Shrimps industry: how important is the role of China and Asia?
“Demand and Supply” it sounds boring and old school, but at the end it is true and not only true, but also it makes the markets move by the relation of them. Shrimps are not the exception and Asia has an interesting role in the shrimp industry not only in its origins but also today and things might change in interesting ways.
Shrimp aquaculture was born in Asia, well currently world markets – non wild caught – are driven by two producing areas Latin America (Major players – Mexico, Honduras, Nicaragua, Ecuador, Peru) and Asia (Major players – Vietnam, Malaysia, Indonesia, Thailand and India) but it was in none of this countries were shrimp aquaculture was born. Domestication of animals for human consumption began thousands of years ago, however, with shrimps in both parts of the world, Asia and Latin America farmers realized that little small shrimps migrated to small ponds due to the effect of tidal waters and they tried to harvest them after a few weeks, and it was not until in Japan a scientific named Dr. Motosaku Fujinaga decided to study and improve shrimp aquaculture with a futuristic vision to convert it in the current worldwide industry.
After Dr. Fujinaga’s studies his postdoctoral fellow Dr. I Chiu Liao former director of the Taiwan Fisheries Research Institute continued his work and expanded the knowledge developed to Taiwan and later to the rest of the world. Asia began to cultivate with an intensive farming style (an aggressive style focused in large volumes of production) and Latin America began to cultivate with a semi intensive and extensive farming style (less aggressive with lower densities and relied in natural processes).
Asia developed the modern shrimp aquaculture, however, it also hurt the industry for long periods of time, affecting thousands of producers, rising prices and damaging the image of the industry all of this due to the abuse in intensive farming methods along with the usage of antibiotics and chemicals which produced the development of different diseases.
Latin America, a region characterized by semi intensive and extensive farming methods in addition of a unique genetic heritage and special natural conditions made its reputation for having “clean” products with a better flavor and quality. The market has for many years a slight division, branding Latin American shrimp aquaculture with a premium over Asian shrimps.
During the 80’s and 90’s the best market to sell was the United States, then after the US, Europe was the second largest and most important market and in third place Asia. Latin American shrimps were sold primarily in the US and some in the Europe. Asian shrimps were fighting to sell in the US, Europe and the rest of the world.
The markets in each region are easy to describe:
- The US is a market with a reduced culinary history, eager for beheaded or beheaded and peeled shrimp, driven by prices, not focused on quality but with a high disposable income
- Europe is divided in two segments: fist Latin-Europe – Italy, France, Spain and Greece – and the Anglo-Europe, the former with a high culinary tradition eager for whole unpeeled shrimps and driven by quality and the later with a similar behavior to the US.
- China, with Japan, Korea, Singapore and the main cities of producing countries in Asia, are driven by quality freshness and the ancient culinary tradition of the region which values the sense of peeling shrimps or relate unpeeled shrimps with freshness.
After the Chinese boom nowadays the market has shifted, China’s disposable income is higher than in the past, “Demand and Supply” the main market for Latin American Shrimps now is China along with major cities in Asia, leaving Europe as the second most important market and in third place the US market.
The economics of cultural preferences between peeled or non-peeled products together have a giant impact over the production worldwide. Peeling shrimps is a labor intensive process which Latin America now saves in grand part because after China, the products are sold in the Latin Europe and if required a lower proportion of their products can be sold peeled either in the US or in Anglo-Europe, of course paying a slight premium for the process. Asian producers on the other side now target the US market, a market that requires a low prices and is not strict about quality.
Luckily for both regions the shift from the US to China as main markets, aligns with the labor average cost in each region, Latin American labor costs have arisen in the last years matching the opportunity of skipping this process when selling to China and the Latin-Europe, Asia on the other hand has very low labor costs compared to Latin America resulting in very attractive prices that helps Asian product to dominate the US market and to fill the unfilled demand in Europe and Asia.
Form the beginning to nowadays Asia has played a key role in the Shrimp industry but now more than ever “Demand and Supply” are playing an interesting role and it is difficult to predict how markets could shift if major countries if China is affected economically as a result of political, economic or social effects.
China is being silently threatened by rumors of a housing bubble, a credit crisis or even a government failure in economic policies, North Korea is threatening to disrupt the order in the area and even Trump’s policies menace altering the current import-export trends. Many random scenarios could be done, but at the end “Demand and Supply” will prevail and the only certainty is that the role of China and Asia in the shrimp industry is a key role that could change the entire industry in case of drastic economical movements in the region.
MBA Candidate 2017
Tulane University – AB Freeman School of Business