|
JUMBO TRADE WAR
Louisiana shrimpers say cheap imports flooding the U.S. market are eating away at profits and killing their businesses. They are asking the government to impose tariffs to help them stay afloat.
John McQuaid
The Times Picayune, Sunday March 14, 2004
WASHINGTON -- In a vaulted hearing room in January, representatives of the beleaguered U.S. shrimp industry aired their economic woes before the staff of the International Trade Commission in hopes of getting government help.
Shrimpers, processors and an executive overseeing the nation's only warm-water shrimp cannery in Violet told tales of falling prices, idle boats and increasing desperation, all because of chronically low prices blamed on imported shrimp.
"I'm proud to support my family with hard work, but it is demoralizing not to be paid the cost of that work. To me, this free trade is not about putting us out of business," said Scott St. Pierre, a shrimper from Golden Meadow.
"The imports are not just filling the demand domestic producers can't fill. They are destroying the market," said Andrew Blanchard, whose Triple-T Enterprises shrimp processing plant in Chauvin filed for federal bankruptcy protection last year after laying off more than half of its employees.
The complaints, familiar to Louisiana residents, were getting their first public airing in an international trade war that is raging over shrimp. Industry people say the six leading shrimp exporting countries -- Brazil, China, Ecuador, India, Thailand and Vietnam -- are cutting the legs out from under their U.S. competitors by dumping large quantities of their product in the American market at below cost. The U.S. shrimpers want the government to impose tariffs.
The companies that depend on the international seafood trade -- foreign producers, exporters, American importers, restaurants and supermarket chains -- deny the dumping allegations. They say falling prices are a result of rising supplies in a robust, rapidly expanding international marketplace fueled by a revolution: shrimp farming.
Whether or not dumping is taking place, economists and industry watchers say that the global marketplace has tipped perilously against American shrimpers in recent years. A surplus of shrimp has driven prices down in the United States and elsewhere since 2001. Even without dropping prices, the domestic shrimp industry was not a picture of health, beset by years of attrition and rising costs of operation.
"I relate it all to the perfect storm. These are unrelated events, but the confluence of them has dealt a terrible blow to the domestic industry," said Michael Haby, an extension economist at Texas A&M University who studies the shrimp industry.
Farming frenzy
The main cause of the shrimpers' economic plight is aquaculture. Shrimp farming has swept across the developing world in the past generation.
Statistics show an almost unbroken upward arc for aquaculture production in general and shrimp in particular. Statistics compiled by the Food and Agriculture Organization of the United Nations show a steady, decade-long rise in production, with only a brief dip in the mid-1990s when disease took a toll on crops. In 1992, global production was 897,000 metric tons. In 2001, the last year for which statistics are available, it was 1.27 million -- an increase of 42 percent. The rise has continued since, economists and industry representatives say.
Plentiful supplies and low prices have helped transform shrimp from a high-end delicacy to the No. 1 seafood in the country: In 2002, Americans ate 3.7 pounds per year on average, up from 3.4 pounds the year before. In 1990, the figure was just 2.2 pounds per year.
"The economic reality is aquaculture producers have much, much lower costs, and there has been a lot of competition among aquaculture producers to increase production," said John Sackton, who runs Seafood.com, an industry exchange and news Web site. "They have been forced, through competing with each other -- Thailand is competing with Ecuador, for example -- to reduce their prices to the bone. This is free-market competition. What gives them room to move is they have such a low cost of production that they can't afford to stop producing."
The expansion rests on constantly improving technologies. For instance, a species of Pacific white shrimp genetically engineered to be disease-resistant has taken some countries by storm, including China, Ecuador and Thailand, each of which saw major crop losses from disease in the past. The species also can be grown in either salt or fresh water, adding to its versatility. It eats grain-based feeds, which are considerably cheaper than the fish-based feeds other species require.
"There is still much more room for improved efficiency due to cheaper feeds, genetic selection for faster growth and disease resistance, mechanization, etc.," said George Chamberlain, president of the Global Aquaculture Alliance of St. Louis, in an e-mail exchange. "These will not come overnight, but we can expect steady reductions in cost of production over time."
A limited supply
The innovations and expansions reflect a basic economic disjuncture that puts wild-caught shrimp at a big disadvantage, even if the government puts duties on imports: Shrimp farming can keep growing in size and efficiency indefinitely. Shrimp trawlers are fishing a limited, wild resource.
The basic economic model in shrimp farming allows a lot of shrimp of uniform quality to be produced in a short period of time for a relatively small investment of labor and materials. A farmer needs land to build a pond, feed, filtration equipment, electricity and a supply of shrimp larvae. The costs of land and labor are typically low in the developing world, while large companies often provide feed, equipment and larvae at low costs. A single shrimp pond can produce three crops per year. A network of ponds can maintain a steady supply.
Compared with other kinds of meat production, shrimp is very efficient. The amount of feed it takes to produce a given amount of meat is telling:
"Our ratios are 2-to-1, which is very efficient compared to cows or chickens or pigs. With beef, the ratio is 12-to-1. With pork, it's 6- or 7-to-1," said Charles Woodhouse, a lawyer and aquaculture investor who writes a column on industry trends for Fish Farming International. "We have an animal with a short life cycle, an aquatic animal with no bones. Nothing is wasted."
Shrimp trawling is radically different. It requires a large initial investment for a boat and ongoing fuel, insurance, labor and maintenance costs. The supply of shrimp varies depending on the time of year, the species, location and the skill of individual shrimpers. In the Gulf of Mexico and generally around the world, the species is also fished to its limits each year, meaning that there is only a given total amount of money that can be made.
Erratic supply is only one factor in what experts say is an overall quality-control problem. No one disagrees that Gulf shrimp is a fine product, but the varied ways it comes to people's tables -- via boats of different sizes and capabilities, fishing different habitats inshore and offshore, using an assortment of processors -- mean quality also can vary.
Satisfying a national market depends on reliability of supply and consistent quality, and at the International Trade Commission hearing, restaurant and supermarket chain representatives praised the consistency of farmed shrimp.
"We are unable to buy from many domestic suppliers because of the few that meet our standards," said Rich Catanzaro, an executive at the H-E-B grocery chain based in Texas. "We have made some exceptions in our standards and become more lenient with domestic shrimp. We have not had to do the same with imported shrimp. Continued access to these markets is essential for us to continue to keep our customers satisfied."
An industry in trouble
Competitive disadvantages aside, the domestic shrimp industry has been in the doldrums for most of the past generation. There are good years and bad years, but a combination of factors put the hurt on U.S. shrimpers long before the most recent spate of falling prices.
Economists say that only a given number of vessels in a fishery will create maximum revenues for each boat and that when more boats enter, it drives profits down for everyone. Government studies have shown that the Gulf shrimp industry grew past this magic number in the 1960s.
Over the past decade the number of boats has declined, which should help remaining boats make more money. The number of large, offshore federally registered fishing boats operating appears to have dropped by at least half, from about 6,000 to fewer than 3,000, according to National Marine Fisheries Service scientist John Ward.
But historically low prices have basically canceled any positive effect for the remaining shrimpers, Ward said.
At the same time, costs have gone up, meaning the narrow margin between profit and loss has all but disappeared.
"We have some evidence that fuel prices are up quite a bit in the last year and the year before, and that is creating a squeeze on profitability on the cost side, as well as price," Ward said. "A lot of shrimpers have given up on insurance; they can't afford it anymore. They are having trouble keeping crews on their boats. They can't afford to keep them out for two weeks."
Market flooded
When these long-standing hardships met a surge of imports in the 1990s, the result was economic pain. That has intensified since 2001, as imports have increased and prices have fallen further than any time in recent memory.
At the trade commission hearing, St. Pierre said he had recently sold small shrimp for 30 cents a pound -- the lowest price in his lifetime.
Economists say that is the result of a confluence of trends in the global marketplace that have driven up supply and driven down prices. According to fisheries service statistics, shrimp imports to the United States in 2003 were up 18 percent over 2002. Prices have fallen: In December, the price off the boat of the largest shrimp in the central Gulf was $4.65 per pound, down from $9.47 per pound in 1999, a 49 percent decline.
Part of the increase in imports comes from the general upward trend in production, but part of it is shrimp diverted from other, less hospitable markets in Japan and the European Union.
"The primary reason for the price decline is that supply has been growing very quickly and demand has been growing, but more slowly," said Louisiana State University economist Walter Keithly. "What's happened in the last three years is supply from aquaculture has increased at a faster rate than what we've normally seen. Plus with a weak Japan economy and European economy, some product that would otherwise have gone to Japan and Europe goes to the United States."
Thanks to ongoing economic doldrums, Japan's demand for shrimp has been weak for the past several years. According to the U.N. Food and Agriculture Organization, it seems to have bottomed out, but imports were off 5.6 percent as of October 2003 compared with the same period the previous year.
Meanwhile, the European Union has boosted tariffs on some shrimp imports, including a 12 percent duty on Thai shrimp that has sparked a trade battle. Europe also has decreed tough new inspections for chloramphenicol and other antibiotics used in farmed shrimp and destroys shipments found to contain trace contamination. Thai exports to Europe fell by about 50 percent last year, according to the Bangkok Post, creating a big surplus, some of which flowed instead to the United States.
With vast quantities of shrimp imported into a generally weak U.S. economy, prices had nowhere to go but down. In tough economic times, consumers tend to shift from the relatively pricey seafood items such as shrimp to chicken and beef. Seafood prices fell 1.1 percent in 2002, for example, while beef and chicken prices were relatively flat, according to Consumer Price Index statistics.
Tariff implications unclear
Economists and industry observers say they don't know what the exact effect of tariffs would be on the global marketplace, though most think they would provide short-term relief to shrimpers while driving up prices and depressing demand.
"If tariffs are 200 percent, that would dramatically change shrimp consumption, but 10, 20, or 30 percent many not have a big impact," Seafood.com's Sackton said.
Already, competitors not targeted by the dumping case are positioning themselves to take advantage of the possible changes. Indonesia, for example, announced in January that it was banning imports from the six countries targeted by the U.S. action and is said to be ramping up its aquaculture production.
Sackton pointed to the case of Brazil, which jump-started production after disease killed off much of neighboring Ecuador's crop in 2000.
"After the Ecuador disaster, it took a couple of years for the first processing plants and big production to get going, then they were increasing at a rate of 30 to 40 percent annually. So in three to five years you'd have a whole different set of countries as major producers. At that point the duties would expire on the original countries, and they'd be free to come back again. So you could end up increasing aquaculture production even faster."
Experts say that even if it gets tariff protection, the Gulf industry will have to adapt to survive over the long run -- perhaps by stressing the niche market potential of wild-caught shrimp.
"The domestic industry will survive," Sackton said. "The Gulf has these tremendous shrimp resources, and that is very valuable. The question is, in what form?"
|
