Why the long-term outlook for China’s seafood imports is bright

Published on
April 12, 2016

Growing demand for seafood in China is coming up against a wall of environmental problems that are holding back domestic production, opening the door for imports into the world’s largest economy.

In March, Chinese Agriculture Minister Han Changfu said that “the increase in China’s seafood output has come at the expense of the country’s natural environment.” Han suggested the carrying capacity of China’s environment has been stretched to breaking point. This is a crucial statement, and has already been followed by action on environmental issues in the country.

This week, China launched an effort to protect and repair its freshwater fishery resources, as it upped the annual fishing ban on the Yangtze River from three months to four. China also extended the ban to local rivers and lakes.

The move will hurt aquaculture hubs like Jiangsu and Hubei, since the Yangtze flows those areas. But more damning evidence against the Chinese seafood industry is Han’s unusually frank statement of what he termed the “desertification” of the East China Sea. His words probably signify a future move toward a longer, more encompassing fishing ban there is inevitable.

This means China has to look elsewhere for fish. The latest measure may indeed help protect local waterways, but the solution that’s being suggested by Han – to focus on “long-distance ocean fishing” – is potentially a case of simply shifting the problem elsewhere.

The ruination of China’s own waters does create demand for imported seafood, especially for the mid-priced local favorite species like hair tail, squid and croaker as well as for the higher-value species like crabs, lobster and salmon.

There’s a lot of other data coming out of China to support this view. The rise in land transfers, for example, is a trend that will ultimately squeeze local aquaculture output. There has been a marked increase in the amount of rural land being traded and acquired by large farming cooperatives and corporations – a 50 percent jump in some regions in 2015, according to the China’s Agriculture Ministry.

This squeezes the room for aquaculture ponds because the companies and cooperative leasing the land (China still doesn’t permit land sale, only long leases) are largely focused on producing fruit, vegetables and poultry for urban China. While there’s a certain amount of aquaculture, the focus is on products for which there’s increasing demand and pricing growth. Aside from crabs, the trend for other freshwater species like carp and tilapia is toward weakening demand and prices.

And this is aside from the pollution problems facing China’s inland waterways and coastal areas. A vicious circle of low water quality, overstocking and disease has made for a surplus of low-quality, low-priced freshwater produce. This has also exacerbated the lack of trust in local produce among Chinese consumers and has also been a turn-off for investors keen to invest in food production in China.

One oft-suggested solution for China’s problems is expanding aquaculture into the comparatively pristine waters of Southeast Asian allies like Cambodia and Myanmar. But this hasn’t happened because of the cost involved. A lack of infrastructure, such as roads and power lines, has made production in Myanmar prohibitive for most Chinese seafood producers.

Tellingly, growth in seafood output in the key aquaculture province of Guangdong (a hub for shrimp and tilapia farming) has fallen rather than grown in recent years, due to competition for land and stricter environmental enforcement in what is one of China’s wealthiest regions. Aquaculture production in the fastest-growing (mostly inland) regions like Hebei and Hubei remains small. Hubei province only produces about five million tons a year compared to 48 million tons of seafood produced per year in Guangdong. The wider ban on Yangtze River will also impact more on the lake-pocked province of Hubei.

Even as the seafood sector cries out for efficiencies and productivity, a lack of innovation in the private sector remains a persistent weakness in China’s seafood sector. Constant complaints about pricey, imported brood stock will be familiar to anyone who follows the discussion forums on Chinese aquaculture and fisheries websites. Chinese producers claim that the seedlings and other inputs are overpriced and of variable quality. Yet the fact is that Chinese producers are still dependent on imported seed stock – for shrimp production in particular.

Two large questions that hang over the heads of those in the seafood business in China are: who will benefit most, and how much of the local demand will be fed by local supply?

Chinese per capita consumption of seafood went from 11.5 kg in 1990 to 25.4 kg in 2004 and will reach 35.9 kg per capita in 2020 according to the Food and Agriculture Organisation (FAO) though urban Chinese seafood consumption already surpasses 40 kg/per person according to Beijing municipal data.

It appears that China will in 2016 become, as predicted by the FAO, the world’s top destination for seafood imports. Key economic data and trends suggest further growth in consumption. Even if China’s economy is slowing it has trebled in size since 2001 and will soon surpass the USA in scale.

All of this is driven by income growth. Chinese real wages rose by 400 percent in the period 2001 to 2014, while from 1995 to 2014, average unit labour costs fell 12 percent. National average urban incomes rose from USD 6,291 (EUR 5,529) in 2012 to USD 10,791 (EUR 9,484) in 2017 according to the Economist Intelligence Unit, and similar predictions have been published by Chinese researchers. Of course there are regional discrepancies: Beijing state employees earned USD 16,475 (EUR 14,479) in 2014, whereas the average salary in populous inland Henan province came to only USD 6,792 (EUR 5,969) per year in that year.

Even in a slowing economy, average industrial wages grew seven percent in 2015. The trends are clear and will drive further consumption as more and more Chinese see food less for sustenance and more as a gourmet experience. Two large questions that hang over the heads of those in the seafood business in China are: who will benefit most from this tend, and how much of the local demand will be fed by local supply?

China is hurt by its lack of innovation, new products or brands. One bright spot has been the innovative online marketing success for producers of freshwater crabs, and lessons can be learned from that campaign. However, even if China can dramatically improve the quality of its water and its seafood it is unlikely be able to do so at a level that can keep pace with growing demand for seafood.

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