25 August 2021 - Most COVID-19 related disruption for the aquaculture sector took place at the onset of the pandemic in Q2 2020. However, since then the entire supply chain has generally experienced gradual recovery through the second half of 2020 to H1 2021.
COVID-19 resulted in numerous challenges to the sector, notably at food service level where demand dropped significantly, reducing prices of shrimp and salmon, but it also brought along new opportunities. Direct retail sales, online sales and home deliveries have gained in importance, and there have been structural changes within the sector, more adapted to the shifts noticed.
This response of the sector and its adaptability was born out of operators’ resilience, with many stocking production to avoid a collapse in prices, and with the help in some cases of government mitigation measures to help protect the sector.
A strong recovery of demand for salmon and shrimp was seen in nearly all global markets, notably in western countries, especially in the US. China, a leading importer, remained a depressed market due to restrictions to seafood imports and COVID-19 testing. Chinese seafood import recovery is gradual and will take time.
According to Gorjan Nikolik, seafood analyst at Rabobank, overall, the lower prices and production issues for shrimp last year largely resulted in supply correction. Global shrimp supply is currently increasing driven by good demand.
“The sectors that can respond are already responding. Shrimp is increasing supplies,” he said.
“Salmon will increase supply too, but it will take a while. It will not be until later next year that we will see the effects,” he added, also saying that the market in 2021 will be driven primarily by Norway (up approximately 6-7% in 2021, according to Rabobank estimates), while Chile will be back to growth in 2022.
Due to inelastic supply, the salmon industry could only make incremental changes. After what he describes as a “salmon tsunami” in Norway in early 2021 (up approximately 17% in Q1), the rest of the year is expected to see negative supply growth.
Rabobank predicts globally salmon to increase by 2% in 2021 as the rest of the world can only expand marginally to make up for lost volumes from Chile this year.
The US is currently the strongest demand driver for both shrimp and salmon globally. Prices in the US were low, and suddenly there were a lot of consumers wanting to cook at home.
“Many seafood products consequently were able to increase their retail market penetration, picking up new consumers,” Nikolik commented. “And now, as food service is opening up, you see the old channels are picking up again too. But the retail demand is still there and not declining. So now we really have an uptick in demand.”
However, not all the seafood species can respond from a supply point of view. Shrimp, for instance, has a short cycle and a quite a lot of capacity to grow, which explains why we are seeing rapid growth this year with all the major producers increasing supply. For salmon, however, it is more of an 18-month production cycle.
Feed Costs
The seafood industry has also had to deal with high commodity prices for feed raw materials such as soybean meal and vegetable oils. During the pandemic, feed costs were higher due to these higher commodity prices. This has to be considered in the context of high transport, labour and logistical costs.
“Unfortunately, the [seafood sector] profitability that we're seeing now in 2021, due to good prices and good demand, is not quite as high as it could have been because we have higher feed costs,” Nikolik commented.
But Rabobank estimates that the peak has been reached and much higher commodity prices for the remainder of 2022 are not expected. In addition, COVID-19 related transportation costs should also normalise.
Fishmeal, meanwhile, seems to be the exception that proves the rule. Rabobank explains that prices for fishmeal have been historically volatile. African Swine Fever in China in 2019, COVID-19 in 2020, and relatively stable supply have generally softened prices. 2020 prices were lower than 2019 levels. And China remains a major demand driver for fishmeal due to its recovering pig herd and aquaculture industry which is supplying the food service sector.
“A lot of people associate fishmeal with volatility, but actually fishmeal has been a relatively stable factor when it comes to the ingredients aqua feed companies have been buying in the last two or three years. There have been a number of fairly good seasons from Peru and supply overall for fishmeal and demand has been quite good. Prices are steady. And that has been the case for three or four years now, so volatility isn't that high,” Nikolik said.
However, H2 2021 fishmeal supply is expected to be lower or similar compared to last year, and continuous demand coming from aquaculture will likely lead to increased prices in the long term. In 2021, Rabobank expect prices to range from $1,300/tonne to $1,600/tonne, depending on climatic conditions.
Moving forward, higher prices for seafood will encourage growing supply in 2021 and in 2022, and in turn boost demand for aqua feed.
Nikolik said: “We will see how long it takes for those feed costs to come down. That will happen probably in the next two years or so.”