Organic Ambrosia Apple Export Marketing Plan The Organic Division of

Organic Ambrosia Apple Export Marketing Plan The Organic Division of the New Varieties Development Council (“NVDC”) Cawston, British Columbia, Canada Name: Michael Young, Alice Infeld Date Submitted: August 19, 2005 Preface Objective of the study The central purpose of this study is to develop a comprehensive export marketing plan to the Taiwan and Hong Kong marketplace for the certified organic ambrosia apple, including, but not limited to: • • a survey to identify current organic importers, distributors and retailers in each of the markets; a survey to determine the other major fresh produce importers, distributors and retailers in each of the markets and to assess their level of interest in regard to organic product; • a survey of consumers in the two markets to determine their interest in organic produce identification of possible barriers to exporting and marketing in Taiwan and Hong Kong; • • • • • • • information on competitors in these markets, what they are selling and where information on pricing and recommendations on pricing strategies; recommendations on types of promotional materials most effective in the two markets and where appropriate, draft samples of such materials; identification of relevant trade shows and other promotional venues estimation of the size of the market; recommendations as to the best promotional strategy to use; recommendations on optimal utilization of the marketing budget. Methodology For this study, we adopted the following approach. Firstly, we reviewed the relevant literature, publications and studies to get in-depth information on the organic trade in particular for Hong Kong and Taiwan. This inevitably led to studying the country specific information and history. Second, we contacted and met prominent importers, wholesellers, retailers to ask survey questions and engage in face-to-face discussions. We include a list of the survey questions asked in the Appendix. The Consulates in Hong Kong and Taiwan proved very helpful to recommend several companies to meet with, also included in the Appendix as well. The willingness to provide information differed significantly between the contacted persons. We analyzed the information obtained from the meetings and integrated it iii with the information from the written sources. Remarks The customs and regulatory authorities have not made a distinction between organic and conventional food products, resulting in a lack of reliable information on organic market development and internationally traded volumes. The reader should keep in mind that the data provided is a “best estimate”, based on information obtained from market sources. Another concerns the level of detail and examples needed. We have thought whether to shorten the essay to a simple action plan, but then the reader would have less background details, explanation and examples. Instead, the reader will find here more details for greater flavor and fuller description. This essay starts with a one page abstract to provide a short summary. To this abstract, we now turn. iv Abstract Canada offers the world a wide variety of agri-foods, internationally renowned for safety and high quality. As Taiwan and Hong Kong consumers become more concerned about health and safety issues, Canada’s bounty will become more relevant to food buyers in both places. Taiwan and Hong Kong represent ideal markets to launch new and innovative food products because they possess major urban centres, rely heavily on imported food with very limited, local arable lands, adopt few tariffs or import restrictions and possess highly developed distribution networks. The Hong Kong and Taiwan consumer also has a cosmopolitan taste and a high per capita income, with a significant portion of income spent on food. Despite these general similarities, each place maintains unique differences that potentially affect the export opportunities for the organic ambrosia apple. Taiwan currently bans all mainland Chinese apples for import and continues a very strong historical relationship with the US and Japan. The Taiwanese still embrace the fuji apple from past generations when the Japanese introduced it after 1895. Taiwan joined the World Trade Organization (WTO) very recently in 2001, and mainly since then the Taiwanese traders began to comb the world for other apple sources. Prior to that, the US and Japanese enjoyed preferential access to the market for a wide range of imports. Hong Kong in contrast remains what the famed University of Chicago Professor Milton Friedman called the freest economy in the world. Goods and ideas from all over the world enter this world city, and this creates one of the most vibrant, open, and competitive atmospheres. Mainland Chinese apples freely enter the market and Hong Kong traders frequently search the world for all types of products and trends. Hong Kong’s modern retail structure is more developed with less consumers relying on the wet market for their goods. Hong Kong also possesses a strategic location next to the potentially enormous mainland China market, frequently resulting in "unofficial" re-exports subject to low or no duties. Despite any difference, both regions offer vast potential for Canadian firms. The Asian cultural method of doing business also stresses the importance of relationships and connections. This is no different from any other region in the world, except one must discount the time and effort to develop good working relationships. v Table of Contents Preface........................................................................................................ iii Abstract ........................................................................................................v Table of Contents .........................................................................................vi 1 2 INTRODUCTION............................................................................................................................1 BACKGROUND FUNDAMENTALS..........................................................................................2 2.1 HISTORICAL BACKGROUND ........................................................................................................2 2.1.1 Still Separate .................................................................................................................2 2.1.2 The Freest Economy in the World..........................................................................5 2.2 ECONOMIC ...................................................................................................................................6 2.2.1 Towards High Technology .........................................................................................6 2.2.2 Towards Service............................................................................................................8 2.3 TRADE AND INVESTMENT WITH CANADA .................................................................................10 2.3.1 Canada Taiwan Trade and Investment ..............................................................10 2.3.2 Canada Hong Kong Trade and Investment ......................................................10 3 NEED FOR FOOD IMPORTS...................................................................................................11 3.1 3.2 3.3 3.4 3.5 4 LAND USE ..................................................................................................................................11 ORGANIC CONVERSION ............................................................................................................12 MARKET ACCESS .......................................................................................................................15 SUPPLIERS .................................................................................................................................16 DOCUMENTATION ......................................................................................................................16 DISTRIBUTION NETWORK ...................................................................................................17 4.1 RELATIONSHIP ...........................................................................................................................17 4.2 CONSUMER PROFILE..................................................................................................................19 4.3 TREND TOWARDS MODERN RETAIL STORES ..........................................................................19 4.4 MAJOR RETAILERS .....................................................................................................................20 4.4.1 Convenience Stores...................................................................................................20 4.4.2 Warehouse Stores and Supermarkets................................................................21 4.4.3 Shopping Malls ............................................................................................................22 4.4.4 Department Stores ....................................................................................................22 4.4.5 Intense Competition..................................................................................................23 5 APPLE IMPORTS .........................................................................................................................23 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 NEW VARIETIES .........................................................................................................................24 IMPORT APPLE CONSUMPTION .................................................................................................25 GOOD "FACE VALUE"................................................................................................................26 SEASONAL PREFERENCES .........................................................................................................26 NATIONAL SUPPLIERS ...............................................................................................................27 THE CHINA FACTOR ..................................................................................................................28 DISTRIBUTION CHANNELS ........................................................................................................30 PRICES & MARKETING ..............................................................................................................31 WTO ..........................................................................................................................................31 ACCESS ......................................................................................................................................32 vi 6 ORGANIC ........................................................................................................................................32 6.1 6.2 6.3 6.4 6.5 6.6 6.7 CONSUMER PROFILE..................................................................................................................33 RISING CONSUMER DEMAND ...................................................................................................34 CONSTRAINTS TO MARKET DEVELOPMENT ...............................................................................36 DISTRIBUTION ...........................................................................................................................36 APPLES AND PRODUCE ..............................................................................................................37 PRICE ..........................................................................................................................................39 BASIC IMPORT REQUIREMENTS ................................................................................................39 RELATIONSHIP BUILDING .........................................................................................................40 MARKETING AND PROMOTION ..................................................................................................41 BRANDING AND POSITIONING ..................................................................................................42 LABELS .......................................................................................................................................43 SEASONAL STRATEGY ...............................................................................................................44 TAIWAN CANADIAN PROMOTION ..............................................................................................44 7 EXPORT PROGRAM....................................................................................................................40 7.1 7.2 7.3 7.4 7.5 7.6 8 CONCLUSION ...............................................................................................................................45 APPENDIX:..............................................................................................................................................46 TAIWAN IMPORTERS ........................................................................................................................46 HONG KONG IMPORTERS ...............................................................................................................51 AMBROSIA IMPORTER AND RETAILER SURVEY QUESTIONNAIRE ........................55 ORGANIC WASHINGTON APPLE BROCHURE.......................................................................57 RETAIL APPLE PRICING..................................................................................................................65 vii -1- 1 Introduction After Marco Polo, the learned Father Matteo Ricci made the first major trek to China in the 1600’s. After his seminary training at the Society of Jesus in Rome, he left for Macau, and then spent laborious years learning the Chinese language, before eventually being accepted for a position in Beijing at the imperial court as an adviser in astronomy. The reason he had first to stay in Macau was the age old Chinese convention that export trade with foreigners could only take place in certain months and only through a limited system in the city of Canton (today called Guangzhou). Any foreigner who wanted to stay longer in the region had to go to the nearby Portuguese colony of Macau, which also had better weather conditions than the frequent monsoon season in Canton. Father Ricci eventually succeeded in arousing the Chinese interest in astronomy and science. He taught classes to the scholar officials and they proved adept at learning the then “new” western science such as Euclid’s geometry. But other than surface learning, China in the 1600’s did not prove willing or adept to assimilate or learn from other cultures. Hundreds of years later, the British sent trade missions to China in 1792 and 1816, but still the Chinese did not show a propensity to trade or a talent for adapting the best ideas from a fast changing world. The Chinese leaders faced a stark choice, innovate and learn western science and how to trade better in a new world order, or risk irrelevancy by sticking with the status quo. The entrenched interests proved too inflexible and conservative to meet this challenge and this eventually led to the Treaty of Nanjing and the establishment of Hong Kong in 1841. This also eventually led to the Treaty of Shimonoseki with Japan and the beginning of modern day Taiwan in 1895. Our study concerns the notion of export trade with both Hong Kong and Taiwan. In it, we seek to ask the questions potential traders have asked since Marco Polo’s time. How can we successfully trade a product with the Occident, in this case the organic ambrosia apple? What is the potential like, and how to best enter and develop the market? These large questions invite a consideration of related sub themes. We therefore start this paper by examining the background political, economic and trade fundamentals. We next consider the voracious demand for imported foods, and after that sketch out the internal distribution system. We then focus on apple imports, and then explore the organic market in more detail. Finally, we consider some export marketing ideas, before proferring concluding remarks. A detailed Appendix -2- also contains useful contact details, survey questions, a sample brochure from Washington organic apples and apple pricing. 2 Background Fundamentals The historical, political, economic and trade framework in both regions affects the potential market opportunity for the organic ambrosia apple. We make a few brief points about the background fundamentals. 2.1 Historical Background Firstly, some significant historical and political factors that shape the receptiveness towards the organic ambrosia apple. 2.1.1 Still Separate Taiwan has one of Asia's few functioning democracies and one of its strongest economies. But for the island's 23 million people, the unresolved dispute with China overshadows its future. China sees the island as a breakaway province in need of reunification by force, if necessary. Hundreds of Chinese missiles now aim across the Taiwan Strait to bring home the point. For the time being, no mainland Chinese apples can enter the Taiwanese market. The island first appears in Chinese records in AD239, when China sent an expeditionary force to explore it - a fact present day Beijing frequently uses to back its territorial claim. But thereafter, consecutive Chinese rulers paid little attention to Taiwan, sometimes outlawing emigration there, and sometimes describing it as a base for pirates. After a brief spell as a Dutch colony (1642-1661) and then under the control of local pirates, China's Qing dynasty from 1683 to 1895 unquestionably administered Taiwan. Starting at the beginning of the 17th century, significant numbers of Chinese migrants arrived, often fleeing turmoil or hardship. Most were the Hoklo Chinese from nearby Fujian province or Hakka Chinese, largely from Guangdong. Their descendants constitute the largest population group in Taiwan. Incidentally, both Fujian and Guangdong province also provide the bulk of immigrants to Hong Kong as well. In the 1895 Treaty of Shimonoseki, China ceded Taiwan to Japan in perpetuity. Tokyo quickly modernized the island and laid the foundations for Taiwan's later, -3- rapid industrial growth. The Japanese profoundly influenced the character of Taiwan, including the introduction of the fuji apple. But Japan's defeat in World War II brought further upheaval. The US and Britain handed Taiwan to their ally, Chiang Kai-shek's Republic of China (ROC) government, which then controlled most of China. But in the next few years, the Communist armies under Mao Zedong triumphed over Chiang's troops and proclaimed the Peoples Republic of China (PRC) in the October 1949. Chiang and the remnants of his government fled to Taiwan. This group of mainland Chinese then made up about 1.5m people, but continually dominated Taiwan's politics for many years, though only 14% of the total population. Chiang Kai-shek's ROC government at first intended to re-occupy mainland China and at first, many Western nations recognized the ROC as the only legitimate Chinese government, which held China's United Nations Security Council seat until 1971. The US in particular, but also Japan, became strong allies and investors in the post war years. Since 1952, the US accounts for almost 25% of Taiwan’s total foreign investment, with Japan a close second at 24%. Not surprisingly, US apples enjoyed preferential access to the market until Taiwan joined the WTO in 2001. Japan too developed a niche market for higher priced produce items, and reaffirmed the dominance of the fuji. But in 1971 under the lead of Kissinger and Nixon, the UN switched diplomatic recognition to the mainland instead of Taiwan. Since then the number of countries that recognise the ROC government diplomatically does not exceed 30. The US Taiwan relationship, forged during World War II and the Cold War, underwent its sternest test in 1979, when President Carter ended US diplomatic recognition of Taiwan to concentrate on burgeoning ties with China. The US Congress, responding to the move, passed the Taiwan Relations Act, where the US promised to supply Taiwan with defensive weapons, and consider as “grave concern” any attack by China. Although she does not have formal diplomatic relations with Taiwan, the US maintains extensive ties with the 23 million people in Taiwan. The American Institute in Taiwan (AIT), a private, not-for-profit institution, was established in 1979 to maintain the unofficial relations between the peoples of the United States and Taiwan. More than forty other countries, including most major European and Asian -4- nations, also maintain unofficial representation offices in Taiwan. Canada too maintains a presence in Taipei, officially called the Canada Trade Office. Taiwan apple importers maintained good working relations with their US suppliers over the years. A few importers even invested in their own apple growing operations in the US to become vertically integrated. Several importers even source non American apples, such as Chilean, even Canadian, through their Washington based exporter, instead of directly from the country of origin. By way of anecdote, we asked the waitress in a hotel what species of apples sat on the counter, and she replied they are, umm, “Washingtons” – as if that was a species of apple. After decades of hostile angry rhetoric, relations between China and Taiwan started improving in the 1980s. China put forward a formula, known as "one country, two systems", under which China would grant Taiwan significant autonomy but under mainland reunification. Taiwan rejected the offer, but did relax rules on visits to and investment in China. In 1991, Taiwan officially proclaimed the war with the PRC over. Having inherited an effective dictatorship, Chiang's son, Chiang Ching-kuo, began a process of democratisation, which eventually led to the 2000 election of the island's first non-KMT (and current) president, Chen Shui-bian, who currently advocates independence from mainland China. Despite the slow political progress, Taiwanese companies invested more than $50bn in China, and up to 1m white collar Taiwanese now live there, many running Taiwanese factories. The Taiwan food import market has felt the loss of these potential customers, especially the higher end hotels and specialty food retailers, as the anecdotal evidence suggests. • • • • • • • • Population: 22.7 million (government statistic, 2004) Capital: Taipei Area: 36,188 sq km (13,972 sq miles) Major languages: Mandarin Chinese (official), Min Nan Chinese (Taiwanese) Major religions: Taoism, Buddhism, Christianity Life expectancy: 73 years (men), 79 years (women) (government statistics) Main exports: Computer equipment, textiles, basic metals, equipment, plastic and rubber products, vehicles GNI per capita: US $13,320 (World Bank, 2003) -5- 2.1.2 The Freest Economy in the World Hong Kong became a "Special Administrative Region" (HKSAR) of the People's Republic of China on July 1, 1997. The Sino-British Joint Declaration, signed in 1984, and the Basic Law of the HKSAR, passed by China's National People's Congress in 1990, forms the legal basis for China's "one country, two systems". The HKSAR enjoys a high degree of autonomy, and while the central government in Beijing manages the foreign and defense policies, the HKSAR government can conduct a wide range of external affairs on its own, including negotiating bilateral agreements. Hong Kong maintains separate membership in international organizations such as the World Trade Organization, APEC and the World Customs Organization. Hong Kong's well-educated and internationally focused business community controls a huge flow of goods, services and investments. Hong Kong is the home of the world's largest airport and port in terms of throughput, the largest financial centre in Asia, after Tokyo, and the 5th largest financial centre in the world. Hong Kong is the most important regional centre in Asia -- home to over 5,900 international firms, 3,609 of which use Hong Kong for their regional headquarters or offices. Hong Kong ranks consistently within the world's top 10 trading nations of goods, with imports in 2004 of C$352 billion, and exports of C$337 billion. Since reversion, the HKSAR continues its capitalist system, retains the status of a free port and international financial center, and a free trade policy with free movement of goods and capital. It formulates its own monetary and financial policies and safeguards the free operation of business and financial markets. The Basic Law states that the HKSAR will maintain its own currency and use revenues exclusively for its own purposes. The Hong Kong Dollar continues to be freely convertible and foreign exchange, gold and securities markets operate as before. The relatively better relations between Hong Kong and mainland China mean that mainland Chinese apples, with their consequent price pressure, freely enter the Hong Kong marketplace. Besides mainland Chinese apples, the Hong Kong apple importers connect with suppliers all over the world. The market remains open to virtually any import, and the apple import in particular does not require a phytosanitary certificate, unlike the Taiwanese system. Hong Kong offers a tremendous array of business opportunities, and is an excellent platform for doing business in Asia. Although Hong Kong has been ranked within the -6- top five most competitive cities to do business in the world, increasingly intense competition is generated by nearby cities, such as Singapore and Shanghai, where land and labour costs are much lower. • • • • • • • • Population: 7.2 million (UN, 2005) Area: 1,098 sq km (424 sq miles) Major languages: Chinese (mainly Cantonese), English (both official) Major religions: Buddhism, Taoism Life expectancy: 77 (men), 83 (women) Monetary unit: Hong Kong dollar Main exports: Electrical and electronic goods, clothing GNI per capita: $25,430 (World Bank, 2003) 2.2 Economic The economic conditions in both geographies profoundly influences the market for the organic ambrosia apple. 2.2.1 Towards High Technology Taiwan is small (a population of just 23 million living in an area the size of Vancouver Island), possesses few natural resources, and has stared down enormous security challenges under conditions of severe diplomatic isolation for decades. Nevertheless, the people of Taiwan built one of the world's top twenty economies, amassed the world's third largest stock of foreign reserves, became the global number one in the manufacture of a broad menu of leading-edge technologies, and in so doing afforded themselves one of the highest standards of living in Asia. Taiwan also grew into one of America's leading trade partners. Building on early success in agricultural and light industries in the 1950’s, Taiwan retargeted its economy in the 1960s to export-oriented light assembly and heavy manufacturing industries. Today, high tech businesses, notably electronics, telecommunications, computers and peripherals, account for over 50% of Taiwan's exports. These industries capitalize on what is arguably Taiwan's greatest competitive advantage - the ability to rapidly commercialize technology and bring new products to market. -7- Taiwan's economy has vulnerability, being exposed internationally with almost 50% of GDP derived from exports, especially IT exports. The United States is Taiwan's largest trading partner, accounting for 26% of Taiwan's exports and supplying 19% of its imports. The United States, Hong Kong (including indirect trade with China.) and Japan account for two-thirds of Taiwan's total exports, and the US and Japan provide 45% of Taiwan's imports. The EU is also a significant trade partner, accounting for 15.1% of total exports and 18.9% of imports. Taiwan's economy is not so much moving away from manufacturing, as Taiwan's manufacturing plants are moving away from Taiwan. Taiwan now has three shipping links and also direct airline flights with China. Taiwanese industry had to search for cheap and abundant labour and China quickly became home to some of their largest industries. As a result of this outsourcing to China, Taiwan’s service sector now accounts for 65% of GDP and employs 55% of the population. The governmental policy aims to strengthen the domestic economy through infrastructure development, upgrade industry and expand value-added services industries. Despite these initiatives, electronics, information and communications products will likely lead Taiwan’s export industry. Taiwan joined a member World Trade Organization (WTO) since 2001 and now most imported products face less and less structural or legal barriers. Economic Indicators GDP (current) GDP Growth Rate (percent) GDP Per Capita (US$) Public Spending as Percent of GDP Inflation (percent) Unemployment (percent) Foreign Exchange Reserves Debt Service Ratio(Ratio of principal & interest on foreign debt to foreign income) -0.2 5.17 161.6 1.5 2.5% -0.28 4.99 206.6 1.5 - 2.5% 0.83 4.50 258.0 1.5 - 2.5% 1.50 4.50 300.0 1.5-2.5% 2002 281.9 3.59 12,588 24.3 2003 286.2 3.24 12,726 23.8 2004 (e) 308.2 5.41 13,652 22.8 2005(f) 333.8 4.43 14,740 21.0 -8- 2.2.2 Towards Service Hong Kong's economy differs from several other Asian economies. Unlike Singapore, Taiwan and South Korea which also began as low-cost, labour-intensive manufacturing bases but then developed high-technology industries, Hong Kong morphed into more a trade service centre, especially for companies doing business in China. Manufacturing as late as 1984 accounted for roughly one quarter of the country's GDP, but now contributes less than 6%. Banking, trade, tourism and other services, now account for almost 86% and employ roughly 90% of the labour force. With the exception of a strong textile industry, Hong Kong's manufacturing sector has all but moved to mainland China for cheap land and labour. Though the economic road since the landmark 1997 handover has not been smooth the Asian financial crisis, SARS, the property market decline of over 70 % the territory continuously looks to restructure and reposition itself, which currently seems to be in the service industries and tourism from mainland China. The property market, a key barometer of its economic health, since October 2003 has regained about 40 %. Retail sales grew by double digits in the first half of 2004. While the mainland chinese tourists fuelled much of this growth, the local Hong Kong consumer also purchased more consumer durables and automobiles. Consumer confidence has returned to Hong Kong, in tandem with the recovery in the United States. Despite the ups and downs, Hong Kong remains committed to the keys to its economic success – its free-market philosophy, entrepreneurial drive, absence of trade barriers, well-established rule of law, low and predictable taxes, transparent regulations, free flow of information, and complete freedom of capital movement. Hong Kong has a population of only 7.3 million, and yet created a top ten trading nation. While impressive, this dependancy on trade has made the country very dependant on the economic good fortune of its trade partners. Hong Kong does not possess any customs tariffs, and goods imported or exported require minimal customs formalities. Excise duties apply mainly to tobacco, liquor, methyl alcohol and hydrocarbon oil (imported or locally manufactured). Hong Kong also dispenses with sales tax or value added tax. Hong Kong consistently supports an -9- open multilateral trading system. The government remains an active member of the following international organizations and trade agreements : the World Trade Organization (WTO), Asia-Pacific Economic Co-operation (APEC), General Agreement on Tariffs and Trade (GATT), United Nations Industrial Development Organization (UNIDO), Asian Development Bank (ADB), United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), International Monetary Fund (IMF), Bank for International Settlements (BIS), International Chamber of Commerce (ICC), International Confederation of Free Trade Unions (ICFTU), International Maritime Organization (IMO). Economic Indicators GDP (2003) GDP per capita (2004) GDP by Sector Agriculture Industry Services 0% 14 % 86 % US$158 billion US$23,700 Hong Kong's major trading partners include China, the United States, European Union, Japan, Taiwan, and South Korea. Major Trading Partners 2004 Exports To: 1 2 3 4 12 1 Imports From: 1 2 3 4 20 China Japan Taiwan USA Canada 43.5% 12.1% 7.3% 5.5% 0.4% China USA Japan United Kingdom Canada China 44% 17% 5.3% 3.3% 1.2% 44% - 10 - 2.3 Trade and Investment with Canada Canada possesses trade with both regions, though Canada’s main export market remains the US, taking in about 82 % of its total annual GDP of about one trillion. 2.3.1 Canada Taiwan Trade and Investment Taiwan represents Canada's 13th most important export market. Total merchandise trade between Canada and Taiwan exceeds $5.0 billion, led by electrical machinery, wood pulp, hides and skins, nickel, paper, coal, machinery and wood. Industrial and technology exports consistently increase in importance as do niches in agri-food and beverage markets. Services trade also grows, with annual tourism visits exceeding 140,000, while young Taiwanese also pursue overseas studies in Canada. Bilateral agricultural trade between Canada and Taiwan exceeds $200 million, including frozen bovine cuts, flours, meals and pellets. Non-alcoholic beverages, food preparations and rapeseed, colza oil and its fraction add up to Canada's top five agricultural exports. Intermediate goods dominate Canada's agricultural exports with about 73 %, consumer exports with about 25 % and bulk exports were valued at 2 %. Communion wafers dominate Canada's agri-food imports from Taiwan for about $35 million (6% of total agri-food imports) and food preparations make up 5.4%. Imports of green tea, fruits and animal feed preparations round out the top five imports. 2.3.2 Canada Hong Kong Trade and Investment Canada remains a strong exporter of resources to Hong Kong, including metals (especially gold), minerals, pulp and paper and petrochemicals. Today, the majority of Canadian exports to Hong Kong are manufactured, processed and semi-processed goods. Sectors presenting opportunities for Canadian exporters include telecommunications, information technologies, intelligent transportation and urban transit, health and biotech products and services, agriculture and agri-food, building and construction materials, environmental engineering services/products, education, tourism and financial services. Hong Kong comprises one of Canada's top 20 export markets. Hong Kong is Canada’s 7th largest agricultural export market, with exports exceeding $260 million in 2004. The dominant exports include ginseng roots and - 11 - bovine hides. Soya bean, wheat or meslin flour and canola, colza oil and its fractions make up Canada’s top five exports to Hong Kong. Hong Kong's agricultural import market continues to command the attention of producers, manufacturers, processors and exporters of agricultural products worldwide, due to several factors, including: 1. the absence of trade barriers on agricultural products other than alcoholic beverages and processed tobacco products; 2. a strategic location next to the potentially enormous mainland China market, frequently resulting in "unofficial" re-exports subject to low or no duties; and 3. a highly-developed marketing system and affluent consumers who demand high value imports. Per capita income (US$23,700 in 2004) in Hong Kong is among the highest in Asia, with a significant portion of income spent on food. 3 Need for Food Imports Both areas have limited arable land and ability to meet their own agri food needs, and therefore place heavy reliance on imported foods. 3.1 Land Use Taiwan imports the vast majority of its food, roughly US$12 billion worth of food products and commodities annually. Taiwan's largest agricultural imports in recent years have been corn, soybeans, cigarettes and cotton. The scarcity of land, and further scarcity of land suitable for agriculture remains an issue in Taiwan, and this problem has multiplied under the pressures of rapid industrial expansion. The land pressures coupled with high labour costs make farming in Taiwan a very costly enterprise. Arable farmland comprises an estimated 24% of the total land area, while permanent crops account for just 1%, and permanent pastures 5%. The agricultural sector employs 10% of the work force, and accounts for about 3.3% of GDP. Taiwan uses the majority of its arable lands for the production of rice, one of the few products that the country remains relatively self sufficient. Sugar cane and fresh fruit and vegetables constitute the other primary agricultural products. Local gricultural production steadily contracts from labour shortages and land use policies driving up domestic production cost, making imports increasingly competitive. - 12 - Hong Kong's small size, large population and economic development severely limit the country's agricultural sector. Like most products, the country imports the vast majority its agricultural requirements, in addition to the products re-exported to China and other Asian markets. Hong Kong imports roughly US$12 billion worth of agricultural products annually. This amounts to about 95 % of its agri-food supply, with about 80 % coming from the mainland. Canadian agriculture and agri-food exports share about 3.4% of the market. Hong Kong's consumers, once very free spenders became much more price conscious during the country's economic difficulties in 2001-02. As the economy improves, the Hong Kong consumer will again likely become an active force. The typical Hong Kong household budget spends 12 % on food, with housing costs the largest household expense, and food costs second to that. Private enterprise conducts most of Hong Kong's food imports to meet domestic consumer demand. While price remains an important factor, product quality and packaging play a significant role. Product displacement is common and buyer's loyalty requires business communications and regular personal contact. Supermarket chains normally require a consolidation of their shipments with other products from the same country of origin to reduce freight charges. Canadian exporters should pay attention to all these factors when exporting their products to Hong Kong. Canada leads in a few agri-food categories, such as ginseng, geoduck, clams, food grade soybeans, and canola oil. As Canadian exporters continue to maintain global advantage in these products in terms of price, quality and availability, Canada will continue to be a leading supplier to Hong Kong for those products. 3.2 Organic Conversion At present, the organic farming movement in Taiwan lacks a well trusted third party certification body, and in general the local consumers trust imported organic products more compared to locally produced organic items. But even if the locally produced product is not organic, the local population has some degree of trust for the “natural” farming methods used to grow their conventional crops, although not certified as organic. The lack of a trustworthy local organic farming system creates more opportunity for imported organic items. - 13 - The Taiwan Council of Agriculture (COA) began organic farming trials in 1986 and began providing organic product extension services to farmers in 1989. By 1991 small scale commercial production of organic products had begun. In 1992, a symposium sponsored by the International Sustainable Agriculture Organization, of which Taiwan is a member, was held in Taipei. This symposium generated extensive reporting in the local media about sustainable agriculture and organic farming. In 1996 the COA established guidelines for the production of organic rice, fruits, vegetables, and tea. In 1997 the COA began implementation of a trial organic product certification program. Organic product certification and marketing have posed the greatest challenge to the still small domestic, organic product sector. The COA revised the island’s National Organic Standard on 15 September 2003 to incorporate certain international organic standards as well as more restrictive guidelines for domestic organic farmers. These revisions seek to clarify and better police the use of organic claims and labels to earn greater credibility among local consumers for domestically produced certified organic products. Despite these governmental and industry efforts, Taiwan has a subtropical climate that makes organic farming difficult. According to the COA, the total area in Taiwan dedicated to certified organic farming has grown from an initial 160 hectares (1996) to over 1,092 hectares in 2003. Taiwan grows about 40 % of its organic crops, such as rice, vegetables, fruits, and tea. They import mostly all their organic processed food and will remain dependent on imports for broader range of fresh organic items. The organic farming movement in Hong Kong began in 1988, when a not for profit environmental, educational organization called Produce Green (now known as Produce Green Foundation) set up an educational farm promoting green lifestyles through the concept of organic farming. The also organize organic farming courses, publish the “Hong Kong Organic Directory”, Quarterly magazine “Scarecrow” and take part in facilitating local organic certification system. By 1999, a group of dedicated people founded the Hong Kong Organic Farming Association (HOFA), dedicated to the following ideas: 1. To promote a sustainable good production system through the advocacy of organic farming with an aim to improve human health and environmental protection. 2. To coordinate the network of organic producers and supporters. - 14 - 3. To ensure the healthy development of local organic movement and a high quality organic production by establishing a local organic standard and certification program. The governmental ministry Agriculture, Fisheries and Conservation Department (AFCD) supports and facilitates the local development of organic farming through infrastructural and technical support. The AFCD recognizes that organic farming helps to achieve sustainable agriculture and offers farmers a potentially higher economic return. The local organic industry however produces a low volume and inconsistent quality of produce. Despite ongoing conversion towards local organic farming methods, consumption of organic foods continues to outstrip domestic production, creating significant room for organic imports. With government funding support, the Hong Kong Organic Resource Centre (HKORC), established in December 2002, became the first local certification body of organic products. The Hong Kong Baptist University, the Hong Kong Organic Farming Association and the Produce Green Foundation founded the HKORC certification body. It alone establishes and oversees a set of organic production and processing certification standards applicable to Hong Kong. Since the launch of its organic certification service in December 2004, more than 20 applications have been received and are being processed. Currently, Hong Kong has only a handful of organic farms producing a very limited number of items, such as lettuce, melons, beats and carrots. Some operate on a commercial basis while others mainly on an educational and leisure purpose. Given Hong Kong’s limited production of organic food products, Hong Kong is a market and not a competitor for Canadian organic food products. However, it is also a market for other nation’s organic products. But Hong Kong’s high labor costs prevent many farmers from pursuing natural farming on a larger scale. That’s why they’re eager to share their knowledge of organic farming methods and work with mainland Chinese organizations, such as the South China Agricultural University in Guangdong Province. Production increases in Chinese organic vegetables could reduce prices for organic foods sold in Hong Kong, since labor and land costs are lower in China. In May of this year, the HKORC conducted random checks at about 30 department stores, supermarkets and health food stores of 600 samples of fresh vegetables and - 15 - dried fruit and nuts that had organic labels or claimed to be organic/natural products. They found that less than 30 per cent of food products with organic labels or claiming to be organic or natural products had proper certification. Releasing the survey results, Dr. Jonathan Wong, HKORC Director and Associate Professor of Biology Department of HKBU, said that while less than 30 per cent of these food products were properly certified as organic, a total of 85 per cent of the vegetables that were appropriately certified had acquired overseas certification agents such as CCOF, OCIA, QAI. The remaining certified items had labels from two certification agents on the mainland. The dried fruit and nuts all had overseas certification. Further development of Hong Kong’s organic consumer market and farming industry will likely stimulate a greater local demand for organic produce. This in turn would likely create new opportunities for organic food exporters. 3.3 Market Access Taiwan's trading system historically involved a very complex set of regulations and preferential treatment governing imports of goods, influenced by US and Japanese practices. As a result, Taiwan still has a cumbersome regulatory environment affecting food imports. Many Taiwanese government agencies oversee the application of rules and regulations. Often, Taiwanese customs provide limited advance notice of regulatory changes. As regards the organic ambrosia apple, the Taiwanese customs agency could order a fumigation of an organic shipment, thereby making it a less valuable conventional produce shipment. Based on our interviews, the local customs usually do not fumigate most organic shipments and they pass through customs uncontested. In recent years, Taiwan implemented measures designed to liberalize its economy to developing the island into an Asia Pacific regional operations center. Taiwan became a member of the Asia Pacific Economic Cooperation (APEC) in November 1991, and joined the Central American Bank for Economic Integration in 1992. Taiwan is also a member of the Asian Development Bank (ADB), the Pacific Economic Cooperation Council (PECC) and the Pacific Basin Economic Council (PBEC). WTO accession has not only brought down tariffs, it also has opened the Taiwan market to commodities formerly banned or subject to strict import controls, including rice, chicken meat, pork offal, and pork belly. - 16 - In November 2003, Taiwan's Legislative Yuan approved a comprehensive tariff revision to comply with Taiwan's accession commitments to the WTO, effective in early 2004. As a result of this revision, Taiwan's average nominal tariff rate on imported goods in 2004 has lowered. The apple importers confirmed that the duty for apples remains about 20 %, whereas previously it hovered over 40 %. Our interviews also confirmed that Taiwanese customs pays stricter scrutiny to the practice whereby the foreign exporter underquotes the invoice so that the Taiwan importer pays less duty. As noted earlier, Hong Kong enjoys membership in the WTO and contains few if any restrictions for market access. The sheer competitiveness of its economy constitutes the greatest challenge for exporters to the Hong Kong marketplace. 3.4 Suppliers The United States, Australia and New Zealand supply significant agri-food products to Taiwan. Australia and New Zealand enjoy a price advantage based on location. However, until recent accession to the WTO, some countries like the US and Japan enjoyed preferential access, with consequent product awareness. China supports most of Hong Kong's agri-food needs because of its proximity. China maintain more than 27.3% of Hong Kong's food market in 2003, followed by the US with a share of 14.3%, followed by Thailand, Australia, and Brazil with a share of 6.3%, 5.9% and 5.3% respectively. Canada ranks about Hong Kong's eighth largest food supplier, though this changes year to year. 3.5 Documentation The Taiwanese authorities inspect fresh produce for pesticide residues and check accompanying phytosanitary certificates for completeness and accuracy as follows: 1. The Bureau of Animal and Plant Health Inspection and Quarantine (BAPHIQ) inspects agriculture commodities and food products. 2. Taiwanese authorities only allow the imports of animal and animal products from countries and territories they, themselves, have declared to be free of certain diseases (such as foot and mouth disease or Newcastle disease), and that Taiwan does not recognize declarations of freedom issued by the Office Internationale des Epizooties (OIE). A similar requirement to be designated - 17 - free from certain plant pests by the Taiwanese authorities applies to countries and territories wishing to export fruits and vegetables to Taiwan. 3. All shipments of live plants and plant products, live animals, meat (fresh, chilled, frozen) and animal by-products should be accompanied with either a Health Certificate or a Phytosanitary Certificate issued by the Canadian Food Inspection Agency. The certificate should mention additional health/phytosanitary conditions for that particular product. As noted earlier, Hong Kong does not require a phyto certificate. 4 Distribution Network We next consider the distribution network for both places, and in particular where the organic ambrosia apple could potentially fit. Nearly every type of sales channel exists in Taiwan and Hong Kong. Imported goods reach end users through agents, distributors, franchisees, direct marketing, mail order and almost any other imaginable means. The distribution channels change rapidly under the new demands from consumers, intensified competition, and the introduction of IT applications to the distribution chain. The marketing of products covers complex range of subject, so the comments made here are, of necessity, very general, as they potential relate to the organic ambrosia apple. As a broad statement, we can say that Hong Kong has a more developed modern, retail network for distribution, such as shopping malls, supermarkets and specialty stores. The typical Hong Kong consumer prefers to shop in the modern retail system, whereas the standard Taiwan consumer still shops more in the traditional wet market. Taiwan though appears to be moving in the direction of Hong Kong, with more of the younger generation preferring to shop in the comparative cleanliness and convenience of the modern retail environment. This is important to keep in mind given the worldwide trend for the distribution of organic items through the modern, retail supermarket – not the traditional wet market. 4.1 Relationship The strength of Taiwan's economy lies not in its few large firms - although Taiwan has given birth to a handful of large firms whose presence is felt in world markets but in its multitudinous small and medium sized firms. There are about 1.1 million - 18 - registered businesses in Taiwan. The island has 132,000 legal manufacturing plants and over 100,000 illegal factories. Reflecting the importance of personal relationships in Taiwan's society and culture, strong efforts to build connections may be the most important key to success in the market. For many foreign products and services, initial market penetration in Hong Kong does not require an expensive investment. Given that Hong Kong is a "free port" with virtually no duties or tariffs and that it has a wide-ranging network of agents and distributors, a well-managed market penetration program with a moderate investment in market development is generally all that is required initially. Due to its open nature, however, Hong Kong is among the most competitive and price sensitive markets in the world. The market is extremely fastpaced. Decisions are made quickly, and companies need to be able to respond to inquiries immediately or risk losing the market to faster moving suppliers. Commitment to the market is demonstrated in various ways but should include: quoting in metric, providing promotional support if necessary, responding quickly to inquiries, meeting relevant standards, and visiting the market for first hand understanding and relationship building. Hong Kong maintains no special legislation regarding agents and distributors. Virtually anything which both sides can agree to and put into a written contract is acceptable and enforceable. While not required by Hong Kong law, the more complex the contract, the more helpful legal counsel can be in drafting the text. Items that are often in the contract include: 1. Discussion of exclusivity and sales territories (always a sensitive issue, business people should be careful about granting an exclusive agency too soon or in too large a territory if the agent is to have coverage beyond Hong Kong). 2. Discussion of proprietary information (local law prohibits theft of intellectual property, but prevention of piracy is always less expensive and more effective than post-facto legal action). 3. 4. Levels of sales activity – set specific targets and goals to qualify for maintaining or renewing the agreement. Duration. 5. Payment terms. 6. Quality control – inspection – verification. - 19 - 7. Rule of law – jurisdiction (it is generally Hong Kong, but another location may be specified – usually for arbitration.). 8. Covenants restricting activity following cancellation of the contract. 4.2 Consumer Profile Taiwan's consumers enjoy a strong level of average disposable income, among the highest in Asia. Taiwan society and consumers do engage in conspicuous consumption and will pay top dollar for the right brand of watch, car, cognac or necktie. While consumers will pay more for perceived value, price competition in the marketplace can be brutal. Firms that charge too much for their products in Taiwan can expect to find parallel importers undercutting their efforts. Consumers may connect to certain brands, but they are willing to shop around to find the lowest price. Moreover, when brand is not important, Taiwan end users tend to make purchasing decisions based primarily on price - although a higher price may increase the attractiveness of certain kinds of consumer goods. Our meetings confirmed that mainly Japanese produce items can command a price premium in a class of their own, with the produce of virtually all other northern and hemisphere countries engaged in a price competition. For example, the Japanese fuji comes in a special package or the retailer marks out its origins. The wet market removes the sticker from all other nationally sourced fuji’s and simply sells the product generically as fuji apples. Some modern retailers (ie specialty stores, hypermarkets) might show the origin, but generally only the Japanese item can command a price premium branding effect. Although Hong Kong's unemployment rate dropped from a height of over 8 percent in 2003 to 7.1 percent in April 2004, the downturn of the economy in recent years did the affect the once high flying consumers' eating and shopping habits. Whereas most people used to eat out frequently, more now shop for groceries and prepare more meals at home. 4.3 Trend Towards Modern Retail Stores The most common distribution route in Taiwan moves products from suppliers to distributors, from distributors to retailers, and then from retailers to consumers. Some suppliers use shorter distribution channels, distributing products directly through retailers only. Modern retail outlets such as shopping malls, department stores, warehouse stores, supermarkets, and convenience stores, continue to play an important roles in while other traditional retail outlets, such as - 20 - "wet markets" and mom-and-pop stores, become less important as consumer patterns change. For now, about 80 % of the apple imports end up at the wet market, with about 20 % to the modern retailers. Hong Kong's relatively sophisticated shoppers buy more of their groceries in supermarkets, not the traditional wet markets. About 60 % of all apple imports go to the modern retail system, with about 40 % to the wet market. This reflects the general pattern with other food groups, with more Hong Kong people working longer hours, and using the modern distribution system. 4.4 Major Retailers The modern retail system maintains about five different distribution possibilities with different price margins. Department Stores Warehouse Stores Convenience Stores Supermarkets Shopping Malls Average 15-35 percent margin Average 15 percent margin Average 30-40 percent margin Average 20-25 percent margin Average 20-40 percent margin 4.4.1 Convenience Stores The fastest growing retail outlets, in terms of revenue sales, in the Taiwan retail market in recent years have been the convenience store concept. Taiwan has about 7,500 convenience stores island-wide, offering food products and toiletries 24 hours a day. Local consumers prefer this concept for its ease, convenience and location in the neighbourhood. Uni-President Enterprises Corp is the leading retail conglomerate in Taiwan. The company owns 45.24% of 7-Eleven, the country’s largest convenience store, and 40% of Carrefour, the country’s leading hypermarket chain. 7-Eleven convenience stores, the market leader, have a total of about 3,510 stores and plans to reach 4,000 in the near future. Total sales from convenience stores, in 2003, amounted to a significant US$4.5 billion, an increase of 8.5 percent from the previous year. - 21 - Uni President also teamed up with Santa Cruz of California to create a number of organic only convenience stores, currently about ten. The stores carry all range of organic items, with a fresh produce section in the back of the store. represents the 7- Eleven concept, but applied to organic items. Taiwan also has about 2000 – 3000 organic stores island wide that stock a wide variety of items. Ownership tends to be fragmented, in the hands of local owner operators, and the stores, again, small, neighbourhood type sizing. Taiwan consumers demand more varieties of organic foods and more retail outlets where they can shop for organic products. The city of Taipei alone has an estimated 300 specialty stores that carry imported organic foods. Taiwan relies on imports for all (or nearly all) of its purchases of organically produced nuts, dried fruits, juices, cooking oils, seeds, beans, grains, and food supplements. Major international suppliers to the Taiwan organic products market include Germany, the United States, France, Australia and Italy. Major domestic organic product categories include rice, tea, fruits, and green vegetables. Hong Kong too has its version of the smaller retailer, but generally, Hong Kong consumers prefer the larger, more modern retail stores and shopping centres. The 7 – Eleven concept is present, but not as popular. For example, Santa Cruz has not produced a series of smaller organic stores in Hong Kong at the present time, as they have in Taiwan. This chain 4.4.2 Warehouse Stores and Supermarkets By the end of 2004, Taiwan had over 110 warehouse stores. Carrefour and RT-Mart lead the space, with the French based Geant, the third largest market player, with plans for about 15 stores. The US warehouse store chain Costco initially opened a few stores in the southern part of the island, but now enjoys brisk sales after opening four stores in the northern part of the island. Costco plans to open one new store each year. British Tesco and Japanese Jusco GMS also entered this profitable and growing niche. The apple importers confirmed that all these warehouse stores generally choose apples mainly based on price, usually the smaller apples and lower grades. As a result, the organic ambrosia apple likely would not fit here. Chuan Lien Sher (206 stores) and Hong Kong based Wellcome (154 stores) currently lead the retail supermarket space. Chuan Lien Sher, which mainly focuses its - 22 - business in Taichung, plans to reach 300 stores in the next two years. Wellcome plans to have 200 stores by 2005, generating more than US$600 million sales revenue annually. Our interviews confirmed that the organic ambrosia apple faces difficulty to fit with these price conscious supermarket operations. The two main supermarket chains in Hong Kong, Park n Shop and Wellcome, total about 500 stores with combined revenue in the billions of dollars. These stores also purchase mainly on price and are unlikely to take the organic ambrosia apple, again confirmed from our meetings. 4.4.3 Shopping Malls Taiwan’s first shopping mall began in 1994, but the island's shopping mall industry really only took off in 1999, when the first composite commercial zone shopping mall, TaiMall, opened in Taoyuan. From 2000-2003, 14 more shopping malls opened in major cities: Taipei, Taichung, Kaohsiung, Taoyuan, Hsinchu and Tainan. Five more shopping malls – The Taipei 101 Mall, Miramar Shopping Mall, Dream Mall, President Tainan Shopping Mall and Hsinchu FE 21' MegA – recently opened or are near completion. Developers plan to open six more major shopping malls by 2006. The establishment of shopping malls provides a promising new venue for both department stores and specialty chain stores. Hong Kong too has a broad range of shopping malls with the latest, Pacific Place Mall and the International Finance Centre (IFC) Mall epitomizing the trend toward an evocative, deluxe, experience, yet accessible at the same time. In both Hong Kong and Taiwan, several leading specialty stores lease space in these new shopping malls, such as Jason’s in The Taipei 101 (now the tallest building in the world) and City Super in the IFC, developed by an international consortium of planners, architects and builders. Our market research and personal interviews suggest that the organic ambrosia apple could fit with these types of stores. 4.4.4 Department Stores Taiwan possesses about 50 department stores located throughout, but concentrated mainly in the large cities. Most follow the Japanese model, i.e., the store leases out the bulk of the floor space to concessionaires who pay rent and a fixed percentage, about 20 percent or so of either their gross or net income. Such arrangements help department stores avoid risk and enable replacement of concessionaires recording - 23 - poor sales. Concessionaires decorate and staff their own sales areas and assume their own overheads. Although the department stores do purchase some merchandise on their own account, most of their sales come through the concessionaires. To compete with lower priced bulk quantity selections available in the warehouse stores, Taiwan department stores carry high-quality, upscale and expensive merchandise. This trend should continue. Hong Kong too has its Japanese inspired stores, such as Jusco, Seiyu, Sogo, Uni and others. The organic ambrosia could find a home here. 4.4.5 Intense Competition In 2001, Taiwan became awash with new shopping centres. Within two years many industry sources concluded that too many shopping centres in too short time served too few people. The shopping malls competed with the established department stores customers, and this led to an oversupply of retail space. Toward mid-2003, many new shopping centres faced increasing pressure as sales performance significantly weakened. Looking ahead, shopping mall investors and operators are careful not to expand too quickly. Hong Kong retailers and distributors often prefer to get an exclusive arrangement limited in time, and if the product does well, then they will seek a more formal arrangement. Competitors frequently scan the shelves of one another. In this competitive environment, the market players in both regions look for the latest items, and this could include the organic ambrosia apple. Many of the importers showed an open mind to consider the apple, and the retailers also expressed interest in a new item. They look for the next big trend that could improve sales and revenue and gain an advantage over their competitors. 5 Apple Imports The vast majority of Taiwanese view fruit as an important part of the daily diet, frequently eaten as a snack as well as dessert. It is also the most common food to serve visitors in the home or office. In Taiwan, the local apple production represents a largely insignificant (<10%) component of total market consumption. The Star King variety constitutes the main local production. Eighty percent of commercially-grown, local apples sell for fresh - 24 - consumption, with the remainder for prepared foods – typically processed not far from the orchard. The Hong Kong interviews also suggested that Hong Kong imports mostly all its apple needs. 5.1 New Varieties Foreign exporters frequently introduce new fruit types and varieties into both markets. The "new-to-market" temperate fruits, cherries, strawberries, and blueberries, provide poignant recent examples. Fresh fruits not previously sold in quantity (e.g., raspberries and blackberries) possess significant growth potential, as do some niche fruit categories (berries, flat peaches, pluots, etc.). After Taiwan’s accession to the WTO, her importers continuously look for new products, such as grapes from Turkey. The nimble Hong Kong importer also searches for new products and trends. One can even see Israeli produce (and Brazilian poultry) on the retail shelves. According to recent US market reports, apple consumption globally continues to stagnate or decline. New apple varieties help to offset this disadvantage, and the US industry remains proactive. While Chile and New Zealand continue to focus on supplying traditional apple varieties, Japan has successfully introduced less common new varieties into the market to maintain its “premium” image. One experienced Taiwan importer already considered the ambrosia a few years ago, and even thought of growing it in Chile. He learned of ambrosia through the Washington region exporters. He maintains a long time association with Washington, seeing the region grow from the 300,000 level volume to now the 30 million level volume. He also experimented with other new varieties in the past, braeburn, pink lady, and others. He believes the fuji’s shelf life (ie one month compared to the two to three months of the fuji) and weaker internals/firmness constitute its main disadvantage. He therefore recommended the entry strategy not to focus on the importers, but try to connect with the retailers, who could take the product directly, and help solve the shelf life issue. One large importer tried two containers of the conventional ambrosia but the product moved slowly, with a litany of possible reasons why: taste too acidic, not crunchy, looked old not fresh, stems too long and punctured other apples, colour not bright red (ie like the fuji) but more brushed colour, and lots of bruising. - 25 - Importers in both regions suggest the trial and error method for the best entry approach for a new variety and simply see how the consumer reacts. Generally, for this reason, several conventional importers we met do not like new varieties since they take more time and effort to develop. Human persistence and patience plays a key role. Previously, no one tried the Japanese cherry because of the higher price (3 times existing regions) and also the limited supply. One importer tried it mainly to provide a broader product range for his customers, and it took hold, even for the wet market. Another importer tried New Zealand and US blueberries, and now a small amount regularly goes to the supermarket. At first very few Taiwanese liked the odorous Thai durian about 20 years ago, but after much persistence, the product still enjoys annual reorders. A few years ago, Japanese exporters introduced the onleen (green), kingseen (yellow) and despite initial market skepticism, the product sells well. The braeburn apple died after two years since people did not like the acidic taste. Our meetings informed other examples of new market entrants, such as the emerald plum, taking five years to educate the grower to produce a lighter colour skin, before eventual market success. 5.2 Import Apple Consumption The Taiwan consumers’ preference for the apple – especially the fuji apple - over other fruit results from a number of factors, including appreciation of the nutritive/health benefits, low price, a strong quality image, attractive appearance, and long shelf life. Furthermore, the year-round availability of the apple attracts retailers, because point-of-sale formats need not be rotated, as is necessary for fruits available only at certain times of the year. The apple remains relatively resilient in terms of consumption, even with the encroachment of different fruits and new varieties available since Taiwan entered the WTO in 2002. In terms of imports, apples hold steady at between 30 – 35 % of all produce imports by volume and between 25 – 30 % by value. Our market discussions suggest this should continue in the near future. Only oranges, with 96% grown domestically, have greater quantity consumption than the apple. However, in terms of real growth, a host of other imported fruits, such as grapes, nectarines, cherries, and berries have gained market share at the - 26 - apples expense. In the summer months, the Taiwanese prefer the seasonal stone and soft fruits, such as cherries. The Hong Kong consumer has no special affinity for the apple or the fuji apple in particular. They like all manner of fruit sourced internationally on a year round basis. As China develops production capabilities and a broader range, Hong Kong will continue to source the wider offerings from the mainland. One very large Hong Kong importer suggested that China eventually will produce all sorts of fruit, in all types of quality and price ranges, even “higher end” product. 5.3 Good "Face Value" The apple’s popularity factors include its attractive appearance (red, round, shiny, stripes), sweet taste and quality image. Serving good looking fruit to family, friends, or clients intimates good manners, generosity, and warmth. The "best-looking" fruit, often presented on store shelves in gift packaging or special advertising attract the highest prices. Japan grown fujis sell at premiums of 100% or more over because of their size and consumers’ quality perceptions. The Taiwanese importers look for the following characteristics of an apple marketed as premium: 75-95 % redness, on average about 85 %, high sugar content for sweetness, smooth skin, shorter stems so product does not puncture each other during transshipment, internal firmness and good shelf life. 5.4 Seasonal Preferences While eaten year round, consumers in both regions purchase apples more during the autumn and winter months, due to the general perception of the apple as a "cool weather" fruit and the incorporation of apples into the many festivals held during this time of the year. The northern hemisphere growers prime production months also coincides with this time frame. As noted before, the Taiwanese import the fuji all year round from all over the world. They also import some other brands, such as red delicious or gala or pacific rose or granny smith, mainly to fill timing gaps in the market before the fuji season starts, but also for a broader selection. Fuji Country of Origin Timing - 27 - Korea: Japan: USA: Australia/New Zealand: Chile: October to January October to January October to May April to June April to September (40 day delivery) 5.5 National Suppliers In general, Taiwanese buyers prefer for US origin fuji apples due to their long-term relationships and stable, high product quality. The US should remain the dominant apple supplier in the coming years with a total market share of between 50 and 60%. When purchased as a gift or simply to give others, the country of origin, size, appearance, and taste remain as important as price in the consumer’s decision to buy. Therefore, US suppliers maintain market share by working closely with Taiwan importers, distributors, and retailers to reinforce the strong positive image that the US apples presently enjoy and continued consumer loyalty. The Taiwan apple importers also commented that the US offers the easiest selection system, with its four grades and simple buyer categories, big vs. small, spot vs. long term buyer. In comparison, the importers suggest that the New Zealand exporters only two grades, but charge higher prices than their American counterparts. However, Taiwanese apple importers will shift purchase orders to other competing supplier countries for price competitive reasons. calculate profits very carefully. Therefore, high relative US crop prices in recent years have opened the door for other northern hemisphere growers (mostly in Japan and Korea) to enter the market. On Dec. 21, 2004, Taiwan banned US apple imports after the third detection of codling moth. This too shifted the sourcing optic to new regions. But when the market reopened to US apples earlier this year, the US apples flooded the market at lower prices, and many apple importers suffered cash flow problems, being caught with a more expensive inventory that could not move against the cheaper US imports flooding the market. A continued general preference among Taiwan importers for US apples must be tempered that the Taiwanese - 28 - At the consumer level, Japanese apples received mixed to positive reviews (generally good taste, relatively small size, average appearance, competitive price), although the strong marketing value of “made in Japan” should ensure that country a growing share of overall consumption through the coming several years. Consumers from both Hong Kong and Taiwan like to travel to Japan and enjoy Japanese products. Korean apples, while typically priced lower than US and Japanese apples, come with inconsistent quality and average appearance and sweetness. One importer commented that Korean apples had a similar price level as the Japanese apples, though not as good quality. They sometimes have better colour than Washington apples, but not better taste, and not as good storage conditions. Korean apples then must overcome these perception to take more market share. Both the Taiwan and Hong Kong importers need more information about Canadian apples, though both remained open to Canada as a potential supply source. Currently, the Taiwanese see Canada as a good alternative supplier when the US supplies undergo difficult. In the past, they imported Canadian apples through American exporters due to a better relationship and the perception that the Canadian system needs more entrepreneurial flexibility and less bureaucracy (one importer mentioned the BC Tree Fruit system by name, with a connotation of rigidness). The US exporter also told them that the Canadian growers are too widely dispersed, which affects the quality control. Some tried the Canadian fuji before, but found the skin colour too dark red, not bright red enough, with medium quality but a comparatively higher price than other supplying regions. By chance, one large importer saw some Canadian product in the market a few years later and noted the improved colour. New Zealand apples have a higher price when first entering the seasonal cycle, but then the Chilean product then comes onstream and lowers the price. Some importers suggested the Chileans sometimes adopt dishonest or questionable business practices. The Australian colour needs improvement. The normal US count remains 80 – 88 - 100 in a 22 kg box , Japan a 56 – 64 count in a 10 kg box, and New Zealand uses a 18 kg box. 5.6 The China Factor Though Taiwan currently bans mainland Chinese apples, Taiwanese entrepreneurs currently invest in fuji apple production in China, especially in Shandong province, China’s major deciduous fruit farming area. Most predict mainland Chinese apples - 29 - can eventually enter the Taiwanese marketplace, but that will affect the countries with the most similar growing seasons to China, such as Korea. China has the potential to disrupt the market with its low price and selling practices based on consignment. One importer suggests that the mainland Chinese slightly “reckless” when selling produce into the EU region, selling on consignment, low price, and often at a loss, undercutting other supplier nations, and generally forcing all other supplier nations to rethink their strategies. Most importers see a new paradigm emerging in the produce sector, with China playing a major role. The entry of Chinese apples into Taiwan presently hinges on Taiwan’s certification of China’s phytosanitary controls. Continued uneasy political relations between the two sides of the Taiwan Strait give no easy prediction when the mainland ban can end. Our meetings suggest it highly unlikely that Chinese apples will enter the market before 2006. However, presuming that Chinese apples will eventually be permitted, some believe that the United States and other western nations can still retain its position as a leading apple supplier to the island. Factors in support of this opinion include: 1. Quality: While China has cultivated apples for centuries, experience and time is required to develop not only the technical infrastructure (such as proper storage, handling/packing, & transportation facilities) but also the expertise to cultivate, select, grade, package, and deliver apples in the manner which Taiwan distributors and consumers expect. Apples from China smuggled into Taiwan and sold on the market in 1997 & 1998 elicited significant curiosity from consumers but reportedly failed to impress with their appearance, taste, or price. 2. Price: Industry watchers report that, when China exports its highest quality apples, quoted prices approximate those quoted by US suppliers. Factors for such may include continued limited high-quality supply from growers, high nonlabor-related production costs, and the fact that investment in new fuji cultivation in China comes principally from small scale, domestic, Taiwan, and other investors interested (at least in the near term) to "meet" market prices in order to recoup investment costs. 3. Season: China’s apple season resembles that of Korea. Apples from other growing regions with different seasonal cycles, should face less direct competition in Taiwan from China growers. - 30 - 4. Domestic Consumption: China’s own blossoming domestic demand for high quality apples may meet or even exceed domestic production capacity, leaving less for export. Also, Taiwan investors in Chinese orchards intend the product mostly for domestic PRC market sales. 5. Phytosanitary Controls: Taiwan’s strict controls on codling moth in Even if the two nations apples raise the bar for Chinese growers and packers. some doubt China’s capability to ship pest-free fruit. quarantine services can eventually reach agreement on a quarantine work plan, 5.7 Distribution Channels The Taiwanese fruit consumer prefers fresh imported produce, not frozen. The Taiwan consumer’s emphasis on both convenience and freshness helps channel about 80 % of all fresh apple sales through traditional/neighborhood wet markets. The remaining 20% finds its way into small fruit shops, retail grocery stores, Warehouse grocers hypermarkets and large hotel and restaurant accounts. (hypermarkets) reportedly now account for close to 11% of fresh apple sales. The importer generally likes to sell produce to the wet market wholesellers, who then sell it themselves, or wholesale it to the retail market. The importers generally do not like to deal with the retailer direct, who they critique as too selective, price conscious, and too demanding with credit terms. Some say that the wholeseller acts as the eyes and ears of the market and tell the importer what to import. But the large majority of importers confirm they make the final decisions what to import, though they take into account the wholesellers viewpoint. Some importers debate whether the better quality fruit goes to the wet market or to the modern retail structure. The general consensus suggests that the better quality fruit goes to the wet market, except perhaps the bigger, better colour product to the higher end retail store. The hypermarkets generally take lower quality apples on a volume basis. As noted before, in Hong Kong about 40 % imported apples go to the wet market, and about 60% to the modern retail market. The Hong Kong consumer prefers the clean, organized supermarket, than after work, with the older generation clinging to their habit of the wet market. Chinese conventional fuji’s command about 8 USD a 40 lb box, and land at about 12 USD. Red delicious and other Washington apples land between 13 – 20 USD recently. The organic ambrosia apple could not compete with these items merely on price alone. - 31 - Park n Shop and Welcome total about 500 stores. They like to import their product direct without importers and they are price driven. The organic ambrosia apple likely could not succeed here. One importer even tried to sell some better quality fruits from China, but the supermarkets rejected the produce on price grounds. The higher end of the market comprises about 50 stores. These could be the Japanese style stores or the European influence or the international class type store. As noted before, the organic ambrosia apple might have potential here. 5.8 Prices & Marketing Also, as noted before, Japanese items command a higher price with their unique packaging and better perceived product (ie the apples are usually unwaxed), with other nations fighting a price battle. In Hong Kong, the importers too have a broad choice of suppliers and countries from which to choose. How the “pie” is divvied up from year to year may vary significantly based on supplier prices, seasonal product quality, and availability. Since 1998, the apple industry in Taiwan faced a downward pricing curve and Taiwan continues to be a "buyers’ market" with demand influenced significantly by supplier marketing and pricing strategies. Prices between and within apple varieties vary greatly based on seasonal consumption variations, supplier country-of-origin, supplier pricing competition, and so on. The current market bears little resemblance to the one a decade ago, when suppliers could demand, and receive, high premiums on sales. In Hong Kong, the produce buyer can choose from a wide variety of supply, and this disciplines the apple exporter’s asking price. Claims for defective shipments tend to be low and the solution based on trust and informality. Typically, the importer tries to sell the product, even if defective. The importer then shows the sell sheets to the supplier if necessary, to demonstrate the loss incurred. As a rule of thumb, the claims allowance hovers about 3 %. Most importers emphasize the informal and trust based nature of settling claims. Some Washington companies now use a technology to scan the pit/core for internal breakdown before shipping, but the large majority of exporter still do not use this expensive technology. 5.9 WTO Taiwan’s entry into the WTO eliminated previous quota restrictions on all countries formerly approved to export to the island under quota (Chile, New Zealand, Australia, - 32 - Japan, South Africa, Argentina, and the European Union) and removed a previous ban on apple imports from South Korea. Only China remains prohibited from exporting fresh apples to Taiwan. After WTO accession, prices dropped and made it difficult for importers, with fruit from more countries. Now the Taiwan importer must be more flexible and entrepreneurial to survive. marketplace. The Hong Kong importer did not undergo a similar process due to the longer standing, free nature of their 5.10 Access Taiwan currently applies a 20% tariff on apple imports, down significantly from the 50% tariff applied prior to the WTO accession. Taiwan Customs assesses tariffs based on a region specific reference price rather than invoiced value. Taiwan currently bans or subjects to pest-free certification requirements imports of apples from countries with the following pests: (1) Mediterranean fruit fly, (2) Peach fruit fly, (3) Codling moth, (4) Apple maggot, (5) Mexican fruit fly, (6) Plum curculio, (7) Queensland fruit fly, (8) South American fruit fly, and (9) Western Flower Thrips. Phytosanitary certificates are required stating that apples are free from (3), (4) (5), (6), and (9). Taiwan defines maximum residue levels (MRLs) for around 60 chemicals. 6 Organic The amount of organic imported foods to Hong Kong and Taiwan remains guesswork, since the customs in both regions do not keep clear reports. Japan constitutes the world’s third largest organic food user, and about .5 % of its food imports are reputedly organic imports. One can estimate that in Hong Kong and Taiwan, with smaller food import markets than Japan, organic imports do not exceed .5 % of their annual imports of US$12 billion (or US$60 million each). A report published recently by the Ministry of Economic Affairs (MOEA) estimates Taiwan consumers purchased US$49 million worth of organic food in 2002, a 75 percent increase over the US$28 million estimated to have been purchased in 1999. In contrast, the market share of organic products to total food sales in the mature organic markets of the United States, EEC countries and Japan range between one and three percent of their total food sales. The retailers and importers we interviewed confirmed the impression that the organic market in both places will continue to grow. The relatively small per capita consumption of organic products in Taiwan and Hong Kong (as compared with markets such as Japan and the US, which - 33 - both places frequently follows) bodes well for continuing healthy growth in demand into the future. 6.1 Consumer Profile According to our interviews, in the early days of the Taiwanese organic movement, the target customer was a person healing from sickness and needed healthy foods, or a religious person, with strict dietary habits. Today, the typical organic consumer in Taiwan has expanded to include an upper middle-class housewife in her 30s or 40s with children. These women tend to have a university education and are concerned about health, rather than the environmental benefits of organic products. The other current stereotypical consumer is a female employed as a teacher or in government, who had a better knowledge and understanding of organic foods, and purchased organic because of this. This target market consists of approximately 3 percent of the population (700 thousand consumers), concentrated mainly in the northern half of the island, especially in Taipei, Taipei County and the larger urban centres. Through the organic sectors’ consistent consumer education activities and press reporting, organic foods are no longer treated (as they were initially) as products for people with medical conditions or for strict vegetarians. Organic foods have been selling in Hong Kong since the early 1990's. At first the market expanded at a very slow pace, mostly limited to western expatriates and Japanese consumers. Chinese. The organic business has grown in recent years. The major reason is that local Chinese consumers are becoming increasingly health conscious. This has led to a boom in the health food market which has a positive bearing on the awareness of and demand for organic foods. The clientele for organic foods now include many well-to-do Chinese who have been educated or have resided overseas. Among the Chinese, a recent study delineated four groups of people as the organic vegetable purchaser: Young Quality Cravers (34%) who are young, highly educated, willing and able to pay more for organic vegetables; Advantage Seekers (25%), who are young, single, white collar types; Older Quality Lovers (24%), who consist of older, females, more involved in grocery shopping and likely to be married with kids; The notion of organic foods was new to most Hong Kong - 34 - and Young Convenience Fans (17%) tend to be young males and do less grocery shopping, but prefer this to eating out frequently. The studies found that in Hong Kong the demand for organic vegetables highly correlates with price. Close to 90% would purchase organic when priced the same as conventional vegetables. However, less than 20% would purchase organic when the price exceeds ordinary vegetables by 50 % or more. The estimated market size would be 2.7 million Chinese and 288,000 expatriates if the price equals ordinary vegetables but only 330,000 Chinese and 32,000 expatriates if the price doubles that of ordinary vegetables. 6.2 Rising Consumer Demand Many (potential) organic exporters view Hong Kong and Taiwan as an attractive organic market for export for several reasons. As result from increased health awareness, Taiwan’s consumers are changing their dietary habits and demand organic products such as grains, beans, lentils, tree nuts and dehydrated fruits. Popular beverages on the market include herb teas, apple juice, vegetable juices and low-salt tomato juice. Wheat grass powder and fiber powder are also big sales items among Taiwan consumers who use them for making drinks. Some of the most popular processed organic foods include noodles, pastas and canned soups. Seasonings such as olive oil, sunflower seed oil, tea seed oil, sesame oil, soy sauce and miso are also in demand. Some of Taiwan’s restaurants are promoting healthier eating habits by offering organic food buffets, with a selection of organic and natural foods, an idea that is becoming quite popular on Taiwan. In addition, the restaurants conduct courses for their customers on how to prepare high-fiber, high-calcium, low-salt and low-fat diets. They also encourage the consumption of more raw vegetables and sprouts from organic seeds and grains. Food safety for "safe" and "clean" food products has also become a major factor for consumers, combined with traceability of the product. Our interviews confirmed that the local populace in both regions look for third party certification stamps for credible environmental groups, international organizations and governmental bodies. Importers generally need the organic certification papers, though the import customs does not require this for product clearance. After several recent food safety crisis including contaminated fish, BSE, listeria in ice cream, the avian chicken flu (H5NI) virus and high levels of pesticides found in vegetables, the hygiene of some mainland - 35 - Chinese producers – more Hong Kong consumers look towards organic foods. As the demand increases for foods produced without any chemicals or pesticides, export opportunities for organic foods grow. The local consumer considers imported organic vegetables more expensive but better quality. However, the many benefits of imported organic vegetables do not translate into preference. In Hong Kong, many prefer the locally grown organic produce to better suit the local taste. A privately owned company is the leading supplier of Hong Kong’s organic foods. Organic Gardens Ltd., located in Cheung Lek village, teaches local consumers and visitors about the benefits of organic farming and a healthy lifestyle. Last year, the company expanded its educational campaign by opening a restaurant in Hong Kong’s trendy Lan Kwai Fong district. In addition, Organic Gardens Ltd. has opened an organic food retail shop and a natural healing center. Looking to the future, the company plans to establish a vegetarian restaurant in Mong Kok to cater to the traditional tastes of the Chinese. Yet, the local demand for organic products will continuously outgrow domestic supply resulting in potentially substantial volumes to be imported. Moreover, domestic organic production in both regions remains low given the difficulty of growing foods without chemicals in the temperate wet warm season. The overall growth rate for organic products also remains high because of the better promotion and marketing from organic food growers, producers, importers and retailers. In both regions, the organic consumer generally view the modern retail supermarket for their source of organic supply. Another reason for growth concerns the continued heavy reliance on imported food. As organic foods become more ingrained in foreign food cultures, they likely will become a more sizeable part of mainstream imports. An added benefit that the organic food market enjoys relates to the bipolarization of consumers throughout the 1990s. Some consumers remain more price conscious than they were during the ‘bubble era’, while other consumers still pay high prices for perceived quality. Organic food fits well into the high end of a bipolarized market. Both places follow food trends closely, especially when medical findings - 36 - associate a particular food with a particular health benefit, such as the antioxidant power of blueberries. As of yet, similar and specific medical benefits of organic food have not gained wide publicity. Finally, factors that encourage demand for organics include reasonable price, product quality, government support and the ability to generate good profit for the retailer. Environmental protection is less an incentive. 6.3 Constraints to market development Most people acknowledge that organic has health benefits. But some importers also view it as having a shorter shelf life, higher price, and even poorer taste. shipment with the product already decayed upon arrival. Another constraining factor for further development of the organic market remains the high price premium. Consumers generally will pay a price premium of about 10 to 30 % above conventional prices but beyond that range the demand trails off. Another importer regards consumer trust, education, reliable sources of product the main challenge for the organic market. As a result, organic shipments tend to be small volume and take too long to sell. One importer once brought an organic container to Taiwan from Stimelt three years ago, but it moved very slowly. Despite these critiques, most importers and retailers express that organic fruits, vegetables and healthy products have high future potential. One importer a few years ago found a few pallets of organic mistakenly included in the 6.4 Distribution Access to the market can best be gained through an importer or distributor, and one should consider possible language and cultural differences. The wet market, with its volume based approach does not absorb organic. The new hypermarkets in Taiwan like Tesco, RT Mart, and Costco etc would likely not take the organic ambrosia apple, with their price competitive approach, and preference for the smallest, least expensive apples. - 37 - The organic product sales channel in both areas remains fragmented, comprising specialty retail venues, including specialty health food, organic and specialty shops; home delivery services; and organic food sections in premium supermarkets. In both places, people believe that supermarkets/modern retail outlets hold the main source of supply. As noted earlier, in both regions, one possible distribution could be the Japanese style stores and higher end generally. 6.5 Apples and Produce As noted, Santa Cruz jointly ventured with the Uni President group to create 10 7eleven type shops dedicated solely to organic. Uni President also set up a parallel organic only import and distribution department to supply not only the 10 stores, but also the estimated 2000 individual organic stores all over Taiwan, wholesellers and the general retail market. They also now sell about 10 % of their stock through a home delivery system in cooperation with the 10 stores, who take pre orders from their customers. The large Costco type stores or the wet market do not take any of their imported organic product. At first, the Uni President import organic department started six years ago with some organic nuts, grain and dry fruit. They then tried a whole container of organic grapefruit from California, but the entire product suffered damage during transit. Afterwards, Uni President started to import organic cherries three years ago, but again, they initially lost money due to shelf life and inventory issues. But now, they take pre orders first, so the product can be quickly distributed on arrival. The 10 stores manage pre orders with their established customers, then organize home delivery or pick up. The organic cherry business is now growing and more efficient. They also encountered initial difficulty when first importing the organic fuji about five years ago, but generally new products and ideas take time and money to establish, precisely the reason the large conventional apple importers do not like organic. Organic sales grew 20 % over last year, and Uni President believes the market momentum is getting stronger. Other interviews support the viewpoint that in the past few years, more and more retailers want organic items from their suppliers. They source the organic fuji in May to August from Australia or Chile. The import department brings in California organic apples in September mainly to satisfy market - 38 - demand until the Washington supply starts in December to April. Their buyers look for 70 % red colour, a strong shelf life, mostly 88 – 80 – 72 for 20 kg box, and 64 56 for special festivals. From December to mid January, Taiwanese consumers prefer locally grown fuji apples over imported organic apples. Last year, Uni President imported the organic gala apple, but the product tasted too sour and the shelf life not long enough. They also continuously experiment in the pre order system for new items like Korean and Japanese peaches, the Chinese apple pear, US cherries and kiwis. They tried two containers of BC organic fuji last year and found the first container very good. But they found the second container had problems such as punctured skin during transit, taste not sweet enough, not firm enough internals and the colour a bit too dark. Another specialist organic importer also imports and wholesales organic fuji on a year round basis. Their season starts in August with the local organic apples until December or January. They then import the organic fuji apple from January to They assessed the organic ambrosia August from the US, Canada and Australia. apple this year, when the supplier included some samples with the shipment. They found the sweetness fine, but the apples soft and the shelf life short. The Hong Kong importer also looks for new organic items to bring into the higher end of the market due to its higher growth rate over the supermarket chains. One large importer now leases produce space in higher end Hong Kong retail stores and seeks to develop higher end produce imports. The premium stores like organic also as a way to enhance their image as a quality shop. In the 1990’s, most Hong Kong importers brought in conventional apples in large volume for re export to China. The type of apples imported varied from royal gala to fuji to others. This avenue has largely closed down due to the oncoming of Chinese production. Today, many importers now try to export apples from China to the rest of the world, even building their own packing houses. The Hong Kong market appears to be cannibalizing into two main segments, with the premium side currently the expanding and niche area. The current trend is to import expensive produce, some extremely expensive, largely from Japan. As a result, others retailers aim to tap into this growing high end sector. The mid range Park n - 39 - Shop developed some prototype stores called “Taste” and “Gourmet”, loosely based on the French high end style, but with a cosmopolitan range of products, especially Japanese items. If successful, the company plans to expand rapidly. One very large importer raised the idea to re export higher end produce, such as the organic ambrosia apple, to some higher end stores in the growing Guangdong province, for about a 20 % premium over the local HK market. One cannot say if the organic ambrosia priced at US38.40 could be a successful re export to China from Hong Kong. 6.6 Price Exporters, importers and distributors were reluctant to discuss prices paid for their produce. We therefore surveyed the price of a broad variety of apples from a wide range of stores, included in the Appendix. Most felt comfortable speaking in terms of percentages, and indicated organic produce generally sold at a 20 - 30 % price premium above conventional produce. This rough rule of thumb often broke down when comparing produce at the retail level. Some non representative samples of retail prices obtained suggest that price premiums generally range between 20 and 40 % above conventional prices, with price differences regularly exceeding that range. Uni President suggested that organic items used to have a 50 % premium over conventional items, but the trend is for the price gap to narrow. 6.7 Basic Import Requirements Currently, Taiwan does not have import regulations specifically governing organic foods. All imported organic foods are subject to the same import regulations as conventional foods. Fresh fruits and vegetables are subject to pesticide residue inspection by the Bureau of Animal & Plant Health Inspection & Quarantine (BAPHIQ) at their port of entry and must meet all phytosanitary requirements and pesticide residue (i.e., maximum residue level [MRL]) standards. The Taiwan authorities currently accept other country’s organic certification labels, requiring no domestic re-certification in order to be marketed and sold as organic in the market. However, that may change: Taiwan officials are working on their first set of health food standards. In the future, producers of organic foods or any foods that - 40 - claim biological or medical affects on the human body will require a product license from the Food Sanitation Bureau of the Taiwan Department of Health. The Taiwanese inspector can also fumigate the organic shipment, as noted earlier. When this happens, the product can lose its organic status. The importer then must sell at a lower price, with the supplier to pay the difference between an organic and conventional shipment. Hong Kong too does not have specific import laws for organic, and the import of food is subject to the existing food laws governing all food imports. 7 Export Program The major selling factors are the same: price, quality, timeliness in delivery, and service. Initial sales require more face-to-face contact as Asians generally place a premium on developing personal connections. 7.1 Relationship Building Business in Hong Kong and Taiwan (and elsewhere in Asia) requires good relationships. In Asia, often the relationship is more important than the particular product or service. One can build relationships with both the retailer direct or distributors or both. We have included the list of major produce and organic distributors in the Appendix. Both strategies have their pros and cons, but whichever course one takes, you must develop good connections with the buyers and decision makers. Access to the market can best be gained once the trust of an importer, distributor or retailer has been obtained. This process often requires patience, and repeat visits, sometimes over years. We find that generally the average buyer or decision maker is intelligent and know how to trade well. This means that they do not require a hard sell as they can figure out pretty quickly how to do things and where your product or service might fit. One factor that often tilts the relationship in your direction is good service. As a broad generalization, Hong Kong and Taiwan tend to be service oriented, since they made their prosperity by serving the export markets of, principally, the United States. - 41 - As a result, they themselves appreciate the efforts of prompt sales service and good communication. Good service too can sometimes help take your product or service outside of the commodity game where the relationship is largely unimportant, but only the price of the commodity. Good service can be crucial to succeeding in this very competitive market. Although relationship building is important, it must be done within the disciplines of business fundamentals and profitability. Asia is full of examples and massive bad banking debts where the government, business and banking sectors (wrongly) placed too much personal relationship over prudent business practice. 7.2 Marketing and Promotion Both markets agree the trial, error and human persistence/effort approach is the best method to introduce new items into the marketplace. Consumers will judge with their feet and the basics of taste and price will win the day. Still, exporters can use a variety of promotional vehicles to introduce and raise the visibility of their products and communicate health benefits, environmental benefits, availability and expected return. These methods include special trade fairs and exhibitions, advertising in the media and other public relations activities, seminars, in-store promotions, joint promotions with wholesale and retail outlets. shop education. The Hong Kong Convention and Exhibition Centre has approximately 500,000 square feet of exhibition space, including 300,000 square feet added in a major expansion completed in the summer of 1997. The recent shows potentially relevant for the organic ambrosia apple include HOFEX 2005 Annual Hong Kong - May 10-13, 2005, FOOD EXPO Annual Hong Kong - August 11-15, 2005. June 16-19, 2005. In Taiwan, the relevant recent show would be 2005 Taipei International Food Show Annual Taipei, Taiwan Other ways that local agents use include direct mail, poster, network, website, home delivery membership telephones, and organic - 42 - Mostly all the importers and retailers we met remain open to Canadian products, but they generally know very little about the product. The main challenge that Canada faces concerns the lack of knowledge of its products. One question to consider is how to increase the awareness? Though strong marketing efforts can be used to educate the organic consumer, the importers in both places recommend trial shipments as the best method – and least expensive method - to enter a market. Most importers suggest that the mass media or advertising campaigns create limited effectiveness. TV, media will help, but the cost is much, and consumer acceptance depends mostly on trying the produce itself. Exporters can sometimes get the supermarket to advertise, but should be prepared to support with promotional monies and posters. The Japanese and Oregon governments offered the supermarkets rebates if the product for their region did not sell, and this provided an impetus to get the order process going, a strategy the importers suggested worked. Most agreed of the difficulty to introduce new products at the wetmarket (ie besides price, where to hang the poster?). On the other hand, one produce importer told us that New Zealand used mass media to educate consumers about kiwi fruit as an initial market strategy, and the consumer then lobbied the retailers for the product, who then lobbied the wholesellers and importers to bring in the product. 7.3 Branding and Positioning Canada has a reputation as being a clean, safe place with an abundance of nature. This reputation can be leveraged when selling Canadian organic food. Canada also has national or regional organic standards with a reliable accreditation system to enforce those rules. Good post harvest handling (e.g. cold storage), good infrastructure and logistics (including harbour or airports) also enable the fresh organic produce to arrive in good condition in the country of destination. The case study of Papua New Guinea shows that limited transport possibilities put a constraint on organic exports, when the quality of exported organic apples was found low upon arrival in Germany. - 43 - Quality problems finally led to discontinuing organic exports. Canada does not have those problems in general. We have already considered that the demand for organic foods, and also the demand for imported foods. Either or both of this positioning could tap into the consumer demand. If the FOB price is USD38.40/40 lb box, then this places the organic ambrosia in the more expensive category of fruit, certainly more than the conventional Washington and mainland Chinese, but less than the Japanese produce. Most likely, this product would go to a specialty store or Japanese style store or more premium supermarket. Another way to position the organic ambrosia apple would be for the premium imported appeal. Finally, organic foods in Hong Kong and Taiwan can be marketed as health food. Therefore, organic food promoters should emphasize the overall nutritional value and health food image of their organic products to boost consumers’ attention and loyalty. 7.4 Labels The importers agree that a good label can sometimes attract a higher price, but the price cannot be too far out of the range of consumer expectation. In both regions, the consumers could trust the foreign imported label more than the local label as it suggested authenticity and third party certification, even if some could not understand the writing. Even if the consumer does not trust the label, local or foreign, they might trust the store providing the product, as Uni President told us. Traceability remains a key word in the organic food market and consumers prefer to know as much as possible that their food has met or exceeded food safety standards throughout the supply chain. Retail stores adopt ‘micro-branding’, which describes the handling of vegetables from farm to table. This makes the consumer feel a connection to the producer. The City Super higher end specialty store in Hong Kong and, soon to be two in Taiwan, put the national flag with the pricing information. Their buyers once told us, we do not want Danone yoghurt produced at their low cost mainland Chinese plant, we rather pay more and import it from France. Both Taiwan and Hong Kong consumers pay close attention to information printed on packaging, particularly ingredients, manufacture and expiration dates. Fears of contamination and pesticides in domestic food products provide organic food - 44 - exporters a clear opportunity to leverage the image of their country as a producer of safe and high quality food. Labels clearly stating that the organic foods have passed relevant Canadian quality control and organic regulations will be a big plus in swaying consumers. 7.5 Seasonal Strategy Supermarkets, the fastest growing sales outlet for organic produce, prefer to sell organic fresh produce year-round, with a constant quality and regular supply. The importers in both places suggested one possible way to introduce the organic ambrosia apple depended on the timing of the product and fitting it in before existing supply chains from Washington. For example, Washington starts to supply its apples from October onwards, and several Taiwanese importers suggested the organic ambrosia apple to possibly fit in before that for a niche of timing. 7.6 Taiwan Canadian Promotion One possible method for entry into the Taiwan market concerns the idea of an instore promotion. The Taiwan Canadian Trade Office has suggested creating a show with the local company Three Shine. We recently met with both the local agent and the Canadian Trade Office during our recent trip to discuss their ideas. The proposal suggests holding the show for two consecutive weekends in the fall, total of four days, at four to five of the best outlets for local retail chain called Song Ching. The promotion would be with the outlets in the more affluent residential areas of locals and expatriates. This retailer started in Taiwan in the 1980’s as a joint venture between Japan and Taiwan, and currently has about 100 stores throughout Taiwan. under a management contract, but the show would not be held there. The distributor estimates an order of two 40 foot sea containers. The product would be used for the show at Song Ching, but the excess product would be wholesale marketed to a variety of other higher end and retail chains in Taipei, and also throughout Taiwan. They would prefer apple sizing with the 88 – 64 range of product and the redder the better. Song Ching also manages some of the food floor in the three SOGO stores in Taipei - 45 - The NVDC would need to provide some decoration or poster materials for five outlets; in store promotion support for in store ‘servers’ for an estimated potential cost of NT$1,800/day per person x 5 (supermarket outlets) x 4 (days) = NT$36,000 (Approx. C$1440.00); and estimated quantity for tasting of 2 cases (40 pound) of apples x 5 (supermarket outlets) x 4 (days) = 40 cases. The Consulate can sponsor the promotion with some Canadiana materials (ie bunting, flags), some of the cost, and also some translation work for any literature. The key challenge involves developing a unique selling point for the organic ambrosia that would capture the consumer’s imagination. Why is it better? This involves developing a good story to bring out the non price benefits. 8 Conclusion At the beginning of this paper, we posed questions which early traders often pondered. How can we successfully trade a product with the Cathay region? We isolated certain elements of this larger question and considered smaller parts in more detail. We thus explored the ravenous demand for imported foods; traditional and modern distribution networks; apple imports; the organic food market with special emphasis on produce; export marketing steps; and all in the context of the political, economic and trade background. After considering these factors in more detail, we learn that the Taiwanese and Hong Kong market do hold tremendous potential with their well developed economies, curious open nature towards global trade and well off, cosmopolitan consumers. This tremendous potential though requires longer term thinking and learning. The Asian marketplace also developed its own ways of functioning, and the potential exporter should acclimatize themselves with cultural as well as trade norms. - 46 - Appendix: Taiwan Importers • Uni-President Organics is currently the largest importer of organic foods in Taiwan. The company was established in February 1999 and formed through a partnership between President Enterprises, Taiwan's largest food company, and Santa Cruz International, an American organic food company. In Taiwan there are currently eight organic stores under the Santa Cruz name. The company also provides home delivery service to customers and distributes to over 300 stores in Taiwan including large retailers such as Carrefour, RtMart, Sogo, Costco, Géant and Jasons Marketplace. President Enterprises is a major food conglomerate in the Greater China region. Among other things, the group operates over 3,500 7-Eleven convenience stores in Taiwan.Mr. Gerald Chen, Uni-President Mobile:0912 036 447" 03 452 3198 桃園縣中壢市中壢工業 區定寧路15號 geraldchen@mail.pec.com.tw • Established in 1983, Three Shine is the largest vegetable importer in Taiwan. The company imported over 700 containers of vegetables by sea last year (not including products sent by air). In 2001, Three Shine set up a division to expand services to supermarkets and hypermarkets. Three Shine is currently the vegetable supplier for salad sold in 7-11 Convenience Stores. Three Shine also has a food service division to cover restaurant clients such as Skylark (pasta) restaurants and five-star hotels. The import of fruits is a growing business for Three Shine. Apples (organic or conventional) are identified as an item they would like to source for new suppliers from Canada. Ms. Linda Lu, Three Shine "Three Shine Trading Co., Ltd. 三崧貿易有限公司" "呂麗瑛 Ms. Linda Lu" "Blueberry, Sweet Peppers, Roman Tomatoes, Sweet tooth chili, English seed cucumber" "02 8245 5580 Mobile: 0970180109" 02 8245 5590 台北縣中和市橋安街41號4樓 linda@3shine.com.tw • Taiwan Fullbloom International Ltd. Address: 6F, 543, Chung Cheng Rd., Feng Yuan, Taichung Hsien, Taiwan Tel: (886-4) 2523-0072 / Fax: (886-4) 2524-2146 E-mail: Richard@fullbloom.com.tw Website: http://fullbloom.com.tw Contact person: Mr. Richard Liu, Purchasing Division Type of business: Trader Products: Fresh fruits (most fruits in the Taiwan market) Looking for: in-demand fruits in the Taiwan market Taiwan Fullbloom imports a wide variety of fresh fruits from different countries including Chile, the USA, Japan and Korean. Fuji apple is the main import item; they also import Washington apple from the USA. Annual import volume is more than 1,000 containers and apple is the main item. - 47 - Taiwan Fullbloom imports seasonal fruits. Such as peach, nectarine, plum, etc. They imported Canadian cherries in 2002. • Coverings Industrial Corp. Address: 1F, 3, Lane 8, Lin-I St., Taipei, Taiwan Tel: (886-2) 2356-9311 / Fax: (886-2) 2394-9707 E-mail: rick@coverings.com.tw Contact person: Mr. Rick Lu, Sales Manager Type of Business: Trader Products: Fresh fruits (most fruits in the Taiwan market) Coverings Industrial Corp. imports Fuji apple from Australia, Chile, New Zealand and South Africa. They also import Fuji and Washington apples from the USA and Gala and Granny Smith apples from France. The company imports Canadian cherries every year and occasionally also carries Canadian apples . The import volume for all types of imported fruits is 100 containers per month. Apple and kiwi (New Zealand) are the main import items. • Royal Island Co., Ltd. Address: Rm B., 9F., 58, Minsheng E. Rd., Sec. 1, Taipei, Taiwan Tel: (886-2) 2522-2155 / Fax: (886-2) 2536-8795 E-mail: royalisland@ebtnet.net Contact person: Ms. Phoebe Chung Type of business: Trader Products: Apples, cherries, grape, peach, nectarine, plum, durian, rambutan, mangosteen and kiwi. Royal Island Co., Ltd. imports Fuji apples from the USA, New Zealand, Australia and Chile and cherries from USA (major) and Canada. Durian, rambutan, mangosteen are from Thailand and kiwi (small volume) is from New Zealand. Annual import volume is 1,000 containers and out of 300 ~400 containers is apple. They used to imported apples from a company called Owl. According to Royal Island, the quality of Canadian apples was not stable and price did not reflect the market demand. • Pomina Enterprise Co., Ltd. Address: 14F, 22, Kung Yuan Rd., Panchiao City, Taipei Hsien, Taiwan Tel: (886-2) 2964-2700 / Fax: (886-2) 2964-2657 E-mail: peggy.pomina@msa.hinet.net Contact person: Ms. Judy Ko, Purchasing Division Type of business: Trader Products: Cherries, peach, nectarine, apple Looking for: Not identified but expressed interest in Canadian fresh fruits Pomina imports apples, cherries, peach and nectarine. Cherry is from the USA, Chile, New Zealand and Canada (small volume). Apple is from Chile, the USA, New Zealand and Australia, depending on the growing season. Fuji apple is the main import item, because Taiwanese prefers Fuji apple than other apple varieties. Import volume is 10 containers per week. They also import small volume of green apple and red delicious apple. - 48 - • Walker Grow-Rite International Co., Ltd. Address: 10F, 26, Hsin Yi Rd., Sec. 4, Taipei, Taiwan Tel: (886-2) 2755-2477 / Fax: (886-2) 2700-9246 E-mail: walker@walker.taiwan.com Website : www.walker-taiwan.com Contact person: Mr. Brian Lee, Sales Division Type of business: Trader Products: a wide variety of fruits from New Zealand, Australia, Chile, the USA, Canada, France, Italy, South Africa, Japan, Korea, Thailand, and Indonesia. The main import item is Fuji apple because of the huge demand in the market. Min supplies of Fuji apple are the USA, Chile, Japan, and Korea. Import volume for all fruits is close to 1,000 containers annually. Currently, cherry is also a main product. Walker imported Canadian Fuji apple in 2001. Since the price was uncompetitive in the market and the growing period is same as USA, they stopped importing Canadian apples. Since there was no Canadian companies have approached them to provide information on Canadian fresh fruits, they are not familiar with the types of fresh fruits Canada has to offer. However, they expressed their interest in importing Canadian fresh fruits. • Kingo International Co., Ltd. Address: 12F, 34, Chungshan N. Rd., Sec. 3, Taipei, Taiwan Tel: (886-2) 2598-1308 / Fax: (886-2) 2594-7199 E-mail: kingo@kingo.com.tw Contact person: Ms. Lisa Liu, Assistant Type of business: Trader Products: Apples, cherries, peach, plum and fruits on the season Looking for: information on Canadian fresh fruits. Kingo imports a wide variety of fruits from many countries. Fuji apple is its main import item. The USA and Chile are the major suppliers while some are from New Zealand and a small volume from Australia. Cherries are from Canada and the USA. Average import volume for Fuji apple is 10 ~20 containers per week. • Wansun S. M. Trading Co., Ltd. Address: 13, We Chuan 3rd Rd., Wuku Hsiang, Taipei Hsien, Taiwan Tel: (02) 2298-8778 / Fax: (02) 2298-8768 E-mail: bigwin88@ms4.hinet.net Contact person: Ms. Wendy Chang, Assistant Type of business: Trader Products: Apples, cherries, peach, plum, and fruits on the season Looking for: information on Canadian fresh fruits Wansun S. M. Trading Co., Ltd. imports mainly Fuji apples from the USA, then Chile, some from Australia, and a small volume of red delicious apple from the USA. Most of fresh fruits are from the USA. Annual import volume is 1,000 containers, out of which 50% is Fuji apple. - 49 - • Shine Food Corporation Address: 6F, 86, Chien Kuo N. Rd., Sec. 2, Taipei, Taiwan Tel: (886-2) 2515-5088 / Fax: (886-2) 2504-2289 E-mail: shinfood@shinee.com.tw Contact person: Ms. Nancy Lan, Purchasing Manager Type of business: Trader Products: Apples, cherries, peach, plum, nectarine and grape Looking for: Canadian cherry Shine Food imports a wide variety of fruits from many countries including the USA, New Zealand, Chile, Japan, Korea and South Africa. Most of its fruits coming from North America are peach, plum, apple, cherry and nectarine. Grape is from Chile and South Africa. Fuji apple is main import item from the USA, Chile, New Zealand. Gala apple is from New Zealand. Annual import volume for fruits is 1,000 containers of which Fuji apple is the main import product. The USA is the main supplier of Fuji apple into Taiwan. According to Shine Food, most importers import apples from the USA in during the first six months of the year and the rest of Fuji apple is imported from Chile. • Ten International Inc. Address: 10F, 150, Chiu Ru 2nd Rd., Kaohsiung, Taiwan Tel: (886-7) 311-9237 / Fax: (886-7) 311-9263 Contact person: Mr. Robert Chang, Trade Manager Type of business: Trader Products: Apple, cherries and other seasonal fruits. Looking for: Currently no particular fruits needed. However, would like to receive information on Canadian fresh fruits. Ten International Inc. one of the largest apple importers in Taiwan, imports a wide variety of fruits from the USA, Japan, Canada, Korea, New Zealand and Chile. Fuji apple is the main import item, coming from the USA, Japan, Korea, New Zealand and Chile. Annual import volume is 800 ~ 1,000 containers of fruits, and out of which 60~70% is apple. According to Ten Int’l, Fuji apple occupies 90% of Taiwan’s apple market. They used to import Canadian apples, however the price was high and the quality was not as good as those coming from the USA. Thus, the Ten Int’l did not continue to import apples from Canada. • Fruit Well Trading Co., Ltd. Address: 2F, 79, Chung Shen N. Rd., Sec. 2, Taipei, Taiwan Tel: (886-2) 2571-3215~8 / Fax: (886-2) 2536-2402 E- mail : oversea.fruits@msa.hinet.net Contact person: Ms. Julia Chiang, Sales Executive Secretary Type of business: Trader Products: Apple, cherry and other seasonal fruits. Looking for: Currently no particular fruits needed. However, would like to receive information on Canadian fresh fruits. Fruit Well imports a wide variety of seasonal fruits, including apple, cherry, peach, nectarine, etc. Fuji apple is the main import item. Depending on the - 50 - growing season, Fuji apple is supplied from the USA, Japan, Korea, Chile, New Zealand and South Africa. Cherry is imported from the USA and Canada. Annual import volume is 2,000 containers of which apple is the main import product. Cherry BC Edaho Co., Ltd. 艾得荷實業有限公司 Mr. Tom Lin Fresh Cherry, Apples 02 2942 5808 02 2940 0543 台北縣中和市景安路167巷23號1樓 lcc52716@ms19.hinet.net Darryl Lin, Son of Tom Lin. 1-F, No 6, Lane 167, Ching-An Rd, Chung-Ho City, Taiwan. Tel: 886-2-2942-5808 Fax: 886-2-2940-0543 Fruit "Shine Fruit 文萊實業有限公司" "陳嚮惠 Lisa Chen" Cherries, Apples 02 2515 5088 02 2504 2289 台北市建國北路二段８ ６號６樓 shine.food@shiness.com.tw Health/Organic "LUSTRATIONAL LIFE CO.,LTD. 清淨生活有限公司" "蔡金美 Teresa Tsai" Lyo-sau:dairy cultures, Apple 08 789 7630 屏東縣潮洲鎮新生路７４號 chinjin.life@msa.hinet.net 08 788 9061 - 51 - Hong Kong Importers • City Super Ltd. - Fenix Group Ms. Annie Chan Buyer - Fruit & Vegetable Depa Suite 1702-1703 World Finance Centre, South Tower 17 Canton Road Tsimshatsui, Hong Kong Phone : 852-2306-3539 Fax : 852-2956-0336 EMail : annie.chan@citysuper.com.hk City Super Ltd. - Fenix Group Mr. Benny Ma Fish and Meat Buyer Shop 1040-1049 Podium Level One, IFC Mall, 8 Finance Street Central, Hong Kong Phone : 852-2234-7128 Fax : 852-2234-7069 Dah Chong Hong, Ltd Mr. Keith K F Lo Assistant Product Manager – Fresh Food Provisions 8/F, DCH Building, 20 Kai Cheung Road Kowloon Bay, Hong Kong Phone : 852-2768-3438 Fax : 852-2953-0163 EMail : lokkf@prov.dch.com.hk Family Care Limited Ms. Betty Chu Executive Director Block I, 1/F, Hoi Kung Court 268 Gloucester Road Causeway Bay Hong Kong Phone : 852-2893-4128 Fax : 852-2832-9280 EMail : famicare@netvigator.com Fresh Channels Limited Ms. Pauline Wong Administration Manager Shop T306, Western Wholesale Food Market 8 Fung Mat Road Sai Ying Pun, Hong Kong Phone : 852-2766-3280 Fax : 852-2334-2921 EMail : pw@freshchannels.com • • • • - 52 - • Fresh Channels Limited Ms. Susan Bik-Shan Wong Director Shop T306, Western Wholesale Food Market 8 Fung Mat Road Sai Ying Pun, Hong Kong Phone : 852-2766-3280 Fax : 852-2334-2921 EMail : sw@freshchannels.com Hoover Food Supplier Ltd. Mr. Roger Leung Purchasing Officer G/F., Unison Industrial Bldg. 7 Sun Yip Street Chai Wan, Hong Kong Phone : 852-2889-1887 Fax : 852-2898-1881 EMail : hooverfood@biznetvigator.com Jusco Stores (Hong Kong) Co., Limited Ms. Celia S.N. Pang Assistant Buyer - Produce Sect Food & Catering Department 3/F., Stanhope House 738 King's Road Quarry Bay, Hong Kong Phone : 852-2165-0359 Fax : 852-2516-7442 EMail : celiapang@jusco.com.hk Jusco Stores (Hong Kong) Co., Limited Ms. Kit Wai Tsang Food & Catering - Produce Buyer 3/F., Stanhope House 738 King's Road Quarry Bay, Hong Kong Phone : 852-2565-3652 Fax : 852-2516-7442 EMail : tsangkitwai@jusco.com.hk Jusco Stores (Hong Kong) Co., Limited Mr. Ben P.W. Tse Assistant Buying Manager Food & Catering 3/F., Stanhope House 738 King's Road Quarry Bay, Hong Kong Phone : 852-2565-3619 Fax : 852-2516-7442 EMail : bentse@jusco.com.hk • • • • - 53 - • Kampery Development Ltd Mr. Howard Wong Commercial Manager Flat 2-3, 4/F. Join-In Hang Shing Centre 2-16 Kwai Fung Crescent Kwai Chung, N.T. Hong Kong Phone : 852-2420-2472 Fax : 852-2489-8705 EMail : howiewong@kampery.com.hk Mi Hang Development Co Ltd Mr. Thomas Chung-Sik In Managing Director Room 403, 4/F, Lap Fai Building 6-8 Pottinger Street Central, Hong Kong Phone : 852-2858-4268 Fax : 852-2858-4235 EMail : mihangdv@netvigator.com Ng Fung Hong Limited Mr. Fung Han Yu Corporate Communications Manag 8/F., China Resources Building 26 Harbour Road Wan Chai, Hong Kong Phone : 852-2593-8789 Fax : 852-2827-4834 EMail : yufh@imail.crc.com.hk PARKnSHOP Mr. Joe Li Trading Controller Trading -- Fruit and Vegetables 9/F., Watson House 1-5 Wo Liu Hang Road Fo Tan, Hong Kong Phone : 852-3521-6030 Fax : 852-3145-1402 EMail : JoeL@asw.com.hk The Dairy Farm Company Ltd. (Houston says good prospect) Mr. Stephen Chen Fresh Food Group Category Manager Fresh Food Centre 9 Chun Kwong Street Tseung Kwan O Industrial Estate New Territories, Hong Kong Phone : 852-2995-1318 Fax : 852-2299-2993 EMail : schen@dairy-farm.com.hk • • • • - 54 - • Alfa Far East Trading Co. Ltd. Mr. Steven K. S. Leung General Manager Rm. 4003-4 Hong Kong Plaza 188 Connaught Road West Hong Kong Phone : 011-852-2548-1321 Fax : 011-8522548-2957 EMail : sales@alfafareast.com Remarks: B.C. Tree Fruits’ Hong Kong and South East Asian agent. Jet All Trading Limited Miss Meagan Kiu-Ling Heung Import Manager Room 1708, 17/F, Greenfield Tower, Conco 1 Science Museum Road Tsimshatsui East, Kowloon Hong Kong Phone : 011-852-2771-8304 Fax : 011-852-2771-5098 EMail : sin@jetall.com.hk Luen Hing Co Mr. Pak-Sang Kwok Proprietor 5/F, 40-41 Connaught Road West Sheung Wan Hong Kong Phone : 011-852-2540-6958 Fax : 011-852-2559-6265 Reliance Commercial Enterprises (HK) Ltd Mr. John-Tan Huang Managing Director Room 1805, Office Tower, Convention Plaz 1 Harbour Road Wan Chai Hong Kong Phone : 011-852-2525-2236 Fax : 011-852-2810-4955 EMail : honrece@recoen.com Wing Mau Trading Co Ltd Mr. Mau-Wah Liu Director Stall B39 & B40, Western Wholesale Food Sai Ying Pun Hong Kong Phone : 011-852-2819-4563 Fax : 011-852-2817-0485 EMail : wingmau@hkstar.com • • • • - 55 - AMBROSIA IMPORTER AND RETAILER SURVEY QUESTIONNAIRE JUNE/ JULY 2005 Import and Export Which countries do you import/ have you imported apples from. 1. 2. 3. 4. How does the supply relate to seasonal availability. What is your experience in importing apples from the above mentioned countries. Is country of origin significant. How would you rank the demand for the different types of apples. Have you ever imported apples from Canada. What was your experience. 1. What is the reputation of Canada for fruit and produce supply. Have you ever imported organic apples. Domestic Distribution Describe the relationship between importer, wholeseller, retailer, end user in determining the supply and demand. Are there other types of distribution network. Which consumer is interested in organic and why. Which stores carry most organic product and where do most consumers go to buy organic fruit and vegetables. Does Taiwan have local organic labeling that is used on produce. If so, do most consumers recognize and understand the labels What is the amount of conventional versus organic amount sold. What do consumers look for when buying an apples. What is the best apple colour, sweetness, and shelf life for a premium type apple What box size ( kg per box) do you prefer for apple shipments. What is the significance of labels. What is the competition from the other types of fruits. Considerations in Introducing a New Variety Are consumers open to try new fruits such as a new apple. How do you suggest to successfully introduce a premium apple into the market place. - 56 - What is the best way to get consumers to try a new apple in store. Should one promote at trade fairs and if so which ones. Would distinctive labeling help. How much of a premium will consumers accept on an organic apple. If organic and new varieties does not entail easy access, what do you suggest as the best way for access. Do you think there is space in the market to create a similar opportunity with another apple. With an organic apple. Trends What has been the effect of the WTO on trade. How much of a premium will consumers accept on an organic apple. If organic and new varieties does not entail easy access, what do you suggest as the best way for access. Have you ever imported organic apples. What are some of the most common issues associated with claims. How do you handle bad product or claims. What certification and documents does the importer need from Canada for apple/ fruit imports. What documents does the importer need for organic fruit imports. What are the duties and tariffs on apples and other fruit. Are apple imports generally growing or declining in the fruit business - in your company. The Fuji apple is the most popular imported apple, what are the main factors in its success and why does it continue to be successful. - 57 - ORGANIC WASHINGTON APPLE BROCHURE The Best Organic Apples On Earth™ Washington State is known as one of the premier apple-growing areas in the world. The nutrient-rich soil, arid climate, plentiful water and advanced growing practices provide the right ingredients for producing top-quality fruit. These same elements also make Washington the finest place to grow organic apples. The dry climate and ideal temperatures reduce the number of disease and pest problems that can impact fruit. This superior climate reduces the need for applications to control insects and pests. In addition, Washington’s quality standards for all apples are more stringent than grading standards used in any other growing region in the world. All of Washington’s nine key varieties are available as organically grown. Statistics from Washington State University’s Tree Fruit Research and Extension Center indicate most of the Washington organic acreage planted is in Red Delicious followed by Granny Smith, Gala, Golden Delicious, Fuji, Braeburn, Pink Lady®, Cameo® and Jonagold. And Washington’s organic apple industry is not only growing, but it is holding true to the state’s unmatched history of dedication to cutting-edge production practices. More than 25 percent of the state’s apple packers hold Organic Handler Organic Washington Apple Facts • Washington apple growers boxes of certified organic appl in 2002*. • In 2002, Washington State organic orchards, an increase from 4,117 acres in 1998*. produced between 2 and 3 mil cultivated 9,861 acres of certif • The United States is the lead organic apple producer in the world, with Washington State growing about two-thirds of U certified organic apples. • Organic Washington apples a available in every key variety Granny Smith, Gala, Fuji, Red Delicious, Golden Deliciou - 58 - Certificates from the Washington State Department of Agriculture’s Organic Food Program. Organic Washington Apple FAQs Q. How are organic Washington apples grown and packed? A. Organic Washington apples are grown and packed only with materials and methods approved by the National Organic Program (NOP), which rely on natural materials and processes. Organic orchards receive nutrition and fertilizers consisting of compost, animal manure, fishmeal, plant residues and other natural nutrients. Natural pest control methods are derived from plant extracts, the fermentations of yeast, beneficial insects, mating disruption pheromones and systems that bait and trap pests. Weeds may be controlled by mulching, cover plantings and mechanical methods. In addition, certified organic apples can only be processed and packed on equipment using belts, brushes and water specially cleaned and prepared to handle organic fruit. Organic apples may not commingle with conventionally grown apples in either the orchard or in the packing houses. Q. How many years does it take for an apple orchard to be certified organic? A. The land on which the apples are grown must have been farmed organically for three years or fallowed for three years before certification is granted. This means that for at least three years prior to the first certified organic harvest, only practices and materials allowed under the national organic standard have been used. Prior to the third year, the apples from the orchard are considered transitional fruit. Transitional fruit cannot be sold as certified organically hand. Braeburn, Pi Lady®, Cameo® and Rome Beauty • Each organ Washington apple is picked by If you choose to buy organ Washington apples, read the the apples are certified USDA organic. sticker on the apples to ensure The National Organic Progr The push to standardize organ 1990 when Congress passed t Organic Foods Production Act certification nationwide started (OFPA). The OFPA required the (USDA) to develop national U.S. Department of Agriculture standards for organically produ agricultural products to assure meet consistent, uniform standards. consumers that those products In response to these demands the USDA created the Nationa Organic Program (NOP). NOP standards offer a national definition for the term organic - 59 - grown. Q. How are organic apple growing and handling practices monitored? A. The NOP requires producers and handlers to submit an Organic System Plan. The plan must document the practices and procedures used, the materials they plan to use, the soil monitoring methods used to determine that soil and water quality are being maintained and improved and the records that are maintained. And, for growers who produce or handle both organic and conventional apples, the procedures that are in place to prevent commingling of the products. An annual update of the system plan must also be submitted each year. Q. Are organic apple orchards and packing facilities inspected? A. It is mandatory that organic orchards and packing facilities be inspected every year. The Washington State Department of Agriculture conducts these inspections. During the certification process, random samples are collected to verify compliance with organic production standards. Growers must submit soil tests every three years. Q. Do organic practices involve or include genetically modified organisms? A. No. Genetically modified organisms are not allowed under organic regulations. They detail the methods, pract and substances that can be us in producing and handling orga products. Beginning in 1988, the Agriculture (WSDA) had been certifying orchards under the crops, livestock, and processed Washington State Department state’s organic food laws. Whe program, the WSDA was accredited to certify orchards, national program. the USDA created the national processors and handlers under Good Reasons to Buy Organic Apples • Organic orcharding protects future generations • Organic apples meet stringent standards • Organic apples taste Q. How do I know my apples are grown organically? A. Look at the stickers on the apples and watch for signs in the supermarket. Along with the national organic standards, the USDA developed strict labeling rules to help consumers know the exact organic content of the food they buy. The USDA Organic seal (at right) tells you that a product is at least 95 percent organic. However, apple growers may or great! • Organic production reduces health risks from chemicals • Organic orchards - 60 - may not use the full USDA Organic seal, the certified organic apples my simply have “certified organic” on the existing sticker. Q. What is Organic? A. Organic refers to the way agricultural products are grown and processed. Organic food production is based on a system of farming that maintains and replenishes soil fertility without the use of toxic and persistent pesticides and fertilizers. Organic foods are minimally processed without artificial ingredients, preservatives or irradiation. respect our water resources • Organic growers build healthy soil • Organic growers work with nature • Organic growers are leaders in innovative research • Organic growers strive to preserve biodiversity • Organic orcharding keeps communities healthy • Organic orcharding saves energy • Organic orcharding helps small growers Harvest of Washington apples begins in mid-August and generally ends in early November. Each year, Washington harvests between 80million and 96million boxes of apples, each weighing about 40 pounds. • Harvest of Washington apples begins in mid-August and generally ends in early November. - 61 - • The estimate of this year’s crop is comprised of Red Delicious Golden Delicious Fuji Gala Granny Smith Braeburn Jonagold Pink Lady Cameo 40% 17% 11% 14% 12% 3% 1% <1% <1% The approximate harvest-start times* for key Washington apple varieties are: Gala Jonagold Golden Delicious Red Delicious Braeburn Granny Smith Fuji Cameo Pink Lady mid-August early September mid-September late September mid-October mid-October mid-October mid-October late October to early November Washington state apples are subjected to the most stringent grading standards in the country. In 1915, the state established the first grade standards in the nation for apples. The U.S. Department of Agriculture adopted national grade standards for - 62 - apples eight years later in 1923. Today, Washington apples may be packed according to Washington state standards or U.S. standards. The hierarchy of grades from Washington, starting with the highest, is: Washington Extra Fancy U.S. Extra Fancy Washington Fancy U.S. Fancy U.S. No. 1 U.S. No. 1 Hail Combination grades are rarely packed in Washington. Grading standards are minimum requirements. Apple quality may exceed the grade marked. Apple Sizes Size 48 56 64 72 80 88 100 113 125 Weight 14.0 oz. 12.0 oz. 10.5 oz. 9.3 oz. 8.4 oz. 7.6 oz. 6.7 oz. 5.9 oz. 5.4 oz. Diameter 3.64" 3.52" 3.40" 3.29" 3.19" 3.05" 2.93" 2.84" 2.75" - 63 - 138 150 163 175 198 216 4.8 oz. 4.5 oz. 4.1 oz. 3.8 oz. 3.4 oz. 3.1 oz. 2.68" 2.62" 2.54" 2.46" 2.39" 2.31" Apples are packed in 40-pound fiberboard cartons (most packers put in at least 42 pounds to accommodate a little moisture loss in shipment). And they are designated by count -- the number of apples in each carton. The largest packed size is 48, which means there are 48 apples in each box -- a very large piece of fruit. Supplies of these large apples usually are very limited. The table above shows each size and its approximate weight and diameter. Washington crops traditionally peak on sizes 100 and 113. The difference in dimension between sizes is approximately 1/8-inch. WASHINGTON GRADES MORE STRINGENT Appearance One major difference between Washington and U.S. grades on red varieties is the definition and interpretation of "good shade of red." Washington grades require a more uniform, more intense, deeper shade of red than the U.S. grades. On green and yellow varieties, Washington grades are more restrictive than U.S. grades on the amount of surface blemishes such as limb rubs, various types of russeting and hail damage. (Russeting is a discoloration of the apple skin that is usually caused by weather conditions.) - 64 - Internal Quality In addition to more demanding external qualities, Washington Red and Golden Delicious must meet the toughest internal quality standards in the industry. Packinghouses are required to test Red Delicious for minimum sugar levels before the apples can be shipped if the fruit has been harvested before October 1. Reds must have a minimum soluble solids level, or sugar level, of 11 percent before they can be marketed. Golden Delicious must have a minimum of 10.5 percent soluble solids. All grades and sizes of Red and Golden Delicious must also meet minimum firmness standards at the time of shipment or be diverted to processing. Red Delicious must have 12 pounds internal pressure. Goldens must have 10 pounds internal pressure. In addition, Gala and Jonagold must have a minimum 11 pounds internal pressure. A 10 percent tolerance is allowed. Washington is the only growing region in the world with this firmness requirement at the time of shipment. Packing All of the above standards are enforced by the Washington State Department of Agriculture in cooperation with the U.S. Department of Agriculture. Random samples of apples are tested for color, weight, pressure, sugar, grade and condition, before and after harvest to enforce state and federal requirements. Washington apples are packed primarily into Extra Fancy and Fancy grades (both Washington and U.S.). Approximately 70 percent of Red and Golden Delicious apples are Extra Fancy, 30 percent are Fancies. A small portion of Red Delicious are packed as Fancy Standard Delicious, with as little as 25 percent color. And a similar share of Golden Delicious are packed to a U.S. No. 1 grade that permits more russeting and other blemish defects. Anything else goes to processing. For export purposes, however, Extra Fancy and Fancy are the most commonly used grades — and many export markets use a fairly high percentage of Fancies because of the price differential. - 65 - RETAIL APPLE PRICING Retail Apple Pricing by Store in Taiwan June 29, 2005 CitySuper (Higher End Store) Name Type Origin N.Z. N.Z. ? Canada Australia Pack Size 3 Pack 2 Pack 3 Pack 2 Pack 2 Pack 4 Pack Price (NT $) 105.00 100.00 75.00 38.00 250.00 340.00 Un refrigerated Product Fuji Conven. Rose Fuji Conven. Rose Fuji Conven. Fuji Organic Red Delicious Conven. 2 Pack 90.00 Refrigerated Product (organic section) Fuji Organic Japan Fuji Organic Japan Other Organic Items in Store Produce Mustard greens and other leaves. Corn , Convovulus, Sprouts, Sweet Potatoes, Vine, Cabbage, Cherries ( Oregon/ cffresh.com), carrots, soy, rice, millet, prep frozen Grocery Raisins, Maple Syrup, tomatoes (Muir Glen), Knudsen Juices, Crackers, , cereal, pasta Dairy Yogurt brands: Horizon and Stoneyfield General Comments 5% of total store devoted to organic, including 1 ½ aisle with only organic products and then product placed in relevant sections throughout store. - 66 - Jasons (Higher End Store) Name Type Origin Pack Size 2 Pack 4 4 4 1 1 Pack (small) Pack (small) Pack (small) Pack ( big) Pack ( big) Price ( NT $) 199.00 99.00 99.00 99.00 69.00 69.00 129.00 180.00 Un refrigerated Product( organic section) Fuji Organic Japan Un refrigerated Product Red Delicio Conven Royal Gala Conven Granny Smith Conven Fuji P. Rose Conven Fuji Regular Conven Apple Pears Conven New Cent.PearConven Refrigerated Product Honey Fuji Conven Honey Fuji Conven Fuji Conven Sekaiichi Conven Mu-Tus Conven Kinsei Conven Orhin Conven N.Z. N.Z. N.Z N.Z N.Z Local ( Shinko) Japan Japan Japan Japan Japan Japan Japan 1 Pack 1 Pack 1 1 1 1 1 1 Pack Pack Pack Pack Pack Pack Japan ( big) 139.00 ( medium) 139.00 ( big) 139.00 (huge) 279.00 ( big) 169.00 (huge) 199.00 1 Pack (medium) 99.00 Other Organic Items in Store Produce Exclusive display table. Carrots, sprouts, greens, corn, peppers, onions, Knudsen Juices, ginger. Dairy Yogurt and Cheese brands: Horizon and Organic Valley ( US both) Chilled Beef from Australia General Comments 5% of total store devoted to organic, including a special section called “Health for Life” (Organic, Low Carb) ,which had many dry items from vitamins and health products to cereal, grains and processed foods. Wellcome (Supermarket) Name Type Origin N.Z. N.Z. N.Z. N.Z ? ? Pack Size 6 8 1 1 4 1 Price ( NT $) .99 .99 .15 .15 .99 .89 Pacific Rose Conven Fuji Conven Pacific Rose Conven Red Delicious Conven Granny Smith Conven Fuji Conven - 67 - RT Mart (Warehouse Store) Name Type Origin ? Japan US N.Z. US N.Z. N.Z. Pack Size 6 1 6 6 1 5 4 Price ( NT $) 1.13 .99 .99 .99 .09 .99 .89 Granny Smith Conven Pacific Rose Conven Fuji ( Med) Conven Red Delicious Conven Fuji ( Small) Conven Rose Fuji Conven Fuji Conven Retail Apple Pricing by Store in Hong Kong Gourmet (Causeway Bay) Name Type Origin Japan Japan Japan Japan Pack Size 1 2 2 1 1 4 2 Price ($ HK) 39.80 39.80 39.80 4.90 5.50 15.50 48.80 Fuji Conv. Fuji Conv Ourin Conv. Golden Delic. Conv. Red Delicious Conv. Granny Smith Conv. Jyona Gold Conv. Park ‘n Shop Stanley (International Store) Name Type Fuji Conv Fuji Conv Granny Smith Conv Royal Gala Conv Royal Gala Conv Red Delicious Conv Red Delicious Conv Jona Gold Conv Braeburn Conv Red Delicious Organic Golden Del. Organic Fuji Organic Fuji Organic Matsu Organic Origin China US NZ NZ Pack Size 1 5 7 8 1 1 6 1 1 4 4 4 2 2 Price ($ HK) 2.30 10.90 2.80 13.90 2.50 1.90 11.80 2.90 2.90 14.90 13.80 15.50 58.00 58.00 US Japan Japan - 68 - Seiyu ( New Town Plaza, Shatin) (Mid Range Japanese Style Store) Name Gala Red Delic. Fuji Fuji Ohrin Mutsu Type Conv. Conv Conv Conv Conv Conv Origin US China Japan Japan Japan Pack Size 8 4 4 2 2 1 Price ($ HK) 16.80 12.80 10.00 36.00 39.80 28.50 Needs (New World Plaza, Kowloon) (Mid Range Japanese Style) Name Type Jona Gold Conv Fuji Premium Conv Fuji Premium Conv Red Delic Conv Granny Smith Conv Fuji Conv Origin Japan Japan Japan US NZ Pack Size 2 1 1 2 4 4 Price ($ HK) 58.80 38.80 58.80 10.80 13.80 16.80