Rabobank: Brazil’s tilapia industry set for huge growth
A rapidly expanding grain production industry and a declining seafood import trend provide the ideal platform for Brazil to ramp up its aquaculture production, suggests a new report compiled by Rabobank International.
The report, “Feeding Nemo – Turning Brazil’s Economic Turmoil into Seafood Business Opportunities,” forecasts Brazil’s tilapia (Oreochromis niloticus) production to increase by 10 percent a year, surpassing 490,000 metric tons (MT) by 2020. Additionally, the annual production of the native freshwater species tambaqui (Colossoma macropomum) is projected to reach 330,000 MT over the same period.
Much of the expansion will be supported by Brazil’s rapidly expanding grain production, particularly in the Midwest, where abundant supply, coupled with underdeveloped logistics, acts to keep local grain prices relatively low. The sector’s prospects are also enhanced by a weak exchange rate, along with declining profitability and competiveness of key aquaculture exporters, which will allow Brazilian aquaculture to develop in the coming years, said the report.
Rabobank believes Brazil has all the ingredients to become an “aquaculture superpower,” but said there were reasons why the country’s aquaculture production was still a fraction of that of China, India, Indonesia or Norway. Even in Latin America, Brazil trails Chile and Ecuador, which both have globally exporting aquaculture industries.
“A combination of red tape and insufficient supportive legislation, infrastructure and investments by both the domestic industry and multinational seafood groups, as well as – until recently – a highly overvalued currency which rendered imports very competitive throughout most of the past decade have discouraged the development of the sector,” it said.
“Since then, however, and particularly starting in 2014, important changes have taken place, especially on the macroeconomic side. Brazil has been going through political turmoil and a macroeconomic downturn, with high inflation and a rising unemployment rate, producing what some describe as the most serious economic crisis it has ever faced.”
The report said this economic scenario has also been accompanied by the considerable devaluation of the Brazilian real, which has declined from around BRL 2 per U.S. dollar at the beginning of 2013 to close to BRL 3.30 per U.S. dollar in June 2016.
Its currency is expected to decline further still – to BRL 3.50 per U.S. dollar during the second-half of this year, with implications for all domestic industries, especially those competing with imports, such as the aquaculture sector, it said.
Currently, Brazil remains dependent on imported seafood products. According to the Brazilian Ministry of Agriculture, 30 percent of all fish consumed in the country is sourced from other countries, and the imports grew at an annual rate of 11 percent from 2005 to 2014. But Rabobank found this trend has been changing since 2015 with the fall of the Brazilian currency “making a relatively expensive protein drastically more expensive,” especially when compared to local meat alternatives.
“The seafood demand that the imports once created will, at least in part, need to be filled by either locally produced chicken and beef, or locally produced fish and shrimp. This could provide a unique opportunity for local aquaculture producers to step up, initially by providing products to the domestic market and, in a few years, perhaps by also positioning Brazil among the ranks of seafood exporters,” it said.
In fact, Brazil is uniquely placed to fulfill the global market’s growing demand for fish products. This is partly due to the country’s unmatched position when considering its potential for expanding grain production, especially corn and soybeans – the two most universally used ingredients for fish feed. In that regard, Brazil has dramatically increased its total grain output over the past decade, with combined corn and soybean production increasing from 88 million MT in 2006 to about 160 million MT in 2016. At the same time, deficient infrastructure has meant that local grain availability has been high, and local prices have been correspondingly low.
In Brazil, tilapia is now the largest aquaculture industry and one with “a particularly bright future,” said the report. The state of Parana, in southern Brazil, is the main tilapia producer, representing more than 25 percent of national production. One of the main reasons for the growth trend in the tilapia sector has been the good feed conversion rate, which can be around 1.4, according to Embrapa (the Brazilian Agricultural Research Corporation) and the CNA (the Brazilian Confederation of Agriculture and Livestock).
“Helped by the fairly low capital requirement and low technology input, small- and medium-size farmers in Brazil can generate a 20 percent profit margin on tilapia faming,” said Rabobank.
“With a strong acceptance on the domestic market, the sector is expected to evolve, initially growing by supplying the domestic market and potentially substituting seafood imports. As a locally farmed and relatively low-cost fish, tilapia is ideal for the current recessionary environment. In the medium term, the next stage of development will be to enter the fresh fillet export market, while in the long-term, it may even be possible to compete with China on the frozen fillet market.”
Meanwhile, domestic favorite tambaqui, which is also known as "cachama" in other South American countries, is easy to farm, has few diseases and has a strong resistance to environmental changes.
Compared to tilapia, tambaqui has a higher cost of production due to its feed conversion rate. But, according to Embrapa, tambaqui prices for growers are also higher than tilapia prices, which is a competitive advantage in terms of profitability per kg produced for the Amazon species, said the report.