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Food Safety Modernization Act : The Breakdown (Part 1 – The Facts) 3/24/2011

food safety modernization actAs the Food Safety Modernization Act starts working its way through the implementation process, I thought it would be most helpful to post a breakdown of the act and what it means to importers and manufacturers of consumable products. As you will see, the Act is very new, but will definitely have a large impact on the regulations of the food industry and hence, the level of  security in our food safety system. Read on for more details.

Note: There are two more parts in this series to come!

S. 510 FDA – Food Safety Modernization Act (FSMA)

Background

  • U.S. consumers enjoy imported foods from more than 150 countries.
  • Previous food safety laws did not provide the FDA with necessary funding/staffing to properly regulate and inspect America’s food supply.
    -Less than two percent of all imported food was inspected in 2010. The latest food safety scare in China involves tainted pork, read the article here.
    -Approximately 600 foreign food facilities were inspected in 2010.
  • The U.S. Centers for Disease Control and Prevention estimate that there are approximately 76 million foodborne illnesses each year in the U.S.
    -Those illnesses cause more than 300,000 hospitalizations and 5,000 deaths annually.
    -Those illnesses also cost the country $152 billion annually.

The Approval of the New FSMA Law: December 2010

  • The 2010 Food Safety Modernization Act passed the Senate and the House last winter and was signed into law by President Obama on December 22, 2010.
  • The new law is considered the biggest change in food safety oversight in 70 years.
  • The two main outcomes of the law are as follows:
    1. The FDA will be allowed to force companies to issue recalls when they suspect food may be contaminated. (Activated Now)
    2. The law greatly increases the FDA’s ability to perform inspections on both foreign and domestic manufacturing facilities.

Food Safety Modernization Act Overview

What are the 5 major elements of the law?

  1. Preventive controls- For the first time, the FDA has a legislative mandate to require comprehensive, prevention-based controls across the food supply.
  2. Inspection and Compliance- The law specifies how often FDA should inspect food producers.  FDA is committed to applying its inspection resources in a risk-based manner and adopting innovative inspection approaches.
  3. Imported Food Safety- For the first time, importers must verify that their foreign suppliers have adequate preventive controls in place to ensure safety, and FDA will be able to accredit qualified third party auditors to certify that foreign food facilities are complying with U.S. food safety standards.
  4. Response- For the first time, the FDA will have mandatory recall authority for all food products.  FDA expects that it will only need to invoke this authority infrequently since the food industry largely honors the requests for voluntary recalls.
  5. Enhanced Partnerships- The legislation recognizes the importance of strengthening existing collaboration among all food safety agencies—U.S. federal, state, local, territorial, tribal and foreign–to achieve our public health goals.

FSMA By the Numbers

Cost: $1.4 Billion – over next 4 years

Necessary Staffing: Over the next 4 years, the FDA will be hiring 2,000 new inspectors.

Inspection Schedule: The bill requires the inspection of 50,000 foreign and domestic food production facilities by 2015.

  • Inspections are to be completed by either the FDA or state, federal or local agencies acting on the FDA’s behalf.
  • Projected Foreign Facility Inspection Breakdown by Year:
    2011
    : 600 inspections
    2012
    : 1200 inspections
    2013
    : 2400 inspections
    2014
    : 4800 inspections
    2015
    : 9600 inspections

For your reference, you can read the full text of the act here.

Read part two of the series: Food Safety Modernization Act: The Breakdown (Part 2 – The Impact)

and part 3 of the series: Food Safety Modernization Act: The Breakdown (Part 3 – The Next Steps)

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New China Rep Office Regulations for 2011 1/12/2011

Attention companies and business owners with Rep Offices in China (and those thinking about setting one up)…China’s State Council recently announced the new regulations for their representative office structure. The regulations were put in place to “strengthen” the structure of foreign owned ROs. However, the regulations are tightening down on activities that ROs are allowed do and enforcing more strict penalties. But don’t worry, Rep Offices aren’t for everyone and a lot of companies benefit from converting to a WFOE or FICE  because of the greater flexibility that they offer.

Below is a breakdown of the new regulations for ROs:

Main Points:

  • Representative Offices (ROs) will now need to provide audited accounting information twice a year.
  • ROs cannot conduct profit activities. Enforcements of this rule will increase with the penalties clearly defined. Possible penalties include fines up to five times the amount owed and possible jail time for amounts above 10,000 RMB.
  • The tax structuring has changed:
    – ROs are now liable for deemed profit rates of a variable 15 to 30%  (up from a fixed 10%)
    – ROs cannot apply for tax exemption (could do this occasionally in the past)

Who this affects:

  • ROs currently established in China
  • Future ROs to be established

When it comes into effect:

  • March 1, 2011

Bottom Line- A Rep Office is not for you if your business needs to be able to:

  • Directly buy and sell
  • Have your own import/export license and
  • Legitimately trade in China

If you fall into the above scenario, you will need to convert to a Wholly Foreign Owned Enterprise (WFOE) or Foreign Invested Commercial Enterprise (FICE), depending on what type of business your are running. A great description of what it takes to set up a WFOE and FICE can be found here at our partner site, Understand-China.com.

Converting to a FICE or WFOE will require you to close the RO (if you already have one established) but portions of the closing process can be combined with opening the new structure when properly planned out.

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Nice China Business Resource 11/25/2010

China Export ShipThe other day I came across this nice little checklist to help businesses considering whether or not they are ready to enter the China market. It is provided by the U.S. government and focuses on exporting to China, but has a lot of good tips and advice for doing business with China in general, whether it be sourcing, investing or exporting. The checklist has a lot of questions to ask yourself and includes a lot of things that you may have not even considered: from things like product and intellectual patents and trademarks to things as simple as getting your money to go to the right place. The article also includes a lot of  additional resources that are very helpful when doing your research.

In addition to the checklist, the rest of the site has a lot more great information that will help you learn more out the China marketplace.

Source: Are you China Ready?

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2011 Spring Canton Fair Dates & Information 11/24/2010

The 2011 Spring Canton Fair will be here before we know it and if you are planning to attend Asia’s largest import and export fair you will need to do some planning. If you have never been before, here are the basics for getting into the fair:

First, you need to get “invited” to attend, so you apply for the invitation through their portal here. After reviewing your application, which takes about one week typically, you will receive your invitation and confirmation number. Make sure to print this out and bring with you to the fair on your first day. Once at the fairgrounds, you will need to allow about 30-40 minutes for the registration process, in which you are administered your pass (you will need a passport photo or you can take one there for a few dollars). Once you have your pass, you can use this for as many years as you want (as long as the photo is still valid). Oh, and admission is free! Now you are good to spend time wandering through the 50,000 plus exhibits over the 15 day span of the fair.

2011 Canton Fair Essential Information:

When is the 2011 Spring Canton Fair?
Phase 1: April 15-19, 2011 | 9:30-18:00
Phase 2: April 23-27, 2011 | 9:30-18:00
Phase 3: May 1-5, 2011 | 9:30-18:00

Where is the Canton Fair held?
China Import and Export Fair Complex
No. 380, Yuejiang Zhong Road, Guangzhou, China

Which phase are you going to check out?

Phase 1: April 15-19, 2011 | 9:30-18:00
* Electronics & Household Electrical Appliances
* Lighting Equipment
* Vehicles & Spare Parts
* Machinery
* Hardware & Tools
* Building Materials
* Chemical Products
* International Pavilion

Phase 2: April 23-27, 2011 | 9:30-18:00
* Consumer Goods
* Gifts
* Home Decorations

Phase 3: May 1-5, 2011 | 9:30-18:00
* Textiles & Garments
* Shoes
* Office Supplies, Cases & Bags, and Recreation Products
* Medicines, Medical Devices and Health Products
* Food & Native Produce
* International Pavilion

Fun Fact: 2010’s Spring Session brought in over $34 Billion (yes, with a B) in business turnover.

A more detailed breakdown of the types of products in each phase can be found at The Canton Fair’s website.

Also a nice promotional video is posted on their site if you want to get excited about going: Video

2011 Canton Fair

A brief overview from the 2010 Fall Canton Fair:

Date: Phase 1: October 15-19, 2010
Phase 2: October 23-27, 2010
Phase 3: October 31- November 4, 2010
Venue: China Import and Export Fair Complex
Sections: Electronics & Household Electrical Appliances/Lighting Equipment/Vehicles & Spare Parts/Machinery/Hardware & Tools/Building Materials/Chemical Products/International Pavilion
Consumer Goods/Gifts/Home Decorations
Textiles & Garments/Shoes/Office Supplies, Cases & Bags, and Recreation Products/Medicines, Medical Devices and Health Products/Food & Native Produce
Exhibition Space: 1,130,000 M2 (More than 200 football fields combined!)
Number of Booths: 57,136 standard booths
Business Turnover: coming soon
Number of Overseas Buyers: 200,612
Number of Exhibitors: 23,599 exhibitors

Source: http://www.cantonfair.org.cn/en/index.asp

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How to Source Products from China. Part 1. 11/11/2010

Sourcing from Chinese manufacturers can be a daunting task.  Many companies, both big and small, don’t know how they should go about sourcing products from China.  To help you get started, I’ve compiled a list of tips, cautions, resources and recommendations below.

Starting the China Sourcing Process

The first thing you need to do is figure out which products you want to source and make sure that it makes financial and logistical sense.    Long are the days when you could source just about anything in China and save a significant amount of money.   Rising logistics costs and the valuation of the Chinese RMB have all had an impact on the China Sourcing projects, and you have to make sure that your products are appropriate for sending to overseas manufacturers.  If your products are large in volume for example, you may end up spending every dollar you save on increased logistics costs.  Another thing to take into consideration is lead times.  The average number of days it takes for goods to get from a manufacturer in China to a Customer here in the United States is 28 days, so you have to ask yourself…”will my customers be able to accept this increase in lead times?”

One great way to determine if it makes sense to source from China is to check out what other companies in your industry are doing.  If no one is sourcing in China, there might be a good reason why.  On the other hand, maybe you can be the first one there!

Finding China Suppliers

After you have determined that your products may be a good fit for China sourcing, the next step is to find suppliers.   There are many ways to find suppliers.  Online search engines like Panjiva.com, Alibaba.com, Made-In-China.com, and GlobalSources.com all offer access to hundreds of thousands of Chinese suppliers.  Another way to search for suppliers is by attending trade shows in China that are specific to your industry – this option will give you a much better feel for the types of products in your particular industry that Chinese manufacturers are able to provide, but does require getting on a long haul flight to China and you will need a China Business Visa.  While there are a handful of China Sourcing Trade Shows in the United States every year, you will find trade shows in China to be much larger and will have a significantly larger pool of suppliers to meet with.

Another option is to find and contact a company that specializes in sourcing products from China.  These companies come in all shapes and sizes ans typically follow one of two business models.  Some will identify a Chinese manufacturer, buy the parts and resell them to you (at a profit of course).  This “middle-man” business model has been the most common, but as China sourcing costs have crept higher in recent years, many  companies have been looking to eliminate the middle men and go directly to the suppliers themselves.  Our company charges a fee to establish a source of supply and you can be sure that you are getting the “true” price.  Firms like ours are fewer and far between compared to the companies that use the “broker” approach, but is a preferred option for some.

CAUTION: Make sure you conduct supplier due diligence.

No matter which method you use to identify your suppliers, be sure to do your homework.  Conducting due diligence on your potential manufacturers in China can save you a lot of money.  I have heard countless horror stories about companies sending payment in advance and never receiving goods, receiving 100% defective parts, etc.  Just as with every other part of your business, you are only as strong as your weakest link.  So be sure to research the suppliers with all the resources available to you.  I recommend always asking for references.  Ask the Chinese supplier for references based in your area or your industry.  Use tools like Panjiva.com to validate the customer base that the suppliers claims to have.  And, if this supplier is critical to your business, its probably worth going to China to meet with management, tour the factory and continue to validate the suppliers claims.  If traveling to China doesn’t seem like your cup of tea or if you are inexperienced conducting factory audits, it might be a good idea to solicit the help of a 3rd party audit firm.  There are many of these firms in China, and you can even find firms with offices in the United States.  Our company recently launched a website – FactoryAudits.com –  while we are certainly not the only provider of such services, taking a look at our site will give you a good idea of pricing for audit services.

Ill continue this post over the next few weeks.  Appreciate all your feedback and comments!

Other posts that might interest you:

6 steps to a successful strategic sourcing program

China Manufacturers:  Factory Inspections

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China Manufacturers: Factory Inspections 11/5/2010

Many people and companies choose to source products from Chinese manufacturers that they meet online, and at trade shows.  While sites like Alibaba.com offer quick introductions to thousands of Chinese suppliers, you must make sure that you are aligning yourself with the right Chinese Suppliers that will be able to support your business and meet your customer’s expectations.  Sites like Panjiva.com can be very helpful in conducting preliminary supplier due diligence, but nothing will compare to actually physically visiting and auditing your potential suppliers.  Understanding the inner workings of their operations as well as their strengths and weaknesses will give you the peace of mind you need to move forward with the relationship.

Whether you choose to audit your suppliers or have a 3rd party China auditing company do it on your behalf, the important thing is that its gets done.  Talk to anyone who has been sourcing from China for any length of time and they can tell you a good story about how they have had bad experiences with certain vendors.
To help you get started, I have posted a picture of an example factory audit.  I pulled this one from factoryaudits.com – you can check out their website for more info on how they help companies with China audit requirements.

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Cotton Price Hike affects Textile Industry 11/3/2010

Cotton futures on the New York Stock Exchange have reached an all-time high; the highest that the NYSE has seen since the start of cotton trading 140 years ago. China, the world’s largest buyer of cotton is experiencing this shortage firsthand. Chinese manufacturers, who use 40% of the world’s cotton, have said to be considered endangered, according to a report published in yesterday’s Bloomberg BusinessWeek.

Why the price increase?

China’s vast size and agricultural strength still cannot keep up with their demands, and hasn’t been able to for some 12 years now. Hence, China has been importing from other countries, further decreasing the global stockpile, driving prices up. Weather also plays a factor, as a cold spell has slowed harvesting and stunted production in China this October. The global supply is forecast to be at a 14 year low. Asia’s stockpile is at a 16 year low.

Interesting Fact! The U.S. has sold almost 26 times more cotton to China compared to last year, thus far.

Full Article
Picture Source 1
Picture Source 2

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Harman expands China Operations by $100 Million 10/27/2010

Harman Expands in ChinaThe global audio and entertainment product manufacturer based in Stamford, Connecticut announced their plans to expand their China manufacturing and research capabilities by $100 Million USD this Monday. The new operation is set to be built in Dandong in the Liaoning Province in Northern China. They currently have operations in Shanghai, Suzhou and Shenzhen. Harman will be able to take advantage of some of the investment incentives provided to foreign investors by the city of Dandong.

Harman provides automotive electronics and audio systems for global automotive brands such as Audi, BMW, Chrysler, FIAT, Ferrari, General Motors and many more. Harman’s plan to expand in China seems like a logical step; last year China surpassed the U.S. as the leading automotive market in the world. Harman already has over 120 employees in China and has set a $1 Billion China sales objective to work towards.

Harman has seen reason to continue China expansion after the success of their participation as a sponsor and supplier to the Shanghai World Expo this year and record results at the 2008 Beijing Olympics as well.

Bloomberg Newsweek’s full article
Harman’s website & Picture Source

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China Energy: Goals for 2010 10/8/2010

"China Energy" Goals for 2010According to the China Daily Newspaper, China has made great strides to meet the energy consumption goals the Central Government has set for 2010. The mission is to cut energy use per unit of GDP by 20 percent by the end of 2010. The Minister of Industry and Information Technology of China, Li Yizhong said on Friday that they are on track to hit the mark in efforts to become a more green country.

This goal could affect where your company chooses to invest or start a business. Provinces heavy in highly consumptive and pollutant industries like steel, iron and cement production are being affected more than other regions. Areas with more of a balanced landscape of industries are having an easier time reducing overall energy consumption.

Some of the struggling provinces have received orders to shut down certain factories after the government ordered for more than 2,000 closures of inefficient, highly polluting factories nationwide in August.  According to Bloomberg, some specifically challenged cities have faced blackouts affecting businesses, homes, traffic signals and hospitals as the local governments strain to meet the proposed energy goals. The Central Government has been halting these outages as quickly as possible to encourage regions to meet the goal the right way.

China has also reduced its energy consumption and helped improve environmental conditions through the closure of some small thermal power plants and other energy-hogging projects and by slowing the growth of additional highly consumptive and pollutant projects.

Resources:

Guardian: China Electricity Blackouts

China Daily: China Energy Consumption Down

Bloomberg: Energy Intensity Targets

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China's Canton Fair – October 2010 10/7/2010

Personally I’ve never been to the Canton Fair.  I’ve heard its quite an event and i have always wanted to attend.

Therefore, I’m excited that later this month I am going to attend the 108th Canton Fair  a.k.a. “China Import and Export Fair” in Guangzhou.    I’ll be there during Phase 2 for the Consumer Goods, Gifts, and Home Decorations show.

The Canton Fair takes place twice annually; once in the fall and once in the spring.  The first fair was held in April of 1957 and it has become a major international event over the last 50 years.  With 11 million square feet and more than 55,000 booths, it is China’s largest trade fair.  I’ve heard it’s quite impressive, attracting more than 200,000 overseas buyers every year.  I’ll be sure to provide a trade show review after attending…..stay tuned!

If you are headed to the fair, I thought it might be helpful to list out a few resources that might help with travel to Guangzhou, etc.:

Hope to see you there!

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