The Indonesian shrimp industry is currently in a strong competitive position in the global market, but three market forces are threatening its position: low-price competitors, market demand and traceability regulations, and an intensifying need to cope with the high risk of disease and environmental threats.
Low Price Competitors
The global competition in the shrimp industry has increased sharply for L. vannamei in recent years. India, in particular, has flooded the market with low-price shrimp, and other countries such as Vietnam and Ecuador, are expected to ramp up production as well. With such a large supply of low-price shrimp available, prices will continue to decrease. Because of their relatively high production costs, Indonesian companies cannot compete with countries such as India to sell shrimp at lower prices. A change is needed.
Indonesia’s number-one market for shrimp in the US: 80% of L. vannamei exports are to the US, as well as 47% of P. monodon exports. India is currently the leading exporter of shrimp to the US, claiming about 32% of the market and selling at significantly lower prices. If the prices of Indonesia’s US export dropped to match India’s current prices and Indonesia’s processors translated just 50% of this price difference to the farm gate, Indonesian farmers would barely make a profit.
Market Demand and Traceability Regulations
In 2018, the US expanded its Seafood Import Monitoring Program (SIMP), which establishes reporting and record-keeping requirements for seafood imports, to cover shrimp. Because the US is the most important export market for Indonesia, SIMP has had a major impact on the Indonesian shrimp industry, especially when the standards have been strictly enforced. SIMP will likely have a similarly negative impact on the Indian export market given India’s relatively low traceability standards.
In the wake of food safety scandals, China has also imposed stricter import regulations by passing new legislation and urging lifetime bans for offending importers. Although China is not the main export market for Indonesia, these moves exemplify the current global trend toward increased traceability and health standards.
The demand for traceability also is fueled by a fast-growing niche market for sustainable and traceable seafood, and some companies are beginning to capitalize on this trend. A group of companies in Ecuador, for example, established the Sustainable Shrimp Partnership to produce fully traceable shrimp while improving environmental and social performance. As first movers act on this trend toward traceability, Indonesia finds itself in a precarious position regarding its exports. It risks losing share in the global shrimp market. Given its strong domestic market for farmed shrimp, the shift toward traceability and sustainability affects Indonesia less than other Asian countries, but over time, it could have a devastating impact on Indonesia’s export business.
Some companies in Indonesia have started to make progress on traceability. In 2014, Indonesia’s Ministry of Marine Affairs and Fisheries (MMAF) launched Aquacard, a traceability system that aimed to help buyers trace shrimp back to the farm where it was produced. It is, however, unclear how much this system is being enforced. A small number of companies are also getting their shrimp certified through international certification bodies, such as Best Aquaculture Practices, Aquaculture Stewardship Council, GlobalGAP, and British Retail Consortium, but only a small percentage of shrimp in Indonesia is assumed to be truly certified, and some farms have been accused of not fully complying with certification standards.
For several reasons, including the three given below, Indonesia needs to shift toward traceability and sustainability now:
- Indonesia has earned a reputation as a reliable shrimp source. From March 2014 through March 2019, only 71 entry lines were rejected at the US border. By contrast, during the same period, 396 entry lines from India were rejected. Countries that fail to meet regulatory requirements face serious and lasting repercussions. Adherence, therefore, is critical.
- In 2019, the US announced the end of its preferential trade agreement with India. This means that Indian shrimp could be subject to new duties.
- By increasing sustainability standards within the supply chain, the Indonesian shrimp industry can tap into a new market, build an even stronger competitive position, and become a leader in this segment in the US. Other markets in which Indonesia has not yet established a strong position might be more difficult to penetrate, but the US provides an immediate opportunity.
High Risk of Disease and Environmental Threats
Extreme weather events and outbreaks of dis-ease can dramatically disrupt shrimp production. These risks are expected to increase in frequency and severity, particularly in regions such as East Java and East Kalimantan, due to climate change and ongoing mangrove deforestation. Environmentally harmful shrimp farming practices also contribute to the problem. Lack of water treatment, for example, leads to eutrophication, diffusion of antibiotics, the spread of disease, and ultimately the destruction of coastal areas, biodiversity loss, groundwater depletion, land degradation, and erosion.
There is a strong financial incentive for farmers to become more resilient. For an intensive L. vannamei farm, a natural disaster could lead to crop losses totaling $31,700 per crop per hectare.
To mitigate risk and build resilience, farmers need to protect their farms from changing weather conditions and reduce their environmental footprint. Some Indonesian farmers have already begun to develop supra-intensive ponds lined with cement that are more resistant to environmental threats. They are also using a central drain to dump shrimp waste, excess food, and other waste that accumulates at the bottom of the pond. This approach allows for higher stocking densities and less wastewater discharge, and it reduces risk from environmental hazards. However, as the ponds are still constructed outdoors, the disease can spread, and complete control over water conditions is not possible.
Indonesia could increase its competitive position in the global shrimp supply chain by shifting to more sustainable and environmentally sound production. New production methods will lead to higher margins and also open up a sustainable niche market for producers. However, immediate changes on the farm and processing levels will not be sufficient. The industry must improve sustainability and traceability across the whole supply chain to truly tackle the challenges the industry is currently facing.