GLOBEFISH - Information and Analysis on World Fish Trade

Global tilapia sector set for reshuffle as tariffs erode Chinese dominance

02/12/2019

The new 25 percent tariff on imports of Chinese tilapia into the United States of America is negatively impacting margins all along the supply chain and pushing prices downwards. The most likely prospects for future growth are now secondary producers in Latin America, Africa and Southeast Asia.

Production

According to the most recent available estimates released by the Global Aquaculture Alliance (GAA), global harvests of tilapia are expected to increase by around 3–4 percent in 2019, to around 6.5 million tonnes. According to the GAA figures, this increase will be driven primarily by an additional 50 000 tonnes of production in China, the world’s leading producer and exporter by some distance. However, regulatory changes and mounting challenges in China’s most important market, the United States of America, represent an increasingly strong incentive to develop tilapia farming industries in a number of other countries in Latin America, Asia and Africa.

Brazil, currently the fourth largest producer of tilapia worldwide, is investing heavily in its production infrastructure in an attempt to erode the dominance of China in the frozen tilapia segment. The sector’s ability to draw on the financial and technological capacity of the powerful Brazilian agriculture industry, as well as its expertise in selective breeding, is driving rapid expansion. The country’s large freshwater resources, access to cheap feed and good quality fingerlings, are additional factors that translate into a significant competitive advantage as a tilapia producer and exporter. Analysts expect the Brazilian industry to achieve an increase in production of over 10 percent this year, which would take the total harvest to almost 450 000 tonnes. Almost all of the Brazilian production stays in the
country, where prices are higher than in the export markets.

Of the various Asian producers exploring the possibility of taking advantage of the current opportunity to fill a supply gap in the US market, Viet Nam is arguably the most likely candidate, given its existing large-scale aquaculture sector and developed export industry. However, though Vietnamese farmers do already have experience with tilapia, with a production of around 250 000 tonnes in 2018, most are still doubtful of their ability to compete at scale with China. Elsewhere, there have also been calls for the Indian sector to ramp up its production in light of the present situation. Some tilapia production does take place in India, although estimates of the total harvest vary widely depending on the source.

In Africa, the Ugandan government, with funding from the EU28’s eleventh development fund, is aiming to build two large tilapia aquaculture facilities. Each site will have an annual capacity of around 20 000 tonnes, meaning the project would effectively triple Uganda’s total aquaculture output. EU28 funds have also helped to build a land-based hatchery for tilapia fingerlings in Kisumu, Kenya, which is intended as a pilot project for recirculating aquaculture systems. Meanwhile, Egypt and Nigeria, the world’s third and tenth largest tilapia producers respectively, have also seen production increases in 2019.

Markets

Following the spike in buying activity observed just prior to the tariff hike, the full effect of the 25 percent increase in raw material costs resulting from the imposition of the new duty on Chinese tilapia imports into the United States of America is now evident. The market is generally weak. Smaller businesses are struggling and packers are reluctant to place orders despite the low price level. The tariff is much higher than the average profit margin in the supply chain, so it is inevitability passed onto the consumer, eroding the competitiveness of Chinese product in the frozen commodity whitefish segment. At the same time, the end of uncertainty for the time being has brought a degree of stability back to the market and supply chain participants are able to begin the process of adjusting to the new market reality. From the supplier perspective, Latin American exporters will continue to look to the US market, while Chinese market development efforts are increasingly focused on the domestic market as well as growing demand from countries in Sub-Saharan Africa and Latin America.

Trade

The new tariff regime has negatively impacted Chinese exports to the key US market and in turn has seen Chinese exports fall significantly in the first six months of 2019. This marks a continuation of a steady decline in China’s tilapia export revenues. From a peak in 2014, Chinese exports have fallen every year, despite some gains in African markets during this period. For the first half of 2019, reported export value was USD 252 million.

While Chinese volumes of low-value frozen tilapia have declined, producers of high-value product have seen some modest gains in recent years that have continued into 2019. The latter group includes Indonesia and some Latin American producers such as Colombia and Costa Rica. Recent performance varies amongst these competing smaller suppliers, and Ecuador is an example of a producer that has been seeing declining tilapia exports to the US market. Although Indonesia also exports limited quantities to the EU28 and Canada, the United States of America represents almost the entire market for these exporters.

Prices

Farmgate prices in China have been falling throughout the second and third quarter of the year due to the negative market impact of the new tariffs. For 300–500 g fish, prices are now around CNY 6 (USD 0.84) per kg. For 500+ g fish, prices are hovering just above CNY 8 (USD 1.12) per kg, down around 10 percent from April 2019 levels. Import prices in the United States of America have followed farmgate prices down, with an average unit value of USD 1.62 per kg reported for Chinese frozen tilapia in the first half of 2019.

Outlook

With the US tariffs seemingly set to stay for now, the global tilapia market transformation can be expected to continue. Substantial price increases are unlikely so long as the duty remains in place. China will seek new markets at home and abroad, while traders are likely to also explore options for bypassing the tariff, while additional processing is a possible alternative in some cases.

In Hainan Province, a major tilapia producing region in China, there are reports that new zoning regulations could see aquaculture operations prohibited in areas where a large number of farms are located.

Overall, there are unlikely to be many opportunities for growth for the Chinese tilapia industry in the near future. For producers such as Brazil, the new market environment presents a potential opportunity for expansion, although China’s industry still represents a formidable competitor even with its current pricing disadvantage.

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