Livestock & Feed Bussiness Worldwide: May 2016
From producer to consumer
by Eric J. BROOKS
Accounting for nearly 60% of the world's aquaculture production and eating more seafood per person than Americans do beef or pork, China's aquaculture sector is closing a chapter that was keynoted by decades of rapid supply side growth. For while the country came out of nowhere to become the world market's largest seafood supplier, its domestic industry's development is now taking centre stage.
From under 5kg in 1980 and 10.3kg in 1990, China's per capita seafood consumption skyrocketed to 24.5kg in 2000, 30kg in 2010 and approximately 33kg by 2015, with the FAO projecting 36kg by 2020. These consumption statistics, when multiplied by 1.37 billion people, are impressive –but their singular absolute nature hides huge internal market contradictions. Interestingly, it is the free market's tendency to close unnatural consumption disparities which is forcing the industry to turn inward.
On one hand, according to Beijing municipal data, urban residents eat 48kg of seafood annually, which implies that rural dwellers consume no more than 17kg per capita. This is much wider than the consumption gap between urban and rural meat consumption. Moreover, consumption disparities are much wider in certain, high-end seafood lines than they are for traditional, land-based meats.
Similarly, a study by Rabobank analyst Gorjan Nikolik (Rabobank Industry Note #341, October 2012) estimates that while China's top income group income consumes 40% more pork per capita than their counterparts in the lowest income bracket, they eat seven times or 600% more shrimp. On the other hand, due to their lower cost, the consumption gap between rural and urban residents for low-end species such as carps and molluscs is much smaller.
At the same time, the entire trend of Chinese agribusiness has been driven by the rising incomes of low income earners. As they become more prosperous, their consumption of protein lines rises to that of the wealthy, driving large increases in per capita consumption.
Hence, China's decades long trend for rural residents and a low income urban majority to catch up to high income consumption levels promises many more years of rising per capita seafood consumption. This is particularly true of crustaceans, shellfish and imported high-end finfish such as salmon, where consumption disparities are the greatest.
The good news is that with so much pent up demand, China has several decades of rapid aquaculture consumption growth ahead. This makes it unusual: Normally, large market grows the most slowly but China's seafood market is both the world's biggest, and expected to grow at a 3% to 5% annual rate all the way up to 2040.
The bad news is that such optimism is no longer true of Chinese aquaculture's supply side fundamentals. Coastal fish farming regions were fully developed two decades ago. Now, even the scope for finding areas suitable for establishing new inland fish farms is dwindling.
In many cases, prime aquaculture producing areas were converted into coastal or riverside real estate developments. This is especially true of southern Chinese provinces like Guangdong, which is a production and processing hub for the shrimp and tilapia sectors.
Alongside urbanization, new environmental regulations are also constraining the supply of available ponds.
Agriculture minister Han Changfu recently stated that “The increase in China's seafood output has come at the expense of the country's natural environment.” His words followed the enactment of new laws which restrict where aquaculture can be established. In some cases, to comply with new environmental legislation, unit costs will have to rise and stocking densities will have to be lowered.
Moreover, with worker wages rising at a 10% to 15% rate every year from 2010 through 2014, a growing manpower shortage is further aggravating the cost inflation currently being experienced by aquaculture farms.
Over the short term, the exhaustion of frontier regions and subsequent cost inflation forces producers to boosting stocking densities. That frequently results in disease outbreaks, increasing reliance on antibiotics and in some cases, the overuse of banned dangerous chemicals.
The resulting food safety issues have hobbled China's aquaculture industry throughout our current decade. Over the long term, this coincidence of ecological damage, resource constraints amid rising, open-ended domestic consumption are transforming China's role in the world seafood market. For two decades, it grew fast enough to overtake domestic consumption growth and become a top exporter.
Ironically, as soon as it overtook Norway and Peru to become the world's top seafood exporter, China found that its limited resource base could not satisfy both rising domestic consumption and its export commitments.
Something has to give, and it will have to be the latter. This is changing China's trade position in the world seafood market.
With the value of exports growing at a 15% annual rate from US$3billion 2000 to US$16 billion in 2012, seafood exports that year surpassed those of Norway and Peru, making it the top ranked exporter.
They then rose even higher, peaking in 2014 when seafood exports of US$21.72 billion versus imports of US$9.18 billion.
Besides making it the leading exporter, this also gave China a sizable seafood trade surplus.
But this export-driven success has come at a price: Thirty years ago when China's aquaculture revolution began, low resource, feed efficient lines such as carps and molluscs made up over 90% of production. By 2015 however, their proportion had fallen to approximately 67%. Both in China itself and in overseas markets, feed-intensive lines such as shrimp, tilapia or abalone offered substantially higher returns. By requiring far more feed, water and space, these lines made China run out of land suitable for fish farming several decades faster than otherwise would have been the case.
Ironically, no sooner did China become the world's top seafood supplier than demographics and nature started moving it towards net importer status. Even in the rapid growth years of 2000 through 2012, exports may have risen five times but seafood imports also skyrocketed, from an FAO estimated several hundred thousand tonnes in 2000 to 1.5 million tonnes in 2007, 4.1 million tonnes in 2012 and close to 6.0 million tonnes this year.
In 2015, we saw the tide turn: Recessionary economic conditions made the value of seafood exports fall by 2.2%, to US$8.9 billion, but exports fell by a far sharper 6.3%, to US$20.33 billion. Coincidentally, recent years have seen the feed-intensive seafood lines which led the last two decades of expansion stagnate and their trade terms suddenly worsen.
The China's high-value, export driven, feed intensive species can be seen in more than just trade statistics: Aqua feed grew faster than the feed production of any other livestock line, expanding by 5% to 10% annually for decades on end. This is no longer the case.
Data from Alltech Global Feed Surveys show that China's aqua feed output has fallen for three of the last five years. At 17.7 million tonnes, 2014's aqua feed output is down 30% from its 2013 peak of 23 million tonnes. While this is partly due to an exceptionally nasty shrimp disease outbreak, it also reflects a deeper, emerging reality: Export-driven, feed-intensive species are precisely the aquaculture lines whose fortunes have suddenly turned downwards.
Eventually, the exhaustion of China's aquaculture resource inputs will place it in a similar position to America's oil industry, which was once the world largest oil exporter and is still its top producer: It is destined to become the world's leading seafood producer, the largest importer and market trend setter at the same time. Over the next decade, as it turns into a net seafood importer, its influence over certain seafood lines will rival the influence it exerts over markets for soy and fishmeal.
In the pages that follow, we examine seafood lines that are at the heart of Chinese aquaculture's gradual transformation from producer to consumer, exporter to importer.
The full article is published on the May 2016 issue of LIVESTOCK & FEED Business. To read the full report, please email to to request for a complimentary copy of the magazine, indicating your name, mailing address and title of the report.
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