The COVID-19 pandemic and its aftermath brought the aquaculture industry no shortage of turbulence, logistic obstacles and market disruptions. Despite these challenges, the aquaculture industry persevered and came out strong thanks to its collective high resilience and adaptability during this period.
Our Zinpro® team had the pleasure of hosting a webinar session with Gorjan Nikolik, senior industry analyst from Rabobank, to discuss a detailed industry outlook for the year 2023. He gave our team and our partners insights about the aquaculture industry and upcoming trends that will help us all build a more comprehensive understanding of the main aquaculture segments including salmon, shrimp, tilapia and pangasius. We’re sharing a summary of those core challenges, opportunities and key actions that you can leverage moving forward.
Challenges, Opportunities and Key Takeaways for the Aquaculture Industry
Challenges: Salmon supply is expected to remain tight in 2023 after a 0.9% dip in production in 2022. Other major challenges include:
- Norway, the main producer accounting for over 51% of global production, is facing significant challenges hindering growth. Issues such as colder water temperatures reducing biomass growth and a new tax regime proposed by the government, that are challenging industry profitability and derailing new projects and investments.
- Canada, the fourth largest producer has been also facing issues with restrictive regulations.
- In parallel, land-based salmon projects slowed the pace of development due to skyrocketing energy and constructions costs, pushing the expectations to bring significant volumes to the market farther in the future.
- Adding to the mix, feed costs are expected to peak in 2023, pressuring even more production costs that grew more than 75% in the past 10 years.
Opportunities: Despite those hurdles, a growth between 0 and 2% is expected for 2023 production. With salmon demand keeping strong and product offering remaining tight, prices will likely sustain high average levels around 80 NOK/kg (7.5 US dollars/kg). Chile, the second most important producer is increasing stocking, which could bring some good news in the coming years. With the complex scenarios in Norway and Canada, other producing countries could take the opportunity to try to attract new investments and gain market share.
Key Takeaway: Negative short-term reactions observed in Norway like accelerated harvesting to avoid taxation, or cancelation or postponement of new projects may spark initiatives to develop new solutions and technologies in case the new tax regime prevails. Alternatives such as off-shore and land-based production optimization could be an option, but the impact is not likely to be felt for the coming years. Meanwhile, the industry will have to fasten their seat belts and keep advancing on solutions to increase feed efficiency and support healthy animal growth, as environmental challenges may arise along the way.
Challenges: The industry started 2022 with high prices and demand but suffered a dramatic drop in the second half of the year. Other challenges include:
- Negative growth rates were registered in Q3 2022 in US and EU markets, but compensated by the strong acceleration in China, benefiting mostly the Ecuadorian market.
- Growth predictions are still positive for 2023, but being reviewed as the market will face growing challenges with decreasing market prices and increasing costs.
- India could not maintain the recovery speed from 2021, partially due to the reliance on the US market, limited domestic consumption and challenges related to farming and competitiveness.
- An uncertain outlook is expected for Indonesia too, as the country directs 70% of its shrimp exports to the US market, that may contract.
- Feed costs increased by 30% from 2020, and are expected to increase even more, as well as increased energy costs. Shrimp market prices are likely to decline, putting profitability at risk.
This mix of factors can potentially lead to supply retraction. Considering that shrimp has a shorter production cycle, farmers can quickly react to reduce stockings in the following cycle, generating short to medium-term impact in supply.
Opportunities: Growth projections are around 3%, with more potential good news if demand heats up due to the competitive shrimp market price – that remains relatively cheap for consumers compared to other protein sources. Thinking about the long-term, the shrimp industry has the potential to achieve CAGR of 4%, reaching seven million metric tons by 2030.
Key Takeaway: Different than our observations in the salmon segment, shrimp market prices are expected to drop significantly due to considerably high product availability and sluggish demand. This scenario will squeeze margins and producers will be challenged to be even more efficient to mitigate this impact and build resilience.
Tilapia and Pangasius
Challenges: The tilapia industry experienced a production decline in 2020 but since has been in a steady recovery path. Challenges for tilapia production include:
- From 2010 to 2020 the industry sustained a 5.6% CAGR, slowing down to 3 to 5% in the following years.
- China production has been relatively flat, growing below 1%.
- Indonesia is performing better but under 5%.
- Egypt that is oriented to their domestic market had a sharp decline in 2020 but could bounce back supported by a 5% growth rate.
- While growth has been steady from the production side, trade has been very dynamic. 10 years ago, China exported tilapia mainly to the American market, more recently switching to export to Mexico and regaining share in the EU and US. Trade value fluctuated with ups and downs and seems to be in a recovery path in the last three years.
Pangasius remains a major competitor for tilapia in trade and is more than twice as big in value. Vietnam is the absolute leader in pangasius production and exports but has faced challenges in the past few years. Initially focusing on the European and US market, Vietnamese producers developed the Latin American market and redirected focus towards China that today accounts for 40% of Vietnamese exports. Pangasius frozen fillets also overtook the tilapia frozen fillet imports in the US in 2021.
Opportunities: Emerging markets like Bangladesh and Vietnam have been growing at a rate of double digits, but they still aren’t making a significant impact on the global output. In Latin America, Brazil and Colombia are the major tilapia players and Brazil has consolidated a large industry based on domestic consumption and growth of integration systems. Differently than shrimp and salmon, tilapia has consolidated domestic markets that may grow slowly, but with more stability compared to other export-oriented commodities.
Key Takeaway: While pangasius will keep progressing on its path as a leading white fish export, tilapia is expected to keep expanding and growing. This growth is supported mainly by domestic markets around the world, but tilapia producers are also trying to reach high value niches, especially on the fresh fillet market. Trade volumes and values are expected to follow the trends in the last decade without fluctuating sharply.
Insights from Our Partner Driven Question and Answer Session
Nikolik gave our partners the opportunity to ask questions that allowed our conversation to go into even more insightful detail. Here are some of the key questions and answers Nikolik provided that I found very valuable and insightful:
What impacts will we see on shrimp and salmon markets caused by an economic recession? An economic recession in United States and Europe is likely to affect shrimp prices more than salmon. There was a reduction in shrimp consumption at the retail level registered in the last half of 2022, but a turnaround can be expected for 2023. Salmon consumption remained strong throughout the year and the supply is tight.
When will RAS production (Recirculating Aquaculture Systems) show significant contribution to worldwide salmon supply? And will it take off in Norway? It is still hard to predict when projects will make a breakthrough to deliver significant production in the market. In a realistic scenario, we could expect it by the end of this decade. Full RAS production facilities are expected to be developed closer to consumer markets such as the United States, China and Japan. In Norway, an increase in flow-through systems can be observed, depending also on how new tax policies will unfold. Ongoing projects suffered challenges in 2022 related mainly to energy and construction costs.
Why is reduced supply in 2023 expected in salmon, especially Norway? Colder water temperatures negatively affected fish growth in 2022, resulting in lower biomass. As salmon has a two-year lifecycle, this impact will be carried over to the next year. Another factor was the increased harvest end in 2022 to avoid the new tax regime being initiated in 2023.
If shrimp exports from Ecuador to China stagnates, what would be the most attractive alternative markets to Ecuador? Ecuador should be able to export to the United States, or any other market, since frozen shrimp is a globally traded product. But no other market opportunity is near the size of China for Ecuador.
Is the shrimp export market mainly driven by volumes and prices, or can certification and product quality can weigh in? It all matters, but so far shrimp has been relatively undifferentiated. Price is key, followed by animal size and color as key features buyers look for. Certification is needed for Europe and the United States.
Can alternative and novel ingredients help to reduce feed costs soon? Novel ingredients such as insect meal, single-cell proteins, etc., are still not available at a significant scale for feed producers. Further, price points expected for most of those ingredients are likely to remain at current levels or above compared to protein sources. Thus, resulting in limited to no cost reduction in the feed formula.
Partner with Zinpro to Build a Plan for Success for Your Aquaculture Business
How to keep aquaculture growing without putting profitability at stake will be a key challenge ahead. The arisen challenges may offer the industry new opportunities to improve key areas and consolidate new technologies, management practices and improve nutrition. Beyond these concerns we must not neglect the risks associated with environmental conditions and disease, and the ambitious sustainability goals of the industry.
Navigating in this complex scenario will require high dexterity to invest in the right technologies to enable resource optimization, risk mitigation and profit protection. Having the right partners will help increase your confidence as you face and overcome these obstacles. At Zinpro, our team has been collaborating with key industry players to improve nutritional strategies using Zinpro® Performance Minerals®, innovative tools and unrivaled solutions to tackle challenges related to health and wellbeing, feed efficiency, increased yield and product quality. By working together, we have helped our customers finetune their performance gains.
Discover the additional resources below to learn more, and contact a Zinpro aqua specialist to discuss the right management solutions to help your aquaculture customers perform at their best.