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AN ANALYSIS OF CALIFORNIA'S EXPORTERS OF PROCESSED FOOD PRODUCTS by John W. Hagen and Dr. Juan C. Batista IV. CHARACTERISTICS OF CALIFORNIA FOOD PROCESSORS - SURVEY RESULTS CATI Publication #961102 © Copyright November 1996, all rights reserved This section is concerned with identifying characteristics of California's exporters and non-exporters of processed foods. Data used in this analysis are based on responses from 162 firms who returned the questionnaire sent to them. The firms were classified into 14 groups based on types of products produced. The 14 groups were as follows: PRODUCT CATEGORY 1. Prepared or processed red meat 2. Prepared or processed poultry meat 3. Egg products 4. Dairy products 5. Fruit and/or nuts 6. Vegetables 7. Juices, fruits and/or vegetables 8. Wine, beer, alcoholic beverages 9. Other beverages 10. Breakfast cereals and bakery products 11. Candy and confections 12. Processed seafood products 13. Natural/organic foods 14. OtherEach of these groups were subsequently grouped according to the final product processed to correspond with the SIC classifications described under "Objectives" in the "Introduction." That is, the 14 categories were re-grouped into frozen, canned, sna ck, beverages, and dried, with the addition of "other." In these 14 raw-product groupings there were 106 exporting firms and 56 non-exporting firms. The largest number of respondents were wineries (Table 11). TABLE 11. NUMBER OF EXPORTERS AND NON-EXPORTERS RESPONDING FIRMS BY MAJOR PRODUCT CATEGORY CALIFORNIA FOOD PROCESSORS, 1996.
Number of Respondents
Firms By Product Category Exporters Non-exporters Total
1. Prepared or processed
red meat 3 3 6
2. Prepared or processed
poultry meat 3 2 5
3. Egg Products 0 2 2
4. Dairy products 1 1 2
5. Fruits and/or nuts 15 5 20
6. Vegetables 7 1 8
7. Juices, fruits
and/or vegetables 6 4 10
8. Wine, beer,
alcoholic beverages 43 12 55
9. Other beverages 1 0 1
10. Breakfast cereals
and bakery products 7 12 19
11. Candy and confections 4 3 7
12. Processed seafood products 2 1 3
13. Natural/organic foods 3 0 3
14. Other 11 10 21
TOTALS 106 56 162
The firms processing beverages made up about 29 percent of the sample. (Table 12). Firms classified as processing "other" products manufactured a wide array of specialty items. Among these products were salsa marinades, gourmet seasonings, onions and pepp ers in brine, raw popcorn, ice-cream novelties and salad dressings. TABLE 12. PERCENT OF SURVEYED FIRMS BY PRODUCTS PROCESSED, 162 FOOD PROCESSORS, CALIFORNIA, 1996. Type of Product Processed Percent of Firms in Sample Frozen 15.2 Canned 12.5 Beverages 28.9 Snack 17.9 Dried 15.6 Other 9.9 TOTAL 100.0 CALIFORNIA'S FOOD PROCESSORS The survey results indicate that California food processors tend to have been in business more than 10 years (Table 13). The typical processor has between 10 and 50 employees and has annual sales between $5 million to $10 million. Two-thirds of their sales are made either by brokers or in-house sales departments (Table 13). Of the surveyed firms, 65 percent have exported. TABLE 13. GENERAL CHARACTERISTICS OF CALIFORNIA FOOD PROCESSORS, 162 FIRMS, 1996. Number of firms Percent of Characteristic Responding all Firms Length of Time in Business Less than 3 years 5 3.1 3-10 years 20 12.4 More than 10 years 137 84.5 TOTALS 162 100.0 Number of Employees per Firm 4 or less 25 15.4 5 - 9 22 13.6 10 - 50 57 35.2 51 - 100 24 14.8 101 - 500 27 16.7 Over 500 7 4.3 TOTALS 162 100.0 1994 Gross Sales $1 - $250,000 19 11.7 $250,001 - $500,000 14 8.6 $500,001 - $1,000,000 16 9.9 $1,000,001 - $5,000,000 43 26.6 $5,000,001 - $10,000,000 51 31.5 Over $10,000,000 19 11.7 TOTALS: 162 100.0 Sales Channels Used Through Brokers 99 32.5 Through In House Dept. 110 36.0 Through Wholesale Merch. 67 22.0 Other 29 9.5 TOTALS 305* 100.0 Number of Firms Exporting Yes 106 65.4 No 56 34.6* Many firms use more than one sales channel to sell their product lines. Thus, the total firms exceeds the 162 firms in the sample. CALIFORNIA'S NON-EXPORTING FOOD PROCESSORS Of the 56 non-exporting firms in the sample, snack food manufacturers were the largest number of respondents (Table 14 ). TABLE 14. PERCENT OF PROCESSED FOODS NON-EXPORTERS, BY PRODUCTS MANUFACTURED, 56 FIRMS, CALIFORNIA, 1996 Type of Product Processed Percent of all Non-Exporters Frozen 11.6 Canned 8.1 Beverages 24.5 Snack 31.4 Dried 11.6 Other 12.8 TOTALS 100.0 TABLE 15. GENERAL CHARACTERISTICS OF NON-EXPORTING FOOD PROCESSORS, 56 FIRMS, CALIFORNIA, 1996. Number of Firms Percent of All Characteristic Responding Non-Exporters Length of Time in Businesses Less than 3 Years 2 3.5 3-10 Years 10 17.9 More than 10 Years 44 78.6 TOTALS 56 100.0 Number of Employees Per Firm 4 or Less 15 26.8 5-9 7 12.5 10-50 23 41.1 51-100 7 12.5 101-500 3 5.4 More than 500 1 1.7 TOTALS 56 100.0 Value of 1994 Sales $1 - $25,000 12 21.4 250,001 - 500,000 6 10.7 500,001 - 1,000,000 5 8.9 1,000,001 - 5,000,000 23 41.1 5,000,001 - 10,000,000 8 14.3 Over 10,000,000 2 3.6 TOTALS 56 100.0 Method of Sales Through Brokers 15 26.8 Through in-house Sales Staff 19 34.0 Wholesale Merchant 14 24.7 Other 8 14.5 TOTALS 56 100.0 Reasons for Not Exporting The 56 surveyed non-exporting firms indicated many reasons they have not entered the export market. No one predominant reason was given (Table 16). It is clear, however, that the lack of some type of information was reported by 36 percent of these firms as the reason for not exporting. About 10 percent of theses firms had no foreign contacts. TABLE 16. REASONS GIVEN FOR NOT EXPORTING PROCESSED PRODUCTS, 56 FIRMS, CALIFORNIA, 1996. No. of Percent of Reason Responses* Non-Exporters The firm is satisfied with domestic sales: 14 7.1% Exporting is too complex: 16 8.2% No contacts with foreign buyers: 19 9.7% Company tried exporting but not profitable: 16 8.2% Insufficient staff: 12 6.1% The firm lacks sufficient financial resources: 14 7.1% Need more info regarding specific markets: 14 7.1% Need more info on export procedures: 11 5.6% Need more info on export paperwork: 10 5.1% Need more info on export transportation: 14 7.1% Need more info on import tariffs: 4 2.0% Need more info on sanitary & phytosanitary requirements: 14 7.1% Need more info on labeling & ingredient requirements in import markets: 4 2.0% Language barrier with potential customers: 14 7.1% Product(s) not suitable for export market: 4 2.0% Potential risk exceed potential profit: 8 4.2% Other (please specify): 8 4.2% TOTAL 196 100.0%*The 56 firms listed more than one reason for not exporting. Thus, there were 196 responses from the 56 firms. CALIFORNIA PROCESSED FOOD EXPORTERS: This section is concerned with the characteristics of the 106 food processors that have exported products to various world markets. The firms processing beverages made up the largest share of the sample (Table 17). TABLE 17. PERCENT OF PROCESSED FOOD EXPORTERS BY PRODUCT MANUFACTURED, 106 FIRMS, CALIFORNIA, 1996. Type of Product Produced Percent of all Exporters Frozen 19.6 Canned 14.0 Beverage 33.5 Snack 9.8 Dried 16.8 Other 6.3 TOTAL 100.0 California processed food exporting firms tend to have been in business more than 10 years and about 55 percent of them have under 50 employees (Table 18). Most of these firms had total sales in 1994 of under $10 million. The majority of food exporters s ell their products through brokers or in-house sales departments. TABLE 18. GENERAL CHARACTERISTICS OF CALIFORNIA PROCESSED FOOD EXPORTERS, 106 FIRMS 1996. Number of firms Percent of Characteristic responding exporters Length of time in business Less than 3 Years 4 3.8 3-10 Years 11 10.4 More than 10 Years 91 85.8 TOTALS 106 100.0 Number of employees per firm 4 or Less 9 8.5 5-9 14 13.2 10-50 36 34.0 51-100 17 16.0 101-500 24 22.6 Over 500 6 5.7 TOTALS 106 100.0 1994 Gross Sales $1 - $250,000 8 7.5 250,001 - 500,000 10 9.4 500,001 - 1,000,000 11 10.4 1,000,001 - 5,000,000 20 18.9 5,000,001 - 10,000,000 41 38.7 Over 10,000,000 16 15.1 TOTALS 106 100.0 Sales Channels Used* Through Brokers 73 35.1 Through in-house Dept. 77 37.0 Through Wholesale Merch. 43 20.7 Other 15 7.2 TOTALS 208 100.0 Length of Time Firm has Exported Less than 3 Years 19 17.5 3 to 10 Years 37 35.0 More than 10 Years 50 47.5 TOTALS 106 100.0 * Many firms use multiple channels to sell their products. Thus, the number of respondents exceeds the 106 firms who exported. The surveyed exporters were asked to classify their firm by their major function. More than one-half of these exporters are also manufacturers (Table 19). TABLE 19. NUMBER OF EXPORTING PROCESSORS BY TYPE OF FIRM, 106 FOOD PROCESSORS, CALIFORNIA, 1996. Number of Percent of Type of firm respondents Exporters Exporter 13 12.3 Retailer 6 5.6 Packer 10 9.4 Export Agent 2 1.9 Wholesaler 6 5.7 Broker 4 3.8 Manufacturer 62 58.5 Other 3 2.8 TOTALS 106 100.0 MAJOR EXPORT MARKETS Northeast Asia, Canada and Western Europe are the major foreign markets (Table 20). Most firms sell to more than one market area; therefore, the number of responding firms exceeds the number of firms in the sample. TABLE 20. MAJOR EXPORT MARKET REGIONS FOR CALIFORNIA FOOD PROCESSORS, 106 FIRMS, 1996. Number of Percent of Export Market Region respondents Exporters Africa 0 0.0% Northeast Asia (Japan, Korea, China, Hong Kong, Taiwan) 62 25.2 Southeast Asia (Singapore, Indonesia, Malaysia, Philippines, Thailand, Vietnam) 15 6.1 India, Pakistan 1 0.4 Australia and New Zealand 10 4.0 Canada 58 23.6 Mexico 13 5.3 The Caribbean 9 3.7 Central America 4 1.6 South America 2 0.8 Russia and Russian Far East 3 1.2 Western Europe 62 25.2 Middle East 6 2.5 Other (Please Specify) Eastern Europe 1 0.4 TOTAL 246 100.0% MARKET CHANNELS USED California food processors use several different marketing channels when selling products to export markets. The most important channels are sales direct from processor to the foreign customer or indirect through foreign brokers (Table 21). Two firms sell through a shared distributor. These distributors were owned by several food processors who used their services. Again, these exporters use more than one marketing channel. Thus, the number of respondents by channel type exceeds 106 firms because these firms could select more than one response. TABLE 21. MARKETING CHANNELS USED BY 106 CALIFORNIA PROCESSED FOOD EXPORTERS, 1996. Number of Firms Market Channel Used Using this Channel Direct to Foreign Customers 47 Indirect through Foreign Brokers 50 Indirect through U.S. Based Foreign Trade Companies 15 Indirect through U.S. Based Brokers 31 Sales through other Outlets 2 USE OF FREIGHT FORWARDERS The 106 surveyed processors were asked to indicate the extent to which they use freight forwarders for assisting with transportation to export markets. Freight forwarders are important to California processed food exporters. (Table 22). Freight forwarders are relied upon by processors to make transportation arrangements for more than 60 percent of the exporters. Several firms indicated they were not sure if they used freight forwarders to assist with the exporting. These firms prepared products for export shipment. TABLE 22. THE USE OF FREIGHT FORWARDERS FOR ARRANGING THE TRANSPORTATION FOR EXPORT SALES, 106 FOOD PROCESSORS, CALIFORNIA, 1996. Extent of Use of Number of Percent of Freight Forwarders Respondents Respondents Use All of the Time 36 33.9 Use Most of the Time 29 27.4 Use Some of the Time 16 15.1 Our Firm Handles Transportation 18 17.0 Not Sure 7 6.6 TOTALS 106 100.0 MODE OF TRANSPORTATION Ocean vessels are the most commonly used mode of transportation for California processors (Table 23). The importance of truck transportation is consistent with the fact that about one-quarter of the California exports are shipped to Canada. Air transport ation was used by only 14 firms. Thirteen of these exporters made less 25 percent of their shipments by air. The high cost of air transport limits its use to only a few high value commodities. TABLE 23. MODE OF TRANSPORTATION AND RELATIVE VOLUMES SHIPPED BY FOOD CALIFORNIA EXPORTERS, 106 FIRMS, 1996. Number of firms Percent of processors using this mode for Mode of transportation using this mode over 50% of shipments Rail 8 37.5 Ocean 85 67.1 Truck 51 50.9 Air 14 7.1 CONTAINER LOT SHIPMENTS Sixty four processors indicated they ship full container lots. This size of shipment makes up 80 percent of the shipments made by these exporters (Table 24). There were 65 exporters who reported exporting less than container lot (LCL) shipments (Table 24). Of these, 53 percent of the firms indicated LCL shipments represent 54 percent of all their shipments. This is consistent with the extensive use of freight forwarders. These processors may rely on freight forwarders to consolidate shipments from several firms to make a full container load minimizing freight costs. TABLE 24. QUANTITY OF EXPORT SHIPMENTS BY SIZE LOAD, 106 CALIFORNIA FOOD PROCESSORS, 1996 Percent of shippers Number of making more than 50 percent Size of shipment respondents of sales this load size Full Container Load 64 79.7 Less than Container Load 65 53.8 REGULARITY OF FREIGHT RATE MONITORING California processed food exporters monitor the transportation rates for their shipments at varying times. About one-third of the processors monitor freight rates with each shipment (Table 25). The majority, however, monitor these rates less frequently. This could be due to the reliance of shippers on freight forwarders, who handle transport arrangements and monitor freight rates. TABLE 25. REGULARITY AT WHICH PROCESSED FOOD EXPORTERS MONITOR FREIGHT RATES, 106 FIRMS, CALIFORNIA, 1996. Frequency at which Number of Percent of freight rates are monitored respondents firms Monitor at Least Every Quarter 14 13.2 Monitor Rates Semi-Annually 7 6.6 No Regular Monitoring 34 32.1 Monitored for Each Shipment 35 33.0 Not Sure 16 15.1 TOTALS: 106 100.0 RATE OF EXPORT SALES GROWTH The surveyed exporters were asked to evaluate the past years of their export sales relative to their domestic sales. During the last three years (1993-1996) export sales for 39 percent of the firms have increased at a slower rate that than have the domestic sales made by these firms (Table 26). Comparatively, export sales increased more rapidly for exporters than did domestic sales for 27 percent of the firms. TABLE 26. GROWTH OF EXPORT SALES, CALIFORNIA FOOD PROCESSORS, 106 FIRMS, 1996 Export Sales During Number of Percent the Last Three Years Respondents of Firms Export sales have increased at a faster rate than domestic sales 29 27.4 Export sales have increased at the same rate as domestic sales 24 22.6 Export sales have increased at a slower rate than domestic sales 41 38.7 Not sure 12 11.3 TOTALS 106 100.0 PROCESSORS' PRIORITIES FOR EXPORTS The surveyed firms were asked to rate the priority they placed on making export sales. The rating scale was from 1 (top priority) to 5 (lowest priority). A ranking of three would indicate the firms put the same emphasis on exporting as they do on domestic sales. A weighted mean of the priorities reported by the 106 surveyed firms was 3.5 (Table 27). Thus, these processed food exporters consider exports as a below average priority for their firm. Telephone interviews with several processors indicated an uncertainty about exporting with the exception of the Canadian shipments. TABLE 27. RANKING OF PRIORITY FOR EXPORTING, CALIFORNIA FOOD PROCESSORS, 106 FIRMS, 1996. Weighted Ranking 1 2 3 4 5 average rank Number of Respondents 9 15 23 35 24 3.5 ANTICIPATED PLANS FOR EXPORT ACTIVITIES In addition to asking firms to rank their export market, they were asked about their plans for exporting in the next three years. Fifty percent of the food exporters indicated they plan to spend and promote the export market at about the same level they have been (Table 28). Plans for more effort and expense on exporting, however, were reported by 38 percent of the firms. As one processor indicated, "future market growth dictates moving into the export market." Thus, smaller food processors may be beginning to realize the importance of the export market on their firm's growth. TABLE 28. ANTICIPATED PLANS FOR EXPORT ACTIVITIES, 106 FOOD PROCESSORS, CALIFORNIA 1996: Planned Export Number of Percent of Activities Respondents Respondents More effort and expense on exporting: 40 37.8 About the same effort and expense on exporting: 53 50.0 Less effort and expense on exporting: 9 8.4 Not sure: 4 3.8 TOTALS 106 100.0 EXPORT BARRIERS The surveyed exporters were asked a series of questions about conditions that they considered to be barriers to exporting. These answers were ranked on a scale of one to four with one being a major barrier and four not being a barrier. A weighted mean of the responses was calculated for each question. An average number of 2.5 would mean that the respondents were indifferent about the importance of that barrier. An average less than 2.5 would tend to indicate the condition was a more important barrier. An average greater than 2.5 would indicate the respondents felt the condition was of lesser importance as a barrier to exporting. The most serious exporting barrier reported was finding potential customers for the processor's products (Table 29). TABLE 29. IMPORTANCE OF POTENTIAL EXPORT BARRIERS FOR FOOD PROCESSORS, 106 FIRMS, CALIFORNIA, 1996. Potential Barrier Average of All Firms Obtaining Information Regarding Transportation Rates and Services 2.9 Obtaining Competitive Transportation Rates 2.9 Maintaining Product Quality in Transit 2.6 Completing Required Shipping Documentation 2.7 Obtaining Information on Import Packaging and Labeling Requirements 2.4 Finding Potential Customer 2.1 Obtaining Country-Specific Market Information 2.3 Helping Foreign Buyers Obtain Financing 3.1 Obtaining Information on Export Assistance Programs 2.8 Obtaining Information on Local Customs and Culture 2.8 Obtaining Information on Import Quotas 2.9 Obtaining Information on Safety and Health Restrictions 2.6 Meeting Prices of Foreign Competitors 2.2 Obtaining Assistance in Overseas Product Promotion and Advertising 2.6 Although there is little variation in the responses, it appears these exporters consider their most serious barriers to exporting processed food to be:
VALUE OF EXPORT SALES About 45 percent of the surveyed processed food exporters had 1994 export sales of less than $250,000 (Table 30). Most food exporters have fairly limited export sales. TABLE 30. VALUE OF 1994 EXPORT SALES, 106 CALIFORNIA FOOD PROCESSORS, 1996. Value of Sales Number of Firms Percent of Respondents $1 - $250,000 48 45.3 $250,001 - $500,000 13 12.2 $500,001 - $1 million 12 11.3 $1,000,001 - $5 million 15 14.2 $5,000,001 - $10 million 7 6.6 $10,000,001 - $25 million 5 4.7 $25,000,001 - $100 million 2 1.9 More than $100 million 0 0.0 Not Sure 4 3.7 TOTALS 106 100.0 IMPORTANCE OF EXPORT SALES The export market was of limited importance to the food processors in this survey. Exports represent less than 25 percent of 1994 sales for more than 90 percent of the surveyed firms (Table 31). Clearly, many of these firms lack a strong export focus. TABLE 31. EXPORTS AS A PERCENTAGE OF CALIFORNIA FOOD PROCESSOR'S SALES, 106 FIRMS, 1996. Percent of Firms Number of Percent of Sales to Exports Respondents Respondents 1 - 9 73 68.9 10 - 24 23 21.7 25 - 49 6 5.7 50 - 74 0 0 75 - 80 0 0 81 - 99 0 0 100 1 0.9 Not Sure 3 2.8 TOTALS 106 100.0 EXPORT MARKET DEVELOPMENT The surveyed food processors were also questioned about their export market development activities. When asked if their firm had sent an employee to a foreign country within the last three years, 57 firms responded affirmatively (53 percent). Forty seven percent of the firms had not traveled overseas to visit prospective buyers. Fifty-five firms (54 percent) said their company had sent a representative to a foreign market trade show during the last year; 50 firms had not participated. Two respondents were not sure if their firms participated during the last year. Forty-eight firms indicated they would be interested in receiving export information via a computer network. The other firms were either negative or not sure of their interest in Internet information. { page top } |
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CALIFORNIA AGRICULTURAL TECHNOLOGY INSTITUTE - CATI
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