International -- Intl' Business: ITALY
SPAGHETTI WESTERN: THE SHOOT-OUT OVER PASTA (int'l edition)
Carla Strobel, an assistant store manager at Barneys in Westport, Conn., likes to cook pasta three or four times a week for her family. So during her weekly trips to the local Stop & Shop supermarket she stocks up on De Cecco brand pasta from Italy, at $1.59 a pound. "I only buy Italian--plus it's the same price as American spaghetti," she says.
The imported pasta Strobel buys may not be a bargain much longer. In mid-May, the three U.S. heavyweights in the pasta business--Borden, Hershey, and the Gooch Foods division of Archer Daniels Midland Co.--filed a petition with the Commerce Dept. arguing that more than 50 Italian pasta makers, including Abruzzi-based De Cecco, were collecting hefty government subsidies and dumping their products in the U.S. If a current Commerce investigation backs up the U.S. firms--as expected --Washington could start imposing punitive tariffs by yearend. "The Italians are benefiting from subsidies and underselling American manufacturers," charges Jula J. Kinnaird, president of the National Pasta Assn. in Arlington, Va. Italians deny they are dumping.
The pasta dispute doesn't have quite the urgency of the multibillion-dollar face-off between the U.S. and Japan over cars and auto parts. But the sudden flare-up of tension over pasta--the U.S. and the European Union have been haggling on and off for more than a decade over the issue--is another sign of fraying relations among the world's major trading partners. Protesting new European Commission wheat subsidies, Canada closed its borders to all Italian pasta imports in late April. And even as hearings on imported pasta were opened in Washington in early June, the U.S. is locked in dispute with Brussels over a host of trade issues from bananas to semiconductors to airline deregulation.
FEAST OR FAMINE. Italians are targeting the U.S. market because demand at home isn't growing. Consumption topped out at 27.3 kilograms per capita per year, and Italian shoppers are turning away from high-priced brands in favor of heavily discounted generic products. Thus, Italy's top manufacturers have had to reduce prices steadily to hold on to their local market share.
Americans, meanwhile, are downing more and more pasta. Per-capita consumption last year hit a record nine kilos. Although imports last year represented only 6% of the $3.9 billion market, they are rising by a hefty 11% a year. "Market penetration by the Italians has reached historic highs," says Paul Rosenthal, an attorney based in Washington, D.C., who is working with the three U.S. petitioners. "It has gotten to the point where U.S. industry is being injured." According to U.S. manufacturers, imported Italian pasta is being sold at an average 38 cents a pound, well below prices back in Italy.
The Italian export machine is cranking up. Parma-based Barilla Alimentare, with 35% of the Italian market, is chasing consumers on the U.S. East Coast, having set up Barilla U.S.A. in Connecticut earlier this year. One of the biggest advertising spenders in Italy, Barilla is gearing up a media blitz aimed at the U.S. "For us, the U.S. is growing and growing," says Giuseppe Menconi, head of Italy's pasta makers' association, UNIPI. "The trouble is, the U.S. producers want it all to themselves."
The Americans have reason to worry about Italians spoiling the party. Borden Inc. and Hershey Foods Corp. control about 50% of the entire U.S. pasta market, but they dominate with many regional brands rather than a single, nationwide mark. But Italian brands such as De Cecco, La Molisana, and Barilla are now recognized across the U.S. And, says a peeved Paolo Sorbelli, marketing and sales director for Perugia-based Spigadoro, the Americans "have to disguise their products as Italian by using Italian names like Primo and by placing the Italian flag on packages."
In fact, many analysts think that Italians don't have to undercut U.S. rivals on price, since consumers are prepared to pay more for imported pasta. Andrew Balducci, the owner of one of New York's best-known gourmet food stores, is worried about possible punitive tariffs. "What's happening is just sour grapes from U.S. manufacturers," he says. "If there are tariffs, the whole pasta market will be harmed." But when it comes to war, reason rarely prevails.By John Rossant in Rome