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Cablegate: Caught in the Middle: Chinese Aquaculture Company Affected

VZCZCXRO4386
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0767 1870135
ZNR UUUUU ZZH
R 060135Z JUL 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6225
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 0966
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS GUANGZHOU 000767

SIPDIS

SENSITIVE
SIPDIS

STATE ALSO PASS USTR
PACOM FOR FPA

E.O. 12958: N/A
TAGS: ECON ETRD EINV ECIN CH
SUBJECT: CAUGHT IN THE MIDDLE: CHINESE AQUACULTURE COMPANY AFFECTED
BY RECENT FOOD SAFETY ISSUES

(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT
ACCORDINGLY. NOT FOR RELEASE OUTSIDE U.S. GOVERNMENT CHANNELS. NOT
FOR INTERNET PUBLICATION.

1. (U) SUMMARY: A LARGE GUANGDONG SHRIMP EXPORTER EXPECTS ITS
REVENUES TO FALL BY 40 PERCENT FOLLOWING THE RECENT FDA ANNOUNCEMENT
TO DETAIN SHRIMP AND OTHER SEAFOOD FROM CHINA. THE FDA MEASURE, AS
WELL AS BAD PRESS FROM OTHER FOOD SAFETY SCANDALS, IS ACCELERATING A
TREND TOWARD NON-U.S. EXPORT MARKETS AND THE DOMESTIC MARKET. END
SUMMARY

A MAJOR SHRIMP EXPORTER
-----------------------

2. (U) IN 2004, GUANGDONG EXPORTED USD 100 MILLION IN SHRIMP TO THE
UNITED STATES. ECONOFF RECENTLY VISITED ZHANJIANG EVERGREEN AQUATIC
PRODUCT SCIENCE AND TECHNOLOGY CO., LOCATED IN SOUTHERN GUANGDONG,
ABOUT A FOUR HOUR-PLUS DRIVE FROM GUANGZHOU. THE COMPANY EMPLOYS
6000 WORKERS AT THREE DIFFERENT SITES.

3. (U) EVERGREEN IS UNIQUE AMONG CHINESE COMPANIES INVOLVED IN
AQUACULTURE WITH ITS VERTICAL INTEGRATION; IT RETAINS CONTROL OF THE
ENTIRE PRODUCTION PROCESS FROM THE IMPORTATION OF SHRIMP EGGS FOR
BREEDING TO THE RAISING OF SEAFOOD IN AQUACULTURE FARMS AND
PROCESSING AND EXPORTATION. IN 2006, EVERGREEN EXPORTED OVER 6000
TONS OF TILAPIA AND SHRIMP TO THE UNITED STATES, WORTH APPROXIMATELY
USD 30 MILLION. MAJOR BUYERS OF THE COMPANY'S SEAFOOD INCLUDE
WAL-MART AND FOOD LION.

4. (U) EVERGREEN HAS BEEN CERTIFIED BY THE FDA WHICH REGULARLY
INSPECTS EVERGREEN'S FACILITIES. ECONOFF WAS EXTREMELY IMPRESSED
WITH THE NUMEROUS MEASURES THE COMPANY TAKES TO PREVENT FOOD
CONTAMINATION, INCLUDING WEARING STERILIZED GARMENTS, WASHING HANDS
AND FEET IN A BLEACH AND WATER SOLUTION, AND CONSTANT CLEANING OF
EQUIPMENT AND FACILITIES.

5. (U) EVERGREEN ALSO HEAVILY INVESTS IN RESEARCH AND DEVELOPMENT.
IT SPONSORS A MARINE BREEDING SEED BASE WHERE RESEARCHERS AND
STUDENTS FROM A VARIETY OF UNIVERSITIES IN GUANGDONG STUDY
AQUACULTURE AND SHRIMP BREEDING.

IMPACT OF THE RECENT FDA MEASURES
---------------------------------

6. (U) PRIOR TO THE FDA BLOCKAGE, THE COMPANY WAS ALREADY
EXPERIENCING A 20 PERCENT DECREASE IN REVENUE DUE TO MEASURSE TAKEN
EARLIER BY USFDA AND NEGATIVE PRESS REGARDING THE SAFETY OF CHINESE
FOOD PRODUCTS. THE COMPANY FACED AN INCREASE IN THE FREQUENCY OF
INSPECTIONS AND A REDUCTION IN ORDERS. AFTER THE MOST RECENT
ANNOUNCEMENT BY THE FDA, THE COMPANY ADMITTED THAT THE DECREASE WILL
MOST LIKELY DOUBLE TO 40 PERCENT.

7. (U) EVERGREEN APPEARED CONFIDENT THAT THE COMPANY WILL BE ABLE TO
DELIVER ITS PRODUCT TO ITS CUSTOMERS, BUT REMAINED UNSURE OF HOW TO
SATISFY THE FDA. THE COMPANY STATED THAT IT WAS SHIFTING MORE OF
ITS EXPORTS TO JAPAN IN ORDER TO OFFSET THE DROP IN EXPORTS TO THE
US. THE COMPANY WAS ALSO CONCERNED OF POSSIBLE LOSS OF U.S. SALES
AND MARKET SHARE TO COMPETITORS FROM BRAZIL AND VIETNAM.

GOLDBERG

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