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December 13, 2016

The state of world aquaculture going into 2017
 
By ERIC J. BROOKS

An eFeedLink Hot Topic
 
  • When wild caught fish used in aqua feed is subtracted from the available supply, more farmed fish than wild catch are being consumed for the first time
  • Crustaceans remain most profitable overall seafood class, salmon overtook shrimp as the single largest seafood line by value
  • Asia will maintain its overwhelming dominance of world aquaculture, China is transitioning from leading supplier to leading buyer
  • Other Asian countries are taking China's place as major world aquaculture exporters
  • Each part of the world has a handful of countries which dominate the regions' output
With statistics updated to the year 2014, the UN FAO's 2016 State of the World's Fisheries and Aquaculture (SOFIA 2016) shows an industry at key inflection points. Farmed seafood now dominates consumption though not yet production. A new top importer has taken over and the world's largest seafood producer is gradually turning its largest buyers, as the industry growth moves far away from its East Asian heartland.
 
By some measures, farmed fish have overtaken the supply of wild caught seafood. Based on just raw seafood production, at a UNFAO estimated 73.8 million tonnes in 2014, total aquaculture output lagged that of wild caught seafood, which amounted to 93.8 million tonnes.
 
On the other hand, the long-term trend is clearly in fish farming's favour: Aquaculture's share of world seafood production has risen from 7% in 1974 to 26% in 1994, 31% by 2004, 44% in 2014 and around 47% in 2016.
 
Moreover, whereas virtually all farmed seafood is eaten by people, a large proportion of wild catch (eg. anchovy) is diverted into none human consumption purposes. According to FAO data, 76% of wild catch not consumed as food was turned into fishmeal or fish oil, with the former used in feed and the latter used for both human and livestock nutrition. The remaining 24% of wild catch not consumed was diverted into a variety of uses ranging from feed material to consumer products to human nutritional supplements.
 
When this 20.9 million tonnes of wild catch mostly used in aquaculture is subtracted, only 72.5 million tonnes of wild catch was directly consumed in 2014, versus 73.8kg of farmed seafood. –2014 was thus a milestone year when the proportion of farmed seafood consumed exceeded that of wild catch for the first time. For 2016, aquaculture's proportion of seafood output is eFeedLink estimated to have risen to near 80 million tonnes and its proportion of world seafood consumption to over 52%.
 
When broken down by species and value, 2014's 73.8 million tonnes of farmed seafood was worth US$160.2 billion. This aggregate amount consisted of 49.8 million tonnes of fin fish valued at US$99.2 billion, 6.9 million tonnes of crustaceans worth US$36.2 billion and16.1 million tonnes of molluscs valued US$19 billion; with other species amounting to 7.3 million tonnes and US$3.7 billion.
 
It should be noted that while fin fish accounted for the largest proportion of both value and volume, crustaceans, though substantially smaller in volume, had a substantially higher unit value than any other seafood line. Essentially, fin fish is one high value, high volume line (salmon) alongside many species with significantly lower production volume, unit value or both.
 
Based on FAO 2014 figures, the average value of fin fish production amounted to US$1.99/kg, crustaceans had on average more than 2.5 times the value added, with an average value of US$5.17/kg. To put it another way, fin fish made up 81% of aquaculture production by volume but only 68% of revenues. By comparison, crustaceans accounted for 8% of farmed fish production volumes but 22% of revenues. Essentially, except for salmonids, most other fin fish lines (eg. tilapia, pangassius) had lower revenues per unit than crustaceans.
 
On the other hand, even though salmonid production is flattening out, with demand continuing to grow in the face of nominal production increases, salmon has overtaken shrimp as the world's most value-added farmed seafood line. Accounting for only 7.2% of world aquaculture by volume, they made up 16.6% of world aquaculture trade by value, exceeding shrimp's 15.3% share for the very first time.
 
Geographically speaking the industry's output structure could be best characterized as one whale and several large sharks surrounded by dozens of minnows: Asia was responsible for 65.6 million tonnes or a whopping 88.9% of the 73.8 million tonnes of fish farmed worldwide in 2014. This is unchanged from previous FAO surveys, which showed Asia accounting for 85% to 90% of world aquaculture.
 
On the other hand, while China singlehandedly accounted for 45.8 million tonnes or 62% of world output, this down from its 65% peak share during the mid-2000s. As we shall explain later, with Chinese growth levelling off but frontier regions like India and Myanmar accelerating, Asia will keep its world aquaculture output above 80% well into the next decade and possibly beyond.
 
The other major regions account for a mere 8.2 million tonnes. This is accounted for by output from the America's (3.35 million tonnes), Europe (2.93 million tonnes), Africa (1.7 million tonnes) and Oceana (0.89 million tonnes). Compounding these wide geographic disparities in output, even within a specific continent, one country usually dominated seafood output.
 
For example, with Norway accounting for 1.335 million tonnes of output on its own (and roughly 90% of this being high value Atlantic Salmon), northern Europe produced 59% of that continent's aquaculture output. Moreover, with Nordic countries' dominating world salmon production, fin fish accounted for 78% of European fish farming. Even though they farm considerably more fish, the proportion of production accounted for by fin fish in Asia (66%) and the Americas (62%) is significantly lower.
 

Similarly, led by Egypt's exceptionally large tilapia sector, 99% of African farmed seafood is accounted for by fin fish. From just under 72,000 tonnes in 1995, Egyptian tilapia production has grown 17% annually, to an estimated 1.5 million tonnes in 2016. It is also because of tilapia that Egypt accounted for 66% of Africa's 2014 output of 1.7 million tonnes.
 
At the same time, a variety of both short-term factors and secular changes are decelerating aquaculture's growth rate. From an 11% cumulative annual growth rate (CAGR) from 1980 through the mid-1990s, world aquaculture's CAGR slowed to 7.2% in 1995 through 2004, and 5.8% from 2005 through 2014 inclusive.
 
The reason for this is very simple: Apart from a few nascent, underdeveloped regions like Myanmar, global aquaculture's East Asian heartland faces a dwindling number of freshwater frontier areas. The frontier regions currently opening up are India and Latin America, but they do not have the resources comparable to those of China an Southeast Asia thirty years ago. –Only when African aquaculture takes off, modernizes and diversifies into crustaceans and other high value species will the addition of resources and consumption comparable to that of East Asia boost its longterm growth rate up again –but that may be a decade or more away.
 
 
Moreover, due to problems related to overstocking and disease outbreaks in the high value shrimp and salmon sectors, it is possible that aquaculture's annual growth rate for the years 2014 through 2016 inclusive will have fallen below 5% for the very first time.
 
On one hand, even if this is the case, it is not entirely bad news. Aquaculture's official, FAO estimated overall expansion of more than 4% remains far higher than that of any other protein line. On the other hand, feed statistics also force us to question if aquaculture has decelerated very sharply over the two years since 2014, where the FAO production statistics end.
 
Based on Alltech's Global Feed Survey data, world aqua feed output expanded at rates ranging from 10% to 17% in the 2010 through 2012 period. This was roughly in line with its past performance and expectations.
 
However, after peaking at 40.36 million tonnes in 2013, Alltech's data shows world aqua feed output diving by 12% over two years, to 35.47 million tonnes in 2015. Thus, instead of accounting for 8% to 10% of global feed output 2020 as was once widely forecasted, aqua feed's share of world feed output declined from 4.2% in 2013 to around slightly below 4.0% this year.
 
Because China accounts for well over half of world aquaculture production, its fall in feed output could not be counterbalanced by the rest of the world. It accounted for 5.7 million tonnes of this 5.8 million tonne drop in world feed output. In all China's aqua feed production dived a whopping 24.7%, from 23.1 million tonnes in 2013 to 17.4 million tonnes in 2015.
 
For 2016, reports from eFeedLink's Shanghai bureau state that aqua feed production remains slack. It is expected to increase by no more than 3%. That would make China's 2016 aqua feed output of no more than 18 million tonnes, some 20% below the peak achieved in 2013.
 
Moreover, the large 30% fall in Chinese shrimp output and levelling out of tilapia output coincided with a sharp, shrimp-driven fall in Thailand's aqua feed output over the past few years. From a peak of 600,000 tonnes in 2011, EMS devastated Thai shrimp production. From peak levels above half a million tonnes, it plunged 67%, to approximately 200,000 tonnes in 2014.
 
As a result, Thailand's aqua feed output is approximately 30% lower than it was five years ago.  Although it finally appears to have gotten EMS under control in a sustainable, for 2016, Thai shrimp production is expected to be no more than 300,000 tonnes.
 
But while aquaculture is Asian dominated, other regions also experienced slowdowns or contractions in their aquaculture and aqua feed production. Due to projected falls of 35% and 5% in Chilean and Norwegian salmon output from peak levels achieved earlier this decade, Undercurrent News expects 2016's world farmed salmon output to fall between 5% and 9%. With Norway and Chile producing 75% to 80% of the world's salmon feed, their milling output has fallen approximately 20%, from an estimated 3.5 million tonnes in 2014 to 2.8 million tonnes this year.
 
While China, Thailand and (to a lesser extent) Chile accounted for most of the drop in world aqua feed production, their decline was counteracted by rapid production growth in the shrimp exports from India, Vietnam and Latin America, particularly Ecuador.
 
Until Africa's mostly untapped coastline comes into production sometime in the 2020s, India, Latin America and underdeveloped ASEAN countries like Vietnam, Indonesia and Myanmar will account for most of the next decade's increase in world aquaculture output. Collectively however, they cannot make up for the deceleration of China's elephant-sized aquaculture industry. This means that while individual markets like Myanmar or South Asia may grow as fast as China once did in percentage terms, world aquaculture growth will stabilize when next year's shrimp output recovery happens. Thereafter however, it will continue to slow down.
 
But these countries are also the reason why Chinese aquaculture and aqua feed, vast as they are, will only grow nominally in the future. On one hand, the well documented exhaustion of fresh, untapped Chinese fish farming areas is boosting stocking densities, creating problems with disease outbreaks and pushing up unit production costs.
 
On the other hand, besieged by lower labour costs in Vietnam, India and Myanmar and cheaper, untapped water resources in Latin America, lower cost imports of shrimp and white fish have capped domestic Chinese seafood prices. By doing so, they have limited returns to a level which, alongside dwindling frontier areas, rising labour costs and the disease risk of higher stocking densities, will cause a levelling off of Chinese aquaculture output.
 
But while China's aquaculture output is levelling off, demand continues to grow at a significantly faster, more linear rate. This means that over the next decade, seafood lines like shrimp and tilapia will eventually become domestically oriented. Imports of shrimp from Ecuador and shrimp from Vietnam are already redefining the supply and demand dynamics of China's vast aquaculture market.
 
The inflection point in China's world market role has been reached but the transformation is only starting. At this time, America (which has a growing population and rising seafood consumption) has taken over from Japan's (which has a falling population and declining seafood consumption) as the world's largest seafood importer. From 2004 to 2014, US seafood imports jumped from US$12.0 billion to US$20.3 billion. Japan's by comparison were nearly level, going from US$14.6 billion to US$14.8 billion over the same ten-year period.
 
China's seafood imports jumped from US$3.1 billion on 2004 to US$8.5 billion in 2014. Its 10.5% annual increase in seafood imports is more than twice the US's 5.4% CAGR over this time –the difference being that over those ten years, exports grew 12.2% annually. Amounting to US$20 billion in 2014, they made China the largest seafood exporter by value, followed by Norway's US$10.8 billion, Vietnam's 8.0 billion, Thailand's US$6.6 billion, Chile (US$5.8 billion) and India (US$5.6 billion).
 
The difference is that while there is still considerable room for further expansion in farmed seafood exports from Latin America, India or Southeast Asia, China's increasingly tight aquaculture resource constraints will tip many of its seafood lines into net importer status over the next decade. Will China become as important a price setter in the world market for shrimp or salmon as it is for fishmeal and soybeans? Time will tell.
 


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