Agri-Food from Canada to Hong Kong - Research Paper Example

Transportation of refrigerated Agri-Food from Canada to Hong Kong by UTI Worldwide Inc. Company Abstract In collaboration with UTi Worldwide Inc. Company, this report is an analysis of a business opportunity between Hong Kong and Canada in refrigerated Agri-food. The report looks at the various factors that are involved in transportation of agri-food products from Canada to Hong Kong. There is an overview of food situation in both regions Canada and Hong Kong. Included in the report are challenges that may occur in transportation of agri-food to Hong Kong. The report also features a background analysis into Canada and Hong Kong to establish their relationship and trends in exportation and importation of agri-food products with focus on refrigerated food products. The study utilizes information from both secondary and primary sources. The primary source of the information is a questionnaire that was submitted to Market Industry Service Branch of Agriculture and Agri-Food Canada (AAFC). The results were analyzed and some statistically projected to create an overview of the trade and its success rate. The secondary sources utilized in the report include internet searches, some scholarly articles reporting on Canada’s agri-food business and Hong Kong’s demographics and current food situation. The other secondary sources include articles in periodicals and a book that details comprehensive information on cold chain logistics. The report is addressed to AAFC, which in turn is supposed to expand the business ties of Agri-food products to Hong Kong. The key outcome of the report is that UTi Worldwide Inc. has a potential business opportunity to provide the refrigerated transport services for Agri-food from Canada to Hong Kong. Table of Contents Abstract 2 Introduction 3 Overview of the research 3 Importance of the research 4 Objective of the study 5 Background 5 Exportation of Agri-Food from Canada 5 Hong Kong’s trends in importing Agri-Food 6 A glimpse into refrigerated Agri-Food exportation industry 7 Methodology 8 Results of the questionnaire 9 Discussion 10 Overview of Canada’s Agricultural and Agri-Food sector and exportation statistics 10 Current food situation in Canada 11 Challenges that may arise in exporting Agri-food to Hong Kong 14 Transportation of the refrigerated agri-food to Hong Kong 15 Conclusion 15 Works Cited 16 Introduction Overview of the research The coming of globalization has converted the world into one small village where some key important factors towards economic growth such as communication, and transportation have become easy to achieve. However, when it comes to logistics it is important to note that physical separation remains to be an important reality that we have to keep in mind (Theo Notteboom and Rodrigue 217). It takes a considerable time to efficiently and effectively to transport goods over long distances especially overseas. This shipment becomes a delicate business especially when there are delays and the shipment is for perishable products. It is for this reason that many industries such as food, medical, agricultural, and pharmaceutical industries are resorting to the cold chain technology. Many transportation companies have realized this niche and developed specialized services that focus on transportation of temperature sensitive products such as Agri-Food (221). UTI Worldwide Inc. Company is not left behind in this industry, with its long history in the industry starting in 1926; the company has been able to equip itself and now offers whole supply chain service solutions (UTI Worldwide Inc). Importance of the research The key factors for this service is to understand the local rules, environmental conditions, route for the transportation, custom requirements, length and time of distribution. In developed world nations such as Canada, food is rarely an issue and many people in these nations take its availability for granted (Satterthwaite, Tacolli and McGranahan 12). On the other hand, most of the developing nations are daily struggling to meet their food needs. Growth in population and income means there is need for more food consumption around the world (Bozzo). Hong Kong is a highly developed country with a very large population on a small land area. This means that apart from fish the country has to import most of its Agricultural and Agri-foods to meet the countries demands. Currently the country imports most of its food from China, Australia, and the US (Bozzo). Objective of the study This report looks at the viability of Canada transporting refrigerated Agri-food to Hong Kong. The report also looks at the business opportunities that UTI Worldwide can capitalize on, through their transportation services. Hong Kong being a region that lacks sufficient resources to sustain its food needs, this report analyses all the major factors that can affect the transportation of Agri-food to this ready market. The objective of this study is to generate a report that will address the Market Industry Service Branch of Agriculture and Agri-Food Canada (AAFC) on the high demand of Agricultural and Agri-Food in Hong Kong. Background The refrigerated transportation of food dates back to 1797, and the current system is just a modern expansion of the service (Theo Notteboom and Rodrigue 225). As global businesses and population expand, the demand for cold chain transportation continues to grow on a daily basis. Exportation of Agri-Food from Canada Canada has had an extensive history in transportation of Agri-food to the US and Mexico. For the last 60 years Canada’s food industry and agriculture has changed greatly (Veeman and Veeman). Owing to the improvement in the transport sector has led to the agricultural sector in the country to have links with other nations, which has brought about international competitiveness of Canadian agriculture. Liberalization of global trade in agri-foods has played a major role, which has contributed towards a positive net balance of trade in Canada’s agri-food products with the rest of the world (Veeman and Veeman). There are varieties of Agri-Foods exported by Canada, which include beverages and processed food among them there is beef, grains, oilseed, and pork. Development has seen it have significant social and economic changes following the thriving agricultural sector of the nation. Supply of Agri-food to Mexico has been very successful which gives a bigger hope for the same to Hong Kong. Currently Canada is one of the largest suppliers of agri-food products that temperature sensitive (TSAP) to Mexico. Trucks facilitate about 80 percent of the refrigerated agri-food to Mexico; railcars only transport a small percentage most of which is French fries. Transport by air is limited to high value TSAP, and ocean freight is only used for those products that need to be delivered in Cancun (Comercio e Integración Agropecuaria, S.C. 5). Selecting the best transportation to use for shipping TSAP products depends on certain factors such as urgency of the delivery, costs, shelf-life of the product, and most important the volume. The volume, full truckloads FTL is important as it ensures the companies save on costs and those companies who are unable to fill the trucks are advised to consolidate with other companies (Comercio e Integración Agropecuaria, S.C. 6). Hong Kong’s trends in importing Agri-Food Nearly all of the agricultural and agri-food consumed in Hong Kong is imported. This is attributed to the regions high population and small farmland barely enough to feed the people. Almost 100 percent of the population in the area lives in urbanized regions and most of them work to an average of 49.5 hours weekly (Berry 8). This scenario creates a large market for quicker food solutions, which brings in the need for imported packaged food. The larger population of the area rely on fish products however this is not enough to serve their daily dietary needs prompting for importation of agri-food products. The Hong Kong economy is affluent and the market is free with the lowest import tariffs. The net food consumed is imported with most of it being of high value beverages and food because of the available market opportunity (Chung 7). The key trends in Hong Kong food supply is increase in health consciousness, busy lifestyle, food safety, and changing demographics. While the emergent food consumption trends include snack food, food as gifts, chilled and frozen meat, organic food, and functional food (Chung 9). A glimpse into refrigerated Agri-Food exportation industry The cold chain logistics is a market solution full of contradictions; it is small but growing very fast, tends to be cost driven but a larger extent very sensitive in terms of risks and high values (Peter 84). The business is largely motivated by the fast growing demand for temperature sensitive products across the globe. Apart from having high demand for transportation of pharmaceuticals, the cold chain services are well established in the field of Agri-food supply (87). Most Agricultural and Agri-Food have very high perishability levels especially when being transported over a long distance. Comparing the distance between Canada and Hong Kong it is great distance apart; therefore exporting Agri-foods to Hong Kong will require refrigerated transportation services. This gives UTi Worldwide Inc. Company a great opportunity to provide their services because of its specialization in transportation of refrigerated Agri-food products. Depending on the urgency and perishability of the food products, UTi Worldwide Inc. has sufficient refrigerated transport means both by air and by sea. The refrigerated Agri-food exportation industry is a viable service industry that yields a lot in terms of economic outcome and job creation. It also enables easy transfer of resources across the globe to areas where need occurs for example in this situation from Canada to Hong Kong. Apart from being, a great market venture for UTi Company this report will benefit the country a lot from the exportation by creating more jobs and expanding our GDP (Agriculture and Agri-Food Canada). This will also create good trade ties with a country such as Hong Kong, which is doing, well in the manufacturing industry. Methodology The methods for collecting data in this study were a combination of both secondary and primary. However, the larger part of the data used was obtained from secondary sources. The primary source of data involved a use of a questionnaire that was sent over email on March 8, 2013 to Market Industry Service Branch of Agriculture and Agri-Food Canada (AAFC). The feedback was sent back on March 12, 2013 with the questionnaire dully filled. The results of the questionnaire were used to carry out the analysis of potentiality to supply Agri-food to Hong Kong. Further information was sort after through secondary sources, which included internet, books, reports, and journal entries. Results of the questionnaire The AAFC agrees that Canada and Hong Kong have maintained excellent bilateral relations and enjoy a strong trade and business relationship. Since 1970 there have been diplomatic relations between Canada and Hong Kong and annual official visits are have always been maintained. According to the feedback of the questionnaire, the following points were noted from the AAFC statistics. Canada accounts for 2.9 percent of the total agri-food imports in Hong Kong. this makes Canada the 9th largest source for agri-foods Hong Kong also imports about 3.8 percent of their total seafood and fish products from Canada The most common food products shipped to Hong Kong from Canada include beef, and seafood. It is also a fact that the imports from Canada are a very small percentage compared to those Hong Kong imports from US, China, and Japan. Agricultural trade between Canada and Hong Kong represents 25.6 percent of all the trade. In 2010 Canada exported frozen bovine both with and without bones which accounted for 7.8 and 4.8 percent of the total exports to Hong Kong The AAFC also gave the information on requirements that are needed in order for a company to export to Hong Kong. This information can be very helpful for UTi Worldwide Inc. Company in carrying out export services to Hong Kong. To export to Hong Kong the following conditions are to be met: 1. First have to establish if the food is exportable and the most current information is readily available at AAFC 2. A HS code is required which can be obtained from “ Canadian Export classification Guide” 3. A business number for the export has to be obtained from Canada Revenue Agency CRA 4. CFIA 5328 hygiene and origin certification is required for products such as fish all types of foods have their own certified requirements which need to be sought after 5. For the food products that are regulated by the Food and Drugs Act manufacturers’ can obtain declaration to cover the exports Discussion Overview of Canada’s Agricultural and Agri-Food sector and exportation statistics The technical change in agriculture and economic growth of Canada has contributed a lot on the structure of Canada’s agricultural sector. The farms are larger with great amount of capital investment and only a few people are employed as compared to the ancient times. On average, the capital value for a farm in Canada is about $925, 000 of which around $700,000 is invested in farmland machinery, equipment, and farmland. Livestock accounts for $150,000 and poultry on the other side around$64,000. Top 10 Agri-food and Seafood Exports (in $ millions)   (2010 total) (2011-December) Same Period 2010 Non-durum wheat 3,935 4,574 16.2% Canola 3,383 4,572 35.1% Canola oil, crude 1,398 1,856 32.8% Pork, frozen 1,059 1,295 22.3% Canola oil, refined 731 1,248 70.6% Durum wheat 686 1,090 58.8% Beef, boneless, fresh 964 862 -10.6% Peas, yellow, dried, shelled 582 861 47.9% Frozen fries 823 835 1.5% Soybeans 816 799 -2.1% Majority of the farms in Canada re found in Western Canada, with considerable amount of variations in the regions for the proportions on grazing and pasture to the land for crops (Veeman and Veeman). Exports by Province (in $ millions)   (2010 total) (2011-December) Same Period 2010 Saskatchewan 8,257 10,174 23.2% Ontario 9,372 9,887 5.5% Alberta 6,722 7,941 18.1% Québec 4,989 5,625 12.7% Manitoba 4,063 4,301 5.9% Atlantic Canada 3,381 3,838 13.5% British Columbia 2,565 2,622 2.2% The major industries in Canada comprise of food retailing, processing of seafood and farm products, food retailing and the handling and transportation of agricultural foods and products. Current food situation in Canada Canada remains to be the one of the most food secure nations around the world. In general, agricultural food processing and production in Canada is relatively efficient with the lowest costs than in most nations around the world. On average, only 10 percent of total household expenditure is spent on home consumption food in Canada (Veeman and Veeman). According to World Bank statistics, the world is going into an era where most nations will not be able to sustain their food demand owing to the aging population and the high rate of increase in population globally. One in every seven people around the world are believed to be in dire need of food on a daily basis, Canada on the other hand is one of the nations that has beaten this odd and it is fortunate to have abundant food supply that is safe and cheap. This trend is due to the technical changes in the Canadian economy, agricultural and food sectors during the last century (Veeman and Veeman). Countries Canada is currently exporting to, refrigerated Agri-Food Top ten markets for Canada’s Agri-food include the US taking more than 50 percent, Japan, china, European Union 27, Mexico, China, and other parts of the world cumulatively taking around 23 percent. Special focus is on Mexico because despite its small percentage it remains to be Canada’s biggest customer for refrigerated Agri-foods. Mexico is the 13th nation major food import market and although a higher percentage is served by the US, Canada has a part of the larger percentage share. Canadian exports of temperature sensitive agri-food products to Mexico (Million US$) Temperature sensitive agri-food product 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 (Jan-Jun) Annual Average Growth Rate (98-07) Beef 9.0 46.5 107.6 162.1 151.2 78.0 262.5 155.6 120.1 139.5 73.4 35.6% Pork 8.3 16.2 30.7 36.0 30.5 48.7 73.0 55.3 44.4 48.2 20.2 21.6% Edible animal offal’s 14.7 19.4 28.6 34.7 35.5 27.1 51.3 37.1 34.8 38.1 19.4 11.1% Frozen French fries 5.6 6.7 8.7 11.4 13.8 20.9 22.8 25.4 28.3 33.4 22.5 21.9% Chocolate 4.0 5.9 7.2 6.0 7.0 7.0 12.1 16.8 20.1 21.9 13.6 21.0% Prepared meat and Fish product 2.2 2.1 3.4 4.8 6.1 10.0 11.7 11.4 14.3 11.3 5.1 19.7% Bacon 0.0 0.2 0.3 0.4 0.4 3.7 6.5 6.9 5.5 8.2 3.5 100.2% Horse meat 0.0 0.3 1.5 2.1 2.1 3.1 3.0 3.4 3.5 3.2 1.3 93.8% Apples 4.0 4.1 4.7 4.6 5.0 10.2 10.2 5.4 5.2 3.0 1.3 -3.0% Fish 0.8 0.4 0.5 0.4 0.8 1.5 1.0 1.4 1.9 1.6 0.9 8.0% Pasta (including pasta stuffed w/meat) 0.0 0.1 0.1 0.0 0.1 0.0 0.5 0.6 0.1 0.5 0.4 33.6% Others 23.8 25.1 8.9 8.7 15.3 3.2 3.3 0.2 1.7 21.0 23.0 Total 72.4 127.0 202.2 271.2 267.8 213.4 457.9 319.5 279.9 329.9 184.6 18.4% Share over total Canadian agri-food exports to Mexico 13.3% 23.8% 30.5% 34.5% 38.1% 28.6% 39.0% 33.4% 24.3% 23.8% 22.5% Canada’s Top 5 Agricultural Exports to Hong Kong (2010) Raw mink fur skins $145.1 million Ginseng roots $111.8 million Edible swine $50.3 million Bovine cuts with bone, frozen $43.7 million Boneless bovine cuts, frozen $26.9 million Challenges that may arise in exporting Agri-food to Hong Kong There is bound to be strong competition from other nations such as New Zealand, BRAZIL, US, Korea, EU, and mainland China. This is because of the regions free market policy. There is greater need to build on customer interest in terms of packaging and innovative promotional ideas. Channel costs are high in terms of listing in retail stores and logistics. The culture I Hong Kong is different therefore exporting firms must be ready to deal with the situation and be flexible and responsive to the change (Agriculture and Agri-food Canada). The food being transported has to be inspected and the labelling changed because the date marking system in Hong Kong is different with the one in Canada. The other key factor that may prove to be a challenge to the exports to Hong Kong is the Canadian currency. Its strength may undermine the competitiveness Canada has in Hong Kong, as price is very sensitive due to the large number of competition. Transportation of the refrigerated agri-food to Hong Kong The best available means for transporting agri-food to Hong Kong is through air and sea. The determining factor will be perishability, volume, and urgency and distance. UTi Worldwide Company has specialized in all sectors of transportation from ocean freight, air shipment to truckload and rail carriage. Because of the distance of Hong Kong from Canada, the most likely means of transport is through sea and air. With the modern equipment and long history in transportation, this will be a great business opportunity for UTi Worldwide Company. Conclusion Hong Kong as a free market presents a very big business opportunity for agri-food. The larger part of the region being urbanized means that there is limited farming going on in the area, which explains the local food insufficiency. Canada on the other side has an abundant supply of food especially agri-foods that can be exported to the region to utilize the high demand. Because of the regions high economy and long working hours for the average citizen there is a trend of people looking for packaged agri-food that is simple to prepare or ready to consume. Such food usually has high perishability and therefore needs to be transported under low temperatures and refrigerated throughout the freight and at the warehouses. This therefore means an efficient, effective, and flexible system is required to carry out the transportation services required by this market demand. From the information gathered it is evident that there already exist trade and diplomatic ties between Canada and Hong Kong. However, the exportation of Agri-food to Hong Kong is still a small venture, which needs to be expanded. The statistics prove that the viability of exportation to Hong Kong is high as long as requirements are met and costs are minimized. With the already established ties show that the future of Canadian agri-food exportation to Hong Kong is significantly growing as a result UTi Worldwide Inc. has a potential market to offer its services with a high rate of success. Works Cited Agriculture and Agri-Food Canada. Agri-Food Trade Service: Canadian Trade Highlights. 19 March 2012. web. 4 March 2013. Agriculture and Agri-food Canada. Agri-Food Trade Service: Exporting to Hong Kong. 16 July 2012. web. 13 March 2013. Berry, Ben. Agri-Food Past, Present & Future Report Hong Kong and Macao SAR, China. Research. Vancouver: The Government of Canada, 2011. Document. Bozzo, Albert. CNBC: Countries Most Vulnerable To Food Shock. 26 April 2011. web. 5 March 2013. Chung, Kit. "Agriculture: Hong Kong Food Market Trends." 17 September 2010. Department of primary industries. Document. 18 March 2013. Comercio e Integración Agropecuaria, S.C. Mexico Cold Chain Distribution Study. Mexico, 15 January 2009. Document. Peter, Martin. "Cold Chain Logistics – Challenges and Trends in a Complex Market." B U S I N E S S B R I E F I N G : P H A R M A G E N E R I C S 14 October 2004: 84-91. Document. Satterthwaite, David, Cecilia Tacolli and Gordon McGranahan. "Urbanization and its implications for food and farming." 2010. The Royal Society Publishing. Document. 5 March 2013. Theo Notteboom, Theo and Jean-Paul Rodrigue. The Geography of transport systems. New York: Routledge, 2013. Book. UTI Worldwide Inc. About UTI: History. 31 June 2002. Web. 15 March 2013. Veeman, Michele and Terence Veeman. The Canadian Encyclopedia: Agriculture and Food. 29 August 2012. web. 16 March 2013. Read More