China's fishmeal imports and problems faced by local producers
As a source of animal protein, fishmeal is an important ingredient to the feed production industry. In China demand for fishmeal has been increasing in tandem with the annual growth in feed production.
In 2001, China produced 78.06 tons of animal feed, of which formulated feed accounted for 60.87 million ton, feed concentrates accounted for 14.19 million tons, pre-mixes accounted for 3.01 million tons.
China is the world's biggest consumer of fishmeal, at about 1.3 million tons.
Global fishmeal production is about 6 million tons per annum, of which about 4 million tons is traded. China imports about 1 million tons of fishmeal annually, which is one-quarter of total global production and trading volume.
In feed production, China accounts for one-eighth of total world feed production which is about 600 million tons. In monetary terms, the fishmeal market in China is now worth more than RMB 6 billion.
Global Fishmeal Production And China's Fishmeal Imports
South America produces half of total world fishmeal production. The other fishmeal producers are U.S., China, Russia, North Europe, and Australia. The biggest fishmeal producer country is Peru with one-third of total world production. Peru also accounts for 50 percent of all fishmeal trades. However, the country has seen both production and sales volume decreasing in recent years.
Peru's fish haul during the period Jan-Oct 2002 decreased by 5.7% compared to the same period in 2001. A ban on fishing, which was originally scheduled to be lifted in Oct 2002 was extended to Nov 4 after unfavorable results from trials. The water temperature was 2 to 3 degrees Celsius higher than normal, indicating the negative effects of El Nino on anchovy haul.
Lower fishmeal production from Peru and similar depleted sources from the world's oceans, total global fishmeal production in 2003 is also seen to be trending downwards.
China has to import large quantities of fishmeal and soybean due to its lack of protein resources. As China's main supplier of fishmeal, Peru's production volume and market prices affect the volume of China's fishmeal imports and market prices too. In the first half of 2002, fish meal prices rose substantially. In the period Jul-Aug 2002, Chinese importers were aggressively bidding for Peruvian fishmeal, resulting in exhausted fishmeal stocks in Peruvian warehouses but more than 200,000 tons stockpiled in warehouses at Chinese ports.
In 2001, fishmeal importers in China were required to apply for import registration licenses. There were 45 successful applicants for fishmeal import licenses during the period April to November 2001, and 130 batch numbers were issued, valid for 6 years. Besides the ten countries mentioned above, other countries of origin included Iceland, Norway, Indonesia, Brazil, South Korea and Taiwan.
Locally Produced Fishmeal
China's fishmeal industry began in the mid-1980s along the coastal regions of Zhejiang. By the mid-1990s, the center of production had shifted to Weihai region of Shandong.
In the early years, locally produced fishmeal were mostly lower quality dried fishmeal. Production of fishmeal using the steam process began after the 1990s. Currently, fishmeal production equipment and facilities in China are comparable to imported equipment. Also, quality of locally produced fishmeal has been improving.
In 1998, the sharp rise of fishmeal prices attracted many new participants from the fishing and farming communities along the coastal regions. In that year alone, new fishmeal production lines increased by more than 150 lines, and raised China's fishmeal production capacity to more than 150,000 tons a year.
However, due to adulteration by some producers, the reputation of locally produced fishmeal suffered and has yet to recover; some producers of quality fishmeal were also affected.
Currently, there are more than 500 fishmeal producers in China, of which about 140 producers have received official licenses and manufacturing permits. Another 360 producers are awaiting approval of their applications. And there are some who have not applied for certification but are still producing fishmeal.
Although China has a long coastline, it lacks the fish resources required for fishmeal production. In recent years, diminishing stocks have reduced the types of fish ingredients to just anchovy.
According to a study of anchovy stocks along China's coastal regions conducted jointly by the Ministry of Agriculture and experts from Holland, China's anchovy stocks was estimated at 5 million tons, and annual catch at 50,000 tons was sustainable. However, since 1986, over-fishing of anchovy beyond the permitted level has resulted in depleted stock. As a result, fishmeal production has steadily declined.
For the past two years, fishing vessels in Liaoning and Shandong provinces have disregarded the restrictions during non-fishing season and have caught anchovy with sizes about 5-6 cm.
Fishmeal produced from small sizes is of lower quality and incur higher cost of production due to lower ratio and lack of fats.
Also, the competition for ingredients by fishmeal producers have raised the cost of raw materials and the high prices have made fishing vessels willing to risk fines.
If this situation persists, and fishing stocks are depleted, it will be difficult for local fishmeal producers to continue production or even survive.
Analysis of Fishmeal Trend
With limited resources, the volume of locally produced fishmeal is unable to meet the demand from China's feed industry. Therefore, China will have to rely on and continue to be dependent on imports.
Production of fishmeal is affected by variables such as resources, weather and government policies. In China, an annual temporary ban on fishing is enforced for 2.5 months (Jul-Sep) in the Yellow Sea and East China Sea. Peru imposes bans twice a year, from Jan-Mar and Aug-Oct, lasting for 5-6 months.
Fishmeal is a main component for aquaculture feed, for which demand is highest during the months of May-Sep.
As such, there are peak and off-peak seasons in demand for fishmeal as well as feed production. When demand for fishmeal is at its peak, supply is tight and prices high. Of course, prices fall during the low demand season.
Due to inefficient dissemination of news and information, fishmeal importers are sometimes misled by current prices and have been known to have over-import or under-import, resulting in high volatility in prices.
Thus, fishmeal prices in China can sometimes be the complete reverse of prices in international markets.
As market prices of fishmeal in China are influenced by prices of imported fishmeal, locally produced fishmeal prices will move in tandem with rises and falls in prices of imported fishmeal.
In 1998, when prices of imported fishmeal reached RMB 7,000 /ton, prices of locally produced fishmeal also rose to RMB 5,600-5,800 /ton. When imported fishmeal prices fell to RMB 3,000 /ton, prices of locally produced fishmeal also fell to RMB 2,500-2,600 /ton.
Currently, China's fishmeal market prices are contradicting international prices. Chinese fishmeal importers are dumping stocks to cut losses; prices have fallen from RMB 6,000 /ton in May/Jun to RMB 4,800-4,900 due to the following reasons:
Fishmeal prices are also affected by the supply situation for soymeal which is the main ingredient for formulated feed. China's soymeal consumption is about 15 million tons a year. Under normal circumstances, the price comparison ratio between soymeal and fishmeal is 1:2.2 to 1:2.5. If the ratio is above this standard and the supply situation is not normal, then soymeal and fishmeal prices and supply conditions will affect each other.
From another viewpoint, the outlook for China's fishmeal market is still favorable:
Problems Faced By China's Fishmeal Industry
1. Higher cost of fishmeal production
As anchovy stocks deplete, fishing for anchovy has become more difficult while size of catch decrease. Cost increase further with higher oil prices.
From RMB 0.6 /kg, price of anchovy has risen to RMB 0.95 /kg and was once as high as RMB 1.2 /kg. For every one cent increase in the price of one kilogram of anchovy, cost of fishmeal increase by RMB 100 /ton.
The widespread practice of adulteration can be gleaned from the statistics below:
In 1998, anchovy haul was 1.37 million tons which could be used to produce 300,000 tons of fishmeal. Even if other sources of fishmeal were included, it would still be not more than 500,000 tons. Statistics indicated that 666,800 tons was produced. In 1999, anchovy haul was 1.3 million and fishmeal production was 755,200 tons.
3. Low Quality Of Local Fishmeal Producers
Most of the fishmeal factories were started by fishermen and farmers living along the coastal regions. Thus, the educational level and technical skills of all workers from the factory manager to the workers are quite low.
Also, most of the factories are small-scale operations with production capacity of less than 10,000 tons.
Due to lack of co-operation between themselves, few exchanges of information, knowledge and technical know-how, they are not able to operate effectively in a competitive market.
4. Environmental Pollution
In fishmeal manufacturing process, large volumes of contaminated water is released into the sea, causing serious pollution. Moreover, the water contained water-soluble protein which is a precious resource that ought to be recovered.
5. Poor control, management and enforcement
Although there are universal standards for fishmeal production pertaining to quality and hygiene, and licensing of fishmeal producers, many of those without licenses were still in operation. This is one of the reasons why problems of adulterated fishmeal cannot be eliminated.
To ensure food safety, feed as the source of contamination must be strictly controlled. With the establishment of Fishmeal and Fish oil sub-association of China Aquaculture Products and Processors Association in Qingdao on Oct 28, the fishmeal industry now has a industry association to self-regulate and assist the authorities to tackle the problems of adulteration and poor management controls.
Domestic fishmeal producers must reorganize themselves into fewer but stronger players according to regions, adopt new technical and management skills, eliminate adulterated fishmeal, and maintain stringent quality standards to ensure their survival.