The supply-demand gap for aquatic products will exceed 20 percent, and prices may rise in the future

Recently, the State Council issued the "National Agricultural Modernization Plan (2016—2020)" (hereinafter referred to as the "Agricultural Modernization Plan"), which sets out overall planning for the key points and goals of advancing agricultural modernization over the next five years. It can be said to be a bellwether for the next stage of agricultural supply-side reform and sustainable development.

In the "Agricultural Modernization Plan", the target for aquatic product output, like those for corn, cotton and sugar crops, is set to be reduced, from the 2015 base value of 66.99 million tons to 66 million tons. Is the aquatic product output target being reduced because supply can already meet demand? If not, why should our country reduce aquatic product output? How should the resulting supply-demand gap be filled?

Great potential for growth in aquatic product demand

According to calculations by the "medium- and long-term growth" research group of the Development Research Center of the State Council, by 2023, China's demand for aquatic products will reach 85.23 million tons, an increase of 35% over 2013. Compared with the 66 million ton aquatic product output target in the "Agricultural Modernization Plan", there is a gap of as much as 19.23 million tons, meaning 22.3% of demand cannot be met.

According to existing research, growth in demand for aquatic products is affected by multiple factors, including the macroeconomy, the level of urbanization and the degree of aging, and its specific growth characteristics differ from those of meat products.

From the income dimension, during the period when Japan and South Korea had the same per capita GDP as China in 2010-2020, their per capita aquatic product consumption increased by 25.4% and 26.6% respectively, which is roughly comparable to the scale of growth in China's aquatic product demand calculated by the above-mentioned DRC.

From the urban dimension, compared with urban residents, rural residents currently have a smaller demand for aquatic products, but the growth potential is enormous.

According to calculations by the Institute of Food and Nutrition Development of the Ministry of Agriculture, the current per capita aquatic product demand of urban residents is 15.8 kg, while that of rural residents is 8.8 kg. Compared with the standards for animal protein intake of urban and rural residents, the meat demand of both urban and rural residents has reached the recommended level, but in terms of aquatic products, rural residents' consumption is only half of the recommended amount.

Rural residents' low demand for aquatic products is not only affected by consumption habits, but to a greater extent by income level. Data show that for high-income rural residents, aquatic product consumption is almost the same as that of urban residents. Empirical analysis also shows that the income factor has a significant effect on rural residents' aquatic product consumption. For every 1% increase in residents' income, aquatic product consumption increases by 0.356%.

In addition, unlike meat demand, a deepening degree of aging will have a positive effect on aquatic product demand. This is because aquatic products are easy to absorb and digest, and are more suitable for elderly people than meat. Generally speaking, consumer demand for aquatic products will increase as the population ages.

Taking into account factors such as China's economic growth, growth in the income of urban and rural residents and the deepening degree of aging, national demand for aquatic products will continue to rise in the future. So why does the "Agricultural Modernization Plan" reduce the aquatic product output target? Which part of production capacity is mainly being reduced?

"No fish in the East China Sea": reducing production capacity is a foregone conclusion

Concerns about environmental pollution, ecological damage and structural overcapacity are the main motivations for reducing the aquatic product output target in the "Agricultural Modernization Plan".

Liu Xinzhong, deputy director of the Bureau of Fisheries of the Ministry of Agriculture, said at the 2016 International Conference on Sustainable Development of Aquatic Products: "At present, global fisheries face the problems of environmental pollution and overfishing, and the whole world is seeking sustainable development of fisheries. China ranks first in the world in aquatic product output, consumption and exports, and the difficulties and problems it faces also rank first in the world. China's fisheries currently face the problem of surplus productivity, and there is an urgent need to transform the development model and adjust the structure to achieve sustainable development."

In 1980, in China's fishery production structure, the catch output was far greater than the aquaculture output, accounting for 70% of total output. By 2013, this proportion had shrunk to 30%. On the one hand, this shows the rapid development of China's aquaculture industry; on the other hand, it also indicates the increasing shortage of offshore fishing fishery resources in China.

In March 2016, Minister of Agriculture Han Changfu pointed out at the National Fisheries and Fishery Administration Work Conference that due to environmental pollution and overfishing, offshore fish spawning grounds have been severely damaged, marine fishery resources have continued to decline, and the water desertification phenomenon of "no fish in the East China Sea" has appeared, so China will "resolutely reduce fishing capacity".

In addition to reducing fishing capacity, structural adjustment of aquaculture capacity has also been put on the agenda.

The "Agricultural Modernization Plan" points out that it is necessary to "optimize the aquaculture layout, scientifically delineate aquaculture areas, and clearly define restricted aquaculture zones and prohibited aquaculture zones". Among these, it is necessary to adjust and optimize freshwater aquaculture and scientifically lay out marine aquaculture; especially for marine aquaculture, it is necessary to "stabilize the scale of offshore aquaculture, reduce excessively dense cage aquaculture in offshore areas, and expand aquaculture space in outer seas". It can be seen that the main effort in reducing aquaculture output is placed on excessively dense cage aquaculture in offshore areas.

Who will feed China

Although the reasons for reducing production capacity are sufficient, how can the supply-demand gap facing the market be filled? In the future, will prices of aquatic products rise sharply due to relative scarcity?

China is the world's largest producer of aquatic products, and its output has ranked first in the world for 23 consecutive years, accounting for more than 60% of total world output. If domestic supply cannot meet demand, can imports fill this gap?

At present, global wild fish resources are declining rapidly. The FAO's "The State of World Fisheries and Aquaculture 2016" points out: "According to global fishery resource catch trends from 1974 to 2013, the level of sustainably fished stocks has shown a clear downward trend, falling from 90% in 1974 to 68.6% in 2013. As of 2013, among the world's wild fish resources, 31.4% were subject to unsustainable overfishing, and this percentage is expected to rise in the future."

At present, the global fishery catch/aquaculture ratio is about 50%, still slightly higher than China's. The international fishery community generally believes that developing aquaculture is the feasible direction for promoting the sustainable development of fisheries. American ecological economist Lester R. Brown once said that aquaculture is a method that can reduce grain use in exchange for animal protein and is a major contribution by China to world food security.