12. - 12 -
• Grant administration and reporting
• Evaluating the project and recommending additional activities
SST:
• Introducing identified New York State producers with export potential to the China
market opportunity
• Identifying Chinese buyers for New York State producers and developing sales orders
• Working with New York State producers and CCE to resolve all permitting, regulatory,
labeling, packaging requirements in order to fufill orders
• Arranging and managing end-to-end logistics from New York State producers to the end
buyer, including cold-chain logistics as needed
• Managing all other aspects of the sales and order fulfillment process
• Following up initial orders to increase sales. It was understood that SST’s goal was to
develop a profitable enterprise selling New York State’s products in China, and that at
the end of the 8-month contract period their business would be self-sustaining.
1.3 Project Budget and Timeline
The Project budget, to be expended over an 18-month period, had the following components:
Subcontract to SST Trading: $ 332,000
CCE Staff salary, travel, office supplies and computers: $200,570
Surveys and data analysis: $ 25,000
Equity from Cornell Cooperative Extension (Oneida): $ 67,272
$ 624,842
SST’s activities under the subcontract were to take place during the first 8 months of the overall
contract period.
14. - 14 -
Goals of the project
As stated in Cornell Cooperative Extension’s grant proposal12
the goals of the project were
threefold:
1. To develop and implement a successful response to the identified opportunity to export
differentiated NYS agricultural products to high-end consumer markets in China.
2. To identify additional overseas markets for these products and develop a plan to reach
those markets.
3. To increase the capacity of the Extension system to engage with overseas market
opportunities on behalf of NYS agricultural producers and businesses.
Central to the project plan was the implementation of an ambitious sales and marketing effort
proposed by, and to be spearheaded by, SafeSource Trading, the startup company whose
approach to New York State officials in Albany provided the initial impetus for the project. Also,
as noted in the proposal, SafeSource Trading’s goal for the project was to develop a profitable
commercial enterprise serving New York state food producers.
To summarize what is detailed in the pages that follow, the project was unsuccessful in
achieving the ambitious sales goals projected by SafeSource Trading; in fact, sales generated as
a result of the project after 18 months’ effort by both CCE and SST were a fraction of what SST
had projected they would achieve in 8 months’ time. In this sense, SafeSource Trading also
failed to achieve its goal of developing a profitable business exporting New York State food
products.
On the other hand, as a result of the project, the Cornell Cooperative Extension system (and, as
the funder, New York State) gained insights and tools that should significantly increase their
capacity to support the needs of the State’s agricultural, food and beverage producers in the
coming years as the export of differentiated products continues to become an increasingly
important component of the marketing opportunity for this industry.
It must be acknowledged that the project did not achieve its goal of identifying and planning for
additional overseas markets, given the challenges encountered in trying to address just the
Chinese market. However, as noted in the pages that follow, many of the insights gained from
the project can be fruitfully applied to other export destinations.
12
Appendix: CCE China Export Project, June 7 2013
16. - 16 -
The single order developed by SafeSource as a result of this project was finally shipped in
December of 2014.
Product Producer Unit Price Qty Total sale
Maple syrup Lyndaker (Lewis Cty) 250ml glass $8.50 1,728 $14,688
Honey Finster (Herkimer Cty) 1lb glass $5.30 2,160 $11,448
Chocolate Tropical Valley (Essex Cty) 85g bags various 2,328 $ 4,941
TOTAL: $31,077
The buyer was identified by SST as Shi Wei Food Trading Co., “a new firm formed by a team of
successful Amway executives who are committed to marketing New York State ag products.
Although the company is just developing its sales channel, the maple, honey, and chocolate
products are being sold through a chain of health clubs…”
SST predicted that significant follow-on orders would result once these products were in the
market. If that had proven to be the case, the question would have been whether those sales
could be profitable to the producers once grant-funded assistance - for specially-designed
labels and shipping cases as well as air freight and logistics demanded by the client and/or SST -
was no longer available. If follow-on orders were not profitable the producers could not be
expected to respond positively to them; in light of which CCE’s Project Manager recommended
specific price increases that would ensure that future sales would be of interest to the
producers. As of the date of this report, no follow-on orders have materialized and SST is no
longer making any visible effort in that direction.
Among the producers to whom CCE introduced SST were several larger New York State meat
processors (the meat industry is discussed at length in an attachment). During the summer of
2014, SST hired a contractor, Donald Song, with significant relevant expertise, having worked
for the US Meat Export Federation in China for six years. The Project Manager and CCE staff
arranged and participated in numerous meetings and phone calls with Mr. Song and potential
suppliers, including detailed discussions of potential pork sales. CCE staff worked directly with
the suppliers to ensure that their offerings would be compliant with China’s import regulations.
Despite these efforts, no sales materialized in this category. SST’s Haft advised CCE that he was
in direct conversations with a New York State beef processor (Champlain Beef) about
developing what he believed to be a substantial opportunity exporting beef hides to Chinese
“end buyers representing very large volume”. Again, as of this writing we have no indication
that this effort has yielded results.
Strategic Market targeting and analysis
While supporting SST’s efforts, CCE worked independently to analyze and understand the China
export opportunity for New York State’s producers, and initiated consultative discussions with
several targeted potential exporters. In early 2014, CCE sought and received permission from
ESD to reallocate a small portion - $25,000 of the $332,000 initially allocated to SST - specifically
to pursue a more strategic approach to the market than SST was interested in or apparently
capable of. With those funds freed up, CCE hired an independent consultant – Luis Gato -
21. - 21 -
The Distribution Channel
(Appendix 6b)
This provides a more detailed analysis of Chinese food and beverage distribution, looking
specifically at three channel components: the Food Service, Retail and Industrial distribution
channels. The goal was to understand where and how food and beverage products were
getting to consumers in China and who were the key players.
Key findings:
1. Food Service:
• Strong growth, recent slowdown: This sector grew at an average 9.2% from 2005 to
2010. Future growth was expected to be of 8.2% per year according to one source15
.
• Factors driving growth in the food service sector16
:
• Robust growth in the economy
• increasing urbanization, alongside growth in the middle-class its income
• Growth in the number of single member households
• Growth in the number of working women
• Increasing rates of travel/tourism in China.
• Growth in the Food Service slowed slightly in 2012, largely owing to the economic
downturn in China, ongoing global economic instability, and the government’s campaign
to crack down on corruption17
.
• Strong trend: The sector was valued at over $333 Billion in 201018
. This is about half of
that of the U.S.18
for a country that is more than 4 times as large in population. Another
way to look at it is that this means each person spent on average per year $244 in Food
Service providers, or 5% to 6% of their disposable income. This is a rate similar to that
of most countries (5% in the US). So one could expect Food Service to continue growing
at a rate closer to that of disposable income per capita. McKinsey19
predicted the
growth of private consumption (not necessarily disposable income) at 10.3% so this was
close to the 8.2% growth predicted by this report18
.
• Fragmented Market: There were about 5.9 million food service outlets in China in 2010.
Of these, 98% were independently operated, suggesting that there were 100,000
outlets belonging to restaurant chains. Fast food represented 21% of outlets while Full-
15
“Foodservice Profile China”, February 2012, International Markets Bureau, Agriculture and
Agri-Food Canada, Government of Canada http://www.ats-sea.agr.gc.ca/asi/6114-eng.htm
16
“Chinese Foodservice: the future of Foodservice in China 2016”, Nov 12 2012, PR Newswire,
http://www.prnewswire.com/news-releases/chinese-foodservice-the-future-of-foodservice-in-
china-to-2016-178897981.html
17
“Consumer Foodservice in China”, Sep 2013, Euromonitor,
http://www.euromonitor.com/consumer-foodservice-in-china/report
18
National Bureau of statistics of China as Cited by www.trading.com, January 14,
http://www.tradingeconomics.com/china/disposable-personal-income
19
“Mapping China’s middle class” McKinsey Quarterly, June 2013, Mckinsey&Company
22. - 22 -
Service represented 74%. The fastest growing sector was the home delivery/takeaway
sector.
2. Retail:
• China was expected to grow at a 14% rate until 2016 and at an overall cagr of 16% until
2022.20
China should be passing the U.S. as the largest retail market in the world by
2016 and it should already be the largest grocery market in the world.
• The largest opportunity seemed to be the e-commerce sector which grew 65% in 2012
and already represents 6.3% of total sales23
.
• This is still a fragmented market with many players and where the largest have a
relatively small share.
• Small stores (convenience like) are gaining popularity.
• The market is trending to maturity while maintaining strong growth. All major formats
exist in China. Management and promotional activity resemble that of many mature
markets21
.
• Hypermarkets will continue to grow and dominate but urbanization and convenience
beget the very fast growth of convenience stores23
.
• Key consumer trends affecting Retail:
• Convenience: impacting the growth of convenience and local stores and also the
growth of small packaging sizes and ready meals
• Health and Wellness
• High-quality baby products are a particularly important retail category
3. Industrial:
The industrial sector are purchasers of commodity food products, generally as ingredients
for use in final products after further processing. In this part of the report we highlight the
main food processing industries, their recent performance, and their interest as potential
customers of New York’s food products.
• China is the global industrial leader, with a labor force of 815 million workers and a
leadership position in the manufacture of industrial and consumer products. 22
In 2010,
20
“Retail in China – A panel discussion of the potential within the Chinese retail industry”, 2013,
The Economist, Intelligence Unit. This was a panel discussion that had the following people:
Jon Copestake, chief Retail and Consumer Goods Analyst of The Economist, Dr. Liu Qian, Deputy
Director of the Chinese Forecasting service of The Economist, Tino Zeiske, VP of International
Affairs of Asia Pacific at Metro Group and Bernie Stefan, Head of Strategy & Business
Development in the China region for Nestle.
21
“Consumer and Retail Trends in China”, January 2013, International Markets Bureau,
Agriculture and Agri-Food Canada, Government of Canada
22
“Foodservice Profile China”, February 2012, International Markets Bureau, Agriculture and
Agri-Food Canada, Government of Canada http://www.ats-sea.agr.gc.ca/asi/6114-eng.htm
23. - 23 -
China’s industrial output exceeded that of the U.S. marginally, but this had since been
consolidated into a more than 20% lead, with the gap continuing to widen23
.
• Calculations based on estimates in the CIA's World Factbook indicated that, in 2012, the
value of China's industrial production was $3.7 trillion compared to $2.9 trillion for the
U.S. – which would mean China's industrial production was 126% that of the U.S. level24
.
• Chinese food manufacturing sector had gross sales of USD $1.1 trillion and grew 28% vs
2011 and 301% vs 2005, although some of this had to do with currency fluctuations.
• Growing Industrial sectors relevant to U.S. exports25
:
• Frozen Food, in particular, quick frozen flour-based, like dumplings
• Prepared Meats
• Snack foods and Chocolate candy
• Dairy, particularly UHT milk, flavored milk drinks, cheese, yogurt, milk powder
and whey
• Healthy foods in general
• Baby food
• Tree nuts and dried fruits
The detailed report attached includes an explanation of the flow of distribution from
manufacturer to consumer, as well as some recommendations for U.S. companies taken from
several relevant sources29
, 26
:
- Exhibitions can be a cost effective approach to understanding the market and
meeting agents/importers.
- Chinese business culture matters. The most distinctive aspect of Chinese business
culture is the need to cultivate guanxi or relationships.
- Don’t necessarily expect dramatic or rapid success.
- Suppliers of perishable products need to be alert to the cold chain capabilities of
distributors, because the infrastructure is uneven.
- Protect your intellectual property by registering immediately your patents,
trademarks, labels, etc. in China. (and in the U.S.)
- “The most important advice for U.S. suppliers before entering the China market is to
partner with a good distributor”. Business culture is heavily dependent on personal
relationships. Face-to-face contact plays a key role in ensuring reliability in
23
“Key trends in Globalization – China has taken over the US to become the world’s largest
industrial producer”, Sep 3 2013, John Ross, Senior Fellow at Chonyang Institute for financial
Studies, Renmin University of China
24
“Key trends in Globalization – China has taken over the US to become the world’s largest
industrial producer”, Sep 3 2013, John Ross, Senior Fellow at Chonyang Institute for financial
Studies, Renmin University of China
25
“China Food Manufacturing Annual Report”, Feb 4, 2013, USDA GAIN
26
“China, Peoples Republic of, HRI Food service Sector Annual Report 2009, USDA GAIN
25. - 25 -
Product Category Analyses
As noted above, the Consultant was directed to provide detailed written analyses of the China
market opportunity for a short list of New York State companies and their products, including
the following analyses for each of those products:
• Chinese demand and trends
• Domestic and international competitors
• Chinese market channel structure
• Tariff and non-tariff barriers, and
• Potential in-market partners.
Following are summaries the information contained in the detailed category reports (see
Appendices), including some highlights as follows:
• Processed Fruits and Vegetables is a mature and highly competitive market in China
with enough supply, but it does have value-added niches worth exploring (and most
niches in China are big enough)
• Pasta Sauce – still a small market but American product has good acceptance, and in
fact LiDestri’s product can already be found in China although not directly sold by them,
suggesting margin/profit for a direct relationship
• Spirits – American products have not been very well valued with the exception of high-
end branded spirits, yet Chinese have been importing more and more from the U.S.
Dairy products
(Appendix 6c)
This research was provided to:
- O-AT-KA Milk Products
- Cayuga Milk Ingredients
- Byrne Dairy
Key findings:
• Dairy products are an enormous market in China and was growing: 35 million metric
tons (MT), growing 6%/year.
• China total imports of Dairy products had been increasing by 34%/year
• Imported products offer safety and diversity. Safety seemed extremely important,
especially after a couple of large milk adulteration scandals. Imported means safety for
the Chinese consumer.
• All dairy products seem to be a good prospect. Milk powder and other higher-end milk
products seemed to be particularly attractive. Non-fat dry milk, for instance, a 290,000
MT market was growing 24%/year.
• There seemed to be an opportunity worth exploring for NYS products.
26. - 26 -
• Selling to China is an intricate process that requires time for several procedures to
happen. According to Dezan Shira & Associates27
, first-time product approval can take
up to 8 months.
Processed fruits & vegetables
(Appendix 6d)
This research was provided to:
- Seneca Foods
Key findings:
• The total market of fruits and vegetables (including fresh) in China was worth over $50
billion and was projected to grow between 4% and 6% per year (similar to recent growth
rates) in the next few years, with a bit faster growth of fruits. The processed fruits and
vegetables industry has been growing at an astonishing 32% / year. Consumption of
processed produce has been increasing with urbanization, to the detriment of fresh.
This trend was expected to stay in force.
• However, internal production had matched demand. This is a widely commoditized
industry, most of it requiring significant levels of labor and a relatively simple
technology. China is, therefore, a competitive producer, self-sufficient and a net
exporter with many foreign companies producing in mainland China attracted by the
tremendous growth of domestic consumption and by this source for international
competitiveness.
• While mass consumption might not be the most obvious prospect, good opportunities
might reside in some specific products where quality or volume driven efficiencies might
have rendered the US competitive (like perhaps some raisins) or in more value-added
products, possibly in the frozen segment or in semi-prepared meals that, being value-
added products, could become an opportunity. There is a growing market for these
(and commodities too).
• Given a competitive product/producer, it could make sense to explore the opportunity
for exports.
Meat
(Appendix 6e)
This research was provided to:
- Smith Packing
27
“Guide to the Shanghai Free Trade Zone”, China Briefing, Issue 142, March 2014, by Dezan
Shira & Associates
30. - 30 -
consumption has been growing at 2% per year and is expected to ramp up to
somewhere between 3.5% and 8% a year.
• Baiju, the national drink, a distilled spirit with a 50%-60% or more alcohol content,
dominates with 90%+ of sales.
• Imports of spirits had been rising at a modest 4% per year.
• The US exports of spirits to China had been growing – up 21% in 2014. American
whiskey represented about half of those exports, with those exports also growing 21%.
On the other hand, the overall imports of whiskeys in China had actually been
decreasing, likely due to the government crackdown on lavish public expenses and
banquets as part of its anti-corruption efforts.
• The Chinese also were also exporting more spirits than they were importing and the
average price of exports was higher than that of imports. The U.S. was exporting to
China at a lower price, on average, than that of the overall Chinese imports.
• Total U.S. exports of spirits to China represented only about $12M in 2014, less than 1%
of the industry’s overall exports. The growth was interesting but it may not be easy to
find the customers for American-made spirits.
• Besides American Whiskey, U.S. key exports to China had been rum and brandy.
32. - 32 -
• A subjective evaluation of how good a fit they seemed to be for the company we were
recommending them for.
The criteria we used for the potential partners we selected was as follows:
- What kind of products the exporting company was trying to sell, namely branded or
Private Label, and the specific category.
- Whether the exporting company’s products were a better fit for Retail and Food
Service and what was the specific expertise of the distributor.
- There was also a focus on players in the Central East and South East regions of China
where imported foods and high-end retail chains are more prevalent and likely to
carry imported products.
- There was also a preference for firms already importing from the US or Europe.
Ideally, if the project was to continue, after a deeper evaluation, we would want to
ask for U.S. (or European) references.
- We specifically chose some companies that already carried the line of products the
exporting company produces as well as others that we could not find an evidence of
doing so. This was done in order to provide the NYS company with options of
distributors that do not carry very similar products because some companies simply
don’t want to work with distributors that might carry products that compete with
theirs, although many end up having to do so because those distributors usually
have the better relationships. In any case, we always also provided distributors that
were able to get to the desired customer types. For instance, if a company was
trying to sell fruit juices to the Food Service Industry, we might have given them
distributors that were selling coffee or alcoholic beverages to that channel but not
fruit juices while we also provided distributors that were already carrying fruit juices
(although we tried them not to be quite the same type).
The following reports were provided to our contacts at the targeted companies:
- O-AT-KA: NYFood2China-PartII.b-Distributors-O-AT-KA-VF.pdf; 40 pages, 272
products sampled, 10 potential distributors identified: Brightview, EGDIS, Goodwell,
Jebsen, Longchi, Longmore, Pinlive, Shangai Nanpu, Shenzhen Yifan, Sunny Life.
- Byrne Dairy: NYFood2China-PartII.b-Distributors-ByrneD-VF.pdf; 40 pages, 272
products sampled (same as for O-at-ka; they are in the same sector), 10 potential
distributors identified: Citures, Dah Chong, EGDIS, Goodwell, GuangDong
Foodstuffs, GuangDong Zhontian, Longchi, Shenzhen Yifan, Sunny Life, wide Career.
- Seneca Foods: NYFood2China-PartII.b-Distributors-SenecaF-VF.pdf; 29 pages, 111
products sampled, 8 potential distributors identified: Beijing Ganghu, Dah Chong,
Longchi, Pinlive, Shanghai Foodstuffs, Shanghai Kingfoods, Shanghai Tak Kwong,
Shenzhen Yifan.
- Welch’s: NYFood2China-PartII.b-Distributors-Welchs-VF.pdf; 48 pages, 563 products
sampled, 10 potential distributors identified: Assure, Citures, EGDIS, Finigate,
39. - 39 -
• This report also presents key recommendations for companies considering exploring
this channel, including:
• Clean and minimalistic website designs preferred in the U.S. and other
countries are not received well by Chinese shoppers, who prefer a crowded
and compact website, which gives them the impression of a "high-energy”
shopping atmosphere.
• Shoppers also prefer to open up links in new windows for faster comparison
of prices rather than switching back and forth between pages.
• Companies should write a lot of text to describe products and services, even
if they have great pictures. Search engines recognize text. The more the text
the higher the chances of being found.
• Text should be improved as time goes by and capturing and maintaining the
customer’s attention. It should be written as if it was a novel or fiction to
keep interest
• Chinese shoppers are extremely price sensitive – sales, deals, and
promotions are great crowd pullers, and there is little to no brand loyalty.
The ‘time is money’ concept hasn’t really caught on, and buyers rarely pay
the extra to get their wares to arrive faster.
• Logistics is essential for e-commerce, and third-party delivery systems have
been found to be lacking. After finding that more than 60% of customer
complaints received were related to problems in delivery, yihaodian
responded by building their own last-mile delivery system.
• Trial and error will give each company the right experience to have good
effective promotions. As much time as possible should be spent in this
process.
• Companies should try to have as much original content as possible if they can
invest in search engines.
• Product info should be refreshed as much as possible.
• Small companies should ask friends to review products and do site clicks!
• Products should be described using as much as possible the standard name
known to the public and used by other companies. Standard names will get
found by search engines more frequently.
• Companies should hire great contractors. They are going to need expert help
in areas such as “search-engine optimization” to attract customers, in
package delivery and in manufacturing if they are launching a product.
Companies will improve your chances of success if they select contractors
carefully.
• Companies should not plan on making money right away.
• Companies should expect to be imitated. Intellectual property should be
protected.
• The report ends with a couple of specific notes on Marketing.
45. - 45 -
Evaluating the Project’s Overall Effectiveness
As noted elsewhere, the articulated goals of the CCE China Export Project were threefold36
:
1. To develop and implement a successful response to the identified opportunity to export
differentiated NYS agricultural products to high-end consumer markets in China.
2. To identify additional overseas markets for these products and develop a plan to reach
those markets.
3. To increase the capacity of the Extension system to engage with overseas market
opportunities on behalf of NYS agricultural producers and businesses.
It was further noted in the project proposal that “fulfilling the China market demand potential
will entail scaling up New York’s capacity – from producers and processors through distribution.
Developing this market opportunity will be a powerful driver of job creation not only in the
producing sector but also in the numerous important economic sectors linked to agricultural
production.”
Although the consummation of a specific level of sales orders during the funded period was not
a firm commitment of the project, achieving some significant level of sales in the short term,
and establishing a clear path toward rapidly increasing those sales was clearly an expectation of
the participants and the funder. That expectation was certainly reflected in the fact that more
than 50% of the project funding was committed to sales development activities to be carried
out by Safe Source Trading.
As described elsewhere in this report, Safe Source Trading was notably ineffective at fulfilling
the expectations they had created for the project, despite the ongoing support and efforts at
guidance by CCE staff. SST had established a target of at least $500,000 in sales to be
completed within an 8-month period, to be followed by rapid growth thereafter ($10 million
per year at the end of 18 months and $200 million per year at the end of five years). In reality,
it took SST 18 months to fulfill a single order with a total value of just over $31,000. Perhaps
even more telling is the fact that once the grant funding supporting their efforts was no longer
available there was no evidence that SST was building on even this small success – nor that it
was even making any effort to do so. SST’s final project report (included as Appendix 5 here)
can be summarized as stating that developing this market, including establishing relationships
with capable New York State buyers and dealing with the challenges of the Chinese market,
turned out to be much more complex and time-consuming than they had anticipated.
The Project Manager’s evaluation of the reasons why the sales results were disappointing are
quite a bit more pointed. Very early in the project it became clear that strong management
discipline and a clear strategy were lacking in SST’s operation. Jeremy Haft, SST’s founder, US-
based leader, and the conceptualizer of this project, did not once visit a prospective New York
State exporter in New York State throughout the term of the project, despite the Program
36
Appendix 1a: CCE Proposal 2016-06-07
