August 11, 2011
US shrimp industry faces unprecedented market challenges
Market conditions in 2011 are presenting unprecedented challenges for the US shrimp industry, according to the American Shrimp Processors Association.
While the unfortunate events occurring prior to the BP Oil Spill caused supply side issues and temporary pricing pressures, the post-spill environment presents uncharacteristic demand side issues resulting from unfounded consumer fears over the safety of Gulf shrimp. The net result is a 2011 shrimp season marred by greater lost profits than the oil-spill plagued 2010 season.
Overall gulf shrimp landings in 2011 appear strong but a closer look reveals a shortfall in certain sizes. Prices have been driven down by shrinking demand and domestic distributors paying less in order to regain market share and customers lost in the aftermath of the spill. The convergence of these issues has contracted profit margins for the entire supply chain, including boats, transporters, processors, distributors, and retailers. Depressed margins will continue as long as the demand side issues remain. "The market is only as strong as its weakest link so when one business is dropping prices and margins, the entire market must follow in order to move product," noted Eddy Hayes, counsel to the American Shrimp Processors Association.
The pricing structure for the 2011 season is completely unprecedented - at certain sizes imports are actually more expensive than domestic product. Before 2010, domestic shrimp would normally command a higher price as it is regarded as a premium product. Tom Guinan Jr., CFA, Executive Vice President of Pestcoe, Schwed & Associates, who serves as an economic consultant to the domestic shrimp industry, remarked that the "2011 shrimp market is completely backwards" and "problems will persist as long as domestic product continues to compete with one arm tied behind its back." Domestic processors are being forced to sell their product in a downward spiralling market without sufficient capital to maintain operations in this extremely low margin market.
