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March 13, 2019

Shrimp finally moves beyond 2012 output levels amid deflationary uncertainty
  
Indian, Ecuadorian output growth taper off amid looming sustainability issues. Indonesia, Vietnam recovering from years of stagnation but former top exporters only produce 50% of former output levels.
 
By Eric J. Brooks
 
An eFeedLink Hot Topic

 
 
After staying significantly below 2012's 3.3 million tonnes secular high for five years, world shrimp farming finally broke its pre-peak output record. It did so by rising 4.3% to approximately 3.40 million tonnes in 2018. While that is respectable growth, it is only a fraction of the 11%+ growth seen in the previous two years.
 
Will the industry defy falling shrimp profits and finally be shake off a post-2010 decade of stagnation? Much rests on how much progress the industry has made towards long-term sustainability.
 
With emerging shrimp producers more than offsetting the stagnant output of former top exporters, the past eighteen months have seen world shrimp markets transition from several years of high prices and scarcity to over-supply-induced deflation. The latter occurred mainly because of India, which turned a projected year of stagnant shrimp output into a third consecutive large increase.
 
From 21.3% below its 2012 high and totaling 2.61 million tonnes in 2015, world shrimp output jumped 12.3% to 2.93 million tonnes in 2016, then 11% in 2017, to 3.26 million tonnes. Boosted by rising Indian and Ecuadorian production, it then touched 3.26 million tonnes in 2017.
 
2018's output was expected to stay flat and to be held back by the first projected major decline in Indian production since it became an important exporter. Even the graphs of many panelists at January's Global Seafood Marketing Conference (GSMC 2019) in San Diego, USA estimated 2018 world shrimp output of 3.26 million tonnes. Even before the current round of price deflation, a sharp April 2018 drop in shrimp's price caused producers in China and Thailand to scale back previous expansion plans.
 
Big Surprise: Partly due to a bigger than expected Q4 shrimp crops, partly due to the Indian government's cutting electrical rates on shrimp farms (to mitigate the impact of low prices), India's shrimp output did not fall. Instead of falling back 14% to 600,000 tonnes, India boosted 2018 output more than 6%, to a record 740,000 tonnes.
 
Coinciding with unexpected bumper harvests in rival exporters such as Ecuador, Indonesia and Vietnam, an unexpected additional 140,000 tonnes of shrimp flooded the market by late 2018. This depressed early 2019 prices and resulted in 2018's world shrimp output being revised upward. Instead of staying flat, 2018 shrimp production rose by 4.3% and 140,000 tonnes, setting a new record at 3.40 million tonnes.
 
Going forward, Indian shrimp production is entering a short-term output trap: According to a GSMC 2019 panelist from India's shrimp sector: "Production increased last year, but will be flat in 2019, they might be up a little, or they might be down a little."
 
He noted that mature ponds in Andhra Pradesh state (which grows 65% of Indian shrimp) face mounting disease issues as stocking densities rise, "with farmers also resisting seeding, due to the lower prices." At the same time, falling shrimp prices is discouraging the setting up of new shrimp ponds in frontier states like Gujarat.
 
For this reason, most GSMC 2019 panelists projected Indian production to stay unchanged at 740,000 tonnes. It would be the first time since 2009 (when output was only 80,000 tonnes) that India's shrimp production did not expand.
 
Hence, while Indian shrimp output rose at an average 20% annual rate over the past three years, whether growth above 10% can be maintained or a million tonnes of output be achieved by the early 2020s is an open question.
 
For now, low prices make it uneconomical to develop new shrimp farming areas. Until prices recover, too much output expansion relies on the risky strategy of boosting stocking densities beyond points where diseases like EMS and WSSV have broken out in the past. Fearing disease losses in a market with low returns, Indian producers are likely to be prudent, keeping output and stocking densities at current levels.
 
India's strong 2018 performance was complemented by that of Ecuador, where output expanded 5% over expectations and exports exceeded 500,000 tonnes for the first time. That keeps Ecuador in the number two exporter position behind India's approximate 650,000 tonnes of shipments.
 
Better farm management techniques, improved shrimp genetics and the recent opening of mills supplying high-quality feed all played a role in making Ecuadorian shrimp output come in above expectations. These factors and the commencement of shrimp farm electrification partly offset the current low shrimp price environment. They imply that Ecuadorian shrimp output stands a good chance of growing 7% to 10% annually into the early 2020s, which is still below the 14.5% annual growth of the past three years.
 
In a similar vein, new capital intensive investments, improved feed materials, better genetics and farm management techniques have transformed Indonesia and Vietnam from disease hampered producers to leading shrimp exporters. These two nations went from growing over 400,000 tonnes of shrimp in the early 2010s to just 217,000 tonnes in Vietnam's case and 230,000 tonnes in Indonesia's case by the middle of our decade.
 
From 2016 onwards, Indonesian output climbed at a 21.9% annual rate, from a low of 230,000 tonnes to 343,000 tonnes last year. This year GMC panelists expect to climb at least another 10% to 376,000 tonnes, with many confident that it will set a new production record above 400,000 tonnes by no later than the early 2020s.
 
Similarly, Vietnam produced 450,000 tonnes of shrimp in 2010 before crashing down to 217,000 tonnes by 2015. Thereafter output increased at a 30% average annual rate over the past three years. Jumping to 336,000 tonnes in 2016, 428,000 tonnes in 2017 and an estimated 480,000 tonnes last year.
 
Because a lion's share of Vietnamese shrimp exports are smuggled out of the country, the volume shipped is difficult to estimate but thought to be around 500,000 tonnes -with at least 60% consisting of unregistered Indian and Ecuadorian imports that are promptly re-exported to China.
 
The Vietnamese government recently announced its intention to boost annual shrimp output to a million tonnes by 2025. Given the sustainability issues that repeatedly dogged shrimp farming's history earlier this decade, this is more easily said than done.
 
For all their vibrant recent growth, Vietnamese and Indonesian shrimp sectors are finally producing the same volume of shrimp they did in the early 2010s. Whether they can move beyond previous output levels and continue boosting stocking densities in a consistent, viable manner remains to be seen. -But even this cannot be said for China and Thailand, whose collective output languishes 1 million tonnes below their 2011 peak.
 
Thailand again came in below expectations for a seventh consecutive year -and far below the 400,000 tonne output that had been predicted for 2017 just three years ago: Following 2017 output of 336,000 tonnes, it was hoped that 2018 production could rise into the 350,000 to 380,000 tonne range but once again, it was not to be.
 
Haunted by memories of past EMS outbreaks and made more prudent by falling Q2 2018 export prices, Thai shrimp farms scaled back their planned stocking densities from June 2018 onwards. Some farmers shifted to less productive black tiger shrimp cultivation, which was less affected by deflation and was in demand by Chinese importers. Early 2018 projections of a 350,000+ tonne harvest again gave way to actual 2018 output of around 320,000 tonnes -nearly 300,000 tonnes below 2010's peak output of 640,000 tonnes.
 
For the foreseeable future, the former top shrimp exporter remains locked into a low output trap: For 2019, a modest 4% increase to 320,000 tonnes is now expected. -It will be the 4th consecutive year that Thai shrimp output stays around roughly 319,000 tonnes ±5%
 
Whereas Thailand cannot rebound to former output levels, China's shrimp sector has yet to see a seven-year production decline bottom out. Output across all Chinese shrimp species exceeded 1.2 million tonnes in 2012, fell steeply to around 750,000 tonnes in 2014 and has fallen steadily ever since, to 600,000 tonnes by 2016 and slightly over 500,000 tonnes last year.
 
More significantly, with its domestic seafood consumption booming, there are indications that China may "officially" unseat America as the world's top shrimp importer. In January, China customs reported imports of 71,227 tonnes of shrimp to America's 68,671 tonnes.
 
Technically, the United States still imports more: Volume-wise, America's 68,000 tonnes of imported shrimp is equivalent to 102,000 tonnes of the head-on shrimp imported by China. -In reality, several hundred thousand tonnes of Ecuadorian, Indian and Vietnamese shrimp are smuggled into China via Vietnam and are never recorded in "official" statistics.
 
China is currently in the process of cracking down on illegal shrimp smuggling. Thus, it will probably take one or two years before "official" statistics say what the industry already knows: Once the world's biggest shrimp exporter, China is now the world's leading shrimp importer. Total legal and illegal Chinese shrimp imports are either already a million tonnes or will be no later than the end of 2020.
 
It is very significant  (and inflationary) that China -formerly a dominant top exporter that once grew as much shrimp as the combined output of India and Ecuador- has turned into the world's largest importer. Beyond today's short-term deflation, China and Thailand's experience raises important sustainability questions for the world shrimp sector.
 
For all the recovery and progress made by shrimp farming since 2015, it is still haunted by the following Question:  What distinguishes China and Thailand (who were top exporters before 2012) from current market leaders India and Ecuador? The answer is unsettling.
 
China and Thailand developed their shrimp industries twenty years earlier and started running out of untapped land suitable for raising shrimp by the mid-2000s. From a technological perspective, the integrators that operate Thai shrimp farms are more technologically advanced and experienced in shrimp farm management than either their Indian or Ecuadorian rivals.
 
Is the only difference that Thai ponds have had an extra decade or two to build up a critical mass of hard-to-control pathogens? The behavior of other top exporters implies the answer is "yes": For example, when export prices fell too low to justify establishing new shrimp growing ponds, India's rapidly expanding shrimp production immediately leveled off  -lest high stocking densities induce the same disease outbreaks that undermined Chinese and Thai producers.
 
From 2000 through 2018, Indian and Ecuadorian production has increased at average annual rates of 12.0% and 13.9% respectively. In the three years since 2015, India (20.2%) and Ecuador (14.5%) have increased their output even more rapidly than before. Stocking densities cannot increase at such a rapid rate: Prices have to be high enough to justify bringing new regions into shrimp production.
 
Powered by expansion into new areas, Indian and Ecuadorian growth far exceeds the average 6% annual increase in world shrimp output since the year 2000.  -And Do Note!: Despite rapid Indian and Ecuadorian growth, from 2005 onwards (when Chinese and Thai frontier areas began to dwindle), the world shrimp sector only expanded by an average of 3.3% annually!
 
It is because of unsustainably rapid Indian and Ecuadorian pond expansion that in the three years since 2015, world shrimp output has increased at a rapid (but unsustainable) 9.2% annual rate. Production has "caught up" to its pre-crisis highs but for how long can it grow beyond 2019's projected 3.55 million tonne level?
 
The "bad news" is that India and Ecuador cannot sustain annual growth rates of 15% to 20% for much longer. Unless prices rise from their current bottoms, India, in particular, appears headed for a profound slowdown. The incremental progress made in controlling EMS, WSSV etc. has not been sufficient: for now, rapid shrimp output expansion requires prices high enough to bring a finite, dwindling number of untapped frontier areas into production.
 
The "good news" is that for a year or two, we can count on rising Vietnamese and Indonesian output to probably make up for any slowdown in Indian or Ecuadorian growth. After "rebounding" from its post-EMS lows, these two nations may face similar sustainability issues as India and Ecuador but with fewer new frontier regions available for cultivation.
 
Given all these uncertainties, what is the most likely industry growth path over the medium term? Low prices will constrain output expansion to 4% this year and even less in the years ahead. By sometime in 2020, this should boost prices enough to encourage expansion into new frontier regions, be they Gujarat in India or remote Ecuadorian provinces.
 
Thereafter, the next price upswing's amplitude and duration will very much depend on how well Southeast Asian producers such as Indonesia, Vietnam and Thailand are in putting their industries on a truly sustainable, stocking-density driven growth path.
 
Only if the stocking density issue is resolved can world shrimp output return to the 7%+ annual growth rates that were seen in 2000-10. Without resolving the stocking density issue, the 2005-18 average growth rate of 3.3% is a more realistic longterm estimate. Hence, even though 2019 is shaping up to be another year of steady progress, shrimp producers still need to find a sustainable path towards higher stocking densities.
 


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