By Mary A. Marchant, Tigran Manukyan and Won Koo

International trade in processed foods has been the most rapidly growing portion of world food and agricultural trade. Historically, bulk commodities accounted for the majority of U.S. agricultural exports. Another facet in the evolution of international trade is the way agribusinesses access foreign markets. Historically, the export market was the primary means of accessing foreign markets. Foreign direct investment by U.S. agribusinesses provides a market access alternative that can be viewed as “tariff jumping.” Foreign affiliate sales that stem from FDI are not subject to import tariffs or other trade barriers, in contrast to U.S. exports of similar products.

As the world becomes increasingly interdependent, the linkages between trade and FDI become increasingly important. A key question regarding U.S. competitiveness is whether FDI displaces or enhances exports? The overall objective of this research is to model the relationship between U.S. FDI and exports for processed food products in FTAA countries and to determine whether these market access strategies are substitutes or complements.

The analysis in this study focuses on key Free Trade Area of the Americas (FTAA) countries that import a significant portion of U.S. processed foods – Canada, Mexico, and Brazil. Empirical results indicate a bi-directional complementary relationship between FDI and exports into key FTAA countries. This implies that FDI influences exports and exports influence foreign direct investment and that U.S. agribusinesses should use both FDI and export strategies to access key FTAA countries.

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