Up to mid-August, the supply situation indicates a downward trend, as producers are pinned by lower prices amidst the second wave of the Covid-19 pandemic
By Soraphat Panakorn
Today, the global economic situation is not normal and is filled with uncertainties. As far as the shrimp farming industry is aware , we could have ridden on the wave of demand as each country opens up and plans to increase supply. However, key factors are the demand and supply balance, which determines shrimp price and consumption. At the moment, price and demand do not favour shrimp producers. In this article, with the support from my network of industry colleagues in several countries, I will provide a field report on shrimp production and supply. With regards to demand, in the three key markets, China is likely to be good, Europe should be better soon and for USA still unpredictable.
Production: Inputs pushing up costs
Along the entire supply chain, we witness significant increases in production costs. Most hatcheries in Asia depend on imports of brood stock. Hatcheries reported higher cargo costs of 2.5 times the rate in 2019. On top of higher prices for brood stock, costs of brood stock feeds and live feeds (polychaetes) have also increased. There is also the difficulty in getting new batches of broodstock resulting in the reuse of existing ones, and the sale of poorer quality post larvae, which are more susceptible to disease and slower growth. On the other hand, brood stock suppliers are also suffering from lower demand. Despite being burdened with higher costs of production, hatcheries, at least those in Thailand, are absorbing the additional cost. While they worry about losing customers, they also indicated that they may no longer be able to cap prices, and will need to pass on the higher costs to customers soon.
Similarly, prices have increased for pond and health care products, feeds, equipment, tools and many others essentials for farming. Most suppliers are absorbing the additional costs but most likely will increase prices at the beginning of 2021. Aside from being more costly than before the pandemic, these inputs have become more difficult to procure. There are also “fake versions” or those of lower quality.
Unchanged since 2019 are serious disease outbreaks and managing them amidst lockdown is even harder. Imagine seeking diagnostic services during these difficult times. The processing segment found it hard to run a full operation due to the lack of manpower together with the need to follow SOP and social distancing. So, the cost saving by economies of scale will not work anymore. There is also the additional cost such as coronavirus screenings in many parts of the processing line. We estimate increase in production costs to be around USD 0.3/kg.
In the hatchery sector, around 60% are operating. Stocking in some areas have just completed at the end of July. Some 70% of the farmers completing the first crop are starting the second crop; they have encountered poor post larvae quality, diseases and adverse weather conditions. In China, post larvae prices vary from USD1 to USD4 per 1,000 post larvae, depending on the supply source. We divided China into four shrimp farming areas.
South China, a key shrimp farming area consisting of Guanxi, Guangzhou and Fujian contributes to >50% of China’s annual shrimp production. Normally the first crop will start with the spring season in March and end somewhere in July and August, to avoid the monsoon season. But this year due to the Covid-19 shut down, this crop started late by about 2 months. Therefore, the middle of the crop cycle entered into the monsoon season in July, with heavy flooding and storms occurring in many areas. It is not easy to handle shrimp farming during the rainy season (July -September). Combined with poor post larvae quality due to the rush to produce post larvae after the end of the Covid-19 lockdown, the crop success rate is expected to be lower than usual. For the second crop, farmers will need to wait until September, when the monsoon season is over but some farmers have already started stocking.
East China, comprising Shandong, Jiangsu and Zhejiang provinces contributes roughly 25% of China’s annual production, and farms are running well. The second crop is ongoing in August in almost all areas. North China which includes the coastal areas from Shandong to Liaoning until the border with north Korea contributes 10-15% of production. Farming in greenhouses is in full swing.
Shrimp farming at 0ppt salinity is scattered around lakes and rivers in many provinces. Normally the contribution is 10% of production. However, due to floods, the pandemic and issues with post larvae supply and quality, most farms are not operating. For example, the airfreight of post larvae from the coastal hatcheries, such as from Hainan to Wuhan, may take 2.5 times longer, resulting in poor post larvae quality. Farmers have shifted to culturing fish instead.
Today, we expect all production to end up in the domestic market only but less shrimp consumption is expected due to shrinking incomes. Additionally, the discovery of the Covid-19 virus in frozen seafood affected imports. We estimate that shrimp production will be at only 50% of that in 2019.
Industry in Vietnam has two advantages – good support from the government and the country did very well in controlling the first wave of the pandemic. Vietnam may be the only shrimp country in Asia where the entire supply chain still flows normally.
Recently, Vietnam’s shrimp farming is doing well; at 50 days of culture, it is possible to harvest size 60/kg of vannamei shrimp with feed conversion ratios of 1-1.2. Ex farm prices for August are good at USD3.97/kg. (Figure 1). The success rate is higher with multiphase culture in covered small size ponds in the Mekong Delta.
Local consumption rides on the love of eating shrimp. A large domestic market of up to 150,000 tonnes/year helps to support local shrimp prices, combined with a shrimp industry which is very capable on marketing and product development for the export market. We expect the 2020 production to be less by 20% or 550,000 tonnes only. Because of the pandemic, local consumption is expected to shrink to <50,000 tonnes due to 63,000 shops and restaurants closing and the lower arrivals of tourists compared to 2019. More shrimp will be available for export, at almost the same level as 2019.
Although almost all hatcheries are back in operation, production is just about 20% of its maximum capacity because of lower demand. An internal survey revealed that in the last two months, shrimp were stocked only in 30% of farming areas. As the country is entering the monsoon season, disease outbreaks are high, along with low ex farm prices at INR244/kg or USD3.26/kg for size less than 70/kg. Farmers were discouraged; they have decided to wait and see instead of starting the second crop for the year which usually starts in August. Therefore, the industry estimates that Indian shrimp production in 2020 will be as low as 50% of the 2019 production, which was 804,000 tonnes.
There is an active cooperation between the private sector and government. Some support has been launched but supply of workers is facing a bottleneck and is becoming serious. The pandemic is a big blow to India’s shrimp farming industry. The industry is supported by large processing plants. Today, prices of farm inputs have gone up 5-10% and some procurements are hard to come by. Export potential remains stagnant and there are price fluctuations. All in all, we can expect production to be down by >35% as compared with that in 2019.
Industry in India is targeting the domestic market, but during the current situation it might not be easy to increase domestic demand. High demand from its key markets pushed production in 2019, but this may not happen this year.
Almost all hatcheries are in operation, but farmers reported that post larvae from some hatcheries were of poor quality and susceptible to disease. This led to high failure rates. Supply of some high quality post larvae had problems with air cargo services, thus limiting supply. The government is helping with reductions in taxes for small businesses. Indonesia’s production is helped by a stable market channel. Ex farm shrimp prices are good because of low shrimp supply. (USD4.92/kg for size 60/kg). However, the 2020 production forecast will be lower than in 2019, at a possible 20-25% lower or around 220,000 tonnes.
Only 70% of hatcheries are operating at a capacity of 70%. Since Thailand was in lockdown for over 2-3 months, the industry faced the same difficulties like those in other countries. Even though ex farm prices are considered good, overall we expect 2020 production to be less by 20% to 220,000 tonnes compared to 2019.
Thai farmers are very focused on production cost management, since there is a clear awareness that in future, shrimp prices may continue to come down. A cost of production on THB110/kg (USD3.48/kg) for size 70/kg may be acceptable at the current ex farm price such as THB135/kg or USD4.27/kg in August.
Industry thinks that lowering costs to as low as THB72/kg (USD2.27/kg) is possible by overcoming one problem at a time. A positive development is the E-APD or Electronic Aquatic Purchasing Document launched by the Department of Fisheries. This document records the origin of the shrimp, from the hatchery until exported as a finished product. This is full traceability helping all stakeholders manage their production effectively with statistical and exact information along the entire supply chain.
While its annual production has been stable for several years at around 50,000 tonnes, the 2020 production is expected to drop by 10-20% only. Ex-farm prices are relatively stable as over 50% of the production is sold domestically. Small price fluctuations for the vannamei shrimp occur because of cross border trade with Thailand. But still, vannamei shrimp prices (MYR22/kg or USD5.26/kg for size 70/kg) are better than for monodon shrimp (MYR27/kg or USD5.90/kg for size 30/kg). Farming of the monodon shrimp has been badly affected by low prices because of the reduced sales of live shrimp to restaurants and loss of export markets in China and Singapore amidst the Covid-19 pandemic. Farmers resorted to e-commerce to push sales of live shrimp to local consumers. Some monodon shrimp farmers have shifted either to farm vannamei shrimp or culture the Asian sea bass. Industry expects growth to remain slow for the rest of the year.
Initially, there was no problem in production; it has its own brood stock supply and high-quality feed. The bottleneck occurred when processing plants were affected by shortage of workers. Industry did not face any problem with the farming side but high volumes of harvested material and high stocks, led to price dumping. A major issue is that producers are dependent on the Chinese market. The imbalance of bargaining power reverted back to ex farm prices, the lowest in 20 years and even lower at 10-20% than production cost at USD2.25/kg for size 80/kg.
Farms opted for several actions: wait for better prices, skip a crop or revert to super extensive culture with 4PL/m2 with no feed for least 1 month, a practice common some 30 years ago. When price improves and there is market demand, farmers will be ready to operate ponds again. Some have decided to stop farming due to poor cash flow. On selling shrimp, they were paid 50% of the amount in 48 hours and the rest only in 2 weeks. If prices are better, within half a year, Ecuador’s shrimp industry can be back in operation faster and at higher volumes than any other shrimp producing countries. We expect production in 2020 to be around 20% lower than in 2019, or around 550,000 tonnes, if Covid-19 condition persists.
Expect lower supply and price war in 2020
Finally, we expect global shrimp supply to decline by 1.4 million tonnes. The contribution to this loss in tonnes will come from the following: China 300,000; Thailand 100,000; Indonesia 100,000; India 350,000; Ecuador 150,000 and Vietnam 150,000 and 250,000 tonnes from other players (Philippines, Malaysia, Iran, Saudi Arabia, Peru, Mexico, etc). A price war is also possible due to pending stocks from large producers which will only end somewhere towards the end of 2020. We also predict a demand-supply balance at the beginning of 2021 or perhaps a supply shortage with higher demand in the first quarter of 2021. Current shrimp prices may remain but the chances of lower prices are high.
We also expect that 20-30% of farmers will quit the shrimp farming business because of this crisis. Industry survivors will be the professionals, and stakeholders who will cooperate to ride this crisis together and be able to modify and innovate. Key will be managing costs of production.
Note and acknowledgements: All these predictions have been made as of the current situation in August 2020. I thank my network of 17 friends in 8 countries who have shared their experiences and information with me during the Covid-19 outbreak, and updated the shrimp situation in their country regularly.
This article was published in September/October 2020, pp35-38.