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Crisis mood hangs over shrimp scene as growing supply floods flat market.

Crisis Mood Hangs Over Shrimp Scene As Growing Supply Floods Flat Market

Make no mistake about it, today's shrimp business is an industry in crisis. From all but a few major aquaculture production centers, the problem boils down to too much supply chasing not enough demand.

The main reason generally cited for soft market conditions in the shrimp world is that large quantities of farm-raised product came on line at a time when demand in Japan, the world's No. 1 buyer of cultured species, nosedived. The national mourning brought on by Emperor Hirohito's long illness and subsequent death last year put a damper on parties and entertaining, which hurt consumption. Huge inventories, built up by speculators who overbought with weak dollars, remained high. Consequently, global prices began slipping as Asian producers scurried to find alternative markets to offload mounting tonnage.

Some 212-million pounds of shrimp - valued at nearly $1 billion and equivalent to about four month's supply in a nation that uses 600-million pounds per annum - are now estimated to be warehoused in Japan as nervous position-takers hope for a price rise that will spare them from heavy losses. While trading companies sweat it out, at least one Osaka wholesaler filed for bankruptcy after reportedly losing $28-million.

"They are in serious trouble. Therefore, you can count on the Japanese to be less competitive in world markets until they solve their inventory problem," said Richard V. Martin, president of Meridian Products, Inc., a major seafood importer based in Santa Fe Springs, Calif. His assessment came during a recent address before the Food Marketing Institute sponsored Seafood Merchandising Conference in Tampa, Florida.

At the same time, he elaborated, inventories of unsold shrimp in the United States continue to run at about the same historic levels maintained a decade ago when America's appetitie for the shellfish was just over half of today's annual consumption of 680-million pounds of product weight.

It was not until last September that pricing in Southeast Asia's ponds began to reflect what was happening in the marketplace, advised Martin. The immediate reaction of many of the farmers was to harvest early, which reduced anticipated sizes and tonnage while shortening the production cycle. A month later an increasing number of aquaculturists, believing low prices would rebound, were refusing to harvest ponds. As this magazine was going to press, however, prices remained weak.

"The short term outlook is that the supply lines will continue to be confused," said Martin. "The longer term view is that many marginal producers will be forced out of the business and an increasing number of survivors will be forced back into lower yield/lower cost extensive farming versus the higher yield/higher cost intensive form of farming. The rate of growth in the world production of shrimp will at best be stunted."

As for near term output, the prognosis for buyers is good both in terms of supply and price. U.S. domestic and Ecuadorian prices have dropped as sellers jockey to recoup markets lost to cut-rate black tiger (Penaeus monodon) and Chinese (Penaeus orientales) varieties.

Martin called on retailers to cultivate the concept of shrimp's "perceived value" among supermarket customers. Competitivee pricing spurred by the success of largeer-sized, cultured shrimp such as tigers has taken what used to be primarily an institutional food item into the retail food counter segment. But now the danger of interrupting continuity - a condition mandatory for effective promotion programs - looms large.

"If you drivee the pricees too low, or artificially retard consumption by using too high markups on the product," warned the Meridian president, "you will bankrupt farmers and fishermen, significantly shorten production, and drive the surviving production back into the institutional market."

When per kilo ex-pond prices fell from $8 to $4.50 last year, farmers in Thailand made their dissatisfaction known by demonstrating in Bangkok. They a The demand for shrimp in western Europe has been rising also, but at a slower pace than the other two markets. The total annual usage in the EEC increased from about 120,000 tons (product weight) in 1983 to over 200,000 in 1988.

The product forms and species preferred in Europe differ to some degree from those consumed in Japan and the U.S. where processors and restaurateurs like the raw headless, shell-on products. In the EEC, the preference, depending upon the country, is for whole raw shrimp or cooked and peeled products. Frozen headless shrimp is not yet well accepted in this market. The southern Europeans traditionally buy medium sizes of whole raw shrimp, whereas in the northern countries the preference is for the small cold-water species, cooked and peeled.

The market for cultured shrimp, whole raw frozen products, is developing in Western Europe and is expected to expand gradually over the next decade. Exports from Brazil and Ecuador are finding increased interest in Spain, one of the principal seafood-consuming nations on the Continent. Black tiger shrimp from India, Indonesia and Thailand, and white shrimp from China, are making headway in some national markets in the EEC.

Shrimp usage in Western Europe was relatively low during the first wan result in inefficient producers being forced out of business, which is not necessarily all bad. On the negative side of the ledger, middlemen who finance farmers may cut off funding if prices get too low rather than run the risk of not having loans repaid. But if failed ponds are sold off to consolidated organizations, greater efficiency can be a positive spinoff.

The proliferation of China whites in recent years has been a boon for retail merchandisers as low labor rates and a government keen on earning hard currencies has kept wholesale prices very competitive. But as the price of black tigers dropped to stimulate demand for rising Asian production outside of the People's Republic, orders for Chinese product fell.

To compound China's problem, the downturn in exports was joined with soaring domestic prices for shrimp feed. Hence it is not surprising that the Ministry of Agriculture is predicting a reduction of production for 1990. The nation has 160,000 hectares devoted to shrimp farming. Last year's output was reported to have been 200,000 tons.

Meanwhile, a number of provinces, in a bid to overcome anticipated difficulties, are seeking foreign partners to co-produce shrimp products in developing countries. Already an aquaculture technology announced between producers in Jiangso and Ecuador.

The Ecuadorian connection is interesting to note as China, which is the Latin American country's chief price competitor, has inroaded a number of its markets, including the U.S.A. But then Ecuador has been going through trying times of late, with 1989 shipments of farm-raised shrimp expected to fall at least 20% from previous year tonnage of 47,200. Producers blame the skid on a combination of heated politics and cold water temperatures that stunted the supply of postlarvae to growers. At summer's end, reportedly only 60% of the nation's 112,800 hectares of shrimp ponds were in operation.

The only other major shrimp-raising area suffering serious problems is Taiwan. Once the world-leader in production growth rates, it is believed that the island's harvest of black tigers last year was considerably less than 30,000 tons. High shrimp mortality, thought to have been brought on by water pollution and the ill effects of intense habitation conditions, began in 1988 when tonnage plummeted to 30% of the record 95,000 level recorded the year before.

Nonetheless, there is plenty of Penaeus monodon on the world market thanks to sizable exports from Indonesia, Thailand and the Philippines. The first two countries have come on very strong, with Thailand's 1989 harvest expected to reach 100,000 tons, which would reflect 20% more volume than that realized during 1987. Some 80,000 hectares are currently under cultivation. Meanwhile, government officials predict that river prawn production will skyrocket from 7,000 to 50,000 tons.

All totaled, there is estimated to be some 300,000 tons of assorted farm-raised product now produced annually around the world. Add to that 1,800,000 tons harvested from the wild and one begins to understand why oversupply has been keeping prices down. An exception has been 16-20 and 21-25 count tigers, as demand spurred by promotions in the USA has greatly reduced their available inventories.

Looking toward the future, Meridian's Richard Martin sees black tigers from Southeast Asia and China whites dominating the retail industry for years to come. "Tigers - the `Chevrolets' of the business - can be grown to larger sizes at prices somewhat comparable to product raised in Ecuador," he said. "And with cost of production in China being cheap (about $2.40 per kilo), they will sell competitively in order to earn dollars."

So, the ultimate problem facing the shrimp business is decidedly one of marketing. Industry analysts are increasingly calling for better and more innovative merchandising campaigns as necessary to push accumulating supplies through the pipeline to make room for new harvests.

"I can't really see any slowdown in production," Charles J. Peckham, president of San Diego, Calif.-based LMR Fisheries Research, Inc., told Quick Frozen Foods International. "The uptrend will continue. Indonesia, Burma and Brazil, for example, haven't yet reached their potential."

In the meantime, prices for sizes found in abundance continue to fall. Popular counts of black tigers were recently retailing for $6.50 a pound on the U.S. West Coast. That was the wholesale price a year ago!

"Clearly, shrimp is no longer a luxury item," said Peckham. "It's time for marketers to begin emphasizing other ways for the product to be consumed. We've got to start getting people to eat shrimp omelettes instead of ham omelettes."

PHOTO : There is danger as well as opportunity ahead for the shrimp industry, says Richard V. Martin, president of Meridian Products, Inc.
COPYRIGHT 1990 E.W. Williams Publications, Inc.
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Title Annotation:QFFI's Global Seafood Magazine
Author:Saulnier, John M.
Publication:Quick Frozen Foods International
Date:Jan 1, 1990
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