Seafood business in the deep freeze

Frozen seafood factories have found it difficult to compete on price with traders in the local market.
Frozen seafood factories have found it difficult to compete on price with traders in the local market. Pha Lina

Seafood business in the deep freeze

Its two IQF spiral freezers are still in working order, but it has been years since any peeled shrimp made their way down the steel-mesh conveyor belts at the former Nautisco Seafood factory in Sihanoukville’s Steung Hav district. The 3,600 square-metre shrimp processing plant began operations in 2009, with capacity for 10 tonnes of shrimp a day, and shuttered its operations just two years later.

Various reasons have been given for the company’s demise – from poor supply chain management to endemic nepotism in its procurement department, to allegations its chief financial backer deliberately sank the company to boost the prospects of its upstart rival. Nautisco’s closure, however, was the swansong of a sector that once, briefly, seemed poised for explosive growth.

Nen Chamroeurn, head of Preah Sihanouk’s provincial fisheries administration, said the mothballing of three modern seafood factories in Sihanoukville – namely Nautisco, Ocean King and Chenla – marked the end of Cambodia’s brief experiment in developing an export-oriented frozen seafood industry. He said the factories were continually dogged by supply-side issues that prevented them from scaling up operations and turning a profit.

“Frozen seafood factories could never compete with the prices offered [by traders] in the local market, which made it hard to collect enough seafood for the factories to meet their contract agreements,” he explained.

Soam Savath, deputy director of the provincial fisheries administration, also cited the struggle that seafood processing factories faced in sourcing local seafood. “Most factories faced problems finding raw seafood for their international buyers,” he said. “Demand kept increasing, but supply was limited.”

Song Chheng, a former shareholder in Ocean King (Cambodia) Co Ltd, said the seafood processing company faced immense challenges that led to its closure about five years ago.

The biggest day-to-day issue, he said, was the high cost of electricity – essential to operating the industrial cryogenic units used in the blast-freezing process. And when this imported cold-chain equipment failed, as it was prone to do, it proved difficult to replace.

Yet it was the inconsistency of the supply chain that whittled away the company’s operability, he said.

While Ocean King initially hoped its factory would process locally caught or raised seafood, domestic suppliers proved reluctant to sign on.

“We faced difficulties following the contract orders, as local seafood producers did not want to supply us because we required only select sizes of seafood,” Chheng explained.

Content image - Phnom Penh Post
Sourcing product has proven a problem for seafood exporters. Heng Chivoan

He said local producers preferred to ship all their seafood to Vietnamese dealers, who purchased all sizes of seafood to satisfy the country’s far-larger processing capacity.

Unable to secure a reliable local source, Ocean King turned to Thai and Vietnamese traders to fill its frozen shrimp contract orders. It soon ran afoul with the US trade officials, whose five-year investigation concluded the company had been transhipping shrimp from Vietnam mislabelled as Cambodian product to circumvent US anti-dumping regulations.

Sun Wah Group, a Hong Kong-based conglomerate that was a pioneer of Cambodia’s seafood industry, has also struggled with supply chain problems.

Kuy Piseth, chief of administration at Sun Wah’s shrimp processing plant near Sihanoukville’s port, said that factory’s production line has been suspended for nearly a year, with slim prospect of resuming. The company has chained up its gates, sending home 120 factory workers it can no longer afford to pay.

“The limited supply of shrimp pushed up prices, making it very difficult for the factory to turn a profit,” he said. “Local market demand is continually increasing, and we face competition from buyers in neighbouring countries as well.”

This was not always the case, he stressed. The first 10 years after the factory opened in 1996 were profitable, with frozen shrimp shipments filling the cargo holds of ships bound for Hong Kong. But the last decade has seen margins narrow and orders dry up as international buyers turn to cheaper and more reliable Vietnamese bulk suppliers.

“Previously, we needed only half a month to produce 17 tonnes of frozen shrimp for export to Hong Kong, but in recent years we exported just 17 tonnes a year,” he said.

By comparison, some of Vietnam’s shrimp processing factories produce over 40,000 tonnes of end product a year. Industry insiders say the scale of these massive, vertically integrated operations keep small-fry Cambodian operators from breaking into the $25 billion global frozen seafood industry.

And with little chance of further investment, what remains of the Kingdom’s seafood processing industry could soon fall with the tide.

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