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Top Story - Market targets
BRICS nations are no longer just supplying seafood — they’re buying it
by James Wright
September 01, 2012
With rising raw material costs and sluggish economies squeezing seafood suppliers worldwide like a vise, it’s no wonder so many are looking beyond traditional markets to stimulate sales. Exporters in countries like Norway, Australia, Vietnam and even the United States want a piece of the action in places where finances aren’t forbidding. Want to grow? Go where the growth is.
Emerging economies in South America, Africa and Asia represent a ray of hope for seafood suppliers struggling to maintain profitable ventures in established and mature markets like the United States and Europe, which are experiencing deep and protracted fiscal woes. As many American and European consumers find themselves unable to afford much fish, consumers with growing incomes elsewhere in the world are increasing their seafood consumption, even for high-end or non-traditional items like American lobster and farmed salmon. Suppliers near and far are trying to take advantage.
In 2009, four budding economies formed a coalition to reform financial institutions and secure greater global influence; as it stands, they all happen to be consuming more seafood. Brazil, Russia, India and China were joined the following year by South Africa, and the group known as BRICS began asserting itself. At the G20 Summit in Mexico in June, the five-country alliance pledged $75 billion to boost the International Monetary Fund’s (IMF) lending power. While they’re often still referred to as third-world nations, BRICS members are arguably in better economic shape than some developed countries: The IMF recently said the Eurozone was at a “precarious” point and some analysts predict the group could overtake the G7 developed economies within 15 years.
But before you hop on a plane to Sao Paolo, Mumbai or Moscow, understand that opportunities in emerging markets present significant challenges. For one, finding a dance partner you can trust to not step on your toes can be problematic. And that’s only after you navigate myriad cultural, language, political and regulatory barriers.
With big potential comes big risk.
“If it really were that easy to sell seafood to Asia, the Middle East and Russia, then Pacific [Seafood Group] or Trident [Seafoods] would have set up offices there years ago,” says Alex Babadzhanov, general manager of Alaska flatfish and groundfish exporter SOGDA Ltd., based in Kirkland, Wash. “If it’s risky to $1 billion companies, it’s going to be risky for a small company.”
SOGDA’s main business is exporting; thus, it’s become quite familiar with hunting down opportunities in new markets and exploring all the legal and logistical requirements to do so. The company established an office in Qingdao, China, five years ago, initially as a quality-control headquarters for its processing operations. But when the economic crisis hit soon thereafter, export volumes to Russia plummeted and the company repurposed the facility into a logistics hub and a sales office targeting the Chinese market. “[Local] consumption went up, so we kept the office open,” he says.
It was a wise move: Previously, about 75 percent of SOGDA’s sales went to Russia, says Babadzhanov. That share has since dropped to only about 25 percent, although the company is committed to its markets in the region; Babadzhanov hails from Uzbekistan and requires all of his workers to speak a second language.
Confronting SOGDA and other exporters targeting Russia is the government’s domestic seafood push. One tactic has been to drive up import duties on popular items like salmon roe. Babadzhanov says fully cured salmon roe, or salmon caviar, now carries a hefty tax, so suppliers are focusing on frozen “green” roe, a product in which the eggs remain in their original form in the skein or sac. “So the demand for green roe is big,” he says. U.S. seafood exports to Russia surged 45 percent in value in 2011, to nearly $68 million, according to the U.S. Department of Agriculture’s Foreign Agriculture Service.
For many Russian suppliers, the focus remains on exporting, as the bulk of processing and demand exist elsewhere. Alexey Pchelintsev, chief sales specialist for Murmansk Trawl Fleet, is always looking for new markets for frozen, H&G cod and haddock. With only 20 percent of the groundfish supplier’s sales going to the domestic market, Pchelintsev says navigating import regulations is a challenging aspect of his job. “This is a long story if nothing is done at the government level,” he says.
Despite rich marine resources like whitefish, salmon and crab, and a recent foray into aquaculture, Russia uses imports to fill the low-end retail niche, particularly items like pangasius from Vietnam. But it’s also become an important market for farmed salmon from Norway. According to the Norwegian Seafood Council (NSC), farmed salmon exports to Russia increased 134 percent from 2007 to 2011, to more than $544 million.
Russia’s southern neighbor also boasts big seafood production capabilities, both wild and farmed. China is the global leader in aquaculture, seafood processing and re-exporting, and more and more of the seafood China produces is staying in the country. The nation is going through a dynamic economic growth period that has seen its middle class grow to an estimated 300 million people — roughly the same as the entire U.S. population. Those people are buying seafood.
“If [China’s seafood sales] are going to continue to grow, where are they going to focus? Europe and the United States don’t look that great,” says Joe Jacobson, international program director for the Alaska Seafood Marketing Institute (ASMI). “The greatest growth story is in their own backyard.”
Carnival for cod
Last year, China surpassed Japan to become Alaska seafood’s top trading partner, as exports to the Far East giant exceeded $930 million, a 53 percent increase over 2010, according to ASMI. The vast majority of Alaska seafood that China imports — the top products are groundfish and pink and chum salmon — is still processed and re-exported, says Jacobson, because of China’s vast and affordable workforce. But he sees tremendous opportunities in China for products like crab, black cod and flatfish. “They’re familiar to the Chinese consumer,” he says.
Familiarity is less of an issue in Brazil, where a seafood renaissance of sorts is under way. Traditionally a beef-eating nation, seafood is catching on as its economy grows (it overtook the United Kingdom as the world’s seventh-largest economy in 2011, in terms of GDP). Brazil is a big importer of Alaska pollock via China and is now one of the United States’ competitors for Chilean farmed salmon, says Jacobson, who adds that Brazilian consumers have no distinct preference for wild or farmed fish. And since Chile is in close proximity, the focus for Alaska exporters targeting Brazil is not salmon, at least not yet. Right now, it’s cod — and marketing.
While a “tremendous amount” of Alaska seafood has already penetrated the market, it is not labeled as Alaska seafood in the stores. “We’ve lost our brand,” he says. “Our first task is to create a differentiation as to what Alaska cod is.”
Pacific cod (Gadus macrocephalus) or P-cod, which is often processed into the dried-and-salted traditional favorite bacalao, is big in Brazil. It’s usually sent to Norway or Portugal first for processing. In Portugal, however, there is a distinct preference for Atlantic cod (Gadus morhua).
The emergence of the Brazilian market has been a salve for Norway, according to the United Nations’ Food and Agriculture Organization (FAO).
“Brazil has become a growing destination for Norwegian cod, helping to ease somewhat the concerns of Norwegian exporters that their sales in Southern Europe were being affected by the economic crisis,” FAO stated in its State of World Fisheries and Aquaculture 2012 report, released in July.
“In addition to the major importing countries, a number of emerging markets have become of growing importance to the world’s exporters,” the report continues. “Prominent among these are Brazil, Mexico, the Russian Federation, Egypt, Asia and the Near East in general. In 2010, developed countries were responsible for 76 percent of the total import value of fish and fishery products, a decline compared with 86 percent of 1990 and 83 percent of 2000.”
Strangely, exports of P-cod or any other Alaska seafood direct to Brazil are limited — in fact, U.S. seafood exports to Brazil dropped almost 25 percent from 2010 to 2011, to 14.7 million pounds. The reason for that could be as simple as DIPOA, or the Department of Inspection of Products Originated from Animals. Exporters must be on the DIPOA list to ship to Brazil. But it is notoriously difficult to get on the list.
“We’ve had a full-time employee focusing on that for over a year and we haven’t been successful,” says SOGDA’s Babadzhanov. “There are bribes offered to pay, but we can’t function that way. If we have to wait a couple of years, so be it.”
Jacobson says access to DIPOA is a multi-step process that can get “super complicated.” Processing plants must be registered first, and then all products must be individually registered. “It’s a five- to 10-year project,” he says.
Vietnamese pangasius exporters, struggling with lowered production levels as farmers exit the business due to rising costs and low farmgate prices, are always looking for the next big market. Brazil, which represented just 3.6 percent of its pangasius exports in the first quarter of this year, might be it. Sales are slipping to the E.U., its biggest market at 26.7 percent (January through April 2012), according to the Vietnam Association of Seafood Exporters and Producers. Furthermore, there have been many ups and downs with Russia and the United States regarding tariffs and quality concerns.
Brazil is also an important market for Norway’s klippfish (salted or dried codfish) producers, says Paul Aandahl, market analyst for the NSC. While Norway has seen very little growth in its whitefish sector in recent years, its overall exports have been growing substantially. From 2007 to 2011, seafood exports increased 50 percent from $6.3 billion to $9.5 billion, according to NSC.
Norway’s seafood exports to China increased 150 percent in that time, while exports to India increased by 13.5 percent and Brazil by 21.4 percent.
“The growth in direct export to China has slowed down, and we can see that salmon from other producing nations is entering China in increased numbers,” says Aandahl. “The Chinese salmon market is still growing.”
The Chinese market is growing for other seafood products as well, namely American (Homarus americanus) and Australian (Panulirus spp.) lobsters. According to Statistics Canada, lobster export values from Atlantic Canada to China increased from roughly $1 million in 2010 to $30 million in 2011. China became the nation’s No. 2 lobster market, behind the United States, overnight.
“There was no market three years ago,” says Ryan Temere, sales manager for By The Water Shellfish in Borden, Prince Edward Island, who says the company’s China exports represent about 25 to 33 percent of its business. It’s an exciting development, but he’s careful not to put too many eggs in one basket.
“I wouldn’t want to rely on the Chinese market, because that could close tomorrow,” he says. “A trade dispute could happen at any time.”
“As bad as the U.S. sounds now, it’s still the safest to do business with,” says Babadzhanov. “Those [emerging] markets are still third-world countries. If something goes wrong and there’s no government support, you’re digging yourself a bigger grave.”
Temere and Babadzhanov both say developing a relationship with one customer or a handful of customers in the BRICS bloc helps to create a sense of trust.
But for Temere, it hasn’t always been smooth, like the time a customer in China sought a credit on dead lobsters. The picture the buyer sent as proof showed lobsters with different colored bands than the ones originally shipped, and boxes from a manufacturer they hadn’t worked with in years. “A picture of a dead lobster looks an awful lot like a picture of a live lobster,” Temere laughs. “Logistics is always an issue, with two-day transit times. You could do everything right and still have everything go wrong.”
Increasing tariffs on Australian rock lobster really opened up this trade channel for Canadian exports, says Temere. Regardless, Australian suppliers remain focused on the allure of the Chinese market, adds Roy Palmer, director of Seafood Experience Australia. E.U. tariffs remain high and the United States has several competing products at its disposal. That leaves one lucrative avenue.
“All the rock lobster people in Australia are thinking is China. Live and high prices,” says Palmer. “Not much science to it. Demand driven.”
Demand, as usual, determines where the global seafood supply is destined. And as many suppliers are finding out, it’s not the same old place it used to be. Email Senior Editor James Wright at email@example.com