Boosting Mexico’s shrimp aquaculture industry: seizing the opportunity.

Boosting Mexico’s shrimp aquaculture industry Series 2:3

As we mentioned in the previous article, the opportunity for Mexico to significantly increase its shrimp production and its presence in the international markets will be defined in the next 12 months, a period that will be marked by the volatility of the marine freight costs, which are raising the prices of the products transported by this means, affecting many US shrimp suppliers.

Associated with the increase in ocean transport costs, there has been an increase in the prices of seafood (including shrimp) above inflation levels. Despite this, the trend to purchase these products in the Christmas season is upward according to the Datasembly Price Index, which means that consumption remains stable, increasing the transaction value of these products. By eliminating the costs associated with the increase in the price of maritime transport, these price premiums (with increases of up to 6.7% compared to the previous year) can go directly to Mexican shrimp farmers, allowing to mitigate the investment cost necessary to obtain a good part of the US market.

In this article of the series, we will discuss some necessary aspects that have to be undertaken to take advantage of this opportunity. This must be approached by two means: management at the farm level, and the organization of the industry (both at the collective industry level and through support from the State).

We identify three different objectives according to their temporality. Let’s call them short-term, medium-term and long-term objectives.

The short-term objective is pretty clear: to gain a share of the US shrimp market that is vacant due to the problems observed in marine freight.

The medium-term objective is ambitious, but necessary to seize this opportunity: to maintain the gained market and stabilize the production and supply of Mexican shrimp into the US market.

Finally, the long-term objective is even more ambitious than the past two: to increase Mexico’s shrimp production and transform the country into one of the biggest shrimp exporters worldwide, exporting shrimp and cutting-edge research and technology for the industry worldwide.

With this in mind, we present the elements that we consider are key to achieving the objectives described above.

Seizing the opportunity at the farm level: To achieve the objectives presented above, farmers must make decisions to increase productivity. The decisions made must be aligned with all different goals described. Here we define the key aspects and decisions that producers and farms must undertake to take advantage of this opportunity.

1. Short-term decisions:

This group of recommendations brings together the most urgent measures that a producer must contemplate. We consider three key areas to focus on to guarantee success: operational improvements (those decisions that directly affect the production itself); strategy (those decisions that are not directly associated with production but are essential for the proper development of the company); and supply.

• Operational improvements: Let us remember that Latin American countries base their shrimp production on extensive systems. This type of production minimizes risks and operating costs; however, it also significantly reduces farm productivity. The first step to taking a share of the export market is to increase productivity. For this, it is possible to increase the intensity, going from extensive / semi-intensive systems (between 5 and 35 shrimp per m²) to intensive or super-intensive systems (with densities between 100 and 300 shrimp per m²).
  To ensure success in this step, it is necessary to improve biosafety methods, including improved water quality monitoring and control methods. Both aspects can be achieved using automation technologies, through staff training, and supported by the hiring of consultants with a proven track record. Selecting genetic lines that favor growth over resistance to diseases and obtaining one more crop cycle in the year are also feasible improvements. It is vitally important that the stocked postlarvae come from SPF breeders and are certified pathogen-free.

• Strategy: Associated with an increase in the intensity of production, there must be an improvement in the production strategy, that is, an improvement in the decision-making methods relevant to the company, such as when to harvest based on market demands (for example, taking into account the increase in appreciation for medium and small shrimp by the retail industry), selection of production insurance that minimizes risk at the best cost, how to optimize costs to be able to face the investment, how much can I leverage (financially), and what product transformations are profitable for my farm. To improve decision making it is necessary to invest in skilled labor. These questions can be answered with a management team trained in finance, economics, and business administration, but they must be familiar with the shrimp aquaculture industry.
  Finally, it’s of utmost importance to certify production to enter higher-value international markets. This will help improve production methods, access better paying global markets, and give the Mexican product an advantage over other shrimp-producing countries.

• Supply: This point is key to taking a more significant part of the US market. It is important to be able to secure the chain of distribution by land to the US. This way, buyers in this country reduce the risk of uncertainty associated with the cost of maritime transport and ensure a constant entry of the product they require. According to Siam Canadian, shipment time has gone from 4 to 10 weeks. If land distribution is secured, these times can be improved, and retailers can ensure full shelves.
  Therefore, it is necessary to ensure sufficient refrigerated transport to make shipments to the neighboring country. Associated with the previous point, strategic decisions can be made regarding routes, stockpiling, scheduling, and other elements concerning the supply chain.
  
  2. Medium-term decisions:
  
  As described for short-term decisions, medium-term recommendations consider the same three essential aspects to guarantee success. In this case, the improvement objective is to secure the newly acquired market and keep the supply stable. This objective is expected to be reached in the next 3-5 years. For this, the following measures are proposed:

• Infrastructure improvement: First, it’s necessary to modify the infrastructure to improve higher densities’ performance and achieve more cycles per year. This can be done by adopting liner or geomembrane coverage, circular tanks, greenhouses, or new technologies such as vertical aquaculture. To improve the performance of new or existing infrastructure, it is best to include sophisticated sensors and automation methods and clean and stable energy generation methods, elements that have already been developed but are not fully implemented, mainly due to their cost. Finally, it’s necessary to increase the facilities for adding product quality such as cooked, deveined, or peeled while increasing the freezing capacity in line with production and commercialization.

• Strategy: It is advisable to use available technologies (geographic information, Internet of Things, Artificial Intelligence, Big Data) to have information in real-time which can help the optimization of decision-making, reduce waste, and increase productivity. The modeling of the operations in all its components facilitates decision-making and allows for signing contracts with greater security while providing the necessary data to attract greater investment capital.

• Supply: The main objective should be to increase the land fleet to cover the entire US territory and Canada, then take advantage of the marine fleet as soon as regular services are re-established. These elements are necessary to build trust with buyers, maintain business relationships once usual supply chains are re-established, and consolidate the market for Mexican shrimp suppliers.
  
  3. Long-term decisions:
  
  Finally, long-term decisions are designed to continue growing as an industry, strengthen export markets, and diversify markets in search of more business partners. Unlike the two previous points, this objective is more susceptible to variations associated with unexpected events, State decisions, economic or natural phenomena, etc., due to the ambitious nature of the objective and the expected period to achieve it of between 6 and 15 years, the strategies must be dynamic. With that in mind, the following measures are proposed to achieve it:

• One of the most significant long-term opportunities is investing in expanding shrimp production in the country’s south. This area has warm climates that allow more production cycles. Furthermore, the satellite infrastructure necessary for production success is in place and increasing, with seed laboratories, trained qualified labor, and the presence of private and public research centers. In addition, there is an outstanding coastline to favor production and sufficient labor at a competitive cost. This strategy is aligned with both the national and local plan of boosting shrimp production in the area.

• Take advantage of the position as an exporter to diversify markets (the EU, Canada, Russia, China, and Japan are significant consumers). Previous steps, such as certification, make it easier to sell in these markets.

• Maintain a close relationship with the academic world and research centers, investing in the research and development that each producer deems necessary, considering the difficulties that producers encounter.

Needs at the collective level, industry organization: For the operation to be successful, it is necessary to include all the stakeholders related to the industry and reach agreements that favor all. The actions described below require leadership, will, and community to achieve success.

1. In the short term:

As we mentioned in the short-term objectives associated with farmers’ decisions, the following recommendations are made to achieve the short-term objective: to obtain a share of the US shrimp market that the high costs and difficulties of loading and unloading of ocean freight have left available. To meet this objective, urgent measures must be taken, as the transport instability expected during the next 12 months must be taken advantage of. Thus, we believe that to take a more significant share of this market; it is necessary to follow the next recommendations:

• One of the most important steps to follow in the first twelve months of this strategy is strengthening and increasing the involvement of chambers of commerce, cooperatives, associations, and other national groups focused on the shrimp industry. This step is essential to get a coherent voice to face the industry’s difficulties and strengthen both local and export supply chains. Furthermore, this strategy needs well-organized and coordinated actions of the industry, which can only be obtained through cooperation, and these groups are vital to achieving it.

• It’s advisable to provide options for diversification of productive risk and ensure the supply chain’s capacity through rigid contracts that generate greater confidence. There are contractual tools that can be useful to strengthen this trust. The rigidity of the contracts must be equivalent to the production insurance available.

• Certify products for sale in the United States. This can be one of the bottlenecks; however, there are various professionals dedicated to implementing aspects associated with this process, so the hiring of these services should be considered.
  
  2. Medium-term:

Let’s remember that the medium-term objective is to consolidate the won market and stabilize the supply of Mexican shrimp. From the temporal point of view, it is established that this objective must be met in the next 3-6 years. To achieve this, we believe that it is crucial to emphasize the following aspects:

• There must be an encouragement to implement new technologies; this can be favored through access to cheap credit. This step requires the coordination of the private initiatives and the State to facilitate access and promote the industry’s growth. This is critical for taking advantage of the presented opportunity since the technological improvement of production would give a substantial competitive advantage to the country.

• Map the Mexican shrimp value chain and find areas for improvement. Mapping the value chain requires the cooperation of producers, transporters, intermediaries, the final consumer, as well as government and non-governmental institutions associated with the industry. Mapping the value chain helps to detect areas of opportunity and bottlenecks, which can help develop better policies (both private and public).

• Strengthen commercial relationships between Mexican suppliers and US consumers by positioning Mexican shrimp, for example, using new traceability technologies that ensure the origin and production methods used (for example, blockchain).

• Improve the energy infrastructure, promote the use of renewable energy, and improve the distribution of the national network, reducing the use of combustion generators and reducing the risk of production loss associated with the interrupted supply of energy to farms. Furthermore, this step could help the industry move closer to more sustainable production. For this, the State’s direct involvement is necessary by improving its network and the relocation of energy subsidies seeking a transition to clean energy.
  
  3. Long term:

This series of recommendations are designed to increase demand while the supply of Mexican shrimp also increases. It will also differentiate Mexican shrimp from other international markets and favor foreign investment. This will help to make Mexico a pole of production and innovation in the shrimp aquaculture industry. The following points are proposed to be achieved in a period of 6 to 15 years:

• Promote production in the southern part of the country, where the best temperature conditions are present. This can be done through financial incentives that encourage investment, both domestic and foreign. At this point, the national shrimp should be positioned in the US market; a correct fiscal and financial policy can make production in the south more attractive, creating job opportunities and economic growth in the area.

• Fund continuous research and development of the industry to stay at the forefront and spearhead shrimp aquaculture globally. The creation of a research center with hybrid financing is proposed so that the sector’s needs are solved, and the costs and risks associated with the research are diversified.

• Promote shrimp as a healthy option for protein consumption, emphasizing the added value of the national product. Even though demand is increasing, imports from Asia will normalize when marine transportation is stabilized, meaning that demand needs to increase if production continues to grow. The positioning of Mexican shrimp will help to keep the market gained.

• Once the US market is secured, expand the value chain map to find new potential buyers.

One of the significant impacts of the current pandemic on the global economy has been its effect on the supply chain. Globalization generated very long and interconnected chains that were largely dependent on their smooth operation. The closure of ports and the loss of efficiency in loading and unloading have demonstrated the need to shorten these chains, causing most importing countries to turn to closer markets. This is a unique opportunity that, at least partially, Mexico should exploit to better position itself in the global shrimp industry, taking advantage of its geographical location.

Although it is a complex task, it is not impossible to achieve; it only requires will, knowledge and leadership in the sector. Many of the points discussed are already in the process of being applied and are complementary to other strategies and treaties. It is essential to try to hit as many points as possible to secure the strategy’s success.