LaV LaVer erne ne E. B E. Braban bant Hong Kong Shanghai - - PowerPoint PPT Presentation

LaV LaVer erne ne E. B

• E. Braban

bant

Hong Kong Shanghai

Seoul Tokyo

ASIAN MARKETS AND WHY THEIR IMPORTANT TO THE U. S. PECAN INDUSTRY ASIA COMPRISES MORE THAN 4.2 BILLION PEOPLE-60% OF THE WORLD’S POPULATION FASTEST GROWING ECONOMIC REGION IN THE WORLD WITH CHINA IT’S LARGEST ECONOMY AND WORLD’S SECOND LARGEST ECONOMY ASIA’S LARGEST ECONOMIES IN TERMS OF PPP AND GDP INCLUDE CHINA (HONG KONG, TAIWAN, MACAU INCLUDED), JAPAN, RUSSIA, INDIA, KOREA, INDONESIA, AND TURKEY WEALTH (MEASURED BY PER CAPITA GDP) IS MOSTLY CONCENTRATED IN EAST ASIA: HONG KONG, MACAU, JAPAN, KOREA, SINGAPORE, TAIWAN EXCEPT JAPAN, KOREA, TAIWAN, HONG KONG AND SINGAPORE, ASIA IS CURRENTLY UNDERGOING RAPID GROWTH/INDUSTRIALIZATION

 SPEARHEADED BY THE WORLD’S TWO MAJOR ECONOMIES: CHINA & INDIA RAPID ECONOMIC GROWTH + LARGE TRADE SURPLUSES WITH THE WORLD, ASIA ACCUMULATED > US$4 TRILLION IN FOREX RESERVES (>½ THE WORLD TOTAL) CURRENT ECONOMIC GROWTH RATES RANGING FROM MID TO HIGH SINGLE DIGITS OFFER HUGE AND SUSTAINABLE POTENTIAL FOR U. S. PECANS WHILE PECANS HAVE EXPERIENCED A RECENT MARKET WINDFALL IN CHINA , MOST MARKETS IN ASIA HAVE DOUBLED PER CAPITA GDP OVER THE LAST 5-6 YEARS VIETNAM, INDONESIA AND CHINA HAVE UNDER 30 AVERAGE AGED POPULATIONS MEANING MILLIONS OF NEW CONSUMERS ENTER THE MARKET EACH YEAR

WHILE ASIA WAS NOT IMMUNE TO THE IMPACT OF THE GLOBAL ECONOMIC CRISIS IT HAS RECOVERED MORE QUICKLY ESPECIALLY WHEN COMPARED TO THE U. S. AND EUROPE IN PART DUE TO STRONG CONSUMER CONFIDENCE AND SELF-SUFFICIENT ECONOMIES SO, ASIA WITH ITS INCREDIBLY FAVORABLE ECONOMICS, DEMOGRAPHICS AND VIBRANT CULTURE/ASIA IS A SUSTAINABLE GROWTH OPPORTUNITY FOR U. S. PECANS AS INCOME LEVELS CONTINUE TO RISE, SEVERAL NEW CONSUMER GROUPS HAVE BEGUN TO EMERGE AND LOOK EXTREMELY ATTRACTIVE AS WE LOOK TO THE FUTURE INCREASINGLY AN EMERGING MIDDLE CLASS HAS AN APPETITE FOR HIGH-END, HEALTHY, BRANDS W/WOMEN GAINING GREATER FINANCIAL FREEDOM AND SOCIAL INDEPENDENCE

ORGANIZE TODAY FOR THE MARKETS OF TOMORROW

LOCAL PARTNERS OFTEN STRUGGLE WITH A HOST OF PROBLEMS (STRATEGY PLANNING, RISK MANAGEMENT, OPERATING EFFICIENCY, ETC.) HEALTH IMPORTED PRODUCTS, ESPECIALLY FOOD, PERCEIVED AS SAFER AND HEALTHIER WITH CONSUMERS DEMANDING SAFER-HEALTHIER PRODUCTS STATUS SEEKING-PRICE & QUALITY = STATUS OR A MARK OF A HIGHER LIVING STANDARD IF U. S. PECAN’S ESTABLISHES IT’S BRAND (AMERICAN OR U.S. PECAN’S) THE INDUSTRY COULD BE WELL POSITIONED FOR THESE FUTURE OPPORTUNITIES AS THEY EMERGE HOWEVER TO CAPITALIZE ON THESE OPPORTUNITIES IT WILL TAKE PLANNING, EFFORT AND MULTIPLE APPROACHES ACROSS MULTIPLE MARKETS

CHINA’S THE WORLD’S 2ND LARGEST ECONOMY AFTER THE U. S. , SURPASSING JAPAN ONLY 5 YEARS AGO, CHINA’S GDP WAS HALF OF #2 JAPAN’S, CHINA’S GDP GROWTH RATE CONTINUES TO EXCEED 8% WITH A POPULATION IN EXCESS OF 1.34 BILLION CHINA RAPID EXPANSION AND CURRENCY APPRECIATION COULD OVERTAKE THE US AS THE WORLD’S LARGEST ECONOMY BY 2027, PERHAPS SOONER AT CURRENT RATES THE ABOVE IS BASED ON CONTINUED GROWTH AT GREATER THAN 8% ANNUALLY REAL PURCHASING POWER OF US/CHINESE CURRENCIES COULD BECOME = BY 2014 CHINA IS OUR 2ND LARGEST MARKET FOR U.S. FOOD AND AG AFTER CANADA IT’S ESTIMATED BY THE END OF 2013 NEARLY 1,000,000 CHINESE HOUSEHOLDS WILL HAVE INCOMES IN EXCESS OF 1 MILLION YUAN (US$165,000)

THE “MILLION DOLLAR FAMILY CLUB” IS PRIMARILY CONCENTRATED IN BEIJING, SHANGHAI & PROVINCES OF GUANGDONG, ZHEJIANG, JIANGSU, AND SHANDONG CHINA'S ESTIMATED 300 MILLION PLUS MIDDLE CLASS CONSUMERS CONTINUE TO DRIVE RAPID RISES IN DEMAND FOR ALMOST EVERYTHING INCLUDING US PECANS FOOD PRICES ARE RISING AT 8% ANNUALLY, RAMPANT REAL ESTATE SPECULATION HAS CREATED BUBBLE ECONOMIES IN MANY PARTS OF CHINA CHINA’S TORRID GROWTH ALSO PRODUCED CHALLENGES LIKE ESCALATING INFLATION MAKING IT DIFFICULT FOR THE POOR TO PURCHASE FOOD/HOUSING CHINA IS HOME TO MORE THAN 150 CITIES WITH POPULATIONS IN EXCESS OF 1 MILLION PLUS IN POPULATION AND VILLAGE IS DEFINED AS 300,000 IN POPULATION

IN 2012 CHINA‘S RETAIL SALES HIT A RECORD 500 BILLION YUAN ($85 BILLION) DURING THE SO-CALLED “GOLDEN WEEK/SPRING FESTIVAL” UP 20% OVER LAST YEAR CHINESE CONSUMERS INCREASINGLY SEEK INTERNATIONAL BRANDED PRODUCTS (INCLUDING US FOOD PRODUCTS) FOOD MANUFACTURES PRODUCE A VARIETY OF FOODS LIKE MOON CAKES-OTHER CONFECTIONS W/ATTRACTIVE-UPSCALE PACKAGING MORE CHINESE ARE TRAVELING, STUDYING AND WORKING ABROAD OFTEN BRINGING BACK INTERNATIONAL TASTES, IDEAS AND BRANDS CHINESE NOW ARE THE LARGEST GROUP OF INTERNATIONAL TRAVELERS SURPASSING THE COMBINED TOTAL OF JAPAN AND KOREA

SPRING FESTIVAL/CHINESE NEW YEAR = WORLD’S LARGEST HUMAN MIGRATION CHINESE CONSUMERS SEEK INT BRANDED PRODUCTS (INCLUDING FOOD/NUTS) CHINESE CONSUMERS PLACING INCREASING IMPORTANCE ON TRADITIONAL AND INTERNATIONAL HOLIDAYS (CHRISTMAS, VALENTINE’S DAY, ETC.) FOOD MANUFACTURES PRODUCE A VARIETY OF FOODS SUCH AS MOON CAKES-OTHER CONFECTIONS WITH BEAUTIFUL-UPSCALE PACKAGING

CHINA IS NOW THE WORLD'S LARGEST INTERNET COMMUNITY WITH INTERNET USE STILL RISING , ESPECIALLY SOCIAL MEDIA AND INTERNET PURCHASING IMPORTED TREE NUT AWARENESS INCLUDING U. S. PECANS IS GROWING BUT SINCE THESE ARE MOSTLY CONSUMED AS SNACK FOOD CONSUMERS ARE NOT AWARE OF IDENTIFYING HEALTH AND NUTRITION DIFFERENTIATION

GIVEN MANY TREE NUTS ENTER THE ‘MAINLAND CHINA MARKET ‘VIA SO-CALLED “SWIMMING -OR- GRAY CHANNELS” SNACK MANUFACTURERS OFTEN DECLINE TO LIST PRODUCT ORIGIN ON PRODUCT PACKAGING

TARGET URBAN GROWTH CLUSTERS

EXODUS FROM FARM TO CITY IN EMERGING MARKET ECONOMIES (POPULATION OF CITIES GROWS BY 65 MILLION A YEAR = 7 CITIES THE SIZE OF CHICAGO) OVER THE NEXT 15 YEARS JUST 440 EMERGING MARKET CITIES WILL GENERATE HALF OF GLOBAL GDP AND 40% OF GLOBAL CONSUMPTION GROWTH MOST OF THESE ARE UNFAMILIAR NAMES LIKE MEDAN, JINAN, COMPARED TO TIER 1 MEGA CITIES KUALA LUMPUR, SEOUL AND SHANGHAI OFTEN OFFERING OPPORTUNITY THE IDEA SMALLER CITIES CAN OFFER GREATER OPPORTUNITIES ISN’T NEW AS EVIDENCED BY THE SUCCESS OF WAL-MART OF 50 YEARS AVOIDING HIGHLY COMPETITIVE METRO-MARKETS IN EMERGING MARKETS IMPORTANT TO LONG-TERM DEVELOPMENT: CHINA HAS 56 ‘OFFICIAL’ ETHNIC GROUPS SPEAKING > 290 LANGUAGES , INDIA 20 LANGUAGES , HUNDREDS OF DIALECTS AND 4 MAJOR RELIGIONS

INCREASED MARKET PENETRATION VIA DEVELOPMENT OF A STABLE DISTRIBUTION NETWORK FOR A WIDE ASSORTMENT OF TREE NUTS EDUCATING END-USERS HOW TO USE PECANS AS VERSATILE, VALUE-ADDED INGREDIENTS IN A VARIETY OF FOOD APPLICATIONS NON-TRANSPARENT IMPORT/REGULATORY PROCESSES AND CONFUSION WITH U.S. PECANS ALSO PRESENTS SIGNIFICANT CHALLENGES IN THE CHINA MARKET  SHELLED PECAN USAGE IS NOT COMMON IN CHAIN BAKERIES-PATISSERIES, BUT SOMETIMES USED NEW-TRENDY PRODUCTS TARGETED @ YOUNGER CONSUMERS PECAN S ENTERING CHINA CURRENTLY FACE SIGNIFICANTLY HIGH TARIFFS (AT THE HIGHEST LEVEL OF ANY TREE NUT IMPORT UNDER THE OTHER CATEGORY)

LEGAL TREE NUT IMPORTS FACE SIGNIFICANT & TRADE DISTORTING TARIFFS IN CHINA HOWEVER, THERE ARE EXCEPTIONS SUCH AS PISTACHIOS, WHICH ENJOY A TEMPORARY TARIFF OF FIVE % (THREE YEARS RUNNING NOW) AND, EFFECTIVE JAN. 1, 2013 THE LONG STANDING DISPARITY BETWEEN IN-SHELL AND SHELLED ALMONDS WAS LOWERED FROM 24% TO 10% HOW WAS THIS POSSIBLE? ACTUALLY, IT WAS THE RESULT OF A NUMBER OF FACTORS DRIVEN BY AN INDUSTRY STRATEGY IMPLEMENTED OVER ABOUT 10 YEARS THE POINT IS THIS MEANS IT'S BOTH POSSIBLE TO SECURE IMPROVEMENTS AND MORE IMPORTANTLY WITHOUT ‘OFFICIAL GOVERNMENT’ INTERVENTION

WHILE PECAN IMPORTS ARE LARGELY IN-SHELL, A LOWERING OF TARIFFS FOR BOTH CATEGORIES IS IMPORTANT TO THE INDUSTRY LONG TERM WITH CURRENT PECAN TARIFF RATES OF 24% IN-SHELL/SHELLED, EFFECTIVE TARIFF RATES ARE UPWARDS OF 40.125% ONCE CHINA’S 13% VAT IS APPLIED THE U.S. PECAN INDUSTRY COULD TAKE A DIVERSITY OF APPROACHES TO THIS RESOLVE THESE TRADE DISTORTING IMPEDIMENTS, YET CAREFUL CONSIDERATION IN DEVELOPING A LONG TERM MARKET ACCESS IMPROVEMENT STRATEGY INCLUDING LOCAL BUY-IN IS KEY THIS SHOULD INCLUDE A ‘RATIONALE’ FOR HOW ADJUSTMENTS AND/OR LOWERING OF TARIFF RATES COULD THEORETICALLY, MUTUALLY BENEFIT CHINA AND THE U. S.

IF ALL ELSE FAILS THEN A BI-LATERAL/MULTILATERAL APPROACH (DEMARCHES, CONTENTIOUS NEGOTIATIONS, ETC.) BUT COULD IMPACT TARIFF REDUCTIONS FOR YEARS BUY-IN FROM LOCAL TRADE-PLAYERS IN LOWERING THE TARIFF RATES ON PECANS IS KEY I EMPHASIS THE NEED TO FIRST DEVELOP INFORMAL YET SPECIFIC APPROACHES IN SECURING POSSIBLE FUTURE TARIFF IMPROVEMENTS THERE ARE ALL TOO MANY EXAMPLES OF AN INDUSTRY WAGING 'WAR’ PRIOR TO ACTUALLY COMMUNICATING TO HOST GOVERNMENT WHAT IT IS THE ‘INDUSTRY’ WANTS WHILE CHINA DOES NOT PRODUCE PECANS THE POTENTIAL FOR SOME TO EQUATE THESE TO LOCAL HICKORY NUTS IS A POSSIBILITY OR POTENTIAL THREAT TO U. S. PECANS

CHALLENGES AND POTENTIAL THREATS TO US PECANS IN ASIA CURRENTLY THERE IS NO MARKET ACCESS FOR MOST U.S. TREE NUTS INCLUDING U. S. PECANS IN INDIA, ALTHOUGH, OTHER TREE NUT INDUSTRY’S ARE WORKING TO GAIN ACCESS INDIA REPRESENTS A POTENTIALLY HUGE MARKET FOR U.S. TREE NUTS INCLUDING U.S. PECANS EVEN AT HIGH CURRENT HIGH TARIFF RATES TARIFF RATES FOR U. S. PECANS ARE SIGNIFICANTLY HIGH FOR IMPORTED TREE NUTS IN CHINA ALTHOUGH THE ALMOND INDUSTRY RECENTLY SECURED LOWER IN-SHELL TARIFFS TREE NUT NAMES INCLUDING POSSIBLY THOSE FOR PECANS COULD BE AN ISSUE GIVEN RECENT AND ONGOING EXPERIENCES OF CALIFORNIA (US) ALMONDS IN CHINA THE NAME CHANGE IN MANDARIN HAS MULTI-NATIONAL RETAIL CHAINS, CHINESE CONFECTIONARY PRODUCERS, PRODUCERS, SUPPLIERS AND OTHER INDUSTRIES WORRIED

AS ALREADY STATED SIGNIFICANT VOLUMES OF PRODUCT ENTERS CHINA VIA UNOFFICIAL CHANNELS SUCH AS HONG KONG, VIETNAM, THAILAND, MACAU, ETC. WHILE NOT EASY TO ACCOMPLISH IN THE SHORT TERM, REDUCTIONS IN TARIFF RATES ACROSS MULTIPLE CATEGORIES WOULD BENEFIT DIRECT SHIPMENTS FROM THE U. S REDUCE RELIANCE ON GRAY MARKET SUPPLIES; ENHANCE PRICE COMPETITIVENESS AND STABILITY OF LEGAL IMPORTS COMPARED TO CURRENT/OTHER IMPORTED TREE NUTS  THIS HAS HAPPENED IN SOME OTHER PRODUCT AREAS SUCH AS DRIED FRUIT, AND THE MORE RECENT EXAMPLE OF U. S. ALMONDS

2013 Tree Nut Rates * HS Code Description Tariff VAT Effective rate

0801.2100 Brazil nuts, in shell 10% 13% 24.3% 0801.2200 Brazil nuts, shelled 10% 13% 24.3% 0801.3100 Cashew nuts, in -shell 20% 13% 35.6% 0801.3200 Cashew nuts, shelled 10% 13% 24.3% 0802.1100 Almonds, in- shell 10% 13% 24.3% 0802.1200 Almonds, shelled 10% 13% 24.3% 0802.2100 Hazelnuts/Filb erts, in-shell 25% 13% 41.25% 0802.2200 Hazelnuts/Filb erts, shelled 10% 13% 24.3%

2013 Tree Nut Rates * HS Code Description Tariff VAT Effective rate

0802.3100 Walnuts, in-shell 25% 13% 41.25% 0802.3200 Walnuts, shelled 20% 13% 35.6% 0802.5100* Pistachios, in-shell 5% 13% 18.65% 0802.5200* Pistachios, shelled 5% 13% 18.65% 0802.6190 Macadamia nuts, in- shell 24% 13% 40.12% 0802.6200 Macadamia nuts, shelled 24% 13% 40.12% 0802.9090 Other nuts, fresh or dried, whether or not shelled or peeled 24% 13% 40.12% 2008.1910 Walnut kernels, in airtight containers 20% 17% 40.4% 2008.1920 Other nuts, in airtight containers 13% 17% 28.7%

FOOTNOTE: CHINESE TARIFF RATES IN 2013: THE STATE COUNCIL DUTY COMMITTEE (SCDC) RELEASED 2013 TARIFF RATE DUTIES COMMODITIES EFFECTIVE JANUARY 1, 2013. IMPORT TARIFF RATE/DUTY FOR IN-SHELL ALMONDS (HS CODE 08021100) FELL FROM 24% (MFN) RATE TO 10%, WHICH NOW EQUALS THE SHELLED ALMOND RATE. LOWERING TARIFF RATES FOR IN-SHELL TO THAT OF SHELLED ALMONDS HAS BEEN UNDER DISCUSSION-NEGOTIATION FOR SOMETIME BETWEEN THE U. S. AND CHINA (INFORMALLY AS WELL AS FORMALLY).

• IT ALL BEGAN WHEN A LOCAL NUT ROASTER ASSOCIATION DECIDED THEY DIDN’T LIKE THE

NAME “MEIGUO DA XING REN” CHALLENGED THE NAME IN USE FOR MORE THAN A DECADE THE GOVERNMENT AGREED AND AFTER MONTHS OF WRANGLING THE CHINESE NAME FOR ALMONDS WAS OFFICIALLY CHANGED DECEMBER 31, 2012 WHAT ENSUED WAS MARKET CONFUSION, PRODUCT BEING PULLED FROM SHELVES AND LAWSUITS AND THREATENED LEGAL ACTION INITIATED DUE TO THE MIS-LABELING AFTER SOME DIFFICULT NEGOTIATION WHICH INCLUDED THE U. S. AND CHINESE INDUSTRY, A REPRIEVE UNTIL APRIL 1, 2013 WAS SECURED UNTIL THE CHANGE IS EFFECTED

APRIL 1, 2013 (NO JOKE) THE NEW NAME IS “BIAN TAO REN (BA DAN MU)” THE TIMING WAS PROBLEMATIC GIVEN THIS ALL HAPPENED JUST PRIOR TO SPRING FESTIVAL (CHINESE NEW YEAR), THE MOST IMPORTANT HOLIDAY AND NUT SELLING SEASON THE PEACAN IS CALLED“长寿果” IN GUANGDONG, “美国山核桃” IN LIN’AN THE KOREA FREE TRADE AGREEMENT (FTA) AND POTENTIAL IMPLICATIONS FOR PECANS ALMOND , WALNUT INDUSTRIES WORKED HARD TO BE INCLUDED IN THE FTA WHICH LOWERS KOREA’S EXTREMELY HIGH SHELLED AND IN-SHELL TREE NUT TARIFFS WITH THAT SAID, THE LOWERING OF TARIFFS DOESN’T APPLY TO ALL TREE NUTS EQUALLY AND SPEEDING UP GRADUATED TARIFF REDUCTIONS COULD BE IMPORTANT FOR PECANS CURRENT TREE NUT TARIFF RATES IN KOREA ON IMPORTS IS AN AMAZING 45% IN-SHELL, AND 30% FOR SHELLED – AGAIN AN AREA OF GREAT IMPORTANCE FOR U. S. PECANS

I HOPE THE LAST 20 OR SO MINUTES HAVE PROVIDED A PEEK AT WHAT ASIA HAS TO OFFER AND WHERE TO EXPECT FUTURE OPPORTUNITIES AND CHALLENGES FOR U. S. PECANS I WOULD LIKE TO LEAVE YOU WITH SEVERAL KEY POINTS:

• 1. ASIA REPRESENTS THE MOST IMPORTANT REGION

TO FULLY LEVERAGE THE STRENGTH OF THE U. S. PECAN INDUSTRY

• 2. WHILE PECANS HAVE ENJOYED RECENT CHINA MARKET SUCCESSES, THESE

CAN’T BE TAKEN FOR GRANTED AS THE MARKET EVOLVES, CHANGES

• 3. AND, AS IMPORTANT AS CHINA IS OTHER ASIAN MARKETS OFFER

SIGNIFICANT OPPORTUNITIES SUCH AS KOREA, INDIA, VIETNAM, TURKEY THANK YOU FOR LISTENING, AND I WOULD BE HAPPY TO TAKE QUESTIONS!

TO SUM UP

MAR MARKET KET SOL SOLUTIO UTIONS NS A ASIA SIA

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