GLOBEFISH - Information and Analysis on World Fish Trade

US tariffs shake up tilapia sector as Chinese suppliers suffer

11/09/2019

After multiple delays, the US authorities have acted on their threat to increase tariffs on an array of Chinese goods, including tilapia, to 25 percent. Already damaged by drawn-out uncertainty, Chinese tilapia suppliers must now face the financial consequences of the increased duties.

Production

Tilapia harvests in China, by far the world’s largest producer, are forecast to reach 1.8 million tonnes in 2019, an increase of around 500 000 tonnes compared with last year. Farmers ramped up production in the second half of 2018 and early in 2019 in an effort to ship volumes before the expected effective date of the tariff hike in December and then March, but now this incentive has disappeared.

In fact, the mounting difficulties associated with the introduction of the US tariffs has seen some Chinese tilapia producers and processors start to shift their focus towards other species such as shrimp and pangasius, meaning that previous production forecasts may need to be revised downwards. While the immediate impact of the new restrictions now faced by the Chinese industry is on profit margins, there is also concern that the lessening importance of the sustainability-minded US market will translate into a general loosening of the standards and practices that have driven improvements in environmental and social responsibility. In the longer term, however, suppliers are not concerned about China losing its status as the top tilapia producer, mainly because it is still very difficult for other potential suppliers to compete in the low-margin, high-volume segment that China occupies.

Despite China’s complete dominance of the global market for lower priced frozen tilapia, their current struggles do offer a window of opportunity for the tilapia industries in Indonesia, Thailand and Latin America to secure a firmer foothold in the United States of America.  

In Latin America, Colombia has established itself as the main supplier of fresh tilapia fillets to the US market and continues to invest in sustainable development and improvement of product standards, while a number of other projects are underway elsewhere in the region.

In Mexico, now the ninth largest producer in the world with around 160 000 tonnes per year, the authorities recently declared the country free of tilapia lake virus (TiLV) after extensive analysis. Producers are encouraged to remain alert and continue to apply good production practices and enforce biosecurity measures on their farms.

In Africa, expansion continues despite ongoing challenges. Egypt is particularly interesting, as it is the second largest producer with almost 900 000 tonnes, an increase of about 80 percent over the last decade, although it has an almost non-existent export industry. This is due to a combination of factors, including lack of consolidation, strong demand in local markets and inadequate logistics and processing infrastructure.

Markets

The recent introduction of tariffs is the latest in a range of difficulties faced by marketers of Chinese tilapia in the United States of America. The additional 15 percent now taxed on all Chinese tilapia exports to the United States of America significantly outweighs the profit margin in the supply chain, meaning that the cost must be passed down the supply chain to the consumer. Other challenges involved lingering negative consumer perception of Chinese-origin tilapia and stiff competition in the commodity whitefish segment. In response, the focus has shifted towards other markets as well as the Chinese domestic market. Marketing campaigns aiming to improve the appeal of tilapia from a Chinese perspective have been launched, while investment is also being made to increase sales in Europe.

Meanwhile, demand growth in Africa is outstripping supply, despite steadily increasing African production. Côte D’Ivoire, Burkina Faso, Cameroon, Ghana and Kenya all represented significant export markets for Chinese tilapia. Israel, Iran and Mexico are three other countries which now have substantial markets for tilapia. For Latin American producers, the United States of America is still the target of the overwhelming majority of export sales, but a concerted effort is being made to target consumers in a diverse array of other countries, including Peru, Canada, Singapore and South Africa. 

Trade

After the 10 percent tariff on Chinese goods introduced in September 2018, traders expecting a tariff hike to 25 percent first in December 2018 and then in March 2019 had to scramble to adjust on both occasions, until the new rate finally took effect in May 2019. This uncertainty over the future of the trade relationship between the United States of America and China, and of course the added cost of the tariffs, has seen the flow of tilapia from China to the United States of America steadily diminish in terms of its share of total trade. Five years ago, the China-US trade flow represented around 35 percent of global tilapia trade in US dollar terms, but by 2018 this figure dropped to around 20 percent due to diversification of suppliers by the United States of America and Chinese expansion of its export options.

Global trade in tilapia decreased, with the world’s exporters shipping tilapia an estimated USD 205 million in the first quarter of 2019, down by 24 percent from the same period in 2018. The United States of America were the main responsible for this decline.

In fact, in the first quarter of 2019, US imports of tilapia dropped by around 23 percent to USD 134 million compared with the same period last year. China now supplies around half of this value, compared with 65 percent five years ago.

Prices

Farmgate prices for Chinese tilapia have been relatively steady so far this year, at around USD 1.02 per kg for 300–500g and USD 1.35 per kg for 500–800g fish. Prices for the larger sizes dipped somewhat in May as harvests picked up in line with seasonal trends. Meanwhile, US import prices of fresh fillets from Latin America were down around 7 percent to USD 6.18 per kg in the first quarter compared with the same period last year. Latin American frozen fillet prices were up 16 percent for the same period, to USD 6.05 per kg.

Outlook

The current tariff level in the United States of America will continue to make things extremely difficult for Chinese exporters and offer an opportunity for competitors, but the situation can change quickly if progress is made in ongoing trade negotiations between the United States of America and China. The incentive for China to invest in developing alternative markets could pay off in the long run as it will boost aggregate demand for the species. However, it will be consumers in developing countries and producing regions that will account for an increasing proportion of global tilapia demand as time progresses. Price trends will largely depend on how quickly the market can reshuffle to redistribute Chinese production and plug the gap in the US market.

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