Ecuadorian shrimp: Slower growth, Asian market frontiers and a fading threat from EMS?
By Eric J. BROOKS
- With the threat of EMS restricting stocking densities, output growth levelled off but Chinese demand caused exports to rise 17% to 327,000 tonnes
- Asia has taken over from the United States as its main export market
- Exports to China are partly offset by market share losses in Vietnam and America
- Ecuador now faces the same problematic stocking density vs disease trade-off as mature producers
- Due to scientific progress made in understanding EMS, Ecuadorian shrimp's production plateau may be shorter lived than anticipated
With less than 2% of its production consumed domestically, Ecuador's export-oriented shrimp producers account for slightly less than half the 733,000 tonnes of shrimp produced in Latin America. Having quadrupled exports from a USDA estimate of 68,000 tonnes in 2004 to 280,000 tonnes in 2014, everyone expected Ecuadorian shrimp shipments to slow down in 2015, but thy didn't. After rising at a 16% annual rate over the previous ten years, everything from an Asia's post-EMS shrimp output recovery to China's recession was expected to put the brakes on shrimp exports. Instead, they greatly exceeded industry expectations, which projected export growth from 280,000 tonnes to around 300,000 tonnes. Exports grew by 17.9% to 330,000 tonnes, as typhoons, EMS outbreaks and El Nino-degraded pond quality impacted East Asian shrimp output, creating market openings for Ecuador.
Powered by exponential growth in import demand from China and Vietnam, Asia went from buying 2% of shrimp exports went to Asia five years ago to 44% in 2015. Increasing by nearly 50 times in five years, Ecuador's shrimp export volume to Asia amounted to 2,000 tonnes in 2009, 29,100 tonnes by 2012, 50,000 tonnes in 2013 and 144,000 tonnes last year.
On the other hand, the United States, which formerly drove the industry's growth is now a dim spot in the Ecuadorian shrimp trade. With lower cost Asian shrimp taking market share, exports to America fell 11.6%, from 88,859 tonnes in 2014 to 78,500 in 2015.
This was compounded by other factors cutting Ecuador's US market share. Because of its acutely short domestic shrimp supplies, Chinese buyers were paying a significant premium over the market price, meaning that Ecuador first sells as much shrimp as possible to China. At times, it would only offer what China did not want to buy to US and EU buyers, constraining the volume of shrimp available to them.
Another reason is the relatively small size of the shrimp that Ecuador exports. America prefers large-size shrimp whereas China prefers smaller size shrimp. Moreover, whereas America buys smaller sized shrimp at a discount to the average market rate, China pays an above-market price premium for them. To get the highest export value possible, Ecuadorian producers naturally shipped as much of their shrimp as possible to China rather than America.
Finally, Ecuador prefers to export head-on shrimp; something that European and Chinese buyers do not mind, whereas US buyers prefer the head and tail to be removed. This matters to Ecuador, as its high labor costs makes removing shrimp heads and tails very expensive. Such processing worsens its cost disadvantage versus lower wage exporters such as India or Indonesia.
Moreover, because Ecuador uses the US dollar as its currency, the fall of Asian currencies against the greenback over the past two years has worsened its cost disadvantage in processed shrimp lines. In fact, Ecuador is the only top shrimp exporter that saw its exports to the US decrease last year. As a result, from absorbing nearly half of Ecuadorian shrimp exports a decade ago, America's 23.7% market share has fallen below that of Europe's which bought 29.4% of Ecuador's shrimp exports.
However, with China gladly purchasing shrimp with neither the head or tail removed, overall exports enjoyed a sharp increase. Shrimp exports to China, which did not even total 10,000 tonnes prior to 2013, jumped to 14,959 tonnes in 2014, then doubled to 27,272 tonnes last year. In the process, shrimp shipments to China went from accounting for 4% of total exports in 2013 to 8.3% last year. China also went from absorbing 11.7% of Ecuador's shrimp exports to Asia in 2014 to 19% in 2015; and this percentage seems destined to rise further.
Despite the impressive production and trade numbers, the past year has seen several clouds descend over the industry. Due to crashing world shrimp prices, the impressive 16.9% increase in shipment volumes was counterbalanced by an 8%, US$200 million drop in the value of exports, from US$2.5 billion in 2014 to US$2.3 billion last year.
Moreover, strong export growth in China is being partly offset by its Vietnamese market losses, as Vietnam still bought more than twice as much Ecuadorian shrimp as China. From 5,000 tonnes in 2011, shrimp exports to Vietnam peaked at a USDA estimated 74,000 tonnes in 2014 before lower cost Indian shrimp made them fall back to a little over 60,000 tonnes in 2015.
On one hand, continued aggressive growth in shipments to China and other parts of Asia will offset Vietnamese market losses. Thus, eFeedLink expects that for 2016, Ecuador's exports to Asia will grow by 7.7% or 11,000 tonnes, and total approximately 155,000 tonnes.
This will offset its combined export volume to America and the EU, which will remain stagnant for a third consecutive year. Moreover, with output growth flattening out, the quantity available for export will also be constrained, with the latter expected to grow by about 2.5% or 8,000 tonnes, to 335,000 tonnes. For as Ecuador's shrimp sector approaches maturity, it starts to face trade-offs between stocking densities, productivity and disease outbreaks that constrain more established producers.
After wreaking havoc among Asian shrimp growers, early 2015 saw EMS break out in Mexico and then spread southwards into Panama and Honduras. With outbreaks clearly spreading southwards in the direction of South America, the industry thought it was a matter of time before Ecuadorian shrimp would be afflicted –something both the government and industry leaders deny ever happened.
On the other hand, ground level sources reported in mid-year production growth suddenly tapering off, as the country's already low stocking densities were lowered further. Lower shrimp pond stocking densities are of course, one of the first lines of defense when attempting to recover from EMS outbreaks.
The ongoing discrepancy between Ecuador's 'official' EMS-free status and ground level industry talk was caught in a mid-July Undercurrent News article which stated, "According to the official version, there is no EMS in Ecuador, as viral and bacterial tests on shrimp samples have recently showed negative results, the National Fisheries Institute (INP) said. However, talk circulates that EMS is behind shrimp mortalities in Ecuador, which has pushed farmers to drop [stocking] densities."
Several weeks later, one anonymous producer was quote as stating, "Shrimp players do not want to oppose the government official version as some farmers depend on bank loans, and prefer to remain silent on the issue."Ignoring the coincident, sharp mid-2015 rise in shrimp mortality rates, Ecuador's National Chamber of Aquaculture (CNA) claims that mid-2015's sudden production downturn was motivated by last year's downturn in shrimp prices. According to CNA executive chairman Jose A. Camposanos, "They tried to lower costs because prices were not as good for farming more intensively."
With producers keeping their eye on the bottom line, Camposanos believes that bottomed out shrimp prices will translate into flat production, "For this year, I don't think we will repeat a 18% exports increase, but the stable price trend seen in the last months, motivates producers to maintain current production levels."
This agrees with the shrimp panel at January's Global Seafood Market Conference in Miami, USA, which projected Ecuador's shrimp output to stay flat this year.
However, with less than 5,000 tonnes consumed domestically, the country can find enough additional supply to boost 2016 exports by 5,000 to 10,000 tonnes. Alongside flattening output growth, the much lower 1.5% to 3.0% resulting export rise also reflects heightened Asian competition, as producers such as Thailand and Vietnam slowly rebound from their EMS-induced production depressions.
Despite such medium term challenges, the future for Ecuadorian shrimp remains bright. Even if EMS is forcing producers to curtail stocking densities, this restriction on productivity and output may soon be overcome.
As reported in my previous aquaculture newsletter article ("A recovery path for the world shrimp market?") , research is pointing to EMS being the by-product of in-breeding weakened shrimp immunity. If this is the case, Ecuadorian producers may be able to boost stocking densities and mitigate EMS risk by merely safeguarding the genetic integrity of their breeding stock. Should this proposed means of controlling EMS be successful, producers are only a higher shrimp price signal away from re-accelerating their output growth.
The 8 to 14 larvae per square meter stocking density practiced by a USDA estimated 60% of Ecuadorian shrimp farms are but a fraction of the levels seen in more advanced producers such as China or Thailand. It may in fact be the lowest stocking density of any major aquaculture producer in the world.
On one hand, this gives Ecuador with considerable latitude to multiply its shrimp output over the next several decades. On the other hand, the low stocking densities, while restricting output, can be used to give Ecuador a reputation for sustainable shrimp farming in the eyes of consumers.
According Sandro Coglitore, CEO of shrimp producer Omarsa, "All growth we have reached has been the result of a very sustainable production model, using probiotics instead of antibiotics and taking care of environment." Coglitore adds that, "We no produce double the output than before with half the input of larvae and feed."
Such measures, alongside keeping unit costs low, also help mitigate the risk of disease outbreaks. More importantly, to CNA's Camposanos, "The markets know that Ecuadorian shrimp is a synonym for sustainability." –And in the future, Ecuador's status as a producer that practices farming in a non-toxic, sustainable manner could even enable it to gain market share back, as consumers in the west become increasingly concerned about the way their farmed seafood is raised.
While its sustainable aquaculture model gives Ecuador longrun marketing strength in high-end markets, it is also able to import feed inputs such as soymeal and wheat duty-free from the US at a constant US dollar price. This leaves Ecuador well positioned, particularly when feed crop prices rise or currencies fluctuate.
It is perhaps with all this mind that in late 2015, Cargill announced it has formed a joint venture with local mill operator Naturisa to build a US$30 million shrimp feed mill with the capacity to produce 130,000 tonnes of shrimp feed when it becomes fully operational in 2017.
Being the most mature producer on a continent whose aquaculture sector is undeveloped, Ecuador will not always be able to dominate South America's shrimp production like it does today. Even so, in everything from its sustainable approach to its feed cost security, it is preparing for the day when, like Thailand, it will have to go upmarket versus its regional, Latin American competitors. For now, it can leverage its low stocking densities and fast rising Asian demand into another half decade of aggressive, export-led growth.
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