While rising costs, the rising dollar and slowing economies such as the U.S. put pressure on Canadian food processors, they should look to other export markets as well as their own “underserved” ethnic populations, according to a new report from Rabobank.
The Dutch firm, which bills itself as the “premier” bank to the global food and agriculture industry, said personal income growth is leading to increased food consumption in large economies such as Mexico, India, Brazil and China.
“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,” Rabobank wrote in a press release Thursday.
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“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 Stephen Rannekleiv, the bank’s vice-president for food and agribusiness research, in the release.
“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.”
For many Canadian firms, a low loonie had spurred their competitiveness, which has since been declining along with their companies’ profits. What’s worse, countries such as China and Mexico, which compete with Canada for U.S. market share, have seen their currencies appreciate only modestly, thus allowing them to outperform Canada in exports to the U.S., the bank said.
“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.
As these markets’ incomes and demand for products grow, Canadian food processors have opportunities to enter foreign markets through options such as exporting, franchising, brand licensing, joint ventures, new subsidiaries or buying existing companies, the bank wrote.
Furthermore, Rannekleiv said, “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.”
Such groups are becoming increasingly important market segments that haven’t been fully exploited, the bank said, noting ethnic products developed and marketed in the U.S. and in Canada target millions of consumers with growing purchasing power and a “thirst for traditional products from their culture.”
Plus, Rabobank noted, food companies are finding such products have an “increasingly broad appeal among the broader population.”
