FEED Business Worldwide - May, 2012

 

 

by F.E. OLIMPO in Bangkok

 

 

"What passes for optimism," French philosopher Raymond Aron once said, "is most often the effect of an intellectual error." The quote may well apply to Thailand's high-profile shrimp industry. Much like the previous year, 2011  was another banner year for Thai shrimp suppliers - or so it appeared. Overseas demand remained strong - thanks to lingering disease problems afflicting rival suppliers in Indonesia, Brazil and China, prices and margins were sky high.

 

 

 

In December 2011, shrimp was selling at all-time high of close to US$2,000/tonne, compared to only US$1,200/tonne to US$1,400/tonne during December 2010. Locally, prices were 15% higher than two or three months before. By early January, shrimp association leaders were beating their breasts and predicting a 10% to 20% expansion in the country's 2012 shrimp output, and an income of no less than THB120 billion (US$ 4 billion) for the industry.

 

Barring any major weather disruption, they believed double-digit growth in exports to the United States, Japan and the European Union was possible this year. However, all these "bold" predictions were made before actual export figures for 2011 came in. When the figures arrived in February, they actually showed a less than impressive picture: Thailand's export shipments that year was actually down more than 6% from 407,978 tonnes in 2010 to 382,147 tonnes in 2011. It turned out their optimism was based mostly on high shrimp prices, not a rise in actual export volumes.

 

So long as prices stay high, they could still make a comfortable while losing market share. That palliative gave way earlier this year. In mid February, prices in Mahachai, Thailand's main wholesale shrimp market, began falling.  The drop began bit by bit, THB2-3/kg (US$0.07/kg to US$0.10/kg) per week. After a month of such dribbling weekly losses, March saw a dramatic, sudden price crash of THB15/kg to THB20/kg (US$0.50/kg to US$0.67/kg). By late April, the market had bottomed out but prices were down more than 20% from their early year peaks, with 14% of the decline happening in March.

 

Before the price crash, seafood processors had complained about high raw material prices.  Now, with margins in the red, some of them are selling their products at or below cost. How did this happen?

 

In response to last year's skyrocketing prices, Thai shrimp farmers rushed to increase production. "Now we are seeing the result of those expansions - a flood of supply," says Somsak Paneetatyasai, president of the Thai Shrimp Association. Fearing that such overproduction is the road to commoditization, Somsak exhorted Thai shrimp farms to focus on growing quality shrimp and offsetting their higher production cost with a higher survival ratio.

 

 

And recent trade statistics certainly bear out Somsak's emphasis on quality rather than quantity. While Thai shrimp is a long-term success story, cracks are developing in this industry's model. By volume, shrimp exports are up 80% in ten years, but increased by only 8.8% over the last five years.

 

2011's hefty export earnings masked the fact that while actual Thai shipments were falling, the export volumes of other countries increased, resulting in serious market share losses. Recent USDA statistics showed American shrimp imports from Thailand dropping to 13,700 tonnes in January, down 16.8% from 16,000 tonnes during the same period last year.

 

What's disturbing is that among major shrimp exporters, only Thailand posted a negative growth in shipments to the US that month. Although it remains America's number one shrimp supplier, rival based in Indonesia, China, Vietnam, Ecuador, Mexico and India all saw their US exports rise dramatically.

 

Indonesia, now the second biggest shrimp supplier in the US, increased its January 2012 exports by 20.4%, to 7,257 tonnes, from 6,029 tonnes in January 2011. Ecuador exported 6,554 tonnes, up 70.4% from only 3,846 tonnes during the same month last year, dislodging China, at least for that month, as the United States' third biggest shrimp supplier.

 

It wasn't only exports to the US that had been falling.  Because of intensifying competition, shipments to the European Union during first nine months of last year dropped by 8.56%, to 43,193.25 tonnes, from 47,236.18 tonnes in 2010.