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Opportunities for Canadian processors in alternative markets

April 24, 2008

New York, NY –Alternative markets may hold opportunities for Canadian food processors as rising costs, the appreciating Canadian dollar and slowing economies pressure profit margins, according to a new Rabobank report.

According to the report, "Rabo Ag Focus:Canadian Food Processing," personal income growth in large economies – such as Mexico, Brazil, China and India – is leading to increased food consumption. Similarly, major ethnic populations, which continue to be somewhat underserved, in the United States and Canada, are expected to make up an increasing proportion of both markets.

"Canadian food processors have historically been able to prosper by making the most of their domestic market and their access to the U.S. market," said Food & Agribusiness Research and Advisory (FAR) Vice President Stephen Rannekleiv. "However, because the U.S. dollar is not expected to strengthen in the near future, the U.S. market will remain challenging for Canadian exporters."

Over the years, Canadian food processors have enjoyed an enviable position in the world food market. Canadian processors are based in an affluent country with more than 30 million people, have excellent production technology and have access to a broad supply of top-quality domestic agricultural inputs. Additionally, Canada's shared border with the United States has provided easy market access with nominal language and trade barriers.

The weakening of the U.S. dollar also poses significant challenges for Canadian food exporters. For many Canadian companies, the cheaper Canadian dollar was a source of competitiveness, which has been declining along with their companies' profits. To further aggravate the situation, currencies of other countries, including China and Mexico, who compete with Canada for U.S. market share, have appreciated only modestly. This has allowed competitors to outperform Canada in exports to the United States.

"To remain competitive and profitable, Canadian food processors will increasingly need to identify growth markets that will allow them to leverage their production capacity and increase their scale," Rannekleiv said.

The major ethnic populations in both the United States and Canada are expected to make up an increasingly large proportion of both markets, and continue to be somewhat underserved. In the United States and Canada, certain ethnic groups, due to their rapid population growth, are becoming increasingly important market segments that – as of yet – have a not been fully exploited. For example, ethnic products developed and marketed in the United States and in Canada target millions of consumers with growing purchasing power and a thirst for traditional products from their culture.

Additionally, many food processing companies have seen that these products have an increasingly broad appeal among the broader population.

"As ethnic minority groups in both the U.S. and Canada are predicted to make up an increasingly larger share of the market, it is important for Canadian food processors to consider strategies for targeting these markets and gaining brand recognition," said Rannekleiv.

Aside from domestic ethnic markets, large emerging markets such as Brazil, Russia India, China and Mexico also present some attractive opportunities. "Even though the U.S. and Canada are experiencing slow economic growth, other large economies are faring much better, thus creating opportunities abroad," Rannekleiv said. As incomes and demand for products grow around the world, Canadian food processors have the opportunity to enter foreign markets through a number of options including:exporting, franchising, brand licensing, joint ventures, creating subsidiaries or purchasing existing companies

Internationally, opportunities offered by less developed economies are well documented. Many large food processing companies are deriving nearly all of their growth from markets outside North America and Europe. However, the decision to focus export development initiatives on one market over another depends to a great extent on the strengths of the company and the opportunities available in each market.