Seafood industry post-COVID 19: An overhaul to trigger growth of small fisheries

The seafood industry is known to have some of the most complex and repressive supply chains but the COVID-19 pandemic has highlighted the need for change that would benefit fishermen as well as consumers.

As the COVID-19 pandemic forced billions of people inside their homes, roads became quieter and so did the oceans. The coronavirus outbreak spread through the planet at an unprecedented scale and brought the whole world to a halt, plummeting demand in the majority of the sectors including the seafood industry.

Fisheries were among the first businesses to face the economic hit of the coronavirus outbreak due to its heavy exposure to China for both consumption as well as production. China alone accounts for 62 percent of global aquaculture production.

The outbreak coincided with the Chinese New Year holidays, which is generally the time of peak demand for Australian seafood but order books of fisheries went dry despite falling prices. The outbreak is suspected to have originated from Wuhan’s Huanan Seafood Wholesale Market and the Chinese government was quick to partially restrict the trade of seafood in an attempt to contain the outbreak.

The prices of lobsters, a key product for Australia’s seafood industry, are down by 50-80 percent and even the world-famous Maine lobsters are being sold "for amounts they shouldn't be sold for."

Vietnam's seafood exporters are also bearing brunt of coronavirus outbreak and the country's seafood exporters association has said that as much as 50 percent of export contracts of the industry are being canceled or delayed due to slump in demand. Farmed fish exports to China were halted in late-January due to draconian measures imposed to contain the outbreak, and clients in other parts of the world also started to cancel and delay orders as the outbreak spread globally, the Vietnam Association of Seafood Exporters and Processors said. "Inventories are piling up as exporters' and processors' warehouses run out of space, although they have cut prices by 25%-30%," the association said.

Two of the world's largest seafood shows, Seafood Expo North America and Seafood Expo Global originally scheduled for March and April respectively, have also been postponed delivering another blow to seafood companies because big orders were secured at these events.

Impact on industry

Seafood producers across the world are without a market for their product as demand slumps and supply chains cripple due to restrictions imposed to contain the outbreak.

In the United States, as much as 70 percent of expenditure on seafood products is done in retail food establishments that include restaurants, carry-outs, and catering services, according to a report issued by the National Oceanic and Atmospheric Administration (NOAA) in 2017. But restaurants have been closed either due to lockdowns or due to a slump in demand as people avoid unnecessary contact with other people. The slowdown in the hospitality sector has hit seafood companies particularly hard since the majority of their revenue comes from the restaurants.

Companies selling canned seafood, however, are having a sigh of relief amid a fallout in the sector as consumers are stockpiling on canned food, including tuna and other seafood. But these products have little margins and the trend is not even expected to last.

The seafood industry in 2020 is more globalized than ever, demonstrated by the fact that a popular fish found in Chinese waters can be easily found in menus as far as the US and Brazil. Global fish imports are well above USD 100 billion with the US contributes the most to the mix, the country imported seafood worth over USD 22 billion in 2018.

But these international markets have dried up during the coronavirus outbreak because of a profound slump in demand by restaurants and other food establishments. Restrictions on movement, on the other hand, have disrupted supply chains at all levels, and suppliers are also finding it hard to move products due to limited access to logistics.

The massive stimulus packages announced by governments around the world also account for the seafood industry and have earmarked funds for these traders. The USD 2 trillion rescue package announced by the US allots USD 300 million for seafood operators experiencing losses greater than 35 percent, including subsistence, commercial and charter fisheries, as well as fish farms.

The Australian government has allocated AUD 110 million (USD 69 million) for a new freight assistance mechanism to kick-start seafood export trade.

But the market concentration in the seafood industry is low and the nature of the industry is such that a large number of small fishermen only aim for a skinny slice of the margin. Reaching these traders would be difficult for governments and many of them might not be able to handle the financial pressure in the coming months.

It’s hard to find positives when the industry is at the edge but the outbreak has also brought some benefits for the seafood industry, including for the small traders, and these benefits could transform into long-term disruptions that could reshape the market. The changes in the market and slump in demand from restaurants are forcing fisheries to adopt direct-to-consumer models to survive the crisis.

Fishermen are also realizing the benefits of selling locally and embracing community-supported fisheries to widen their reach.

The changes could pave the way for better and untangled supply chains which will be beneficial for both consumers and fishermen as complex supply chains supported by big businesses often drive up retail prices but the benefits don’t always reach the fishermen.

Post-COVID 19 future

Domestic business strategies

The seafood sector has been globalized for many years but local seafood trade can benefit both fishermen and consumers. Fishermen benefit from reduced operating costs, access to new markets, predictable demand, and the ability to adopt direct-to-consumer models. Consumers can also ensure that their seafood is sustainable and fresh from the sea.

During the times of COVID-19 pandemic, seafood producers are realizing the benefits of having local trade connections while consumers and governments are also realizing the need to support local fisheries to ensure consistent supply.

Small fishermen are increasingly embracing Community-Supported Fisheries (CSFs) and these CSFs could open up new possibilities, especially for local trade. CSFs are organized groups of individual fishermen or companies that operate to benefits all the members by acting as a single big entity. These entities can have a much wider reach and take over the entire supply chain and deliver directly to consumers, significantly reducing overhead costs and increasing profit margins.

Dependency on China

Coronavirus is accelerating a change that was already underway. China has been the biggest player in global aquaculture production for several years but increasing labor costs and trade tensions have been driving seafood supply chains away from the country in recent years.

The coronavirus shock to supply chains will further cement the beliefs of companies working in the sector and trigger the adoption of more inward-looking policies for seafood processing. Countries that do not have favorable habitats for domestic processing would seek to avoid putting all of their eggs in one basket.

Other Asian countries have been emerging as an alternative to China for several years and the transition will be further supported by this shock. Reducing dependency on any single country and diversifying supply chains would also reduce the burden on overstretched resources in these countries which have been overfished for years.

Supply chain improvements

The seafood sector has a huge scope of improvement in supply chains and the COVID-19 pandemic has exposed its shortcomings, highlighting the urgent need to act.

• Online retail

E-commerce has been growing consistently over the past few years but its adoption has been lagging in the seafood industry. But the changing consumer behavior and demands would push the growth on online seafood retail as well and trigger an overhaul in how seafood is sold, from packaging to messaging to product forms.

• Low-contact supply chain

People are already worried about risks in seafood consumption due to the outbreak and thus fresh seafood retail could see dramatic changes in the coming months. Consumers would expect more hygienic packaging and reduced human touch along the value chain. Pre-packed fish, contrary to the “wet” markets, can deliver people the freshness they desire from seafood, but more reassuringly.

• Digital supply chains

Demands for reducing human contact and potential benefits in operational efficiency will drive the adoption of digital tools and automation in seafood supply chains. These changes could spark radical new ways of operating facilities and increase efficiency, making it a necessity to stay in business.

The bottom line

The seafood sector is known to have some of the most complex and repressive supply chains but the COVID-19 pandemic has highlighted the need for change that would benefit fishermen as well as consumers. Big businesses that control supply chains in the industry often eat into the profits of fishermen and seafood producers but the rise of community-supported fisheries could place individual fishermen back on the map while also benefitting consumers.

With globalization in the seafood industry, it has become easier for consumers to have access to a wide variety of products but it has also made the industry much less resilient to external shocks. Diversifying supply chains and more inward-looking policies are needed to ensure a consistent and sustainable supply of seafood that feeds billions of people every year.

Centre of Excellence on Emerging Development Perspectives (COE-EDP) is an initiative of VisionRI and aims to keep track of the transition trajectory of the global development sector and works towards conceptualization, development, and mainstreaming of innovative developmental approaches, frameworks, and practices.