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One Man's Opinion: 2008 challenges increase margin pressure

Property of SeaFood Business magazine
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

 

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