How COVID-19 is Impacting The Global Salmon and Shrimp Sectors

The salmon and shrimp sectors have been affected very\r\ndifferently by the outbreak of the coronavirus pandemic, according to Gorjan\r\nNikolik, senior seafood analyst at Rabobank.

Salmon stays steady

“Salmon is the safe haven of the seafood industry and has\r\nbeen impacted less than other sectors,” explains Nikolik.

“In Norway the forecast was for fairly limited growth – of\r\nabout 3-4 percent – in the sector during 2020. Prices were very high in Q1, at\r\nover NOK 70 per kilo, and producers have benefitted from several strong years\r\nof prices, making the sector fairly resilient,” he notes.

“In Europe, which accounts for 50 percent of salmon\r\nconsumption globally, most of the business lost from the foodservice sector has\r\nbeen taken up by retail sales. However, the decline in exports to China and the\r\nUS from the pandemic has led to an oversupply in Europe and a corresponding\r\ndrop in prices from almost NOK 80 in January to around NOK 54 last week. But,\r\nin historical terms, this is still a reasonable price and, importantly, it\r\nstill covers the production costs,” Nikolik explains.

“While we expect prices to be lower than 2019, in Norway\r\nthere have been no major disruptions in terms of feed delivery, handling and\r\nprocessing sectors, meaning the sector is comparatively well placed,” he adds.

“However, the situation in Chile is a bit different as its main\r\nmarkets for fresh salmon are the US and Brazil, while China, Russia and Japan\r\naccount for the bulk of its frozen salmon sales. This meant that, during\r\nJanuary and February, the Chilean industry was doing very well – exports to the\r\nUS actually increased in February as the supply from Europe contracted – and it\r\nonly started to be impacted by COVID at the end of March / early April when the\r\nlockdown restrictions hit the US and Brazil,” says Nikolik.

“More recently, however, US demand has slumped dramatically\r\n– 68 percent of the US seafood sector is food service, rather than retail, and\r\nthis figure is probably around 60/40 for salmon sales, so the retail sector has\r\nnot been able to make up for the disappearance of food service sales,” he\r\nexplains.

As a result of this drop in demand, according to Nikolik,\r\nChilean producers are trying to hold onto their fish until the end of this year\r\nor early next year – either by delaying harvests and reducing feeding rates to\r\nminimise growth, or by freezing those salmon they do harvest. As a result he’s\r\nexpecting a reduction in Chilean salmon exports globally by as much as 30-50\r\npercent during the peak of the crisis, from mid-March.

And, as demand drops in Russia and Japan, so the Chileans\r\nare looking to sell a higher proportion of their frozen salmon to China.

There have also been considerable disruptions to the supply\r\nchain, with some processing plants needing to be closed or modified and the\r\ncost of airfreighting salmon to the US increasing by 200-300 percent for\r\nseveral weeks, although that has now normalised, says Nikolik.

“Salmon is a well-financed sector, coming from years of\r\nstrength, so the pandemic is unlikely to have lasting effects,” he concludes.

The shrimp sector is likely to be hit hard by COVID-19 but\r\nthere is some hope for an increase in prices in late 2020

Shrimp shortages?

Nikolik notes that COVID-19 has had a much harsher impact on\r\nboth the supply of and demand for shrimp.

“It’s been the opposite of salmon, as the shrimp sector has\r\nalready been suffering from two years characterised by oversupply and falling\r\nprices, which means there’s not much of a buffer for it,” he observes.

“The start of the year saw a considerable reduction in\r\ndemand from China, as the COVID restrictions coincided with Chinese New Year,\r\nand this caused producers to look to offload shrimp that had been destined for\r\nChina to other markets – notably North America and Europe,” he adds.

In the first two months of the year, according to Nikolik,\r\nexports to the US from India, Indonesia and Ecuador rose by 30 percent, 25\r\npercent and 54 percent respectively.

“The drop in Chinese demand also led to producers taking a\r\nmajor hit in terms of prices in January and February and this was compounded by\r\na second price correction in March and April – from below production value, to\r\neven further below production value – when demand in Europe and the US slumped\r\ndue the issues with COVID in these regions,” Nikolik explains.

He also points to disruptions to the production side caused\r\nby the lockdowns – in India, for example, producers have been struggling to\r\nsource seed stocks and feed, while issues in the ports mean that its harder to\r\nfulfil export deals.

“Meanwhile in Ecuador, absenteeism is having a huge effect,\r\nwith up to 50 percent of the workforce in the processing, and packaging not\r\nturning up to work, despite being exempt from the lockdowns, due to fear of the\r\nvirus,” Nikolik reflects.

Despite seeding rates increasing year-on-year in January and\r\nFebruary in both Vietnam and India, by April seeding rates have dropped across\r\nthe world – in some countries no seeding has taken place for weeks on end,\r\nnotes Nikolik.

“If producers don’t seed soon they will miss the key\r\nJune-August growing season (when production usually peaks) and we heard\r\npredictions by producers that annual shrimp production in SE Asia may be 20-50\r\npercent lower than in 2019,” he explains.

In Ecuador, on the other hand, the larger players are\r\nplanning to seed as normal, in the hope that they’ll be able to achieve high\r\nprices, despite the risk of low demand continuing should COVID-related\r\nrestrictions continue in their key markets.

“Either way supply will decline quite a lot and so the\r\ninventories of (frozen) shrimp that have been stockpiled in markets such as the\r\nUS, China and Europe will be consumed,” Nikolik predicts.

“It’s even possible that people will be allowed to return to\r\nrestaurants before the end of the year and find that there’s no shrimp\r\navailable,” he adds.

“I think there will be a major price recovery: we have\r\nalready seen interesting price movements in Vietnam, when China opened its\r\nborder, but – to put it in perspective – it’s still below the cost of\r\nproduction,” he concludes.

Brief thoughts on\r\ntilapia

Finally, he notes that China is likely to account for any\r\ngrowth in the markets for farmed whitefish, such as tilapia and pangasius, as\r\nits domestic seafood market recovers and it looks for alternatives to the\r\nprotein previously provided by the pork sector before the outbreak of African\r\nswine fever.

“The main international tilapia trade is from China to the\r\nUS. This was hit by trade war-driven tariffs during 2019, which – combined with\r\nAfrican swine fever leaving a gap in China’s domestic protein market – led to\r\ngreater domestic consumption of Chinese tilapia.”

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“The US lifted its tariffs on Chinese tilapia in\r\n2020, which led to an increase in Chinese tilapia exports to the US for the\r\nfirst time since 2014, but when China’s domestic market recovers as the\r\nlockdown is lifted, sales to the US are likely to decline again, due to an\r\nincrease in domestic consumption,” Nikolik observes.

Source: The Fish Site