From China, The Future of Fish
Business Week (2010-10-25 02:15:27)
At the end of a wooden pier, a squat red machine the size of a dishwasher hums along with the din of nearby cicadas. The fish-feeder is tossing grain pellets into one of Chen Haiping's nine fish ponds, each as long as a football field, in the town of Shuixi, in China's Guangdong province. It's breakfast time, and thousands of tilapia are thrashing their tails and sticking their mouths into the air to get some of the soy-and-corn mixture. Chen, a 32-year-old former duck farmer with a wispy mustache, has been running this farm for eight years.
Before the tilapia, these ponds were filled with shrimp, which the Chinese like. They aren't big fans of tilapia, a foreign fish; the name in Chinese, luofeiyu, refers to tilapia's origins in Africa. It doesn't have much flavor, and it doesn't grow big enough to put in the middle of the table at a family meal. Americans, however, can't get enough of Chinese-raised tilapia, so tilapia it is. The fish, Chen notes, are hardier and don't require as much work. "Shrimp can die much more easily," says Chen, who wears a wide-brimmed straw hat to protect himself from the 95-degree heat.
Despite environmental warnings about Chinese-raised tilapia from watchdog groups such as the Monterey Bay Aquarium's Seafood Watch, which publishes an influential best choices/avoid list of seafood and rates Chinese-raised tilapia as "avoid," U.S. consumption keeps rising. In 2009 the U.S. imported 404 million pounds of tilapia, up from 298 million in 2005. Wal-Mart Stores (WMT) imports nearly 200 shipping containers, or 8.8 million pounds, every month, although they will not say how much comes from China. (The company declined to comment.) Domestic fish farmers can't come close to meeting demand. Although there are tilapia farms in the U.S., the fish does better in tropical climates, so most of it comes from Asia or Latin America.
As overfishing threatens the world's wild fisheries, aquaculture advocates say fish farms will play a far greater role in feeding people around the world. "We are no more going to get our seafood from the wild than we get our beef, nuts, fruit from the wild," predicts Kevin Fitzsimmons, a professor at the University of Arizona and former president of the World Aquaculture Society. He is also on the board of HQ Sustainable Maritime Industries (HQS), an NYSE Amex-listed company that sells Chinese-raised tilapia. "It's all going to be farm-raised," he says. And there's no fish better suited to this new world than tilapia, says Fitzsimmons. It's a fast-growing species with mild-tasting flesh that producers can easily adapt to all kinds of uses. "Tilapia," says Fitzsimmons, "is going to be basically where chicken is with poultry."
That means that the creatures thrashing in Chen's ponds are the future of fish. The growing American appetite has led to a boom in Chinese aquaculture: With hundreds of breeding centers, fish farms, feed mills, and processing plants, China is the world's tilapia superpower. That's why I've traveled to the heart of the Chinese aquaculture industry, in southern Guangdong and the nearby island province of Hainan, to see how farmed-in-China fish make their way to the American table.
For a tilapia, Chen's farm is a pleasant enough place to grow up. The farm is about an hour and a half's drive on potholed roads from Zhanjiang, the closest big city in this part of Guangdong. The province—home to huge factories owned by companies like Taiwan's Foxconn that employ hundreds of thousands of workers and produce iPhones and other products for export—is one of the most polluted areas in one of the world's most polluted countries. Smog regularly fouls the air and chemicals poison the water in the boomtowns of the Pearl River Delta, near Guangdong's border with Hong Kong. Those factories, however, haven't yet made it to the southwest of Guangdong, an area 200 miles away that is still a green oasis of banana trees, rice paddies, and sugarcane farms.
The conditions on the fish farms are surprisingly clean. Because tilapia—unlike farmed salmon—grow quickly, they don't need big supplies of antibiotics to keep them healthy. Western media sometimes report on the filthy, algae-filled ponds of Chinese aquaculture. It's true for many mainland farms, especially those raising eel. Tilapia, though, have meat that easily takes on the flavor of whatever the fish happen to have consumed, and tilapia that swim in muddy, algae-filled waters end up with a musty flesh that American consumers hate. Before accepting tilapia from Chinese farms, buyers will check to make sure the fish don't have that pondy flavor. To avoid rejections, Chen and other farmers say, they keep their ponds clear of material that could ruin the tilapia's taste.
Doing so requires a lot of water, but Chen doesn't have to worry about paying for it. He takes his water from a nearby canal maintained by the local government, part of a policy to promote the growth of aquaculture through tax breaks and other subsidies. For farmers like Chen, it's a good deal. "The water," he says, "is free."
With the hot weather, frequent feedings, and fresh water, fish destined for dinner in the U.S. need just a few months to grow to a harvestable size of 1 to 2 pounds. Soon a handful of Chen's workers will be standing up to their armpits in the water, dragging nets across the ponds and forcing the tilapia all into one end. They'll grab the fish by hand and throw them into buckets onshore. Other workers will dump the containers into a large truck that can carry as many as 10,000 live fish. Then the truck will head off to a processing plant, where the fish will become food.
There's no shortage of facilities nearby to do the killing. In one sign of how quickly the industry has taken off, there are 268 factories in the Zhanjiang area that can kill, skin, and freeze tilapia, according to the local aquatic products import and export association. That's a 33 percent increase in just three years.
A decade ago, few Americans ate tilapia. The fish didn't even make the top 10 list of consumed seafood in the U.S. until 2002, when it squeaked by with average consumption of just 0.3 lb. a year. Then demand surged in the wake of the Atlantic cod fishery collapse. By 2009, according to data released on Sept. 7 by the National Marine Fisheries Service, Americans ate 1.2 pounds of tilapia. That put the fish well ahead of cod and catfish and just behind pollock as the most popular white fish in the U.S. (Shrimp is the top seafood, at 4.1 pounds consumed per American, and canned tuna the top fish, at 2.5 pounds.)
It's not that tilapia is particularly tasty; it simply takes on the flavor of other ingredients. "It has got nothing going for it," says Colin Freeman, a consultant for Pristine Oyster Farm in South Australia. A few weeks before I travel to Chen's farm in Hainan, I'm visiting relatives in Brookline, Mass., near Boston, and stop by Wulf's Fish Market, a shop on Harvard Street not far from JFK's birthplace. The store doesn't carry tilapia, an annoyed employee tells me, even though people often ask for it. "Tilapia," he snarls, "is the tofu of fish."
Unlike salmon, tuna, and other big ocean fish, tilapia's flesh doesn't contain omega-3 oils, one of the main health benefits of seafood. But because it is cheap and easily raised on farms, it has created an opening for China. Just as Chinese factories are the go-to source for inexpensive toys, electronics, and clothes, the country's aquaculture industry has quickly come to dominate production of cheap, mass-produced fish. According to the U.S. Commerce Dept., about 80 percent of the frozen tilapia in the U.S. is now imported from China, with restaurants and supermarkets the biggest buyers. Tilapia demand "has grown at a phenomenal rate," says Keith Decker, president and chief operating officer of High Liner Foods USA, the Danvers (Mass.) subsidiary of the Nova Scotia-based producer of fresh and frozen seafood. The company is a big importer of cod and haddock, and is now a major buyer of tilapia, which it sells wholesale as well as under its Sea Cuisine brand. The company's products include over 50 types of tilapia meals such as Lemon Pepper Tilapia and Coconut Crusted Tilapia.
Tilapia is especially well-suited to American tastes. "Tilapia fulfills a need for a large portion of the population that doesn't like their fish tasting 'fishy,' " says chef Rick Moonen, owner of Rick Moonen's RM seafood restaurant at the Mandalay Bay hotel in Las Vegas and author of the 2008 cookbook Fish Without a Doubt. Pollock remains slightly more popular, as measured by per-capita consumption. That's misleading, though, since pollock caught off the coast of Alaska is ground up by McDonald's (MCD) and other fast-food chains and turned into fish sandwiches and nuggets; few people go to their local supermarket or Ruby Tuesday (RT) looking to have pollock for dinner. Tilapia has gained in popularity because one fillet by itself can be a main course. It's what Decker and others in the fish business call a "center-of-the-plate" fish. "Tilapia," Decker says, "has a huge future."
Given the record of products made in China—milk tainted with melamine, toys with lead, toothpaste with the poisonous chemical diethylene glycol—many Americans may not welcome that future. The U.S. imported $5.2 billion worth of food from China in 2008, with aquaculture products accounting for 41 percent. A report last year from the U.S. Agriculture Dept.'s Economic Research Service called into question Chinese safety standards for farm-raised fish and seafood. "Fish are often raised in ponds where they feed on waste from poultry and livestock," the report said. Meanwhile, environmentalists are concerned about the impact of China's fish farms, as water filled with tilapia feces is flushed from the ponds. They also worry about the invasive nature of the species in the U.S. (Last year in Louisiana's Plaquemines Parish, for example, officials used poison to kill off tilapia in the area's canals and ditches.) "In theory there is quite a lot of regulation in place," says Pete Bridson, aquaculture research manager at the Seafood Watch program in Monterey, who traveled to China last year to visit tilapia farms. "But the environmental side of the regulation is not enforced very well."
A global aquaculture industry dominated by China worries Mike Picchietti, president of Regal Springs Tilapia, a company based in Bradenton, Fla., that operates tilapia farms in Indonesia, Honduras, and Mexico, and is a supplier to Costco (COST). For instance, he says Chinese farmers save money using fish feed only when the tilapia are bigger. When they're still young, he says, farmers toss animal waste in the ponds and allow the tilapia to feed on the algae bloom that follows. "They're able to cut their feed costs because they're able to use manure," he fumes. Raised-in-China tilapia are therefore much cheaper, according to Picchietti. "The Chinese are able to use cowshit," he says, "and I can't." Chinese tilapia growers deny Picchietti's claim.
As the sun sets and people elsewhere in the city are heading home for dinner, at Guangdong Evergreen's processing plant near Zhanjiang, employees are gathered near the loading dock, preparing to start their shifts. Trucks are arriving with thousands of freshly harvested tilapia, and the fish need to be killed and processed quickly to ensure they are as fresh as possible before going into the deep freezer. Guangdong Evergreen has made agreements with farmers to buy their harvest-ready tilapia for processing. This factory is where fish from farmer Chen Haiping's ponds will meet their maker.
For workers and visitors alike, entering the plant is no simple procedure. They must first change into a head-to-toe white suit, making sure to take off all watches, rings, and jewelry, and put on a face mask. After washing their hands thoroughly, visitors walk through a pool of disinfectant and then into the plant itself.
Inside, hundreds work in silence as fish come off the loading dock. First, workers kill each fish by jabbing it in the head with a knife. Then they leave the dead tilapia to sit so the blood drains out of its body. Next the fish go onto a conveyor belt and the process speeds up as workers swiftly fillet the fish. With their pay partially determined by the number of fish they can process in an hour, the best workers can do this with just four cuts of the knife. After dropping the head, tail, and other remains on the floor to be picked up later, the men (women work elsewhere on the line, but the cutters are almost always men) put the six- to eight-ounce fillet back on the conveyor belt. Soon, different workers skin the fillet, followed by others who trim off any leftovers. Within a few minutes, workers are readying the fish for the freezer.
Other plants follow similar procedures. At the one operated by HQ Sustainable Maritime Industries, an Evergreen rival with offices in Seattle and Hainan, the clean suits are color-coded: Visitors wear white; assembly-line workers, blue; managers, red; quality-control supervisors, yellow. On a recent visit to the factory, plant manager Wang Fusheng points to a yellow-suited officer roaming the fluorescent-lit room. "That guy is powerful," he explains. "He can stop anything right away." Before HQ's fillets go into cold storage, the fish pass through a metal detector, just in case any stray flecks of a filleting knife have made their way into the product. "Every day we account for how many knives we've given to workers," he says. "If one knife is missing, you check everything."
Executives with tilapia processors in China point to such requirements as examples of their determination to maintain product safety. Chinese government labs regularly inspect for melamine and other banned additives; some Western buyers have their own quality inspectors or rely on third-party auditors to test the fish. Given the frequent inspections by Chinese officials and Western nongovernmental organizations, HQ Sustainable Chief Executive Officer Norbert Sporns rejects accusations that Chinese tilapia is substandard. "China is the most scrutinized export market in the world," says Sporns. He's a six-foot-seven former immigration lawyer from Montreal who got involved in Chinese aquaculture in the late 1990s; his wife, HQ Chairman Wang Li, is the daughter of a former chamber of commerce chairman in Hainan. Sporns compares Chinese tilapia farms favorably to catfish farms in Louisiana, where he calls conditions "despicable." "Our standards," he says, "are way, way better."
In addition to operating processing plants, both HQ Sustainable and Guangdong Evergreen produce fish feed for farmers—and executives reject the assertion that local farmers reduce costs by feeding the fish animal waste. In the past, some Chinese may have cut corners that way, but inspectors—from the government and from independent certification bodies like the Aquaculture Certification Council, based in Crystal River, Fla.—have put an end to the practice, they say. "No one dares do that now," says Lee Shuguang, an Evergreen manager.
Critics have plenty of other concerns. Costco, for instance, won't purchase tilapia raised on Chinese farms because of concerns about mainland production standards. Its tilapia comes from Regal Springs Tilapia. (Prices vary locally, but at the Costco in Yonkers, N.Y., fillets are $5.49 a pound; the nearby Sam's Club sells its tilapia for $4.77 a pound.) "China's track record in certain areas isn't perfect," says Bill Mardon, a seafood buyer for Costco. He singles out Chinese processors' use of a glaze on frozen fillets. It contains carbon monoxide, which preserves the color of the fish and can make a fillet look fresher than it is. "Even if the fish starts to go bad, the fish will look good," says Mardon. For the consumer looking at a frozen tilapia fillet, "the first line of defense is visibility," he says. "If the carbon monoxide takes this away, it's kind of dangerous."
Evergreen manager Liu Xie calls this unfair, and says the company is only responding to its customers. "Supermarkets want us to do this," he says. "It doesn't have any effect on people; it's just to preserve the color." Regulators in the U.S. and the European Union allow carbon monoxide, he adds. Liu says some fish get coated and some don't, depending on the customer's specifications. Either way, the fish then go into the freezer, set to -36C. That's cold. "If you freeze a man at minus 40 degrees," HQ plant manager Wang explains helpfully, "he will keep forever."
Chinese aquaculture officials object strongly to Seafood Watch's "avoid" recommendation. "They don't believe in aquaculture," Sporns says. "The Monterey Bay Aquarium makes money off of ocean fish." Tilapia, a small and visually nondescript omnivore, is not a fish that captures the imagination of aquarium goers. "How many tilapia do you see there?" asks Sporns. "None."
For $23.95, diners at La Hacienda de San Angel, a new restaurant at Walt Disney World, can have grilled tilapia with roasted corn, cactus leaves, and mango chutney. The entrées at Daddy Jack's New England Lobster & Chowder House in Dallas include sautéed tilapia with lemon scallion butter and stuffed tilapia with Ritz cracker crabmeat stuffing. The Olive Garden in Rockaway, N.J., offers parmesan-crusted tilapia with vegetables and angel hair pasta for $14.95.
As tilapia becomes more common on menus across the U.S., many eateries are turning to Sysco (SYY), America's largest distributor of food to restaurants, hospitals, and schools. With 400,000 customers, Houston-based Sysco has 17 percent of the $200 billion total U.S. food-service market, and those customers want more tilapia. "In the last six years, it's been growing about 20 percent a year," says Butch Vidrine, director of seafood purchasing for Sysco. He likes the fish's versatility: "You can fry it, grill it, barbecue it; you can do everything to it."
Responding to that demand, Sysco has become a big buyer of frozen tilapia. About 95 percent of the company's tilapia sales are frozen, says Vidrine. For years, Sysco bought frozen fish from Regal Springs farms in Indonesia and wouldn't consider buying tilapia from China. Recently, Sysco changed its policy, approving a Chinese processor this summer. Given the 30 to 50 percent lower prices of Chinese tilapia and the growing demand for the fish, Vidrine says, it's time to give China a try. "China is like the Wild West," he says. "Some will meet [standards]. Some won't."
Tilapia from China is making inroads elsewhere. In September, Whole Foods Market (WFMI) locations in California started carrying the Lillian's Healthy Gourmet line of prepared frozen tilapia meals made by HQ Sustainable. At the other end of the shopping spectrum, tilapia fillets from China are in the freezer sections of Wal-Mart superstores around the country, selling under the Sea Best name. The two ingredients are: "Tilapia" and "Carbon Monoxide (To Retain Natural Color)."
Although Las Vegas chef Rick Moonen is a tilapia convert, he won't sell Chinese-raised tilapia at his 17,000-square-foot restaurant—complete with raw bar, sushi bar, and three private dining rooms—at the Mandalay Bay because Seafood Watch tells him not to. "I pretty much follow their guidelines when making choices at my restaurant," says Moonen, 54.
A graduate of the Culinary Institute of America and co-founder of the three-star restaurant Molyvos in New York, Moonen used to dismiss tilapia. That's changed. Fish Without a Doubt includes 13 tilapia recipes. In early September, Moonen was one of five of Bravo's "Top Chef Masters" participating in a competition to create the best new dish for spectators at the U.S. Open tennis tournament; Moonen's entry was a burger-like combination of shrimp and tilapia. "I love the fish," he says. "I think it's very versatile." He serves non-Chinese tilapia at his restaurant in dishes like fish tacos.
If it is going to win over Seafood Watch and Moonen, China's aquaculture industry needs to address concerns about tilapia and the environment. The World Wildlife Fund is one of several green groups introducing new standards for tilapia farming. "You don't want to tarnish the biggest sector just because there are some bad actors," says Aaron McNevin, an aquaculture specialist at the WWF who has worked with industry executives in China and the U.S. to identify farms that try to improve their sustainability records. "Of course there are some bad actors, because China has the most producers," he says. "But there are some groups in China that have raised the bar."
The new standards might help with environmentalists, but a bigger concern for Chinese fish farmers is facing the relentless pressure for lower prices from foreign buyers. For all the popularity of Chinese-raised tilapia, a common complaint among people in the industry is the difficulty of making money selling the fish for export. This is another area where Chinese aquaculture is like Chinese manufacturing: Both are at the mercy of buyers like Wal-Mart, which demands ever-lower prices even as costs rise along the production chain. "Land costs, labor costs, raw material costs, they've all gone up 20 to 30 percent in the last three years," says Chen Dan, chairman of Guangdong Evergreen. Brokers buying fish for the U.S. market don't care, says Shen Jian, secretary general of the local aquaculture association. "The price is too low," he gripes. "It's unfair."
Chinese producers are focusing on ways to eke out more profits. Evergreen hopes to figure out how to air-freight containers of fresh tilapia to the U.S., since fresh prices are about 50 percent higher than frozen. HQ Sustainable is focusing on value-added products such as facial creams made with collagen from tilapia scales, and it may spin off on the Shanghai stock exchange the subsidiary that makes these supplements.
HQ Sustainable CEO Sporns also dreams of working with a partner to create a fish feed that contains omega-3, the healthy fish oil that tilapia lacks. "If you have tilapia meal enriched with omega-3, that makes for a healthier tilapia," he says. "Then we've got checkmate."
Back in southwestern Guangdong, farmer Chen is focusing on more short-term solutions. Taking shelter under a tree from a midday cloudburst, he puffs on his bamboo water pipe and explains how the economics of tilapia have suddenly turned against him. With China's economy booming, costs are up sharply. His rent—which was just 500 yuan ($75) per mu (equal to about 79 square yards)—has more than doubled. Pay for his dozen full-time workers and 15 part-timers has jumped 40 percent, to 1,500 yuan a month. Feed and electricity costs are up, too. Meanwhile, the price he can get for his fish hasn't kept pace. Last year, 10 percent of the Zhanjiang region's tilapia farmers gave up on farming the fish.
Chen has thought about giving up, too, but for now he's sticking with tilapia. He can't do anything about the increase in his fixed costs, so he is trying to make up for smaller margins with greater volume. To do that, Chen has made his ponds deeper, making room for 20 percent more fish. "We can grow bigger fish," he says hopefully. "And more fish."
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