Shifting dynamics and supply chain uncertainties

by Zuridah Merican

COVID 19 has disrupted more lives and businesses than any other event in recent history. Every industry shares common factors, but each also faces particular challenges and aquaculture is no different. Unlike the oil and gas industry which is currently facing both a supply shock as well as a demand shock, the aquaculture industry faces disruptions at pinch points all along the supply chain, very much like how an accordion is played.

If we look upstream, our international shrimp genetic companies have been unable to supply broodstock to hatcheries on time and in full, especially when farmers need to stock ponds after a rather good 2019. Airlines have shutdown international flights. Countries with local broodstock suppliers have the upper hand. Has the strategy to depend on US based broodstock worked against us now? There is a possibility that hatcheries will resort to pond reared broodstock. India seems to be especially hard hit, evidenced by prices of post larvae increasing from USD5,000 to USD6,000 per million. Andhra Pradesh, the leading shrimp farming state finally instated a ceiling price.

Aquafeed tends to rely on marine ingredients, of which most are imported. China relies on Peruvian and Chilean fish meal which normally would require a 30+ day shipping schedule. With the pandemic, finding ships at the right place at the right time has been a challenge, disrupting the supply chain.

The fish meal situation has radically changed to a bullish 2020 with higher prices, as described by Jean-François Mittaine on page 30.

In a nutshell, the world fish meal market will likely continue to be firm as we see continuing overall supply tightness only counterbalanced by weaker demand on account of the indirect effects of Covid-19 lockdowns all over the world in the first half of 2020.

With supply issues in March and April, local prices of many ingredients have increased forcing some feed millers in countries like China, Vietnam and India to increase feed prices. India, which has arguably the most aggressive lockdown, suffered from the lack of workers who had to return to their home states.

For farms ready to harvest, getting fish and shrimp to the consumer is no longer business as usual. With perishable goods, time is of essence and with no brokers or local transport and delivery disruptions, many farms have had to start online sales. Although considered essential, many wholesale markets were shut down due to the impossibility with social distancing.

Processing plants which were able to take the harvests, faced major challenges as well. Workers were in short supply while cold storage facilities were beginning to fill-up with no off-take. This is partly due to poor demand but the critical factor in the early stages was finding containers and shipping schedules.

Guayaquil, the coordinating centre of shrimp production in Ecuador is reported to be the epicentre of Covid-19. Farm gate prices have dropped to USD3.30/kg for size 60/ kg, below the cost of production and the shrimp sector is estimated to be operating at 50% of its capacity.

In the US, 70% of all seafood is sold via food service. While supermarkets and retail report higher sales, there is still a net loss of seafood sales overall. With China and some EU countries emerging from lockdown, most of the population are still hesitant to convene at restaurants for a meal. In Asia, many seafood restaurants offer highly priced and prized live seafood and this route to market will be the biggest loser of all.

This is a new world where we are likely to see the temporary demise or shrinkage of live seafood in the short to medium term.

Many marine cage culture operations in Southeast Asia rely on well boats to purchase live fish for markets in Singapore and Hong Kong. The business continuity plan for this business model will be difficult to conceive.

The winners are likely to be plants who can process the seafood and maintain shelf life for at least up to 12 months. Integrated enterprises will survive better under these circumstances and the goal will be to stretch the accordion as much as possible and remove any pinch points.

How will the remainder of 2020 pan out? As we are not out of the woods yet in mid Q2, it is likely that the scenario defined as the “global pandemic and recession” by McKinsey & Co will prevail. The strength of the USD versus emerging currencies will help exports for countries like India and Indonesia.

Vietnam is looking like a role model as their exit strategy from lockdown seems to be working. Vietnam’s pangasius industry targeted China as the new market in 2018 but exports have fallen since February and exporters surveyed by VASEP predict a pessimistic year.

Both India and Ecuador, significant exporters of shrimp to the world, have faced an extremely difficult Q2 and are predicting lower supply this year to the tune of 30%. If this is true, the supply decrease is likely to be even more than the demand drop and prices will rise in the second half of the year.

With shifting dynamics, forecasting becomes more difficult and to paraphrase Darwin – it is not the strongest who will survive but those who are more adaptable.