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China China -- An Economic DragonAn Economic Dragon
Atlantic Provinces Economic CouncilAtlantic Provinces Economic Council
OUTLOOK 2005OUTLOOK 2005November 19, 2004November 19, 2004
Alastair O’RiellyAlastair O’RiellyManaging DirectorManaging Director
Canadian Centre for Fisheries InnovationCanadian Centre for Fisheries Innovation
Research and Development Agency– Owned by Memorial University; Managed by Industry; Funded by
ACOA– Dedicated to the Fishery and Aquaculture Industries – Links Industry to Atlantic Canada’s Universities and Colleges– 560 Innovative Initiatives over 15 years, worth $65 million:
Conservation Equipment DevelopmentEmerging Species Value-added Product DevelopmentAquaculture
China: A Country on the MoveChina: A Country on the Move
• Population of 1.3 Billion• $1 Trillion in GDP/Four times 1980’s GDP• Exports estimate for 2003: $436.1 Billion• Second largest purchasing power parity in
world, next to USA
China: Enormous Development & Upheaval
• “The World’s Workshop” Manufactures for the World:– 1/3 its Computers ½ Digital cameras– ½ DVD Players ½ Clothing– 2/3 Photocopiers & Microwaves
• Consumes 20% world’s stainless steel (More than Japan & US, combined)
• One-half of world’s 20 tallest towers• 100 million new cars in next 10 years• Biggest cell phone market in the world• Over 236,000 millionaires• Consumes 40% the world’s cement; dominant force in world’s
market for copper, steel, iron ore, soybeans & oils
China: Enormous Development & Upheaval
• 46.7% of population below poverty line ($2/day)• 66 million peasants (& rising) made landless since
early 1990s• Home to 13 of the 20 worst polluted cities in world• Workers earning less than $100 annually up by
800,000 in 2003• Average urban income six times higher than rural
income• Despite monthly wages of $60-$125, 70% of labourers
are still owed wages
Trade between Trade between China and CanadaChina and Canada
$0$2,500,000$5,000,000$7,500,000
$10,000,000$12,500,000$15,000,000$17,500,000$20,000,000
Tho
usan
ds
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Can. Exports Can. Imports
Total Exports to China from Total Exports to China from Atlantic CanadaAtlantic Canada
$0$50,000,000
$100,000,000$150,000,000$200,000,000$250,000,000$300,000,000$350,000,000$400,000,000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Fishery Exports to China from Fishery Exports to China from Atlantic CanadaAtlantic Canada
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
All Seafood Shrimp & Crab
PRODUCTION2003 harvest: 40 –45 million metric tons One-third global supplyProduces 75% of world’s aquaculture outputImports 2.3 Million TonsExports 2 MT
China’s Seafood IndustryChina’s Seafood Industry
MARKETS• Domestic market enormous
– Middle class growing: Over 100 million, 2003– Consumer preference for seafood - “without fish, no real dinner”
• Unfettered access to global markets Joined WTO, 2001– 2003 & 2004: biggest seafood exporter in world– 2 million Tons: $5.5billion
• Seafood trade with USA: – $520 Million in ’99 – $1.3 Billion in ‘03
China’s Seafood IndustryChina’s Seafood Industry
China’s Competitive Advantages
• Wage rates extremely low• Labour supply seemingly inexhaustible• Highly motivated, skilled, competent workers• Fully aware of market issues• Lax or non-existent regulatory regime• Low interest state loans, undervalued currency &
access to slightly outdated low-cost technologies• Flexibility and Adaptability to Change• Canadian seafood processors/marketers can’t pass
costs back to harvesters or on to consumers
Hourly Compensation, Hourly Compensation, Food, Beverages & Tobacco, 2002Food, Beverages & Tobacco, 2002
0
20
40
60
80
100
120
140
Norw
aySw
eden
Unite
d St
ates
Fran
ceIre
land UK
Cana
daJa
pan
Spai
nKo
rea
Taiw
anM
exic
oBr
azil
Chin
a
USA = 100 Source: US Department of Labor & O’Rielly Pers. Information; Intrafish Industry Report, 2004
Chinese weekly wage = 2 hours’ pay in Norway
• Aquaculture Industry Boom – following 2000 years of development
• 30 Million Tonnes of Product Today-75% of Global Production
• New/emerging commercial species:– Scallops– Halibut– Catfish– Tilapia
Chinese Seafood Industry
World Production of Tilapia
China47%
CostaRica 1%
Equador 2%
Mexico 8%
Phillipines 6%
Thailand 7%
Brazil 5%Columbia 3%
US 1%
Cuba 3%
Eqypt 4%
Taiwan 6%
Others 4%
Indonesia 3%
1.5 MT
Source: FPIL’s NAIA Presentation, Feb. 2004
• China - $.70 / kg• Philippines/Indonesia - $.80 / kg• Brazil, Ecuador, Thailand $.85 / kg• Mexico $ 1.00/ kg• U.S. $2.00 /kg• Canada $2.10 / kg
Tilapia Production Costs
Source: FPIL’s NAIA Presentation, Feb. 2004
“Hewers of Wood & Drawers of Water”
• Since 1993 Canadian Imports into China – Seafood Increase 1,946% – Chemicals Increase 1,216%– Nickel Increase 1,233%– Wood Pulp Increase 593%– Auto Parts Increase 599%
The Atlantic Fishery TodayThe Atlantic Fishery Today
COMPETITIVE PROFILE
– Predominantly shellfish– Less processing required– Uncertain resource outlook – Over-capitalized– Diminishing human resource base– Continued social over-dependency on sector– Increasingly stiff global competition
Human Resource Crisis
UNATTRACTIVE PRODUCTION EMPLOYMENT
• Short employment periods• Incomes low• Aging workforce to exit labour market
within next five to ten years• Recruitment of youth non-existent
Current Trends for Seafood Processing
• 90% - 95% of Atlantic Canadian Crab Exports to Japan shipped to China first for Meat Extraction
• Lobster Meat Sector May be starting down Same Road • Processing of Alaskan & Russian Frozen At-sea Cod
Fillet Largely Shifted from Atlantic Canada to China
Processing Canadian Snow Crab for Export to Japan
• Japan bought 10,000 – 12,000 T in 2004• Exported to China for Meat Extraction
– Manual labour– Excellent quality– Proximity to Japanese market– Customized packaging– “Just-in-time” delivery
China’s Seafood Industry
Better Quality, Better Service, Lower Costs
Canadian Offshore Shrimp for Domestic Consumption
– 25% of offshore shrimp goes to China (25,000 – 30,000 T)– Cooked, shell-on – Prices lower than previous Japanese market
Competition Intense– P. vannemei taking over portions of market– Chinese excellent at copying product & package forms– Future price pressures will be unrelenting
China’ Seafood Industry
Response to Chinese Challenge
• “Automate to Save Jobs”
• Product/Market Differentiation
• “If you can’t beat ‘em, join ‘em”
New Automating TechnologiesCCFI Innovations
• Crab Meat• Crab Shoulder• Lobster • Sea cucumber
FPI Marystown Plant -Flatfish
Icewater Fisheries, Arnold’s Cove - Cod
Fresh Sales
• Fresh product forms consistently superior in quality (strict adherence to spec’s)
• MAP and HPP technologies
• Superior service possible for both USA and European markets
Icewater Seafoods – Arnold’s Cove• Portion control with strict adherence to specs• Marketing to upscale segment in USA & EU• Commanding premium prices• Relationship-based• “Just in time” delivery
Product Upgrading
Market Differentiation
• Target Special Segments of Market –e.g.UK Buyers of C&P Shrimp :
• Marks and Spencer• Sainsbury’s• TESCO’s
– Labour standards– Environmental policies – Strict quality standards
– Premium over Warm-water Shrimp Product
• Creating global seafood sourcing company– Blue Ice Group in Iceland acquires Iceland Seafood
Corporation to link Chinese product to USA Markets
• Contracting processing companiesin Qingdao and Dalian as is being done by many seafood companies, e.g..High Liner Foods Inc.- Lunenburg
“Joining ‘em”
• Industry may become much smaller – Decrease in labour force (1986 – 2001: 50% fewer)– Fewer companies producing low-value products or distributing
products with no added value– Possibly small concentration of companies producing high-end
products/ in niche markets requiring little labour
• Phase out of mainstream commodity production • Processing whole frozen fish, including frozen-at-sea
groundfish & pelagics• Significant displacement of individuals from fishery-
dependent areas of Atlantic Canada – Curse or Happy Coincidence?
Fishery’s Future Trend Line
Response to Chinese ChallengeOther Sectors
High Tech• High-Tech Manufacturing
– LOTEK• High technology specialized products
– Small number of units– Short product lifecycle– IP Protection
– Guigne International – Possible Encapsulation of Technology
Manufacturing– Garrison Guitars
• Product Differentiation: Having your cake and eating it too!
– High-end market with high value product manufactured in Newfoundland and Labrador
– Mainstream market with similar product, manufactured in China for wider group of consumers
Other Sectors
Pharmaceuticals• North Atlantic Biopharma
• Seal oil-based Omega-3 fatty acid derivative• Connections to China enabling• Access to low-cost research environment • Standards stringent; researchers highly competent• Results allow access to huge Asian market and
are relevant to launch product testing elsewhere
Other Sectors
• Development Accelerating– Potentially Unstable Environment – discrepancy
between rich and poor, urban and rural
• Worldwide - fundamental change well under way – Business cannot ignore China
• Every business plan should include section on China –Influence felt in virtually all markets
• Canada may be a late-comer to dealing with China’s challenges and opportunities - need to catch up
China - A Work in ‘Rapid’ Progress
India
• 1.07 billion people• Since 1990 average GDP growth of 6%
– (In 2003, 8.3%)– Total Exports of $57.24 Billion f.o.b.– Total Imports of $74.15 Billion f.o.b.
Source: CIA World Fact Book, India
Indian Seafood Exports to Canada
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$CA
D ,0
00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Strategis Online
$0
$20,000
$40,000
$60,000
$80,000
$100,000
1995 1996 1997 1998 1999 2000 2001 2002 2003
Canadian Seafood Exports to India
Source: Strategis Online
• Implications of China’s insatiable demand for raw materials
• Canada’s status as long-standing friend of China • Policies to ensure Canadian society reaps benefits
– Employment and Income– Resource industries’ development– Manufacturing industries– Economic opportunities when labour force is aging and
industry is over-capitalized• And then, there’s India…almost 1.1 billion, high
GDP growth…
How Should Canada React
Acknowledgements• Globe and Mail: Special Weekend Edition on China.
October 23, 2004• Intrafish Industry Report: China: The Country that is
changing everything. August 2, 2004• Industry Canada: Strategis: Trade On line• Seafood.com
• Randy Bishop Brian Blanchard Dave Dyer • Andy Fisher Paul Grant Chris Griffiths • Paul Hearn Stuart Inkpen Brian Rogers• Dave King Dr. Hu Liu Tom McKeever• Andy Miller Derrick Rowe Keith Stoodley • Karl Sullivan Bruce Wareham CCFI Staff
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