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2-7-2017
Bernadette Wiltz, SUSTA
In collaboration with World Perspectives, Inc.
Exporting agricultural products to China is a significant undertaking, yet the market’s many positive demand indicators are enticing. The success of SUSTA-region companies in the market – to the tune of nearly $159 million in export sales logged during the 2015 program year[1] – is proof that with a solid export plan and support from SUSTA, southern U.S. agri-food companies can realize export success in China.
We recently discussed the importance of having an export plan. In China, an effective export plan must include a clear understanding of, and respect for, the complicated world of logistics – and this goes beyond identifying brick-and-mortar ports, distribution facilities and retail locations.
For example: Import permits. The requirements for import permits and the presence of established pre-shipment work plans are not unusual in food and agricultural exports. What makes China highly unusual is who generally obtains import permits compared with other global markets. In most other countries, the ultimate consignee, or at least the intermediary consignee (often the case with distributors and some wholesale brokers) is the same entity that applies and is granted the import permit for a given product.
In China, the import permit holders are often freight forwarders and logistics entities with ties to a given industry through subsidiaries. These firms apply for the permits, which have a date of expiration and designated volume, and essentially lease them out to the ultimate beneficiaries or some cases other freight forwarders and customs clearance agents. This dynamic is especially prevalent in fresh and/or bulk produce and commodity markets. Of course, fees pop up throughout the process: Import service fees, terminal market fees for bringing cargo to the terminal, customs fees and VAT and import duties must all be considered. Furthermore, there will likely be additional freight forwarding and customs service expenses for those companies working with their own freight forwarders.
This structure in handling import permits has the potential for creating distorted markets. Plus, the complex layer of which firm is the actual consignee may raise challenges from a financial risk management perspective – and managing risk should be a foundational commitment of any effort to export to China.
Details described above can be used to inform SUSTA region companies as they develop and executive their export strategy in China. Ultimately relationships are key, and the first step is understanding who holds an import permit for a specific product. From there, the door may be more quickly opened and considerations of wholesaling, cold chain logistics, distribution, and retail dynamics easily obtained.
[1] 2016 program year results will be finalized and available in spring, 2017.
