Covid-19 pandemic: a mixed picture for the reduction industry
March 31, 2020
At the time of writing all countries in the world have reported cases of covid-19. Therefore it is not a surprise to find that most nations around the world are implementing measures to slow the spread of the coronavirus, from national quarantines to school closures, as advised by the World Health Organisation.
While "lockdown" isn't a technical term used by public-health officials, it has been used in recent weeks to refer to anything from mandatory geographic quarantines to non-mandatory recommendations to stay at home, closures of certain types of businesses, or bans on events and gatherings. As of Wednesday 1st April, more than a third of the planet's population is under some kind of restriction.
Lockdowns are having repercussions on business activities around the world, and thus on the reduction industry. Reporting the effects on individual companies and/or countries would be impossible, but worldwide general trends have emerged, and it is worth trying to review them.
Reduction industry: supply side
Based on the feedback received from IFFO members operating in more than 60 countries, we got confirmation that fishing and reduction operations have continued to be carried out almost everywhere. This has been possible thanks to the fact that the reduction industry has been associated to the essential food supply chain through the feed sector. For obvious reasons the provision of food to people cannot not be halted, and so vessels and plants related to the production of fishmeal and fish oil have generally been exempted from coming to a total standstill.
This does not mean business as usual, though.
Reorganisation of shifts and work patterns to minimise staff interactions and satisfy new governmental guidelines have obviously delayed the supply chain of fishmeal and fish oil, from fishing operations, to recollection of raw material, from production of marine ingredients to their transportation and customs clearing. In addition, the reduced availability of personnel due to sick workers has in some cases exacerbated such delays, and more might be reported if and when the covid-19 spreads further.
Yet, there have been some exceptions to confirm the rule.
The most striking one has been Peru, where the local government so far has failed to declare the reduction industry as part of the essential sectors, and thus subjected employees of the marine ingredients producing plants to self -isolation and night curfew (unless involved in the international export operations). Thankfully, the damage has been limited by the fact that Peru was and still is under a fishing ban in its more productive area, the North-Centre, as it usually happens between the end of March and mid- April. This block should in theory last until the forthcoming Easter break in mid-April, when the current state of emergency will be revaluated by the Peruvian government. However, the lack of clear communications keeps the door open to different scenarios: the April-June 2020 fishing season is cancelled all together; the government qualifies the sector as essential, thus allowing operations to be carried out under stricter working rules to limit the risk of contagion among workers. Amid the lack of clear communications, what appears clear is that what was expected to be a smoother fishing season with respect to the October-December 2019, is being marred by unforeseen uncertainty.
Similarly, in India and Mauritius, where the lockdown imposed by the government has been applied also on the producers of fishmeal and fish oil. In India, fishing operations have been completely suspended, and it is feared that by the time the current lockdown ends, fishing activities might not resume due to the lack of migrant workforce stuck in their remote villages. In other words, there is a high probability that little production of fishmeal and fish oil might occur in 2020, given the difficult start India had already reported in the first months of the year.
To recap, the general feeling is that the first 2 months of the coronavirus epidemic have, with some exceptions, only slowed down reduction operations without halting them all together.
Reduction industry: demand side
Fishmeal and fish oil are purchased mainly by animal feed producers, whose demand is indirectly and predominantly determined by the downstream consumption of the general public of farmed seafood and swine products. How the demand for these products might change amid the covid-19 pandemic is key to understand present and future scenarios.
As more countries shut down their borders, and more people fall sick, issues around trade logistics, such as port delays and the backing up of containers, international trade of feed ingredients might be slowed down. We understand however that although there are some difficulties, at the moment feed companies around the world are ensuring necessary supplies to farmers to safeguard the health and welfare of their animals, and to maintain the production level on farms.
The real issue remains how the demand for animal proteins is being affected by the lockdowns.
Pork is believed to be the least-affected of the proteins, as pork consumption can quickly shift from eating out (foodservice) to home cooking (food retail). The current measures taken by governments worldwide tend in fact to shut down bar, restaurants and canteens in order to limit the chances of people’s gatherings. Even the idea that restaurants could continue business as usual by switching to solely delivery of takeaways has proven misleading, first of all in China and then in the rest of the world. Retail demand had been seen as the lifeline for the pig sector. However, high prices in China and lockdowns around the world are putting in doubt such idea. Consumption of pork in fact tends to increase substantially in spring and summer time in Europe and Northern America, as with the nice weather people tend to enjoy more barbecues outdoor. With the current lockdowns and the expected slow return to normal social live afterwards (as shown by China), that segment might be lost for good parts of the year 2020 as well, consequently limiting the global need for hog restoking. In other words, the expected recovery in fishmeal consumption in China in the aftermath of the African swine fever might be counterbalanced by a decline in consumption of pork both domestically and in other parts of the world.
The seafood is believed to be hit hardest by the closure of restaurants. This is because the consumption of these proteins is heavily reliant on eating out, as most people around the world find difficult or unpleasant to cook fresh fish at home. In addition, some seafood species are relatively expensive proteins, so their affordability might be reduced by the worldwide slowing economy and slower income growth caused by the coronavirus pandemic. With the foodservice demand almost entirely wiped out in most countries, seafood demand has dropped worldwide. This is having different consequences. On one hand, we are seeing growing stocks of fish unsold kept in ponds and pens, which will be needing feed and in turn fishmeal. On the other hand, this situation sooner or later will push farmers to freeze their growing stock of fish that was expected to be sold fresh (e.g., salmon) and thus at a higher price, leading to significant losses for farmers. And possibly to bankruptcies. Others, think for instance of shrimp farmers in Ecuador or Asia, are likely to withhold from restocking during the current pandemic, meaning there is likely to be a sharp drop in price during the current crisis, followed by a steep rise as supply dries up later in the year (assuming the market returns to normal).
It is obviously a temporary situation, and with the lifting of the lockdowns the foodservice will almost certainly albeit slowly reactivate its demand for seafood. But it is also clear that the longer the drop in seafood demand will last, the more volatile the recovery of the sector will be. And in turn this might exert short-term negative effects on the demand for feed and marine ingredients before a full recovery at the end of 2020.
Among the other important consumers of marine ingredients are the pharmaceutical sector and the pet food industry.
Demand for immunity supplements have surged in China as people thought to boost their immunity systems to fight the pandemic, and the same trend is being observed around the world, although no robust data have emerged yet. This means that also the demand of supplements containing EPA and DHA omega-3 fatty acids are experiencing a growing demand, to the point that GOED (the Global Organisation for EPA and DHA) felt the need to send out a warning to the industry that a general “immunity” claim on a product could be considered an implied claim about COVID-19 given the current situation. GOED has thus warned that there is at the moment insufficient scientific evidence to connect EPA/DHA to either positive general or viral immunity outcomes in healthy population, and as such feels wrong to associate omega-3 supplements with direct effects on fighting or containing the COVID-19. It remains true though that EPA and DHA supply the raw material from which our body produce molecules necessary for our general immune system to operate properly.
The coronavirus crisis has also caused a spike in pet food sales as people have been panic buying food for their pets. Pet food has joined the ranks of toilet paper and hand sanitizer as must-have items as people have stocked up to make sure that their pets are fed during the pandemic. According to Nielsen data dog and cat food sales in the USA have seen year on year rises of 50% in recent weeks, but double-digit growth rates have been reported around the world.
In conclusion, while logistical problems and shifts in the way people buy their marine-ingredients-based products are creating short-term challenges within the various supply chains, the demand for fishmeal and fish oil remains robust worldwide.
Dr Enrico Bachis
Market Research Director at IFFO