Eastern European processors are doing the unthinkable: taking processing work away from China.
Rising costs and changing consumer preferences are hurting Chinese processors. At the same time, beneficial economic conditions in Poland and Latvia are resulting in a continental shift in Eurasian seafood processing, according to industry sources in Eastern Europe and China.
Poland is now more cost-effective than China as a processing location, said David Sztormowski, CEO of Gadus, a major Polish processor of fish. A proximity to European Union markets has helped Gadus become the top buyer of cod from Norwegian suppliers, said Sztormowski, who added his company is “investing significantly” in processing machines and capacity to meet demand.
Poland’s attractiveness as a location for large-scale processing is being aided by consumers who are seeking out fresher products and turning away from Chinese twice-frozen cod and haddock, said both Eastern European and Chinese sources.
Sztormowski doesn’t write off China as a whitefish processing center – “it will be a significant part of the processing trade” – but he sees a trend to processing of whitefish in Poland and its neighbors continuing as the cost of superior-tasting, once-frozen processed product from there becomes as cost-effective as twice-frozen Chinese processed product.
These trends are not disputed by Chinese processors, who add that the doubling of Chinese wages in the past decade has narrowed the country’s cost advantages over Eastern Europe, in particular Poland.
Meanwhile, a shift in European consumer preferences on taste has hurt demand for twice-frozen filets, notes Neil Guo, head of international sales at Dalian Yihe, a processor of whitefish and salmon for the European market.
“Now the processors come more and more from Eastern Europe,” he said.
Meanwhile, the Russian embargo on product from the E.U. is ultimately proving to be a shot in the arm for processors in Eastern Europe, with Baltic states like Latvia in particular having to innovate and search out new markets. While learning to be more flexible and innovative, the Baltic states are also drawing in processors from higher-cost locations like Scandinavia.
“My dream is to make Latvia a processing hub for the region,” said Didzis Smits, president of the Union of Latvian Fish Processing Industries.
Previously content to sell their products in Russia and countries formerly belonging to the Soviet bloc, Smits’ member companies had to seek out new markets, learning about product demands and standards in Western Europe, North America and Asia, according to Smits. Being locked out of its traditional market means Japan has quickly become the leading market for Latvian canned product – sardines being a particular favourite of the Japanese, who prize small-sized sardines as a delicacy.
At the same time, the cost of doing business in Scandinavia has resulted in a shift of processing capacity out of Denmark, Norway and Sweden and toward the relatively-easy-to-reach Baltic states. A heritage of fish processing means Latvia has twice the processing capacity it requires and three times the freezing capacity currently needed. The country has the additional advantage of two ports that don’t freeze in winter, Smits said.
The shift of whitefish processing out of Scandinavia will continue and gather pace in the coming five years, Smits predicted. There has been a particular exodus of family and small- and medium-sized firms out of Scandinavia, he noted. Proximity to the processing facilities and control of their product drew the firms to Riga and other Latvian processing hubs.
“Latvia welcomes them, we want them,” Smits said.
Smits said he isn’t worried about Russian efforts to build up its own processing sector. He thinks Russian processors won’t get off the ground due to the high cost of finance there and the “low quality” of early efforts by Russian processors, which he said won’t be a challenge to Latvian industry.
