U.S. Seafood Industry Vulnerable to Tariffs Aimed at China

Date : 08/09/2018 @ 3:42PM
Source : Dow Jones News

U.S. Seafood Industry Vulnerable to Tariffs Aimed at China

By Heather Haddon and Jesse Newman | Photographs by Simon Simard for The Wall Street Journal 

The next round of U.S. tariffs aimed at Chinese imports could wind up hurting a major product that initially comes from America: fish.

Proposed 10% duties by the Trump administration last month on $200 billion worth of imports from China included dozens of varieties of fish, from tilapia to tuna. The proposed tariffs, which could increase to 25%, are set to be decided in September by trade representatives.

An estimated $900 million worth of fish and seafood on that list is first caught in the U.S., sent to China for processing into items like fish sticks and fillets, and then imported by U.S. companies to sell to American consumers.

"The value added is in another country, but essentially it's an American-raised product," Joseph Glauber, former chief economist at the U.S. Department of Agriculture, said of goods like fish sourced in the U.S. that are processed overseas and re-imported. He said the proposed tariffs could cut profits or boost prices throughout seafood supply chains, from fishermen to consumers.

The practice of sending fish to China to be breaded, seasoned, portioned or packaged has grown in the past two decades, according to U.S. fishing groups. Domestic seafood-processing plants have faced high costs and labor shortages, while cheaper facilities have sprung up in China to support its extensive domestic fish-farming industry.

That has helped make China the top source of seafood to the U.S., with the 1.3 billion pounds sent to the U.S. last year double that of second-ranked India, according to market-research firm Urner Barry.

The exposure of U.S. seafood to tariffs aimed at another country highlights how intertwined global supply chains have become. Many pink salmon, for example, are caught by commercial fishermen in southeast Alaska. The fish are transported to processing plants to be headed, gutted and frozen, before being loaded into shipping containers bound for China. Once there, they are thawed, deboned, smoked, filleted or turned into salmon burgers for sale world-wide, including to the U.S.

More than half of Alaskan seafood sent to China is processed and then re-exported, said Garrett Evridge, an economist with McDowell Group, an Alaskan research and consulting firm. The percentage can be as high as 95% for fish like sole, he said. The fishing industry, one of the largest private-sector employers in Alaska, provides about 60,000 jobs, he said, and Alaskan seafood makes up 60% of the nation's catch.

Some Gulf Coast seafood producers had lobbied for the latest round of tariffs to include fish. In a letter to the Trump administration in May, the Southern Shrimp Alliance trade group said that Chinese-farmed fish tend to be raised with antibiotics, and imports unfairly compete with the group's members.

A spokeswoman for the U.S. trade representative said the agency was soliciting public comments on the proposed tariffs, and the duties "were selected to increase pressure on China to change its harmful behavior."

With wild-caught U.S. fish unable to meet domestic demand, more than 80% of the seafood Americans eat is imported, according to the National Oceanic and Atmospheric Administration. And the U.S. seafood companies that have to import fish products back from China are bracing for lost business. Tariffs could translate into lower seafood sales, hitting small, family-run boats, large seafood processors and myriad suppliers selling gear like nets and boat engines.

Because fish sellers are in a low-margin business, they would need to pass on higher prices to restaurant and grocery customers, which in turn would likely raise prices for consumers, companies said.

"Being able to pass along 25 cents to 50 cents a pound are real costs," said Kim Gorton, chief executive of Slade Gorton & Co., referring to potential wholesale-price increases. The Boston-based company imports U.S.-caught cod, pollock and salmon after the fish have been processed in China. Some companies say they are contacting their Chinese suppliers to negotiate prices in case the tariffs come to pass.

Seafood tends to be more vulnerable to price increases as it already averages higher than other forms of protein. Fish and seafood averaged $7.22 per unit in the last year, up from $6.77 in 2016, according to Nielsen Total View data through the end of June. Meat averaged $3.54 a unit in the last year, Nielsen found.

"If I raised my price by 10%, the customer wouldn't take that order," said Sean O'Scannlain, president of Chicago-based Fortune Fish & Gourmet, a midsize wholesaler that imports about 330,000 pounds of squid, tilapia and snow crab a year from China. He said he has accelerated orders from China to try to beat the proposed tariffs.

Rising supplies of meat have further driven down costs, as opposed to seafood that hasn't seen such a benefit. Meat prices are down nearly 6% from 2015, with beef and veal declining 5%, according to federal data. Fish and seafood prices, in comparison, increased more than 1%.

Some segments of the U.S. seafood industry were initially hurt after China in July responded to tariffs imposed by the Trump administration with duties on $34 billion worth of U.S. products, including a range of American fish. In recent weeks, retaliatory tariffs have stifled U.S. exports as some buyers shift to Canadian suppliers with less burdensome duties.

Stephanie Nadeau, president of The Lobster Co. in Arundel, Maine, counts on China for more than 30% of her $30 million in annual sales, and orders have stalled since tariffs took effect.

"There is no magic I could do to sell lobsters against Canadians that aren't getting taxed at 25%," said Ms. Nadeu, who said lobsters destined for overseas markets are now sitting in tanks.

For Seattle Shellfish, which sells 85% of the geoduck clams it harvests from the tidelands of Puget Sound to China, sales are down about 25% from levels typical for this time of year, said Jim Gibbons, the company's founder and chief executive.

If sales remain subdued in September, when the company's busy season begins, Mr. Gibbons said he could be forced to cut pay for his 60 employees or eliminate jobs.

Write to Heather Haddon at heather.haddon@wsj.com and Jesse Newman at jesse.newman@wsj.com

 

(END) Dow Jones Newswires

August 09, 2018 11:27 ET (15:27 GMT)

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