The Role of Processors

My theory is that in Ecuador, 40% of shrimp production come from integrated operations with processing facilities where the profits are only measured at the final shrimp product for export. The processing segment will make higher margins, as long as international prices are stable. Even if there were logistic restrictions, the shrimp product could be stored in the cold room for prolonged periods. Whereas in India, only a minor proportion of farmed shrimp comes from integrated operations and farmers largely depend on the daily price offers from processors. Here each segment has to mind their own profit and loss statements and balance sheets.

There is a lesson here as this situation is about to haunt us again. Farm gate shrimp prices are falling due to a higher supply and lower demand. Demand in the major shrimp markets are easing due to the higher consumer prices resulting from inflation and increased cost of distribution. In the US, shrimp is a highly price elastic product. As this affects all shrimp exporting countries, will we see the same consequences again?

This is already happening as we speak. Compare the black tiger size 30/kg farm gate prices between Vietnam and India in February 2023 which were USD9.60/kg versus USD4.30/kg, respectively. International prices were the same so why the huge difference? Vietnam has a sophisticated processing and export segment with good sales channels to major markets and they believe that it would be better to honour their contracts and sacrifice margins than to allow their workers to sit idle at processing plants. Furthermore, this was the winter season with lower supply of shrimp. Although, in Vietnam, the farmers and processors are not integrated, it shows a very good model for how the processing segment supports the value chain. Back in September 2020, Samson Li at a SAP, India webinar discussed how the large processors in Vietnam support the farming segment, with accreditations, financing etc.

This could be a model that Asia should emulate since it is much easier for shrimp stocks to be stored for an indeterminate period in cold storage. Furthermore, as farm gate prices are reasonable, the financial risk is minimal. However, if the processors do not buy, farm gate prices will fall further and the supply chain goes into a negative spiral!

In its infancy, the feed segment supported and built this industry but today, with high feed ingredient prices, the baton has to be passed on and the processors should pull their weight. Shrimp is an export commodity hence processors are integral to the supply chain. Indonesia’s culture spans across the whole country but its processing is concentrated in Java and South Sumatra. Farmers must sell their harvest to the processors for freezing and storage. Without the processors, farmers will have to exit the business and without farming, there is no more industry to speak of.

The poultry and pig industries are older and have evolved to quasi-total integration today. The shrimp industry will evolve in the same manner as processors play this role in the industry life cycle.

If you have any comments, please email: zuridah@aquaasiapac.com