Will Ecuador Rule the US Canned Tuna Market ?

Opinion Page

Will Ecuador Rule the US Canned Tuna Market ?
By Henk Brus (October 29, 01)

Three weeks ago, the US House of Representatives accepted with a majority vote that canned and heat preserved tuna should be excluded from the list of sensitive items of the Andean Agreement. By taking canned tuna from this list, Ecuador and Colombia would gain duty free access to the US canned tuna market. This would give them for canned tuna in water a 12,5 % advantage over the Thai and Philippine Tuna canners. Duty free access will put them on equal terms with American Samoa, Puerto Rico, and any US based tuna canning operation.

The proposal will now move to the Senate, and once accepted there, it will be effective almost immediately. That could possibly mean that even within this year Ecuador and Colombia could import into USA duty free.

Samoans and Puerto Ricans are strongly opposing granting Ecuador and Colombia this favor. They argue it will devastate their local canning industries. Many people in our business believe that if the Senate passes the proposal, Samoa and Puerto Rico will be shut down within about 3 years, and Ecuador, with its low wages, will run off with the business.

In all these discussions it is remarkable that StarKist (SK) has been lobbying for duty free for Ecuador, while they own the worlds largest tuna canning plant in the world, in …. Samoa. In recent years they even invested quite some money in the operation. Their competitors, Chicken-of-the-Sea (COS) and Bumble Bee (BB), seem to have other thoughts. COS also owns a big plant in Samoa, but they oppose any favors to Ecuador. They are joined by Bumble Bee, who runs a large canning plant in Puerto Rico. Now SK on one side, and COS and BB on the other, are battling over this issue, with SK being on the winning side so far.

Why do these companies have opposing strategies and interests ?

Total monthly costs in both Ecuador and Colombia for tuna cleaners range somewhere between USd 200 and USd 265 everything included, which counts down to about USd 12.00 day. Pure direct labor is calculated around USd 0.50 per case of tuna of 48x 185g. In American Samoa tuna workers make USd 26.00 daily (or abt USd 2.00 a case) and in Thailand about USd 5.00.

SK is in favor of Ecuador getting duty free access, because their policy is to produce " where-ever tuna is produced cheapest". They have leased 2 plants in Guayaguil,Ecuador, from Augusto Jimenez, a local tuna entrepreneur. Now that SK has given up its fleet and moved some of its vessels into the account of Tri-Marine, it looks like the company believes it has become better strategy to shop around for raw material in the Western Pacific, and to bring it by reefer carrier to the cheapest production location. Moving production to Ecuador could become a preparation exercise for SK. Preparing for canning tuna in S- America, and moving large quantities of frozen tuna from the Western Pacific to Latin canneries. This way the infrastructure and organization is in place, so they can start producing canned tuna in Mexico, so soon as the Dolphin Safe trade barrier for the Mexicans collapses. It does not seem likely Samoa will be entirely given up as long as Mexico provides no guaranteed duty free access to the USA market. Mexican tuna is now facing still 5,8% duty in the USA, but this will be slowly fazed out within NAFTA. Mexican labour costs are about half of Samoa !

Expansion of its canning operation in Ecuador, means that SK can already switch some of its contracted production from Thailand to Ecuador. Thailand faces normally 12,5% duty , around USd 1.80 a case in the current market on its canned tuna imports. Even with its low wages, this USd 1.80 duty is much higher then the advantage in laborcosts Thailand provides over Ecuador. This situation also makes Thai canners quite worried. The USA takes 25% of their total canned tuna production ! Increasing canned tuna prices would only lead to a higher duty barrier, and even more difficult competition for Bangkok with Ecuador.

So why do BB and COS not agree with SK ? BB still has its plant in Puerto Rico, and although they might be given up this facility soon, and have also started already a production in Trinidad, the company does not see the immediate advantage of duty free access for Ecuador to its bottom line. BB already has been operating a loining plant for many years in Manta, and also owns there the former BCP canning plant. Their production capacity in Ecuador is however smaller then that of SK.

COS is in an entirely different position. The company is now fully owned by Thai Union. The company only recently gained full ownership over the cannery in American Samoa. With its Thai Union plant in Bangkok churning out many cans of tuna for Chicken-of-the-Sea and other American private brands, the company does not want to loose its major export market. With no stronghold in Ecuador yet, and major interest in Thailand and Samoa, the company’s interest would be definitely hurt by a switch of part of canned tuna production to Ecuador.

Also US importers and retailers contracting their canned tuna now from Thai and Philippine producers will feel the impact if SK can get it their way.

Current established exporters in Ecuador might, however, not be so eager to export to the USA. Of course they like to expand their business, but it will only make competition for raw material more intense. The largest canneries sometimes already have problems obtaining enough tuna caught by the EU or Ecuador fleet, a condition for export to Europe. In the EU, Ecuador is already exempted from the 24% import duty on canned tuna. Why would these larger producers start exporting domestic fish to USA where their advantage is only 12,5%, compared to 24% in Europe ?

The smaller packers in Ecuador could perhaps furnish part of the need of the USA canned tuna industry, but they lack the access to cash to contract raw material. The resource of raw skipjack in the EPO will not be able to support an increased demand for the USA market, and tuna will need to be imported from the WPO.Currently the unloading facilities, and production facilities in Manta and Guayaguil, are not sufficiently efficient or do not have enough high quality canning capacity to accommodate a large switch of USA production on the short term.

For BB and COS to catch up with the head start of SK in Ecuador would take them at least one year. This could create a certain advantage for SK, also by putting put a burden on its competitors. Thai Union/COS will definitely suffer most on their current investments, when Ecuador and Colombia would get it duty free status. They are searching already intensively for fit production facilities in the country, but without any success so far. BB hardship would likely be less, but they could be forced to give up its Puerto Rico operation earlier than it financially anticipated.

In case the US Senate will grant duty free access to Colombia and Ecuador, it does not look like this would have an immediate dramatic effect on the international tuna business. However it could definetely be the start of a major shift in the global distribution pattern of raw tuna, and cause grave problems for processing nations as Thailand, Samoa, and Puerto Rico on the longer term.

You can react on this opinion article at our Tuna Discussion Forum.

When you want to share your own opinion or view on a tuna related subject on Atuna, we welcome you, pls contact us !

Read other opinions