by John Sackton
Founder, SeafoodNews
September 14, 2021

[The Winding Glass is the commentary and opinion column of John Sackton, Founder of SeafoodNews]

The seafood industry has one of the most complex supply chains of all food commodities.  Despite the disruption caused by the global pandemic, much of our industry has thrived due to the simultaneous surge in demand for our products.  The higher demand has provided the money to cover the costs of extreme disruption, whether that is freight rates and driver shortages, temporary plant closures, or lack of plant workers.

This demand surge has buffered us from the risks in our higher-cost environment.  However, longer-term, the reality is that we will be buying and selling seafood in a much more difficult context, and our customers will also be operating with a higher degree of risk.

Those of us who are baby boomers have played out our careers on a relatively level playing field.  Of course, there were disruptions, but they didn't change the fundamental nature of our business.

For example, we had plenty of fights over fishery management and quota issues, but we had stable stocks to manage.  But you can’t manage a wild stock that disappears.  We’ve spent decades conforming our practices to meet the Marine Stewardship Council and other standards.  But those efforts have been ineffectual against climate change.  

Harvests of Alaska King salmon in all areas are down about 40% using a 4-year moving average.  Bering Sea king crab is closed this season, after several years of flirting with the lower bound to open the fishery.  The large snow crab recruitment seen between 2016 and 2019 seems to have disappeared while there was no survey in 2020, and the stock abundance curve for 2021 looks nothing like the last five years.

On the East coast, we no longer have cod and yellowtail flounder, two staples of the historic fishery.  Soft-shelled clams, another traditional industry, have dwindled to about 30% of their long-term average, although prices have compensated.

What do all these fish shortages have in common?  Largely climate change.  The stable environment that led these stocks to prosper has evaporated.  Whether the problem is high temperatures in the rivers (runs have completely failed on the Yukon this year) or changing bottom temperatures that could cause a crab population to migrate, or the explosion of invasive green crabs northward that feed on soft-shell clams in the mudflats, the common denominator is rapid global warming.

This has upended the premise on which the last 50 years of fisheries science is based.  The premise is that over time, recruitment to a fish stock can be measured and reliably forecast.  Today we are confronted with stock changes outside of the range of fishery managers’ experience.  We can’t predict when a large marine ecosystem kicks into a different state, negating the historical stock analysis.

Climate destabilization will become a greater factor in seafood supply, in aquaculture as well as wild fisheries.  Since 2016 recurring Chilean algae blooms during the summer have killed millions of fish due to higher temperature waters.  Shrimp production in some Asian locations is increasingly vulnerable to disruption by typhoons. Endemic shrimp diseases in China have caused a boom and bust cycle in shrimp imports, leading to global market impacts.

Furthermore, there is some intriguing evidence that ties the outbreak of Covid-19 to the crisis in the Chinese pork supply caused by African Swine fever in 2019.  The article, published and peer-reviewed in Science (https://www.science.org/doi/10.1126/science.abh0117), makes the case that the extreme shortage of pork in Southern China in 2019, and consequent high prices, led to a surge in sales of substitute meats, including those produced from farmed civet cats, foxes, minks, and raccoon dogs.  These animals are raised for their fur, but with high meat prices, their supply, both as live animals and frozen carcasses, increased dramatically at wet markets in Southern China.

Sars-Covid viruses naturally circulate in bat populations, and these scientists believe there are ample opportunities for cross-species transmission from bats to these other captive mammals.  Eating the carcass of an infected animal, or handling a live animal, can then lead to transmission in humans.  The Chinese government’s push to expand the cold chain and preferential transport for frozen pork meant there were ample opportunities for frozen transport of other animal carcasses as well, expanding their distribution.

If this turns out to be the correct origin theory for Covid, the pandemic that has disrupted supply chains around the world is a knock-on effect of the crisis in the Chinese pork industry from African swine flu in 2019.   

Our new reality is that scientists expect that there will be increasing instances of new diseases, affecting both livestock, aquaculture, and humans directly when transferred from other species.  This is not the last epidemic for 100 years.

The effects of disruption cascade in many directions.  One of the most relevant to our business is the crisis in Foodservice.  Restaurants cannot endure a series of starts and stops.  In recent weeks as the epidemic returns in full force to many less vaccinated states, restaurants are again seeing a drop in traffic, a turn to take-out, and are increasingly hampered by lack of workers.

OpenTable data on seated diners has begun falling in August.  The latest National Restaurant Association performance outlook shows a big jump in operators expecting lower sales over the next six months, and reports around a 4% drop in same-store customer traffic in August.

The work environment in a public-facing setting during the pandemic is risky and toxic when there are no agreed-upon standards of protection, and many people who might normally be happy to work in foodservice simply don't want to take on the risk and the hassle for the pay they can get.

The seafood industry’s foodservice customers are facing big increases in labor costs, and even then can’t attract sufficient staff.  They aren't able to operate at full capacity and are less able to overcome supply shortages and high prices for items that in the past had been restaurant staples.  They also have a shrinking customer base as people vote with their feet to stay home while the pandemic continues.

The optimism which led foodservice buyers to bid up seafood prices to open earlier this summer is evaporating.

At the same time, other expanded government benefits, from PPP loans to unemployment to rent protection are all expiring, so the buffer they provided last year that supported the growth in demand for seafood is less likely to be there this fall.  We should expect retail grocery customers to become more price sensitive.

Finally, the latest news on freight is not encouraging.  There is no near-term solution to the container shortage, with some freight executives estimating that it now takes about 15% to 20% more containers to move the same volume, due to port congestion, lack of drivers, and other delays.  The containers, made in China, require specialty non-corrosive steel which is in short supply.

This litany is not meant to be gloom and doom.  Our industry will survive and can prosper.  But that can only happen if we accept that we are never going back to the stability we had for most of the past 40 years. 

We are now in a new era of instability and the quicker we understand that it is a permanent state of affairs the more we can come up with creative solutions to today’s problems.

When a business faces a temporary situation, the plan is to manage through it to get to the other side.  When we face a permanent change, we need to make investments, change expectations, look at workflows, inventories, evaluate wages, and adapt to a new environment.

Those companies that will prosper are those that realize we are facing a new environment, where old ideas of wage levels, delivery times, and production continuity are out the window, and they make permanent adjustments.

Consumers are already adjusting to living with supply disruptions.  As a small example of our own family spending, we now buy like Russians used to:   when we see something in the store, we stock up.  This summer items as diverse as Wyman’s wild blueberries, flatfish at the fish market, Laphroaig 10-year-old scotch, and a new car all became opportunistic buys.

These things we used to purchase as needed.  But now it takes multiple trips to the supermarket, liquor store, or fish market to find things that used to always be there.  When things are on the shelf, we buy multiples, and we order more frozen fish. With the headlines about car shortages, I ordered a replacement for my leased car months in advance.  It came in early.  Instead of arriving in October, the dealer called and told me it was ready to pick up in August. So ordinary families are being whipsawed by these supply disruptions, and I expect that there will be long-term changes in consumer behavior as a result.

All of us must adapt to a new reality of disruption.

Photo Credit: Golden Sikorka / Shutterstock.com

John Sackton
SeafoodNews.com
1-781-861-1441
jsackton@urnerbarry.com