Industry Insight - Seafood


Industry Insight

Date November 2018

Seafood Projected Values


  • Consumers are concerned about convenience, food safety, and sustainability but still view seafood as a healthy protein alternative to red meat
  • Supply constraints both on wild and aquaculture harvest levels constrain industry growth
  • The current U.S. trade war has been having a negative effect on various sectors, but has yet to have a huge impact in the marketplace


Consumer trend toward convenience: 
Based on a recent Nielsen Holdings PLC survey, 58 percent of the world’s population will live in cities or towns by 2025, and Nielsen concludes that this will lead to an increase in demand for ready-to-eat convenient food products. This trend can currently be seen with the advent of meal kit service providers such as Blue Apron, Home Chef, Hello Fresh, Sun Basket, Amazon Fresh, and others. While many of these providers have been struggling this year, the investment levels in this sector, as well as in the food delivery sector, are still astronomical, with recent investments of $4 billion in companies like DoorDash Inc. being indicative of the most current trends. So, despite the retrenchment at companies like Blue Apron, which has seen its share price drop by over 90 percent in the last year since its initial public offering due to withering sales levels, growth in the sector is expected to be robust as many companies in the restaurant and grocery sectors align themselves with food delivery providers. This should be a positive factor for the industry as sales of seafood products through these services should be strong.

Healthy eating trend: 
The entire food industry continues to evolve towards healthier, higher quality, safer foods, including organic, GMO free, gluten free, and antibiotic free, among other standards and qualities. The seafood industry has not been left behind in this evolution; however, with the exception of mercury levels, wild-harvested seafood is insulated from most of these concerns. Will Notini, Consumer Insights Manager at Chicago-based Technomic, a leading market tracker, reported that American millennials are consuming 30 percent more seafood in 2018 than they have in recent years, with “higher attention being paid to where their food is coming from,” and 40 percent of millennials prefer wild harvested over farmed seafood. The industry has been positioning itself to capitalize on these trends with movements such as the Marine Stewardship Council’s (MSC) ecolabel certification. Seafood products can display the MSC ecolabel only if that seafood can be traced back through the supply chain to a fishery that has been certified by the MSC Fisheries Standard, a science-based set of requirements for sustainable fishing. Seafood production and consumption worldwide reached a high point in 2016, with 171 million tons being harvested and 20.3 kilograms of seafood being consumed worldwide per capita. Since 1961, global fish consumption has grown at an average rate of 3.2 percent per year, while population growth has averaged 1.6 percent, and this trend is expected to continue for the near term.

Constrained supply worldwide: 
Over 50 percent of fisheries worldwide are estimated to be overfished indicating that, in the future, harvest levels will decline due to continued overfishing or regulatory constraints imposed to rebuild stocks, with only 32 percent estimated to be in a healthy biological condition as of 2018. In the Northeast Atlantic, many fisheries are producing less than the estimated maximum sustainable yield, however 56 percent of these fisheries are on a management path leading towards this maximum. In recent years, scallop harvest levels have been increasing, rising from 29.95 million pounds in 2014 to an estimated 60.00 million pounds in 2018. Coldwater lobster landings, however, have been off in recent years due to global warming, with landings south of Maine plummeting over the last decade, and landings in Maine declining from record levels in 2016 of 132.5 million pounds to 110.8 million pounds in 2017, with further declines estimated for 2018. The recent shift in inspection responsibility for imported seafood products from the U.S. Food and Drug Administration (FDA) to the Food Safety and Inspection Service agency of the U.S. Department of Agriculture has inhibited imports of seafood products in 2018, with imports of pangasius (a farm-raised catfish from Vietnam also referred to as swai) especially being negatively impacted. Regulatory and health constraints related to aquaculture products, with concerns over excessive antibiotic use and environmental impacts of fish farms on wild stocks, have also constrained supply. Near-term harvest and fish farming supply levels worldwide will likely continue to be constrained by regulatory and environmental impacts.

Potential tariff impacts: 
The summer of 2018 has seen the continuation of tariff threats among major world trading partners affecting nearly all major U.S. industries. Following the Trump administration’s announcement of tariffs on imports from Canada, Mexico, Turkey, the European Union, and China, many of these countries announced counter-measures, escalating the situation and starting a trade war. Affected goods range widely, but U.S. seafood has been directly impacted. Tilapia prices have been trending higher by about 20 percent since August 2018 due to a 10 percent tariff implemented on August 23 and concerns over a threatened escalation of this tariff by the Trump administration to 25 percent in December of this year. Lobster exports to China from Canada surged 87 percent in August due to the tariff situation, and Clearwater Foods, a large Nova Scotia-based fishery, has seen its exports of various types of seafood increase by 23 percent in the second quarter of 2018 due in part to the trade war situation. This has caused disruption in the U.S. market ranging from the closure of several seafood processors to large shifts in the export market with U.S. exports being diverted away from the Chinese market.

Pollution and overfishing a concern: 
Consumer perception around the nutritional content of fish and seafood is a key demand driver for industry products. However, there are additional concerns for the industry that have become prevalent. Among seafood consumers, pollution is the top industry concern followed by overfishing, which is the second-biggest threat to oceans, according to a recent study commissioned by the MSC. This concern may prompt seafood processors to emphasize sustainability efforts in both the production and marketing of their products. Nearly three quarters of global seafood consumers want to see independent verification of seafood sustainability claims in supermarkets, though price is still the biggest motivator of purchasing decisions.

Seafood pricing trending higher: 
As with most types of protein, seafood sales levels are highly elastic and reactive to pricing. Generally, the lower the cost of fish and seafood, the higher the demand. However, lower pricing also lowers the selling price of operators’ products, bringing down revenue per sale. The opposite occurs when fish and seafood prices rise. However, some luxury seafood items are not price sensitive, so demand can be sustained despite high prices. Overall, seafood prices have been rising with the Producer Price Index for seafood product preparation rising by 7.5 percent since 2015 and by 3.3 percent in the period from January to September of 2018. Lobster tail prices have risen over $2.00 per pound in 2018, salmon prices have been up over $0.50 per pound since January, and most species of crab have risen or remained steady. That being said, both shrimp and scallop prices have retreated in 2018, coming off very strong pricing trends in 2017.

Industry is highly regulated: 
The fish and seafood processing industry is highly regulated at both the state and federal level. Harvesting catch levels, requirements, and permits are regulated in the United States by the National Marine Fisheries Service (NMFS) and in Canada by the Fisheries and Oceans Canada. Federal food safety regulations are administered by the FDA, which inspects plants and applies Hazard Analysis and Critical Control Point (HACCP) regulations. Operating companies must develop and implement an FDA-approved HACCP plan to process seafood. NMFS also sets standards for grades of fish and issues permits for processing facilities. Processors that participate in NMFS’ voluntary seafood inspection program are able to market seafood as Processed Under Federal Inspection and obtain U.S. Grade A certification.

Eligibility and perishability important: 
Due to the perishability rate of seafood, product age and integrity is critical to recovery value. When lending on these assets it is important to understand the implications of eligibility and expiration dates for different varieties of fish and seafood. As an example, live lobster and farmed fish can often be deemed ineligible on the Borrowing Base. Similarly, fresh fish is often deemed ineligible due to its short shelf life of three to 14 days under typical circumstances. Frozen fish and seafood can have up to 18 months of shelf life; however, quality and desirability starts to diminish at nine months. The short shelf life of fresh seafood necessitates rapid turnover in finished inventory levels. Products that are not sold fresh are also typically frozen or rendered quickly. This short fulfillment cycle has a positive impact on recovery values in an orderly liquidation sale. Proper storage is critical to maintaining freshness and value, which is why many seafood processors contract with third-party cold storage facilities to manage inventory. However, lenders should beware of liens these third parties may have on inventory stored at their facilities and should consider whether inventory held at these locations should be excluded from the Borrowing Base to minimize risk.

Recall risk: 
While appraisals typically do not consider the sale of inventory under extraneous conditions, such as recalls, lenders need to remain aware of the catastrophic effect such an event can have on value. During 2016 and 2017, the FDA published 11 separate recalls involving seafood products for various reasons including the risk of Listeria monocytogenes. The risks of foodborne illnesses such as Listeria can have a devastating effect on health, reputation, and value. In rarer instances, just the perceived risk of contamination can be enough to dampen demand for products.