The $20bn market your startup does not know about
Did you ever wonder where all those shrimp are coming from? No? Well, I’ll tell you anyways.
Scampi, prawn, shrimp, whatever you wanna call these tiny tasty saltwater crustaceans, there is hardly a way around them in really any big cuisine in the world. With the world now consuming more farmed seafood than wild-caught, we are looking at a more or less 1:1 ratio of wild caught and farm-raised shrimp. The farmed shrimp sector comes with a valuation of just over $20bn and shows an impressive 10% per annum growth rate.
While farmed shrimp have enjoyed a rather dubious reputation in the past, production conditions on many farms have rapidly improved in the last few years. This is not just due to consumer pressure but also simple facts of nature and economics. Animals will not grow well and healthy in a polluted environment. Antibiotics adversely impact digestion and therefore feed conversion ratio (FCR) while being expensive to acquire (This is a personal learning from my conversation with 15 farmers in Vietnam and might not be universally true, if you have different info here, please share in the comments).
Farmers all over the world have started to understand that there is a large economic interest in keeping their animals as healthy as possible while maintaining natural farming conditions. This development has lead to a much more diversified shrimp market with some countries and regions still lagging behind while others are leading innovators, producing superior product.
Now, where is that value captured? Before they end up in your salad, shrimp make quite the journey. Here is an overview (rudimentary, at best) of what normally happens from farm to plate.
No time for this? Scroll down to the bottom for a list of entrepreneurial opportunities in the shrimp market
1.
Hatcheries and Nurseries
Where the babies come from. And let’s call the babies PL (Post-larvae, measured in days, e.g. PL 12= shrimp 12 days after its larvae stage). Ideally, hatcheries run their own breeding program and have their own brood stock on site, shrimp with desirable genetics they take the eggs from. One of the most efficient ways to achieve healthy and well-growing shrimp is called “Genomics”. In this process, shrimp with desirable attributes are identified on the genetic level (this is only analysis, zero manipulation) and brought together with favourable mates. It’s shrimp tinder, but humans with a clipboard do the swiping.
Over multiple generations, this promotion of natural selection leads to animals that show strong growth rates while staying healthy. Some large feed manufacturers run their own hatcheries, producing PL of exceeding quality. They then sell them under the condition that farmers also need to buy their feed. This way, a very strong breeding program can become a sales driver for feed, creating a lock-in effect which can hurt the farmer due to a restriction in feed purchasing decision.
Nurseries are more protected environments for shrimp to grow up in before they are put in larger grow-out environments like a pond. This is part of best-practice farming and protects the animals in earlier life-stages from disease and predators. At this point they are often fed by hand and receive ample supplements for healthy growth as well as a lot of aeration (oxygenation of the water).
2.
Grow-out on farm
Grow out is the largest part of the 3-month shrimp growth cycle. Shrimp are kept in different types of ponds or tanks here, ranging from mud rectangle or square ponds to fully closed systems made of PVC or steel that have very limited exposure to outside conditions. Generally, biosecurity is a very important aspect of a healthy operation, preventing disease from entering the farm and keeping a healthy animal environment. This varies wildly from farm to farm. A good grow-out operation regularly checks water parameters as well as animal appetite to gauge their health and keeps records of all analysis.
Disease is by far the largest culprit for any farmer and therefore constant monitoring and pre-emptive measures are key. The volatile nature of shrimp means that entire populations can be swept away within a matter of days, sometimes hours. There are currently great opportunities in these areas as digital sensors become available and modelling software supports farmers in decision making. However the current price point is still preventive for many farmers living from harvest to harvest. There are many things to consider during a successful grow-out cohort, partly out of control of the farmer like power grid dependency and water source quality. Due to the fact that shrimp operations often occur in large clusters, problems often spread from farm to farm through the water source due to lesser standards of sometimes just a single member of the local ecosystem. This is extremely frustrating for best practice farmers, therefore more wealthy ones control their water source through filtration and testing where they can.
3.
Harvesting and transport
Harvesting and transport are crucial elements that can make or break product quality. A harvesting under overly stressful conditions for the animals can deteriorate quality. Direct cooling is beneficial, proximity to your processor as well. Transporting harvested shrimp over long distances can cause issues with quality, that’s why there are many rudimentary solutions for live transport. However, there is currently no incentive to invest in better live transport methods due to the end market not being interested/not being educated enough to distinguish between different quality levels. There is currently simply no large market willing to pay premium pricing for higher quality shrimp. Many countries have a middle man between farms and processors, called the “collectors”. These can range from serious and highly professional structures to mafia-like repression where small farmers are being taken advantage off by employing a “divide and conquer” strategy within a certain region. In some regions, communication and unionising between farmers is often actively discouraged while competition and distrust is spurred in order to prevent knowledge and price information exchange. Farmers however are very aware of this and often organise themselves regionally to prevent being taken advantage off.
4.
Processing and packaging
Processing and packaging is a significant value-add to the raw product. Depending on market demand, shrimp are frozen, peeled, pre-cooked, gutted, conserved or a combination of these elements. Here a large part of the margin is tied up and shrimp are packaged for overseas shipping, depending on the processor’s value chain integration potentially already for retail sale.
5.
Trading & Logistics
Processed shrimp are not necessarily sold asap. There is significant speculation in the trading of seafood, where traders buy capacity and hold it until prices improve or they have to sell. Regulation on timeframes differentiate between legislations, but the target market needs to be considered when holding “fresh” product. Shipping occurs in normal containers with integrated cooling units.
6.
Wholesale & Retail
The largest part of the shrimp tend to reach their target market through a wholesaler who distributes among different retailers with different end customer sales points like supermarkets and restaurants, where a significant part of the margin is captured. E.g. all in all, shrimp from small scale farmers from South East Asia gain up to 1000% in value from farm gate to western world plate.
(This number applies to vannamei shrimp from small-scale farmers coming from the Mekong Delta in Vietnam. This can look very different from country to country, even region to region or farm to farm depending on their negotiation skill and local degree of organisation as well as current market.)
Interested in learning more and seeing the data for yourself? There is a website dedicated to understanding farming shrimp in much more detail, having documented production in the 6 biggest producing countries. Head to www.shrimpfarm.tech for some of the most recent insights out there.
Supporting Industries
Where the farmers spend their hard-earned shrimp dollar
Probiotics/Feed
Feeding and animal health is directly connected and by far the largest cost in shrimp farming (approx. 50% of the entire cost structure). There are many multi-billion $ feed companies supplying the world of aquaculture as well as building additives that promote healthier animals. Many farmers build their own probiotic additives and the best ones have made a business out of selling them to their fellow farmers.
Financing
Access to money is one of the most difficult things for shrimp farmers in many countries, since the crop is not insurable and they are often unable to provide collateral. Feed credit is often the only form of financing, where farmers pay their feed bill after they have sold their harvest. This however can lead to strong dependency on their feed provider and some providers take advantage of smaller farmers inability to source other financing.
Parts/hardware
While some producer countries are already strongly relying on digital technology and name-brand equipment with warranties and professional maintenance intervals, others are building or having their equipment built at the local workshop, copying whatever they can find on the world market and constructing much cheaper versions of it. For instance, an oil drum and a lorry break pad rotated by a scooter engine can make a fantastic automatic feeding system. In fact, some of these makeshift solutions have become so successful that they have spread across entire countries and the name-brand supplier has no significant advantage in functionality anymore while being outpriced by their small local workshop competitors, therefore struggling to even generate interest with the more wealthy farmers.
Opportunities for entrepreneurs
The fragmented and partly ineffective nature of the industry creates great opportunity for entrepreneurs. Especially in the regions of:
• Nutrition/Oral “vaccines” (you cannot actually vaccinate shrimp in the medical sense due to biological reasons, this is rather an expression for a ongoing immunisation without medication) for shrimp/any effective disease management
• Data collection and modulation to increase production efficiency and transparency
• Effective and energy-efficient aeration
• Affordable, sturdy and easy-to-use diagnostic tools (test kits for disease, best case based on early indicators before outbreaks)
• Smart brood stock selection and breeding programs (Genomics)
• Automation of labour-intensive and ambiguous processes like larvae-counting in the hatchery and biomass estimation for grow-out ponds.
Should any of this be even remotely bordering your company’s competency, you might want to take a closer look how you can leave your mark in the sector. Finding yourself some clients to visit in Vietnam, Ecuador, Indonesia, India, China or Thailand can also do wonders for team moral as well as your own — take that on faith from me.
Curious? Find the most recent data at www.shrimpfarm.tech
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