26/10/2007 - Global pelagic market meltdown

Large Pacific mackerel was selling for USD 0.56 kg in Thai supermarkets in October. (Photo: T. Engoe)

WEEKEND FEATURE: Global pelagic market meltdown

WORLDWIDE
Friday, October 26, 2007, 23:50 (GMT + 9)


ICES has announced another bumper catch of Atlanto-Scandian herring for 2008, and even with a large percentage of the Atlanto-Scandian herring caught mainly off Norway, in Icelandic and Faroese waters, it is finding its way to fishmeal plants, as the world supply continues to rise in coming months.

Bumper harvests of Pacific mackerel have made the Japanese market nearly free of imports of Atlantic mackerel. They have instead started to push large volumes of cheap Japanese-caught mackerel into Asian markets.

Prices are and have been falling as mackerel and herring has been pushed onto existing markets, many already showing a glut, raising the question of whether the global market for small pelagic fish could be facing a meltdown.The other possibility is that increased resources in marketing and increased purchasing power of many emerging economies could make the pelagic industry turn the increased supply into profit.

Japan is expecting another year with very high catches of Pacific mackerel, as is South Korea, which is heavy handedly dumping mackerel onto other Asian markets. Retail prices in Thailand for Pacific mackerel during periods with discounted prices have been below USD 0.60 per kilo in large supermarket chains.

The table shows estimated imports for 2007, and includes sardines, sardinella, herring, mackerel, horse mackerel and other small pelagic fish. The increase in net imports by the world's leading importers is estimated to be around 2.5 million tonnes in 2007. This is a very large volume. The increased supply of herring alone this year represents around 10 per cent of the net imports by the main importing nations, and in addition remains the increased catches of Pacific mackerel, mainly by Japan.

Estimates for 2007
Net import of small pelagic fish
Country
Tonnes

Nigeria
370,000

Russian Federation
360,000

Netherlands
260,000

Japan
240,000

Ukraine
240,000

Ghana
220,000

China
180,000

Cote d`Ivore
110,000

Cameroon
80,000

South Korea
70,000

Egypt
70,000

France
60,000

Belarus
60,000

Kazakhstan
60,000

Romania
60,000

Malaysia
60,000

Total net import
2,500,000



Source: FIS.com, FAO, Eurostat and Japanese Customs
China market with potential
China is a small importer of pelagic fish if taken in to consideration it being the most populous country in the world. It is difficult to obtain reliable numbers. But import of herring is estimated to between 15,000 and 18,000 tonnes. The net import of all pelagic fish species accumulated is only 180,000 tonnes. Not much for a country the size of China. This is both because of the country’s own catches, and pelagic fish not traditionally being consumed in large volumes in most of China.

In addition there is herring produced from roe for the Japanese market, while whole herring is imported to China in transit. The herring roe is extracted and sent to Japan, while herring meat is sold locally.

Experience garnered from other markets has pointed to the Chinese market potential, but there is a need for large resources into marketing.

The Nippon factor in Thailand

The large Big-C supermarket chain in Thailand introduced herring into their fish assortment one year ago. A spot test undertaken some months ago by FIS.com revealed herring as being appreciated by Thai consumers, but were not purchasing the produce at the supermarkets; they didn't have a clue about the taste of the fish “plaa herring.”

Pacific and Atlantic mackerel have also been introduced to the Thai market, with great success. The product was called “plaa saba Nippon”, or Japanese mackerel.

Mackerel was riding high on the market and touted as Japanese, given that food from the Nippon is regarded as high quality by Thailand. This made “plaa saba Nippon” all the more popular with the high end market seafood segment in Bangkok. Consumption increase in the countryside, however, was slow, and herring was just herring, failing to conquer this market segment, despite riding on the back of trendy Japanese food.

The marketers of herring may believe it should have success just because of the low price of the fish, but herring will need more PR. If given the chance, it may sell in the tens of thousands of tonnes in Thailand within a couple of years.

The large West African markets

The West African nations of Guinea Bissau, Ghana, Togo, Benin, Nigeria, Cameroon, Gabon, and the Republic of Congo all import large volumes of small pelagic fish, as does their northern neighbour, Egypt. An estimated one million tonnes finds it way to these countries in total. Even a country like Angola, who has a long coastline with rich resources of pelagic fish, is an importer.

These countries import herring, blue whiting, and horse mackerel from Europe, mackerel and herring from the United States, sardine, sardinella, mackerel and horse mackerel from Morocco and Mauritania, and the list is longer.

The West African market, as well as the large Egyptian market, are not buying much in the upper end with regard to size and quality. The fish is staple food for populations with low incomes. With regards to sardinella the West Africa is the main market.

There is a big difference in the West African market and many other potential markets round the world. They are large consumers of sardinella and sardine, which are very similar to herring.

To introduce herring to consumers is a much more easy task than getting people in Laos or North China to try the fish. So even if the Norwegian Seafood Export Council has sponsored marketing campaigns for herring in China, European exporters of herring will be knocking on the doors to traditional sardinella markets. Sardinella is still competitive in price when considering large fish, but consumers in West Africa will be willing to buy smaller herring at a price at which sardinella is becoming expensive even if it is larger.

Unusual large herring

So far this autumn purse seiners and trawlers that fish herring in the Norwegian Sea have landed unusually large hauls of herring of 300 grams or more. Some catches have even had substantial share of herring around 400 grams. However, this fish will not end up in West Africa. Instead it heads mainly to Russia and Eastern Europe. The smaller herring of four to five fish per kilo, and even smaller, will be sold to markets in West Africa and Egypt.

Herring prices, if they fall, will have an impact on sardinella and sardine prices. Especially in the Egyptian market, the competition will affect the imports and prices of Moroccan sardines.

The catches of sardines off Morocco are reportedly down this year, making it easier for the herring to increase its market share as prices decrease. Herring is by most consumers regarded as superior to sardinella, but also as equal to sardines. If the enormous herring production forces sardinella prices down this will have a very negative impact on the profitability of the pelagic trawler fleet fishing off of North Africa. Sardinella is the main share of their catch.

Herring and sardinella together

Interestingly, the Dutch exporters have historically dominated West African markets. One reason is the large number of Dutch-controlled vessels trawling sardines, sardinella, mackerel, and horse mackerel off Morocco and Mauritania. Some of these companies operating these trawlers also catch herring in the Northeast Atlantic. They will fight to keep Norway from getting a strong foothold in these markets, even if it might cost them dearly, as they have no alternative markets for the sardinella.

Herring caught early in the autumn is suitable for some markets. If a market is to be developed in Southeast Asia, the herring caught early in the year stands a much better chance to win the hearts of the population. They prefer to grill the fish whole, and if there is a roe inside, all the better.

The Russian wild card

Large herring and mackerel from the Northeast Atlantic have traditionally received a premium price, but this year there is an unusual high supply of very large herring, and also of small mackerel. The Russian market especially welcomes large herring. By the end of this year Russian imports of herring could surpass 200,000 tonnes. But the increase comes at a price, in fact a falling price. Total consumption of Atlantic herring in Russia in 2007 will be around 500,000 tonnes, coupled with probably around 200,000 tonnes of Pacific herring.

So, the bumper harvest of herring to be caught next year adds to the already witnessed largest herring fishery in modern history taking place in the Northeast Atlantic and Norwegian Sea. In Norway, especially, there are very large frozen stocks of herring.

Russian imports have increased fast, but not fast enough to stop stocks from building. It is possible the Russians have imported more than usual because of increased demand, or they could be stocking up as there have been strong rumours of the government slapping restrictions on imports by enforcing much tougher sanitary rules. The chance of this happening is dissipating, however, and will now be interesting to see whether or not the demand from Russia will continue as strong as previously.

Russia is the wild card on the global herring market. It is by far the largest market for Norwegian herring. For 2007 Russia has by end of week 41 imported 111,850 tonnes of whole frozen herring out of a total exported volume 235,481 tonnes.

If the current trend continues it will probably amount to 50 per cent or more of the total Norwegian production of frozen whole herring that end up on Russian meal tables. Coupled with the volume of herring fillets, this is a reality that Russia is currently keeping the prices on herring on the up and up. If the demand falls sharply, beginning of 2008 may end up with a dramatic fall in the price on herring. However, even if the demand falls to a normal level this would increase pressure on herring prices.

Fillet prices halved

Early 2002 witnessed Norwegian exporters generate over NOK 12.00 (USD 2.23) per kilo for frozen herring fillets. Current price is around NOK 6.60 (USD 1.23) per kilo. Take in to considerations inflation, and prices are down more than fifty per cent. In comparison have prices on whole frozen herring been very stable. But export figures does not show the whole truth. It does not differ between large and small herring. In US dollars that are a widely used currency in the fish trade does the picture look a bit different. A low dollar is affecting exporters in many countries. Some of the importing countries have their currency pegged to the dollar. If the fall in the dollar is to be recovered by increasing prices, is there a risk of the markets reducing the volume.

So where is the world prices on small pelagic fish heading? They seem to be set for a fall, though it stands to be seen whether it will prove to be a dramatic decline. So far Russian demand has saved prices from collapsing or at least falling towards levels that make it as profitable to land the fish for fishmeal production as for human consumption.

If Dutch and Norwegian exporters spend their marketing money wisely, not battling each other by under-bidding in existing markets, prices could remain stable. The first half of 2008 will show whether the global market is able to absorb an increasing supply or we are headed for a global pelagic price meltdown.

By Terje Engoe
www.fis.com