June 22, 2011

 

Thai Union Frozen works with local farmers as shrimp prices rise

 

 

Thai Union Frozen Products (TUF) has responded to the recent rise in global shrimp prices by working more closely with local shrimp importers and exporters.

 

Since importers believe that the trend in shrimp prices is not one-way, they have changed their placement of orders with exporters in three ways - weekly for monthly shipment, medium term for three-six-month shipment, and long-term for six-12-month export. However, the maximum shipment period is as long as three months due to customers' risk management plans.

 

TUF often holds talks with customers not only to take orders but also to update them on the latest conditions. This benefits both the customers and the company amid the swift changes in market circumstances.

 

"We have to keep in close contact with customers as we have to undertake shorter shipment timeframes and exporters have to adjust," Rittirong Boonmechote, managing director of the company, said.

 

Farmers have also changed their practices. They no long prefer working on contracts but want payment in cash in line with spot prices. Contract farming with a price committed in the future has not satisfied farmers as they get stuck with a price 30-40% lower than the market.

 

TUF has had to change from contract farming to cash payment to ensure its supply of shrimp. The company is a fully-integrated shrimp business so it has to grow together with farmers both in research and development as well as marketing management.

 

"We have cancelled contract prices and are doing a favour to farmers by paying them in cash," he said.

 

Shrimp prices this year have jumped by 40-50% from last year due mainly to the supply shortage.

 

The two important risk factors facing the Thai shrimp business now are fluctuating exchange rates and skyrocketing raw material costs. To cope with the problems, the company has to purchase foreign-exchange forward contracts for all export orders, but the sharply rising cost of raw materials is hard to manage and calls for export-price commitment.

 

TUF has adjusted export prices almost every month due to unpredictable raw- material costs, which increases on a daily basis.

 

"The shrimp business is about really fresh food and we can say it is a chilled, not a frozen product as every process is done day-to-day. We have to ensure that every process will achieve cost and energy savings, boost productivity, and finally fight against rising costs," he said.

 

Farming management problems and a fast-spreading disease in shrimp exporting countries, including Brazil, Indonesia, and Vietnam, have led to a world shortage that still remains at 50,000-60,000 tonnes now.

 

As shrimp farming areas are limited and seafood supply is dwindling, Thailand should concentrate on technology development and farm management to improve the feed-conversion ratio and survival ratio of shrimp farms to strengthen the country's export competitiveness, he added.