November 9, 2017
China transitions from export-driven seafood producer to leading importer
Dwindling water resources, urbanization, cheap imports constrain supply growth, but demand keeps rising. This is transforming China from a top seafood exporter to its largest importer.
By Eric J. Brooks
An eFeedLink Hot Topic

China dominates world aquaculture output but its future will be keynoted by consumption more than it is production. Consuming more seafood per capita than westerners do beef or pork, China's once export-oriented aquaculture sector is undergoing profound growth deceleration. On the other hand, its seafood consumption continues to grow rapidly and is outstripping its domestic resource based.
From a UN FAO estimated less than 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 34.5kg this year. Going forward, the FAO projects that China's per capita seafood consumption will rise to 36kg by 2020 and at least 41kg by 2030. Given China's current rate of population growth, the above-projected rise in per capita demand implies that by 2030, consumption will rise by at least approximately 30%.
As is the case with pork or dairy goods, the next twenty years will be spent closing the gap between the seafood consumption of urban dwellers and their rural counterparts. According to Beijing government municipal data, urban residents eat 48kg of seafood annually. This implies that the 43% of Chinese who live in rural regions consume, on average, less than 17kg per capita of seafood annually -or less than half the quantity eaten by urban dwellers.
This is much wider than any consumption gap between the urban and rural consumption of any meat line. Moreover, consumption disparities are much wider in certain, high-end seafood lines such as shrimp or tilapia than they are for low-end, traditional lines such as carp.
For example, according to a study by Rabobank analyst Gorjan Nikolik (Rabobank Industry Note #341, October 2012). China's top income group income eats 40% more pork per capita than their counterparts in the lowest income bracket -but consumes 600% more shrimp. By comparison, 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.
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, a large market grows the most slowly but China's seafood market is both the world's biggest and its fastest growing in absolute volume terms: The FAO expects this 1.35 billion population's already high seafood consumption to increase at 3% to 5% annual rates all the way up to 2040.
Unfortunately, Chinese seafood's demand-side optimism is not shared by its long-term 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 highly leading aquaculture production regions in China's south, prime aquaculture producing areas were transformed 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.
Along with urban encroachment, 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. These trends constrain the supply of aquaculture frontier regions in a country where the best areas are already fully developed.
Moreover, with worker wages rising by more than 10% annually since 2010, 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 boost 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 must give, and it will have to be the latter.
This is changing China's trade position in the world seafood market. Previously, aquaculture exports expanded at a 15% annual rate, from US$3billion 2000 to over US$18 billion in 2012. That was the year when China's seafood exports overtook those of Norway and Peru, making it the top-ranked exporter by value.

Aquaculture exports then rose even higher, peaking at an FAO estimated US$21.19 billion versus imports of US$8.89 billion in 2014. 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: In the early 1980s when China's aquaculture revolution began, low resource, feed efficient lines such as carps and molluscs made up over 90% of production. By this year however, their proportion had fallen to approximately 65%.
Feed-intensive lines such as shrimp, tilapia or abalone offered substantially higher returns -but require far more feed inputs, water and space than carp or eels. The growing popularity of these high-end seafood lines made China run out of land suitable for fish farming several decades faster than otherwise would have been the case.
Thus, 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 export-driven growth years of 2000 through 2012, import volumes kept pace with exports: From an FAO estimated 2.48 million tonnes in 2000 to 3.81 million tonnes in 2010, 4.20 million tonnes in 2014 and around 5 million tonnes this year.
Over the first fifteen or so years, exports also grew quickly, from 1.52 million tonnes in 2000 to 3.57 million tonnes in 2010, peaking at just under 4 million tonnes in 2014. -But amid aggressive post-2014 import growth, the past three years have seen shipment volumes slump back to 3.9 million tonnes in 2015 and around 3.2 million tonnes this year.

While China is a growing net seafood importer by volume, it remains a top net exporter by dollar value -though this too is rapidly changing: In 2000, Chinese aquaculture exports valued at US$3.71 billion exceeded imports of US$1.82 billion by a factor of 2.0. Thereafter exports clearly outraced foreign purchases: China's 2014record seafood export value of US$21.19 billion exceeded US$8.89 billion by a factor of 2.4.
Since mid-decade, amid a leveling out or outright declines in the production of high-value species such as shrimp or tilapia, Chinese aquaculture's terms of trade have gone into reverse.
FAO statistics show that aquaculture exports slumped back to US$19.9 billion in 2015. With rising domestic consumption and disease constraining the supply of exportable high-value lines like tilapia and shrimp, exports are estimated to have fallen to around US$19.5 billion last year and US$19.25 billion this year. Over this same period, the value of imports grew rapidly, to around US$11 billion this year. While it continues to export 1.75 times more seafood than it imports, China's net seafood trade surplus is dropping rapidly.
This is in part due to the above-mentioned input shortages and partly due to uncontrollable disease outbreaks (which are themselves symptomatic of resource constraints). It coincides with producers from Vietnam to Ecuador undercutting local producers, as emerging competitors leverage their undeveloped frontiers and lower populations. All this has boosted imports while lowering domestic aquaculture returns, resulting in large processing overcapacity for shrimp and tilapia -two lines that for years led domestic production growth.
The production constraining impact of all the above factors can be seen in Chinese aquaculture statistics. Previously, aqua feed grew faster than the feed production of any other Chinese protein line, expanding by 5% to 10% annually for decades on end. This is no longer the case.
Data from annual Alltech Global Feed Surveys show that China's aqua feed output has fallen for three consecutive years. At 16.4 million tonnes, China's 2016 aqua feed output is down 28.7% from its 2013 peak of 23 million tonnes.
The world's leading aqua feed producer has abruptly gone from taking for granted annual 10%+ growth to experiencing an exceptionally steep, five-year production decline. Chinese aqua feed's deep recession reflects a deeper, emerging reality: Hemmed in by disease outbreaks, the exhaustion of frontier aquaculture regions, environmental regulations, land development, labor shortages and competition from cheaper imports, fast growing, high-value, feed-intensive species are precisely the aquaculture lines whose fortunes have undergone the steepest reversals.
It is the leveling out or declines in the production of high-value species which caused China's aqua feed output to fall sharply even as its production in the rest of the world kept increasing. Moreover, this five-year decline in China's aqua feed output occurred even as production in the rest of the world continued to grow rapidly.
Aqua feed production is a proxy for farmed seafood output. With domestic demand continuing to increase, aqua feed's stagnant output in China and rapid growth in other parts of the world is heavy with implication: It is an early signal of the country's impending transformation from aquaculture exporter to leading seafood buyer.
This long-run exhaustion of China's aquaculture resource inputs will put it in a similar position to America's oil industry, which was once the world largest oil exporter and is still its top producer: China is destined to remain the world's leading seafood producer, its largest consumer of aquaculture products, their largest importer and market trend setter. 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.

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