Voluntary Report - public distribution

**Date:** 11/10/2004

**GAIN Report Number:** CH4038

CH4016

**China, Peoples Republic of**

**Fishery Products**

**China\'s Fish Meal Sector Report**

**2004**

**Approved by:**

![](media/image1.wmf)Maurice House

U.S. Embassy, Beijing

**Prepared by:**

James Butterworth & Wu Xinping

**Report Highlights:**

Like many other major fish meal producing countries, China\'s fish meal
production continues to decline \-- from about 400,000 MT in 2003 to an
estimated 386,000 MT in 2004. The primary cause of the decline is the
shrinking marine fish stocks and related catches. Meanwhile, consumption
remains high at 1 to 1.3 MMT. Imports fluctuate between 0.8 to 1 MMT.
The shrinking catches are pushing international prices up to levels
where customers look for substitutes.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[Domestic Fish Meal Industry 3](#domestic-fish-meal-industry)

[Consumption 5](#consumption)

[Trade 5](#trade)

[Policy 6](#policy)

[Price 7](#price)

# Domestic Fish Meal Industry

*Overview*: Industry sources reported that there currently are over 500
plants processing fish meal throughout China. Their total installed
processing capacity is about 1.5 million metric tons (MMT) per year. The
actual annual production, however, was considerable less -- about
400,000 metric tons in 2003. Over two-thirds of the capacity stands idle
mainly due to a shortage of raw fish. China's fish meal industry started
from 1980's in coastal regions of Zhejiang province. Most plants
employed labor intensive technology and produced relatively low-quality
fish meal containing high levels of fat. In the 90's, the industry
developed rapidly in Shandong province's Rongchen region. Some
collectively owned (township or village) plants adopted more advanced
"Steam Dry" technology that resulted in more de-fatted fish meal. Since
1998, soaring prices and high profitability in the fish meal industry,
attracted many fish farmers and outside investors into the sector,
especially in the coastal regions. About 150 new processing lines were
added in 1998 alone. This brought the nation's total processing capacity
to 1.5 million MMT. Raw materials for producing meal, however, declined
dramatically year-by-year as a result of over fishing in China's coastal
waters, where the marine fisheries resources are limited.

*Production*: Domestic production for 2004 is forecast to drop further
from 2003's estimated 400,000 MT, as compared to 755,000 MT in 1999 when
it peaked. (See chart 1). Shandong and Zhejiang ranked as the two
largest producing provinces, followed by Liaoning and Guangdong
provinces. These four provinces account for over 90 percent of the
domestic production. Industry insiders believe China's official
statistics for production often overstate the actual quantity produced
because producers/traders often add low quality filler material to the
meal to increase their profits. Although China's enjoys a long coast
line, the supply of the primary species used for fish meal -- anchovies,
sardines, and jack mackerel \-- are limited. Over fishing during the
past decade is the primary reason for the disappearance of Jack
Mackerel. Sardines are increasingly used as fresh feed for the rapidly
expanding marine aquaculture. The only specie available is anchovy.
According to a joint survey conducted by China's Ministry of Agriculture
(MOA) and the Netherlands, total anchovy resources are about 5 MMT in
China's coastal waters, with annual possible catch of approximately
500,000 MT. Some industry insiders and experts, however, believe that
China's domestic production should be capped at about 200,000 MT if it
wants to maintain its marine resources at sustainable levels. In
reality, as a result of over fishing since 1986, the anchovy catch has
dropped each year. Also, industry sources reported that the average size
of anchovies caught has dropped to 5-6 cm in Shandong and the situation
continues to worsen, as the government's fishing moratorium has not been
effectively implemented.

Chart 1. China's Fish Meal Production and Consumption from 1995-2004

![](media/image2.wmf)

Source: China JCI; 04 data is an estimate

*Quality*: The quality of domestic fish meal reportedly has declined
along with the quantity. Both the protein and oil content have dropped.
Part of the lower protein content can be attributed to producers' use of
shrimp powder, which is worth less than fish meal, as filler material.
Inferior fish meal reportedly often is blended with other filler
ingredients, such as feather, leather, organic powders (blood and
grass), and rapeseed meal. This has hurt the domestic industry's
reputation. The tight availability of both raw fish and fish meal,
concurrent with the growing demand for animal protein feed, is behind
these practices. The highly fragmented industry, which is characterized
by many small, family-owned businesses, has made quality control a
difficult task. The government's weak enforcement of the regulations
also has contributed to the problem. The quality of domestic fish meal
produced by the larger plants was higher because they use advanced
technology and their close proximity to the end-users ensured freshness.

*Processing and Marketing*: As mentioned above, China's fish meal
industry is characterized by many family owned businesses together with
a few larger plants that operate at less than full capacity. The
industry started in the 1980's with simple equipment. In an effort to
boost domestic production and domestic brands, the Chinese government,
mainly MOA, provided assistance to develop the industry in the leading
producing areas such as Shandong province's Rongcheng and Zhoushan in
Zhejiang province. Some facilities were equipped with processing
capacities up to 60,000 MT per year. Many of these facilities, however,
were poorly designed and never operated at full capacity due to the
shortage of raw fish. Meanwhile, small household plants effectively
competed for raw fish and forced many of the larger plants into
bankruptcy. Many subsequently were dismantled. As a result, those
small-scale plants, meaning those with several hundred or several
thousand metric tons actual capacity, are the main players in the
sector. In Rongcheng, Shandong, there reportedly are nearly one hundred
plants, which usually operate from October to February every year. Most
are idle the rest of the year. One of the largest plants indicated that,
although it's maximum processing capacity is 60,000 MT per year, the
actual annual production was only 10,000 MT and that is expected to
decline year by year.

Today's domestic products' market share has fallen and the distribution
area has shrunk to provinces near the plants. Feed mills purchase fish
meal from plants or traders. It is transported by railway, road, or sea.
Most of the products are sold unbranded and the actual nutrients
contents could be much lower than what is shown in the specifications.
In addition,

many of the small household plants create serious water and air
pollution in the producing regions.

# Consumption

China remains the largest fish meal consumer in the world. Its annual
consumption has averaged 1.38 MMT over the past five years. Consumption
hit a record of 1.54 MMT in 2000. Industry sources project that
consumption will fluctuate between 1 to 1.3 MMT in the near term,
depending on the global supply/price situation.

Feed consumption has grown rapidly along with the rapid development of
China's livestock and aquaculture industries. Feed production grew by
about 6 to 7 percent in past years and reached 83 MMT in 2002. The
outbreak of SARS in 2003 limited the growth rate to 5 percent and the
outbreak of avian influenza is expected to keep the growth rate the same
in 2004. Aquaculture feed accounted for 7.5-8 MMT out of the total feed
produced. This demand has been driven by China's consistently high GDP
growth rate, improved living standards, and surging exports of aquatic
products. High quality fish meal is an indispensable protein source for
many aquaculture species, including shrimp, eel and soft-shelled
turtles. Some sources reported that fish meal accounts for 60-70 percent
in the feed for eel, 50 percent for soft-shelled turtle production, and
20-35 percent in shrimp and fish aquaculture. The aquaculture industry
continues to take an increasing share of fish meal consumption,
especially the prime quality. In the face of raising prices, however,
feed mills are substituting lower cost protein sources for fish meal in
their rations. These include bone and chicken meat meal, and plant
protein as well. The fish meal content in poultry feed has declined to
its current level of 2-3 percent, and rarely is added in the majority of
livestock feeds. This has attributed to the drop in consumption since
2001.

# Trade

China has been a net importer of fish meal during the past decade. Its
imports have averaged 892,000 MT per year over the past five years.
Imports in 2004 are forecast to rise moderately to 885,000 MT from
800,000 in 2003. Given China's shrinking domestic supply coupled with
strong demand, this trend is expected to continue in the short term.
(See Chart 2). The prevailing high price and reduced catch in major
producing countries has limited world supplies available for China to
import.

**Chart 2: China's Fish Meal Imports from 1995-2004 (in 1000 MT)**

![](media/image3.wmf)

Source: China Customs Statistics; 04 Data is an estimate.

Peru is the largest supplier of fish meal imports to China, followed by
Chile and United States. In the past five years, Peru's exports to China
totaled 3.1 MMT, accounting for 69 percent of the total 4.47 MMT
imports. US exports remained stable \-- ranging from 60,000 to 70,000 MT
annually during the 1999-2003 period. (See table 1). Industry sources
reported that containerized fish meal shipments have been increasing in
recent years. The reason was said to be competitive freight rates
compared to bulk shipments and more flexibility in terms of
quantity/quality and origins. Another noticeable trend has been
increased demand for high quality steam-dried (SD) fish meal from the
aquaculture sector. Shanghai, Fuzhou and Guangzhou in order ranked the
three most important ports of entry for fish meal. Several other ports
also receive lesser quantities each year as traders arrange arriving
ports based on the location of their customers. The leading importers
include a few Hong Kong based traders and Beijing-based State Owned
companies (See Table 6). Some of which are involved in sourcing,
importing and then redistributing through their nationwide marketing
channels., One Hong Kong based trader, for example, exported about
150,000 MT in 2003. Marketing of imported fish meal is becoming
increasing convenient thanks to the Internet and other modern
communication tools. Importers, domestic traders, and mills are closely
linked which facilitates efficient marketing and distribution. In most
cases, imports are distributed at the ports to reduce warehousing costs.

# Policy

MOA's Fisheries Industry Division is in charge of marine fishing and
aquatic products processing. MOA's regulations stipulate that processing
plants must be registered and licensed. An industry source estimated
that there currently are about 500 licensed production plants. However,
there also are many small-scale plants that operate without licenses.
The latest official source showed renewal or issuance of licenses has
virtually stopped since the beginning of 2004, as the shrinking
production limits the incentive to register. The current quality control
problems can be attributed to a poor administrative system. Shifting
responsibility from the Department of Fisheries to the Feed Industry
Department could improve the quality control. In addition, several
industry associations are involved in fishmeal policy affairs, including
China Feed Industry Association, China Aquatic Products Processing &
Marketing Association ([www.cappma.com](http://www.cappma.com/)), and
Fish Meal and Oil Commission of China Feed Online.
([www.chinafeedonline.com](http://www.chinafeedonline.com/)).

China's government encouraged fish meal production in the 1990's in
order to meet the growing animal protein demand from China's expanding
livestock industry. The available resources, however, did not keep pace
with the growth of the sector. In 1995 the Government realized that
China's fisheries resources were being depleted, so it implemented a
seasonal fishing moratorium. The months of the moratorium vary by
location. It is either June-August or July-September, depending on the
area. Although compliance and enforcement of the moratorium has not been
as written, most sources concede that it has slowed the rate of
depletion somewhat. MOA asserts that the moratorium has facilitated a
sustainable development of the fishing industry and the populations of
select species have begun to recover. Most farmers have a higher
awareness of protecting marine resources than a decade ago and,
according to MOA, readily abide by the ban. Sources expect the
moratorium will be maintained into the foreseeable future.

Imports of fish meal are liberalized and market driven. They currently
are subject to a 2 percent import tariff, but redistribution is exempted
from value added tax (VAT). Based on "Registration and Administrative
Measures on Imported Feed and Additives" issued by MOA, traders are
requested to have their products registered and approved by MOA. Samples
are supposed to be subjected to testing by approved laboratories. In
practice, Chinese importers or agents complete these procedures.
According to one industry source, a total of 177 overseas fish meal
traders reportedly are registered and permitted to export fish meal to
China, of which 17 are from the United States.

On June 1, 2003, China published the State Fish Meal Standard. It took
effect on December 1 of that same year. The standard establishes four
grades based on crude protein, crude fat, moisture, ash and salt.
Industry sources, however, reported that these standards have not yet
been incorporated in importing contracts. As of this writing, traders
still use their conventional import contract terms. Some domestic
producers are not even aware of the new standard and continue marketing
products the same as before the new standard took effect. Some industry
insiders expressed doubts about its feasibility and necessity, which
does not bode well for compliance. The common practice in current
Chinese rule making tends to lean toward establishing trading standards,
not SPS standards. This amounts to little more than managing trading
rather than assuring animal and food safety.

# Price

The price of fish meal in China is largely driven by the global market.
In response to the shrinking global catch, the prices of fish and fish
meal have increased rapidly in recent years. The price of domestically
produced products, however, usually is less than imported. As production
in the major South American producing countries has dropped, prices in
China remained high throughout 2003 and are not expected to fall in
2004. These recent high prices prompted some less than scrupulous
producers to blend in low cost filler materials to maintain their
profits.

With the establishment of a marketing network, prices are more
transparent than before. The prevailing price information for both
domestic and imported products are updated in several websites and
media. For this information please refer to websites:
[http://www.chinafeedonline.com](http://www.chinafeedonline.com/);
[http://www.chinafeed.org.cn](http://www.chinafeed.org.cn/);
http//[www.chinajci.com](http://www.chinajci.com/) and
[http://www.cappa.com](http://www.cappa.com/).

  ------------ ------------- --------- ----------- --------- --------- --------- -----------
  **Table 1.                                                                     
  China\'s                                                                       
  Fish Meal                                                                      
  Imports by                                                                     
  Origins from                                                                   
  1999-2003                                                                      
  (Metric                                                                        
  Tons)**                                                                        

                             1999      2000        2001      2002      2003      TOTAL

               TOTAL         631,484   1,185,653   901,759   958,151   800,250   4,477,298

  1            Peru          400,006   941,877     652,763   640,160   458,143   3,092,948

  2            Russia        81,896    88,402      53,255    44,443    32,489    300,484

  3            Chile         44,149    51,127      88,843    158,163   152,519   494,801

  4            United States 57,172    59,246      70,075    68,920    72,867    328,280

  5            Poland        5,724     3,469       2,309     88        0         11,590

  6            Japan         601       303         77        18        0         999

  7            New Zealand   20,341    22,799      22,584    21,423    24,809    111,955

  8            Canada        196       68          0         196       3,839     4,299

  9            France        50        50          0         0         0         100

  10           Taiwan        261       476         14        0         57        809

               Other         21,088    17,835      11,840    24,741    55,529    131,032
  ------------ ------------- --------- ----------- --------- --------- --------- -----------

  -------------- ------------------ --------- --------- --------- --------- ---------
  **Table 2.                                                                
  China\'s Fish                                                             
  Meal Imports                                                              
  by Value from                                                             
  1999-2003(in                                                              
  million                                                                   
  US\$)**                                                                   

                                    1999      2000      2001      2002      2003

                 TOTAL              361.35    572.31    481.37    633.49    517.34

  1              Peru               186.72    394.86    293.37    393.49    277.07

  2              Russia             67.89     73.00     46.22     37.52     26.37

  3              Chile              24.49     28.40     56.44     112.99    102.20

  4              United States      43.61     42.35     56.24     56.83     59.22

  5              Poland             4.89      2.90      2.13      0.07      0.00

  6              Japan              0.43      0.22      0.04      0.01      0.00

  7              New Zealand        18.08     19.18     19.46     18.28     20.17

  8              Canada             0.12      0.06      0.00      0.12      2.59

  9              France             0.08      0.08      0.00      0.00      0.00

  10             Taiwan             0.21      0.33      0.01      0.00      0.08
  -------------- ------------------ --------- --------- --------- --------- ---------

  ----------- ------------- ---------- ------------ ---------- ---------- ----------
  **Table 3.                                                              
  China\'s                                                                
  Fish Meal                                                               
  Imports by                                                              
  Ports from                                                              
  1999-2003                                                               
  (Metric                                                                 
  Tons)**                                                                 

                                                                          

                            1999       2000         2001       2002       2003

              TOTAL         631,484    1,185,653    901,759    958,151    800,250

  1           Shanghai      183,233    384,883      258,935    277,897    188,635

  2           Fuzhou        159,694    183,282      170,582    173,193    179,917

  3           Huangpu       70,260     213,748      144,624    208,130    167,277

  4           Guangzhou     18,294     25,302       37,731     53,318     64,422

  5           Zhanjiang     14,526     44,350       29,342     24,439     43,977

  6           Dalian        39,446     61,409       54,288     58,379     35,103

  7           Tianjin       25,876     73,899       71,049     49,388     32,506

  8           Nanning       11,978     30,887       35,792     42,346     28,503

  9           Xiamen        16,441     18,415       17,706     26,867     25,089

  10          Qingdao       56,290     82,936       19,224     30,327     16,605
  ----------- ------------- ---------- ------------ ---------- ---------- ----------

  ---------- ----------------- --------- --------- --------- --------- -----------
  **Table 4.                                                           
  China\'s                                                             
  Fish Meal                                                            
  Imports                                                              
  from Jan                                                             
  to Apr, 04                                                           
  (Metric                                                              
  Tons)**                                                              

                                                                       

                               Jan       Feb       Mar       Apr       TOTAL

             TOTAL             54,874    55,291    51,096    81,857    243,118

  1          Peru              30,604    42,520    30,161    49,793    153,078

  2          United States     5,175     155       7,441     12,657    25,428

  3          Russia            698       827       1,140     8,295     10,960

  4          Chile             10,763    5,978     7,548     4,876     29,166

  5          Argentina         800       1,709     1,292     1,511     5,313

  6          New Zealand       1,248     1,777     1,113     1,249     5,387

  7          Malaysia          165       103       625       753       1,645

  8          Thailand          0         0         0         734       734

  9          Myanmar           968       244       300       538       2,050

  10         Norway            135       63        40        472       709
  ---------- ----------------- --------- --------- --------- --------- -----------

  ------------- --------------------- ---------- ---------- ---------- ---------- ----------
  **Table 5.                                                                      
  China\'s Fish                                                                   
  Meal Average                                                                    
  Import Price                                                                    
  from                                                                            
  1999-2003                                                                       
  (US\$/Kg)**                                                                     

                ** **                                                              

  ** **         ** **                 **1999**   **2000**   **2001**   **2002**   **2003**

                \--World\--           0.57       0.48       0.53       0.66       0.65

  1             Peru                  0.47       0.42       0.45       0.61       0.6

  2             Russia                0.83       0.83       0.87       0.84       0.81

  3             Chile                 0.55       0.56       0.64       0.71       0.67

  4             United States         0.76       0.71       0.8        0.82       0.81

  5             Poland                0.85       0.84       0.92       0.83       0

  6             Japan                 0.72       0.73       0.56       0.53       0

  7             New Zealand           0.89       0.84       0.86       0.85       0.81

  8             Canada                0.63       0.81       0          0.63       0.68

  9             France                1.5        1.55       0          0          0

  10            Taiwan                0.82       0.7        0.45       0          1.4
  ------------- --------------------- ---------- ---------- ---------- ---------- ----------

**Table 6. Sample of Major Fish Meal Traders**

  -------------------------------- ------------------- ----------------------------------------------------
  **Name**                         **Location**        **Contact**

  Coland Holding Ltd.              Hongkong and Fuzhou [www.coland.com.cn](http://www.coland.com.cn/)

  G.C. Luckmate Trading Ltd.       Hongkong and        [www.gcluckmate.com](http://www.gcluckmate.com/)
                                   Shanghai            

  Teampower Trading Ltd.           Hongkong            [www.fishmeal-tp.com](http://www.fishmeal-tp.com/)

  China Animal Husbandry Group     Beijing             [www.cahg.com.cn](http://www.cahg.com.cn/)

  China National Feedstuff Group   Beijing             [www.cnfgc.com](http://www.cnfgc.com/)

  Shanghai Power Resources Trading Shanghai            [www.powerfeed.com](http://www.powerfeed.com/)
  Ltd.                                                 

  Hualian Grain and Oil Trade Ltd. Shenzhen            Fax: 0755-82281199

  COFCO Group                      Beijing             [www.cofco.com](http://www.cofco.com/)
  -------------------------------- ------------------- ----------------------------------------------------