Indonesian suppliers turning to China amid increased US focus on IUU, labor abuse

The United States is at risk of losing its Asian seafood supply to Chinese buyers due to overly stringent import controls, according to Jerry Knecht, the founder of Portland, Maine, U.S.A.-based North Atlantic Incorporated.

Knecht, who sold North Atlantic Inc. to Slade Gorton in August 2021, now lives in Bali, Indonesia, where he formerly operated P.T. Bali Seafood International until selling his stake in the company in March 2021. Knecht was a 2018 finalist for the Seafood Champion Award for Innovation for his efforts to improve worker rights in Indonesia, including the introduction of a worker empowerment initiative.

“The U.S. has made the process of importing seafood so complicated in agreeing to a lot of NGO demands, that Indonesian processors prefer less-complex Asian buyers,” he said. “We have to have FIPs [fishery improvement projects], social audits, and labor contracts. The way the processors look at it, these NGOs started out as tools for transparency but are now using the U.S. marketplace as muscle. The Indonesian processors are saying, ‘I can sell to Korea with no complications,’ so there is a shift away from supplying American buyers.”

Knecht said Indonesian processors had preferred to focus on the U.S. foodservice market because they say it’s easier than processing for retail. But they lost that market during the depths of the pandemic, he said.

“During COVID, there was more produce for Chinese buyers to buy because the demand from high-value foodservice buyers went away,” he said.

Indonesia’s seafood plants came through the COVID-19 pandemic less disrupted than their Chinese counterparts, with the country now open for business again, Knecht said.

“The way they dealt with it was they closed the doors to the processing plants and gave room and board to the employees so they stayed on site and gave them a week off per month. So the plants themselves were isolated with everyone inside,” he said.

But over the past several years, Indonesia’s seafood sector has increasingly garnered investment from China, in part due to a clampdown on illegal fishing by recent Indonesian fisheries ministers, including Susi Pudjiastuti, who instituted a controversial policy of blowing up boats used for illegal fishing. The effort forced Chinese companies seeking Indonesian seafood to move closer to the source, Knecht told SeafoodSource. Those connections are now leading Indonesian suppliers to look increasingly to China – where demand for premium seafood is rising rapidly – as the primary destination for its products, he said.

That trend is being exacerbated by NGO demands regarding labor standards, which Knecht deems unrealistic.

“While Indonesia has labor laws, it doesn’t have law enforcement,” and thus goals to eliminate labor abuses through more legislation and enforcement “can’t be done,” he said.

Knecht said he thinks NGOs should support existing “quiet efforts” to rescue victims of forced labor rather than publicizing and politicizing the issue. He claimed open efforts at combating slavery can lead to reprisals on families of workers rescued from vessels, something exacerbated by poor law enforcement locally as well as different cultural attitudes towards violence in the business community controlling much of the Asian distant-water fleet. NGOs stirring the pot on labor abuses are highlighting a “big, ugly” issue they “can’t impact,” with position papers and lobbying efforts, Knecht told SeafoodSource in July 2021.

Knecht has blamed NGO pressure for recent moves made by the U.S. government to tighten its enforcement of labor issues onboard fishing vessels from Asian countries. That effort is about to intensify, according to a U.S. government official.

The U.S. government is planning a major upgrade of its efforts to tackle IUU fishing and related labor abuses, U.S. Assistant Secretary of State for Oceans and International Environment and Scientific Affairs Monica Medina said during recent webinar organized by the Environmental Justice Foundation (EJF).

The U.S. is preparing to “redouble” efforts and is going to announce a new “all of government” initiative on IUU and related labor abuses and food-security threats in the coming months, according to Medina. Commending EJF and other NGOs for their efforts to increase transparency on the issues, Medina also said the government would work on "new ways" to restrict access to the U.S. market for seafood that may be tainted by IUU.

Back in the U.S. Knecht is seeing a major change in the structure of market demand, with more demand for frozen product. He said retail clients are telling him in 2022 there’s been a shift in the type of products selling, with a 10 percent drop in sales of fresh seafood and strong demand for frozen seafood. Knecht said he’s heard there has been a drop of up to 50 percent in U.S. sales of high-end crustaceans and shellfish.

“There has been a rise of 15 to 18 percent in sales across the board but a 21 percent rise in frozen sales this year so far,” Knecht said.

That is a radical departure from the pre-COVID marketplace, when 53 percent of seafood was sold through the hotel, restaurant, and catering (HORECA) sector, he said. The COVID-19 pandemic caused a shift in acceptance of home cooking of seafood, driving the shift in demand to at-home consumption. Knecht said he believes that change will be accelerated by a shortage of labor in the U.S., which means many U.S. restaurants are operating on five days a week.

“It’s definitely a sea change,” said Knecht.

While he expects a good year demand-wise, tuna supply is currently hard to come by – it’s an “off year,” according to Knecht – thus reducing supply. Prices have soared, he said, but strong demand is keeping Indonesian tuna moving to the U.S., he said.

Photo courtesy of Ika Hilal/Shutterstock