How China saved Canada's lobster industry
China has rapidly become the second largest destination for Canadian lobster, with Chinese demand and investment creating a lobster boom across Atlantic Canada.
Just the Basics
China’s growing middle class has acquired a taste for Canadian lobster, leading to a boom in Atlantic Canada as suppliers struggle to meet demand
Increased Chinese fisheries investment in Atlantic Canada is helping to create jobs, reinvigorate coastal communities and diversify Canadian seafood exports
China’s twenty-five percent tariff on American lobster is an added boon for Canadian producers, but it also highlights the potential dangers of relying too much on Beijing
Halifax: A group of passengers are about to embark on a chartered flight to China, where they are eagerly awaited by their growing fan base: the catch (in more than one sense)? - these passengers are not Canadian celebrities, but rather Atlantic lobsters bound for the Middle Kingdom’s dinner plates. The profile of Canadian seafood in China in general - and Canadian lobsters in particular - has witnessed a meteoric rise in recent years as China’s growing cohort of wealthy consumers seek out foreign delicacies. Canadian lobster is now a sought after treat for well-to-do Chinese families celebrating Chinese New Year or the Mid-Autumn Festival.
Chinese consumers have gravitated towards Canadian seafood in response to China’s repeated food scandals, with Canadian products seen as more trustworthy and healthier alternatives to domestic produce. As China’s middle and upper classes enjoy more disposable income, they are increasingly turning to pricier Western food imports. The ability to purchase Western food products, especially expensive delicacies such as lobsters is a mark of social standing and affluence: in short, eating Canadian seafood has become an aspirational lifestyle choice. “Anything that comes from cold, pristine, pure water from Canada is very attractive for Asian buyers,” notes Paul Farrah of Partner Seafood, a New Brunswick company shipping Canadian lobster and other seafood products to foreign buyers, including China.
How lobster made Canadian seafood sexy in China
Canadian food items have become glamorous in China, a situation that many Canadians are surprised to discover given our history of living in the shadow of American soft power exports. Canadian exporters have managed to associate lobster not only with good eating but also as wholesome, organic, safe and clean; characteristics which have immense appeal for the Chinese market. This concerted push by Canada and the United States occurred several years ago. Faced with a lobster glut, American and Canadian companies began to aggressively market to Asian countries, especially China, playing to the existing fondness for seafood in these countries.
The results have been remarkable: online Chinese retailer JD.com sold 140,000 live lobsters in under twenty-four hours during a special promotion on Canadian products back in July 2017. A year later, the company sold twelve tons of Canadian lobster in November 2018 during China’s Single’s Day shopping bonanza (an annual event that utterly dwarfs the combined sales of Black Friday, Boxing Day and Cyber Monday in Canada and the United States). While the U.S continues to be the largest importer of Canadian lobster, export growth to the U.S has been sluggish in recent years, with market growth for Canadian lobster in China outpacing that of the U.S for nine of the last ten years.
The potential market for lobster is five times larger in China than in the United States, so even if a smaller percentage of Chinese consumers are buying Canadian seafood, the potential for China to eclipse the U.S as Canada’s largest seafood market is very real. Between 1990-2018, the value of Canadian lobster exports to the United States has only increased by 202 percent. This may sound like a lot, but exports to China during the same period increased 33,000 percent. Granted the U.S market is more mature, and demand from China was starting from basically nothing, but the trend is clear: the Asia Pacific Foundation of Canada notes that eight-five percent of future long-term retail growth in high-value foods will be in Asia.
Annual change in Canadian fisheries exports by country (percent)
“We have 1.4 billion people, and the live lobster market is only open to about five percent of the main country now,” explains Nathan Song, owner of Bay Shore Lobster & Seafood in New Brunswick. “There is lots of opportunity to open an even wider market. [Canada] has a very good name in the Chinese market. Lobster is very popular in China now. Everyone [is] looking to jump into the business.” Song even hosted a Chinese TV crew back in 2017 which sought to document how JD.com acquires its lobsters direct from the source.
Song’s journey from immigrant to lobster kingpin mirrors the trends which have reshaped the Canadian lobster market. Song, who immigrated to Canada in 2008, recalls how different things were as little as a decade ago. “When the immigration officer asked me what I wanted to do when I arrived in Canada I said I wanted to [ship] lobster to China. He laughed because the lobster price was low at the time, maybe $3.50 a pound.” By way of comparison, Chinese consumers were paying ¥90 (almost $20) for a single lobster back in December 2018. Song went on to purchase Bay Shore Lobster & Seafood in 2015, pivoting the company towards the Chinese market, which now makes up around ninety percent of Song’s clientele. Song says he now gets fifteen to twenty calls a day from buyers in China looking to purchase lobster: he recently invested $1.6 million to double plant capacity in order operate all year round.
Demand from China is spurring investments across Atlantic Canada, with Farrah noting that “what has changed and justified investment from processing plants to lobster holding facilities in the last couple years is mainly the demand that comes from China that has exponentially increased.” China is now the second largest market for Canadian seafood after the United States, with the former accounting for $1.16 billion worth of exports in 2018, representing seventeen percent of all Canadian seafood exports, up from 10.8 percent in 2015. The lobster trade has reinvigorated the local economies (and tax bases) of many small Atlantic communities, as witnessed by the increasing number of million-dollar fishing vessels moored along the Atlantic coast.
Destination for Canadian fisheries exports by year (percentage)
Canadian lobster’s natural advantage
Canada is benefiting from its long history of delivering quality seafood products as well as its geographical location, giving it a competitive advantage over its American competitors. Nova Scotia and Maine have long boasted to each have the superior lobsters, yet Chinese consumers are increasingly weighing in in favour of the Canadians, with Canadian hard-shelled lobsters fetching better prices than their soft-shell American alternatives. Hard-shelled lobster are larger, have more meat and are hardier, making them easier to transport long distances.
Soft-shelled lobsters (which are those that have recently molted) make up seventy percent of Maine’s catch, and are too fragile to ship long distances, forcing American producers to process them into longer lasting, but cheaper products. Lobsters also cannot be farmed as they are cannibals, and lobster catching methods are inefficient, with only a small percentage of lobsters that enter a trap actually ending up unable to leave again. Moreover, those already inside traps will fend off others from entering, seeing them as competitors for the bait. All these factors put limits on the amount of lobster caught as well as excludes the possibility of commercial farming, thus helping keep prices high.
Additionally, Chinese customers place a high premium on live lobsters, and are willing to pay top dollar to ensure they receive fresh produce. This market dynamic is a huge boon for Canadian producers, who are able to ship live hard-shelled lobsters - which are able to survive several days out of water so long as they are kept moist - directly to Chinese cities. Chinese diners are thus able to purchase and cook Canadian lobsters within seventy-two (ideally sixty) hours of being caught. This window is vital as lobsters quickly become inedible after death, ruling out the shipment of dead specimens. Such is the demand for live lobster that Halifax airport is experiencing cargo congestion as it struggles to cope with the amount of lobsters destined for China. To help alleviate this, airports such as Moncton and even Montreal and Toronto have been recruited to help ferry the tasty crustaceans to the over side of the planet.
By way of assistance, Halifax airport has received a $23 million investment from the government to expand its cargo facilities and ease cargo congestion, which is mainly due to lobster shipments. “Halifax Airport is the best airport for Atlantic seafood export, in terms of location and distance to local fisheries [many of which are located less than an hour from the airport],” notes cargo station manager Jamie Kim. Freight companies seem to agree, with Korean Air Cargo operating weekly lobster flights to Asia. Chinese-owned First Catch Fisheries in Shelburne, Nova Scotia - established in 2016 - is also operating charter lobster flights to China, with three such flights in one week alone, as the company has increased monthly production from 647,000 kilograms in July 2017 to 1.25 million in July 2018. Similarly, Chinese seafood giant Zhangzidao Group Corp. recently acquired a lobster processing facility in Eastern Passage, just twenty minutes from Halifax airport, with plans to export 4.5 million kilograms worth of lobster to China per year.
China - U.S trade war a blessing for Canadian lobster producers
Already growing at an impressive pace, Canadian lobster exports to China were pushed into overdrive during the summer of 2018 as American lobsters fell victim to the smouldering U.S-China trade war. In retaliation to the imposition of American tariffs, U.S lobsters now facing a twenty-five percent tariff. Whereas China accounts for around one-fifth of Canadian exports, China represents fifty percent of U.S lobster exports based on value. Consequently, the tariffs imposed by Beijing are a devastating blow to American producers, especially at a time when Canadian firms are increasing their market share.
During the first month after the implementation of Chinese sanctions, Canadian lobster exports almost doubled to twelve million kilograms. “Normally we have a lull in our workload at some point in the summer. This summer that lull never came. We never would have imagined this amount of freight moving,” Abbey Marshall, operations manager of Flying Fresh Air Freight told the CBC in September 2018. The week Marshall spoke to the CBC, Halifax airport saw eight chartered flights (with each plane carrying around 80,000 kilograms) full of lobsters headed to Asia - six to China and two to South Korea.
Conversely, American exports declined by 36.7 percent from July to November 2018, compared to a 124 percent increase during January to June of that year compared to 2017. Alongside the tariffs “it has become virtually impossible for Chinese buyers to import any U.S lobsters at all, thanks to a host of Beijing-directed behind-the-scenes measures,” complain lobster wholesalers and industry experts. Whereas U.S lobsters used to enjoy expedited customs procedures due to their very brief window of freshness, Chinese customs authorities are now individually checking American lobster imports, resulting in significant delays: exporters are not paid if their lobsters die before they make it to customers. Even if American lobsters were able to make it to market, exporters would still have to worry about the risk of Chinese customers boycotting American seafood due out of nationalist sentiments.
Value of Canadian fisheries exports by year (millions CAD)
“Chinese importers don’t buy our lobsters any more. They buy Canadian lobsters,” laments Maine lobster wholesaler, Stephanie Nadeau. This sentiment is echoed by Island Seafood co-founder, Mark Barlow: “Our commander-in-chief [in starting a trade war with China] has handed all of the exports to our competition. He’s given everything to Canada, a gift. It is not a rosy picture going forward.” Given the demand for Canadian lobster, there has been an up-tick in American lobster exports to Canada, which grew 23 percent in value through November 2018. Speaking on this trend, Annie Tselikis, executive director of the Maine Lobster Dealers’ Association, explains that “the competition for raw material for both the processing sector and the live trade is fierce. There have been several reports on live lobster exported from the USA to Canada and [re]exported as live Canadian lobster.”
To add another headache for American lobster sellers, there is the elimination of eight percent tariffs for Canadian lobster exports to the European Union due to the Comprehensive Economic and Trade Agreement (CETA) to contend with. The elimination of tariffs on Canadian lobster has put pressure on American exporters, eroding the USA’s market share in the European Union. On the other hand, the situation in China has created a glut for American producers, forcing down prices, which in turn has made American lobsters more competitive in other markets. While China may be giving American seafood the cold shoulder, cheaper prices mean U.S lobster is outcompeting Canadian products in other Asian markets.
A further issue for Canadian producers is the creation of a boom market mentality, as seen by an unprecedented $9 shore price for lobster in December 2018. Buyers rather than market demand are pushing prices up, which in turn has created a bottle neck in the lobster supply chain. While many were expecting a lobster shortage due to unfavourable fishing conditions, December actually turned out to be very favourable for lobster fishing, upending predictions of a shortage. Consequently, “the fishermen have a lot of inventory, the buyers have a lot of inventory, product didn’t move like it usually does in the month of December, so we put it away, tubed it, trayed it,” explains Mike Cotter, owner of Cotter’s Ocean Products in Lockeport, Nova Scotia. There’s a lot of Chinese buyers in Nova Scotia. They’ve got inventory. They know we’ve got inventory. They are making us sweat and we are sweating believe me.”
This discrepancy between buyer and market demand has been seen in the fact that around forty percent of air freight space went unused in December. Compare this to the scramble for cargo space during the summer of 2018, and one can see the impact of inflated prices, as Chinese buyers hold out for better deals. “I’m not saying the Chinese cannot afford to pay the prices we want for lobsters,” Cutter elaborates -“they’ve paid higher prices than these before, but they know what we’ve got.”
The Bottom Line
China has jump started Canadian seafood exports in general - and lobster in particular - as the world’s largest middle class increasingly seeks out tasty imports from the Great White North. Chinese concerns about food safety have led to a strong demand for clean and safe foreign food imports, with Canada enjoying a high profile among Chinese consumers. Chief among Chinese imports from Canada is Atlantic lobster, with the crustacean acquiring a devoted following in China: many Chinese are willing to pay top dollar in order to acquire this aspirational item. Lobster has become a symbol of prosperity for China’s growing middle and upper classes, with millions of lobsters transiting the ocean on chartered flights in order to meet demand.
Thanks to Canada’s geographical location, natural bounty and the industry’s logistical necessities, Canadian lobster enjoys a competitive advantage over its American competitors. This advantage has only been bolstered by the ongoing trade war between Washington and Beijing, which has resulted in an effective freeze on American lobster exports to China. In return, Canadian producers have seen a massive increase in demand as they rush to seize market share from the Americans, spurring further Chinese and domestic investment in fishing and freight operations in Atlantic Canada.
Nevertheless, the current surplus of American lobster has reduced their price, leading to American exporters undercutting Canadian ones in Asian markets outside of China. There is also the danger that the lobster industry is running too hot, with a boom mentality already resulting in a lobster glut in early 2019 due to overzealous purchasing by Canadian sellers banking on continuing red hot demand from China. While the lobster sector needs to come to terms with this new dynamic and its increased focus on China, the trend is clear: Chinese demand for lobster has been manna from heaven for the entire Atlantic seaboard.