John Hey

Japan’s morning banana diet craze (page 30 of this month's Asiafruit Magazine) which has seen the fruit flying off retail shelves for eight months now is an intriguing story. While there is something uniquely Japanese about the phenomenon, it has a broader relevance when it comes to marketing to consumers in Asia. The diet craze shows the extent to which fruit is part of people’s lifestyles in Asia and how consumers are more engaged with dietary concerns. Clearly if marketers can identify specific health benefits in their product that respond to these concerns and can promote them effectively, there are major gains to be achieved with this receptive audience.

Having said that, the banana diet craze occurred more due to luck than design. And it was via Japanese social networking site ‘Mixi’ that the word spread so fast. Copycat diets launched for other fruits have yet to achieve the same impact, and engineering such a craze is a hit and miss business.

Other methods of marketing to consumers in Asia have a more consistent success rate, such as training retail store managers on how to handle, display and promote your product or in-store tastings. This is the type of work the California Table Grape Commission conducts in many Asian markets, and a case example is with the Indonesian retail chain AlfaMart, which saw a substantial growth in California grape sales last year (page 19 of this month's Asiafruit Magazine).

AlfaMart operates convenience stores, and is adding new ones at a rapid rate, with more and more of them stocking California grapes. Indeed, with a profusion of convenience stores opening across Asia and many carrying produce in their range, there are opportunities for suppliers to extend their consumer reach by working with such chains.

Without doubt the Asian markets offer important growth opportunities for global suppliers, particularly in the current economic climate. And there is significant latent consumer demand in the region to be tapped through marketing and promotion. Alas, this is a much-neglected area for most suppliers and supply countries to Asia.

A fragmented supply base and budgetary constraints are the often-cited reasons for this lack of activity. The reality is that all too often suppliers show no interest in following their product through the supply chain, and prefer to divest ownership at port of arrival. With a more structured approach, they would begin to open up a whole new market that comes from getting closer to the consumer. But first they must find the right trade partners and understand the market. Events like ASIA FRUIT LOGISTICA and Asiafruit Congress are the best place to start.

John Hey

On a recent visit to India, I was struck by an innovative cold chain solution for fresh produce retailing. It consists of a refrigerated push-cart for the street vendors that dominate fruit and vegetable sales in the country. Based on a thermal management system using passive cooling, these modernised trolleys are fitted with battery-charged refrigerated plates designed to help the street vendor deliver the best produce to the consumer, often to their doorsteps.

Here was a cost-effective cold chain service tailored to Indian conditions, something that has eluded the big corporates at the other end of the retail scale who, until lately, had been throwing up supermarkets at a dizzying rate across the country. When these players burst onto the scene two years ago, they were going to become the panacea for the problems that plague India’s fruit and vegetable sector. With their grand plans to develop supply chains, they would forge a direct “farm-to-fork” model that would slash huge wastage levels, raise farmer incomes and close the “service” gap for the Indian consumer. Pundits confidently predicted that India’s “unorganised” retail market was about to be transformed by the “modern trade”.

After all the hype and the hoopla, the dream seems to have turned sour, with many big players in retreat. Managing fresh produce supply chains has proven to be a lot more tricky than they bargained for. With India’s fragmented production base, buying direct from the farmer is fraught with difficulty, forcing retailers to rely on the intermediaries they sought to remove. The realisation has dawned that these middlemen often add value, not cost, and can perform tasks far more nimbly and cheaply than they can. The so-called organised retail sector is now in disarray, and must go back to the drawing board to find a cost-efficient sourcing model tailored to India’s complex conditions. For instance, the cost of eliminating wastage through forging an integrated cold chain, as many players set out to do, outstrips that of alleviating wastage levels through just-in-time supply chain management – surely a more realistic model for retailers.

In failing to master the supply chain, organised retail has failed to win over Indian consumers, who continue to cross the road to buy their fresh fruit and vegetables from the street vendor. Indeed, rather than India’s retail sector learning lessons from Western-style supermarkets, it appears that India has a lesson for the rest of the world – one that is particularly pertinent to produce – about the role the little man can play along the supply chain, not least in servicing the consumer.

John Hey

Any notion that Asia was immune to the credit crunch has been blown away in recent months as the region’s export-led economies suffer the “lag-effect” of the global slowdown. With many companies not paying end-of-year bonuses and the threat of layoffs becoming real, Asian consumers are entering this year in a very different frame of mind to 2008.

What the financial crisis means for Asia’s fresh produce markets is a subject of much speculation right now. On a global level, there is an argument the produce business is less exposed, since fruit and vegetables are part of the food chain and people will keep eating them. When it comes to Asia’s consumer markets, however, we must not forget that imported fruits are often a pricier purchase amid the plentiful locally-grown options, and that people tend to save money at the hint of any insecurity. Our survey of Asian importers produced a bleak prognosis for Chinese New Year, with talk of consumers trading down and tightening their belts, but then such gloom has become the norm in recent years.

Aside from consumer behaviour, the impact of the financial turmoil may well be felt more by the trade in terms of exchange rate volatility. The strengthening of the US dollar, while encumbering US exporters, is making Asia’s dollar-linked markets more attractive to Southern Hemisphere suppliers, especially as they explore alternatives to their recession-hit mainstays in the US and Europe. In China, where the yuan has actually appreciated against the US dollar, this is worrying some importers, who warn the market cannot afford to become a dumping ground at a time when demand appears to be slowing down.
Amid the gloom, however, we can expect to see some positives come out of the slowdown. Securing bank credit will grow tougher for Asian buyers, but there will be more caution on the part of importers, and fewer fly-by-nights and speculators ready to “take a punt”. This can only help market stability. Indeed, in many ways, the financial crisis will only serve to underline the core principles of doing business in the Asian markets; not least having sound business relationships and supplying product at the right time to the right specifications. Those exporters who send product speculatively that fails to make the grade can expect to get punished severely by these markets, as buyers and consumers become more selective in their purchasing.

John Hey

China's fragmented farm units have long been cited as the core stumbling block in the country’s efforts to supply safe food and meet export market demands for consistent quality. Under the existing system, each of China’s 800m farmers is allocated their own patch of land by local authorities under 30-year leases, but they have no legal title and they cannot transfer the land, even if they move away. This has given rise to a patchwork of tiny plots across the country. The miniscule size of these land-holdings, often less than 0.67ha, means farmers can only grow a very small volume of product, making it hard to run them profitability. To maximise production, farmers must swap chunks of land to be held in common by the village, meaning there are fewer incentives for them to make improvements. The system also renders it very challenging to source consistent lines of produce for export, since product for one container load may come from scores of farmers. And it certainly helps to explain the food safety problems that continue to plague China’s international image, most recently with the scandal over melamine in infant formula.

In this context, the Communist Party’s October announcement that it will give rural residents the right to transfer or lease their land seems like a radical and timely overhaul. While stopping short of privatisation, it enables farmers to convert their 30-year land leases into money, which can be invested into new businesses. Supporters of the move suggest it will spur investment in rural areas and foster the development of large-scale and efficient farming.

As ever, though, such a transformation is not as straightforward as it sounds. Some pundits note that the latest announcement essentially marks a re-statement of previous reforms unveiled in 2003, and that many farmers are already informally renting or swapping their land. These observations suggest the move would have a negligible impact, but other analysts predict that it would spur a mass migration to cities as farmers sell off their plots to seek better-paying work in the cities. From that point of view, the reforms could actually threaten food security and put pressure on urban infrastructure. The government has, however, stipulated conditions on land use rights to prevent this urban influx. Either way, there are valid concerns that the move towards a privatised system exposes uneducated farmers to exploitation by a landlord class, and could leave them to drift into the cities rootless and impoverished. Such complications hint at the huge challenges to implementing the plan, which are only exacerbated by internal discord in the Communist Party over the extent of the reforms. Indeed, a big question mark hangs over whether the government will go ahead with the plan at all.

The fact remains, however, that China must do something radical to enrich the countryside in order to close the massive income gap between the rural and urban populace, and to stimulate an economy that is coming under pressure from the global downturn. With two-thirds of the population living in rural areas, getting these farmers to spend a little more money could go a long way to making up for the loss of manufacturing export trade into the US and Europe. Indeed, the potential to grow internal consumption, coupled with the modernisation that may result from the rural reforms, underlines China’s untapped potential for the global fresh produce trade, both in terms of procurement and market opportunities.

John Hey

Walking the floor of this year’s ASIA FRUIT LOGISTICA trade fair in Hong Kong, it was impressive to see so many different countries represented among the exhibitors and visitors. And the substantial growth recorded by this year’s event certainly reflects the global interest in Asia’s fruit and vegetable market.

Such massive appeal is no doubt fuelled by Asia’s huge population and by its examples of spectacular economic growth. Some of the region’s rising stars, like India and Vietnam, came under the spotlight in the conference hall at the Asiafruit Congress, but there were words of caution from certain speakers for those eyeing the Asian markets. Des O’Rourke of Belrose Inc warned against overenthusiasm, stressing that Asia is a complex and multi-faceted market that cannot be approached with simple marketing models. He also cast an air of economic realism on proceedings, pointing out that only one country in Asia has a big population AND large Western income levels – and that is Japan.

The results of a recent survey of Asian buyers conducted by Asiafruit Magazine, which were presented at the Asiafruit Congress, revealed that the region’s markets are “under-serviced“ in terms of imported fruits, with global suppliers lacking local understanding and still tending to prioritise other destinations. An expert panel of global suppliers to Asia also testified to the difficulties of servicing the diverse demands of these markets.

The message was clear; the Asian markets require long-term commitment, but the final day of the Asiafruit Congress, which highlighted China’s rise as a consumer market, provided an incentive to “hang in there”. With pressures building on land and resources and some 200m people set to relocate from rural to urban areas over the next 10-15 years, China will struggle to feed itself, delegates heard. As John Chapple of Sino Analytica noted, China is already a net importer of agricultural products in cash terms – and he tipped it to become a domestic market supplier and an importer when it comes to fresh produce too, thus challenging traditional threat perceptions over China’s role as an exporter. The multiple Chinese companies promoting their products at ASIA FRUIT LOGISTICA seemed to counter his assertion. Indeed, other conference speakers noted that “a battle for acres” in China’s agriculture sector might prompt a shift in production towards higher value crops, such as fruit and vegetables. And with its huge diversity of native fruit species, China has great potential to offer new and unique products to the world market.

But it’s an interesting notion, and key retail executives speaking at the Asiafruit Congress revealed how a trend among several countries to consume more food than they can produce is encouraging big multinational retailers to pursue global sourcing strategies in order to secure consistent, safe and high-quality supplies. This move is sure to have a major impact on fresh produce suppliers in Asia and beyond over the coming years.