China’s Inflation Hits Taiwan’s Dinner Tables
With massive quantities of Taiwanese agriculture and fish being exported to China, domestic food prices are on the rise. As of now, China decides the cost of dinner in Taiwan. In the age of ECFA, is Taiwan trading exports for inflation?
China’s Inflation Hits Taiwan’s Dinner TablesBy David Huang, Hsiang-Yi Chang
From CommonWealth Magazine (vol. 467 )
It’s dawn at Taipei’s Binjiang Market, and Japanese restaurant owner Hsu Huan-jiao is berating her regular fishmonger. "Why so expensive? The price of white shrimp went up 20 percent just before the Lunar New Year, and now it’s gone up nearly another 10 percent," she complains. "And the grouper is even pricier. It’s gone from just over NT$200 to NT$330 per Taiwanese jin!" (A jin, or "catty" is about 600 g) (Table 1)
One can only assume that Ms. Xu’s complaints are being echoed in homes throughout Taiwan as families struggle to control their budgets. In January, the Directorate General of Budget, Accounting and Statistics (DGBAS) announced a 1.11-percent rise in the Consumer Price Index, but food prices as reflected in the Cost of Living Index (Category A) rose 1.97 percent on an annualized basis and had shown increases for three consecutive months. The Marine Products Price Index shot up to 144 in January, not only its highest level ever but a hefty 12.73 increase over last year. This shows the cost of eating one fish is, on average, 12 percent more expensive now compared with January of last year.
"Taiwan’s inflation is mild relative to other Asian countries, but the average person feels the pinch more acutely due to rising costs of food and other daily necessities," says Tony Phoo, chief economist for Standard Chartered Bank Taiwan, Ltd. When the numbers from February are released later this month, Phoo expects the price figures for basic household commodities to post further increases due to the Lunar New Year holiday.
According to DGBAS statistics, of the 10 items leading the rise in Taiwanese commodity prices, seven are foodstuffs. In particular, the rise in prices for pomfret and grouper, two varieties of fish commonly found on family dining tables, have been the steepest.
Strangely though, Taiwan, with its highly developed fish farming industry and good reputation as an "aquaculture kingdom," sports a self-sufficiency ratio in overall fisheries products of 136 percent, and in excess of 200 percent when considering only grouper and some other varieties of fish. Even accounting for reduced production resulting from last year’s damaging winter and rising feed costs, the extent of the decrease in supply was not to a degree that would result in an inability to satisfy domestic demand. So why are prices climbing so high?
The key inside factor that few people are aware of actually lies in the continually developing consumer market across the Taiwan Strait in China.
ECFA: Live Fish Swimming across the Strait
The scene shifts to Kaohsiung’s Yongan Township, which accounts for 40 percent of Taiwan’s grouper production. Beside the fishponds truck after truck is being loaded with fresh grouper, which will be transferred to waiting boats for direct shipment to Xiamen and ten other ports, ultimately bound for Chinese consumers, who are fond of high-protein fish products and have a particular taste for grouper. This has been made possible since the passage of the Economic Cooperation Framework Agreement.
Su Guo-tai, president of Sun Young Frozen Foods Co., Ltd. in Yongan Township, began to sense the commercial potential of cross-strait trade last year. Su, a former Yongan Township government employee, speaks with great authority on Taiwan’s grouper cultivation industry and has particular appreciation for the new business opportunities ECFA has afforded Taiwan’s aquaculture industry.
"Since the signing of the ECFA last year, the live fish transport ships have had no rest, with especially high demand just before the Lunar New Year, when each vessel made at least two trips a week [to China]," Su estimates.
To be sure, ECFA has once again made grouper the biggest of the big among Taiwanese agricultural exports. In the past nearly all of Taiwan’s grouper exports went to Hong Kong, but with the signing of ECFA last year China immediately supplanted Hong Kong to become Taiwan’s number-one market for grouper exports, accounting for as much as 70 percent to 80 percent of the total. Taiwan’s grouper cultivation operations are scattered from Jiayi to Pingdong, and there are now a total of 12 live fish transport ships busily plying the Taiwan Strait, the smallest capable of hauling 10,000 kg of live grouper per trip, the largest twice that amount.
In June of last year, the Taipei Fishery Marketing Corp. signed a comprehensive agency agreement with Kunshan Seafood Corp. in Kunshan City outside Shanghai. The agreement appoints Kunshan Seafood Corp. the sales agent in China for a variety of fresh Taiwanese seafood products, including sweetfish (ayu), milkfish skin, and fresh Penghu oysters, all of which will be supplied through Kunshan Seafood for sale at Shanghai area Carrefour stores and end up as delicacies on the dining tables of Shanghai residents. The agreement also acted as a driver of Taiwanese grouper exports, which last year soared to a new high of 6,000 metric tons.
With piles of Chinese and Hong Kong consumer cash flowing into Taiwan to buy grouper, keen entrepreneurs were quick to smell an opportunity. Over the past year, Baring Private Equity Partners, Asia’s largest private investment fund controlling US$4.5 billion, has begun sinking investment dollars into the top-grade grouper produced through Taiwanese fish farming operations rather than continued investment in high-tech silicon wafer plants.
Grouper Sizzling, Private Funds Hooked
"With the levels of prosperity rapidly rising in China, as the incomes of ordinary citizens continue to rise, the number-one item on which they will increase their daily spending will be food," says Wang Gui-qing, an investment consultant with Baring’s.
Wang has recently been visiting aquaculture operations in Kaohsiung and Pingdong. According to his observations, consumers in China regard Taiwanese agricultural, fishery and livestock products quite highly due to their higher degree of quality assurance and, despite scarcity and higher prices relative to Chinese products, are willing to fork over more of their hard-earned cash to purchase them.
Consequently, Baring’s Asia has begun investing in Taiwanese aquaculture operations and is preparing an integrated distribution chain stretching across Hong Kong and China in a bid to reap "grouper riches." Wang reveals that Baring’s is now actively hunting for "mutually complementary" agricultural and livestock products in Taiwan and China in which to increase its investments. Dairy products, fruit and even soy sauce are all among the items under consideration. This is of course due to steadily increasing Taiwanese agricultural exports to China, not merely grouper, but also Taiwanese baked goods and leather, for all of which China is the top export destination. China is the number two export destination for other agricultural exports as well, bringing a welcome opportunity for Taiwan’s agricultural, livestock and fisheries businesses. (Table 2)
The Two Faces of Aquaculture
The fate of the grouper is a reflection of the relationship between markets on either side of the Taiwan Strait, which have grown increasingly intertwined since the ECFA was signed. Now, as China begins to show signs of an impending inflation crisis, soaring food prices have already begun to infect Taiwan.
Chinese consumers’ hot pursuit of Taiwan’s aquaculture products and other foodstuffs has combined with some investment funds’ entry into Taiwan’s food production sector to indirectly put pressure on local commodity prices, yet the livelihoods of those on the frontlines of the aquaculture sector have not necessarily seen any improvement.
This reporter toured aquaculture operations of large and small ponds covering about 17,000 hectares in and around Jiayi County’s Dongshi Township. While many of the ponds are stocked with grouper and white shrimp, even more contain an improved variety of tilapia that Taiwan also produces in abundance: the Taiwan red tilapia. Despite the recent rises in prices for Taiwanese aquaculture products, no smiles are to be seen on the faces of local Jiayi producers.
"One fish must be cultivated for a year or two, and it isn’t until harvest time that you know whether you’ll get a good price or not. So we usually don’t raise just one type of fish," says fish farmer Tsai Chiu-jhu, a former chairman of the Jiayi County Aquaculture Development Association. "Although grouper prices have improved, post-ECFA, you can’t necessarily make money raising other varieties of seafood, especially Taiwan red tilapia, given the massive aquaculture operations now underway in China where operating costs are far lower. It’s really hard to compete with them."
"Even with grouper, currently our hottest product, the pond-side price (sold to distributors at the site of production) for a jin last year was about NT$210. This year it’s about NT$250. Exporters (to China) do offer a little extra, but it’s still only about NT$270," Tsai notes. "Compare that with the current market price in Taipei, which has gone from just over NT$200 to over NT$300. But we also have to bear the risk of winter damages in addition to the 20-percent rise in feed costs since last year, so we actually don’t really earn that much," Tsai sighs. "We’re producers, not sellers. It’s the money people that come down and invest or distributors seizing the initiative in raising prices, but that money doesn’t go into our pockets."
Cross-strait Food Scramble Takes Shape
The wave of Taiwanese agricultural exports to China has only just begun. In the past, China was just the third or fourth largest export market for Taiwanese agricultural goods, behind Japan at number one and Hong Kong at number two. Occasionally, it would lose out to the U.S. as well, and in some categories it might challenge Hong Kong for the number-two slot. But since May of last year, China has consistently been Taiwan’s number-two agricultural export market, and the gap between Japan and China has narrowed, from an original 10 or more percentage points, to now less than six. Exports to China may very well exceed those to Japan this year, making it Taiwan’s top agricultural export destination.
Large-scale exports to China, however, have resulted in a palpable spike in Taiwanese food prices. Statistics show that in November of last year China’s share of Taiwan’s agricultural exports reached 15.91 percent, the high for the year. In a surprising coincidence, the food sector of Taiwan’s consumer price index peaked that same month at 115.28 percent. (Table 3)
Even if the impact of rising international raw materials prices had perhaps a greater impact on the rise in Taiwan’s consumer price index, food and beverage consumption habits on either side of the Taiwan Strait are similar, and the specter of a resource race among the people of Taiwan and China will become increasingly apparent. Public trends blogger Huang Guo-hua says there is little difference between Taiwanese and Chinese consumers, particularly those in Xiamen and other areas of China’s southeast coast. The trend toward a cross-strait scramble for food resources has already begun to take shape.
"China is already the world’s number-one consumer nation of agricultural products, and production cannot keep pace with the growth in China’s consumer demand, resulting in higher food prices," Standard Chartered’s Phoo says. "Rising concerns over inflation are actually not merely a problem for China but something the entire world has to collectively address."
Due to their geographical proximity, the eating and drinking habits of Taiwan and China are similar, and trade between the two sides has recently been developing at a rapid clip. Without a comprehensive set of countermeasures, Taiwan will be the first to bear the brunt of inflationary forces from China, putting pressure on prices for food and the raw materials for its production.
Translated from the Chinese by Brian Kennedy