February 15, 2020
It's not infinitely elastic: Aquaculture optimism vs. aqua feed reality
Market research firms paint expansive forecasts of flourishing aqua feed production and booming aquaculture growth. –But aqua feed growth trends clearly contradict official aquaculture statistics –implying that mainstream industry expectations need to be thoroughly revised.
By Eric J. Brooks
An eFeedLink Hot Topic
Aqua feed is a key input to the world's fastest-growing protein line –and the one with the murkiest, most error-prone production statistics. Market research studies on aqua feed and aquaculture vary widely in their estimates and assumptions –yet almost all arrive at the same conclusion: A longstanding, mainstream consensus of rapid, unstoppable market growth –Are their optimistic projections based on ground-level realities –or a "group think" reflection of yesterday's news?
Amid widely different estimates of its quantity, value and growth rate, it is becoming clear that neither aqua feed output –nor aquaculture– are growing as quickly as commonly assumed –nor are they capable of touching the high growth rates assumed in many professional market studies. An in-depth analysis of aqua feed production trends leaves one deeply skeptical of official aquaculture statistics and exaggerated industry projections.
On one hand, aggressive aqua feed output growth is clearly underway in some key emerging markets. One merely has to read about new aqua feed plant investments in fast-growing supplying nations such as Egypt (tilapia), Ecuador or India to know that the feed demand within certain aqua feed lines and production regions is aggressively expanding.
The underlying assumption of endless, elastic growth potential is implied by numerous aquaculture market studies. Most paint a bright picture of robust aqua feed demand growth but their estimates vary widely– in a manner that can occur when official statistics are inaccurate or contradict one another.
For example, among five market research firms surveyed by this article, estimates of 2019 world aqua feed revenues varied from US$42 billion to US$69 billion. The only metric that appears to widely agreed upon is that Cargill, ADM, Alltech, Purina, Nutreco and Ridley collectively produce approximately 40% of the world's aquafeed, with none of the above accounting for more than 12%.
Among firms and academics surveyed for this article, aqua feed revenue and volume growth estimates ranged from 4.6% to nearly 8%. This may indicate considerable variation in their methodology, statistical sources and assumptions used to measure aqua culture and its aqua feed supply chain.
For example, Mordor Intelligence estimates 2018 world aqua feed revenues at US$69 billion. Exceeding US$75 billion in 2019, it expects aqua feed revenue to grow 7.5% annually and exceed US$99 billion in 2023.
By comparison, Markets&Markets estimates aqua feed revenues estimated at US$47.3 billion in 2019 and projects them to reach USD 71.7 billion by 2025, implying 7.2% average annual growth during the forecast period.
Aqua feed revenue growth estimates given by Mordor and MarketsandMarkets imply that world aquaculture output will grow by close to 5% annually in the first half of the 2020s. If feed input costs rise 15%, their assumed aqua feed revenue growth still implies that aquaculture output will increase by at least 4.6% annually –but FAO statistics show that this has not happened since 2014.
Among more conservative forecasters, Verified Market Research valued world aqua feed production at US$39.34 billion in 2018, $42 billion in 2019. By expecting aqua feed revenues to grow 6.8% annually to US$71.04 billion by 2026, it implies that aquaculture production will grow by at least 4.9% annually for half a decade –or by 4.3% if feed inputs rise in price by 15% from current levels.
In its mid-range forecast, Future Market Insights estimated world aqua feed revenues at about US$48 billion in 2016 and US$57 billion in 2019. This is projected to increase by 5.9% annually, totaling nearly US$86 Billion by the end of 2027. Their figures imply that aquaculture output will expand 4.2% annually during the 2020s; or by 3.7% annually if the cost of feed inputs increases by 15%.
How do these optimistic forecasts compare to the way aquaculture has performed in recent years? from an FAO estimated 80.03 million tonnes in 2016, it stagnated at the 80 million tonnes level in 2017, before increasing 3.9% in both 2018 and 2019, to 83.2 and 86.4 million tonnes respectively.
--From our perspective, we consider Future Market Insight's aqua feed volume growth rate among the more realistic of the above studies. While their implied 3.7% to 4.2% annual aquaculture output growth implied is at the upper end of our own estimate for 2020-25, it is comparable to the industry's FAO estimated 3.9% annual growth rate for both 2018 and 2019.
Outside market research agencies, a more conservative and detailed story is painted both by Alltech Global Feed Survey figures, academics and stakeholders working in high-value aquaculture lines such as shrimp and salmon.
On one hand, in the decades prior to 2010, aqua feed output grew by more than 8% annually. On the other hand, Alltech's annual reports imply that aqua feed output's rapid growth momentum was broken in the early 2010s –and it never fully recovered.
Alltech determined that from 29.7 million tonnes in 2011, world aqua feed output jumped to 34.40 million tonnes in 2013 and peaked at 40.4 million tonnes in 2013. Thereafter, led by steep declines in Chinese and Thai aqua feed output, it plunged 12.2% in two years, bottoming out at 35.47 million tonnes in 2015.
This was mostly due to shrimp disease epidemics that devastated Chinese and Southeast Asian production of these value-added lines. It also coincides with a severe 30% drop in Chilean salmon production and the tapering off of Norway's once rapid salmon output growth.
Thereafter, world aqua feed output slowly recovered to 40 million tonnes in 2018 and 41 million tonnes in 2019, the latter finally exceeding its previous 2012 high. Recovery was slow and held back by disease outbreaks and production losses endured by Chilean and Norwegian salmon farms from 2015 onwards.
This coincided with failed Thai and Chinese shrimp production recoveries. The latter's feed production fell from 23 million tonnes in 2013 to 15.6 million tonnes in 2017 –and was still languishing at 16.5 million tonnes in 2019. Shrimp and salmon spearheaded the aqua feed production boom. Now they held back its recovery.
Based on Alltech's Global Feed Survey, aqua feed output grew 3.8% annually from 2011 through 2015 inclusive and 4.4% yearly from 2015 through 2019 –and do note: This is far below the 5%+ annual aqua feed growth assumed for the 2020s in many private industry reports.
Moreover, Alltech's figures appear to agree with FAO statistics, which show a sharp slowdown in world aquaculture output. Based on FAO statistics, aquaculture's growth rate decelerated from 6.1% in 2006-11 inclusive to 5.3% in the years 2011-15; and 3.2% from 2015 through 2019 inclusive. This includes two years of flat output at 80 million tonnes during 2016-17, followed by two consecutive years of 3.9% annual growth.
Alltech's figures resemble most closely those of some academia-based aquaculture researchers. Writing in the January 2020 issue of Aquafeed magazine, Albert G.J. Tacon, a senior researcher at the University of Hawaii's Institute of Marine Biology and technical director of Aquatic Farms Ltd has aqua feed output numbers that differ from those of Alltech –but they are loaded with similar implications.
Using FAO aquaculture production data, Tacon estimates world aqua feed production output of 51.23 million tonnes in 2017 growing 4.7% annually through the late 2010s; to 56.12 million tonnes in 2019 and 58.85 million tonnes this year. He then expects it to continue growing 4.6% annually, totaling 73.15 million tonnes by 2025.
On one hand, Tacon's 4.7% annual aqua feed growth rate is in line with our own conservative expectations: Aqua feed output usually grows 30% to 40% faster than aquaculture production.
Hence, Tacon's figures imply that in the late 2010s, world aquaculture output increased at a 3.4% to 3.6% annual rate –and that's respectably close to the 3.2% average annual aquaculture output growth seen in 2015-19 FAO production figures. By comparison, Alltech's 2015-19 4.4% aqua feed output growth implies 3.1% to 3.4% annual growth.
On the other hand, while Alltech and Tacon's aqua feed output growth estimates both agree with the FAO's 3%+ aquaculture expansion rate over this time, their aqua feed production figures are vastly different: Tacon's 56.1 million tonnes global aqua feed estimate for 2019 is far higher than Alltech's 41 million tonne estimate for the same year.
What can account for the way they arrived at similar aqua feed production growth rates but near-identical aquaculture production figures? The answer probably has something to do with FAO aquaculture production statistics, which are known to be wildly inaccurate for certain species, especially shrimp.
Anyone who regularly attends aquaculture conferences is aware of the following: Shrimp industry stakeholders know that China and Thailand suffered calamitous 50%+ drops in their post-2011 shrimp production.
--But official FAO statistics show China's shrimp production 'rising' from 1.32 million tonnes in 2012 to 1.75 million tonnes in 2017. –On the other hand, industry experts concur that China's shrimp output plunged to 650,000 tonnes by 2013 and has fluctuated in the 500,000 to 625,000-tonnes range ever since.
Similarly, Thailand saw yearly shrimp production fall from 640,00 tonnes in 2011 into the 230,000 to 300,000-tonne range ever since –but FAO statistics still show 2017 production of 344,000 tonnes –versus the 290,000-tonne figure recorded by the Thai Shrimp Association.
Moreover, FAO statistics are commonly believed to exaggerate the output of other farmed species, both in China (which produces 55% of the world's farmed seafood) and other nations with poor statistical reporting systems.
With China accounting for 55% of world farmed seafood production, its nose-diving production of shrimp and several other species accounted for the large drop in world aqua feed production which appeared in Alltech's world aqua feed production estimates after 2014.
Bloated FAO production estimates also imply that the 3.2% average annual increase in post-2015 world aquaculture output may actually be closer to 3%.
As researchers such as Tacon base their aqua feed production estimates on excessive FAO aquaculture statistics, it may cause them to over-estimate the volume of world aqua feed output.
At the same time, to be fair, Alltech's survey-based world aqua feed output estimates, Tacon's FAO aquaculture derived figures and the FAO's own aquaculture statistics do an equally impressive job of catching one trend that many market researchers overlook: The post-2010 reduction in aquaculture's long-term growth rate from over 7% to somewhere under 4%.
From this, we can take away several important conclusions.
First, a lack of universally consistent, reliable aquaculture statistics may in large part account for those wide variations in estimated aqua feed and aquaculture growth projections seen in many market intelligence reports.
Second, in the absence of accurate, universally consistent aquaculture statistics, ground level, report-based aqua feed production statistics are probably the best way of evaluating the underlying trend of aquaculture production –be it that of a single species, a specific country, or the whole world. We must base aquaculture production estimates on actual aqua feed production –and not compute aqua feed production from aquaculture production statistics.
Third, given today's flat feed prices and aquaculture output growing by 3.0% to 3.5% annually, it may be impossible for world aqua feed revenues to grow at the 6.0% to 7.5% annual rates that many market intelligence reports assume.
Fourth, the output of high value-added species such as shrimp and tilapia is facing intractable disease outbreaks, stocking density constraints and dwindling frontier pond acreage. Hence, it is difficult to see how yearly output of aquaculture and aqua feed can expand by 4% and 5.5% respectively in the 2020s.
Five –and most important of all: We need to follow the aquafeed –while abandoning outdated group think assumptions of infinitely elastic aquaculture expansion.
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