Tightening of inspection, margins for China importers

Published on
October 21, 2013

Increasingly tight competition among importers for market share is causing a drop in prices and margins, warns a leading seafood trader in China.

Crab prices are “so sensitive and margins dangerously tight,” said Chris Hanselman, head of Hong Kong-based Pacific Rich Resources (PRR). “People are now shipping crabs in from all over Europe both live and frozen. But it has become very competitive, so it’s all about [large] volumes and small margins, especially on the frozen side.”

Having backed out of the mainland China crab trade, PRR focuses on imports of Greenland halibut and brown crab for the mainland market, as well as Canadian yellow tail flounder and Icelandic cod and plaice. The unpredictability of China Entry-Exit Inspection and Quarantine Bureau in China (CIQ) and customs regimes as well as patchy cold chain handling services makes China challenging, said Hanselman. “You can get very badly burned on mortalities which will eat away your margins and into any previous profits very quickly...”

However, the reason why so many players have piled in — and are staying in the market — prices for seafood imports in general in China remain strong, despite even the effects of a government anti-corruption campaign touted in other reports.

“Branded or western products are becoming more popular. Price does not seem to be an issue,” said Hanselman, who is currently attempting to get Irish whelk into the Chinese supermarket trade. It’s a “very competitive” market he said.

That may be partly down to national branding, which favors some importers over others. While the China market is huge there’s clearly an advantage for imports from countries with high brand recognition among Chinese consumers, such as France and Norway. Hanselman explained: “As an importer, if you are aiming at the upper market, it is still large and these people generally want the best. China however remains very driven by national branding.”

Hanselman compares Chinese seafood buying trends to a hunger here for Louis Vuitton bags and Chanel fashion items.
“The same applies for wine, also seafood. I would suggest few understand pallet in what they eat or drink. If it’s expensive, branded well… it must be good. Best example in seafood, is oysters…They must have French, they must have Belon, which are actually the same species as the English natives. But in the Chinese eye, they are French, they are the best, they will pay a premium for it. Boston lobster is another example.”

Perhaps proof that branding works is the continued resonance of Norwegian salmon, despite recent drop backs in sales related to China’s displeasure over a Nobel peace prize award to a Chinese dissident.

“Norwegian Salmon is well established, and Norge [Norwegian national brand name operated by the Norwegian Seafood Export Council] have done a great job, but Alaskan sockeye salmon, for instance, is a much better product, more oily better texture and wild catch. The Japanese love this fish but it does not work in China...”

Synching with government priorities is another good strategy for seafood importers. Hanselman’s decision to sell only sustainable seafood in China is dictated by a new strictness in China’s inspection regime as well as marketing. “…We have now linked this in with health and safety. So this gels with the new initiatives from CIQ to tighten up on this. To me this is all positive.”

The CIQ’s new strictness has however led to an increase in shipments through the grey channel, in particular high value products, mainly live. “CIQ are really clamping down because of health issues, which is great. But the [grey] business is huge and will always go on,” explained Hanselman. 

He believes that import prices will rise if there’s further effort by CIQ to tighten the grey channel and force seafood products to be shipped in officially — though he doesn’t expect this to happen quickly. The grey channel is “a way for importers to keep costs off their books… So although changes are being mooted, I don’t think we’ll see anything changing in the short term.”

Either way it’s best for importers to be aligned with the CIQ goals, argues Hanselman. “We always source from either accredited sources or purchase from accredited factories. We always do our own third party checks on the chain of custody to ensure that the products meet the criteria. This is very important to us.”

Smuggling is common in China’s seafood market: One Sino-western importer-distributor operating in China estimates that more than a third of certain species are smuggled into China, with much of the country’s lobsters and tropical fish trade coming across the border from Hong Kong. He told Seafoodsource: “Much of the high value warm water tropical lobsters came in this way...Canadian and U.S. lobsters, being of lower value, usually come in through normal channels, at least in North and East China.”

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