May 14, 2018
A world shrimp market in transition
A former top exporter is now its largest importer. Together with two suppliers that were irrelevant ten years ago, they define the world shrimp trade's supply and demand.
By Eric J. Brooks
An eFeedLink Hot Topic
While this decade will be remembered for the disease and stocking density issues that constrained shrimp production, the world market itself is undergoing significant changes. On one hand, former top exporters are being reduced to irrelevance. On the other hand, a trio made up of two top exporters and the world's leading shrimp importer are exerting an increasingly strong influence over world supply and demand.
At approximately 4.5 million tonnes, world farmed shrimp production is not much higher than it was in the early years of this decade, and nearly 1.5 million tonnes less than what industry decision makers had anticipated for this time. While the EMS and EHP epidemic that ravaged production is officially 'under control', sustainable growth has only been achieved by limiting production in mature regions and the opening up of new cultivation areas in South Asia and Latin America.
With its 2017 exports jumping 31% to a whopping 541,303 tonnes (from 412,924 tonnes in 2016), India's 128,000-tonne increase in 2017 shrimp shipments amounts to nearly two-thirds of Thailand's own exports. Having once exported as much shrimp as India does today as recently as 2011, 2017 Thai exports fell by another 5%, to barely 200,000 tonnes, as growing domestic consumption and flat production reduced the scope for exports.
Number two exporter Ecuador also boosted its own production by 14.3%, from 372,600 tonnes in 2016 to 426,000 tonnes in 2017. Sandro Coglitore, managing director of exporter Omarsa expects 2018 Ecuadorian production and exports to amount to 531,000 tonnes and 515,000 tonnes respectively –the latter a 21% increase over 2017 shipment volumes.
Interestingly, with world farmed shrimp production constrained for most of this decade, wild caught shrimp's proportion of total world shrimp exports has remained constant over the last five years. Moreover, Argentina's exports of wild-caught red shrimp now rival those of Vietnam. It has become the world's fourth-largest shrimp exporter behind India (456,000 tonnes), Ecuador (426,500 tonnes) and Vietnam (200,000 tonnes, excluding re-exports to China).
From a mere 78,105 tonnes in 2012, Argentina's red shrimp exports jumped 136% over five years. From an International Trade Centre estimated 120,786 tonnes in 2015, to 159,889 tonnes in 2016 and 184,000 tonnes last year. At US$1.02 billion, Argentina now earns almost as much revenue from exporting shrimp as it does from beef.
Much like Ecuador, Argentina exports 90% to 95% of its production. Unlike Ecuador, the finite nature of Argentina's wild catch resource means that Argentina may hit a production limit by 2020, most likely in the 200,000 to 300,000-tonne range. Even so, with Argentine shrimp export volumes now nearly double those of Thailand, its wild-catch based supply will continue to be an important world market player for at least the next five years.
Having taken over from Japan as the world's largest shrimp importer, China is powering world demand for Argentine shrimp just as it did for Ecuadorian supplies earlier: The value of Argentine shrimp imported by China jumped almost 1,300% in five years, from US$19.5 million in 2012 to US$209.5 million in 2016 and an International Trade Centre estimated US$270 million in 2017.
While exports to Spain (+18.5%, US$315.6 million) and Italy (+38%, US$117.0 million) also increased strongly by value, China's is now the second largest importer of Argentina's shrimp. As happened with Ecuador, it may become the largest buyer of Argentine shrimp within a few years. This is a huge change for China: A country that was the world's second largest shrimp exporter ten years ago has overtaken America and Japan to become its leading importer –even if much of it has been smuggled in through Vietnam.
Indeed, market dependence –or independence– from China is becoming an important defining feature of many top exporters.
China absorbed 55% of Ecuador's 2017 shrimp exports or 258,000 tonnes, up from 47% and 187,500 tonnes in 2016. By comparison, America once bought 40% of Ecuador's total shrimp output but only accounted for 16% or 73,440 tonnes of its 2017 export volumes, down from 19% a year earlier.
On the other hand, with 45% of India's shrimp exports going to America and the EU, it depends far less on China than either Ecuador or Argentina. Based on rough estimates on the quantity of Indian shrimp that gets smuggled into China via Vietnam, no more than 12% to 15% of Indian shrimp export earnings are accounted for by China.
Even so, with analysts estimating Chinese shrimp imports at somewhere between 750,000 and 800,000 tonnes annually, its 16% to 19% share of the world shrimp market greatly exceeds that of any other buyer. -But how China absorbs this shrimp –and how it will purchase it in the future is now in a serious limbo: Mostly due to shrimp (with finfish playing a smaller role), Vietnam's seafood imports have skyrocketed from US$5 million in 2001 to over US$5 billion in 2016.
With over 95% of these shipments subsequently smuggled into China, the World Bank estimates at least US$2.1 billion is accounted for by shrimp, which is mostly sourced from Ecuador (US$774 million) and India (US$934 million), with Southeast Asian nations such as Thailand, Malaysia or Indonesia accounting for a much smaller collective proportion (US$400 million) of contraband Chinese purchases.
Until recently, Chinese importers claimed that with smuggled shrimp costing a third less than legal imports, the latter could not compete against the former –but this too now is drastically changing. In late 2017 and earlier this year, Chinese authorities cracked down on the illegal shrimp smuggling trade, raiding warehouses all over China, making arrests and shutting down the inflow of shrimp from Vietnam.
At the same time, they also cut by more than half the import duties on shrimp, providing a strong incentive to import it directly into China via legitimate channels. The smuggling crackdown is already impacting shrimp trade flows into China.
According to Ecuadorian government statistics, the amount of shrimp exported into Vietnam in February amounted to 13,494 tonnes down 12.5% from 15,413 tonnes a year earlier. On the other hand, at 5,325 tonnes, the volume of Ecuadorian shrimp exported directly to China jumped a whopping 1,183% above February 2016's 415 tonnes. Hence, while the smuggling of Indian and Ecuadorian shrimp into China via Vietnam continues, there has been a clear re-direction of shipments towards direct importation into China.
Going forward, several trends and cross-currents are in evidence over the medium term. First, China's cracking down on shrimp smuggling, while it may create more market transparency over the longterm, has impacted short-term world shrimp demand just as India and Ecuador ramp up production.
With America announcing temporary, preliminary import duties on shrimp from its biggest supplier India (5.91%) as well as on Malaysia (62.74%), Vietnam (6.07%) and Thailand (2.09%), it is feared that its final shrimp import duties (which are due to be announced in August) could be far higher.
All this has caused a deflation in shrimp prices within many important regional submarkets including India, Thailand and Ecuador. Shrimp price deflation has already caused many Indian producers to run net losses and caused producers in South Asia, Southeast Asia and Ecuador to second guess their 2018 production expansion plans.
On one hand, this means that 2018 world shrimp production may fall significantly short of current projections. This will be particularly true if America announces far larger permanent shrimp import duties in August than the temporary ones just imposed.
On the other hand, lower consumer prices should lead to higher demand for shrimp. Dovetailing with the possibility of lower-than-expected output in India and Ecuador, China's new import policies and procedures should also be clearer during H2 2018. All this means that while the world shrimp market faces much uncertainty at this time, both prices and long-term projections should firm up from the latter half of Q3 2018 onwards.
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