COVID crisis consolidating seafood distribution channels in China

Published on
November 2, 2020

The current COVID-related fall in demand for seafood in China could lead to a shake-out of the Chinese seafood distribution scene in favor of large, state-owned trading firms, according to Didier Boon, the CEO of Beijing-based trading firm East China Seas.

Boon’s company, which imports Latin American seafood into China and ships product from China to Western markets, cannot compete with large Chinese companies that lean on their size and political connections to obtain advantages in the marketplace, Boon said. And those advantages have been exacerbated during a tightening in Chinese Customs’ actions in inspecting imported seafood.

“[They are] chasing all false invoices, HS codes, tax evasion and many other factors that really scare people away. I think it’s mainly large companies with ties to government that dare [to] buy [right now],” Boon said. “Importers are still frightened to death.”

Seafood imports have been hurt by weaker demand as well as new controls by China related to fears of seafood packaging as a COVID contagion point. Overall salmon imports to China dropped by 28 percent, according to import figures from China Customs for the first half of the year – with the worst damage done in June, after the reported discovery of coronavirus on a salmon cutting board at the Xinfadi wholesale market in Beijing.

Imports of Chilean salmon into China dropped by 77 percent year-on-year in the first three quarters of 2020, according to data from China Customs, putting Chile’s exports at a disadvantage to those of Norway, which saw its imports for the period largely flat year-on-year for the first three quarters.

But the ownership of leading Chilean player Australis by a large Chinese corporate – with solid state ties – could ultimately boost the Chilean position.

The agricultural arm of Legend Holdings, whose biggest shareholder is a state-owned entity, last week injected CNY 416 million (USD 62 million, EUR 53 million) into the subsidiary controlling the Chilean salmon farmer Australis Seafood, which it purchased last year for USD 922 million (EUR 820 million).

Joyvio Agriculture Development Co. Ltd., previously known as Wanfu Biotechnology Hunan Agricultural Development Co,  has stated it intends to increase production at Australis from 60,000 to 100,000 metric tons per year. In 2017, Joyvio expanded its focus from fruit to seafood after it launched its own brand of imported, packaged seafood.

Owned by Legend Holdings, which also owns the Lenovo computer group, Joyvio acquired seafood importer-processor-distributor Guo Xing Hai and launched the “Tian Ran Zhu Yi” (literally, ‘Natural Belief’) brand to sell salmon, cod, and shrimp from around the world. At the time, CEO Tang Jie said he was drawn by the profit potential of “high-end brands” in the seafood space. 

Joyvio was one of many firms to pile into seafood distribution in recent years, drawn by the promise of profit margins. Now, with COVID disruption, China’s seafood import space will soon be less crowded, according to Boon, who said he foresees many smaller importers abandoning the imports business.

“But not as a direct consequence of the virus, but rather as a consequence of voluntary Chinese measures to limit the imports through non-tariff barriers – mostly enhanced controls on whatever item that could justify the return of the goods,” he said.

China’s demand for imports will be undiminished, however, according to Boon.

“Imports in the medium- and long-term will carry on growing relentlessly but each time more concentrated in a few hands, probably state-owned companies, often with the privilege of free loans and impunity,” he said.

The increasing sophistication of China’s logistics scene, meanwhile, means importers are now able to import through those logistic platforms – “Once again, mostly state-owned,” Boon said. State-owned enterprises have been encouraged to acquire or invest in private peers under Chinese President Xi Jinping, according to Boon.

COVID’s role as a driver of consolidation was outlined in the interim report for 2020 by Zhou Hei Ya, a Hong Kong-listed distributor of braised crayfish and duck snacks with outlets across China. The company’s report outlined how “the [COVID] crisis has accelerated the industry consolidation by washing out micro-, small-, to mid-sized companies, leaving the industrial leading companies to increase additional market shares, explore more upstream and downstream resources as well as acquire operational and managerial talents.”

Substituting seafood imports with increased domestic supply is not an option for China, Boon said.

“On the contrary, the supply of Chinese-produced seafood is diminishing every year,” he said. “Real estate has taken over a huge part of the old aquaculture areas and in addition the price of land has increased so much that it becomes impossible to get new land for farmers and those who have it realize that selling their land will give them 100 times more benefit that farming shrimps or tilapia, [which is] subject to millions of unforeseen measures or cataclysms.”

Even if the state-owned sector takes a bigger slice of the action, China’s demand for premium imported products will remain strong among the country’s wealthy, according to Boon.

“Last Friday, my family was invited [to dinner] by well-off Chinese people, and the starters included French live oysters, U.S. giant king crab, Iranian caviar, New Zealand scampi, followed by Wagyu Japanese beef, Chilean sea bass, and Canadian lobster thermidor,” Boon said. “All that accompanied by several of the best French wines.”

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