Risk and Reward: Rabobank’s Projections for The Shrimp Sector.

Speaking at Alltech’s\r\nAqua InDepth conference, which took place in Eindhoven this\r\nweek, Nikolik presented an investor’s view of the long-term viability of the\r\nsector and how to stay ahead of the curve in a rapidly changing industry.\r\nDuring his presentation, Aqua in Debt, Nikolik explored the shrimp value\r\nchain and how shrimp producers can take advantages of emerging opportunities.

Technology can only\r\ntake production so far

According to Rabobank's analysis,\r\nshrimp aquaculture is defined by two competing forces – disease and technology.\r\nShrimp producers, usually based in developing countries, will gain a\r\ncompetitive advantage and grow by adopting a novel technology, only to have\r\ntheir advancement curtailed by diseases like early mortality syndrome (EMS) and\r\nwhite spot syndrome. According to Nikolik, technological innovations have spurred consistent growth for farm-raised shrimp despite the low price it fetches on the white spot syndrome. According to Nikolik, technological innovations have spurred consistent growth for farm-raised shrimp despite the low price it fetches on the market.

Nikolik is Rabobank's senior analyst for wildcatch and\r\naquaculture

Though this cycle has allowed the sector to remain stable,\r\nproblems remain. After a decline in production between 2013 and 2014 due to\r\nEMS, the supply of shrimp has recovered. The recovery has largely been\r\nattributed to shrimp farmers switching to smart farming or bioflocs. However,\r\nfarmers who couldn’t afford the new tech have had a hard time staying in\r\nbusiness. As a result, the increases in production and growth weren’t evenly\r\nspread – the current production model may not be stable.

In addition to this instability, shrimp is now approaching\r\nan oversupply on the global market. In Nikolik’s view, a price correction might\r\nbe coming.

Shifting trade\r\npatterns

Shrimp aquaculture is experiencing massive trade flow\r\nshifts. Starting in the early 2010s, the primary trading route for the\r\ncommodity was between Thailand and the United States. Flows moving within Asia\r\nrepresented a distant second. For Rabobank, shrimp imports were centred on the\r\n“Big 3” trading blocs: the US, Europe and Japan. In 2019, however, China has\r\nemerged as the largest importer and Japan is a distant fourth in terms of total\r\nimports.

Currently, the largest trade flow in farm-raised shrimp is\r\nfrom Ecuador to China, while US imports from Thailand have fallen, and India\r\nhas emerged as a major player. By Rabobank’s metrics, 2019 is an\r\nunderperforming year for shrimp; the price has remained stubbornly low, even\r\nthough demand has increased. This difficulty is acutely felt by shrimp farmers.\r\nIn Nikolik’s view, investors should think about hedging their bets if they\r\noperate in this market.

The changing trade patterns can be attributed to disease\r\npressures and shrimp farmers adopting different business models to insulate\r\nthemselves from market shocks. This is why, Nikolik explained, Ecuador has\r\nemerged as a major producer. When comparing Ecuador’s new success to Thailand’s\r\nrecent decline, Nikolik noted that shrimp farmers in Asia have to overcome\r\nsignificant challenges to compete in global markets.

In Asia, companies like CP Foods are vertically integrated:\r\nthey have a market presence in feed, genetics, juveniles and processing.\r\nHowever, the majority of Asian shrimp farmers are smallholders. This means that\r\nif any issues emerge on-farm, the onus is on the producer to resolve them and\r\nremain a viable business. Farmers are often the weakest part of the value\r\nchain.

Changing the business\r\nmodel

Looking to the future, Nikolik felt that the current\r\nbusiness model for shrimp production is going to change. Since innovation plays\r\nsuch a strong role in the sector, he predicted that farmers are going to become\r\nmore knowledgeable about the species they farm and will transition to new\r\nproduction systems like super-intensification and RAS to remain competitive. He\r\nalso predicted that in order to better manage disease pressures, farmers will\r\nstart to isolate the farm from the surrounding environment (similar to chicken\r\nproduction).

From the species perspective, Nikolik suggested that\r\nproducers embrace genetic advancements for shrimp and that new strains will be\r\nable to thrive in the new production systems. Genetic advancement will also\r\nallow shrimp farmers to embrace extensive production.

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Nikolik concluded his talk by reiterating that aquaculture\r\ncan be a net benefit for the planet. Even though the sector can be risky, it\r\ncan produce clean and nutritious food for the world and be profitable in the\r\nlong-term.

Source : The Fish Site