Introducing a Business into the French Market

Introduction

This report will cipher the French market as to the strength of expanding The Margaret River Dairy Company’s operations internationally into France. The Margaret River Dairy Co. is based in Margaret River Western Australia and is recently owned by Manassen Foods Australia Pty. Ltd. Manassen Foods have broadened the market for their cheese significantly from 90% consumption in Western Australia to 63% consumption via exports, primarily to Singapore, Indonesia and India (The Margaret River Dairy Company, n.d.). Different varieties of their cheeses have won numerous gold medals at prestigious events throughout Australia (The Margaret River Dairy Company, n.d.). The Margaret River Dairy Co. could benefit from expanding further into France due to Australian - French close knit bilateral relations including the admiration for each other’s varying yet distinct cultures, parallel judgments of democracy and human rights and extensive yet undeviating commercial links (DFAT , 2007). The environments for exploration within the French market for cheese will include; political and legal, economic, socio-cultural and technological. This information will be followed by a SWOT analysis and recommendations for The Margaret River Dairy Company.

Analysis

Political and Legal Environment

Companies producing dairy products inside or outside of France to be sold within the EU market must adhere to extremely strict regulations influencing; the health of the livestock, farm conditions, quality of the milk and the general farm’s processes (DAF Directive 92/46/EEC, 1992). These strict regulations prevent contaminated dairy products from such diseases as BSE . Dairy products produced by an approved establishment must carry a visible, legible and indelible health mark on the product, packaging or accompanying documents. This health mark indicates the community origin of the product (EEC ), the country of origin (F for France) and the approval number of the processing establishment. This information, the batch registration system and the durability date ensure the traceability of products making it possible to recall batches should a problem be detected through an inspection. If a Dairy company meets these requirements they shall be awarded the prestigious ‘Appellation d'Origine Contrфlйe’ (AOC) status (DAF Directive 92/46/EEC, 1992). Furthermore, recent reports state that the French government has set aside an extra Ђ10 million to aid the French dairy sector (Mercer. C, 2006). When exporting dairy products, mainly cheese, to the EU, Australian companies must obtain a consignment certification from the Australian Quarantine and Inspection Service (AQIS). Along with AQIS are import tariffs and quotas for cheese into the EU market. The Quota is 3,250 tonnes for table cheddar cheese with an import duty of Ђ17.03/100kg (DAFFA , 1992). When applying this information purely to The Margaret River Dairy Company, a daunting picture prevails. This is due to the strict regulations followed by tariffs and quotas, logistics, transportation costs and not to mention the subsidies French dairy farmers are currently receiving in competition.

Economic Environment

The agri-food sector is the largest industrial sector in France. The French catering and food service sector is growing at a rate of 5% per year and will keep on expanding for the next five years (Austrade, 2007). Despite the resounding international success of many French companies, political leaders openly doubt their country's ability to adjust to the challenges of world competition, to grow and to prosper. In 1974 the unemployment rate in France was 2.8% whereas currently it has more than tripled to 9.6% (Kravis, M.J. 2006).

Taxes within France are currently formulating by the dozen. However, the main concern on any business’ behalf is the potential increase in VAT . The current VAT rate in France is already 19.6%, however, with the increase it is soon to be a staggering 24.6% (Gauthier-Villars, D. 2007). This tax will not only increase the price which the consumer pays for the goods, but lower the price that the producer receives for those goods. Basically, the producer will either receive less profit if they charge the same price or will have to increase their selling price further. The potential risk to The Margaret River Dairy Co. is the selling price for their cheese is already relatively high. When you take into account the import quotas, tariffs and now the VAT, their product may not be financially viable or too expensive for a foreign, well established market. Another constraint is the current exchange rate from the Australian Dollar to the Euro. Currently, the Australian dollar is worth approximately 58 euro cents