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GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU These guidelines were compiled for CBI by ProFound – Advisers in Development Disclaimer CBI market information tools: http://www.cbi.eu/disclaimer Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU Introduction Are you already exporting to the EU, but do you want to enlarge your exports to the EU? Or, if you are not yet exporting to the EU, should your company start exporting to the EU? Which (new) target market(s) should you aim for and which key product(s) should you choose? Which trade channel fits your company best and how do you promote yourselves to EU buyers? These are common concerns of exporters in developing countries (DC) who want to enlarge their exports to the EU or who consider to start exporting to the EU but are not sure if it is right for them. That is what these export guidelines are all about: to help you to evaluate whether or not to get involved in the EU market or how to improve your approach of the EU market. From survey to success: these guidelines are a practical add-on to the CBI market surveys for spices and herbs. If you did not yet consult the CBI market survey ‘The spices and herbs market in the EU’, you are advised to do so before continuing with these guidelines. The guidelines are adapted to the specific challenges in the spices and herbs industry and contain many practical suggestions, which will help you in making decisions. First, you are advised to define whether or not your company is ready to export. Chapter 1 helps you answer this question. Then, if the answer to this question is positive, it is time to prioritise. Chapter 2 guides you through a process of country and product selection, which helps you to focus your export efforts. Once you have defined a target country in the EU and some priority products, you will have to choose the right entry strategy and the appropriate sales channel. Chapter 3 deals with this sales channel assessment. Chapter 4 gives you a range of practical suggestions for your marketing tools and chapter 5 discusses the financial part of exporting. These guidelines are an addition to related CBI information which covers the general theory of exporting, like the CBI export manual ‘Export Planner’ and the CBI export tool ‘EMP Builder’. The market surveys, export manuals and export tools are available at http://www.cbi.eu/marketinfo Although these guidelines are developed in particular for exporters, also Business Support Organisations (BSOs) could very well make use of it. Staff of BSOs in developing countries can use this document to support and advise their members about exporting to the EU. As can be read in the CBI market survey ‘The spices and herbs market in the EU’, as well as in separate country surveys, interesting opportunities exist on the EU market for exporters of spices and herbs in developing countries. On a European level, consumption of these products is expanding at a moderate rate, under the influence of health and natural trends, ethnic food trends and increased use of convenience food products. These trends are strongest in the West European markets, where the largest trend-sensitive population and relevant retailers are located. However, the scope of most food ingredient manufacturers is EU-wide. The location of their manufacturing facilities is thus far more important, for finding the most promising destinations for the raw materials for spices and herbs, than the presence of a trend-sensitive population. Next to available market opportunities, which can be matched to the spices and herbs you offer, there are some important requirements which developing countries have to meet before they are able to export successfully to the EU in the long run. The most important ones follow below. If your company is not able to meet them or not able to overcome these challenges in Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU the near future, it is not advisable to start exporting to the EU. Developing country exporters should be prepared (at least initially) to: Comply with European market access requirements All food products in the EU must comply with the General Food Law or Regulation (EC) 178/2002, laying down the general principles and requirements of food legislation, establishing the European Food Safety Authority and laying down procedures in matters of food safety. It also includes provisions on the traceability of food. Furthermore, EU Directives 1999/2/EC (ionising radiation standards) and 1999/3/EC (list of foodstuffs and ingredients which may be irradiated) state requirements for using irradiation for the treatment of spices and herbs. At the moment, the only food categories allowed to be irradiated under EU legislation are: dried aromatic herbs, spices and vegetable seasonings. Member States may allow irradiation of other product groups. For more information on irradiation requirements or other market access requirements, please consult the different documents on market access requirements that can be downloaded from the CBI website as described below. Organic EU standards for organic food production and labelling are laid down in Regulation (EEC) 2092/91. Please note that a product or its ingredients cannot be labelled or advertised as “organic” if it has been subject to treatments involving the use of ionizing radiation. In June 2007 the EU Council adopted the Council Regulation (EC) No 834/2007 of 28 June 2007 on organic production and labelling of organic products and repealing Regulation (EEC) No 2092/91. This regulation came into force as from January 1st, 2009. For more information on market access requirements for organic products, please consult the different documents that can be downloaded from the CBI website as described below. More information • http://www.cbi.eu/marketinfo - Select ‘Food ingredients’ and the ‘European Union’. Tap the box ‘legislation’. For more information on irradiation, see the document ‘EU legislation: Irradiation of food’. For more information on organic production, see ‘EU legislation: Organic agricultural production’. The section ‘non-legislation’ contains documents with market-driven demands, such as ‘EU buyers’ requirements: Benchmarking the food ingredients sector’ and ‘EU buyers’ requirements: Benchmarking the organic food sector’ http://exporthelp.europa.eu - Use this source to find additional requirements, import tariffs and Customs documents. Click for example on ‘requirements and taxes’. Go to ‘search’ to find the HS code for your product. Select it, as well as your country and the EU country of destination. http://www.esa-spices.org/content/pdfs/ESAQualityMinimaDocument191104.pdf - The European Spice Association combines legal and quality requirements in this document. Meet industry specific challenges Quality demands EU customers are looking for reliable suppliers, who can supply them on a regular basis at a good price with a constant quality. Developing country exporters must therefore be able to supply at a constant level of quality and according to agreed specifications. Another factor is the traceability; the total product must be tracked and traced throughout the chain. This entails heavy registration and controlled processes. Although not directly an obligatory standard for producers of food ingredients, exporters must be aware of the fact that, in the field of processed food, ISO 9000 is strongly increasing in importance in Europe. Of great importance also is the Hazard Analysis Critical Control Point Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU (HACCP) system, applicable to companies which process, treat, pack, transport, distribute or trade foodstuffs. Based on the EU directive 93/43/EC, it also applies to foreign suppliers since 2006. Hygiene requirements based on the HACCP system are also legally binding for products from outside the EU. Farmers (“primary producers”) are not obliged to implement and certify for the HACCP system, although they are encouraged to do so. Requirements on cleanliness and admissible levels of pesticides and herbicides are strict. Although sterilisation by irradiation is efficient, there are objections to it: the product’s quality may be altered and consumer attitudes to irradiated food are negative in Europe. Especially when ground or pre-packed (mixed) spices are imported, it is expected that thorough testing for contaminants or other residues will have already been conducted in the producing country. Entering the EU market for these products is much more difficult and should be weighed heavily in your analysis. The most popular specification for spices and herbs the world over is the "ASTA Cleanliness Specifications for Spices, Seeds and Herbs" (http://www.astaspice.org/i4a/pages/index.cfm?pageid=3360) of the American Spice Trade Association. The European Spice Association (ESA), representing spice associations in EU countries, has developed a “European Spice Association Quality Minima Document” (see link above) which indicates minimum quality standards for imported spices, methods of arbitration and enforcement procedures. The ESA specifications of quality minima for spices and herbs are legal minimum standards for selling into the EU. However, it must be emphasised that quality requirements of traders in major northern European markets (Germany, The Netherlands, United Kingdom and France) are generally stricter. Actual quality standards are set primarily by importers and major end users. The main quality factors considered by traders in selecting spices and herbs are appearance, flavour, aroma, colour, volatile oil content and cleanliness. Prepare your company to be export ready • Do the Export Readiness Checker at http://www.cbi.eu/tools ( Have a first look at the online exercise to write an Export Marketing Plan (EMP Builder) at http://www.cbi.eu/tools ( ‘Export Marketing Plan’). Familiarize yourselves already with the demands and requirements of exports; CBI’s ‘Export Planner’, in particular chapter 1 and 2 (http://www.cbi.eu/marketinfo Do a financial analysis Exporting involves taking risks. The financial part is certainly one of them. Chapter 5 deals with finance in more detail. The financial analysis should also be used to make the decision whether or not to export. If your profit and loss projection of the export venture is not positive, you can still decide not to export, as the financial risks are too high. Yes or no? If your company is not able to meet the minimum demands mentioned, is not export-ready and/or is not able to adapt to them on the short run, it is not advisable to start exporting to the EU. On the other hand, if you feel comfortable with these demands, you could consider exporting to the EU. Then, continue with chapters 2-5 of these guidelines. Product selection It is advisable to focus on a specific product, or a limited number of related products within a specific range, within the product group of spices and herbs. There is no point in putting effort in the analysis of the European market for a large range of products if you are specialised in only one product. Your priority product(s) could be for example products with a high expected margin, or with the largest demand or growing markets in combination with production expertise and high quality. Of course, you also need to take the EU market itself into account. Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU Therefore, a thorough analysis of EU imports and industrial demand is required (discussed below). EU-country selection Please be aware that the EU encompasses almost an entire continent and therefore cannot be seen as simply one market. It consists of 27 individual member states with their own characteristics. In the case of spices and herbs, tastes differ vastly between countries, in which national recipes give rise to wide differentiation as regards the kind and quantity of spices consumed. Furthermore, countries can differ in trends in demand, margins, organic premiums etc. It is also important to focus your resources, because exporting to two or more countries requires more money, personnel and results in increased risks. For these reasons, it is wise to make a country selection. However, please keep in mind that even within one member state there could be significant differences. For example, Italy can be divided into two parts (an affluent North and poorer South) and Germany has several regions with large differences. The idea is to select 2 or 3 interesting countries from all the EU27 (for your products). Then start an in-depth survey of those chosen markets. The following criteria/suggestions can be used to perform the selection. EU imports At least do an analysis of: • EU imports by product (Which spices and herbs are imported most? / How does this compare with my products(s))? Please note that most spices and herbs are combined in groups of related products, not according to taste or use, but according to species characteristics; EU imports by country (which country is importing most spices and herbs and most of your particular product(s)?); Share of developing countries in these imports (the higher the share of DCs in imports, the commoner direct sourcing from developing countries is likely to be); What is the development of imports, are they growing/declining? Chapter 4 of CBI’s market survey ‘The spices and herbs market in the EU’ (http://www.cbi.eu/marketinfo - select ‘Food ingredients’ and the EU CBI market surveys on the spices and herbs market in EU countries (http://www.cbi.eu/marketinfo - select ‘Food ingredients’ and the EU country in question EU helpdesk - http://exporthelp.europa.eu/. Go to ‘trade statistics’ and use ‘search’ to find the HS code for your product. Then select a reporting country (at this stage you will most likely choose EU27) and the partner country (your country or all partners if you are interested in knowing more about the origin of your competition). In order to determine the most interesting EU countries for your product, select at least 3 consecutive years and also click on value and/or volume. The result is a list of all imports by the EU27, sorted by supplying country and by importing EU country. Use it to determine the most interesting EU countries. Also analyse the development of imports (in both quantity and value) and have a look at your competition: which other countries supply ‘your’ product and how have their supplies developed? Industrial demand As the food industry, not end-consumers, is the principal end-market for developing country producers, the demand for spices and herbs is referred to as industrial demand. At least try to answer the following questions: • How strong/weak is the demand for your spices and herbs product in each EU country (either for domestic demand or demand for re-exports)? How does this develop? Which EU countries show the biggest growth? What are the most important trends and in what way do they fit your product? Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU Chapter 1 of CBI’s market survey ‘The spices and herbs market in the EU’ and Section 1 of the CBI market surveys the spices and herbs market in EU countries; Associations and trade press in EU countries (can be found in CBI market surveys on the spices and herbs market in individual EU countries). When analyzing these criteria, please be aware that the biggest (importing) EU market does not always have to be the most interesting country for you. For example, although Hungary is by far the biggest consumer of spices and herbs in the EU in terms of value and volume, closer inspection of the data may show that consumption predominately consists of domestically produced paprika powder and that actual imports are limited. Primary research Next to Internet research, you are advised to do your primary research. This means talking to experts who are specialists in the spices and herbs (or processed food products in which spices and herbs are used such as soups, sauces, seasonings, infusions, etc.) market in the EU. They can provide you with valuable firsthand information, which you can use to make choices. Try to interview importers, industry specialists and other experts. In general, such information can best be gathered by talking to people at trade fairs, by phone or by personal visits if you are in Europe. Sources • CBI’s ‘Your guide to market research’ (chapter 2.2.3) (http://www.cbi.eu/marketinfo Associations in the EU (can be found in CBI market surveys on the market in individual EU countries). Competitor analysis Look at your competition and learn from them. What can you find out about their strengths, success factors, price level, materials, finishing level of products and/or added value? Competitors can be found in your own country, but also in other developing countries and the EU. Chapters 2, 3 and 4 of the CBI market survey contain information on other competing countries, which you can use for a competitor analysis. Chapter 4 also discusses the development of imports from developing countries per product group. Production (developments) and the most important players per country are also discussed in the Survey covering the EU market, but also in separate EU countries. Sources • Associations in the EU: look for member lists to identify EU competitors (can be found in CBI market surveys on the market in individual EU countries). The European Spice Association provides an overview of national spices and herbs associations at http://www.esa-spices.org. Likewise, the Confederation of Food and Drink Industries of the EU (CIAA), does the same for the general food industry at http://www.ciaa.be. Internet company databases such as Food World and Europages and business-to-business sources Agronetwork and Spices Trade World. CBI’s ‘Export planner’ (chapter 2.5.4 and 3.3); CBI’s ‘Your guide to market research’ (chapter 3.1.7); Visiting trade fairs (also mentioned in the CBI market survey). Common sense Next to actual market facts, your business feeling should also play a part in making choices. Sector-specific criteria Since the market for organic spices and herbs in the EU is showing higher growth than the conventional spices and herbs market, organic products offer interesting opportunities for DC exporters. Smaller quantities traded can further add to the sector’s appeal. However, please be Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU aware of the smaller market and the stricter requirements of this sector. You should take this into account in your product and country selection, when considering a focus on the organic market for spices and herbs. When you are looking into the possibilities of supplying EU countries with spice mixtures, ground spices and other preparations, please also consider the different and much higher requirements and other specific market entry difficulties, as discussed in Chapter 3 of the CBI survey covering the EU market. Priority Imports statistics are especially important in the spices and herbs sector. Since a lot of grinding, processing and blending and, as a result, also re-exporting takes place, consumption data and import data are not directly related. The opinion of industry experts is also very important; they give first-hand information, which you can use in order to make choices for your target countries and products. More information Please also read the following: • CBI’s ‘Exporting to the EU’ (Chapter 1 – the EU as an export market, chapter 2.4.1 and 2.4.2 – trends in business to business, subcontracting, chapter 2.5 – case 2 exporting magnesium from India) (http://www.cbi.eu/marketinfo CBI’s ‘Digging for gold - Internet as a source for marketing information’ (techniques to do internet research, many useful websites) (http://www.cbi.eu/marketinfo CBI’s ‘Your guide to market research’ (http://www.cbi.eu/marketinfo CBI’s ‘Export Planner’ (chapter 3.1) (http://www.cbi.eu/marketinfo ‘search CBI publications’ CBI’s export tool ‘EMP Builder’ at http://www.cbi.eu/tools ( Once you have selected a priority product and EU target market(s), it is time to focus on the appropriate distribution channel. This section helps you to assess which channel suits your company best. Your possible distribution channels in the EU are brokers/agents, importers/traders, grinders/processors/packers and, in a very limited number of cases, end-users. The decision whether or not to use an agent is a significant one. Many EU spices and herbs processors, but also in certain cases importers, make use of a broker or an agent. Especially when the exporter is not familiar with the processor, a broker or agent will be used as an intermediary. Local agents are a good starting point in gaining access to the EU market for spices and herbs, but can possibly involve some pressure on the price because of their commission. Next to agents, most trade of conventional spices and herbs takes place through traders/importers, who often perform (some initial) processing and distribute the goods to processing industries and in certain cases to end-users. Specialised importers are also the leading trade channel for organic spices and herbs. In most markets, a few specialised organic traders tend to dominate foreign imports. They often have an organic specialisation, focusing not only on spices and herbs but on a broad range of products. Moreover, several organic traders have a European-wide focus. Always carefully consider the disadvantages of working with importers and agents. Under EU legislation, agents (as opposed to importers) are very well protected. Once you are engaged Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU with them, it would be very hard to bypass them and to deal directly with the clients with whom they have established a relationship. In the past few years, direct trade between medium-sized and large producers/exporters in developing countries and grinders/processors in consuming markets has become more prevalent. Both importers and processors increasingly move away from dealing with many small growers, choosing instead to deal with whoever combines high quality, high volume, and consistent products. However, brokers and importers remain the principal channel, although the distinction between them has partly become blurred. End-users Direct sales from foreign exporters to purchasing units of retailers, the catering sector and food processors are very rare, but might be increasing due to the increasing size of their purchasing organizations, especially of retailers. Moreover, in certain countries, such as Denmark for example, retailers more often deal directly with (European) exporters of spices and herbs. More information • Chapter 3 of CBI’s market survey ‘The spices and herbs market in the EU’ (trade channels for market entry); CBI’s market survey on the market in the EU country of your choice; CBI’s ‘Export planner’ (chapter 4.6, 4.7, 5); CBI’s ‘EMP Builder’ (chapter 3 and Chapter 7.7); CBI’s ‘Your guide to market research’ (chapter 3.3.3). The next step in your export plan is to choose your marketing instruments. This section discusses industry-specific tools for the export product, costing and pricing and promotion. Export product First, you should adapt your product to the demands of the market and the EU buyer. Quality standards play an important role in this, as they will instil potential clients with trust. It could be wise, certainly for beginning exporters, to focus on one or two products and to specialize in these in order to be able to supply the client with an outstanding product. Once the client is satisfied, the product range could be expanded. A product range can consist of several product groups (range width), each with several different products (range depth). Again, one product can consist of several varieties (see example). Keep also in mind that varieties are sometimes known under different trade names overseas. Table 4.1 Example of a company's product range CBI’s ‘Export planner’ (chapter 4.2 to 4.4); CBI’s ‘EMP Builder’ (chapter 4.1, 7.4 and 7.5); Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU CBI’s ‘Your guide to market research’ (chapter 3.2). Costing and pricing Most exporters quote in euros (€) to European clients. In the industry, custom made offers are most common, as every product and application differs. A common price calculation is the ‘pricing based on real costs’, which means adding all costs for labour, raw materials and other expenses. The most common delivery conditions in the spices and herbs industry are the FOB, C&F and CIF condition. Some points of interest to consider when setting an export price are: • Aim to charge the price the market will accept. Do not go above “price points”, the price set by the market for similar products or services. You should be in line with competitor prices; The price should reflect the company’s quality levels, delivery and promotion; Keep in mind that it is not easy to increase prices once you have agreed to deliver at a certain price; Pricing is a mix of knowing your domestic costs and calculating the costs you will incur in delivering and supporting your activities in the market; The negotiated price depends on the INCOTERM, the means of payment, credit terms and currency risk, quantities and the means of transport (refer to Appendix 2 of CBI’s Export Planner); Exchange rates often fluctuate significantly. Most buyers hedge against monetary risks. CBI’s ‘Export Planner’ (chapter 4.5); CBI’s ‘Your guide to market research’ (chapter 3.1.4). Promotion The promotion tools regularly used in the spices and herbs sector are described below. Assistance with market entry can also be sought through local business support organisations, import promotion organisations such as CBI and branch organisations focusing on the spices and herbs, or food ingredients sector. Website Nowadays, going online is fundamental when trading globally. Especially when taking into account that trust and credibility are major challenges for developing country exporters, your website could negate such stigmas to some extent and promote a positive image. A website proposing well-defined products, competitive advantages (e.g. USP, quality, cost reduction and delivery reliability) and a client reference list all help to create a trustworthy environment. More information • CBI’s ‘How to promote your website in the EU’ at http://www.cbi.eu/marketinfo Trade fairs Participation in trade fairs is highly recommended as one of the most efficient methods of testing market receptivity, obtaining market information and finding prospective business partners in Europe and beyond. In Europe, some major trade fairs are held for food ingredients, food products and organic food ingredients and products. Visiting or participating in one of these fairs will in most cases not generate orders immediately, especially when participating for the first time, but it could generate a lot of new contacts which will have to be followed up for future business. The learning effect is tremendous: look how your competitors present themselves, what quality do they manufacture, what exactly do they supply, and what “extras” are they supplying? After you have participated several times, some visitors will notice your presence and will start regarding you as a reliable partner. Please note that not only actual participation in a trade fair but also visiting one of the trade fairs mentioned in Table 4.2, will help you to gain a foothold on the EU market. Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer GUIDELINES FOR EXPORTING SPICES AND HERBS TO THE EU Table 4.2 Major EU trade fairs spices and herbs CBI market surveys on the market in the EU country of your choice (section 6 contains trade fairs per country); CBI's interactive Export Manual 'Trade fair manager-Your expo coach'; CBI’s ‘Your image builder - A guide for establishing and improving commercial images’ at http://www.cbi.eu/marketinfo Trade press The trade press could be used to gain (free) publicity. A press release is the most common method to contact the press. More information • Trade journals (can be found in the CBI market survey on the market in the EU country of your choice); http://www.prweb.com/pressreleasetips.php - how to write a press release which gets noticed by the media; http://www.netpress.org/careandfeeding.html - the care and feeding of the press; http://www.internetbasedmoms.com/press-releases - writing a press release & free publicity for your website. CBI’s ‘Exporting to the EU’ (Chapter 3) at http://www.cbi.eu/marketinfo Obviously, you want to know whether export is profitable. In fact, that comes down to a simple calculation: turnover minus costs should equal profit target. Try to calculate the effect your marketing activities will have on revenues and profitability. Make up an export sales forecast, covering a period from 1 to 3 years. More information • Source: CBI Market Information Database • URL: www.cbi.eu • Contact: marketinfo@cbi.eu • www.cbi.eu/disclaimer

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