Ecuador is expected to increase its production significantly to about 700,000 metric tons by optimizing its production systems. Ecuador’s leading exporters have been preparing for this through investments in their processing capacity. But what about the market? In 2018, price dynamics have shown that there is no longer a supply shortage of shrimp on the global market and that prices are expected to stabilize at a lower level than before. For Ecuador, which is confronted with relatively high labour costs, it will be a challenge to compete on price with its Asian counterparts. How will Ecuador deal with this challenge? ShrimpTails dived into it to get an understanding of the strategies that Ecuadorian exporters are applying.
Overdependency on the Chinese wholesale market
China is by far the world’s largest market for head-on shell-on (HOSO) shrimp, and logically Ecuador, the world’s largest producer of HOSO shrimp, is its major supplier. The total volume of Ecuadorian shrimp that reached the Chinese market in the first three quarters of 2018 was about 240,000 metric tons, which is about 60 percent of Ecuador’s total exports. So far, Ecuador has mainly been selling its shrimp to China’s enormous wholesale market, which is mainly supplied through the border trade with Vietnam. Although this market is good in terms of demand for larger volumes and absence of complicated product specifications, it’s not so good in terms of stability of demand and prices.
In an effort to diversify their markets in China, Ecuadorian exporters target China’s premium shrimp market. China’s premium market channels consist of upper-class retail chains, high-end restaurant chains and B2C e-commerce platforms. Contrary to China’s wholesale market, in the premium market, consumers are looking for products that are branded as safe, healthy, sustainable and of high quality. Recent export data shows us that while direct exports to China from Ecuador are still relatively small compared to the total volume of Ecuadorian shrimp that reaches the Chinese market, it is where growth happens. Direct exports from Ecuador to China increased with more than 400 percent from 13,000 metrics tons in the first three quarters of 2017 to almost 70,000 metric tons in the first three quarters of 2018. Over the same period, exports to China through Vietnam were almost flat at around 170,000 metric tons. This demonstrates that marketing efforts of companies, like Songa, who have developed a brand presence and recognition in the Chinese market, are paying off.
If Ecuador wants to diversify further away from China’s unstable wholesale market, it must look at other markets such as traditional HOSO markets in southern Europe or Asia. While the HOSO market in southern Europe, especially Spain and France, is largely saturated and may not offer a lot of opportunity for growth, other markets in Asia, such as South Korea, are on the priority list of Ecuadorian exporters’ expansion plans. Unfortunately for Ecuador, most consumers in other large shrimp markets such as north-western Europe and the U.S. are less accustomed to eating HOSO shrimp; they prefer to eat their shrimp already peeled.
Processing capacity, the SSP and more flexibility
To access markets for peeled products, Ecuadorian exporters need to make investments in their factories. The processors need more space and staff as well as different processing and freezing lines. The most important benefit for Ecuador’s exporters to open up these markets is that they offer the opportunity to sell the same product – which is now sold to China at a low price as b-quality – to the US or Europe as a normal or even premium-quality product, but then peeled. The reason is that the b-quality product exported to China is based on the unfavourable red colour of shrimp tails or heads and the hardness of the shrimp shell. As peeled products have the tails, heads and shells removed, these factors are not as important. The challenge for Ecuador in these peeled markets lies, however, in how to compete on price with exporters from India and Vietnam who can offer their peeled products at a lower price.
This is where Ecuador’s Sustainable Shrimp Partnership (SSP) comes in. The SSP aims to support the Ecuadorian industry in distinguishing its shrimp from its Asian counterparts. All shrimp sold under the SSP flag will be ASC certified (which is merely a market access requirement in most of the peeled markets) and on top of that comply with several other requirements such as zero antibiotics and full traceability. Together with Ecuador’s story of sustainably produced shrimp through less intensive and more professional production systems, Ecuador’s exporters hope to position their products at a premium price in the peeled markets in the E.U. and United States. Whether this is something that E.U. and U.S. retailers are willing to pay for remains to be proven, but the Ecuadorians are convinced and persistent in their endeavour.
Flexibility is another quality required for Ecuador’s exporters when selling in the peeled markets, especially in Europe. Contrary to buyers from China who can place orders for 100 containers a month at a time, buyers who cater to the peeled markets in the EU order much smaller volumes with many more product specifications. To be able to cater to these buyers it is crucial for Ecuadorian exporters to be flexible and responsive, even when the service cost per container or per contract is higher. Several ShrimpTails sources in Europe argue that many of the bigger Ecuadorian exporters are not very responsive to their enquiries. However, the times may be changing. As one sales manager of an Ecuadorian exporter mentioned, her company, one of Ecuador’s bigger exporters, is ready to take smaller orders. An order of one container per month for 10 years is more valuable than a single order of 100 containers at a time. For a healthy business climate, stability of demand and stability of prices are a must.
Leading exporters guide the way
With its additional volume of shrimp coming to the market, Ecuador must invest in diversifying its markets and positioning its shrimp as a premium product. In order to gain access to markets that are receptive to Ecuador’s brand story, further along the road, Ecuadorian exporters will need to make certain investments in their factories to be able to process shrimp with the right product specifications. With large companies like Omarsa and Songa gearing up their investments and marketing activities, ShrimpTails will follow the development of Ecuador’s trade flows with a keen interest over the years to come.
Photo courtesy of Seafood Trade Intelligence Portal
