Optimistic Farmers Look Past Index Prices

September 3, 2015 by Tera Novy Leave a Comment

When Farm Prices are low, farmers aren’t necessarily pessimistic. Farm Futures’ first survey of 2016 demonstrates that farmers are eager to plant more crops on their acreage no matter the circumstances.

At the beginning of this month, the Department of Agriculture released an index of prices received from farmers for their current month. This index measures crop prices, livestock, and product prices. The outcome is farm prices – m/m % change is down -1.9% with an overall -5.7% and farm prices – y/y% change is down -7.1 with and overall -10.0%. The drops in numbers are mostly because of poor weather conditions earlier in the year.

Though the chart tells the public one thing, farmers express another.

Like the economy, there are many factors to farming that can affect its status. According to the article Farm Futures’ 2016, planting intentions survey shows low prices won’t deter grower’s conditions. Bad weather that occurred last fall interrupted crops like the red wheat in the Midwest. Wheat grounds in other areas could shrink, with farms predicting only to plant 40.4 million acres in the fall, which are about 220,000 lower than last year.

“While profit margins remain in the red, farmers are reluctant to cut acreage, knowing that volatile crop prices can turn around quickly if weather problems emerge,” said Farm Futures market analyst Bryce Knorr, who conducted the survey.

Even though the percentages of farm prices are low, the survey mentioned earlier, Farm Futures’ first survey of 2016, gives a different attitude for agriculture.

After farmers took this survey, it showed that they plan on planting 89.65 million acres of corn which raises the number 1% from 2015. Soybeans could have a jump in growth as well. The report indicates that Farmers would like to plant 86.32 million acres of soybeans, which raises it 2.4% more than was previously estimated.

The fact that farmers are finding other ways to be productive, even though farm prices are low, gives the future hope. Even when the market is not doing the greatest, it does not necessarily mean it will stay that way. Food is a basic necessity that humans need; therefore food products are extremely important. Farmers and economists know this and that is what makes The Farm Prices graph so interesting. Obviously, farming will continue and more products will be created no matter what the economy looks like. Farmers’ eagerness to expand their product and invest more in other produce is a sign of adapting to the economy and its demand.

Gators & GDP

September 3, 2015 by Alexa Ritacco Leave a Comment

Alligator

After reading dozens of lists of strange economic indicators, ranging from things like unclaimed corpses to baby diaper rashes, I settled on researching more about the Alligator Population Index. Believe it or not, generally when there are more alligators in the world, the economy usually is not doing so well.

The reason? Well think about it. Alligator skin is typically used to make high priced luxury goods like handbags, shoes, belts and more. Basically anything that comes in leather comes in alligator skin, except it is usually around triple the price. These items are sold in stores like Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue, and Bloomingdales. They’re produced by brands like Gucci, Hermes, Manolo Blahnik and Jimmy Choo.

And who buys these goods? Generally it is the people who have the most money to spend. The trend starts from there. If the rich are not dropping $25,000 on an alligator skin handbag, then Gucci is not buying alligator skin from the tanneries, and then the tanneries are not buying the alligators from the farmers.

So the rich are watching their funds by not buying luxury goods. Then Gucci cuts back by not buying the skins at all. Then the tanneries have no reason to buy from the farmers. And the farmers lose A LOT of money.

A New York Times article from 2009 tells the story of Tommy Fletcher, a Floridian man who was forced to shut down his alligator farming business after 5 years. In 2008, Louisiana farmers gathered over 500,000 alligator eggs fro the wild. But in 2009, for the first time in a very long time, most farmers collected none.

The article names the economy as the “lead culprit.” It discusses how “even wealthy customers began balking at the price of alligator skin products, which can range from the expensive to the wildly expensive.” Once considered a bumper crop, there was now a large surplus in the alligator skin market. Alligator farming is a business that cannot sustain itself on even a shaky economy. It is an expensive business from top to bottom. It’s expensive to buy the eggs, raise the gators, buy the skin, produce the product, and then buying the finished product.

Since that large 2009 dip in alligator products, it has since shown signs of bouncing back, with the reopening of a few farms, and the re-production of products by the high-end brands.

What chart should I keep my eyes on?

September 3, 2015 by Tujia Pallaste Leave a Comment

Business Insider publishes every year the list of The Most Important Charts in the World .

To put up the list, they ask some of the world’s most influential analysts, economists, hedge-funders and traders one question: What charts are you always keeping your eyes on?

Almost all the answerers – 50 experts in economy – give a different answer. And that does not make an ordinary reader like me wiser.

I believe the 50 professionals – among them Nobelist Paul Krugman and Bloomberg’s chief economist Michael McDonough – follow more or less the same economic indexes, but what is the most important for each, depends on the job they do and the decisions they have to make.

So there is no such thing as the most important chart in the world.

I have not really been keeping my eyes on any economics chart, but now I am about to sell a hut. It is a tiny seafront cottage in my hometown Helsinki. It is surrounded by 100 other tiny cottages in the area that used to be a recreational place for city’s policemen and public transit workers.

At the turn of the millennium the city of Helsinki, who owns the land, decided that it was time for all the residents of the city to enjoy this place. Anyone living in Helsinki was allowed to buy a cottage from the area – if somebody was willing to sell.

I was one of the first “outsiders” to buy one. I bought it from an old constable’s widow for €6,000. I was lucky. The area is charming and prices of the huts soon started to go up.

Last year one of my neighbors sold her hut for €50,000. Another sold his for €38,000.

I did not consider selling mine until this August. My study year in California turned out to be more expensive than I expected (this is why).

The question is now: should I sell it or wait until later? What chart should I keep my eyes on?

I looked again at the Business Insiders most recent list of ”the most important charts in the world” (February 2015).

None of those indexes seemed to relate to my situation – except for Eurozone charts that showed that the economic situation in Europe is nothing but deteriorating.

As I need the money, I decided to follow my instinct with help of one chart.

Consumer Confidence Index (CCI) is measured world wide and ”based on households’ plans for major purchases and their economic situation, both currently and their expectations for the immediate future”, as OECD explains it.

In the U.S. the consumer confidence went down the first half of the year 2015 but increased during the summer months.

In the Euro area the confidence was increasing the first four months of the year but has since decreased. Finland’s figures are in line with the European ones.

Every month national center of statistics interviews 1200 Finnish consumers and compares their opinions to a ”normal” state. Long-term median value of the CCI in Finland is 11,8.

In June 2015 it was 10,8. In July it was 6,9.

With this in mind I figured that I should sell my cottage for any price as fast as I can, before consumer confidence is in zero.

However, when comparing to last year’s index, the CCI shows that confidence is in fact increasing. In August 2014 it was only 2,2.

When taking closer look I realized that opinions varied a lot. According to the most recent CCI 30 percent of the Finns believe that the economic situation of Finland will get better in year’s time. 27 percent believe that it will deteriorate.

What can I learn from this?

I do not think consumers are well-informed with the economics. In my opinion media fails to tell about money and markets comprehensively, and even the best economists fail to predict the future.

However, economy are not just facts. It much about trust and feelings.

When one consumer reads that – according to the CCI – other consumers are gaining confidence in the economics, he might think that: yes, it is time to buy the hut of his dreams.

And I am the one to sell him that.

There still might be people who have courage to buy a trendy cottage for a good price.

The Garbage Index: What A Load Of Rubbish Can Tell Us About The Economy

September 1, 2015 by Anne Branigin Leave a Comment

Our trash can tell us a lot about ourselves: What magazines we read, how much we love Trader Joe’s frozen pizza, or whether we’ve finally decided to get rid of your parents’ couch from the ‘70s. But, as it turns out, the sum total of our trash, and our neighbors trash, can also tell us a lot about the health of a country’s economy.

This is called the Garbage Index, which looks at the total amount of waste a country produces to measure the health and growth of its GDP.

[Read more…]

The Dying Chinatown

December 16, 2014 by Jingyi Wang Leave a Comment

At 6 p.m. on a Wednesday, things were desolate outside New Great Wall Books and Culture on North Broadway in Chinatown. In the past half an hour, one customer stopped into the bookstore, buying a 75-cent newspaper.

“It maybe the worst Chinatown in America. I think it’s already in the worst situation. Cannot be worse,” said Yupeng Yu, store manager.

Businesses are struggling, and residents are leaving. The now 75-year old Chinatown in downtown Los Angeles seems to be losing visitors as well as its Chinese taste. The question is why.

“Many stores close just after 6. We are waiting to die,” said the owner of NOM-HOA Fish Market, who refused to reveal his name.

Some local workers blame the downturn on a lack of parking, others focus on the competitive edge of Chinese restaurants and shops in the San Gabriel Valley.

“Young people are leaving,” a clerk in NOM-HOA Fish Market said, “Old people cannot drive. They are left here.” He has worked there over 10 years and witnessed the demographic changes in Chinatown.

According to an urban planning report released in 2013 by University of California, Los Angeles, in the 2010 Census, almost a quarter of Chinatown’s population is above the age of 65, significantly higher than the ratio of Los Angeles County’s (11 percent).

Inside NAM-HOA Fish Market is a huge poster that states, “ NAM-HOA Fish Market Inc. moving soon to 711 ¼ New High Street, LA, CA 90012.”

“We have rented the place over 30 years. The landlord suddenly wants to raise the rent. I don’t understand. We cannot afford it anymore. We have to move,” the clerk said.

The same thing happened to residents, too. On one hand, more and more Chinese new immigrants flood into Los Angeles. Chinatown with limited space cannot harbor them anymore, so they have to find other places to live. On the other hand, high rent and crowed apartments in Chinatown force original residents to find other affordable housing.

As early as 1970s, Chinese have begun to move eastward to the West San Gabriel Valley. According to Association of American Geographers, Chinese, Taiwanese, and Chinese-Vietnamese in Monterey Park, Arcadia, Alhambra and Rosemead have comprised 46 percent of the four cities’ total population.

“I live in Monterey Park. It’s cheaper to live there. And my children can have education from kindergarten to high school without moving,” Liya, who owns a fashion shop in Chinatown, said. In her neighborhood, 8 out of 10 households are Chinese.

Moving along with Chinese people are the businesses and services. Chinese restaurants, supermarkets, bakeries and KTVs are gathering in West San Gabriel valley, forming a “new Chinatown”.

“Even many Chinese people here hang out in San Gabriel Valley at night,” Yu said, “So the stores in Chinatown cannot get so many people.”

Compared to the “new Chinatown” in West San Gabriel Valley, the restaurants and services in Chinatown have limited choices but higher prices. Many Chinese are reluctant to make purchases here.

Liya says her customers are mainly Philippines, African-Americans and whites, but she barely has Chinese customers.

“My business is fair. But the shops near me are closing one by one.” Liya said.

There used to be a shoe store facing Liya’s fashion shop, but now the door is tightly closed. A glimpse through the dusty windows reveal an abandoned mess of shoes and shoe racks.

Last June, Empress Pavilion, a restaurant popular for dim sum, was evicted from Bamboo Plaza after running for 24 years. The eviction came after a combination of low sales and unaffordable rent.

Empress Pavilion’s leaving caused a chain of shutdowns in Bamboo Plaza. Now there are only two shops still open on the first two floors.

Los Angeles Chinatown Business Council refused to talk about the current situation in Chinatown and its future development plan.

Chester Chong, president of Chinese Chamber of Commerce of Los Angeles, thinks to improve the current situation, businesses in Chinatown should be more open-minded to welcome mainstream companies like Wal-Mart, which can bring in more visitors to Chinatown.

Chong is also working actively with city council members and Chinatown community leaders to develop more parking lots. “When you have convenient parking, people will come in,” he said.

Although facing fierce competition with businesses in other Chinese community, Chinatown, Chong said, is the only place that promotes real Chinese culture.

Overseas Purchasing Agency, A Trend of Student Buyers

December 15, 2014 by Meng Lu Leave a Comment

On November 30, 2014, Yang Gu, a Chinese student in California State University, Northridge, received a phone call from her cousin in China asking Gu to buy coach bags from the coach outlet store for her. When Gu headed to the retail store of Coach Factory in Citadel Outlet, Los Angeles, she found that the store was flooded with Chinese customers. Among them, except visitors coming to the U.S. for shopping, many are purchasers buying for others like Gu.

According to 2013 China eCommerce Market Analysis Report published by China Research Center, 40 percent shoppers purchasing overseas via purchasing agent is motived by cheaper than local pricing of luxury brands.

Coach outlet online store, coach factory.com, opens to the public for several days per month with much lower price than regular market price. Realized that the price of luxury goods is much cheaper abroad, sites like Coachfactory.com has been a popular online store for Chinese customers including Gu’s cuisine, Ming Zhu. This year the website closed Zhu’s account, because of her over purchasing history, according to Coach’s customer service.

To sustain ability to control the distribution and pricing of products, brands tend to manage the amount of products to be sold online. This year, some Chinese buyers with China’s IP or Chinese credit card payment methods were also blocked in the online store. To solve the problem, in Zhu’s case, a relative studying in the U.S. enables her to buy bags without extra expense, while more often, customers like Zhu seek for overseas purchasing agents as alternative with extra service fee. Gradualy, a hidden market of purchasing agents (called “Daigou” in Chinese pinyin) is emerging.

Purchasing agents shop for “commissions.” Most of time, this “commission” means price difference between original price and offering price. In a overseas purchasing site under Tmall (Alibaba), an Armani shoulder bag with original price at 250 Euro is charged for 3,300 RMB. With exchange rate of 1:9.3, each bag comes with 973RMB profit.

The scale overseas purchasing agency market is getting biger year to year, according to the 2013 Chinese E-Commerce Market Monitoring Report. In 2013 total transaction via overseas purchasing agent market is $12.30 billion, a 59 percent up from 2012. Analysts estimated that the scale would be doubled in 2014 to $24.84 billion. Popular goods are clothing, bags, cosmetics and beauty products, milk powder, and electronics.

Based on scale and motivation, purchasing agents can be divided into amateurs, specialists and masters. Masters and Specialists are the main focus of online discussion, for the mature purchasing model and a wider variety of brands and products. The common feature of masters and specialists is the fact that they purchase for profits. On the contrary, Amateurs are usually individuals who purchase more occasionally for friends out of goodwill. Students like Yang Gu are usually amateur purchasing agents, though, but these years saw a trend for students to be specialist or master buyers.

Screen Shot 2014-12-15 at 10.27.49 AM

Yolanda Zhong, studying public relations in the University of Southern California, earns $3,000 to $7,000 per month as an overseas purchasing agent.

She earns 8 to 15 percent of the original price, depending on the products. Usually, Zhong lists available products on Weibo, and waits for orders from Chinese customers.

Since calculating shipping fee is tricky, her offering price is often shipping fee included. In her words, “both size and weight count for shipping cost, thus it might be different to ship the same product if you use different boxes.” Therefore she has calculated an average shipping cost and adds it to the price.

Zhong’s parents don’t have a problem with her purchasing agency business. “As long as it doesn’t impact my study, they are very supportive.” Zhong said. “Indeed, it feels good to apply public relations knowledge to the real world.” Zhong said. “I constantly need to communicate with customer service of stores like Bloomingdales, Neiman Marcus, Nordstrom, Fifth Saks, and retailers like Juicy, Coach, Michael Kors. I learned how to ship, return, and negotiate with customer service.” She explained.

If packages are inspected through customs, “customers themselves need to take care of the tariffs.” Zhong said. For buyers like Zhong who only randomly accept order in spare time, customs inspection or package lost bring heavy losses, so tariffs and insurance are mostly at buyer’s expense.

Unlike part-time student buyers, Shanshan Hou has been a full-time purchasing agent after graduated from Cal State Northridge. To Hou, a tariff to be charged on one out of 20 packages is not a big deal to a big purchaser like her. Unlike Zhong, Hou has her own B2B sites on Taobao and Tmall (Alibaba), and has hired her own specialist buyers from all over the world to enlarge her overseas purchasing business. Right now, she receives more than 10 orders from taobao per day, and doesn’t charge for tariffs if inspected through customs. To her, enlarging customer base is more important, “ it is still profitable, as long as I have enough orders,” Hou said.

Mother Tongue, The Upper Hand for Some Los Angeles Startups

December 13, 2014 by Jingyi Wang Leave a Comment

Online food ordering and delivery service is a highly competitive industry in Los Angeles. Some startups, however, smartly take advantage of their upper hand and successfully get into the market left untouched by many bigger players like GrubHub and Eat24.

Kirin Kang emigrated from China to U.S. six years ago. Until 2013, He worked as a sales man in a trading company. In his one-hour lunch break, Kang usually spent 40 minutes on ordering and waiting for his lunch, and then the rest 20 minutes on quickly swallowing the food. Kang later found his friends, colleagues, and other working class people have the same issue.

“How I wished to have a 10-minute break after my lunch,” Kang said, “ So I though if I can order food online and someone can delivery it for me, then my life would be much easier.”

In 2014, he decided to be person who provides the convenience. Since arrival, Kang has been living in the San Gabriel Valley, where the telephone area code is 626, so he named his company as ToGo626.

“I live in the 626 area and it’s also my major market now” said Kang, “I want to do something good: bringing Chinese food beyond this area.”

ToGo626 has partnered with over 90 businesses within 2 months. Most of them are Chinese restaurants.

“Speaking Mandarin helps me a lot in this process,” Kang said. “I communicate with the businesses owners in Mandarin and translate their menus from Chinese to English.”

As most of his customers are Chinese people, Kang had both Chinese and English version of ToGo626.com.

ToGo626: English Version

ToGo626 Chinese Version

In April 2014, the biggest online food ordering and delivery site, GrubHub, initiated public offering at the price of $26 per share. It raised $200 millions in total. As the CNN Money reporting says, the company estimated to worth $2.7 billion at the current price. On the website, there are 3564 restaurants in Los Angeles partner with GrubHub.

Valley Boulevard in San Gabriel Valley harbors many popular Chinese restaurants like Boiling Point, Shanghai No.1 Seafood and Szechuan Impression. But these restaurants on can barely be found on GrubHub.

Eat24, as another big player in this industry, provides a few more Chinese food options, but still, many popular Chinese restaurants are off its list.

“Language barrier might be the reason why they haven’t opened the Chinese restaurant market for so long,” Kang analyzed.

Another startup called RushOrder shares the same notion. Like ToGo626, RushOrder focus on the Koreatown area.

“A lot of our team members, including myself, were raised in Koreatown. I still live there,” said Henry Choi, leading the sales and marketing department of RushOrder. “So we have this advantage than the bigger players in the industry — we know the area, the language, and the popular restaurants.”

With the help of the mother tongue, Korean, Choi and his team members were able to bring in 55 Korean restaurants within 3 months.

“Overall we are planning to go live with about 300 restaurants in the next a couple of months,” Choi said. “One of our goal is to provide Korean cuisine to people that may not have necessarily known about it. So if they go to the restaurant and see the menu, they might be intimidated and they don’t even understand what it is. So what we can do is we can fully translated and explain to them.”

Americans are estimated to spend $70 billion on food takeout and delivery in 2014, according to BI Intelligence. $9 billion out of that amount will be spent on online orders. Grub and Seamless merged in August 2013, and they will altogether take up 19% of the share. The rest 81% is divided by different smaller service providers.

Annual U.S. Spending on Food Takeout/Delivery | BI Intelligence

Uber, the ride sharing company, is also trying to get a slice of the cake. Since August, 2014, it has been testing a food delivery service called UberFRESH. Currently, the service cover two areas: Westside and Beverly Hills/West Hollywood. The ordering time for lunch is between 11:00 a.m. to 1:30 p.m.; for dinner is 5:30 p.m. to 8:00 p.m.

UberFRESH claims the meals can be delivered within 10 minutes, compared to 45minuts to 1 hour of other similar services. And the delivery fee starts from $3 no matter how many meals the customer order.

Just like requesting the Uber ride, customers can order food delivery service online.

EatStreet is also an online food ordering and delivery service provider. Marcus Higgins, VP of sales, told QSRweb.com “The reason consumers prefer online versus traditional (phone or in-person) orders is because it offers instant gratification. It’s all about being able to have the convenience to go online, look at a menu, look at the items you want and not have to wait for someone,” he continued “There are also other benefits, such as order accuracy and price checking, the elimination of any language barriers, and the convenience of already having your payment information on file, instead of having to enter it every time.”

Benefits of Ordering Food Online | Statista

Higgin’s analysis echoes with the survey done by Statista.

The convenience brings ToGo626 around 100 orders during weekdays. “There may be more on weekends,” Kang said.

Age Group | Statista

Thanks to the spread of Internet and smartphone, the age of customers using online ordering and delivery service is getting younger and younger. Most of the customers’ ages are between 18 to 45 for both ToGo626 and RushOrder.

“There are students, working class people, and parents that order food for their kids at home,” Kang said.

The online food ordering and delivery service not only benefits customers, but also helps bring more orders to businesses, and the service providers, in return, generates revenue from that.

“The way our business works is that the restaurant pays us depending on how many orders we bring to them,” said Choi from RushORder. For every months, “0-25 orders, is free. 26-100 orders, is 50 dollars. Anything over 100 orders is 100 dollars”

“We actually use a delivery company. The cost that the delivery company charging us, is what the customers paying for,” Choi continued. Therefore, the major revenue of RushOrder comes from businesses rather than customers.

Unlike RushOrder, ToGo626 has a 15-driver delivery team and some volunteer drivers. “But our delivery fee is only about $0.99 per mile,” said Kang, “So delivery is actually a supplementary service.”

Kang treats ToGo626 more as a platform to promote and advertise restaurants. Most of the restaurants provide sponsorship to keep the partnership with ToGo626.

However, not every business owner is aware of the influence of the Internet. Some of them are middle aged or even seniors. The big age gap made it hard for Kang to persuade them into joining the adventure.

When communicating with some traditional Korean restaurants, where orders are written on a piece of paper and orders can only be paid by cash, Choi encountered the same problem.

Accumulated popularity and fan base help solve the problem. Not only fans help recommend businesses to ToGo626, restaurants are also reaching out to Kang to get their name on the website.

As Kang promised, ToGo626 is helping restaurants with the online ordering and delivery service, as if they have branches in different cities.

RushOrder is trying to bring in more Korean restaurants. As Choi explained, one of their goals “is to provide access to non-Korean speaking people in Koreatown. Introductin them to the food, making it convenient for them…so they can try it out.”

Kang expressed the same feeling for ToGo626.

“This is only a start. A good start, maybe,” he said, “We will start from the 626 code area. After fully developing the market here, we will explore further, providing more choices, more restaurants and more cuisines to our customers.”

U.S.-China film co-production: an expected path proving bumpy?

December 13, 2014 by Peiwen Jing Leave a Comment

First time in its 102-year history, Hollywood tycoon Paramount has partnered with China Film Corporation, the country’s largest state-funded film group, to produce a movie about the legends of Marco Polo. The movie will mostly be shot in China, directed by Rob Cohen from Fast and Furious, with Chinese supporting characters speaking Mandarin on set.

What Paramount has been involved now, is the U.S. – China co-production, which is officially recognised by the Chinese government. The co-production projects has been backed up by the Chinese government in the early 2000s, but really gained its popularity after 2011.

Nevertheless, Xiaotian Mao, who represented the Chinese government at the 2014 U.S.- China Film Summit held in Los Angeles, thought the co-production business was far from success.

“So far, I would say I haven’t noticed any successful U.S.- China co-production film,” Mao said in Chinese while giving a speech at the summit.

Despite the discouraged feedback from Chinese official, the ticket to the co-production is already hard to get. To gain the co-production status, films must be licensed by China’s media regulator, which sets rules on the film’s finances. The movie must have a fair amount of filming location in China, and a percentage of Chinese stars in the cast approved by the government. The government also has the right to rip off the co-production label anytime when they find the project is no longer qualified.

Under the tedious rules, the co-production still seems booming with more and more Hollywood studios and investment coming in. Paramount is the fifth oldest surviving film studio in the world, yet the latest newcomer to the co-production game.

“Sometimes I woke up in a cold sweat, picturing myself 20 years ago and asking: why would we do that?” said Mark Badagliacca, Paramount’s executive Vice President and CFO. Badgliacca has served the company for more than 30 years and recently just got back from China, where the details of this co-production project has been finalized. “But they (the Chinese filmmakers) are willing to learn from us and we also need the access to the Chinese market.”

The tricky land of profit

Hollywood may have found another treasure land more than six thousand miles away in China. It was only from January to November 2014 that 11 Hollywood movies have made to the top 20 China box office list, with a total accumulative record of RMB 7.9 billion ($1.28 billion U.S. dollars).

The latest movie from the Transformers franchises, Transformers: Age of Extinction, is the most successful Hollywood blockbuster in China this year. From its world premiere in Hong Kong, which was also a first for Hollywood, it has swept the China silver screen. The movie has topped both annual and opening week box office record in China. Despite its flat performance in north America, Transformers: Age of Extinction still became the 19^th movie that has a billion dollar box office sales in the history. According to China’s film consultant Entgroup, over 30% of the ticket sales came from China.

transformers-age-of-extinction-box-office

According to the statistics from the Motion Picture Association of America (MPAA), the North America theatrical market has experienced nearly zero growth last decade. Meanwhile, China has become the world’s second largest movie market with a steady and rapid annual increase. In 2013, China’s box offices pulled in RMB 21.6 billion ($3.17 billion), a 27% increase from 2012. In China, there are 13 new cinemas opening in China each day according to MPAA, which in recent years has helped boost box office sales.

Still, China remains a tricky place for the Hollywood filmmakers to do business.

The success of Transformers: Age of Extinction is rare. A number of productions coming from Hollywood never made it to release in China, due to the government’s strict control. The government keeps a tight grip on foreign films that are shown in the country, requiring everything from preliminary script approval to sign off on the final cut. Foreign film releases are limited to 34 per year.

A path to the triple-win?

Despite how tedious the process of a co-production could be, the benefits, however, may be worth the pain. A co-production gets to keep 47 percent of box office receipts, while the imported films only get as little as 13.5 percent. Most importantly, the co-production doesn’t need to go through the release quota control set for the foreign movies by the Chinese government.

Chinese investors, on the other hand, have noticed the profit margin and eager to join the co-production game. Early 2014, Dalian Wanda Group said it is in talks to acquire a stake in Lions Gate Entertainment Corp. Alibaba Group’s Chairman Jack Ma paid a visit to Hollywood in October 2014, seeking alliances.

In recent years, Chinese government has vowed to grow the nation’s “soft power”. “The stories of China should be well told, voices of China well spread, and characteristics of China well explained”, said China’s President Xi Jinping in the 2014 new-year speech. According to Bloomberg Businessweek, scholars interpreted the new-year speech as a signal of political purpose for the government’s willingness to promote China’s culture and systems with Hollywood’s competence.

The propaganda mission of Chinese government, the eagerness of Hollywood studios to get access to the Chinese market, the desire of Chinese learning the Hollywood expertise in film and making profit… Co-production seems able to simultaneously work in line with all the agendas.

In 2014, there are more than 60 co-production applications sending to the media regulation department in China. But judging from the previous performance of co-production out in the real market, a strong possibility for disappointment remains.

The dilemma

The frequent box office failure of the U.S.- China co-production have brought the first wave of disappointment.

China’s web content provider Sina.com has put a collection of the co-production movies that bombed at the box office. Man of Tai Chi, which is Hollywood star Keanu Reeve’s directorial debut, ranked No.9 at the list. The movie made ¥ 27 million RMB ($4.3 million) in China and only $0.1 million in North America, leaving a huge loss of more than $ 20 million uncovered.

In the co-production business, some stories have utilized the benefits of the Chinese partner’s involvement with a story appealing to both the Chinese and North American audience, such as the Karate Kid (2010), made by Columbia Pictures and China Film Group in 2010, grossed $358 million in ticket sales worldwide. By contrast, the Chinese version of High School Musical, made by Huayi with Walt Disney the same year, earned less than $155,000. It is not an easy job to anticipate the audience’s preference and get the formula right.

“By far the biggest challenge for the co-production is finding the right story to tell,” said Robert Cain, who runs Chinafilmbiz.com and is a consultant to producers and others doing business in China. “Mostly they film stories that has been suitable for either the Chinese audience, or for the international audience, but not for both.”

Chinese authorities’ vague regulation has become another major challenge for the practice of co-production. There are no specific rules of the percentage for either the investment or the casting coming from China written in paper. The application may get approved smoothly; but the authorities can take the co-production title away in the milddle, or disapprove the final work after censorship and put the movie back to the “imported” category.

In response to the vague regulation, Hollywood blockbusters like Iron Man 3 chose to ignore the official co-production process. Instead of waiting in the line for co-production approval, “the film is challenging conventional wisdom about how best to tap China’s lucrative but tightly controlled film market”, quoted from the report by the Wall Street Journal.

“Generally speaking, the U.S.- China co-production is not a success,” said Stanley Rosen, political professor at University of Southern California specializing in Chinese politics and society. Rosen thinks there are two major reasons that lead to this failure; one is the tighter co-production policy from Chinese government; the other is that U.S. and China actually join the co-production with different purposes- China wants propaganda and experience, while Hollywood simply just wants to make profit.

A future of uncertainty

After years’ of development, the U.S.- China co-production has encountered with the bottleneck.

Robert Cain thinks it is possible to find better co-production story ideas through increasing the Chinese team’s film literacy and enhancing the quality of communication. After better stories ideas being made, the Chinese government censorship will become the next biggest obstacle on the way.

“If the censorship rules stay the same, it will be always hard to do co-productions,” said Cain. “The creative people in China don’t like the rules either. I think a government as strong don’t really need that kind of protection; but I don’t know if the censorship rules going to change in the future.”

Meanwhile, rumor goes on and off about the possible quota increase by the Chinese authorities to let more foreign productions in. China signed an agreement on its current quota system with the World Trade Organization in 2012, valid for five years. This means the second round of negotiations will start around Feb. 17, 2017.

It is uncertain for either the change for the co-production rules or an increase on the film import quota. The only thing people may know for sure, is that China has a huge film market with great potential.

According to an Ernst & Young report on China’s media and entertainment industry in 2013, China, which now stands as the second-largest film market in the world after Japan, will surpass the U.S. and become the biggest film market by 2020.

Data retrieved from Ernst & Young

Facing China, the under-developed huge market with uncertainty, there are several options opening for the Hollywood filmmakers. It may be a good idea for the Hollywood studios to get a better understanding is role and keep involving in the co-production; it may also be a wise choice for the filmmakers to work with the storylines, avoiding sensitive elements, in order to get a bigger chance to release the works in China when the door opens up a little bit more.

For Paramount, the choice is doing whatever they can to get the access to the Chinese market, according to Mark Badagliacca.

“I think it is best for us to do everything we could; we are even going to make films in China for the Chinese audience only,” said Badagliacca. “China is a giant market; and it is something really have an impact on us.”

California’s Offshore Aquaculture Farm to Compete with Imported Seafood

December 12, 2014 by Xinyi Huang Leave a Comment

Green Mussels Imported from New Zealand

Catalina Sea Ranch, a six-mile offshore shellfish farm near San Pedro, CA, is planning to feed Californians with local raised mussels which has been mostly imported from Canada and New Zealand.

As the aquaculture industry has thrived in the past decade, the seafood imports – including mussels – by the United States has grown dramatically. About 91 percent of the value of the seafood consumed annually originates abroad, which represents an $11.2 billion trade deficit, according to National Oceanic and Atmospheric Administration (NOAA). To narrow the deficit and compete with foreign seafood, Catalina Sea Ranch aims to cultivate in a 100-acre ocean and produce high-quality mussels in a sustainable and scientific manner.

[Read more…]

Retail Therapy: Exploring retail pharmacies’ promising cure for healthcare bloat, and the side effects of a competitive new market

December 12, 2014 by Alexandra Farinacci Leave a Comment

No one enjoys dealing with rejection, but “no” can be especially difficult to cope with when it concerns someone’s health. Brittany Smith*, who was diagnosed with Type I diabetes in 2012, knows this to be true. “I didn’t cry when I found out I had diabetes, “ Smith said. “But I found myself sobbing to the pharmacist at the back of a CVS the first time I couldn’t get the medication I needed.” Diabetics rely on the proper medication and medical devices to constantly monitor and maintain healthy blood glucose levels. Smith must constantly replenish lancets, test strips, and needles. In spite of her diligent efforts, a miscommunication between her family doctor and the pharmacy forced her to choose between spending a small fortune on a different brand of medication, or going without it. “Being diagnosed with a chronic illness is shocking, but you can learn to live with it. My medication is one of the few tings that I cannot live without.”

Recent reforms in healthcare law have the potential to simplify medication management and reduce costs for patients with chronic illnesses, like Smith, as well as

The number of pharmacies is on the rise, but people may not realize it. People do not notice them as readily.

everyday consumers. Provisions in the Affordable Care Act (ACA), affectionately known as ObamaCare, create financial incentives for providers and insurers to improve patient outcomes and reduce overall costs, as opposed to rewarding physicians based on the cost of services and medications. Healthcare payers are responding to these incentives by working with retail pharmacies to expand their services and adapt the role of pharmacists. Companies like Walgreens, Rite Aid and CVS are aggressively investing and trying to expand their retail pharmacy businesses. Their goal is to make healthcare services cheaper and more convenient for consumers, while also providing medication counseling. At they same time, they are helping to meet medical service demands that the current infrastructure cannot support well, while still turning a handsome profit. Healthcare payers are please because they will now benefit financially from improving patient outcomes. The nation should feel the same way, given that this model has strong potential to lower the unsustainably high cost of healthcare. Expanding retail pharmacies is not just a win-win situation, it’s a quadruple win. It is remarkable that this scenario could arise simply from properly aligned industry incentives. Is it too good to be true?

Time will tell, but the present is filled with promise. The changing healthcare landscape and the retail pharmacy model are poised to improve the consumer experience and better meet demands. The revolution will not come easily; healthcare retailers will face substantial competition from aggressive competitors and will remain beholden to price factors beyond their control. For consumers, however, the change has lasting transformative potential.

Why Now?

Retailers have compelling economic reasons for investing in or expanding their investment in the retail pharmacy space. They anticipate increased demand for healthcare because of the ever-aging population and because 30 million new customers are expected to enter the healthcare market thanks to Obamacare. Data indicates that consumers will buy more services if they make them cheaper and more convenient. A Center for Medicare and Medicaid Services (CMS) study found that many people decline to pay for some preventative care solely because of cost. By reducing the costs, retail pharmacies can recapture that lost business while improving public health.

The time is ripe for the rise of retail pharmacies. Americans have begun taking more responsibility and initiative in their healthcare, albeit not necessarily by choice. Out of pocket costs increased 250% in the last five years. The ACA has led employers to switch to more high-deductible plans. Last year 13% of employers offered such plans, up from 3% in 2006. This change may be unpopular, but passing off costs created an unsustainable burden on the system. Increased deductibles are forcing people to take a more active role in managing their healthcare.

A Promising Prognosis

Retail pharmacies can make services and medications offered under the century-old traditional model cheaper and more accessible. Physicians, depending on the patient’s plan, are reimbursed by insurance companies or the government for volume of business, so the amount they bill directly correlates to their bottom line. In contrast, pharmacies make higher profit margins on generic medications than on more expensive brand names, so they are incentivized to encourage generic alternatives. For example, CVS has gradually increased the amount of prescriptions it fills with generics, rising from 71.5% in 2010 to 83% in 2013. Minor medical services, like administering vaccines, conducting physicals, and treating non life-threatening illnesses, are much cheaper at a pharmacy than at a doctor’s office or hospital. Rapidly improving medical technology makes it easier for pharmacists to diagnose illnesses, expanding their range of services and saving customers expensive trips to the doctor. Visiting a retail pharmacy costs $79-$89 on average, less than half the cost of the typical doctor visit. Picture this: the next time you fall ill, you can drive or walk five minutes to your nearest pharmacy, likely closer than your doctor’s office, get diagnosed, and pick up your medication on the spot. The trip cost you less time and money, and you’re home again before you can say “Uncle.”

In addition, retail pharmacies plan to offer services the current healthcare system cannot provide, such as medication management and adherence. While those terms may not sound significant, they are vital for people with chronic illnesses. Consider Smith, who notes, “When I think of management, I laugh about the ‘I have diabetes, but diabetes doesn’t have me’ phrases. No, it doesn’t run my life or prevent me from doing most things I want to do, but if I want to live a long, healthy life I have to make choices every day because of my illness”. She has to test her blood sugar levels 12 times a day, and administer an insulin shot when necessary. Along with maintaining and carrying a supply of medical equipment, Brittany has to have snacks and glucose tablets with her just in case. She is a model patient, and if every diabetic followed her regimen, the nation could potentially save billions on healthcare costs. Analysts estimate America spends $290 billion on healthcare services that could have been avoided if patients adhered to the medication they were prescribed. There is a clear need to help people manage their medicine, but meeting that need is not practical for doctors. They are dramatically overqualified, so it would not cost effective for them to fulfill this role, nor would it be convenient for patients. In contrast, national retail pharmacies can invest in the technology, like smartphone apps, websites, and backend software to help schedule prescriptions, notify patients when they are ready, and remind them to take their medication. Doctors would be hard-pressed to offer comparable services.

Side Effects

Fluctuations of brand name and generic drug prices have a significant impact on pharmacies’ profitability. They have no way to control significant price fluctuations; the best they can do is plan for them. Brand name drugs are considerably more expensive and are sold on lower margins. Consider that in 2009, generics accounted for only 9% of revenue, but 56% of profits for the biggest three wholesalers, while brand drugs accounted for 88% of revenue and only 38% of profits. The reason for this disparity is that the largest pharmacies can buy generic drugs directly from the manufacturers because they have the negotiating power and warehousing capabilities. They are uniquely poised to do this. Most other generic retailers, including supermarkets, small independent pharmacy chains, and physicians’ offices buy generics through drug wholesalers like McKesson, AmerisourceBergen or Cardinal Health. Nearly every drug retailer purchases brand name drugs through a wholesaler. Switching to generics can help make the retail pharmacy model more profitable, especially relative to competitors who lack comparable negotiating power; however, fewer drugs are expected to go off-patent in the coming years, which means generic substitutes may not be available. Those that are available may not be much cheaper, as the same economic principle applies to generics as to brand names. If they have a monopoly they will exploit it. Generics that are launched with exclusivity are priced just 10% below the reference brand.

Further complicating the economics for retail pharmacies, costumers are less concerned with brand loyalty than they are with cheaper prices. The Walgreens-Express Scripts dispute serves as a reminder of this reality. When the two companies parted ways because of a contract dispute in 2011, Walgreens lost customers and roughly $4 billion in revenue, or about 21 cents a share. Customers left Walgreens, not Express Scripts, because they cannot make decisions about their plan benefit manager, and were not infuriated because they could easily find another pharmacy.

Purchasing test strips adds up quickly. Costs vary among retailers, but, for Smith, not significantly enough to motivate her to sacrifice convenience.

Today’s market is highly competitive. Pharmacies are expanding, making it more convenient for people to go to any one. They all offer the same basic services and range of medications at similar prices, so location is key. Walgreens opened its first location in downtown Los Angeles in 2010, right across from the Rite Aid on 7^th and Broadway. In 2013 the company opened its second location on 5^th and Broadway, once again right across from a Rite Aid. Walgreens, CVS Rite Aid and the like are making strong efforts to acquire and retain customers. Their websites encourage visitors to create accounts to manage their prescriptions and take advantage of rewards programs. In comparison, Target, which has been less aggressive in its entrance to the market, displays its prices online and makes it easy to compare services. They make less effort to encourage signups, treating health services more like an impulse buy. Target’s profitability depends much less on its pharmacy business than a company dedicated to wellness though. Retail pharmacies must find ways to retain customers in a competitive market, because their services are so comparable that it is difficult for any one to stand out.

***

The retail pharmacy industry is trending in a very promising direction for consumers, which is refreshing given the state of the American healthcare system. There is clear opportunity for companies looking to break into this market or expand their business, but much of their success and profitability will hinge on finding ways to create customer loyalty. Retail pharmacies must generate enough demand in sufficiently large markets to avoid out-competing one another.

There will be more pharmacies in the future. May not hold promise to people with chronic conditions that they can get the specialty medication they need anywhere. But their options are improving, it’s a great start that stuff is cheaper and more convenient. Future will test how well these incentives are aligned.

MMM

Money Marks & Media - Spring 2014