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Canada: NAFTA's Payoff in the Pantry
by Lee R. Schroeder
U.S. processed horticultural
products already enjoy huge success in Canada where sales grew
from $505 million in 1992 to $617 million in 1996, a 22-percent
increase. These products include frozen and canned fruits and
vegetables, juices, jams, jellies, condiments and sauces.
The North American Free Trade Agreement (NAFTA) has already cracked open the door for a wide range of new products such as roasted red peppers, sun-dried tomatoes and exotic drink combinations. The duty-free status these U.S. products have enjoyed only since Dec. 31, 1997 promises to further catapult this growing market.
An evolving demand for these new products widens opportunities for ethnic specialties of popular Mediterranean, Mexican, Caribbean and South Asian foods. The market will build on itself, demanding new products as cuisine choices expand--new foods require accompanying sauces and condiments.
What's Trendy
It's a sure sign that consumers are health-conscious when salads remain the third most commonly eaten food in restaurants. A survey of Canadian grocery shoppers further confirms their nutritional concerns: Four out of five grocery shoppers say that fat content and nutritional value often are the deciding factors in their food selection.
This is reflected in the abundance of fruit juice and vegetable entree selections in Canadian retail groceries. Organic foods, once stocked only in specialty stores, are also beginning to go mainstream, showing up on supermarket shelves.
Besides food selections based on good nutrition, Canadians are now opting for convenience foods as dual-income families and single-parent households increase. Processed horticultural products that require little or no preparation are well positioned to take advantage of this unfolding market.
Tips for Gaining Market Access
Looking for ways to exploit
this beckoning opportunity, some firms integrate attendance at a
trade show into their overall marketing strategy. For a
relatively inexpensive $1,200, the average price of a booth, an
exporter not only can meet future buyers but also can gain
firsthand knowledge of the market structure, demand trends and
competing products.
In preparing to enter the Canadian market, it's important to develop a product prototype that potential buyers can see and perhaps taste. Up to 10 samples can enter the country at a time, and should meet bilingual and metric labeling requirements.
Packaging, labeling and compositional regulations for items to be test-marketed differ slightly from standard retail products. Specific guidelines are available from the Canadian government.
Besides these Federal regulations, buyers want readable, universal product codes on labels that allow for electronic ordering and invoicing.
To qualify for duty-free status, an Exporter's Certificate of Origin must be presented at Canada Customs on entry of the goods. Canada Customs regulations also require a customs declaration and an import declaration (provided by the importer). These forms are available through any Canada Customs regional office, U.S. Customs office, or U.S. and Foreign Commercial Service District office throughout the United States.
How To Reach the Consumer
In retail food sales, 80
percent of the Canadian market is controlled by traditional
supermarkets and convenience stores, and dominated by eight major
chains.
The other 20 percent is sold through other types of outlets like warehouse clubs and drug stores. But this group's market has doubled in the last six years and is expected to grow even more.
In food service sales, 54 percent of food is sold through restaurants, 10 percent in hotels, 10 percent in take-out and delivery and the remainder through institutions and other retail food services.
To Broker, or Not To Broker
Exporters need to evaluate the pros and cons of using brokering services, with the basic considerations being cost and convenience. In the retail food sector, over half of imported foods are marketed through brokers.
Unlike their U.S. counterparts, Canadian brokers can legally distribute product. They normally represent the quickest way to the market and can ease the load of conducting market research and handling logistics. Brokers can also negotiate retail listing and shelving fees, which often exceed $50,000. Their biggest advantage: Existing relationships with food buyers.
Even with a broker, it takes six to 12 months to get a product to market. Commission rates for broker services range from 3 to 8 percent of gross or net sales. Broker contracts usually last between one and five years.
With these facts in minds, U.S. exporters might be strongly motivated to initiate relationships with individual food services or retail buyers. Food service sales seem to be more conducive to direct marketing than retail.
High on Canadian Shopping Lists
The author was an intern with the FAS Office of Agricultural Affairs in Ottawa, Canada. Tel.: (1-613) 238-5335, ext. 267; Fax: (1-613) 233-8511; E-mail: usagr@istar.ca
USDA Sources
This article was based on a market brief that contains Canadian contacts for:
To receive a copy, contact:
Trade Assistance and Promotion Office
AgBox 1052
AGX/FAS/USDA
1400 Independence Ave., SW.
Washington, DC 20250-1052
Phone: (202) 720-7420
Fax: (202) 690-4374
E-mail: FASInfo@fas.usda.gov
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