Falling prices and demand coupled with rising feed and production costs have left global shrimp producers in dire straits, according to new analysis published by the global animal protein sector of Utrecht, Netherlands-based Rabobank.
Written by Rabobank Senior Global Specialist of Seafood Gorjan Nikolik, the report, “Global Aquaculture Update 2H 2023: Between a Rock and a Hard Place,” found the shrimp industry faced an extremely challenging first six months of 2023, with prices continuing to fall due to soft demand from Western markets in tandem with high supply from leading producers like Ecuador.
At the moment, it’s hard to say how long the low prices will last, Nikolik told SeafoodSource. He said an anticipated drop in supply in the second half of the year is “only part of the equation.” The main issue is that retail prices have yet to decline significantly, he said.
“When that happens, we can expect a demand improvement. This is needed for inventories to be used up and eventually for wholesale prices to improve,” he said. “I cannot speculate how long this can take, but it will probably be in 2024.”
Calling 2023 “a year to forget” so far for the shrimp industry, the report suggests the demand slump may get worse in the second half of 2023 as Chinese demand levels out. China imported record amounts of shrimp in anticipation of strong demand after it dropped its zero-Covid policy in November 2022, but demand didn’t recover as quickly as expected, resulting in low prices and high inventories.
Nikolik said shrimp sales have been hurt by a slowdown in the Chinese economy due to macroeconomic factors, including high unemployment among younger generations, high local government debt, and a real estate industry crisis.
“All of this is leading to falling demand for many products, including food,” he said. “China is, in fact, [experiencing] deflation at the moment, [and] until some government stimulus packages are announced, there will not be any change in the near term.”
Asia’s shrimp industry as a whole is entering what could be its most challenging period since the outbreak of early mortality syndrome (EMS) in 2011, according to Rabobank.
“The supply contraction that started in H1 2023 is likely to continue and, at least for India, accelerate, as virtually the entire industry is operating at a loss per kilogram sold,” Nikolik said.
India’s shrimp production is likely to decrease by 20 percent in the second half of this year, Rabobank found, and volumes out of Vietnam and Indonesia are also likely to contract.
Ecuadorian producers can also expect a difficult rest of the year, too, not just because of weaker Chinese demand, but also as this year’s El Niño weather pattern could bring heavy rains and possible flooding. This may temper the record supply growth that Ecuador has recorded so far in 2023. Currently, Ecuador’s shrimp sector “remains in growth mode,” according to the report. If El Niño somehow doesn’t affect the industry, it will expand between 16 percent and 18 percent this year.
Also harming the shrimp sector is ongoing soft demand from the U.S. market. This is despite current prices being at a 10-year low – even below the lowest point experienced during Covid lockdowns.
“Demand is lower when compared to 2021 and early 2022 when it was abnormally high due to Covid-related drivers such as stimulus packages and consumers not spending on services,” he said. “In addition, inflation has eroded purchasing power [and] reduced disposable income, with shrimp [being] a category that consumers are willing to save money on.”
While shrimp prices are low, salmon prices remain relatively high, returning to more normal levels after 2022’s peak. Soft demand driven by inflation in the U.S. and Europe continues, but salmon is “appearing better placed” than shrimp at the moment, according to Nikolik.
“For salmon, we expect good demand – balanced with good supply – in 2024. This should result in more normalized prices, at least compared to 1H 2023,” Nikolik said. “Nevertheless, price levels are still likely to be elevated compared to longer-term averages.”
The salmon sector is not without its challenges, however, including the 25 percent resource tax the Norwegian government recently enacted on the country’s salmon producers. This will impact the industry until at least 2025, when an election might bring a new government coalition and policy.
In the first half of 2023, producers of fishmeal and fish oil enjoyed record prices due to strong demand. But another H2 2023 challenge for the seafood industry will be a shortage of sustainably-certified fishmeal and fish oil, Nikolik said.
Rabobank anticipates that aquaculture feed prices will remain elevated through the end of this year due to a global scarcity of fishmeal and fish oil, and believes there’s the potential for an “acute supply shortage” after El Niño conditions caused the cancelation of Peru’s anchovy fishing season. Increased use of vegetable oils and novel alternatives like algal oils may partially solve the problem, but prices for alternative ingredients remain high, Nikolik said.
Nikolik noted that in 2014 – the last time there was a canceled fishing season in Peru – fishery activities recovered rapidly, and the subsequent season scored both a high quota and catch rate. The resulting supply recovery normalized fishmeal prices to the level they were at prior to the canceled season.
“All eyes will be on Ecuador and Chile, as El Niño could impact their respective shrimp and salmon aquaculture industries,” the report said.
Photo courtesy of pisanu3113/Shutterstock
