Thursday, January 1, 2009

Fish exports get more expensive

More evidence that China's food export boom may have peaked. As the full cost of Chinese food products is factored in, prices are rising and demand is slowing.

According to a session on aquaculture at the national agriculture work meeting held on Dec. 29, the value of Chinese fish and shellfish exports rose during 2008 due to the rise in primary commodity prices, but the quantity fell.

Fish and shellfish exports totaled 2.18 million metric tons in the first three quarters of 2008, down 0.9%, year on year. However, due to rising prices, the value of fish and shellfish exports was up 9.8%, exceeding 7 billion dollars. The value of exports is expected to exceed 10 billion dollars for the year.

Aquaculture exports have slowed their breakneck pace of growth and company profits have fallen since the second half of 2007 due to a host of reasons: changing economic situation, food safety incidents, rising labor costs, tighter environmental controls, rising raw materials and energy costs, changes in the exchange rate. In this environment, the Ministry of Agriculture held a meeting on international aquaculture trade development in March 2008 to study the trends and quality/safety problems facing aquaculture products, rising costs, and declining competitiveness. Seven measures were recommended. At the same time, AQSIQ discussed negotiations about regaining shellfish access to the EU market and how to help shellfish gain compliance with EU requirements. Actively cooperate with AQSIQ and other relevant agencies to have discussions with the EU, U.S., New Zealand, and other countries. In October nine companies have followed the Zhanjiang Guolian company (a company in Guangdong Province that AQSIQ used as a model to get past FDA inspections) in passing U.S. FDA inspections to get exemption from automatic detention [under the FDA import alert issued in 2008 for fish and shrimp from China].

This year, through various efforts, aquaculture exports have overcome problems, with exports for January-October totaling 2.44 million metric tons (down 0.3%) and value of 8.6 billion dollars (up 11%). Exports in October alone were 259,000 metric tons, up 5.1%. The value of exports in October was up 24% year-on-year.

The U.S. financial crisis is creating a complicated external environment. At the end of November, the Ministry of Agriculture Fishery Bureau held a meeting with experts and officials from aquaculture producing provinces and municipalities, representatives from industry associations and companies to study the situation.

Aquaculture product prices rose during the first three quarters of 2008. Shellfish (37.8%), tilapia (34.9%), and prawns (14%) had the biggest price increases. One of the bright spots was channel catfish, which saw an 800% rise in export quantity and a 770% increase in export value. Large yellow croaker exports were up 11.6% (value up 13.9%) and tilapia exports were up 5.8% (value up 42.6%). The quantity of shellfish (-9.8%) and prawn (-0.3%) exports fell while their value rose.

Another reason for the rise in export value was development of new markets. The traditional markets for Chinese fish exports are Japan, U.S., Europe, Hong Kong, South Korea, and Russia. Exports to Southeast Asia rose 48.7% (85.4% by value) and exports to the EU rose 9.3% (16.3% by value). Exports to African, Latin American countries, Mongolia, Vietnam, Thailand, and other new markets in Asia rose.

This may be more evidence that Chinese exports have been underpriced in the past. The environmental and health costs of the huge ramp-up in fish production for export were not fully taken into account. The U.S. FDA found that potentially harmful veterinary drugs were regularly showing up in tests of Chinese fish and shrimp in 2007 and issued an import alert. European authorities have found similar problems. Chinese authorities have been working with FDA to figure out how to help Chinese companies meet U.S. standards. Now that they are having to meet these standards, products cost more and the demand is not growing as fast.

A secondary effect is that some of these products appear to be getting diverted to other markets (where standards are more lax?) in Africa and Latin America. There has been a similar surge of Chinese food exports to the U.S. that has coincided with Japan's tightening of standards for Chinese products.

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