rice
exports net of these other export programs (and Northeast Asia). Rice exports are
measured on a milled basis and are for each calendar year.
The following export demand determinants are included to ascertain their impacts
on annual export demand for U.S. rice: price for U.S. milled rice exports in dollars
per ton, prices for Thai and Vietnamese milled rice exports (dollars per ton),2 the
sum of gross domestic products (GDPs) for major U.S rice importers,3 and U.S. rice
export promotion expenditures. All prices and GDP are deated by the world price
index. Export promotion expenditures4 are multiplied by a measure of world
currency values relative to the U.S. dollar (Special Drawing Rights)5 and then this
product is deated by the world price index.6
Thai and Vietnamese rice export prices are included because the two countries are
the major rice exporters in the world and the chief competitors to U.S rice in various
markets. The relationship between the competitors prices should be positive because
their products are substitutes for U.S. rice. The sum of the GDPs for major U.S rice
importers should have a positive impact on U.S. rice exports. Unlike previous studies,
which only considered USDA/FAS expenditures for U.S. rice export promotion due
to lack of data (see, for example, Dwyer, 1995 and Wang, 2005), this analysis
combines USDA/FAS MAP and FMDP expenditures with private cooperator
expenditures (USARF and USRPA) to measure the total promotion impact. Because
previous research (e.g., Le, Kaiser, & Tomek, 1998; Pritchett, Liu, & Kaiser, 1998;
2

The U.S. price used is for ]2, 4% brokens. The Thai rice (long grain white rice [LGWR]) price used is
for 100% 2nd grade, and Vietnamese rice price used is LGWR 5% brokens. FAO, which is the only source
of data available to us, only reports rice prices for long grain rice. The annual prices are measured as the
weighted average gross unit values (GUV) for the nancial year. (GUV is dened as the total gross value
of production of the commodity, at wholesale prices received in the market places.) Average gross unit
values are calculated by dividing the gross value of each commodity produced by the total production of
each corresponding commodity.
3

The sum of the GDPs for importers of U.S. rice include the following countries. Middle Eastern and
African countries include Saudi Arabia, Turkey, Jordan, South Africa, and Ghana. Latin America and the
Caribbean include Mexico, Brazil, Peru, Haiti, Costa Rica, Nicaragua, Jamaica, the Dominican Republic,
and Honduras. Other countries include Canada and the twenty-ve-country EU.
4
State credit guarantees, which may have boosted U.S. trade during this period, were not included in the
model. Hence, the estimated promotion elasticity may be somewhat biased upwards if these credit
guarantees indeed enhanced exports.
5
Created by the IMF in 1969, the SDR is dened as a basket of currencies, today consisting of the Euro,
Japanese yen, pounds sterling, and U.S. dollar. It is calculated as the sum of specic amounts of the four
currencies valued in U.S. dollars on the basis of exchange rates quoted at noon each day in the London
market.
6

We include SDR as a proxy for exchange rates to adjust the purchasing power of export promotion
dollars. Dwyer (1995) also used this approach. Basically, its inclusion adjusts for the purchasing power of
U.S. dollars when exchange rates change over time, e.g., a devalued dollar will have the effect of lowering
the impact of export promotion expenditures, and hence it should be included. It is somewhat analogous
to adjusting monetary series for ination.
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U.S. RICE EXPORT PROMOTION PROGRAMS 223

Schmit & Kaiser, 1998) has indicated that the carryover effect of promotion is
generally less than one year, the annual rice export demand model does not include
lagged export promotion. Furthermore, preliminary regressions with 1- and 2-year
lags resulted in statistically insignicant coefcients for the lagged variables.
There are other factors that likely inuence U.S. rice exports such as trade barriers
from other countries and domestic U.S. rice programs such as the marketing loan
program, which articially make the U.S. more competitive in the world market.
However, because this is an aggregate export demand model, it is impossible to
adequately measure these impacts. Regarding the omission of U.S. domestic rice
programs, the results presented here can be interpreted as U.S. export promotions
impact on exports given the presence of domestic programs, which have been in
existence for the duration of the time period being evaluated here.
The following data sources are used for the variables: the volume of U.S. rice
exports comes from FAS, USDA, and the International Rice Research Institute
(IRRI), the volume of U.S. rice exports from other U.S. export programs comes
from annual issues of U.S. Rice Situation and Outlook Yearbook. The unit value of
paddy-milled rice exports for the U.S., Thailand, and Vietnam comes from the
United Nations Food and Agriculture Organization (FAO). The sum of the GDPs
for major U.S. rice importers comes from The Economist Intelligence Unit
(www.eiu.com). Annual export promotion expenditures for both government and
cooperators come from FAS and USDA. The special drawing right (SDR) comes
from the International Monetary Fund (IMF).
4. ECONOMETRIC RESULTS
To address the potential problem of price endogeneity, we use an instrumentalvariable regression approach in which the U.S. export price is regressed on a set of
variables, which includes all exogenous variables from the demand equation. Hence,
the model consists of two equations: (a) a price equation used as an instrumental
variable for the endogenous U.S. export price; and (b) a demand equation for U.S.
rice exports, which includes the predicted U.S. export price from the price equation
as one of the exogenous (instrumental) variables.
The estimated export demand equation for U.S. rice is
log USEXt 10:35  3:27logUSMILPWIVt 1:65 logTHMILPW t 1:37 logVIETMILPWt
2:32 3:50
4:52
2:60
2:31 logGDPSUMWt 0:21 logEXPROWSt
6:15
2:04

R2 0:81; DW 2:08

where USEX is U.S. rice exports net of Northeast Asia (Japan, South Korea, and
Taiwan) and all other export programs (e.g., Export Enhancement Program, PL480,
Section 416(b), Food for Education, Food for Progress, and CCC African relief
exports), USMILPWIV is the predicted export price instrument for U.S. milled rice
from the price equation, THMILPW is the Thai export price for milled rice,
VIETMILPW is Vietnams export price for milled rice, GDPSUMW is the sum of
GDP for major countries importing rice from the U.S., and EXPROWS is export
promotion expenditures (government and private) for U.S. rice. The values in
parentheses under the coefcients are the respective t values, R2 is the adjusted
coefcient of determination, and DW is the Durbin-Watson statistic. Because
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224 RUSMEVICHIENTONG AND KAISER

autocorrelation is detected, we append a moving average error term to the regression


so the resulting equation is subsequently free from autocorrelation. The equation ts
the data well; the adjusted R2 indicates that the equation explains about 81% of the
variations in U.S. rice export demand. The elasticity signs are consistent with
economic theory and all estimated coefcients are statistically signicant at the 5%
signicance levels. A variance ination factor (VIF) is employed to test for
multicollinearity. It measures the impact of collinearity among the independent
variables in a regression model on the precision of estimation and expresses the
degree to which collinearity among the predictors degrades the precision of an
estimate. Typically, a VIF value greater than 10.0 is of concern. In this study the
VIF, on average, is 2.91, which indicates no multicollinearity.
The estimated equation indicates that the price of U.S. rice is an important factor
in explaining annual variations in demand for exports. The estimated own-price
elasticity is 3.27. Unlike domestic demand, it is common, indeed expected, to nd
elastic own-price elasticities for export demand of commodities (Kaiser, Liu, &
Consignado, 2003), for example, found elastic price elasticities for demand for raisin
exports).
We also nd that the prices received for rice exports from other countries that
compete with the U.S. are important factors in the equation. The cross-price
elasticities of U.S. rice export demand with respect to Thai and Vietnamese rice
export prices in this analysis are 1.65 and 1.37, respectively. These results suggest
that both countries are major competitors of the United States.
The sum of deated GDPs for the major U.S. rice importers is an important
determinant of the export demand for U.S. rice. The coefcient associated with GDP
in countries that are top U.S. rice importers is 2.31, indicating that U.S. rice is a
normal good.
Finally, the coefcient associated with the rice export promotion variable is
positive and statistically different from zero. The statistical evidence supports the
notion that U.S. rice export-promotion programs, which are publicprivate
contributions, have the effect of increasing the export demand for U.S. rice. The
estimated export promotion elasticity is 0.21.

5. SIMULATION ANALYSIS
According to the econometric results, it is clear that rice promotion expenditures
have a positive and statistically signicant impact on U.S. rice exports to the world
market. Next, we simulate the estimated equation to address the remaining
objectives of this study. Two scenarios are of interest: (a) a baseline scenario in
which export promotion programs are in effect and expenditures on promotion are
set at historic levels, and (b) a counterfactual scenario with no U.S. rice export
promotion. In the rst scenario, all rice export-demand determinants are set equal to
historic levels. The second scenario is identical to the rst except that U.S. rice
export-promotion expenditures are set to a small amount (note that due to the
logarithmic functional form, export promotion expenditures are set proportionally
to 2% of historic levels in this scenario because the log of zero is undened). The
difference between the two scenarios gives the total impact of the export promotion
programs on U.S. rice exports to all trading partners
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U.S. RICE EXPORT PROMOTION PROGRAMS 225


4000000
3500000

Metric tons

3000000
2500000
2000000
1500000
1000000
500000
0
1984

1989

1994

Base Scenario

Figure 1

1999

2004

No program

Simulated U.S. Rice Exports With and Without Export Promotion.

Figure 1 illustrates the simulation results for U.S. rice exports. Collectively for
1984 through 2005, FMDP and MAP expenditures increased U.S. rice exports by a
total volume of 27,590,233.91 metric tons and an average of 1,254,101.541 metric
tons per year. In percentage terms, export promotion increased U.S. rice exports by
56% over this period. Hence, U.S. rice export promotion has had a large impact on
total U.S. rice exports.
5.1 Average Benefit Cost Ratios
Although the results indicate a positive impact of export promotion on U.S. rice
exports, the impact that promotion has on industry producer surplus compared with
its cost remains a key concern. The increase in export demand due to promotion just
described assumes that all other demand determinants, including price, would
remain constant. However, as argued earlier, an increase in demand generally will
cause price to increase as well, provided the demand increase is not perfectly
offset by an increase in quantity supplied (as in the innite-supply response case).
Hence, to evaluate the full effect of U.S. rice export-promotion programs
on quantity and price, one must incorporate an excess supply response for U.S.
rice into the model.
We follow an approach similar to the one used by Alston, Chalfant, Christian,
Meng, and Piggott (1997). In this approach, the excess supply response is
incorporated using a constant elasticity form and sensitivity analysis is conducted
on a range of assumed own-price supply elasticities. The simulation procedure begins
on the export demand side, where predicted quantities of rice export demand (QD
t )
are simulated from the estimated export demand equation. Excess supply is dened
in constant elasticity form and equated with predicted export demand quantities.
Changes in export demand due to U.S. rice export promotion then affect the level of
production and price. Specically, the excess supply function is dened as
e
QES
t At Pt
e
where At QD
t =Pt and e is the price elasticity of excess supply. Pt is the price for
U.S. exports of rice in year t. At is varied from year to year to ensure that, given the

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226 RUSMEVICHIENTONG AND KAISER

actual values of prices and other export demand determinants each year, the excess
supply equation passes through the point dened by the predicted quantity from the
export demand model and the actual U.S. rice price. The change in net benets due
to export promotion programs is computed for each year (1984 through 2005) as the
difference in producer surplus (DPS) between the two scenarios, which mathematically equals
DPSt Pt Qt  P0t Q0t =1 e
where PtQt represents the scenario with export promotion programs and P0t Q0t
represents the scenario without export promotion programs.
By equating the equations for excess supply and export demand and solving for
world market equilibrium, we obtain actual U.S. prices and predicted quantities
(from the export demand model) using the historic values for the explanatory
variables. We then simulate the counterfactual scenario assuming no export
promotion expenditures by setting the value close to zero (2% of actual expenditures
in this case). Excess supply elasticities are chosen between 2 and 8 to examine a
broad range of supply elasticities. Because these are excess supply elasticities, we use
a relatively elastic range of possibilities (Alston et al., 1997).
Table 2 presents average annual impacts and BCRs (for 1984 through 2005) for
U.S. rice export promotion efforts for the various assumed own-price elasticities of
excess supply. Promotion of U.S. rice exports has had a positive impact on the
export price over this period under all supply response scenarios. The average
increase in price ranges from $51.05 per ton in the case of the most inelastic supply
response (e 5 2) to $24.90 per ton in the case of the most elastic supply response
(e 5 8). The positive price impacts decline as the assumed supply response gets larger
because producers under larger supply responses dampen the positive price impacts
of the increased demand by increasing the quantity supplied to the world market
relative to smaller supply response scenarios. Focusing on the mid-point elasticity of
5, which is plausible for export supply, the average increase in price is $33.45 per ton.
In other words, had there not been U.S. rice export promotion, the average rice
export price for 1984 through 2005 would have been $33.45 (or 9.6%) lower than it
actually was.
U.S. rice export promotion has had a positive impact on producer surplus over this
period as well. The average increase in producer surplus due to export promotion
ranges from $98.0 million per year in the case of the least elastic supply response
(e 5 2) to $42.1 million per year in the case of the most elastic supply response
(e 5 8). The same negative relationship between supply elasticities and producer
TABLE 2. Average Annual World Market Impacts and BenetCost Ratios Due to U.S.
Rice Export Promotion, 19842005
Own-price elasticity of excess supply

Change in producer price ($/ton)


Change in producer surplus (million $)
Change in promotion cost (million $)
Benetcost ratio
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51.05
97.99
7.87
14.48

43.44
80.23
7.87
11.86

37.8
67.91
7.87
10.04

33.45
58.86
7.87
8.7

30.00
51.93
7.87
7.68

27.2
46.5
7.87
6.87

24.9
42.05
7.87
6.21

U.S. RICE EXPORT PROMOTION PROGRAMS 227

surplus occurs. At the midpoint elasticity (e 5 5), the increase in average producer
surplus is $58.9 million. Hence, it is clear that U.S. export promotion has had a
signicant and positive impact on industry prots since 1984.
How does the gain in producer surplus compare with the costs of export
promotion? To answer that question, we compute an average BCR (see the bottom
row of Table 2). The average BCR exceeds 1.0 for every supply response considered
in the simulation. For the least elastic supply response (e 5 2), the average BCR is
14.48. This implies that, on average over the period 19842005, the benets of the
promotion programs have been more than 14.48 times greater than the cost. At the
opposite end of the spectrum in supply response (e 5 8), the average BCR is 6.21,
implying that the benets of the rice promotion programs are 6.21 times greater than
the cost. Given the wide range of supply responses considered in this analysis and the
fact that the BCR exceeds 1.0 in all cases, there is signicant evidence that U.S. rice
export promotion has been protable for the industry. The average BCR for the
midpoint elasticity (e 5 5) is 8.70, i.e., the benets of U.S. rice export promotion are
8.7 times greater than the cost.
Questions often arise about the accuracy of such estimates of BCRs in economic
evaluations of commodity promotion programs. The resulting BCRs are generally
large because promotion expenditures are exceedingly small relative to product value
so only a small demand effect is needed to generate large positive returns. For
example, average U.S. rice export promotion expenditures in 2005 were 1% of the
value of rice sales by farmers. Still, this relatively small investment in U.S. rice export
promotion has increased producer surplus by more than $68.0 million per year since
1994 (based on e 5 5). Therefore, the resulting BCR is quite large.
To make allowances for the error inherent in any statistical estimation, we
calculate a 95% condence interval for the average BCRs and present the lower
bounds in Table 3. The estimated lower bound of the average BCR for the smallest
assumed supply response for the period 19842005 is 7.37. This result demonstrates
that one can be condent 95% of the time that the true average BCR for this
assumed supply response is not less than 7.37. The estimated lower bound for the
average BCR for the highest assumed supply response for the period is 3.13. Hence,
it is reasonable to conclude that the lower bounds from the condence intervals give
credence to the previous nding that the benets rice promotion programs have been
considerably greater than the cost.
5.2. Marginal Benefit Cost Ratios
To explore the optimality of the rice export promotion expenditure levels, we
conduct a marginal simulation analysis. We use the estimated demand equation to
simulate the outcome of an additional scenario and compare the results with the
baseline scenario. In this third scenario, we increase export promotion expenditures
TABLE 3. Lower Bounds of 95% Condence Interval for BenetCost Ratios Due to U.S.
Rice Export Promotion, 19842005
Own-price elasticity of excess supply
2
Benetcost ratio lower bound

7.37

3
6.02

5.1

4.4

6
3.88
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3.46

8
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228 RUSMEVICHIENTONG AND KAISER


TABLE 4.

Marginal BenetCost Ratiosa Due to Rice Export Promotion, 19842005


Own-price elasticity of excess supply

Changeb in producer price ($/ton)


Changeb in producer surplus (million $)
Changeb in promotion cost (million $)
Marginalb benetcost ratio

0.14
0.32
0.08
4.53

0.11
0.27
0.08
3.8

0.1
0.23
0.08
3.29

0.09
0.2
0.08
2.89

0.08
0.18
0.08
2.57

0.07
0.16
0.08
2.33

0.065
0.15
0.08
2.12

The marginal impact of a 1% increase in export promotion expenditures on U.S. rice exports.
The change in producer prices, producer surplus, promotion costs, and marginal benetcost ratio in a
particular own-price elasticity of excess supply is an average from 1984 to 2005.
b

by 1% above the baseline scenario levels while keeping all other exogenous variables
the same as before. The marginal BCR is computed as the change in producer
surplus between the 1% increase scenario minus the baseline scenario divided by the
change in export promotion costs between the 1% increase scenario minus the
baseline scenario.
The estimated marginal BCRs are presented in Table 4. All of the values exceed
1.0. For example, for the least elastic supply response (e 5 2), the marginal BCR is
4.53, indicating that an incremental $1.00 increase in promotion would yield $4.53 in
producer surplus to the rice industry. For the most elastic supply response (e 5 8),
the marginal BCR is 2.12, still greater than 1.0. For the midpoint elasticity (e 5 5),
the marginal BCR is 2.89. Because all of the marginal BCRs are greater than 1 for all
elasticities considered, the rice industry should consider investing more funds in
export promotion since doing so would return benets that exceed the cost. These
relatively large marginal BCRs are also common for agricultural promotion
programs, suggesting that these collective-action programs are frequently underfunded from an economic optimality point of view (see Table 1 for marginal BCRs
for other commodities).

6. CONCLUSION
The objectives of the study were to measure the responsiveness of U.S. rice export
demand with respect to U.S. rice export promotion, evaluate the overall effectiveness
of the promotion programs, and investigate the optimality of export promotion
expenditure levels. An econometric export demand equation in double logarithmic
function was estimated to measure export promotion elasticity while controlling for
other demand determinants such as own price, the export price of competing
countries, incomes, and exchange rates. The results support the hypothesis that the
export promotion programs have had a positive impact on demand for U.S. rice
exports. The export promotion elasticity was computed to be 0.21, which is
statistically signicantly different from zero.
Furthermore, simulation procedures were employed to estimate the magnitude of
the impact of export promotion programs on total rice exports. The simulations
indicated that U.S. rice export promotion programs increased the quantity of the
industrys exports by an average of 1,254,101.541 metric tons (or 56%) per year.
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U.S. RICE EXPORT PROMOTION PROGRAMS 229

Average BCRs also were computed for U.S. rice export promotion based on a
range of excess supply own-price elasticities (from 2 to 8). The BCRs ranged from
14.48 for the most inelastic estimate to 6.21 for the most elastic. Because all of these
values are considerably greater than 1, the main policy conclusion is that the benets
of export promotion programs in terms of enhancing producer welfare have been
much greater than the cost of the programs.
Finally, a marginal simulation analysis was conducted to explore the optimality of
the investment in rice export promotion. The marginal BCRs over the period of
study were estimated to be between 7.37 and 3.13 for own-price elasticities of excess
supply between 2 and 8. Thus, all results indicate that the U.S. is underinvesting in
rice export promotion from an optimality standpoint.
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Pimbucha Rusmevichientong is a researcher in business development of crops and products


division at Cooperative Promotion Department of Ministry of Agriculture and Cooperatives of
Thailand. She received her M.S. in Applied Economics and Management from Cornell University
in 2008 with full scholarship funding from the Thai Government, and her B.A. in Economics from
Chulalongkorn University, Thailand in 2005.
Harry M. Kaiser is the Gellert Family Professor of Applied Economics and Management at
Cornell University, and director of the Cornell Commodity Promotion Research Program. He
received his Ph.D. in Agricultural and Applied Economics from the University of Minnesota in
1985, and his B.A. in Economics and History from the University of Wisconsin-Eau Claire in
1979. His research interests are in the area of marketing, policy, industrial organization, and
quantitative methods.

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