"Between a rock and a hard place." So graphically is how Rabobank describes the global aquaculture outlook for the rest of the year. While demand in China is not recovering from the pandemic as quickly as expected, in the U.S. and Europe it remains weak due to inflation. "With demand softening and El Niño driving fish meal prices higher, 2H 2023 is expected to be the most challenging period for global aquaculture since the peak of the pandemic in 2020," the report says.
Rabobank's forecasts speak of a decline in profitability as a result of lower prices and a shortage of fishmeal, however, they warn, this will not affect all sectors equally. According to the Dutch bank, salmon appears to be relatively better placed than shrimp for what lies ahead.
To understand why the remainder of the year will be somewhat easier for salmon than for shrimp, we start by looking back. In terms of profitability, during the first half of 2023, the salmon industry had one of the best periods ever recorded. The key to that result was record prices which, although they have been correcting to more normal levels as 1H 2023 progressed, are still high by historical standards.
"The European salmon industry is currently the most profitable aquaculture industry in the world," says Rabobank, which adds that "even with somewhat lower salmon prices in 2H 2023, it will still perform strongly." Meanwhile, in the United States, prices have normalized from record levels thanks to improved Chilean supply. However, they are not expected to fall further in the remainder of the year.
The report also states that, after almost two years of contraction, salmon supply will return to growth in the third quarter. Nevertheless, it also recalls some challenges it will have to face, such as the Norwegian salmon tax, which began to be applied retroactively as of January 1, 2023. "The 25% resource tax in Norway is now a reality and will have a negative effect on sector growth, at least in the near term," it says. In Chile, meanwhile, the threat comes in the form of the weather phenomenon El Niño and its possible consequences on salmon farms.
Thus, while salmon experienced a 1H 2023 of maximum profitability, the shrimp sector, on the other hand, faced a very difficult period. Although Chinese importers were prepared to supply the pent-up demand by buying record quantities of shrimp, it was not enough. Low demand from the West and high supply from Ecuador caused prices to continue to fall.
According to Rabobank forecasts, such record shrimp import demand from China will not be repeated in the second half of 2023 as end-consumer demand has been lower than expected, resulting in large frozen inventories. Meanwhile, in the US, shrimp prices are at their lowest level in ten years, even below the low point of the 2020 Covid lockdown period. Despite this, market demand remains weak. Therefore, if the situation does not change in the U.S., and as Chinese demand declines, the fall in global shrimp demand could even worsen.
As with Chile and salmon, in Ecuador, shrimp farms could be affected by El Niño. However, it is the Asian industry that faces a difficult period of record low prices due to oversupply caused by Ecuador's growth. "The supply contraction that started in 1H 2023 is likely to continue and, at least for India, accelerate as virtually the entire industry is operating at a loss per kilogram sold," the report states. According to Rabobank, Asia's shrimp industry is entering what could be the most difficult period since the outbreak of early mortality syndrome (EMS) in 2011.
In addition to salmon and shrimp, there is a third aquaculture sector on which the entire industry has its eyes: aqua feed. Midway between the strength of one and the weakness of the other, in the first half of 2023, producers of fish meal, and especially fish oil, enjoyed record prices due to good demand and high prices for alternatives. However, this was achieved while the supply of fishmeal and fish oil was relatively good, something that has already started to change.
El Niño conditions have already led to the cancellation of the first anchovy fishing season in Peru, opening the possibility of acute supply shortages. Although there is hope that the impact will be contained for one season and may recover in 2024, and the feed industry assures that it is ready, the truth is that, according to the report, this will mean that aquaculture feed prices will not experience the correction that was expected due to the drop in soybean meal prices.
"Aqua feed prices will be supported due to scarcity of fish meal and fish oil," the Dutch bank claims. Although demand for fishmeal and fish oil appears solid by now, high prices will force many to ration and substitute. In fact, the arrival of El Niño in Peru and the subsequent closure of fisheries will pose a serious challenge, especially for the Chinese aquaculture industry, which sources 50% of its fishmeal from this South American country.
