Tiny Hong Kong offers huge market for consumer products.

Hong Kong is the fourth largest market for U.S. consumer-oriented agricultural products - right behind Canada, Mexico and Japan. Several factors are responsible for this impressive position.

Hong Kong acts as a gigantic free-trade zone, where most products enter the largest container port

in the world with virtually nonexistent tariffs and under minimal government regulation. It is also a major gateway to the China market: about 35 percent of Hong Kong's trade is with China, another 30 percent with the rest of Asia. The entrepot of Hong Kong is a spectacular example of the benefits of free trade.

The Hong Kong market is also extremely dynamic. Consumers and traders are always searching for variety and novelty, and the combination of aggressive trading and more banks than any other city in Asia ensures that commerce in Hong Kong takes place around the clock, year-round.

Hong Kong has a small and shrinking agricultural base, a population of six million, and over nine million visitors each year. Only 9 percent of the territory's 1,067 square kilometers is suitable for farming. Skyrocketing rents and land values have pushed agricultural and manufacturing enterprises over the border into southern China.

In spending power, Hong Kong consumers rank sixth in the world. Annual imports total roughly $9.5 billion in food and other agricultural products, of which the United States is the second largest supplier.

With its tradition of cultivated appreciation for fine food, Hong Kong has attained a well-deserved reputation as a world-class culinary capital. In a society very keen on status, U.S. food products are perceived by the Hong Kong consumer as being top of the line and a good value for the money.

The United States has earned an excellent reputation among Hong Kong traders and consumers for providing a steady supply of high quality, healthy fresh fruits (oranges, apples and grapes are among the most popular) and vegetables (such as lettuce and broccoli). The United States has also gained a stronghold in value-added products, such as ice cream, beer, frozen vegetables and snacks.

Import Barriers Are Minor

Hong Kong is virtually an open market, except for duties imposed on tobacco, wines and spirits. Regulations governing food safety and health standards have not posed problems for most U.S. exporters.

All imported and domestic packaged foods are subject to labeling regulations, but this requirement also has not posed any particular problems for most U.S. exporters. Shipments of unprocessed meats and poultry require valid inspection certificates and prior approval is required for dairy products, but most rules are easy to comply with and transparent.

Perhaps the greatest barrier to trading in Hong Kong is the dynamic character of its marketplace, which can be unforgiving of traders who fail to capitalize quickly on market opportunities.

Best Sellers and Potential Stars

Frozen poultry topped the list of U.S. food exports to Hong Kong in 1994, at $273 million. Wings, drumsticks, paws (that's right - feet) and breasts are all very popular and are used in many of the dishes common in Chinese family dining.

U.S. oranges and apples are year-round favorites, although they may not spring to mind when we hear the term "consumer-oriented." Snack foods - including pistachios, candies, potato- and grain-based snacks - have shown strong sales, along with such favorites as grapes, lemons, prunes and raisins.

Premium ice creams such as Haagen-Dazs and Dryer's have shown great promise in the Hong Kong market. Consumers are moving steadily toward higher quality imports and away from inexpensive local brands. Processed seafood products, soft drinks, 100-percent fruit juices and snacks also have considerable potential.

Growth Prospects Promising

U.S. consumer-oriented exports to Hong Kong could soar over the next few years. Rapidly changing lifestyles and consumption patterns, along with exposure to new items, point to a very bright future for U.S. products.

Most consumers are just now discovering the convenience and value of U.S. consumer-ready products. Between 1989 and 1993, U.S. exports grew an average of 18 percent a year; but in 1994, they made a quantum leap of over 40 percent. Excellent growth opportunities are expected well into the next decade.

The exporter "wannabe" needs to do considerable homework before attempting to enter this market. The exporter must determine a plan of action and work to achieve it through concentration and persistence. A clear understanding of a product's consumers, market size, growth potential and competition is invaluable.

Some of the most successful U.S. traders recognized early on the two-tiered nature of this market - Hong Kong and China - and were willing to be on site, giving the market regular attention and consistent service. There is no substitute for visiting the market and meeting with prospective importers and retailers.

The rising number of food retail outlets offers excellent growth possibilities for U.S. grocery items. Until recently, most of Hong Kong's grocers obtained supplies from the United Kingdom, Europe and elsewhere. But grocers have been stocking U.S. items at competitive prices for a few years. The recent weakening of the U.S. dollar has heightened the competitiveness of U.S. products here: because the Hong Kong dollar is linked to the U.S. dollar, competitors' products are more expensive in this market.

The new wave of warehouse or price club retail stores offers a phenomenal outlet for U.S. consumer products. Exporters can use this avenue to reach consumers directly, without having to go through traditional retailing channels or paying large slotting fees, as they do with supermarket chains. If a picture is worth 1,000 words, a sample is worth 10,000 in this highly competitive market.

Shift in Sovereignty Unlikely To Disturb Market

When China regains sovereignty over Hong Kong in 1997, the basic market structure will remain more or less the same. Economic integration has already taken place over the past several decades; Hong Kong will retain its status as a free port or trade zone and will continue to be recognized as a separate customs territory and member of the World Trade Organization.

It will participate independently in international organizations and trade agreements. Under the Basic Law of 1990 promulgated by China, Hong Kong's free-trade status, tariff structure, and rules and regulations governing agricultural imports are to remain in place.

Policy changes in China could exert great influence on the Hong Kong market; to a certain extent they have already done so, because Hong Kong has become part of China's developing economy. Hong Kong's economy should continue to benefit from its growing integration with an increasingly prosperous China.

Because of China's relatively high tariffs and restrictive phytosanitary requirements, a high volume of indirect and often undocumented trade takes place. Hong Kong plays a critical role as a supplier and re-exporter of products to China. If tariff differences persist, this trade could expand further after the transition.

Closer political and cultural ties could also lead to improved trade opportunities, and Hong Kong trends could influence the increasingly affluent consumers of China. Many observers view the coming transition with cautious optimism. It appears that the economic benefits will outweigh the disadvantages, especially for exporters of U.S. consumer and high-value foods.

The author is the senior U.S. agricultural trade officer in Hong Kong. For more information on the Hong Kong market, contact the Agricultural Trade Office, U.S. Consulate Hong Kong, PSC 464, Box 30, FPO AP 96522-0002. Tel.: (011-852) 2841-2350; Fax: (011-852) 2845-0943.