How China Impacts the Global Shrimp Market
- Chinese demand for shrimp is increasing every year.
- Chinese buyers are paying cash for shrimp at farms in neighboring countries.
- Increased Chinese buying activity is increasing shrimp prices and market volatility.
China has become the largest player in the global seafood industry. A slowdown in Chinese shrimp production and an increase in demand is reshaping the dynamics of the global shrimp trade. With cash in hand, Chinese buyers are entering neighboring Southeast Asian countries to directly source massive quantities of shrimp, outcompeting most Western buyers.
Increasing Chinese Demand
China has been practicing aquaculture for thousands of years, and currently operates the world’s largest seafood production footprint.
In 2015, China produced a reported 47.6 million metric tons of farmed seafood — more than the rest of the world combined. While some experts argue China exaggerates their self-reported production numbers, it remains clear that the Chinese produce and consume far more seafood than any other nation.
Seafood has always been a large part of Chinese food culture, but a rapidly expanding middle class is taking Chinese shrimp consumption to new heights. Between 2005 and 2015, shrimp consumption in China increased by 123% to over 1.6 million metric tons per year. Over the same ten-year period, shrimp imports into China have increased and shrimp exports have decreased. China is now one of the world’s largest importers of shrimp.
Additionally, seasonal demand for seafood during Chinese New Year impacts global seafood prices and availability. Eating fish on Chinese New Year is a symbolic act, symbolizing prosperity in the upcoming year; the Chinese word for abundance is pronounced the same as the Chinese word for fish. The cost of seafood in China increases dramatically leading up to Chinese New Year, with some species experiencing a price increase of 50% in 2017.
New Buying Trends
To satisfy China’s burgeoning shrimp demand, buyers are entering into neighboring countries, the Indian subcontinent, and even South America to purchase raw material. Unlike Western buyers, the Chinese often purchase shrimp directly from farms or small-scale factories rather than through large, established processors. Chinese buyers are able to secure raw material by offering premium pricing with better payment terms. While typical large-scale processors take 1 month to pay farmers, Chinese buyers offer payment terms that range from just 24-hours to 1 week. In times of severe shortages within China, Chinese buyers will pay shrimp farmers in other producing nations with cash, paying premium prices and coordinating with processors to accelerate the exportation process.
Small-scale factories are able to reduce their costs and increase their profits by selling to the Chinese market only. Few quality control, traceability, or sustainability requirements make Chinese buyers easy customers for any shrimp farmer or small-scale processor. Southeast Asian shrimp farmers no longer have to invest in traceability, sustainability, or quality control measures to find a sizable market for their products. As a result, raw material for large processors is becoming more expensive and harder to find.
One major challenge for Chinese buyers is an import tax applied to farmed shrimp. To avoid import tariffs, shrimp buyers bring nearly all imported shrimp through the Hai Phong/Mong Cai border in Northern Vietnam to Guangxi, China. Vietnam alone has over 600 seafood companies that export into the Chinese market. To fuel this lucrative business into China, Vietnamese companies often import shrimp from other Asian countries (especially India).
The Chinese have a momentous effect on the global shrimp market due to the scale of their purchasing and their direct-to-farm purchasing model. In countries such as Thailand and India, the Chinese consistently shift the market in the months leading up to Chinese New Year (typically January or February of each year), creating a shortage of supply and high raw material prices.
Conclusion
China can no longer satisfy its demand from within. Global management consultants McKinsey & Company estimate that Chinese urban household income will at least double by 2022. Rising incomes have been linked to increased animal protein consumption. This increase in Chinese incomes will undoubtedly increase consumption rates of shrimp and other proteins. The relative demise of Chinese shrimp aquaculture and growing demand for protein is pushing Chinese buyers to be highly competitive in securing raw material. Additionally, China’s geographic location in Southeast Asia gives them easy access to valuable aquaculture resources. By going direct to shrimp farms and offering cash for entire ponds of shrimp, Chinese buyers are increasing the global cost of raw material and adding to an increasingly disruptive global marketplace.
