FBA Issue 31: March / April 2010
When pigs stop feeding fish: Record fishmeal prices & a dying substitution effect
The Lehman/AIG panic, which shot down most commodity prices 45% to 70%, barely made fishmeal drop 20%. Recently, it has risen 56% in just one year, breaking one price record after another over the last three months. Only oil, which has not broken any price records, rose by a greater amount over the last year.
The whole trend is driven by ever-widening supply-demand imbalances. On one hand, fishmeal-dependent aquaculture continues to grow faster than any other protein line. Unlike livestock, aquaculture has no substitute for fishmeal. On the other hand, 2009's world fishmeal catch fell for the fifth straight year, with four of the top five producers (Chile excepted) producing less fishmeal than in 2008.
The situation may be tighter than it looks. Officially, the International Fishmeal and Fish Oil Organisation (IFFO) reports that Peru produced 867,000 tonnes of fishmeal in the first half of 2009, which is down from 895,000 tonnes in 2007 and 885,000 tonnes in 2008. However, in her bi-yearly, January 2010 UN FAO Globefish report, Helga Josupeit states that, "Some 830,000 tonnes of fishmeal were produced by Peru, 5% less than in the same period of 2008." Given the desperate tightness of fishmeal markets this year, it would not be surprising if some anchovy catch and fishmeal production numbers are later revised downwards. Late 2009 and early 2010 catches are being impacted by a El Nino, whose warm water that usually drives fish away from their catching areas.
Furthermore, for the second year in a row, Peru only managed to increase exports to its main customer, China, by digging into inventories and selling less to its leading western clients, which were mired in recession. Indeed, the cupboard is increasingly bare, not just with respect to inventories but also in terms of the fishmeal that aquaculture can squeeze out of livestock feed markets.
After fishmeal catches started declining, for many years, aquaculture's hunger for fishmeal was partly sustained by livestock. That is, at one time, almost all fishmeal was consumed by land animals. Yet, right from the start, when aquaculture took off in the 1980s, its fishmeal consumption grew faster than that of livestock.
Later, as fishmeal catches peaked and declined, high prices induced livestock farmers to substitute alternative protein meals such as soymeal, meat-and-bone meal and whey in place of fishmeal. For many years, this partly offset declining fishing catches'impact on aquaculture fishmeal supplies.
However, by 2009, over 60% of fishmeal was being used up by aquaculture, with the lion's share of this finding its way to China. With wild catches on a downtrend and very little fishmeal left to transfer from livestock to aquculture, the crisis is entering a new level with several implications.
First, despite the steep rise from near US$200/tonne in the late 1990s to over US$1,560/tonne today, things would have been a lot worse if livestock, particularly the poultry sector, had not stopped using fishmeal en masse. The last decade's dramatic price increases would have been far worse if livestock had not moved away from fishmeal in tandem with global aquaculture's expansion.
Second, with less and less fishmeal left to substitute away in livestock feed, there are indications that it is de-coupling itself from the larger protein meal complex. Traditionally, the fishmeal to soymeal price ratio stands between 2.5 and 3.0 but this has been less true in recent years.
