Since 2010, Ecuador and India, the world's two largest shrimp exporters, have enjoyed rapid expansion and sizable profit margins for a decade or so. But today, they face a different reality: oversupply and soaring prices. On the one hand, due to the high production and export of shrimp, on the other hand, stagnant imports and consumption, the price at the end of 2022 showed a downward spiral. And it is becoming increasingly clear that they are at a critical time that will shape the future trajectory of the two largest shrimp exporters.
Figure 1: Export volume growth from Ecuador and India from 2001 to 2022.
In today's article, I'll explore some of the most pressing issues facing India and Ecuador.
Will Ecuador continue to increase production at such an alarming rate?
Since 2010, Ecuador's shrimp exports have been increasing. Despite parity with India earlier, Ecuador has been growing very well over the past few years (see Figure 1). Ecuador's export trend in February through 2023 shows that growth will continue, at least in the short term (see Figure 2).
Figure 2: Ecuador's shrimp exports in February 2021.
With different experts disagreeing on whether Ecuador will continue to expand at this rate, many in the industry are now speculating about where things are headed. While some – myself myself – tend to be bullish on Ecuador's future growth, there are reasons to be more conservative.
Is Ecuador on the verge of pushing the limits of its shrimp pond capacity?
In theory, there are no short-term limits to growth in Ecuador, as Ecuadorian shrimp farmers have been increasing their production by using disease-resistant and fast-growing shrimp fry; shortening the rearing cycle through the use of standard coarse ponds; Increased breeding density by adding aeration systems and automatic feeders to grow-out ponds; through the development of new shrimp farming areas; This is associated with favorable external factors over the past decade or so, such as the outbreak of Early Death Syndrome (EMS) in Asia and increased demand for in-shell (HOSO) shrimp in China (see Figure 3).
Figure 3: Growth drivers in Ecuador, 2005-2022.
Although Ecuador now produces an average of only 6 tonnes/ha per hectare, Ecuador's most productive shrimp farms have fully adopted the new shrimp farming model, with yields as high as 15 tonnes/ha/year, which can produce 3-4 shrimp a year, about 4.5 tonnes/ha per cycle. While this may not be achievable for the average shrimp farm in Ecuador, some large shrimp farms may significantly increase productivity. Once this result is achieved, Ecuador's average productivity per hectare should be at least 10-12 tonnes/ha/year. The consolidation of the agricultural sector can also help to further increase productivity: stronger players can also improve productivity and profits by using their expertise and capital to upgrade the shrimp farms they acquire.
The increase in production in Ecuador has also been accompanied by a gradual increase in farming density. Today, it is not surprising to see a farming density of 30-35 tails/m², which is higher than many shrimp farms in India. But Indian shrimp farmers on the other side of the globe have had a bad experience with increasing farming intensity, and if Ecuadorian shrimp farmers push the boundaries of pond capacity, they may face consequences similar to India's in the future. While it's unclear how much carrying capacity Ecuador's ponds have, recent reports of harmful algae outbreaks in Ecuador's shrimp ponds may be seen by some as a sign that it limits expansion.
Will China absorb more Ecuadorian shrimp products, or will Ecuador accelerate its penetration into other markets?
Let's assume that Ecuador is able to avoid production problems and that its shrimp production continues to grow at the same rate as in previous years. In this context, it remains to be seen to what extent the global market will be able to absorb this growth. Will Ecuador continue to expand its shrimp markets in China and southern Europe? Or do you have to compete in the value-added shrimp segment?
In the case of HOSO shrimp, China has been the main market for absorbing most of Ecuador's production, however, as demand from China has dropped significantly during the pandemic, it is clear that Ecuador has not found many other markets to sell its HOSO shrimp, so exports of headless shell (HLSO) and skinless shrimp products to the US, Europe and other markets have surged. In the second half of 2022, Ecuador's exports to China rebounded again as Chinese demand strengthened, and the growth rate of exports to the United States and Europe declined, and in January 2023, China even accounted for 62% of Ecuador's total shrimp exports.
Figure 4: Ecuador's relative dependence on China from 2010 to 2023.
Although Ecuador's dependence on Chinese exports of HOSO shrimp has risen again, and the growth rate of exports to other destinations has declined, this does not mean that the volume of exports to other destinations has decreased. After strong growth during the pandemic (2020-2021), shrimp exports to Europe and the United States increased by 2% and 3% respectively, despite the reopening of China's import market in 2022.
Figure 5: Ecuador's absolute dependence on China from 2010 to 2022.
As China's demand for imported shrimp has only recovered strongly since the second half of 2022 (see Figure 6), Ecuador may not have to penetrate further into other markets to sustain its growth if China continues to maintain current purchasing levels throughout 2023. However, it remains to be seen whether China will continue to buy once Ecuadorian prices rise, as demand from the US and Europe also increases from April. If China stops buying, Ecuadorian exporters will have to speed up penetration into other markets to be able to sell the expected increase in production. In these markets, they will compete directly with Indian and other Asian suppliers.
Figure 6: China's shrimp imports from Ecuador in 2021 and 2022 show strong growth in the second half of 2022.
Can moving away from traditional strategies allow India to avoid direct competition with rivals it cannot easily defeat?
While today's Chinese demand for Ecuadorian shrimp may be a relief for Indian exporters, Ecuador's rise as a major competitor over the past two or three years clearly shows that the Indian shrimp industry must move away from traditional strategies to maintain its competitive edge.
From 2021 to 2022, India's exports of HLSO shrimp and HOSSO shrimp products to the United States have been hit hard. But as exports of HLSO and HOSO declined, Indian exporters managed to quickly increase exports of cooked shrimp products. After investing in new plants and cooking capacity over the past few years, Indian companies such as Sandhya Aqua, Devi Fisheries, Devi Seafoods, Sandhya Marines and Choice Canning – have successfully won market share in the cooked shrimp market in the United States, hurting market share in Vietnam and Thailand. Total U.S. imports of cooked shrimp rose 6% year-on-year to 142958 tonnes. Among them, India's export volume increased by 36% to 56,854 tons, accounting for 39% of India's market share (see Figure 7).
Figure 7: U.S. cooked shrimp imports from 2019 to 2022.
In addition to cooked shrimp, the market for breaded shrimp in the United States is also growing. From 2021 to 2022, imports increased by 14% to 700,000 tons. Although India has not yet played a significant role in the US breaded shrimp market (see Figure 8), India's breaded shrimp exports are slowly expanding: as part of the shift to value-added shrimp products, production capacity for breaded shrimp products is also being intensively expanded. Nekkanti Seafoods, one of India's largest exporters, opened a new plant dedicated to bread products at the end of 2022, for which Devi Fisheries also built a new plant, which will open by the end of 2023. Of course, there may be other projects in India, but I didn't notice.
Figure 8: U.S. imports of breaded shrimp.
Although Indian exporters previously saw no need to diversify their shrimp products, the fierce competition for raw, frozen, HLSO and HOSSO shrimp, and the fact that the US cooked and breaded shrimp markets are growing, making the shift to value-added shrimp products a priority for some of India's major exporters, Indian exporters have access to cheaper raw materials and labour compared to most competitors in other Asian countries and should be able to penetrate the value-added shrimp market further.
In addition to switching to value-added products, Indian exporters are encouraging shrimp farmers to switch from vannamei to farmed Penus monodon. While there was initially some resistance and the need to establish a market for Penaeus monodon, it is Indian shrimp that prevents direct competition with Ecuadorian shrimp and guarantees some competitiveness when penetrating into other competitive markets.
Fifth, targeting the Indian domestic market has become a top priority
India has a domestic market of 1.4 billion people, and although the country has many poor people, it also has a rapidly growing affluent middle class. According to a recent report, the middle class will double from 14 percent in 2005 to 31 percent in 2022. In addition, India has a wealthy upper class of 1.8 million, and these growing middle and upper classes can afford more expensive protein, and shrimp can and should be part of their dinner table.
Image 1: Licious' online store, where consumers across India can order meat and fish for home delivery.
Traditionally, Indian consumers buy fresh meat and fish at wet markets, which are estimated to be worth $5.5 billion. However, the conditions in these markets may no longer meet the needs of today's middle-class urban consumers in India. Several startups are revolutionizing the domestic fresh meat and fish market by developing large-scale cold chain logistics networks and door-to-door delivery services. Companies such as Licious, Fresh to Home and Captain Fresh, which have raised hundreds of millions of dollars and serve consumers and restaurants in most Indian cities, also offer shrimp, but shrimp is not yet a staple food for most Indian consumers.
Photo 2: Zhingalala is a shrimp restaurant and home delivery company founded by Manoj Sharma, a leading shrimp farmer and industry representative from Gujarat.
The Indian government, as well as the shrimp industry itself, is investing more to boost domestic shrimp consumption. They organize festivals, open shrimp restaurants and run consumer campaigns through media channels. During my recent visit to India, I learned of some exciting developments that will soon be in the news, and most people rightly believe that it is only a matter of time before domestic shrimp consumption increases in India, for example, the Indian Seafood Exporters Association estimates that in due course, the domestic market should easily absorb 300,000 tonnes of shrimp per year.
A major challenge for the shrimp industry is that Indian consumers often do not accept frozen shrimp products, and the efficient supply of fresh shrimp is challenging. Several shrimp exporters have set up retail stores through which they try to sell frozen shrimp to nearby consumers, but they often fail to reach larger urban consumption centers. Companies like Licious and Fresh to Home don't offer frozen products. Of course, a major opportunity for the Indian industry could be to apply a newer model of thawing frozen shrimp based on demand close to consumers, repackaging and offering new products as such. If this model is accepted in India, it could become a major driver of domestic shrimp consumption.
Perceptions of Indian shrimp must change
One thing that is increasingly acknowledged by those involved in the Indian industry is that Ecuadorian shrimp is superior to Indian shrimp if India competes directly with Ecuador, which means that even if they focus on promoting shrimp consumption in these markets, the benefits to Ecuador may outweigh the benefits to India.
Image 3: Ecuador's sustainable shrimp partnership is part of the reason Ecuador's shrimp competition is strong.
Ecuador has done an excellent job of marketing its shrimp as a premium product, with individual companies, entire industries and governments all sending the same message: Ecuador's shrimp are healthy, tasty and sustainable, and make consumers think "it's the best shrimp in the world", as evidenced by sustainable extensive farming models, sustainable intensification, vertical integration and large-scale farming.
For Indian shrimp, it is not so much whether it will grow in the short term as whether the industry can sustain its current production. One reason is disease and rising costs, and the other is related to direct competition from Ecuadorian shrimp, so India is currently opening up domestic demand and shaping a better image of Indian shrimp, in order to seize the opportunity, India needs to maintain price competitiveness and create a level playing field based on people's perception of Indian shrimp, which will not only help India compete with Ecuador, but also help India compete with Asian competitors for cooked shrimp and higher value-added shrimp products.
In the long run, as the global demand for protein continues to increase and more consumers seek more diversity in their protein choices, global shrimp consumption will increase, and the shrimp industry in Ecuador, India and other countries will have the same room for growth.