November 12, 2017
Vietnam: A rising aquaculture star at cross roads
A large coastline, untapped resources and successful exporter confronted by disease, trade barriers and food safety issues. The early 2000s hyper-boom is over but growth can be sustained in the 3% to 5% range -if an intelligent approach is taken.
By Eric J. Brooks
An eFeedLink Hot Topic
With 3,270km of coastline and an average year-round water temperature near 25C, Vietnam has been and remains a promising aquaculture frontier. Although it is very immature and remains challenged by everything from disease outbreaks to financing problems, the key ingredients for a rapid, sustained longterm expansion are there: Fish farm wages are significantly lower than in China and only 1.0 of the nation's 1.7 million acres aquaculture-friendly water acreage has been developed.
Hence, it is not surprising that in everything from finfish to crustaceans, Vietnam has one of the world's fastest growing aquaculture sectors in the world. According to a joint study by Gembloux Agro-Biotech and the Universite de Liege ("Vietnam's Fisheries and Aquaculture Developments Policy: Are Exports Performance Targets Sustainable?", ISSAS International Conference, 5 Nov 2016), the proportion of Vietnamese seafood derived from aquaculture has increased from 25% of output or 0.4 million tonnes 1995 to an estimated 3.2 million tonnes and 52% of production in 2015.
2017's aquaculture output will total approximately 3.7 million tonnes and the government expects it to rise at 7.1% pace through 2020, when it is projected to exceed 4.55 million tonnes. It thereafter sees farmed seafood output growing at a 3.3% rate through 2030, when it will total 6.3 million tonnes. Behind this slowdown is a deceleration of high-value species that have spear-headed the industry's development.
Export-driven, value-added species such as shrimp, tilapia and pangasius now account for slightly over 60% of aquaculture production, compared to a mere 23% of output 20 years ago. While traditional, domestically consumed species such as carp still make up two-fifths of output, their share is falling and they account for even less of the industry's revenues.
Indeed, there is almost an inverse relationship between quantity and value. For example, Vietnam's fishery exports totaled $6.7 billion in 2015. Out of this sum, according to the Vietnam Association of Seafood Exporters and Processors (VASEP), shrimp made up less than 17% of output volume, but accounted for nearly 50% of total seafood exports by revenue. Pangasius, by comparison, made up approximately 35% of aquaculture output but accounted for a smaller 25% (but still significant) share of total seafood export revenues.
All these trends have extended themselves into 2017, for which VASEP projects over US$8.0 billion of seafood exports, for a rise of 15.9% over two years. Shrimp will account for US$3.7 billion or 46% of export revenues. Pangasius will make up another 21% of exports and are projected to total US$1.7 billion in 2017.
Collectively, shrimp, tilapia, pangasius and other catfish species make up 56% of aquaculture output and less than a third of its total seafood production -while generating close to 75% of aquaculture export revenues.
The uneven relationship between seafood production and value also extends to Vietnamese aquaculture's production geography, with some regions far more productive than others. While aquaculture production occurs throughout the country, the southern coast's Mekong River Delta accounts for approximately 70% of production volume.
By comparison, the northern coast's Red River delta dominated aquaculture accounts for another 15% of output. Generally, the north has the smallest share of output, with domestically consumed freshwater species such as carp grown in ponds and unused rice paddies, as well as some marine cage cultivation of cooler water crustaceans such as crayfish and lobster.
Central Vietnam is known for the farming of tiger shrimp along with cage cultivation of lobsters and various finfish. The south's Mekong-delta centered output cultivation encompasses a wide range of species, particularly export-oriented ones like white leg shrimp, tilapia and catfish type species such as tra basa or pangasius.
Powered by both strong export growth and a rapidly growing domestic economy, Ministry of Agriculture and Rural Development (MARD) statistics indicated that from 2005 through 2015 inclusive, Vietnam's aquaculture production expanded at an average annual rate of 8.4%.
Led by pangasius and to a lesser extent tilapia, Vietnam is a major supplier of exported white fish. Nevertheless, this seafood line's export destinations are shifting sharply eastwards -and exporting is becoming increasingly hard to do. While VASEP expects US$952 million of H2 2017 pangasius exports to be 3% higher the US$924 million in H2 2016, it will ship 5% less pangasius to Europe and 10% to 15% less to the United States by value.
On one hand, hemmed in on one side by competition from cheap tilapia from places like Egypt and trade protectionism disguised as food safety concerns on the other side, Vietnamese pangasius's share of the West's white fish market is in decline. On the other hand, it expects the quantity and value of pangasius exports to China to rise by more than 20%.
In western markets, pangasius has come under increasing attack as a 'dirty' or 'unhealthy' fish from activists, and been subject to increasingly tight customs inspections and rising trade barriers. Vietnam is trying to get around this by boosting its exports of fellow white fish, tilapia. Aside from being a comparable white fish, it fetches several times pangasius's price. Moreover, Vietnamese tilapia is well known for having a quality advantage over its Chinese rival. It fetches a higher price on the world market and is even preferred in China itself.
Alongside Vietnam's role as a top shrimp exporter, it is also an important smuggling entrepot, satisfying China's burgeoning demand for crustaceans. On one hand, with two-thirds of Vietnam's shrimp production accounted for by the large tiger shrimp variety, Vietnam has insufficient domestic supplies of Pacific white leg shrimp to satisfy Chinese demand for this species.
On the other hand, the National Fisheries Institute estimates that Vietnam's shrimp 'imports' have skyrocketed from 50,0000 tonnes in 2012 to 270,000 tonnes in 2016 and approximately 330,000 tonnes this year. Almost all this shrimp comes from either Ecuador or India -who use Vietnamese shrimp's duty-free status to 're-export' it into China. The role Vietnam plays as an export platform for Indian and Ecuadorian shrimp en route to China helps explain why a top five world shrimp exporter that ships over 250,000 tonnes of shrimp can appear (statistically speaking) as a net importer.
Moreover, both as a third party entrepot and in its exports, Vietnam's links with China are part of a greater overall trend: With the west putting up trade barriers to shrimp and white fish and Asian markets growing more rapidly, Vietnam finds itself exporting more of its aquaculture products to neighboring Asian countries.
Despite the rising importance of East Asian markets, a combination of shrimp diseases, trade restrictions, and financing issues have impacted the growth rate of various aquaculture lines. Pangasius production, for example, grew 35.7% in the ten years to 2007, 3.9% per annum from 2007 to 2017 inclusive -but by only 1.1% a year in the five years since 2012.
Bad publicity about pangasius's flesh quality and food safety has been the subject of documentaries major export markets ranging from America to France and Spain. The negative press coincided with world oversupply of white fish, causing the West's once fast-growing pangasius demand to stagnate. Over the last five years, this made pangasius prices and returns fall to levels that made it uneconomical to expand production.
While pangasius has been cornered by bad press, Vietnamese shrimp farms have -like those of their southeast Asian rivals -been unable to achieve stocking densities taken for granted in the early 2010s. Attempting to push Pacific white leg shrimp production back to previous highs has resulted in devastating disease outbreaks. When the old stocking densities were achieved, a repeat of pangasius marketing problems emerged: The resulting shrimp frequently had antibiotic levels high enough to have shrimp it banned or become the subject of damning food safety articles.
To get around these issues, Vietnam has resorted to the increasing cultivation of tiger shrimp, which while having inferior feed conversion ratios, also resists some of the diseases plaguing white leg shrimp farms. Moreover, with former top supplier India phasing out tiger shrimp production from many of its ponds, Vietnam successfully filled resulting world market supply vacuum while enjoying record high prices for this larger sized shrimp species.
Despite undertaking these steps, average annual shrimp output growth decelerated from 17.5% in 1997-2007 to 3.9% in 2007 through 2017 -though it did rebound to an average 5.4% annual expansion rate in the five years since 2012 after the country started relying more heavily on tiger shrimp.
Even tilapia, which has been touted as a growth driver to replace pangasius has a mixed record. On one hand, from almost no production at all from 1997 to 2007, tilapia production expanded at an average 18.5% annual pace from 2007 through 2014. This mirrored similar rapid growth in pangasius production a decade earlier.
On the other hand, tilapia has only expanded at a 3.2% annual pace since 2012 -though this too is destined to change. With the government determined to push tilapia output and exports, production is supposed to rise by over 10% annually over the next three years, reaching approximately 300,000 tonnes by 2020.
Another factor in Vietnamese aquaculture's visible deceleration is financing problems: These becomes more important as the industry's expanding scale and technological sophistication make it more capital-intensive. With Vietnamese banks charging fish farms up to 30% interest to finance anything from acquiring new ponds to fingerlings, the country's financial sector is doing its aquaculture growers no favors. Perhaps the country's state-regulated banks should take the lead, providing far lower financing charges to growers who invest in quality-driven operations than in cost-centered ones, as the latter have run into stocking density issues in one East Asian country after another.
But there's more at work than merely a shortage of funds. As the accompanying graphs demonstrate, one of the world's most promising aquaculture sector has reached a key inflection point. Outside of Vietnam, foreign consumers and importing countries are subjecting Vietnamese seafood to far more stringent quality demands and food safety-cum-trade-protectionism than ever before.
Within Vietnam itself, there is both reassurance and a challenge. Its domestic seafood demand continues to grow at a healthy, rapid pace and will continue doing so for at least several decades. Should supply be insufficient, there is around 700,000 acres of untapped pond and coastal acreage, waiting to be developed. The question then, becomes one of industry efficiency and competitiveness.
Will it use its untapped pond and coastal acreage to merely replace disease-prone, constantly overstocked and pathogen-filled ponds as China did -until it ran out of frontier areas? Or will it throw away its current, cost-based production model in favor of a Norwegian style approach, which emphasizes productivity and quality over cost containment? The answer is in Vietnam's hands, and its seafood growers face key decisions in the last few years of our current decade.
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