The decade-long boom of the shrimp aquaculture industry has been halted by the outbreak of Early Mortality Syndrome (EMS). By impacting the three largest producers, China, Thailand and Vietnam, EMS is responsible for the industry's largest ever contraction in supply and subsequent record prices. Nonetheless, Rabobank believes this offers an opportunity for second-tier shrimp producing regions to step up production and capture market share. With the recent discovery of the cause of EMS, there is hope the disease will be under control in the short to medium term. Rabobank expects the industry to emerge more consolidated, with larger, diversified and more vertically integrated multinational producers leading the next growth wave.
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Rabobank analyst Gorjan Nikolik commented: "After a decade of explosive growth, the global farmed shrimp industry has reached a turning point. The EMS outbreak in China, Vietnam and Thailand has created double-digit yearly contraction in shrimp supply, leading to prices hitting record levels. However, regions unaffected by the disease are emerging to fill the supply void and are benefiting from this high price situation. Producers in Ecuador, Indonesia, India, Bangladesh and Myanmar are rapidly expanding production."
India, among others, has the potential to increase shrimp production many times its current production due to its large river systems providing ideal shrimp farming conditions. Indian shrimp exports to the US are estimated to rise by 69 percent, due to global supply constraints, and reach 11,000 tonnes by 2013. Rabobank expects India's share of global trade to rise further in coming years.
However, the current shrimp supply deficit could reverse in 2014. Due to a rapidly increasing understanding of the EMS pathogen, it is likely that a solution for the disease will be found in short to medium term. Thailand, the world's leading shrimp exporter and most technologically advanced producer, is likely to be the first of the impacted countries to start recovering from the disease. A return of Thailand to the top of the shrimp exporters table combined with strong momentum in production expansion by the second-tier regions enjoying the current high prices, will create a sudden supply curve shift and a period of low prices.
For Asian exporters, a long term strategy to mitigate against volatile price swings is to export processed shrimp products that are less commoditised. However, a lack of knowledge of local markets and links with local retailers and buyers has proven to be key entry barriers for Asian suppliers to EU and US markets. Therefore Rabobank believes there will be an increase of intercontinental mergers and acquisitions to create integrated producers.
"The current environment will accelerate consolidation in the market, both among peers as well as vertically between processors and primary products. Integrated producers that have access to raw material, low labour cost for processing and access to markets are in our view the future model of the shrimp industry," added Nikolik.
For more information about this publication please contact its author Gorjan Nikolik: gorjan.nikolik@rabobank.com +31 30 71 23825
Source: Rabobank
