Processed Food and Beverages (tdctrade.com)

The processed food and beverages industry in Hong Kong is characterised by its active trading activities. Major food importers/traders in Hong Kong include Dah Chong Hong, Four Seas, Asia Pacific (HK) Ltd, EDO Trading Co, Kwan Hong Yuen Trading Co Ltd, Yu Kee Trading Co Ltd, Sun Shun Fuk etc.

There is a considerable scale of food and beverages production in Hong Kong. Most of this production is for local consumption. Major products include instant noodles, macaroni, spaghetti, biscuits, pastries and cakes. Others include canning, preserving and processing of seafood (fish, shrimps, prawns, and crustaceans); manufacture of dairy products (fresh milk, yoghurt and ice cream); seasoning and spirits. With growing Western interests in oriental food such as soy, soyamilk and oyster sauces, there is increasing demand for Hong Kong's food exports. Some Hong Kong brands have expanded vigorously overseas and received international recognition.

The industry has attracted substantial foreign investment. A notable foreign investor is Nissin from Japan, which produces instant noodles in its factory in Tai Po Industrial Estate and is now the leader of Hong Kong's instant noodles market. In 2006, Amoy, a frozen dim sum and sauces producer in Hong Kong, was acquired by Ajinomoto, a Japanese food conglomerate.

China is currently the largest market for Hong Kong's exports of processed food and beverages. Hong Kong manufacturers, such as Garden, Hop Hing and Lam Soon, have been targeting at the mainland market. For example, Garden has established joint ventures with Hua Jia Co. Ltd. in Dongguan, and Gong Yang Co. Ltd. in Yang Zhou. Hong Kong's guaranteed food safety gives it an edge over China-made products. Nutrition, price and taste are the major factors influencing Chinese consumers' purchase of food, although they are less impressed by packaging compared to Western consumers. Changing lifestyles, rising income, and the spread of supermarkets in place of wet markets have all led to a boom of packaged and convenience food in China. As the number of working women increases along with growth in the number of elderly and single person households, consumers continue to look for ways to reduce cooking time and turn to frozen and canned food.

Hong Kong manufacturers have set up offices or factories in major markets. For example, Lee Kum Kee has factories and regional offices in Chinese cities, the US and the UK, and Vitasoy has factories in Shenzhen, Shanghai in China, and the US and Australia.

^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessary reflect the export business managed by Hong Kong companies.
* Insignificant

Many Hong Kong food and beverages manufacturers deal directly with overseas importers and supermarket chains. Since re-exports (particularly from the US to the Chinese mainland) are the major mode of Hong Kong's exports, food and beverages trading companies have a pivotal role to play. Many traders introduce western food to mainland consumers through Hong Kong, while they also assist smaller producers in Hong Kong and China in selling overseas.

Many Hong Kong brands have successfully entered overseas markets. Garden (biscuits, cakes and candies), Doll (instant noodles), Vitasoy (soft drink), Amoy (cooking sauces), Lam Soon (edible oils) and Lee Kum Kee (cooking sauces) are the leading local brands. Many of these brands appoint distributors and/or establish overseas offices to promote overseas sales. These Hong Kong brands have expanded vigorously to the overseas markets and received increased international recognition. For example, Vitasoy Group has spread far beyond Hong Kong and now sells its products in more than 30 markets throughout the world including the US, Canada, China, Europe, Papua New Guinea, Australia, New Zealand, South East Asia, Trinidad, Venezuela and Israel. In most markets, Vitasoy Group has appointed local distributors.

In order to establish connections and explore market opportunities, processed food and beverages manufacturers and traders can join trade fairs and missions organised by the Hong Kong Trade Development Council (TDC) such as the Food Expo in Hong Kong and the Food Marketing Institute Show in Chicago. TDC also organises from time to time study or matchmaking missions for Hong Kong manufacturers to visit specific markets for establishing new business relations.

Genetically engineered food has become a hot issue in the food industry. Many crops and livestock are already generically modified (GM), often to yield more food, resist pests or enhance nutrition. But concern is growing over the lasting effects of changing nature and environmental groups are already deep in a battle to stop the development of GM food. In view of the criticisms on GM food, two major baby food makers, Gerber and Heinz, announced that they would no longer use GM food in their production.

The use of online shopping is becoming increasingly popular in the shopping of grocery. According to the research conducted for the Grocery Manufacturers of America, one third of shoppers said the notion of shopping for basic food items at home using a computer or television is enticing. Moreover, younger shoppers who are time pressed and have annual incomes above US$50,000 were the most likely to use online grocery shopping. In view of this trend, almost all large supermarkets chains have set up their own online supermarkets in order to meet this demand and to enhance customer loyalty.

The prices of a number of raw materials have become volatile as speculators entered the commodities market and as the RMB appreciated. Traditionally the prices of agricultural products are largely influenced by weather. However, speculators have increasingly traded corns, soybeans and wheat and driven up their prices e.g. the prices of agricultural futures in Chicago Board of Trade generally showed an uptrend in 2006. Also as many Hong Kong producers used imported raw materials from China, the revaluation of the RMB would continue to exert pressures on costs.

The Chinese mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was concluded in 2003 and subsequently expanded. By meeting the CEPA rules of origin, all products made in Hong Kong, including food and beverages, are eligible for duty-free access to the Chinese mainland. But non-Hong Kong made processed food and beverages products will remain subject to tariff rates of up to 35%, and 65% for alcoholic drinks, according to China𠏋 2006 tariff schedule.

It became profitable to produce in Hong Kong when tariffs are high, production is capital intensive, or demand is price-insensitive. Manufacturers have set up factories in Hong Kong in response to CEPA. Food and beverages are one major beneficiary of CEPA, with 3,534 COs approved until 2006. Major products include mooncakes, cans of meat, chicken essence, bird's nest, other sauces or extracts, confectioneries, bakeries and drinks etc. For more information, please refer to Trade and Industry Department's CEPA webpage: http://www.tid.gov.hk/english/cepa/index.html

To protect consumers' health, import regulations for food and beverages are normally more stringent than other consumer goods. For the US, all food should comply with requirements of the Federal Food, Drug and Cosmetic Act. Imported food should be prepared, packed, and held under a system meeting the requirements of the Imported Foods Safety Improvement Act of 1999, or satisfy the requirements of the Secretary of Health and Human Services. The Nutrition Labelling and Education Act of 1990 also requires that nutrition labelling become mandatory on virtually all packaged foods sold to consumers. The new Bioterriorism Act requires that records be kept concerning the sources and recipients of food. Starting from 2006, new regulations would require at least 51% of alcohol in flavoured malt beverages be derived from malt base if they are to be taxed and treated as beer.

For the EU market, all imports of food items are subject to the sanitary and phytosanitary regulations of the European Food Safety Authority as well as strict certification requirements lay down by the individual country's health authorities. In addition, imports of foodstuffs into the EU countries must be accompanied by a Health Certificate. Packaged foodstuffs must also comply EU food labelling, additive, flavouring and packaging legislations. New regulations controlling the type of material that is likely to come into contact with food, as well as their labelling, advertising and presentation were introduced. "Hygiene Package", a body of food safety legislation, came into effect in 2006 and placed stricter controls on food safety e.g. the concept of integrated supply chain management was introduced, with requirements on different steps in the production process.

In China, Border Hygienic Quarantine Law and Food Hygiene Law govern all imported foodstuffs, food additives, food containers, food packaging materials and food-related tools and equipment. Food products are subject to mandatory inspection by the China Commodity Inspection Bureau. Standards for inspection are specified in the contract of sale, including standards for quality, weight, quantity, packing and inspection methods. Such standards must not be lower than the corresponding national standards. Safety licence and other regulations are also applied to the import of foods. Once a quality certificate for a product is issued, a safety laser label can be affixed. All products sold in China must have Chinese language labels. The labels state types of food, brand name, trademark, manufacturer's name and address, country of origin, ingredients, date of production and expiry date, etc.

For the Japanese market, all food products are subject to examination under the Food Sanitation Law. Processed foods entering Japan are subject to three types of inspection: examination for bacterial content, testing for chemical content (including food additives), and visual inspection. Processed foodstuffs must also bear labels. In addition, Japan has control over the usage and import of most additives, which are added to or used with foods, beverages and medicines. Those who wish to import food, food additives, apparatuses or container-packages for sale or business must first notify the Minister of Health, Labour and Welfare on each occasion and inspections may be conducted. In 2006, an amendment on the Food Sanitation Law came into effect, which stipulated the amount of chemical residues in farm produce.

Changing lifestyles will continue to fuel demand for convenience foods. According to a survey by NPD Group's Kitchen Audit, 44% of evening meals are prepared in 30 minutes or less, and food companies have to come up with new products that require little time and still evoke the aura of home cooking. Therefore, the trend towards the sale of complete meals to be consumed at home is increasingly evident in many countries. For example, supermarkets and gourmet markets are increasingly using shelf space for ready-made meals, cafes to upscale restaurants are offering neatly packaged food-to-go, and meals can be ordered over the Internet. According to NPD, even the side dish is disappearing as consumers skip the extra step needed to make an extra dish, and instead throw vegetables into one-dish meals such as stir-fries, stews and casseroles.

In developed economies like the US and the EU, there has been a shift in taste in favour of healthy foods, partly as a result of the aging population who seek easy-to-prepare, high quality nutritional foods to compensate for their lowered taste sensitivity. A 2004-05 survey by the US FDA indicated many consumers tried to avoid intake of sugar, sodium, fats, carbohydrates, cholesterol and calories. The government's 2005 Dietary Guidelines for Americans also upheld healthy eating habits.

Food manufacturers are introducing low cholesterol/carbohydrate/added sugar foods e.g. cane sugar has substituted syrup as an ingredient of some drinks, and the ice cream's calory and fats contents are reduced. For quest for slimness has given rise to the development by Danone, Unilever and Kraft etc of "dietary foods", which added certain fibres to make the food more filling and delay digestion. This trend requires higher R&D capabilities and advanced production technology on the part of food manufacturers.

Purchase of organic food is also a major trend in developed countries e.g. sales in the US since 1990 recorded 20% annual growth. Organic food encompasses a wide range of products including cheese, meat, wine, spices, nuts, canned goods etc. Organic generally means food grown or produced without the use of chemical synthetic fertilizers, pesticides and preservatives and unaffected by genetic engineering. Official definitions vary among countries, but may require a high standard on the growing practices, processing and handling of the produce. Organic foods are increasingly available in convenience supermarkets.

Ethnic Asian cooking - including cuisines from China, Japan, India, Thailand, Korea, Vietnam, Malaysia and Indonesia - has become popular either on its own or blended with western dishes in recent years in Western countries. High quality exotic foods have been well received. Ingredients such as rice noodles, basmati and jasmine rice, coconut milk, ginger root and curry pastes are all popular items in supermarkets in the US and Canada.

Food aimed at attracting kids has become more colourful in recent years. Heinz started the fad in 2001 with green ketchup (purple has since been added). Parkay now has neon pink and blue squeeze margarine, and Dannon Sprinkl'ins includes "sparkle packets" to stir into cups for boldly coloured yoghurt.

In beverages, energy drinks are taking young consumers by storm, while ordinary soft drinks and other drinks are lagging behind. They are drinks added with vitamins, minerals and caffeine and other ingredients. Drinks that claimed beauty or health effects are also being introduced. They include fruit juices, flavoured water and heabal or floral teas.

Profiles of Hong Kong Major Manufacturing Industries

Processed Food and Beverages