Chinese tilapia processors suffer shortages, price rises, while export earnings slump : April 13, 2017
Louis Harkell : Undercurrentnews
After reports farmers seeded less tilapia fry last autumn than usual in Hainan, south China, production actually remained stable, or even increased. It was elsewhere that suffered shortages.
Processors in Guangdong Province and Guangxi Province were running short, forcing them to source shipments from other areas. This caused prices to rise across the board from January.
“So far, in Hainan, raw material supply has been relatively large. Farmers seeded ponds in November, and tilapia fry grew into fish,” a source at a large exporter in Hainan (source A) told Undercurrent News.
“But especially in Guangdong and Guangxi, there was a lack of raw material. This meant they came to Hainan to buy…. Now, tilapia is basically in short supply. So now the entire raw material market is a very high market,” said source A.
Shuichan, a trade publication, confirmed the situation. “In Aoxi [southwest Guangdong Province] raw material supplies are tight. Processors have been sourcing raw material from Hainan. But now most tilapia from Hainan ponds are in smaller sizes, 400 to 500g,”
Source A said smaller sizes would be most prevalent in Hainan in May, by which time most of the larger stock will have been sold.
Several sources contacted said that the supply shortages are seasonal. In Guangdong and Guangxi temperatures tend to fall too low for year-round farming, whereas in Hainan tilapia can be farmed through the winter.
This is borne out in Undercurrent’s prices dashboard — prices consistently rise through the back end of the year and into the new year prices. Undercurrent sources the prices from factories in Zhanjiang, Guangdong, a region impacted by seasonally low production.
In May and June large volumes should hit the market again, said source A, as farmers in Guangdong and Guangxi harvest ponds seeded February and March. “Prices will likely fall again in summer,” she said.
Export markets flat
But any threat of an increase in prices is worrying for processors. This is because they face a massive drop in export earnings and margins. Therefore, current raw material prices — CNY 8.80 to CNY 9.00 per kilo ($1.276 to $1.305), for 500-800g sizes — are today “very high”, according to Kevin Tang, president of Sunnyvale Seafood, the US arm of Zhanjiang Guolian Aquatic Products. This is even though they are still historically low.
The drop in export earnings is on the back of three consecutive years of falling exports of frozen tilapia fillets. according to International Trade Center (ITC). From the peak of 181,871 metric tons in 2013, Chinese exports of frozen tilapia fillets have decreased nearly 20% to 147,391t.
Amid falling demand for fillets, in order to digest raw material supplies, Chinese processors have had to produce more whole frozen tilapia, which is is sold primarily to countries in Africa. Prices for whole frozen tilapia tend to be $1,500 per metric ton cheaper than fillets. Since 2012, Chinese exports of whole frozen tilapia have increased 17.4% (see chart 1).
Falling demand from the US, which sits atop the value-chain, is driving this market dynamic. Last year, China exported 25.7% less tilapia fillets to the US, down to 62,742t (see chart 2). These are Chinese customs figures — for some reason the US reports much larger imports from China of 115,628t, after a 17.8% y-o-y decline.
Those processors still chasing sales of frozen tilapia fillets are being forced to markets which buy at lower prices. For instance, China exported 29,009t last year to Mexico, up 21% y-o-y.
Yet these exports were worth just $2,983 per-metric-ton on average, whereas exports to the US were worth $3,806/t (see chart 3). Even to the US, though, prices have fallen after the peak in 2014.
However, US import data shows lower average prices for 2016, of $3,296/t.
Thus, exports of value-added frozen tilapia fillets have fallen, while exports of whole frozen tilapia have been rising. On top of this, average prices are also down.
Consequently, Chinese tilapia exporters’ earnings have slumped. In 2013, Chinese exports of frozen tilapia fillets were worth $791.7 million; last year, $509.7m, a drop of 35.6% (see chart 4). Including whole frozen tilapia, export earnings were down from $995.1m to $777.0m, a drop of 21.9%.
More than just a seasonal blip
Seasonal ebb and flow can’t fully explain raw material shortages. More likely is the deeper market decline, as producers exit the sector on squeezed raw material prices.
“Both farmers and processors are squeezing their profit margins, just to survive,” said source A. She said her firm had no choice but to put pressure on framers to lower prices.
Tang also leaned towards structural changes for supply shortages than seasonal decline. “Producers did not make money last year, so they are stocking less… Feed sales are down. Producers are seeding less — we can see that,” he told Undercurrent. He expects overall production to decline this year.
Last winter was much warmer than usual, meaning production in Guangdong and Guagnxi should have been higher.
Meanwhile, in Hainan, some workers have ditched aquaculture to work in the tourism sector. “It’s less tiring than working in a processing factory,” said source A. Her firm has had to increase wages to compete. She added that automization is not possible currently, although the company “is looking forward to doing that”.
Under these tough market conditions, larger companies are in fact increasing exports — China’s largest tilapia exporter Baiyang Investment Group increased exports 13% y-o-y in 2016.
This is because smaller companies “don’t have the liquidity to ride out the hard times”, said source A, meaning larger companies fill the gap. She said that her company had also seen an increase in sales volumes.
Her company was not reducing quality by adding water, though, as has been claimed by some sources. “This approach is self-defeating.” Industry circles are small and once a customer complains word spreads. “It can devastate sales.”
She said in the short-term production would fall in Hainan, though, because higher temperatures in June, July and August tend to cause large die-offs, either due to hypoxia or disease, while chemicals used to control these make the fish unsuitable for export.
In the short-term, though, the market should remain stable — prices last week in China fell slightly below year-ago levels.
Pangasius price hike an opportunity?
Recent increases in pangasius prices will unlikely have a big impact on tilapia exports, according to Landy Chow, general manager of Siam Canadian China Ltd. European supermarkets who dropped pangasius products will also more likely switch to pollock than Chinese tilapia.
“I don’t think it will impact sales, maybe a little… European markets have stricter regulations than the US. So it costs more for Chinese tilapia producers to get market access.
“[Export] demand depends more on consumer spending in the US.” He said there could be an increase in demand in summer, when there is usually an uptick in orders from restaurants.