NEW ORLEANS--()--The domestic shrimp industry has faced countless hurdles over the last decade, including unfairly dumped imports, successive devastating hurricanes and the worst economic recession in recent history. The industry has always been able to pull itself up and weather the storm. The BP Oil Spill was initially thought to be just another bump in the road from which the industry would bounce back. Unfortunately, 2011 market conditions are presenting unprecedented challenges. While the unfortunate events occurring prior to the BP Oil Spill caused supply side issues and temporary pricing pressures, the post-spill environment presents uncharacteristic demand side issues resulting from unfounded consumer fears over the safety of Gulf shrimp. The net result is a 2011 shrimp season marred by greater lost profits than the oil-spill plagued 2010 season.
“problems will persist as long as domestic product continues to compete with one arm tied behind its back.”
Overall gulf shrimp landings in 2011 appear strong but a closer look reveals a shortfall in certain sizes (mainly large ex. 16/20s). Prices have been driven down by shrinking demand and domestic distributors paying less in order to regain market share and customers lost in the aftermath of the spill. The convergence of these issues has contracted profit margins for the entire supply chain, including boats, transporters, processors, distributors, retailers, etc. Depressed margins will continue as long as the demand side issues remain. “The market is only as strong as its weakest link so when one business is dropping prices and margins, the entire market must follow in order to move product,” noted Eddy Hayes, counsel to the American Shrimp Processors Association.
The pricing structure for the 2011 season is completely unprecedented – at certain sizes imports are actually more expensive than domestic product. Before 2010, domestic shrimp would normally command a higher price as it is regarded as a premium product. Tom Guinan Jr., CFA, Executive Vice President of Pestcoe, Schwed & Associates, who serves as an economic consultant to the domestic shrimp industry, remarked that the “2011 shrimp market is completely backwards” and “problems will persist as long as domestic product continues to compete with one arm tied behind its back.” Domestic processors are being forced to sell their product in a downward spiraling market without sufficient capital to maintain operations in this extremely low margin market.