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One Man's Opinion: Margins threaten golden goose

Property of SeaFood Business magazine
By Peter Redmayne
October 01, 2007

How hard can it be to buy seafood? All you have to do is say, "Your price is too high," all day long. After a while, when you've squeezed your vendors and played them off against each other, you cut a bunch of POs. Then every once in a while you shake your suppliers down for a rebate or make them take an ad in your annual sales catalog. Of course, the golden rule to follow here is always: Vendor pays.

The reality of being a seafood buyer, though, is more complex. Buyers work under a lot of pressure from their bosses, who may not always understand the nuances of what they buy and why they buy when they do. And how much fun can it be to have people chasing you all day, pleading for some of your business?

Still, when it comes to buying commodity seafood products, the name of the game is price. Big or small, buyers seem to be increasingly fixated on price above all else. And that's starting to cause some problems, as this summer's brouhaha over the safety and quality of all Chinese imports showed.

China now accounts for more than 20 percent of the 2.5 million metric tons of seafood the United States imports each year. As it has done with industry after industry, China has built a colossal manufacturing base built largely upon cheap labor. But things are changing in China. And they're changing pretty fast.

The inexhaustible supply of cheap labor from China's rural hinterlands is no longer churning out workers willing to toil in fish plants for a few dollars a day. Increasingly, there are better jobs to be had. As a result, fish plants have had to offer higher wages to retain and attract workers.

At the same time, the Chinese are being squeezed by their steadily appreciating currency, thanks largely to the drumbeat of Washington politicians who pander to their constituents in their continual battle to retain congressional seats.

Making matters worse is the fact that Chinese businessmen are hard wired to overcapitalize. In the past few years, scores of new fish plants (called "factories" in China) have been built, especially near the northeastern cities of Qingdao and Dalian. That has increased competition and margins, already thin, are thinner.

The Chinese business mantra is always "big volume, big money."

Small wonder, then, that some Chinese suppliers feel they have no choice but to cut corners in order to book orders from their customers overseas. That's why there's been a surge in imports of less-than-true net-weight product from China, as well as other Asian countries such as Vietnam. Tripolyphosphate abuse is also increasingly rampant.

At the end of the day, the person who suffers is the consumer. And that's bad for everyone in the distribution chain. The reality is that China's development as a manufacturer of low-cost, value-added seafood products has been good for the U.S. seafood industry and American consumers who can't afford to fork over top dollar for fresh fish. If buyers keep pushing and pushing on price, they may soon find that they have killed off a valuable goose that has laid them a golden egg.

 

Contributing Editor Peter Redmayne lives in Seattle

 

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