Cola Works Where Currency Can’t in Global Barter System
The $3-billion deal signed between Pepsico and the Soviet Union on Monday hinges on one of the oldest forms of trade: barter.
Lacking foreign currency or weighed down with debt, many nations rely on barter--referred to as counter-trade in international circles--to buy goods from eager sellers. Many U.S. firms have also discovered barter as a handy way to deal with surplus inventory, space and services.
Under the agreement with Pepsico, the Soviets, whose ruble cannot easily be exchanged for dollars in world markets, will barter vodka and oceangoing ships for syrup used to make Pepsi-Cola. Pepsico will take its profits from the proceeds raised from selling the Soviet-made vodka and ships to the West.
In the past, Saudi Arabia has swapped oil to buy warplanes from Britain, and Honduras has traded bananas to buy Soviet fertilizer.
The 1980s saw an increase in the use of counter-trade after the Third World debt crises left many nations without the foreign currency to pay for new goods from Western countries. Some studies estimated that barter made up as much as 20% to 30% of all world trade in the mid-1980s.
Counter-trade has become a pretty common form of exchange in international deals involving aerospace equipment. McDonnell Douglas, for example, has found buyers for Yugoslav steel and agricultural products so that nation could afford to pay for the company’s aircraft.
“It works very well,” said McDonnell Douglas spokesman Don Hanson. Counter-trade “helps them generate dollars to buy our product.”
But barter is not limited to international deals. Major American firms barter about $1 billion worth of goods and services annually. Organized exchanges reported $700 million worth of domestic trade last year, according to Matthew O’Hayer, president of Barter Exchange, which claims 5,000 members.
O’Hayer said his Austin, Tex.-based firm helped a West Coast car rental firm barter for $1 million worth of advertising in magazines, billboards and television.
“Instead of paying in cash,” said O’Hayer, “they paid for it in rental car transactions.”
