June 8, 2004

Brazil Shrimp Farmers Fret As US Prepares Tariff Ruling

In just three short years, Carlos Pacheco has turned a moribund coconut plantation into a vibrant producer of Brazil's latest cash crop: shrimp. But his luck could change if the U.S. decides next month to slap tariffs on cheap imports from six developing countries.
 
The modest 37-year-old fisheries engineer is an unwilling protagonist in a legal battle pitting technologically savvy shrimp farmers from poor countries against old-fashioned shrimp boat owners in the U.S.
 
Pacheco runs a 50-hectare shrimp farm in the remote northeast Brazilian state of Pernambuco that operates 24 hours a day and exports 80 metric tons of shrimp a month. With profits soaring, he's preparing to install another 30 hectares of shrimp ponds but fears the U.S. Commerce Department could hurt his expansion.
 
"The tariffs are worrisome because they could cut our orders," says Pacheco. Acording to Brazilian industry, the farm he runs - Costa Dourada, or Gold Coast in English - is the most efficient one in Brazil, which itself stakes a claim as the world's most efficient shrimp producing country.
 
Perched in a wooden watchtower 60 feet above the shrimp farm, Pacheco uses walkie-talkies to direct workers, making sure they adhere to the highly regimented timetables of modern shrimp farming.
 
Workers measure acidity levels in shrimp larvae incubators or tend to water pumps from the adjacent river, while others paddle across shrimp ponds in kayaks, putting fish meal in feeding baskets four times a day.
 
Increasingly, shrimp is a foodcrop rather than a delicacy caught in the wild, open ocean. Inputs are standardized, as is the final product. The intensive approach, along with the introduction of the L. vannamei shrimp variety from the Pacific ocean, has boosted productivity in Brazil to 80 shrimp per square meter from around five in the 1980s.
 
Thousands of shrimp larvae are delivered every few weeks from a nearby laboratory to Pacheco's incubating tubs. They fatten for several days on fishmeal from dogfood maker Purina before being transferred to larger ponds. Hundreds of tiny gasoline motors float on the ponds, spinning fans that pump air into the water.
 
After harvest, the ponds are drained, the soil where the shrimp live is tilled and dried, then the ponds are flooded and stocked with baby shrimp. The entire process, from receiving shrimp larvae to serving mature shrimp to U.S. diners, takes just 120 days.
 
Though modern shrimp farming techniques are essentially identical around the world, Brazil, along with other tropical developing nations, is gaining market share because of low labor costs and a blistering sun that shines nearly every day of the year, creating ideal growing conditions.
 
Workers earn the minimum wage of only about $100 a month. Still, they are lucky to have jobs in one of the country's most backward regions. The farm now employs 90 workers, more than the single full-time worker who toiled in the coconut plantation that it replaced.
 
Costa Dourada is now the top breadwinner for the construction group that owns it. But the economic development brought by the farm, and the 904 other successful farms in Brazil, is getting the country into trouble. The number of shrimp farms in Brazil grew 33% last year, posing a growing threat for shrimpers in the U.S.
 
The Southern Shrimp Alliance, a group of shrimp boat owners in the southeastern U.S., has alleged that six countries leading the rise in output - Thailand, China, Vietnam, India, Ecuador and Brazil - are violating trade rules by selling the tasty crustacean below its true cost on the U.S. market. The U.S. shrimp lobby wants tariffs imposed ranging between 40% and 267%.
 
The U.S. International Trade Commission in February voted unanimously to recommend the Commerce Department consider imposing tariffs based on signs of unfair competition, or dumping. The Commerce Department is scheduled to rule on China and Vietnam on July 2 and the other four countries on July 28. Tariffs, if imposed, could take effect as early as October.
 
Itamar Rocha, the president of Brazil's shrimp producers association, denies the dumping allegations and points out that nearly all farms here, like Pacheco's, are privately financed and don't receive government subsidies.
 
"We sell at whatever price distributors in the U.S. offer. We take whatever price they give us," Rocha said.
 
Rocha, a stout fisheries engineer who cites shrimp statistics with the enthusiasm of an ardent baseball fan talking about trivia, says the U.S. shrimp group is mistakenly comparing the costs of using a new technology with those of an old one.
 
"You can't compare the low costs and high productivity of shrimp farming with the low productivity and high costs of using boats in the open ocean," he said.
 
Deborah Regan, spokeswoman for the Southern Shrimp Alliance, says the U.S. industry is losing jobs and money as a result of stiff competition from abroad and that some Asian shrimp farms are receiving unfair help from loans provided by the World Bank and U.S. AID. Regan's group estimates the value of U.S. shrimp catches fell by half to $560 million in 2002 from 2000.
 
Global prices are falling and pressuring U.S. shrimpers even as shrimp demand in the U.S. grows. An expanding Latino population with a predilection for seafood and aging consumers attracted by all-you-can-eat specials at chain restaurants fueled half a million tons of shrimp imports to the U.S. in 2003, 17.5% more than the previous year.
 
The U.S. Commerce Department hasn't indicated if it will rule in favor of U.S. shrimp boat operators.
 
"I wouldn't want to prejudge the case," Grant Aldonas, the Undersecretary of Commerce for international affairs, said in Sao Paulo in May. "But we don't have discretion ... we must enforce the rules" if there is evidence of unfair competition.
 
Brazilian shrimp producers are betting U.S. presidential elections in November and growing protectionist rhetoric will prompt the Commerce Department to impose tariffs. Still, Rocha hopes they will be largely symbolic.
 
He thinks the U.S. will be reluctant to impose big tariffs because Brazil co-leads, with the U.S., the talks for the proposed Free Trade Area of the Americas.
 
The 34-nation free trade zone, slated to take effect in 2005, has been hobbled by setbacks and shrimp tariffs would further hurt chances for a trade deal in the near-term, analysts say.
 
If it were to impose shrimp tariffs, the U.S. could also encounter trouble at the World Trade Organization, which recently declared U.S. cotton subsidies illegal.
 
In addition to Brazil, two of the other countries targeted in the complaint, namely China and India, are part of the G-20 group of developing nations pushing the WTO to more aggressively reduce agricultural trade protections.
 
Any shrimp tariffs imposed by the U.S. would likely be challenged by the developing nations at the WTO, though a filing there is still several years away.