Marel, BAADER struggling to find foothold in China
It may be a top destination for fish processing, but China isn’t yet proving a sure bet for seafood processing equipment-makers.
Increased demand from China for seafood – and anticipated further increases – is central to much of the ongoing investment in seafood production and processing technology in Norway and Chile and other leading exporters of seafood.
But increased seafood consumption in China is not leading to a parallel growth of the country’s processing sector. Even though a relentless rise in labor costs has focused Chinese companies’ efforts on mechanization, lack of financing is an issue for many firms. China’s seafood firms are small by international standards and the country lacks the kind of sectoral banking operations that allows companies like Marel to team up with the likes of Rabobank in other markets in order to ensure financing for customers.
The scale and investment priorities of China’s seafood firms are also very different from peers in Norway or the U.S. Norwegian salmon producer Mowi had sales of USD 4.25 billion (EUR 3.81 billion) in 2018, whereas Zhanjiang Guolian, China’s top shrimp exporter and the country’s most valuable listed seafood firm, recorded sales of USD 678 million (EUR 607.3 million).
At Marel, where fish processing equipment accounts for 13 percent of total sales, China is seen as a promising market in its quest to triple its sales over the next decade. But thus far, there hasn’t been a rush to install the company’s state-of-the-art “FleXicut” trimming machine, or a similar deboning system made by rival Baader that retails for USD 500,000 (EUR 448,000).
Baader and Marel will always have major presences in China because of their other offerings, particularly in poultry processing, which are of immense interest to major Chinese conglomerates in the chicken processing sector. Poultry, pig, and meat firms in China have traditionally been larger and more moneyed than any Chinese firm in the seafood sector.
But compared to counterparts in other sectors, Chinese seafood firms haven’t yet been willing to pay the premium prices that state-of-the-art processing technology cost, even though those machines can replace up to four workers. Rather than invest in processing and technology, many of China’s largest seafood firms have chosen to chase quicker returns in the country’s frothy real estate market. Formerly the leading local player in market capitalization terms, Zoneco (Zhangzidao) reported seafood revenues of USD 416 million (EUR 372.6 million) last year, but the firm has invested significantly in recent years in the leisure and real estate sectors.
And for the exceptions, such as a number of companies in the tilapia sector, maintenance has been an issue, according to engineers who spoke SeafoodSource on condition of anonymity.
“They run [the machine] for a full year without maintenance, and [changing] that culture takes a while to instill in a company,” one engineer said.
But just as the availability of processing technology from the likes of Baader and Marel made possible the revolution in salmon aquaculture in a high-wage economy like Norway, so too the demographic and economic-environmental trends at play in China will eventually require investment in technology.
The change in China’s seafood production system from fragmented, small-scale producers to big, offshore systems is happening slowly but surely, hastened by broader trends towards urbanization, industry consolidation, and improved environmental enforcement.
A small but growing sector of China’s seafood industry appears to be the vanguard of this change. Salmon processing has taken off in the last five years in China as local consumption of the species soars. Chinese salmon processors have lately been buying Marel equipment, according to a company spokesperson, who said the firm is taking “baby steps” into China. But overall, the systems installed at big salmon firms like Cermaq, where handling systems take the fish from pond to fillet via machines that stun, bleed, and gut, are not yet in place in China’s aquaculture sector.
Likewise, a similar lift in consumption of cod hasn’t yielded a concurrent rise in demand for processing equipment in that sector, according to the spokesperson. Likewise, there’s been less demand from processors of tilapia, the spokesperson said. This could in part be due to a trend of onshoring of whitefish products back to northern Europe and the Baltics. Likewise, a new focus on quality control and carbon footprints make keep processing closer to home.
Nonetheless, China’s imports for processing continue to grow. In 2018, they reached 1.13 million tons worth USD 2.86 billion (EUR 2.56 billion), up 8.5 percent and 15.4 percent, respectively. By volume, imports for processing now represent a quarter of the country’s seafood import total of 5.2 million tons. But the data suggest that a greater share of imports for processing is for domestic consumption, with growth in value terms consistently outstripping growth in volume in recent years.
Seeking another route into China’s promising market, Baader and Marel have touted their “big data” capabilities, incorporating data from both consumers and feed companies to help processors innovate and produce better products, while also guaranteeing traceability.
This may prove to be a wise move, as incorporation of artificial intelligence is a priority for the industry in China, according the government-run China Fisheries Association, which last year established a new subgroup seeking to harness big data in order to improve traceability and innovation among local seafood firms. But the on-the-ground situation is that while Chinese firms are talking about the benefits of this initiative, its adoption remains far from reality. China has more of an edge at the downstream end of the value-chain, where giants like Alibaba are bringing together data and leveraging it – and teaming up with major processors of feed and meat like New Hope Liuhe (a firm that has been testing the water in aquafeed production, alongside the other big players like Tianbang).
In the future, it may be more likely that China seeks to outsource processing of its own domestically-produced seafood products to poorer regions like Africa, South Asia, and the Pacific, where it is seeking to relocate some of its aquaculture in coming years. Chinese production of higher-value species is destined to rise as it builds more deep-water aquaculture systems, which are providing a new source of work for many of the previously idled state-owned steel firms. China appears to be very interested in building its offshore aquaculture sector using reengineering tested Western designs, seeing its potential in allowing it to meet its stated goals of cleaning up its onshore environments by moving aquaculture offshore and internationalizing its production.
At the lower end of the market, meanwhile, China’s equipment-makers continue to survive in the market. Chinese equipment makers like Nantong Square Tech Group are successfully selling freezers to seafood processing firms around the world. The firm made sales to Middle Eastern and European buyers at the recent Seafood Expo Global in Brussels, Belgium.
But while change is inevitably coming to China’s seafood processing sector, the shift is happening slowly. As a result, China isn’t likely to become a top market for processing equipment for a considerable time to come.