| Tuna: A review of the news
in 2001 |
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| Published on January 21,
2002 |
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Cost-cutting,
job losses in response to poor demand
Consistently poor consumer demand hurt
quite of few of the leading tuna packers in 2001. In late
January, Starkist, the largest U.S. brand in terms of market
share, was forced to reduce the working week of its 2,100
workers in American Samoa from five days to four days a week.
This measure was effective as of February 2001. The pain was
also felt in Asia. RFM Tuna and Nautica Canning in the Philippines
made about 5,000 workers redundant after recording significant
financial losses. The other five operators in the Philippines
were also forced to scale back their operations in light of
fewer orders.
Pittsburgh-based Heinz, the producer of
StarKist tuna, announced several cost cutting measures in
2001. The company closed its tuna operations in Puerto Rico,
consolidated its North American canned pet food production
to Bloomsburg, Pennsylvania, and sold some of its other assets.
The company's third-quarter earnings report showed lackluster
profit growth in line with an earlier warning announcing that
earnings would be lower in the second half of 2001.
The seafood industry's dynamic raw materials/finished
goods supply environment, coupled with changing market conditions
forced Chicken of the Sea International to close its California
Packing (CalPac) cannery in San Pedro, California in October.
CalPac was the last domestic tuna cannery on the West Coast
of the U.S. the company had previously processed about 100
tons of tuna and salmon per day at the plant.
Variable prices, volatile supply of
raw materials
Given sluggish demand for canned tuna
among consumers, the supply of raw materials has become a
major factor in determining the price of raw tuna. The price
of raw skipjack (Bangkok landing) is practically the industry
benchmark for the following reasons:
- Skipjack
accounts for about 50 per cent of total worldwide tuna catches.
- The Western
Pacific Ocean (WPO) is the largest source of world tuna supplies
(accounting for about 64 per cent of tuna catches worldwide).
A significant amount of this tuna ends up in Bangkok due to
Thailand's huge processing capacity, which is currently the
biggest in the world.
The following chart highlights the price
volatility in the tuna market during 2001.
Skipjack prices in US$ (open-close) - Bangkok landing
| Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sept |
Oct |
Nov |
Dec |
| 480-620 |
650-750 |
800-950 |
900- 950 |
850-880 |
730-800 |
700-720 |
700-750 |
770-780 |
750-780 |
730-750 |
700-730 |
January
The price of skipjack started off the
year at US$ 480-520 per metric ton, following a dramatic rise
after a meeting of the World Boat Owners in early December
in Manila, the Philippines. Participants at this meeting agreed
to suspend catching for 30 days within a 60-day period, or
reduce catches by 35 per cent.
Although transactions were limited during
January, prices continued to rise up to
$ 620 per ton. The suspension of fishing had led to positive
results for boat owners. In light of this, a follow up meeting
was held at the end of January in Manila*. The resolution
made at this meeting was to extend efforts to reduce catches
through until the end of March in an effort to control the
supply of tuna in the world market.
* At this point the grouping of boat owners
refers to itself as the World Tuna Purse- Seine Organization
(WTPO).
February
The upward momentum continued into February,
reaching $ 750 per ton. This was due to the extended fishing
suspension measures and poor catching situation in the Eastern
Pacific Ocean (EPO). The Inter-American Tropical Tuna Commission
(IATTC) released a forecast in February stating that catches
in EPO had dropped by as much as 35-40 per cent when compared
with the previous year, while yellowfin catches had increased
by around 20 per cent. This was attributed to fluctuating
sea temperatures, strong winds, lower fish stocks and disappointing
catches by the Ecuadorian fleet, which has the biggest fleet
in the region.
According to the latest estimates, Ecuadorian
vessels caught 163,277 tons of tuna in 2001, representing
35 per cent of the total tuna catch in the region; while at
the same time, the country's tuna industry exported 156,400
tons of tuna worth $ 209.6 million. Mexico caught 121,924
tons of tuna in 2001.
March
At the 3rd WTPO Meeting in Ecuador in
early March, boat owners again agreed to extend the reduction
measures up until June. This was an important move because
annual catch and market data showed that catches in the WPO
tended to be higher than average during the April-June period.
In order to maintain an improvement in the balance between
supply and demand, boat owners felt it was necessary to continue
the reduction through the peak fishing season. Again, the
resolution of the meeting led the price of skipjack to hit
its peak for the year in March, reaching $ 950 per metric
ton.
April
The high skipjack price continued through
April on the back of the reduction measures agreed upon at
WTPO meetings and a fall in catches, especially within the
WPO. Boat owners from the Philippines, South Korea, Japan
and Taiwan, the leading fishing fleets in the WPO, reported
lower catches due to a dearth of fish in traditional fishing
grounds.
The rise in the price of skipjack reflected
the fall in supplies of raw materials, with traders of finished
products recording lackluster sales. This led to price resistance,
especially among buyers of finished products in the U.S. These
buyers historically aim to control their stocks of canned
products in order to maintain efficiency. Although some traders
of raw materials were desperate to offload their fish, many
canneries were not interested in buying due to the lack of
orders for canned tuna.
Dramatic price hikes since the beginning of the year had affected
all players in the industry, but especially packers who have
to be careful with their operating costs and be receptive
about finished goods buyers' reluctance to share the additional
cost of materials. Therefore, packers tended to adopt a wait-and-see
stance at this point.
Data from the National Marine Fisheries Services (NMFS) in
April confirmed this sentiment. The report showed that U.S.
imports of canned tuna from January until March 6, 2001 fell
by as much as 43 per cent in volume terms when compared with
the same period in 2000. In other words, imports fell by 25.8
million kilograms to 34.9 million kilograms.
May - June
Having peaked in April, the pricing trend for skipjack begun
to reverse its course. During the first half of May, the price
of skipjack fell from $ 900 per ton to $ 800 per ton, leading
to a regional WTPO meeting in early June in Kaohsiung, Taiwan.
Representatives from Taiwan, Japan, South Korea and the Philippines
were present at the meeting and reached a consensus to reduce
catches in order to boost prices and protect marine resources.
Eighty boats from these four countries agreed to remain in
port for 14 days in June to reduce the annual catch by an
estimated 30,000-40,000 metric tons, representing a 20-per
cent cut in global catches.
However, unlike previous meetings, the Kaohsiung meeting failed
to have a positive effect on the price of skipjack, largely
due to an abundance of supplies from the WPO and sluggish
demand for canned tuna during this time. According to a catching
report from Japan, there was an abundance of skipjack and
northern bluefin tuna in waters around Nagasaki between late
June and mid-August. The catching volume of the two species
increased fivefold compared with the same time period in 2000.
This provided Thai packers with additional bargaining power
when negotiating prices with fish traders.
July
In light of these developments, the price of skipjack failed
to pick up, dropping to $ 700 per ton. This prompted WTPO
members to meet again in Kaohsiung, Taiwan in early July.
During this meeting, various measures were adopted to stem
the drop in the price of skipjack. Firstly, representatives
from Japan, South Korea, Taiwan and the U.S. agreed to stop
fishing for 45 days in the 90-day period following the meeting.
In addition, the members from the Philippines agreed to cut
the number of their vessels by one in every three in operation,
and agreed that their catches would only be delivered to the
domestic market during the 90-day period. Furthermore, all
WTPO members pledged not to sell skipjack below $ 700 per
ton.
These collective measures, nevertheless, failed to boost the
price of skipjack. Sluggish U.S. consumption and packers'
confidence in an abundance of supplies from the WPO were again
the factors to blame. According to data for the period January-July
2001, the Japanese fleet exported 16,355 tons of raw tuna
to Thailand, representing a 100-per cent increase over the
same period in 2000.
August - October
The price of skipjack hit a low of $ 700
per ton in early August. After this, the price improved slightly
and steadied within a narrow range ($ 750-780 per ton) through
until early November. This period was considered to be favorable
for all participants in the market because transactions increased
during this period.
The impact of the terrorist attacks on
the U.S. on September 11, on the back of a global economic
slowdown, was starting to be felt by the middle of October.
Orders for canned tuna by U.S. buyers showed a declining trend,
while the catching suspensions agreed upon at the last WTPO
meeting had expired. In light of this negativity, the Asian
members of the WTPO decided to meet again in Manila on October
24. Tuna fleet from Japan, South Korea and the Philippines
agreed to reduce their catches by 35 per cent in a bid to
restore the balance between supply and demand.
November - December
In spite of successive efforts to stem
the price fall, the price of skipjack continued its descent
from US$ 780 to US$ 700 per ton (the price floor set in the
previous WTPO meetings) between mid-October until the end
of 2001.
The outlook for the Thai tuna industry
Looking ahead, we believe the tuna market
will remain unsettled, given the volatility shown in tuna
prices and transactions. Also, a few factors deserve our attention
in 2002.
- Supply factors
1. Declining
catches in WPO, EPO, and Indian Ocean - Recent catching
reports from the WPO, EPO and Indian Ocean indicate a significant
decline in tuna catches. The main factors to blame are over-catching
(depletion of fish stocks) and global warming (leading to
higher sea water temperatures in fishing grounds).
2. Fewer
vessels in operation - According to a fleet forecast released
at a European tuna conference (Vigo, 2001), the total number
of purse seine vessels in 2002 (with a capacity higher than
400 tons) would drop slightly to 439 vessels from 441 in 1999.
One hundred and fifty of these boats are active in the WPO.
This is made up of vessels from Taiwan (53), the Philippines
(38), Japan (33), and South Korea (26). Catches by these Asian
vessels would normally be landed at their domestic canneries
or be supplied to Thai packers. This particularly applies
to the South Korean and Taiwanese fleets, due to a lack of
domestic demand.
3. Shifting
fishing grounds - In general, boat owners in the Central
Pacific Ocean (CPO) and WPO have the upper hand in controlling
supply compared with other regions. This is because most of
the fishing fleets are owned by the Philippines, Taiwan, South
Korea and Japan, which are members of the WTPO. Currently,
these fleets are also looking to expand fishing grounds into
the EPO. Meanwhile, some European fleets have expressed a
keen interest in expanding their fishing activities into the
WPO.
- Demand factors
1. Threats from the extension of the
Andean Trade Preference Act (ATPA)
The ATPA was first established in 1991
to help encourage Andean countries to fight against the drug
trade. When it expired last December, there were calls for
an extension, while some called for the inclusion of additional
items (e.g. canned tuna and textiles) under the privilege
scheme.
The apparent major beneficiary of any
extension and adjustment of the treaty would be Ecuador, whose
tuna fishing and processing industries are thriving. Although
the U.S. House of Representatives and the U.S. Senate Finance
Committee approved a five-year extension to the "Andean
Trade Promotion and Drug Eradication Act" in December,
efforts to renew the bill have taken a back seat to a still-unfinished
battle over legislation to give U.S. President George W. Bush
expanded authority to negotiate new trade pacts and full Senate
approval. The duty-free treatment for canned tuna from Andean
countries (up to 20 per cent of U.S. domestic tuna production)
would immediately create an uneven playing field for Thai
exporters, who are currently paying a six per cent single
duty and a double duty of 12.5 per cent (applicable whenever
the single duty quota is filled). Despite a temporary setback,
it is widely expected that the new act will be approved in
January when the Senate adjourns.
The biggest concern for Thai packers,
given Ecuador's competitive labor costs, is the possibility
that the South American country would steal a lion's share
from Thailand's biggest canned tuna export market. Currently,
Andean countries' exports to the European Union countries
have been enjoying duty-free treatment while Thai exports
face a 24-per cent import duty. Given all these unfavorable
developments, tough negotiations between Thai packers and
overseas buyers are foreseen in 2002.
Growing alternative markets - A
recent report from Thailand's Customs Department suggested
signs of improvement for canned tuna exports. Exports of canned
tuna during January-November 2001 reached 250,651 tons, representing
an 11-per cent increase over the 222,264 tons recorded during
the same time period in 2000. Some 23 per cent of the total
(58,163 metric tons) was exported to the U.S. in 2001, representing
a two per cent drop from the 59,288 tons recorded in 2000.
The slight fall in U.S. demand has been more than compensated
by the growth in exports to Australia, Saudi Arabia and other
markets in the Middle East.
Source: FoodMarketExchange.com
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