Sustainability of seaweed supply and price dynamics in the Chinese hydrocolloid industry

Abstract

The non-food segment of the Chinese seaweed market, which is crucial for developing the hydrocolloid industry, relies heavily on the seaweed supply from Chile, Peru, and, to a much lesser extent, Indonesia, in addition to domestic production. In this paper we investigate the degree of market integration between seaweed from these countries. We find that the market is highly integrated as the Law of One Price holds, suggesting a global market. Furthermore, the import price from Chile and Indonesia follows the lead of the import price from Peru. As the hydrocolloid industry develops in China, increased demand for seaweed from Chile and Peru is expected, which increases the extraction of seaweed from natural beds. This situation will be unsustainable if Chile and Peru continue to rely primarily on wild extraction.

Keywords:

• Seaweed
• price differentials
• market integration
• non-edible seaweed

JEL CODES:

• Q21
• Q22
• C32
• F15

Disclosure statement

This work and its authors do not necessarily represent the views of the Undersecretary of Fisheries and Aquaculture or Instituto de Fomento Pesquero. All errors and opinions are our own.

Notes

1 This aligns with what one observes for food fish production (Asche et al., 2022).

2 The descriptive statistics of the prices are summarized in Table A1 in the Appendix.

3 We ran residual misspecification tests and found the CVAR to be adequately specified. For further details, refer to Table A2 in the Appendix.

4 We also developed a recursive test of the LOP’s restrictions and a test of log-likelihood constancy that show that the LOP will probably hold over time and that the model is structurally stable (see Figure A1 in the Appendix). Furthermore, we tested whether excluding Indonesia from the analysis changed our main results, given that it primarily exports products from cultivated algae species different from the Chilean and Peruvian ones. However, our main results remained robust even after excluding Indonesia from the analysis.

5 The software CATS 3 for OxMetrics was used to estimate the model. See Doornik and Juselius (2018) for further information about the statistical tests.

Additional information

Funding

Salazar and Dresdner gratefully acknowledge financial support from project FONDAP 1523A0007 from the Agencia Nacional de Investigación y Desarrollo (ANID, Chile).