The ferocity of the competition between Chinese seafood processors in a sluggish domestic market can be seen in the 2023 results of Gaodi Holdings.
The company, formerly known as the China Shenghai Group, booked a loss of CNY 38.1 million (USD 5.3 million, EUR 5 million) in the second half of 2023, compared to a loss of CNY 40.1 million (USD 5.6 million, EUR 5.2 million) in H1 2023, on revenue of CNY 195.9 million (USD 27 million, EUR 24.9 million), compared to just CNY 121,737 (USD 17,000, EUR 16,000) in H1 2023. It recorded a gross profit margin of only 3.4 percent for the full year.
Headquartered in Xiamen, the company focuses on the processed seafood snacks market via a national distribution network.
Weak consumer demand has forced firms like Gaodi to discount prices. In a report for the 18 months up to the end of June 2023, Gaodi detailed how the company had been discounting its shrimp- and squid-based seafood snacks to improve retail sales. The situation did not seem to have improved much in the latter half of the year, as consumer spending remained flat in the face of a weakened housing market and lower employment prospects.
Yet, the company said it expects consumer confidence to return, albeit gradually, in 2024.
“The direction of demand improvement in 2024 is relatively clear, and consumer confidence is expected to return steadily,” a note from management to investors that accompanied the recently published results said. “A gradual recovery of industry demand and the gradual easing of base and inventory pressures will be expected, and the improvement on the operating environment of the food industry can be expected.”
China’s retail sales grew by only 2.3 percent in April 2024 year over year, lower than the 3.1 percent year-over-year growth recorded in March.
Chinese seafood processors relying on export markets are going through a “tough” situation due to high material costs and soaring shipping rates, according to Landy Chow, head of the Guangzhou office of exporter Siam Canadian.
“The factory whose main business is exports is really struggling right now,” he told SeafoodSource.
Many are reconsidering an earlier strategy of switching focus to the domestic market in the face of weaker economic growth in China, dampening consumer confidence. Exporters have also sought to hedge against a weakening Chinese renminbi by earning dollars from exports.
However, higher raw material and freight prices make exports a more difficult proposition, Chow said.
“The raw material price is too high,” he told SeafoodSource. “Last year, the tilapia raw material price for fish sized 500 to 800 grams were CNY 7.60 [USD 1.06, EUR 0.98] per kilogram, so the farmers lost interest in farming. This year, the price went up to CNY 11.60 [USD 1.62, EUR 1.50] per kilo as fish supply has been much lower.”
Chow said he expects the current high prices to fall off as farmgate volume increases.
“Current high prices are an incentive for farmers to put more fingerlings into ponds, and the price might drop later. This is the typical cycle for farmed products,” he said.
Chow said current ocean freight costs are also dragging on China’s export business.
“To Europe, two months ago, the ocean freight was USD 2,500 [EUR 2,300], but today it’s more than USD 5,000 [EUR 4,600]; most of the people say the ocean freight rates will keep going up,” he said.
Chow is also dismayed by the unfavorable duties on Chinese seafood products headed into the U.S., while leading competitor Vietnam, by contrast, has free trade agreements with the U.S. and E.U.
“Products from China are levied with 25 percent duty; for shrimp going to the U.S., you need to consider a 110 percent anti-dumping duty,” he said. “If you’re shipping to the E.U., Chinese cooked seafood products need to pay 20 percent duty and raw products 7.5 percent.”
