Focus on Turkey as economic worries dominate
14/01/2019
Runaway inflation, a severely weakened currency and the Turkish central bank reaction to these issues are factors that increasingly concern the Turkish seabass and seabream aquaculture industry, as wider market prices remain depressed by supply surplus.
The rapid growth rate of Turkey’s seabass and seabream output in recent years has been putting increasing pressure on market prices. The price peaks normally associated with mid-summer demand in Europe were noticeably absent this year. Greek 300– 450 g seabass were selling on the Italian market at EUR 4.50 per kg in July this year, EUR 1 lower than the same month in 2017. The supply and demand situation is somewhat more balanced in the case of seabream but prices were still down by EUR 0.40 per kg over the same period. In Turkey’s case, the state of the currency has also been contributing to the downward pressure on euro-quoted prices of what is already a cheaper product. Average EUR export prices for bass and bream out of Turkey in the third quarter of 2018 were down 20 percent and 15 percent respectively, compared with the same quarter in 2017. The same comparison in terms of Turkish lira translates into increases of 19 percent and 27 percent for seabass and seabream respectively, illustrating the pronounced difference in price levels from the perspective of a EU28 buyer and a Turkish exporter.
More generally, the underlying instability in the Turkish economy that has been driving the exchange rate trend adds an additional layer of complexity to the market situation and represents a significant source of risk to the financial wellbeing of the Turkish aquaculture sector. Interest rate hikes have increased the cost of borrowing, while industry reports confirm that consumer demand is suffering in the domestic market and companies dependent on domestic sales are losing money. This is likely to significantly dampen the risk enthusiasm of an industry that has been expanding aggressively in recent times and is likely to lead to more conservative stocking plans in the medium term. In the longer term, it is possible that a sustained period of low prices and a challenging financial environment will be the catalyst for consolidation in the Turkish industry as smaller producers struggle with costs.
Turkish exporters have seen the composition of their trading partners shift dramatically in recent years. In the first six months of 2018, Turkish exporters have decreased their overall dependence on the two large EU28 markets of Italy and the Netherlands, and increased export volumes to Spain and Greece, as well as the United States of America, the Russian Federation and Lebanon. The fact that Greece and Spain are significant producers of both seabass and seabream reflects the widening divergence between prices of fish produced in the EU28 and Turkish product. For seabass, the combined share of Greece and Spain of Turkey’s export volume in the first half of 2018 was 20 percent, up from 8 percent for the same period two years ago. Their share of Turkish seabream exports rose from 12 to 23 percent over the same time frame.
In Greece, the details of the acquisition of Nireus and Selonda by a group of investors led by private equity firm Amerra capital were finalized in midJune. Nireus and Selonda are two of the largest Greek aquaculture companies, and it is hoped that this acquisition will help to increase production efficiencies and coordinate marketing efforts by the Greek seabass and seabream sector. Greece remains heavily dependent on a relatively small selection of major EU28 markets, with Italy, Spain, France and Portugal accounting for 84 percent of seabass export volume and 82 percent of seabream export volume in the first half of 2018. These proportions have been increasing since 2016, likely as a result of the difficulties faced by Greek exporters in competing with significantly lower priced Turkish fish in markets where origin is not of primary importance to buyers.
In a market threatened by rapidly growing production volumes in the low-price environment, companies have been increasingly focusing on frozen, readyto-cook and ready-to-eat products in order to cater to demand for convenience-oriented, value-added options. Other avenues for differentiating products include origin certification schemes and marketing campaigns, as well as ecolabels that communicate the sustainability of production processes to the consumer. In mid-September, the Aquaculture Stewardship Council (ASC) officially launched new standards for seabass, seabream and meagre. From the launch date, companies have a six-month effective period to have audits conducted before the new standard can be applied to their products. The ASC states that the scope of the standard will extend to “impacts on biodiversity, feed use, escapes, nutrient loading and carrying capacity, benthic impacts and siting, disease and parasite transfer, chemical inputs and social impacts (i.e. labour and community impacts).”
Italy
Italian imports of seabass were up by 10 percent in volume in the first half of 2018 compared with the first half of 2017, while imports of seabream rose by 6 percent over the same period. Average unit values were down 6.9 percent and 4.5 percent respectively, for the same period, as a result of lower prices across all origins. Greece remains the primary supplier to the Italian market, accounting for 54 percent of seabream and 57 percent of seabass supply in the first half of 2018. Overall demand for seabass and seabream is relatively solid amongst Italian consumers, but excess import supply is keeping prices down despite stable domestic production.
Spain
The Spanish market situation is comparable to that of Italy, with low to zero growth in domestic production but substantially reduced prices due to increased availability of fish on the international market, particularly from Turkey. Seabass prices at wholesale markets in Madrid and Barcelona were up to 20 percent below last year’s levels in August, while seabream prices also dipped below 2017 equivalents by about 3–4 percent.
France Slowing economic growth and a drop in consumer confidence in France does not seem to have had a significant negative impact on demand for seabass
France
Slowing economic growth and a drop in consumer confidence in France does not seem to have had a significant negative impact on demand for seabass and seabream, although these effects may have been offset by weaker price levels. Seabass wholesale prices have fallen by about 12 percent for smaller sizes and up to 25 percent for large sizes in 2018 on the back of increased import volumes, particularly from Greece.
Other markets
The plentiful supply of cheaper fish, particularly seabass, is evidenced in the higher import volumes at lower prices reported by the United Kingdom and the Russian Federation. Demand for both species is seemingly weakening in Germany, where volumes were down in the first half of 2018. Meanwhile, imports of seabass by the United States of America continue to climb, reaching 4 100 tonnes in the first six months of 2018, with Turkey supplying around 45 percent and Greece about 36 percent.
Outlook
Total production of seabass and seabream is expected to increase by 6 percent this year to around 400 000 tonnes, with the bulk of the additional volumes consisting of seabass supplied by Turkey. The market can be expected to slow as we move into the last few months of the year and prices are likely to fall further. Profit margins will remain under threat for the foreseeable future, meaning that production efficiency gains and market development are key priorities for all stakeholders. Consolidation of the sector in Greece can be expected to contribute to this objective, but the economic situation in Turkey is a significant source of uncertainty. One likely impact of continued instability is a reduction in overall production growth rates as companies adopt more conservative approaches to business planning, which may then help to support global market prices at more sustainable levels.