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One Man's Opinion: 2008 challenges increase margin pressure
By Peter Redmayne
February 01, 2008
This time of year industries typically are taking their
pulse and prognosticating what fortunes the New Year will
bring. If you sell seafood, this could either be a very good
year or a very challenging year, depending upon where you fall
in the distribution chain.
Making general observations about an industry that sells
scores of species that are hunted and farmed in waters around
the world will always be subject to exceptions. Nevertheless,
it is still possible to get a look at one very important
trend.
First and foremost, seafood isn't going to get any cheaper.
Demand is growing faster than supply, which is why prices for a
slew of seafood staples keep hitting new historical highs. Pick
almost any wild species - cod, pollock, tuna, crab, lobster,
halibut, swordfish - and prices keep heading up and up, as
buyers from Asia, Europe and North America scramble for
product.
Prices for most farmed seafood products have also risen
despite continued production increases. But in this case, the
culprit is rising production costs, as well as growing demand.
The price of fishmeal, almost 90 percent of which is now
consumed by the global aquaculture industry, is getting higher
and higher, as supplies of industrial fish like sardines and
anchovies are fully exploited. Fish farmers that rely on
grain-based feeds are also feeling the pinch due to the
record-high grain prices, which are largely a result of demand
for corn-based
ethanol fuels. And, of course, oil prices at
$100 a barrel makes everything from shipping to packaging more
and more expensive.
Although shrimp remains a good value in spite of a recent
jump in prices, there are fewer deals out there to get
consumers excited and poundage moving. Cheap, small king crab
that helped many bottom lines this holiday will probably be
history now that Russia has finally gotten serious about
stopping poaching (see Top Story, p. 24). And how many cod
fillets can a retailer move at $10.99 a pound?
Since seafood is a global commodity, a weak dollar puts U.S.
buyers at a distinct disadvantage. Even seafood from China,
which supplied $1.6 billion of low-cost seafood to the United
States last year, will be getting more expensive. As China's
currency gets stronger and stronger (thanks in large part to
U.S. government policy), all that cheap labor suddenly isn't so
cheap anymore. Chinese processors are known for working on thin
margins, but even they have no choice but to raise prices as
costs increase. Stronger currency also makes imported seafood
more affordable for China's increasingly prosperous middle
class, creating still more competition for the world's seafood
supply.
Higher prices mean lower sales volumes, which hurts
companies down the supply chain, including distributors,
foodservice operators and retailers. One solution is to trim
margins to mitigate price increases, but many companies are
loath to take such a drastic measure.
Overall, 2008 looks like a seller's market for seafood, good
news for primary producers. But if you're a seller in the
United States, it could be very challenging, indeed.
Contributing Editor Peter Redmayne lives in Seattle