China’s processing sector struggling with pandemic-related raw material shortages, market shifts

The impact of COVID-19 on China’s seafood sector has been significant, with the country’s seafood imports down 20 percent and its exports falling by 8 percent in 2020.

Marina Huang, the vice general manager at third-party quality assurance company Helmsman Quality and Technology Services (HQTS) Group, has had a first-hand view of how the pandemic has affected China’s seafood processing sector. Based in the southern Chinese city of Fuzhou, HQTS Group has operations around Asia, conducting inspections of factories and products for clients, including several Western retail chains. In an interview with SeafoodSource, Huang said COVID-19 has wrought significant changes on China’s seafood-processing sector.

SeafoodSource: What were the biggest challenges faced by your seafood clients buying or exporting from China during COVID-19?

Huang: They are not able to travel to visit the factory as previous, [so] controlling their procured products’ quality became tougher. Previously, some clients might send their own [quality control] staff to visit the factory for ensuring the goods’ quality, but due to the lockdown and travel restrictions during COVID-19, they can’t do it this way anymore. Supplier checks and quality checks can’t be done by long-distance. If they can’t find suitable alternatives for this [service], there could be quality risks in their procured goods.

SeafoodSource: Did it mean more business for your company, or did lower seafood orders from foreign clients reduce your workload?

Huang: Technically, this situation should bring more orders to us, but in fact, the reality didn’t meet our expectations. I assume the slower [pace of] seafood transactions could be one of the reasons for this.

SeafoodSource: Are there new checks which HQTS must now do on seafood, such as checks for COVID-19?

Huang: The checking for COVID-19 requires many essential conditions that can’t be easily equipped by general third-party QC companies. One of our severe conditions is how to protect our inspectors’ health and safety while selecting samples from the whole cargo for testing for the coronavirus. We can’t put our employees into any possible risk, so the current working pattern we use is to get support from companies specialized in this kind of testing.

SeafoodSource: Is the situation back to normal now in China in terms of seafood production operations? Is it difficult to import seafood raw materials into China for seafood factories?

Huang: Yes, it’s quite difficult to import seafood raw material into China. The factory operations in China are mostly back to normal but if there is any imported raw material involved, then it will not be back to normal. There are some other aspects that still affect the seafood production here [in China] – for example, the strict management of imported raw materials. It takes a longer time and higher expense for custom clearance.

SeafoodSource: Are there ongoing problems with delays at ports and greater inspection requirements in seafood processing factories?

Huang: Yes, there are. The ongoing and expected contraction of production and consumption due to COVID-19 led to a slowdown in maritime trade, reducing shipping demand and port traffic and turnover. The response strategy of container shipping alliances of stopping services on certain routes or canceling port calls is making the supply of shipping services more unstable. In parallel, COVID-19-related restrictions have caused port congestion and delays in cargo loading and unloading, undermining region’s maritime supply chain and connectivity. International port inspections are more strict than ever due to COVID-19, products cannot be cleared in time after arrival at the port, which is causing higher port storage costs and cargo inspections costs.

SeafoodSource: Does all the extra cost and inspections mean there will be less seafood trade in and out of China over the next year?

Huang: We can’t tell. Let’s hope everything gets back to normal in 2021.

SeafoodSource: What are the big quality issues you focus on in Chinese seafood factories?

Huang: The quality of raw material, hygiene issues, and chemical additives.

SeafoodSource: Are processing plants switching to supply the domestic market?

Huang: Since the beginning of last year, affected by the COVID-19 and global economic downturn, demands in the international market have shrunk significantly. China's exports have continued to be sluggish and many companies have switched their business from overseas market to China’s domestic market.

SeafoodSource: Are you seeing more exports going to different emerging markets, such as Africa?

Huang: Not really. We don’t see more exports going to Africa.

SeafoodSource: In your view, is the Chinese seafood processing sector consolidating? Are there fewer factories compared to five years ago?

Huang: The number of seafood processing enterprises in China is gradually decreasing, but the average annual processing capacity is generally increasing. Data from the Agriculture Ministry show that from 2015 to 2019, the number of enterprises in China's aquatic processing industry showed a slight downward trend. In 2019, the total number of processing companies in the industry was 9,323, a year-on-year decrease of 13. Among them, the number of enterprises above designated size was 2,570, an increase of 46 year-on-year, indicating that the industry concentration is further increasing.

With the gradual upgrade of China's aquatic product processing equipment to automation and intelligence, the overall aquatic product processing capacity has increased. Data shows that from 2015 to 2019, China's average annual processing capacity for aquatic products increased from 28.1 million tons to 28.8 million tons [Editor’s note: actual production of processed product stood at 21.5 million tons].

SeafoodSource: Is there more automation now in Chinese seafood factories?

Huang: Yes, there is more mechanization. But the seafood processing industry is still a labor-intensive industry. Machines and robots cannot replace all workers. From the perspective of the resumption of work and production in this epidemic, the companies that can resume work and production earlier and better are all companies with a higher degree of equipment automation and intelligence. So it’s possible that more companies will invest in this part after the COVID-19.

Editor's note: SeafoodSource contributing editor Mark Godfrey will speak in a free webinar on seafood trade disruptions caused by COVID-19 on Monday, 29 March.

Photo courtesy of Marina Huang