Business and Operations
By Julie Fitz-Gerald
By Julie Fitz-Gerald
Earning a solid reputation for consistent, high-quality or value-driven
products will help you build a strong consumer base at home, but
eventually future growth may mean looking beyond your nation’s borders.
Earning a solid reputation for consistent, high-quality or value-driven products will help you build a strong consumer base at home, but eventually future growth may mean looking beyond your nation’s borders.
Naturally, the U.S. is Canada’s largest trading partner and often the first country of focus when exporting food products; something that is not likely to change given its proximity to Canada and the similar food preferences among American and Canadian consumers. However, Canadian exporters shouldn’t overlook the rapidly growing opportunities that exist in emerging markets. According to research by Global Industry Analysts, the global baked goods industry is expected to exceed US $310 billion in 2015, representing a growing market fuelled by busy lifestyles and less time to prepare meals. Athar H. Shah, regional specialist of the Middle East and North Africa for the Ontario Ministry of Agriculture and Food (OMAF), says there are two regions that offer huge potential for exporting bakery products: the Middle East and Asia-Pacific.
“In my opinion, the Middle East gives us the best potential for emerging markets. Eighty to 90 per cent of what they eat is imported, particularly high-end bakery products. They’re importing everything from Australia, New Zealand, Europe and the U.S. Most of the products they bring in are frozen or par-baked because of the distance they’re travelling. Canada has started exporting there over the last couple of years and we’ve been very successful in making inroads. For example, a couple of cookie companies have been very active in the Middle East and a high-end artisan bread company has also started selling into that market,” says Shah.
Shah explains that the Middle East’s reliance on imported food has to do partly with their geographic location and partly because oil-rich countries like Saudi Arabia and the United Arab Emirates (UAE) have a higher rate of disposable income. Increased westernization in these countries is creating similar food trends to Canada’s market, like healthy bakery options and gluten-free products. The global market is taking notice and the region is now attracting bakery exporters from around the world.
“We have seen from experience, everyone from all over the world is competing in the Middle East with cookies and breads, so it’s smart to go in with something that isn’t already being done. Obesity levels are very high in that part of the world so healthy alternatives are good. Healthy cookies, like flax-based or sugar-free, and artisan breads have all started to sell well in this market,” says Shah.
Through Planet Retail, a provider of global retail intelligence, Shah found that Saudi Arabia’s mass grocery retail sector grew by more than 40 per cent between 2004 and 2009, representing the largest market in the Middle East. The top 30 retailers in this sector capture just 27.6 per cent of the country’s market share, proving that most of the retail activity is conducted by other smaller operators and through traditional channels.
A Market Indicator Report issued by Agriculture and Agri-Food Canada (AAFC) in April 2011 found that rapid infrastructure growth in the Middle East and North Africa, along with a booming tourism industry, will facilitate trade in the region. An AAFC Market Analysis Report issued in June 2011 also showed that both Saudi Arabia and UAE saw significant growth in the grain-based product sector, including pasta/noodles, bakery and processed snack foods. Here are numbers: In 2010 there were 166 new grain-based product launches in Saudi Arabia and 29 in UAE. Opportunities for imported bakery products clearly exist here, making it a great possible option for Canadian bakeries looking to enter international markets.
Another lucrative emerging market for Canadian food exporters is Asia-Pacific. This region includes giants like China and India; however, Shah mentions that there is plenty of local competition that doesn’t exist in the Middle East.
“China and India are good emerging markets, but in India for example, there is good competition from local bakeries. But that doesn’t mean there aren’t opportunities.”
Nevertheless, the exploding population in China and India, along with increased westernization and the emergence of China’s middle class are all positive indicators of export opportunities that Canadian bakers can capitalize on.
Despite the encouraging data in these regions, it is important to acknowledge the barriers that Canadian exporters face, particularly within the baking industry. As Shah points out, the biggest challenge for Canadian food exporters is the high cost of ingredients here in Canada.
“As the sector specialist in bakery, cereal and milling for the province of Ontario, I work closely with these companies and hear a lot of feedback from them. One thing I repeatedly hear about from companies big and small is that the cost of, let’s say cheese, is so high they’re not able to compete in the international market. Sugar and dairy prices, especially butter, are very expensive in Canada, so the cost of these raw materials is a major barrier when entering the international market,” Shah explains.
Another obstacle identified by Shah is the fact that in many cases Canada has focused solely on exporting to the U.S. and is therefore not as savvy when it comes to other markets and the potential that exists there. To promote the exporting of goods to other regions, OMAF offers assistance to help connect Ontario food companies with global buyers. The organization plays a “matchmaking” role by connecting buyers from emerging markets with Ontario food manufacturers, thus offering support to Ontario exporters.
The job growth that comes with bakery export opportunities is significant, particularly in Ontario, which Industry Canada says accounts for 84 per cent of total bakery exports in the country. According to OMAF calculations based on Statistics Canada data, each $10 million increase in Canadian food exports creates 82 full time jobs across the country, with 67 of these lying in Ontario. Labour income would also increase by $3.3 million in Canada, including $2.7 million in Ontario and the total GDP would increase by $7.4 million across Canada, with $6.2 million of that occurring in Ontario.
In order to successfully increase export opportunities, Canada must stay on top of ever-changing international health and safety regulations. While Shah notes that Canadian bakeries are aggressively ready when regions like Europe add required certifications to their guidelines, it can be difficult to anticipate what will be required elsewhere. Jennifer McCreary, technical manager of training services at the NSF-Guelph Food Technology Centre (NSF-GFTC) has been closely following the new U.S. Food Safety Modernization Act (FSMA) since it was signed into law on Jan. 4, 2011.
“Part of the issue for Canadian exporters is that even though the rules are published, there’s a comment period and with FSMA rules they’ve had quite a few extensions on the comment period. But it’s very unlikely that they are going to change significantly from the rules that are already published,” says McCreary.
Interpreting the new rules represents another set of challenges for Canadian bakers.
“The most difficult thing is trying to figure out what is being required in those rules. The one that’s going to affect most bakers will be preventative controls for human foods… Anyone exporting to the U.S. must have in place what they call hazard analysis and risk-based preventative controls, which is very similar to a HACCP plan. It’s going to be very similar, but not equivalent,” says McCreary. “For the most part, anybody who is already exporting to the U.S., I’m sure, would already have a HACCP plan because it’s probably been a customer requirement for them, but they may not have documented as well as they should have the likelihood and the severity of the hazard. What FSMA would be requiring is a documented risk-based program.”
Both Shah and McCreary say that Canada’s food safety regulations measure up very well to other countries’ guidelines and Canada is known globally for providing a safe product. FSMA will now require food exporters to the U.S. to take their program one step further. Under FSMA, all registered facilities will be required to conduct a hazard analysis, implement preventative controls and develop a food safety plan.
The Canadian government has also responded to demand for tighter food safety controls with the new Safe Food for Canadians Act, which will consolidate a patchwork of various regulations that were created over the years. The Safe Foods for Canadians Act takes effect in January 2015 and focuses on the following three areas: improved food safety oversight to better protect consumers; streamlined and strengthened legislative authorities; and enhanced international market opportunities for Canadian industry. Among other rules, the new act will require companies who ship products between provinces to be registered with the Canadian Food Inspection Agency (CFIA).
While the Safe Food for Canadians Act may initially be a headache for Canadian bakery owners, the end-result may actually help exporters easily meet international guidelines, like those outlined in FSMA.
“For FSMA, exporters will probably have to go through some additional audits, but financial implications will go back to what kind of program and how good their programs are already. They will have to make sure all of their documentation is in order, but they would also have to do that for the Safe Foods for Canadians Act,” explains McCreary.
For Canadian bakery exporters, identifying potential markets, understanding their food safety regulations and catering to popular trends will be a recipe for success. Fortunately, global food trends are very similar to Canadian food trends, making this part of the equation a no-brainer. According to Shah’s research, there are three main global food trends that are resonating with consumers around the world: health and wellness; simple, clean products; and quality and value.
Karen McPhee, technical manager of product and process development services at NSF-GFTC, says the big trends in Canada are clean labels and health and wellness options like ancient or alternative grains, and gluten-free products.
“One of the big trends right now is the clean label and simplicity factor. It affects the baking industry in terms of using ingredients that consumers can understand and relate to. Maybe they have these ingredients at home in their own cupboards. This is one that we certainly see continuing. A high percentage of our projects involve a clean label focus or at least target product ingredient declarations that have a clean label,” McPhee says.
Creating a business plan to export your bakery goods beyond Canada’s borders is no doubt time-intensive, but the potential that awaits is worth investigating.