Why countries with free trade deals with China have an edge
One of the most eye-catching product presentations at the recent Seafood Expo Asia in Hong Kong was the “Wild Catch” brand being shown by New Zealand Wild Catch Ltd., a new firm importing sea cucumbers into China. Set up by China-based marketing executive James Parfitt and seafood veteran Joe Cave, the firm hopes to tap Chinese demand for sea cucumber by creating a branded premium product – a wild sea cucumber rather than a farmed Chinese variety. Premium packaging certainly makes the Wild Catch product stand out in China, a nation whose newly rich love bling.
Also new to the market, Sociedad Efrain Andrade: company founder Carlos Andrade Miranda exhibited in Hong Kong in a booth organized by ProChile, the state trade promotion agency. He’s seeking customers in China for his low-volume urchin and seaweed production.
It’s perhaps no coincidence that numerous exhibitors at this year’s Hong Kong fair were introducing niche, high-value products from countries with a free trade agreement (FTA) with China. After establishing markets in China for the big volume items, including finfish and mussels, exporting countries such as Chile and New Zealand are now able to introduce smaller niche producers to the market. That’s the goal of ProChile, Jonathan Kwok Carrasco from the agency’s Hong Kong office told SeafoodSource.
This is a lucky position for seafood producers from states with zero-tariff access to the Chinese market. China has free trade agreements with a select number of states: Chile, Peru and Costa Rica in Latin America. Also, in Europe – Iceland and Switzerland – and in Asia – Korea, Singapore and Pakistan. Perhaps the biggest deals, however, in terms of trade volume are those deals signed with New Zealand and, most recently, with Australia.
And of course, the really big deal – China’s free trade agreement with the Association of Southeast Asian Nations (ASEAN) which allows tariff-free entry of seafood into China from countries like Vietnam, Thailand and Indonesia. In the case of ASEAN member Indonesia there’s been a six-fold increase in Chinese imports of its products between 2003 and 2013 (the FTA deal came into effect in 2010). While more than half the figure comprises imports of minerals there has also been a huge increase in imports of raw, unprocessed seafood and fruit from Indonesia and other ASEAN states. In other words, China has been able to secure huge new supply lines of raw materials through its trade deals.
It’s not like China is actively seeking free trade deals with all and sundry. It’s worth pointing out that in most cases it was the other partner state, rather than China, which initiated the trade deal. And it’s also worth stating that some of the free trade deals are restrictive in that they still protect sensitive areas, such as financial services and grain trading, which remain the preserve of state bodies in China.
But free trade deals crucially give China access to natural resources it needs – and it gives China a say in the pricing of these products. By offering tariff-free entry to the market, China ensures a good deal of seafood supply from big-volume producers such as Australia and New Zealand is re-directed toward China. In one stroke China, a big volume buyer, has ensured that phased-out duties make imports of food items like seafood, meat and milk more plentiful and competitive in the Chinese market. Crucially, scarcer domestic supplies of seafood and other food items drives consumer price inflation in China – and that remains a key political sensitivity. Encouraging imports allows China to keep a check on inflation.
China meanwhile gets favorable access for its exports and a platform to allow its huge but cosseted state-owned firms like banks and building companies to test themselves in international marketplaces.
Yet while free trade agreements have a massive booster effect on seafood exports to China (which uses these deals in part to suck up supply), they don’t affect pricing – the advantage there is with big-name exporters such as the United States. Key seafood suppliers to China such as shrimp shipper Ecuador may get an FTA eventually; it has long sought one from China, a close ally, to reduce the 25 percent tariff which makes Ecuadorean shrimp pricey in China. But this won't displace the premium pricing power or market share of major exporters such as the United States, Australia or Canada.
Free trade deals open access to China, but pricing power belongs with country brands such as Canada and the United States and France – Germany and Britain, though not big food exporters to China, also belong to this club. Australia, New Zealand and Norway also belong in this club. These are states which have been able to invest massive marketing resources and staff large trade offices in China. Two of them – New Zealand and Australia – have the double benefit of having a free trade deal with China – but not having a free trade deal doesn’t dent your chances in China.
FTAs matter less to pricing because in China’s seafood trade imports don’t have to be cheap. Witness the price gouging and massive mark-ups applied by Beijing supermarkets to French wine and oysters – this also explains why many online vendors mislabel their cod steaks and shellfish as French to lure local buyers who’ve come to accept French as the apogee of sophistication (and “romance,” a word all too often used in online marketing slogans in China). Similar premiums are applied by retailers to seafood products from the United States and Canada, because they’re synonymous with quality and sophistication in the Chinese consumer mindset.
Seafood products from the ASEAN region and from smaller nations such as Chile don’t attract the same kind of premium pricing power that attaches to product from major western exporters. That’s simply a fact of scale and marketing power and no reflection on the quality of the product. Free trade agreements are useful for access to China for a wider spectrum of seafood exporter but sometimes a good country name is just as useful.