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What goes down must come back up - shrimp prices gravitating to stability?

What Goes Down Must Come Back Up -- Shrimp Prices Gravitating to Stability?

Kyoto seafood conference grapples with issues of aquaculture overproduction and its effect on world markets. Call for quota system is probably wishful thinking out loud. Japanese warns exporters that era of high yen and low interest rates is over.

Which way now for the global shrimp market?

While it is still too early to be certain, producers have hope to believe that prices have bottomed out and are now experiencing an uptick that should last at least through the first half of 1990. Still, despite recent increases, overall price levels in late-March were lower than at the same time a year earlier. And with so much tonnage poised to enter the pipeline after harvests of tropical black tiger species take place in April and May, who knows in what direction prices will head?

The China factor looms large in this scenario, as the People's Republic is by far the greatest producer of farm-raised species. Indeed, some analysts have credited the rebound of prices to reports that last year's output fell behind the record harvest of 200,000 metric tons realized in 1988. China's 1990 production cycle of Penaeus orientales will not be complete until August.

Most prognosticators at the recent Seafood Japan '90 Conference in Kyoto and the Boston Seafood Show in the USA seemed to agree on one thing: the overall producer price trend will likely continue to be relatively soft until heavy carryover inventories are further pared down. This has apparently already happened in North America, where warehouse holdings were reduced to just one month's supply last December. But with cultured output soon to mount in Southeast Asia, it is feared that supply will uncomfortably outpace demand for some time to come.

Last year production of farm-raised species reached 650,000 metric tons, accounting for around 26% of total volume, according to Jochen Hannes Nierentz, a fishery industry officer with Globefish, a division of the United Nations' Food and Agriculture Organization (FAO). He told delegates attending the Kyoto conference that some 75% of all cultured shrimp winds up in international markets.

One Japanese observer, concerned about the longterm impact of falling prices, called on producers in developing countries to take measures to deflate balooning output. "We recommend that it be restrained," stated Kazuo Inoue of the Southeast Asian Fisheries Development Center.

His comment came after speakers from India reported that their country, whose large shrimp industry is almost entirely based on catches from the sea, has ambitious plans to diversify into aquaculture.

Noting that prices of black tigers plummeted last year, Inoue opined that it would be "rather risky" if India, Bangladesh and Sri Lanka opt to prioritize shrimp farming in what is already an acutely price-competitive environment.

But if other developing countries insist on raising "white gold" to bring in much-needed hard currencies, he suggested that they consider employing semi-intensive methods where seed is supplied and used in a supplementary manner, as is happening now in Thailand. "This keeps the cost per kilogram very low, unlike the intensive method," he advised. "Otherwise you won't be able to survive the competition."

FAO's Nierentz responded by saying that his organization is watching the overproduction situation very closely, but feels that stepped up marketing should boost demand among the primary consumers of Japan, the USA and Europe. "Our concern is that shrimp is produced in countries that do not have the opportunity to produce video recorders," he said.

But it is clear that the oversupply problem is likely to take a further toll among farmers caught in the squeeze between production costs and market prices. Indeed, a number of producers may already have gone under.

The times are so trying in some quarters that calls are being heard for dealing with the crisis through a concerted response among the world's leading exporters of cultured shellfish. "How about a quota system?", asked Oscar Lopez of Tolong Aquaculture Corp., the Philippines.

"We may be heading toward an international shrimp agreement, such as with coffee," responded Abraham J. Tharakan, chairman and managing director of Amalgam Foods Pvt. Ltd., India.

The likelihood of such an occurrence, however, is thought to be remote since the bulk of shrimp are still harvested from the wild. And the genesis of the recent pricing skid, after all, can be traced directly to packers of cultured species looking to carve out market shares. In particular, the Chinese with Peneaus orientales (whites) and a host of others with Peneaus monodon (black tigers).

View from Mexico

From Mexico's perspective, the downward price spiral got vicious two years ago when tigers and whites flooded the USA market. Relatively unknown, they were aggressively discounted to be competitive against domestic species and the established imports from Mexico, Panama, India and Brazil.

"At the same time both Mexican (wild) and Ecuadorian (farmed) production dropped by 27 million pounds, leaving room for Asian species to penetrate the market," Gabriel Leyva Lara of the Mexican Fisheries Department told the Kyoto conference. "But inventories exceeded the capacity to absorb them, so again prices were hit. The increased production was mainly in 21/25 and 26/30 count sizes, where prices declined so dramatically that large sizes were fully affected."

The same trend was observed in the Japanese market, which was racked with oversupply, falling prices, and rising longterm inventories and holdings.

In the USA total supplies reportedly rose 7.3% from 1988-89. During the January to July period respective poundage went from 357.4 million to 383.7 million. During the first nine months, according to Lara, supplies of 21/25 and 26/30 count sizes were 18% and 23%; 16/20s were 15% and 17%; 31/35s and smaller represented 67% and 60% in the same time period.

China sent 104 million pounds of shrimp to the USA in 1989, displacing Ecuador as the top exporter to a market that requires more than 776 million pounds annually but can get no more than 330 million from domestic sources. The PRC saw its share of American imports zoom from 2.3% to 19.3% in four years' time. Mexico's claim slipped from 13% to 8%. Meanwhile, Ecuador's pre-problem shrimp farming prowess resulted in its share climbing from 13.5% to 18.8%, while Thailand, Indonesia and the Philippines combined rose from 9.5% to 15.1%. All totaled, aquaculture products were accounting for 54% of the USA's imports.

Real and Hard Impact

"The impact in prices was real and hard and negative to the producers," said Lara. "Large volumes of imports have affected not only prices, but importers and wholesalers as well. Permanent availability of shrimp drives retailers and end-users to buy small quantities -- and this represents longterm inventory holdings for importers."

He charted a $1.11 per pound fall in the price of Ecuadorian shrimp from January through September of 1989 as follows:

* 16/20 count: from $8.45 to $7.25

* 21/25 count: from $7.65 to $5.35

* 26/30 count: from $5.95 to $4.70

* 31/35 count: from $4.80 to $4.50

Chinese white shrimp slipped an average of $1.33 a pound as seen below:

* 21/25 count: from $6.55 to $4.95

* 26/30 count: from $5.35 to $4.40

As for Thai black tigers, the critical 21/25 and 26/30 sizes were bitten by $2.20 and $1.40 per pound as seen below:

* 16/20 count: from $7.15 to $5.05

* 21/25 count: from $6.25 to $4.05

* 26/30 count: from $5.35 to $3.95

Here is how the competitive picture stacked up, according to Lara. By September of last year Mexican and Ecuadorian 16/20s were going for $7.20 a pound while Asian black tigers were quoted at $4.90. The price for 21/25s from Mexico was $5.85, compared to $5.20 for Ecuadorian species, $4.45 for China whites, and $3.90 for black tigers. Pricing for 26/30 counts broke out thusly: Mexican, $5.10; Ecuadorian, $4.65; Chinese, $4.05; Asian black tigers, $3.80.

Meanwhile, U.S. domestic browns saw 21/25 counts drop $2.20 a pound, to $4.80, and still remain uncompetitive against tigers priced at $4.05. Other sizes were selling as follows:

* 16/20 count: from $7.85 to $5.70

* 26/30 count: from $5.75 to $4.60

* 31/35 count: from $4.75 to $4.10

To get full appreciation for the fall of prices suffered since 1987, consult the table on the next page.

Nippon's Needs

While the USA is the world's largest consumer of shrimp, Japan offers the biggest market for imports. And last year its importers were feeling the pain of low prices just as acutely as farmers whose incomes failed to cover costs. Fate left many traders with large inventories acquired in 1988 with then cheap dollars. But speculation backfired as consumption sputtered due to a number of factors (see QFFI, January 1990).

"Last year all importers had a deficit as oversupply was sometimes sold below production cost -- but retailers did not suffer a loss," Seafood' 90 Japan delegates were told by K. Noguchi, trade department director of Taiyo Fisheries Ltd. He asked for both supermarkets and restaurants to hold the line on prices or pay the consequences in light of increased competition coming with the liberalization of beef imports and other foodstuffs.

With the yen's value trending downward, Noguchi cautioned that it will be difficult to absorb price increases denominated in U.S. dollars. "Japanese importers will have more exchange risks than they can take," he warned. "They will be prudent."

If such caution is the rule in the months ahead, then the heavy buying anticipated may be moderate in scope. Carryover from 1989, at 78,500 tons, remains high although down substantially. So brazen position taking will surely be subdued as key players are still smarting from burns sustained the last time they speculated.

While average prices per kilo have declined appreciably over the last five years (1985, 2,025 [yen]; '86, 1,441 [yen]; '89 1,179 [yen]), imports have been steadily rising and along with them the percentage of cultured species. The Taiyo executive provided the following statistics:

* 1983 imports hit 148,600 tons, of which 20,000 (13.5%) were cultured.

* 1986 imports jumped to 212,800 tons, of which 60,000 (28.2%) were farm-raised

* 1989 saw imports reach 263,400 tons, of which, 119,000 (45.2% were cultured)

Before epidemic disease wiped out most intensive production in Pingtung, Taiwan was the No. 1 supplier of black tigers to Japan. In 1989 the island no longer figured into the 119,000 ton market. China was instead at the top of the import list with 32,000 tons of whites clearing customs. The rest of the tonnage consisted of black tigers provided as such: Indonesia, 31,000; Thailand, 30,000; Philippines, 16,500; others, 9,500. India is the leading supplier of wild species.

Historically, shrimp has been considered an expensive product by Japanese consumers, hence eaten at home by a ratio of 7 to 3 over restaurants. But in recent years it has been estimated that up to 50% of the shellfish is consumed at restaurants. Black tigers, whose texture tends to be more chewy than whites, are apt to end up being served in tempura houses or from sushi bars.

Should Do Well

Despite intensifying competition from other food proteins, shrimp should continue to do well in Japan since it is a popular ingredient in native, Chinese and Western cuisines. But growth is contingent on pricing and the availability of a continuous supply, said Noguchi.

"The era of the high yen and low interest rates has ended," he warned. "Still the potential for expansion is good, but not if importers and exporters strangle each other's necks by dwelling on short-term profits. Wisdom requires that the Japanese market be taken better care of so that we may all survive."

PHOTO : Jochen H. Nierentz of the FAO, noting that overproduction of Asian cultured shrimp is

PHOTO : being monitored closely, has faith that greater marketing efforts will absorb the

PHOTO : supplies.

PHOTO : Abraham J. Tharakan of Amalgam Foods Pvt. Ltd., India.

PHOTO : The nosedive in shrimp prices over the past two years is attributed to the abundant

PHOTO : supplies of China whites and black tigers, says Gabriel Leyval Lara. He is with the

PHOTO : Mexican Fisheries Department, which moves a great deal of its shrimp catch through Ocean

PHOTO : Garden Products, a state-owned U.S. company based in San Diego, Calif., Seen at Sr. Lara's

PHOTO : right is Ole Persson of Johan Helland A/S, Norway.

PHOTO : Serving as moderator of the Seafood Japan '90 shrimp industry meeting was C.T. Sukumaran,

PHOTO : chairman of India's Marine Products Export Development Authority.

PHOTO : K. Noguchi of Taiyo Fisheries Ltd.
COPYRIGHT 1990 E.W. Williams Publications, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Article Details
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Author:Saulnier, John M.
Publication:Quick Frozen Foods International
Date:Apr 1, 1990
Previous Article:Just where is the sharp focus now in the British frozen food cabinet?
Next Article:Product explosion and market reaction to Asia's black tigers and China whites.

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