Exporters in China’s key tilapia producing region of Hainan have been able to hold onto their sales to the United States despite ramped-up tariffs now reaching upwards of 25 percent, according to Alno Wu, head of overseas sales at Hainan Sky-Blue Ocean Foods Co (SBO).
Wu said firms like his, a vertically integrated firm processing tilapia in Hainan Province, are doing so thanks to lower prices, which they have been able to offer due to a surge in production across the province. Projections of stricter enforcement of environmental regulations leading to lower production have not come to pass, as thus far, Hainan has gotten greater leeway in implementation than other regions, according to Wu.
With an annual production capacity of 24,000 tons, SBO feeds its tilapia branded Grobest feed and also claims green credentials for its fish. The company is controlled by Taiwanese ownership.
Tilapia is the largest export-oriented agricultural product in Hainan Province. The island region produced 326,800 metric tons (MT) in 2018, of which 120,000 MT was exported, returning a total value of CNY 2.07 billion (USD 403 million, EUR 365.8 million). Hainan’s local government has sought to increase the value of its tilapia exports through its “Hainan Tilapia Industrialization Action Plan,” issued in 2006, which created several branding schemes and called for specific targeting of the huge tourist population that visits Hainan for its beaches.
Globally, demand for tilapia is set to rise. Tilapia production worldwide will nearly double from 4.3 million MT in 2010 to 7.3 million tons in 2030, according to a projection by the Food and Agriculture Organisation (FAO). But much of that new production has been predicted to come from outside China, which has pledged to concentrate on quality over quantity.
However, in an interview with SeafoodSource, Wu said China’s environmental crackdown has not yet resulted in significant changes in Hainan’s tilapia sector.
SeafoodSource: Has this year been a positive one for tilapia production in Hainan in terms of prices and production?
Wu: In general, tilapia production in Hainan grows 20 to 30 percent on a yearly basis. However, [this year] Hainan tilapia processing plants' net selling prices have dropped due to two main reasons. One, raw material price has touched bottom since June 2019 and has remained unchanged. Raw material cost covers roughly 70 percent of the total production cost, which makes net selling prices decline. [Also], strong competition causes lower prices … Tilapia consumption in the U.S. has dropped since 2015 or 2016. After the implementation of [higher] tariffs in the second quarter of 2019, all tilapia buyers – including not only from the U.S. but also other countries – request[ed] suppliers in China cut selling prices in order to mitigate the negative impact on tilapia demand at the end [of the supply chain]. As a result, tilapia processing plants [are] provid[ing] very competitive selling prices to seize orders for production at relatively low raw material cost.
SeafoodSource: Where are you finding new export markets?
Wu: We promote our products through seafood or food expos. For example, in Qingdao, Boston, Brussels, and Moscow, where big foreign tilapia buyers also attend.
SeafoodSource: Many farmers are leaving the Hainan countryside for city jobs. Is that something you are noticing, and has it become an issue for you?
Wu: Major plants are located in the countryside, however, it is not a big issue. Farmers also cannot find a better job in cities in Hainan. Unlike Guangdong Province, there are very few successful industries in Hainan. Also, Hainan Province's average salary ranks behind most other provinces in China. The tilapia industry is one of a very few important industries supported by the Hainan government.
SeafoodSource: The Hainan government’s environmental department says its rules are now much stricter for aquaculture developments, but according to you, tilapia production is still increasing by 30 percent annually. Does this mean farms have become bigger and more efficient?
Wu: Farms haven't become bigger and more efficient. Here’s why tilapia production has increased by 20 to 30 percent: Stricter rules for aquaculture developments have not been 100 percent implemented. I am from Taiwan, however, we should change our mind and use a Chinese perspective to discuss local issues when we are in mainland China. The China central government's environmental policy usually gives prospective – directions to local government. Twenty-four local provincial governments have at least 24 ways to explain it and follow up. In Hainan, local departments always prioritize stable social security when there is a conflict between industry development and environmental issues. As I mentioned, the tilapia industry is one of very few important industries supported by Hainan government. It reported that 50,000 people here in Hainan work in tilapia business chain.
These days, Guangdong tilapia processing plants come to Hainan to buy raw materials especially during the winter season. However, due to a decline in demand by U.S. importers after Trump's tariff, Guangdong plants are now buying much less Hainan raw material on a yearly basis. As a result, Hainan farms can meet local processing plants' 20 to 30 percent increase in production.
SeafoodSource: Is it difficult to invest in better farms and production facilities if your margins continue to decline?
Wu: Yes, it is very difficult to invest in better farms or numerous certification programs. However, processing plants are willing to improve production facilities in order to cut production costs. Decreasing production costs can help sales team to go low on selling prices to compete. Additionally, some plants have been expanding to new markets excluding the U.S.A., Canada, and the E.U. through low quality and low price in last three years. They also can make a profit in new markets, especially in Africa and in Middle East.
Photo courtesy of Tawatchai Jaeng-im/Shutterstock
