Chinese processing still dominant, but cracks starting to show
A recurring theme at the 2019 Global Seafood Market Conference, taking place from 15 to 17 January in Coronado, California, U.S.A., has been China’s dominance in the skilled processing sector, and whether rising labor costs would push that processing elsewhere.
A burgeoning middle class in China has steadily driven up the labor costs for skilled processing, particularly in the large groundfish processing sector. The trade for groundfish has historically been dominated by Russian exports to China, and Chinese re-exports to the European Union after processing.
Yet despite the rising labor costs, Chinese importing for processing show no signs of slowing, according to statistics from Rabobank International.
“They’ve had huge wage increases already,” Gorjan Nikolik, a senior industry analyst for Rabobank International, said. “They should not be this competitive, and yet they are.”
Between 2012 and 2017, Russian exports of groundfish to China decreased by more than 50,000 tons. Even with the decrease, the trade between Russia and China was still by-far the largest in the world in terms of volume, and the amount of groundfish exported from China to the E.U. barely slowed.
Those numbers tell the story of Chinese processing still representing a huge portion of the market, given Chinese exports of groundfish to the E.U. are almost exclusively processed.
Those numbers, however, may be contradicting what some businesses are seeing on the ground in terms of Chinese willingness to do more specialized processing jobs, particularly specialized cuts.
“China is absolutely capable of doing the specialized cuts, but they’re becoming less and less willing to do that,” said Heath England, COO of The Fishin’ Company.
Specialized cuts of groundfish – typically pollock from Russia – typically require skilled labor. So far, automated processing hasn’t matched the yields of manual cutting.
That skilled element may be a big part of why China is holding on to its processing market. After dominating the sector for so long, the country’s processors have developed an extensive base of skilled workers that few others can match.
“There’s not a lot of other countries in the world that have that volume of expertise,” England said.
That skill and inexpensive cost to utilize it may end up presenting some of the largest difficulties to many groundfish companies that relied on China for their processing needs.
“We’ve been spoiled,” said Fran Bodin, vice president of the Nordic Group.
As Chinese laborers become less willing to do that specialized cutting for the historically inexpensive prices that they once did, it will be difficult to ship those roles overseas. While nearby countries, such as Vietnam, could fill the role of processing, the differential in skill-levels will likely create issues in the transition process, Bodin said.
“That product form might change, depending on where you want to produce it,” Bodin said.
China, too, has an untapped labor market, but according to Alyson Ma, chair of economics and business economics at the University of San Diego, it’s unlikely to be utilized in the country.
“While there are millions of others that are in the inland provinces that could move closer,” Ma said, “There are lots of things they would have to give up in order to make that trek.”
Inland residents who decide to move to the coastal areas, where the vast majority of processing facilities are located, do so with the understanding that they forgo education rights for their family when they move from one province to another, according to Ma.
Getting around that issue by moving those processing facilities further inland to tap into the cheaper labor pool also creates challenges. While the coastal region of China has infrastructure that matches – or even leads – most developed areas of the world, further inland, the infrastructure for efficient shipping hasn’t reached that standard.
“While there’s untapped resources in terms of labor, it’s not as cost-saving to have any type of manufacturing or any type of production set up there,” Ma said.
Despite the challenges facing Chinese processing, there’s a large chance that those facilities won't see a decrease in their roles any time soon. Wells Fargo Economist Michael Swanson predicted that Chinese processors aren’t going to easily give up the livelihoods that they’ve built up over the years.
Swanson said the Chinese processing business is like any other: After decades building something into a successful enterprise, few people would walk away just because the market may shift.
“They’re going to ride that ship to the ground,” he said. “For them to simply fold up shop won’t happen.”