June 11, 2018
Aquaculture's high wire act: Rising production, stable costs defy tight input supplies
Output keeps rising amid flat aqua feed production, shrinking fishmeal supplies, and feed industry innovation.
By Eric J. Brooks
An eFeedLink Hot Tpoic
Ten years ago aquaculture farmers wondered if there's life after fishmeal: Supplies of this vital input kept declining and its cost was skyrocketing. Even so, the last five years have seen an interesting outcome: Despite a two-decade spanning output collapse in fishmeal's two main exporters and a tripling of farmed seafood output, feed costs have moderated and seafood growers are surviving on a fraction of the fishmeal they once needed.

Fishmeal prices while still high appear to have at least plateaued, with a tendency to downtrend. Ever since some grades peaked above US$2,000/tonne in 2010 and again in 2012, three consecutive price cycles have seen each market top and bottom slightly lower than the previous one.

Clearly, this essential protein meal is no longer on a longterm hyperinflationary path In 2008, a Rabobank report predicted that over the next decade, fishmeal would increase in price by an average of 7% annually. Its forecast implied that that fishmeal (which cost an average of US$1,100/tonne in 2008) should cost US$2,200/tonne by 2018 -but this has not been the case.

At slightly under US$1,500/tonne at the time of publication, fishmeal costs nearly a third less than what many market observers expected. How did this happen? Can we expect the industry's good fortune to continue?

Based on IMF statistics, from May 2000 through May 2012, fishmeal rose by an average of 13.8% annually. This was nearly double the rate of increase that had been predicted and it repeatedly broke its own price records. On the other hand, from May 2012 through May 2018 inclusive, fishmeal's cost fell at an average 2.8% annual rate, far below the 7% annual price increase that had been expected.

Other metrics also imply that the long rise in fishmeal prices has now abated. During fishmeal's hyperinflationary 2005 to 2013 era, the fishmeal:soymeal price ratio at times jumped into the 5.0 to 7.0 range. For most of the six years since hitting its all-time record highs in 2012, this ratio has settled into the upper end of its traditional 2.0 to 4.0 range.

Interestingly, the fall in fishmeal prices did not occur because of an improvement in anchovy catches or fishmeal production but due to lower demand. Based on USDA figures, from a peak of over 7 million tonnes in 1993-94, world fishmeal output fell to 5.8 million tonnes by 2000-01, 5.55 million tonnes by 2010-11. It fell 37% from its peak to 4.5 million tonnes in 2015-16, before leveling out at 4.8 million tonnes during 2017-18 and is expected to stay at that level in the year to come.

Moreover, this supply shrinkage mostly occurred in the top fishmeal exporting nations: While world production fell by 36% from peak levels, output in the top 4 producers (which supply nearly 2/3rd of world fishmeal exports) fell by a steeper 53%, from 4.0 million tonnes in 1993-94 to 1.88 million tonnes in 2011-12. Production seems to have finally bottomed out at 1.77 million tonnes in 2017-18, with the USDA expecting a similar volume of output from top four producers this year.

Production and exports fell at a particularly steep pace in Peru and Chile, the top two exporters. After much overfishing and several El Ninos, Peru's exports fell 59% from 2.2 million tonnes in 1993-94 to 1.35 million by 2011-12 and a USDA estimated 0.9 million tonnes.

Partly due to rising domestic aquaculture production, partly due to overfishing, Chilean exports virtually collapsed. They fell by a whopping 85%, from 1.325 million tonnes in 1994-95 to 0.333 million tonnes in 2010-11 and 0.195 million tonnes in the current marketing year.

Chile's fishmeal output collapse allowed Vietnam to assume the role of number two world exporter, this was hardly good news for aquaculture producers. On one hand, Vietnam's fishmeal production has grown exponentially, rising from only 60,000 tonnes in the mid-1990s to a USDA estimated 0.45 million tonnes in 2017-18 and a projected 0.47 million tonnes next year. Over this period, exports increased ten-fold, from less than 0.02 million tonnes in the late 1990s to 0.2 million tonnes in 2017-18.

On the other hand, a 200,000-tonne increase in Vietnam's fishmeal exports does not come close to offsetting a decline of 1.3 million tonnes of Peruvian exports and 1.1 million tonnes of Chilean shipments over the past 24 years.
Curiously, the world market has 500,000 tonnes less fishmeal in 2017-18 than it did five years earlier and aquaculture output grew 5% yearly throughout this time. -Yet, fishmeal actually costs 25% to 30% less today than five years ago. How did prices of this input profoundly soften despite a steep supply decline coinciding with rapid aquaculture expansion?

The answer can be found in a counter-intuitive, still evolving relationship between aquaculture production, aqua feed production, and fishmeal supplies. Common sense assumes that as the number of farmed fish increase, more feed and fishmeal are required -but this has not been true since the turn of the decade.

From 2011 through 2017, aquaculture output increased at an FAO estimated 5% annual rate while exports from top four fishmeal suppliers fell by 6% annually. Most curious of all, aqua feed output was 7.7% lower in 2017 than it was in 2013, even though aquaculture output increased 18% over this time.

Clearly, for aquaculture output to continue increasing strongly in the face of flat aqua feed production, the overall quality of non-fishmeal inputs must have risen significantly. With far more fish being raised than ever before on far less per capita availability of fishmeal, this points to huge reformulations and improvements in aqua feed quality.

It also suggests two reasons why fishmeal prices softened after 2012 despite dwindling supplies. The first is the steady substitution of fishmeal with alternate feed sources. That mainly consists of soymeal within livestock lines such as pork and poultry, along with protein meal substitutes based on items ranging from meat-and-bone meal to yeast or algae-based inputs. They were the first to minimize fishmeal in feed rations when prices skyrocketed.

They were followed by declining fishmeal ration levels in species ranging from shrimp to salmon. The latter has gone from 55% fishmeal ration levels in the early 1990s to near 10% today. A similar reduction in fishmeal inclusion rates occurred in species ranging from shrimp to sea bass. In aquaculture's case, however, much of the substitution away from fishmeal occurred after 2010.
That is not merely because fishmeal had repeatedly broken new records by then: First, it took far more time to design aqua feed that was sufficiently nutritious digestible without fishmeal as it did livestock feed.

Second, removing fishmeal from livestock feed required the re-engineering of feed for a handful of livestock species. For aqua feed, however, substitute alternative feeds, protein supplements and enzymes had to be carefully configured for each of the countless seafood species whose aqua feed once contained significant quantities of fishmeal.

Another reason for the past five years of softening fishmeal prices is aqua feed production itself: After growing at a near 10% pace through the 1990s and through 2010, aqua feed's output has undergone a shocking stagnation. According to Alltech's Global Feed Survey, world aqua feed production has been stuck in the 35 to 40 million tonne range since 2012.

Moreover, carnivorous species that are heavy fishmeal consumers like salmon played a large role in this topping out of world aqua feed production, as did lines high volume, value-added lines like shrimp. Due to increasingly difficult to control disease outbreaks, the output growth of both shrimp and salmon decelerated and leveled out in the years following 2012.

Salmon feed, for example, saw its fishmeal inclusion rate fall from 55% in the early 1990s to around 10% today.
Moreover in a large number of major seafood exporting countries including China, Thailand and Norway, the production of shrimp feed and salmon feed fell sharply, and never rose above previous highs.

Hence, with aqua feed production staying flat for most of the last five years and the inclusion rates of fishmeal inside many aqua feed lines themselves plunging, demand for fishmeal fell even faster than its supply.

Even so, with world aquaculture having jumped from 30 million tonnes in 1993-94 (when fishmeal output was 7 million tonnes) to around 85 million tonnes in 2018 (when fishmeal output totals 4.8 million tonnes), the question is 'can prices stay under control?'

The answer is good over the near term but less certain after 2020. At this time, optimal East Pacific sea surface temperatures have induced a rebound in Peru's anchovy catch. Barring a market upset, this means that seafood growers can enjoy fishmeal prices in the US$1,100/tonne to US$1,300/tonne range for the next year.

Beyond that, a bigger question looms: Aqua feed output has stayed level for most of this decade. However, with the output of species such as salmon and shrimp poised to resume sustained growth, it is increasingly likely that world aqua feed production will soon break out of its 40 million tonne a year ceiling and resume its previous rapid, consistent growth.

Beyond 2020, can aqua feed makers continue reducing fishmeal inclusion rates without creating problems relating to fish health, disease outbreaks, protein quality or stocking densities? Can they do it fast enough so that world aqua feed production can keep growing without causing the cost of fishmeal to enter a new round of inflation? Only time will tell.

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