The Seaweed Industry Association of the Philippines (SIAP) noted that Chinese carrageenan processors, previously insignificant players, have become a major force, cornering most of this year’s production.
"Two years ago, China invaded southern Philippines and purchased all available raw dried eucheuma (cottonii) seaweed at historically high price levels. Consequently, China‚s huge need for such seaweed triggered an unprecedented shortage of dried raw seaweed among the Philippine-based carrageenan processors," said Benson Dakay, president of SIAP.
Raw dried eucheuma seaweed, either of cottoni or espinosum species, is the top raw material for the Philippine Natural Grade (PNG) or semi and refined carrageenan, a thickening agent used for food processing and other non-food items like pharmaceutical products.
Dakay, whose company, Shemberg Marketing Corp. (SMC) is the country’s biggest seaweed processor and exporter, said China is emerging as a major competitor in marketing low-quality processed carrageenan with about 150 small and medium processors in mainland China.
He said China’s buying spree from seaweed farmers in Mindanao has jacked up prices of raw cottonii to P50 per kilo from P30 per kilo. He warned that the prohibitive price will result in dire consequences for the local seaweed processing sector.
"In the Philippines, the supply-demand gap had jacked up prices at levels beyond which local processors can no longer make decent margins."
Currently, the global supply of cottonii at 170,806 metric tons per year (MTPY) could only meet 77.5 percent of the estimated global demand of 220,000 MTPY. The Philippines supplies 127,700 MTPY which is 58 percent of demand. Thus, seaweed processors, both local and foreign are jostling for tight supply.
The supply deficit problem is made worse by the deterioration in the quality of raw cottonii bought from farmers and traders. Early harvesting and insufficient drying has resulted in high moisture content, low yield and low functional property of the carrageenan produced.
Dakay said this could spell disaster for local seaweed processors and exporters.
"Because of inadequate supply, processors in Cebu are now running their plants at just 50 to 60 percent of their production capacity. This translates to frequent plant downtime, high overhead/fixed cost per kilo. Also, high seaweed prices and low yield due to adulteration and early harvesting is a double whammy wherein you have a high variable cost per kilo and low functional quality of the product."
He said China’s annual purchase of about 50,000 MT of seaweed at $800 per MT is worth only $40 million.
"We could be earning more dollars if we give more value-added to seaweed by processing it into carrageenan, which fetches a price of $6,000 per ton in the international market," said Dakay.
He said if world carrageenan prices are flat or depressed, the margins of local exporters will be wiped out and even go negative.
"Once carrageenan will become limited or scarce in the world market, the world food processing market will shift to other available food ingredients such as pectin or xanthan," Dakay said.
SIAP also earlier asked the Department of Agriculture (DA) to exclude raw seaweed in the list of products that will be included in the proposed Early Harvest Program between the Philippines and China, and instead put this under the country’s sensitive list.
The Early Harvest Program is a trading protocol that calls for the speedy reduction in tariff rates on agricultural and industrial products traded between China and member-countries of the Association of Southeast Asian Nations (ASEAN).
SIAP said the local seaweed sector needs protection and instead of including seaweed in the program, the DA should implement measures to either slow down or impose added cost to the export trade of domestically-produced dried eucheuma seaweed to China.
Currently, there are 11 Filipino and four foreign-owned carrageenan refining plants in the country that supply Philippine natural grade (PNG) and refined carrageenan to the world market. Their combined investments total about P7.37 billion, they provide direct employment to 2,000 people and generate about P9.2 billion if operating at 100 percent capacity. Their estimated minimum corporate tax is P35.18 billion yearly.