June 14, 2013
Peak fishmeal supplies, innovation and the quality problem
Human ingenuity will probably find a way to get around fishmeal shortages, but not without differentiating once commodity fish into distinct product quality levels.
by Eric J. BROOKS
An eFeedLink Hot Topic
For all its rapid expansion, growth potential and necessity for feeding tomorrow's larger global population, aquaculture is always dogged by an unshakeable shadow: The farming of many species (particularly carnivorous expensive ones like salmon) still depends on wild catch, better known as fishmeal. The world's oceans have limited size and resources. By the early 1990s, the catch of most aquatic used for manufacturing fishmeal peaked, and in most cases, the ocean never again provided its former abundance.Aquaculture, fishmeal scarcity based on falling wild catch
Whether it is anchovies off the coast of South America or 'trash fish' (once) considered unfit for human consumption off Thailand, this peaking of wild fish catches is as much curse as it is a blessing: On one hand, it makes fish farming a profitable economic necessity. It also constrains the supply of key proteins and fatty acid inputs, greatly pushing up the cost of some high end fish species.
The early 1990s peaking of global fishmeal production, coincided with the moment when the farmed fish production, particularly in leading producer China, accelerated. According to the IMF, from US$480/tonne in January 2001, fishmeal's cost had jumped 318%, to US$2,088/tonne by January 2013. But what is really troubling about fishmeal is that beyond a certain quantity, it is simply not available at any price whatsoever.
Three producers (Peru, Chile and Iceland) account for 78% of world fishmeal exports. Their production jumped from approximately 1.88 million tonnes in the mid 1960s (when the world population was 3 billion), peaking at 3.95 million tonnes in 1993. By 2012, when the world population had risen to 7 billion, Peru, Chile and Iceland's combined fishmeal production amounted to 2.1 million tonnes.
Exports show a similar pattern. Peru, Chile and Iceland supplied the world market with 1.66 million tonnes of fishmeal in 1965, and their exports peaked at 3.58 million tonnes in 1993, falling back 42% to 2.07 million tonnes in 2012, when the world had a billion more people than in the early 1990s. Total world fishmeal exports in 2012 amounted to 2.66 million tonnes, nearly 1 million tonnes less than what the top three producers on their own supplied the world in 1993.
Nor will this dilemma change any time soon. Peru, which supplies over half the world's fishmeal exports saw its production peak around 2.0 to 2.2 million tonnes in the 1990s to mid 2000s. These days, fishmeal production usually amounts to 1.2 to 1.5 million tonnes, with output slipping below this number during warm water El Nino years.
From the early 1980s to late 1990s, number two exporter Chile regularly produced 1.1 to 1.4 million tonnes of fishmeal annually. After 2000, it never produced much more than 0.8 million tonnes; and it has produced 0.5 million tonnes of fishmeal or less every year since 2009.
Going forward, Peru's government originally penned this year's anchovy catch quota at 8.5 million tonnes but was forced to reduce it to 5.0 million tonnes due to sparse fish populations off its coast. As a result, Peruvian fishmeal production is projected to fall 26%, from 2012's 1.4 million tonnes in 2012 to 1.04 million this year. In particular, the first half fishing season's quota was set at 2.05 million tonnes, 34% below last year's already reduced level.Having sold down its inventories to razor thin levels, Peru's fishmeal exports will fall from 2012 level of 1.4 million tonnes to an estimated 0.98 million tonnes in 2013. Although it accounts for more than half of fishmeal global fishmeal exports, the situation was not much better in other producers.
The situation is even worse off the Pacific coast of neighbouring Chile, where fishmeal production was down 36% compared to the first four months of 2012. With respect to other parts of the world, leading producer Austevoll Seafood reported that from January to April, global fishmeal production was down 14% from the first four months of 2012.
China: The looming problem
On the demand side, eFeedLink estimates that China, which accounts for over half of world fishmeal imports, reports its inventories fell from to 110,000 tonnes in May, down sharply from 229,000 tonnes a year earlier. Last year, China deliberately ran down fishmeal inventories and kept its import volumes flat to avoid high prices, and hope this year would see greater supply availability.
Although rainy weather has postponed the start of China's aquaculture season, its low, dwindling fishmeal inventory level will force it to either import the same amount as last year, or a greater amount, both of which are inflationary at a time when the leading producers have less to supply the world market.
Several months ago, there was also concern that China's hog and poultry (particularly H7N9) disease outbreaks would cause consumer demand and consumption of all feed inputs, fishmeal included to fall. However, according to eFeedLink's latest Livestock report, this does not appear to be the case. Indeed, fishmeal prices fell at the time the outbreaks received maximum publicity. Their rebounding coincided with both the epidemic's fading from public consciousness and increasingly pessimistic outlook about Peru's anchovy catch.
Consequently, we can expect China's delayed aquaculture season opening to cause it to undertake fishmeal purchases later than usual, but at a time when both Peruvian and Chilean supplies are down trending.
Aside from such short-term inflationary considerations, China is also leading the entire aquaculture industry's slow-motion collision with dwindling fishmeal supplies. The accompanying graph clearly shows two simultaneous -and unsustainable- trends.
From negligible levels 35 years ago, Chinese fishmeal imports initially rose in tandem with global fishmeal exports. However, ever since the mid 1990s, China's fishmeal imports have been increasing at a rate roughly comparable to the pace at which world fishmeal exports have been falling. This simultaneous rise in Chinese fishmeal demand and fall in world fishmeal has progressed to the point where China's fishmeal imports will soon equal or exceed all of Peru's fishmeal exports. Needless to say, this is one reason why China Fishery tried, failed and is trying again, to purchase Copeinica, one of the world's largest Peruvian fishmeal exporters. But the greater looming problem is this: On present trends, within five years, China's fishmeal import demand could potentially absorb not just all of Peru's fishmeal exports but a large proportion of Chile's too. Superficially, this actually makes sense: China accounts for some 70% of world aquaculture production, so the fact it might require a comparable amount of fishmeal supplies is not surprising.
The only problem is that with Peru and Chile supplying three-quarters of fishmeal exports most years, their declining export numbers are coming within shooting distance of China's fishmeal import demand. The latter's growth may slow down but given the tendency of Chinese to eat more expensive, carnivorous species as their incomes rise, the trend will not stop.
Tomorrow's niche marketing -the price we pay
Of course, markets are flexible, saw this day coming long in advance and have taken many steps to delay its coming. Chief among these was the declining inclusion of fishmeal in livestock diets. Whereas the latter consumed the lion's share of fishmeal three decades ago, most fishmeal is now used in aquaculture.
The problem is that the substitution of soymeal in place of fishmeal has gone as far as it possibly can: From here on in, the world will need to grow ever larger quantities of fish (including carnivorous species) with stable or declining quantities of fishmeal.
Towards this end, many innovations have been tried or proposed. These include restricting farmed fish fishmeal inclusion to early growth stages when omega 3 fats and key amino acids are most required, using plant-based omega 3 sources such as alpha-linoleic acid rich rapeseed (which some species can digest), failed attempts to propose making the harvesting of Antarctica's krill-rich waters into fishmeal and the genetic engineering of soy capable of making omega 3 oils, then using it to make soymeal for aqua feed.
Up to now, these and other solutions have fallen far short of the mark. In particular, supply-side proposals such as genetically engineered plant-based omega 3 sources or krill harvesting are way behind schedule.
Hence, for now, the trick will be to get fish to mature properly by using less fishmeal. Here, more scientific progress has been made but it comes at a price. Such fish, though they may look the same in the supermarket, may have substantially lower levels of omega 3 oils -which turn out to be just as vital for human health as they are for proper fish development.
Unless a new, omega 3 rich feed input is found, a means will need to be found to grow fish with little or no omega 3 fat inclusion -and such fish will not be as beneficial to human health as they should be. A wild caught salmon will have more omega 3 oil than farmed salmon. And today's farmed salmon will have more omega 3 than salmon designed to mature with less of this vital fat. In the long run, the only way the global aquaculture industry will be able to get around this problem is through intelligent honesty -also known as 'niche marketing'-
Just as they today pay a higher price for grass-fed beef or antibiotic-free chicken, in the future, educated, high income consumers will demand their farmed fish be fed omega 3 rich feed. With fishmeal's price bottoming above US$1700/tonne and China's aquaculture growth promising a growing imbalance between supply and demand, integrated sellers of aquaculture products should assemble marketing campaigns explaining why a fishmeal raised salmon is worth paying 50% more for.
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