Freshwater Shrimp Farming In Alberta

An Opportunity Assessment
June 2005

Prepared by: Hicham Aitelmaalem, Feasibility Team

Table of Contents
EXECUTIVE SUMMARY................................................................................................................................... 1 OVERVIEW.................................................................................................................................................. 1 THE OPPORTUNITY ..................................................................................................................................... 2 RECOMMENDATION .................................................................................................................................... 3 PURPOSE OF THE STUDY ............................................................................................................................... 4 OVERVIEW ...................................................................................................................................................... 4 INDUSTRY SIZE............................................................................................................................................... 5 SHRIMP INDUSTRY ........................................................................................................................................ 6 MARKETS TRENDS ......................................................................................................................................... 8 UNITED STATES ......................................................................................................................................... 8 CANADA ................................................................................................................................................... 10 Canadian Seafood Imports ............................................................................................................. 10 Canadian Seafood Exports............................................................................................................. 10 CHINA....................................................................................................................................................... 11 EUROPE .................................................................................................................................................... 12 EU shrimp imports in 2002................................................................................................................. 12 JAPAN ....................................................................................................................................................... 12 KEY INDUSTRY TRENDS ............................................................................................................................... 13 FUTURE WORLD DEMAND FOR SEAFOOD ................................................................................................... 13 SHRIMP AND HEALTH .................................................................................................................................. 14 CURRENT MARKET ISSUES.......................................................................................................................... 14 ALBERTA SITUATION ................................................................................................................................... 16 TECHNICAL ASPECTS................................................................................................................................... 16 POND GROW-OUT .................................................................................................................................... 16 INTENSIVE ................................................................................................................................................ 16 MARKETING.................................................................................................................................................. 17 VALUE-ADDED POTENTIAL........................................................................................................................... 19 ECONOMIC ASSESSMENT............................................................................................................................ 20 ASSUMPTIONS .......................................................................................................................................... 20 PRO FORMA INCOME STATEMENT ............................................................................................................. 21 PRO FORMA CASH FLOW STATEMENT ...................................................................................................... 22 OPPORTUNITIES AND BARRIERS................................................................................................................. 23 RECOMMENDATIONS................................................................................................................................... 23

Freshwater Shrimp Farming in Alberta

Executive Summary
Overview

The purpose of this study is to evaluate freshwater shrimp farming as an opportunity to diversify the farming output in Alberta, and as a means to develop the aquaculture industry in the province. For centuries, humanities need for fish products was supplied from the abundance of the oceans, lakes and rivers. Until recently, ocean productivity seemed unlimited, but in our lifetime it has become clear that the traditional capture by fisheries has reached its maximum level. Over-fishing and pollution is rapidly causing depletion of fish in the main water bodies in the world. The maximum annual output of capture fisheries has remained stable in the past two decades, at about 90 million metric tonnes. However, many of the more valued fish species are on the verge of extinction and, therefore, the value of capture fisheries output, is decreasing. To protect the water resources and ensure sustainable fishery productivity, quotas and restrictions on ocean fisheries have been implemented, further increasing scarcity of valued fish species, and increasing consumer prices for seafood. At the same time, world demand for seafood is increasing both in developed and developing countries, due to the increase in human population and due to the realization that seafood is healthy. Seafood is in high demand everywhere, and consumer prices keep increasing. The Food and Agriculture Organization of the United Nations (FAO) estimates that global human consumption of fisheries products will reach about 183 million metric tonnes by 2030, a growth rate of about 2 percent a year starting in 2000. On average, this means additional annual requirements of 650,000 metric tonnes in the EU, and 250,000 metric tonnes in the US. By 2005 there will be a shortage of about 20 million metric tonnes per year, and by 2010 it will increase to 40 million metric tonnes per year. This increasing demand can only be satisfied by aquaculture. The total world output of farmed shrimp has been steadily increasing in the past 20 years, with major producer countries located in the Asian Pacific Rim. One of the most remarkable feats of worldwide aquaculture in the two decades has been the huge increase in the amount of cultured shrimp production. Since 1982, cultured shrimp production in the Asian Pacific Rim and the Western Hemisphere has increased by a whopping 995 percent. Production soared from 84,022 metric tonnes in 1982 to 920,000 metric tonnes in 2002. Cultured shrimp are an extremely valuable seafood commodity, and while comprehensive statistics on their value are difficult to obtain, their worldwide value during recent years is estimated to be US$8 - $9 billion. US seafood consumption per capita is 15.4 lbs. Imports are about 1.5 million metric tonnes per year, valued at almost US$6 billion. Consumers expenditure on seafood in the US is

Freshwater Shrimp Farming in Alberta

estimated at US$26.7 billion. The European Union consumption per capita is 37.4 lbs and imports are about 5 million metric tonnes per year, valued at US$11 billion. The per capita consumption of seafood in Japan is about 88 lbs, while the Canadian consumption of seafood averages a healthy 24.2 pounds. Shrimp, still considered a high-priced seafood in the minds of many consumers, became the most popular seafood consumed in the US for the first time in 2001, when it surpassed canned tuna. Since 2000, low shrimp prices have spurred consumption and are currently stabilizing at around US$3.50 per pound. By the same token, the Canadian consumption of shrimp increased even more, going from 3.3 pounds to 5.1 pounds - an increase of 54 percent. This boost in shrimp consumption is believed spurred by the decline in wholesale shrimp prices. This has led large restaurant chains such as Red Lobster to feature All-You-Can-Eat shrimp promotions, in this case for US$12.99 both in Canada and the US. The chain now buys more than 20,000 metric tonnes of shrimp a year, most of it from Asia.
The Opportunity

Due to its perishable nature, wholesale dealers prefer to import frozen shrimp, therefore most of the consumed shrimp is purchased frozen. Often what we think is fresh shrimp is not fresh at all. Before reaching the local supermarket, "fresh" shrimp can spend days, or even weeks, en route from its original production or harvest site. This type of shrimp is shipped frozen from its harvesting location. When it reaches the supermarket, it is either sold as-is or thawed, put on ice, and offered for sale. Truly fresh shrimp or prawns are a scarce commodity and may fetch higher premiums at local and regional markets, and provide a means to differentiate from the competition. This point is confirmed by the University of Florida study (Market Analysis, Kathy J. Davis, Ferdinand F. Wirth), which came up with the conclusion that, in contrast to dealers, consumers prefer fresh (never frozen) shrimp, and are willing to pay a price premium for shrimp that have never been frozen. This is another factor favoring the consumer market over dealers, since most shrimp farmers would prefer to market their shrimp in the fresh state. The same study also found that the seafood restaurant market is a better candidate than the dealer market for direct sales of whole, farm-raised shrimp. Sixty-eight percent of seafood restaurants indicated a willingness to purchase a broad range of farm-raised shrimp sizes directly from a shrimp farmer. The financial analysis revealed that due to declining wholesale market prices, it is evident this type of venture is not meant to serve the wholesale industry. It may still be profitable by focusing on a niche market that is looking for high quality, freshness and the ability to trace and know the producer, with a focus on regional flavor and locally grown ingredients. Producers may take advantage of existing direct marketing channels, such as Farmers Markets and direct marketing from the farm to market their fresh shrimp products. A strategy of supplying consistent high quality, fresh and safe shrimp products could also be targeted toward high-end restaurant as emphasis on fresh, locally grown and seasonal ingredients on

Freshwater Shrimp Farming in Alberta

restaurant menus are taking off with leading chefs across the country and province. It should be noted that tourism is a major consideration. Hotels and restaurants are interested in offering unique and local products. Chefs look for consistent supply, dependable delivery, suitable quantities, storage requirements, consistent pricing, information about the producer or processor, and the characteristics of the product. Depending on the location, the farm itself could be used as part of an ag tourism experience to generate other sources of revenues.
Recommendation

Due to the lack of reliable data tailored to Alberta, we do not recommend nor promote widespread intensive freshwater shrimp farming. We however recognize that in order to capitalize on this opportunity and help develop the aquaculture industry, we need a pilot project that will shed light on many aspect of farming shrimp in recirculating water within the province. The objectives would be to establish technical benchmarks - water quality and disease management, survival rates, costs of production and marketing challenges. It would be wise to include newly developed technologies, such as geothermal energy to investigate efficiencies in meeting the heating requirements, as well as costs reduction. If successful, the extension project could be used as a source of expertise to assist in the development of this industry and a means for building capacity and human resources training and development. Also needed is a study to quantify the provincial demand for freshly farmed shrimp, as well as identifying market opportunities in neighboring provinces and states.

Freshwater Shrimp Farming in Alberta

Purpose of the Study

Albertas aquaculture industry is a vital and dynamic partner in the sustainable development of our freshwater resources. The industry provides meaningful employment in rural areas and potential business investment opportunities. It is recognized that in todays global community, the ability to respond to human needs for food and other commodities is both a responsibility and an opportunity. As an intensive and closely managed activity, aquaculture presents a means to effectively respond to these needs, and benefit our communities. The purpose of this study is to evaluate freshwater shrimp farming as an opportunity to diversify the farming output in Alberta. It will focus on reviewing the aquaculture industry in Alberta and in the world, as well as production and pricing trends. The study also assesses and summarizes opportunities and existing barriers that may hinder the development of this industry in Alberta.

Overview
For centuries, humanities need for fish products was supplied from the abundance of the oceans, lakes and rivers. Until recently, ocean productivity seemed unlimited, but in our lifetime it has become clear that the traditional capture by fisheries has reached its maximum level. Over fishing and pollution is rapidly causing depletion of fish in the main water bodies in the world. The maximum annual output of capture fisheries has remained stable in the past two decades, at about 90 million metric tonnes. However, many of the more valued fish species are on the verge of extinction and, therefore, the value of capture fisheries output, is decreasing. To protect the water resources and ensure sustainable fishery productivity, quotas and restrictions on ocean fisheries have been implemented, further increasing scarcity of valued fish species, and increasing consumer prices for seafood. At the same time, world demand for seafood is increasing both in developed and developing countries, due to the increase in human population and the realization that seafood is healthy. Seafood is in high demand everywhere, and consumer prices keep increasing. As we move further into this millennium, finfish and other aquatic products will be in greater short supply as domestic and international demand for both high and low valued species increases due to rising populations, living standards and disposable incomes. With globally dwindling yields from many traditional marine and inland capture fisheries; shortfalls in supply of aquatic products will largely need to be met from aquaculture. Therefore, the issues and challenges faced in aquaculture are how to:

Promote aquaculture as a legitimate, long term farming activity, and

Freshwater Shrimp Farming in Alberta

Sustain and increase the current utilization of species and production base. As well as increased technical assistance, achievements in both the private and public sector will largely depend on positive national policies that promote the sector. Develop integrated policies to give high priority to the collection of necessary and relevant information on which to make informed decisions.

The potential of aquaculture to meet the challenges of food security and to generate employment and foreign exchange is clearly demonstrated by the rapid expansion of this sector. It has grown at an average annual rate of almost 10 percent since 1984 compared with 3 percent for livestock meat and 1.6 percent for capture fisheries production (FAO). The only way to bridge the gap between reduced and capped fisheries capture and increased world demand, is through aquaculture.

Industry Size
According to Statistics Canada, the Canadian aquaculture industry reported operating revenues of $731.5 million in 2003. Finfish, particularly salmon, accounted for 90 percent of total revenues from aquaculture. As of 2000, the Alberta aquaculture industry reported $6.5 million in revenue, with $4 million (61 percent) generated from fingerling sales, including private ponds, government stocking contracts and grass carp stocking. To our knowledge, shrimp farming is non-existent in Alberta.
World Aquaculture Output

7%

3% 1% 3%

86%

Asia

Europe

North America

South America

Other

According to Shrimp Daddy Inc., Asia produces 86 percent of total world aquaculture output, especially in the Pacific Rim Countries. Europe comes in a distant second at 7 percent, followed by North and South America respectively at 3 percent and 1.5 percent. Sixty-seven percent of the world aquaculture output is from inland freshwater aquaculture, while 33 percent appears to be from marine farming. The major markets for shrimp exports are the US, Europe and Japan.

Freshwater Shrimp Farming in Alberta

Aquaculture Output

11% 17% 51% 4% 17%

Finfish

Mollusks

Crustaceans

Aquatic Plants

Other

Out of the 28 million metric tonnes produced through aquaculture, 51percent represents various finfish such as freshwater carp (10 million metric tonnes), salmon (820,000 metric tonnes) and tilapia. Mollusks, such as oysters and mussels, represent 17 percent, while crustaceans, mostly shrimp, represent 4.2 percent or 920,000 metric tonnes. Aquatic plants farming represent 17 percent of the world aquaculture production.

Shrimp Industry
The total world output of farmed shrimp has been steadily increasing in the past 20 years, with major producer countries located in the Asian Pacific Rim. One of the most remarkable feats of worldwide aquaculture in the two decades has been the huge increase in the amount of cultured shrimp production. Since 1982, cultured shrimp production in the Asian Pacific Rim and the Western Hemisphere has increased by a whopping 995 percent. Production soared from 84,022 metric tonnes in 1982 to 920,000 metric tonnes in 2002.
World Shrimp Aquaculture Output / $ Billion USD

10 8 6 4 2 0

Values

Source: Food and Agriculture Organization (FAO)

19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02
Years

Freshwater Shrimp Farming in Alberta

Cultured shrimp are an extremely valuable seafood commodity, and while comprehensive statistics on their value are difficult to obtain, their worldwide value during recent years is estimated to be US$8 - $9 billion. For example, in 1991 the United States alone imported approximately 225,300 metric tonnes of cultured shrimp, worth about US$1.7 billion (US Department of Commerce, 1992). Asia, especially China, Indonesia and Thailand have been responsible for most of the increased production. These three countries alone accounted for 67 percent of Asia's total cultured shrimp production. While the trend of Asian dominance of cultured shrimp production is expected to continue, Central and Latin American countries, especially Ecuador, Columbia, Brazil and Mexico are picking up the pace. While world output has been steadily increasing, shrimp prices have also been in steady decline, especially in the past few years. This is mainly due to increased supply and reduced production costs following newly introduced technologies and enhanced farm management practices. The following example of US shrimp imports illustrate shrimp price fluctuations.

Source: Aquaculture Outlook. David Harvey, Editor. United States Department of Agriculture. LDP-AQS-20. Oct. 8/04

Shrimp prices have steadily been declining since 2000, with major fluctuations observed in the 1995-1996 and 1998-1999 seasons. According to David Harvey, (Aquaculture Outlook, USDA) US shrimp imports for all of 2004 are expected to reach 1.15 to 1.25 billion pounds with a value of US$3.65 to $3.75 billion. This steady increase in shrimp imports coincides with the 2003 consumption of a record 4 pounds per capita in the US, an increase of over 8 percent. (National Oceanic & Atmospheric Administration).

Freshwater Shrimp Farming in Alberta

Markets Trends
United States

In the first six months of 2004, US shrimp imports totaled 501 million pounds, valued at $1.51 billion, a 17 percent increase in quantity and a 2 percent increase in value over the first half of 2003. Since 2000, shrimp imports during the first half of the year have risen 73 percent. January to June US Shrimp Imports by Country in $ Country Bangladesh Brazil China Ecuador India Indonesia Mexico Philippines Thailand Vietnam Other Totals 2002
31,273,712 48,275,087 61,752,977 116,169,372 148,498,934 80,312,682 55,490,013 5,605,635 393,316,555 164,082,654 220,376,230 $1,325,153,851

US Shrimp Import by Country in lbs 2004

48,315,727 27,512,777 142,676,010 119,025,994 153,431,355 123,346,671 60,873,284 5,071,498 373,851,141 225,039,800 233,082,796 $1,512,227,053

2003
23,581,945 62,206,165 96,995,166 128,735,867 174,063,411 90,048,670 69,430,358 5,767,411 393,068,736 235,720,256 209,792,329 $1,489,410,314

2002
7,174,946 20,403,125 24,119,739 38,423,433 42,187,499 20,086,388 10,883,129 1,488,363 104,752,704 32,736,853 73,587,972 $375,844,152

2003
4,696,314 30,381,833 38,847,206 44,634,235 42,394,513 23,826,759 10,854,968 1,351,034 109,747,539 47,926,763 75,041,224 $429,702,387

2004
10,448,453 14,143,311 63,874,804 46,991,924 40,948,071 39,330,657 12,116,885 1,174,278 135,430,476 46,312,356 90,468,270 $501,239,485

Source: Aquaculture Outlook. David Harvey, Editor. United States Department of Agriculture. LDP-AQS-20. Oct. 8/04

After falling in 2002 and 2003, the average price for imported shrimp products fell another $0.45 (13 percent) in the first half of 2004, to $3.05 per pound. Prices fell in all three categories of shrimp imports, with the average price for frozen and processed shrimp declining by $0.45 and $0.43 a pound. Over the first half of 2004, the quantity of imported frozen and processed shrimp products increased, while imports of fresh shrimp declined for the second consecutive year.

Freshwater Shrimp Farming in Alberta

Imports of frozen shrimp totaled 392 million pounds, making it by far the largest import category. This is a 14 percent increase from the same period in 2003, which was 16 percent higher than the same period in 2002. Although the US ranks in the top five countries in the world in terms of capture fishery production, they run a trade deficit in seafood and remain the worlds second largest seafood importer after Japan. The US seafood market was valued at $25.5 billion at the wholesale level and $54 billion at the consumer level for 2000. The volume of seafood consumed in the US continues to steadily increase. In 2001, total per capita consumption (edible weight) reached 4.2 billion pounds (1.9 million metric tonnes), an increase of two percent over 2000. On a round weight basis, this total would be approximately 6 million metric tonnes. On a volume basis, seafood sales in the US market are almost evenly split between retail and foodservice. However, on a retail price basis, foodservice accounts for about two-thirds of US seafood sales and retail accounts for one-third. This is because the markup at the foodservice level is generally higher than at the supermarket level. The types of fish consumed in the US have changed significantly in recent years, as aquaculture producers have greatly increased production, making some high-quality seafood more affordable to US consumers. Shrimp, still considered a high-priced seafood in the minds of many consumers, became the most popular seafood consumed in the US for the first time in 2001, when it surpassed canned tuna. Since 2000, low shrimp prices combined with a decline in canned products consumption have spurred shrimp consumption. This decline in shrimp prices has led large restaurant chains such as Red Lobster to feature All-You-Can-Eat shrimp promotions, in this case for US$12.99 both in Canada and the US. The chain now buys more than 20,000 metric tonnes of shrimp a year, most of it from Asia.

Freshwater Shrimp Farming in Alberta

Canada
Canadian Seafood Imports

Source: Department of Fishery & Oceans

As is the case in the US, shrimp is the most valuable seafood imported by Canada. In 2001, Canada imported 73,500 metric tonnes of shrimp worth CA$568 million, an increase of 11 percent in volume and 1 percent in value. Record low shrimp prices, the result of large increases in farmed production from Asia, have led to record shrimp consumption in a number of countries, including the US and Canada.
Canadian Seafood Exports

Source: Department of Fishery & Oceans

10

Freshwater Shrimp Farming in Alberta

As Canadas landings of shrimp (Pandalus borealis) have increased sharply, it has become an important export resource to the US. In 2001, Canada exported about 6,700 metric tonnes of shrimp, mostly cooked and peeled meats, worth $40.7 million. In 2001, Canada shrimp exports totaled 44,000 metric tonnes. Canadas Per Capita Seafood Consumption (edible weight in pounds) Products 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Fresh & Frozen 9.4 9.4 10.7 10.7 10.5 8.7 9.9 9.4 8.8 10.9 Processed 6.5 5.8 4.2 6.2 4.1 4.8 4.3 5 5.2 5.5 Shellfish 3.3 3.3 3.9 3.5 3.2 3.3 3.6 4.1 4.6 5.1 Freshwater Fish 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4 Total 19.7 19.0 19.3 20.9 18.2 17.2 18.2 18.9 19.0 21.9
Source: Department of Fishery & Oceans

Seafood consumption trends in Canada closely resemble those of the US, although per capita consumption in Canada is significantly higher. In 1999, for example, the last year for which Canadian data is currently available, Canadians consumed 42 percent more seafood than Americans on a per capita basis. Between 1990 and 1999, Canadas per capita consumption of fresh and frozen non-processed finfish increased 14 percent from 9.9 pounds to 11.3 pounds. Consumption of shellfish increased even more, going from 3.3 pounds to 5.1 pounds, an increase of 54 percent. Although it is not possible to make direct comparisons between the US and Canada, as the statistical data is not the same, much of the increase in Canadian consumption is also probably from farmed shrimp and salmon. The large increase in shellfish consumption is likely a result of increased Canadian shellfish production, as well as an increase in warm water shrimp imports. Shrimp ranks as the top aquaculture species consumed in Canada. Canadas seafood imports are likely to keep increasing, although only moderately in the near future. Most of the increases will probably be in seafood, such as warm water shrimp, which Canada does not produce. It is not expected that Canada will increase the volume of seafood that it imports and then exports much beyond current levels.
China

In the past few years, China has accelerated its production of non-native, high value species. Large quantities of Pacific white shrimp, Penaeus vannamei, which are native to the west coast of Central and South America, are now being farmed in southern China. White shrimp, which China used to import from Ecuador, is considered by the Chinese to be much sweeter than black tiger shrimp, which is also farmed in China and imported from countries such as Vietnam, Thailand, India and Pakistan. This year, Chinas harvest of Pacific white shrimp could reach 50,000 metric tonnes, only two years after the species was introduced. This exceeds the production of Ecuador, which has been farming shrimp since the late 1970s. Chinas aquaculture industry has a distinct competitive advantage over aquaculture industries in other countries as it can sell a significant amount of its production live at a substantial 11

Freshwater Shrimp Farming in Alberta

premium. At times of the year, such as the Chinese New Year when demand for live seafood is at its peak, seafood farmers receive about $7 a pound for whole live shrimp, compared to less than $2 a pound for shrimp that has to be frozen. By selling so much seafood live, Chinese farmers can generate more revenue from the same volume than farmers in other countries who do not have access to a live market. As a result, Chinese farmers can export their frozen production and undercut the price of their competitors.
Europe

EU shrimp imports in 2002

Spain is the largest importer of shrimp in the EU, followed by Denmark (mainly shrimp for reexports), the UK and France. Despite declining shrimp prices, the value of EU shrimp imports increased in all top four importing countries. In Spain, the import value of shrimp reached Euro 850 million, which makes it an interesting market. The other main Southern European market, Italy, experienced the biggest growth in import value in 2003, to reach Euro 350 million.
Japan

Japan is the most important seafood market in the world and hence a significant power centre. While China consumes a large volume of seafood, seafood demand in Japan has historically had the greatest impact on world fisheries and international trade. Several prominent forces, including social, political and economic ones, dominate the Japanese seafood market. On the social side, seafood forms a major component of the Japanese diet, and per capita consumption (152.1 pounds live weight) is among the highest in the world. 12

Freshwater Shrimp Farming in Alberta

For the past 10 years, Japans poor economy has had a negative impact on overall seafood sales. Over the long term, changes in the Japanese diet, demographics and food expenditures will also have significant impact on fisheries around the world, as Japanese per capita seafood consumption continues to decline. Domestic seafood production is falling with distant water catches of 45 percent lower than 10 years ago and coastal catches down 54 percent over the last decade. Aquaculture production is likely to decrease as production moves to China, where costs are lower. Imports have filled the void with shrimp leading both in volume and value.

Key Industry Trends

World trade in seafood is estimated at more than US$100 billion. The major markets are those of Japan, the US and the EU, which depend on imports, ranging between 30 60 percent of their domestic consumption. Shrimp is very popular in the US and the volume of shrimp consumed is second only to canned tuna as the leading seafood consumed by the American public. Because of its high price compared to tuna, shrimp is the most valuable seafood product consumed in the US, accounting for about 19 percent of the total value of US seafood consumption in 1998 (USDA, 1999). US seafood consumption per capita is 15.4 lbs. Imports are about 1.5 million metric tonnes per year, valued at almost US$6 billion. US consumer expenditures on seafood is estimated at US$26.7 billion. EU consumption per capita is 37.4 lbs and imports are about 5 million metric tonnes per year, valued at US$11 billion. The per capita consumption of shrimp in Japan is about 88 lbs, while the Canadian consumption of seafood averages a healthy 24.2 pounds.

Future World Demand for Seafood

Forecasts for global consumption of fisheries and aquaculture products are very complex to develop since consumer behavior varies widely between regions, countries or continents for a very broad range of products. Forecasts must also factor in estimates of growth in world population and income per capita, which also vary widely. However, FAO (Ye, 1999) has developed the best model currently available, based on historic consumer and each countrys Gross Domestic Product, which then pools results by continent. Based on this analysis, FAO estimates that global human consumption of fisheries products will reach about 183 million metric tonnes in 2030, a growth rate of about 2 percent per year starting in 2000. On average, this means additional annual requirements of 650,000 metric tonnes in the EU, and 250,000 metric tonnes in the US. By 2005 there will be a shortage of about 20 million metric tonnes per year, and by 2010 it will increase to 40 million metric tonnes per year. This increasing demand can only be satisfied by aquaculture.

13

Freshwater Shrimp Farming in Alberta

Shrimp and Health

According to a study published in the American Journal of Clinical Nutrition by the Rockefeller University and the Harvard School of Public Health, steamed shrimp, high in cholesterol but very low in fat, do not adversely affect the lipoprotein profile in people with normal cholesterol levels. In fact, if shrimp is substituted for beef or other high fat foods, they predict even more favorable effects. A meal containing 150 grams, about 5 ounces, of steamed shrimp provides only 1.7 grams of fat, including 0.36 grams saturated fat, and 150 calories, compared to 150 grams of beef, which contains 14 grams of fat, including 4.7 grams of saturated fat, and 390 calories. With our health consciousness focused on total fat intake rather than on dietary cholesterol, there are few objections to eating shrimp. According to the Rockefeller study, shrimp can be included in heart-healthy nutritional guidelines. These attributes can be included in promoting shrimp consumption to health conscious consumers.

Current Market Issues

In the first of two preliminary rulings announced in July 2004, the US Department of Commerce (DOC) found that shrimp from China and Vietnam were being "dumped" in the US. It initially assigned preliminary antidumping duties of up to 112.81 percent for China and 93.13 percent for Vietnam. Three weeks later, on July 29/04, the department announced that producers in Brazil, Ecuador, India, and Thailand also were dumping shrimp. For these countries, the DOC set duty levels ranging 0 - 67.80 percent for Brazil, 6.08 - 9.35 percent for Ecuador, 3.56 - 27.49 percent for India, and 5.56 - 10.25 percent for Thailand. Although some tariffs on imported shrimp run as high as 112 percent, the overall rates are lower than US producers sought. The antidumping duties were aimed at restricting imports from most the above-mentioned countries. However, due to their costs of production competitiveness, some of these countries such as Thailand, Indonesia and China have actually increased their export to the US market.

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Freshwater Shrimp Farming in Alberta

Source: Gilbert 2002

FAO estimates that global human consumption of fisheries products will reach about 183 million metric tonnes in 2030, a growth rate of about 2 percent a year starting in 2000. If we consider the forecast growth in global population, growing concerns about consumer health and well-being around the world, and the fact that commercial fisheries landings around the globe have leveled-off, we find that aquaculture will have to play a growing role in food security in coming decades. It is likely that aquaculture will be the main source of supply for fish in 2030, and less than half of all marine food will come from capture fisheries. Given the geographic distribution of current aquaculture output, each countrys wealth and forecast output, FAO (2000) notes that: In the wealthy countries, a growing proportion of fish consumed will be imported, and since these countries will want to buy fish at the lowest possible cost, most obstacles to trade will likely be eliminated in the developed economies. Aquaculture will undergo geographic expansion, in terms of species grown and technology used. It is highly unlikely that Asia will continue to dominate production as heavily as in the 1990s. Marine aquaculture will represent a greater share of total production, especially if deep-sea aquaculture technology becomes viable. Through economic growth over the next 30 years, a growing number of people will eat fish regularly and repeatedly. The 2002 FAO publication titled Agriculture: Towards 2015/2030 reports that world fish consumption, on a per capita basis, is expected to continue to rise. According to the FAO, if income growth and dietary changes were the only considerations, total seafood demand would reach 183 million metric tonnes by 2030 or almost double current levels. However, given supply constraints, the FAO sees a more likely demand of 150 to 160 million metric tonnes with aquaculture accounting for 60 to 70 million metric tonnes. 15

Freshwater Shrimp Farming in Alberta

Demand for seafood is expected to decline over time in both Japan and Western Europe due to population decreases. Much of the demand increase will come from China. The US will require substantial increases in seafood supply to maintain current consumption levels. Using 15 pounds per capita as a base, and growing population as forecasted by the US Census Bureau, the US will need an additional 1 billion pounds of seafood (edible weight) by the year 2025 to maintain current consumption levels. On a round weight basis this increase in supply represents approximately 3 billion pounds or 1.4 million metric tonnes.

Alberta Situation
To our knowledge, shrimp farming is non-existent in the province of Alberta. The provincial aquaculture industry is still in its infancy. An extensive research program to develop and evaluate management practices for the establishment of a commercial freshwater prawn industry as a supplement or alternative to the culture of table fish and fingerlings is needed.

Technical Aspects
Pond Grow-Out

Natural and artificial ponds, while adequate for "U-catch-em" operations, generally are not suitable for intensive shrimp farming operations in Alberta. Due to rapid temperature fluctuation and risk of frost, even in summer months, pond grow-out would not be profitable or technically feasible in this province. For a healthy growth environment, shrimps or prawns need a steady temperature of 26 to 29 degree Celsius. Any rapid deviation would result in lost harvest tonnage. Therefore, it is not advisable to start this kind of operation in Alberta.
Intensive

Intensive aquaculture is differentiated from extensive aquaculture by the degree of environmental control, stocking densities, feeding, and capital investment. Extensive aquaculture is carried out in potholes and dugouts. Intensive aquaculture in Alberta would involve growing prawns inside buildings and greenhouses under controlled conditions using tanks or raceways. Currently in Alberta there are many unused hog barns and pregnant mare urine (PMU) barns that could be converted to suit intensive shrimp farming operations. Basically there are two different techniques in farming freshwater shrimp in recirculated systems. The first option involves a single-phase system, which due to its inefficient space utilization during the first two-thirds of the production cycle, is unlikely to be profitable. The second option involves the usage of a three-phased system. In this system, the grow-out is divided into three periods. Each period lasts for approximately one third of the total growout time. In this case the nursery phase will last 58 days, while the intermediate and final

16

Freshwater Shrimp Farming in Alberta

phase will each last 61 days, for a total grow-out time of 180 days. In one year a single threephased system will produce up to six crops of shrimp as opposed to only two crops for the single-phased system, which translates to a higher economic return for a given area of space. Below is an illustration of differences between the two systems:

Source: Aquaculture Division, Harbor Branch Oceanographic Institution, US

It is recommended that the three-phase recirculating system be located indoors in greenhouses or buildings. This arrangement provides cost-effective protection from adverse weather conditions and affords some level of control over environmental parameters such as temperature, light intensity, and relative humidity. Producing shrimp indoors in recirculating systems also benefits the producer by significantly reducing the risk of exposing the shrimp to viral diseases that have wreaked havoc in open coastal ponds throughout the world. Greenhouses also protect the crop from losses resulting from predation or theft. In addition, these systems substantially reduce the risk of accidental release of non-native shrimp into water streams.

Marketing
It is apparent that an Alberta freshwater prawn industry development aimed at the wholesale commodity market would not be profitable nor sustainable due to higher production costs such as heating, labor and due to high competition from Asian and South American countries. We however believe that there might be an unsatisfied niche market, fresh shrimp, within the province of Alberta and within our neighboring provinces and states. The seafood buying process needs to be further studied and understood, but for now, it seems that there are at least these five factors that influence a customers buying habits: 17

Freshwater Shrimp Farming in Alberta

Quality in terms of taste, freshness and appearance Price Health and food safety Availability Environmental issues

There are several avenues available to companies wanting to sell their shrimp products directly to the consumer. Selling direct is suited to specialized products or a small number of customers, which may be the case for potential shrimp producers. While it eliminates the middleman, the processor takes on most of the marketing and distribution risks and functions. Most of the consumed shrimp is purchased in a frozen form. Often what we think is fresh shrimp is not fresh at all. Before reaching the local supermarket, "fresh" shrimp can spend days, or even weeks, en route from its original production or harvest site. This type of shrimp is shipped frozen from its harvesting location. When it reaches the supermarket, it is either sold as-is or thawed, put on ice, and offered for sale. Truly fresh shrimp or prawns are a scarce commodity and may fetch higher premiums on local and regional markets, and provide a means to differentiate from the competition. This point is confirmed by the University of Florida study (Market Analysis, Kathy J. Davis, Ferdinand F. Wirth), which came up with the conclusion that, in contrast to dealers, consumers prefer fresh (never frozen) shrimp, and are willing to pay a price premium for shrimp that have never been frozen. This is another factor favoring the consumer market over dealers, since most shrimp farmers would prefer to market their shrimp in the fresh state. The same study also found that the seafood restaurant market is a better candidate than the dealer market for direct sales of whole, farm-raised shrimp. Sixty-eight percent of seafood restaurants indicated a willingness to purchase a broad range of farm-raised shrimp sizes directly from a shrimp farmer. The shrimp product form was even more important for restaurants than for dealers, with tails being strongly preferred. Seventyfive percent of restaurant buyers are willing to purchase farm-raised shrimp tails directly from a farmer, but only 9 percent are willing to purchase whole shrimp. In general, restaurant buyers have little or no interest in the whole shrimp product form. These results reinforce the conclusion that shrimp farmers interested in successfully marketing to seafood dealers may be required to process their product in order to offer shrimp tails, rather than whole shrimp. One extremely positive aspect of the seafood restaurant preference structure, compared with the dealer preference structure, is the relative unimportance of price to the seafood restaurants. This suggests that seafood restaurant buyers may be willing to pay a price premium for a high quality, farm-raised shrimp product. The price premium in the restaurant market may offset any processing costs and provide higher returns than the dealer market to the shrimp farmer. Producers may take advantage of existing direct marketing channels such as Farmers Markets and direct marketing from the farm to market their fresh shrimp products. A strategy of 18

Freshwater Shrimp Farming in Alberta

supplying consistent high quality, fresh and safe shrimp products could also be targeted toward high-end restaurant as emphasis on fresh, locally grown and seasonal ingredients on restaurant menus are taking off with leading chefs across the country and province. It should be noted that tourism is a major consideration. Hotels and restaurants are interested in offering unique and local products. Chefs look for consistent supply, dependable delivery, suitable quantities, storage requirements, and consistent price, information about the producer or processor, and the characteristics of the product. Depending on the location, the farm itself could be used as part of an ag tourism experience to generate other sources of revenues.

Value-Added Potential
In the shrimp industry, the term "value-added" refers to any further processing beyond deheading. The number of variations of value adding has grown considerably over the past several years. Value-added includes the following forms or presentations:

Shell-on block Shell-on IQF (individually quick frozen) Peeled (PUD) Peeled tail-on Peeled and deveined (P&D) P&D tail-on Peeled and deveined IQF (P&D IQF) IQF peeled and deveined tail-on (IQF P&D T-on) Cooked and peeled Cooked P&D IQF Cooked P&D tail-on Easy-to-peel Pulled vein Butterflied (P&D tail-on with a small cut to slightly flatten the shrimp) "Round" (P&D tail on) "Western cut" (deep butterfly cut that flattens the shrimp)

The popularity of value-added products is growing. All of these shrimp presentations are designed to save some labor in the restaurant, at the retail store, or in the consumers kitchen. They also provide producers and processors with the opportunity to present more variety, and to provide a varied price structure based on the amount of further processing being done. Shrimp is also a popular item in prepared dishes that include frozen entrees, microwavable dishes, packaged meals where the ingredients are mixed at home, ready-to-eat meals prepared for take out, and ready-to-cook meals. Some examples would include Crumbed Shrimp, Shrimp Skewers and Shrimp Pastry and Garlic Shrimp Wraps. There are also shrimp items where the value-added is breading, batter, marinades, etc.

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Freshwater Shrimp Farming in Alberta

Economic Assessment
The economic assessment is extracted from the Shrimp Farming Manual written by Arnold K. Elovaara. The economic analysis is derived from work under state grant from the Florida Department of Agriculture. Please note that all quoted figures are in US funds and therefore caution is recommended due to currency conversion rate fluctuations, labor costs and taxation differences. Also climate differences between Florida and Alberta may negatively impact the energy costs, due to heating requirements.
Assumptions

12 (30 ft x 150 ft) greenhouses model 5 acres land Each greenhouse houses 2 three-phased production systems at 14.5 ft x 140 ft each 10 years projection model, with construction of all 12 greenhouses elapsed over the first 3 years of operation Total investment requirements of $517,507 in the first 3 years with an additional $212,470 spent on year 4 to 10 to replace worn out equipment 180 days grow-out period 24,480 freshwater acclimated post larvae stocked per crop 61 percent survival rate

At the end of 180 days, 14,982 shrimp weighing an average of 18.1 grams will be harvested from each raceway (tank). Since a three-phased system allows 6 harvests per year, a total of 144 crops will be harvested from the 12 greenhouses, yielding 38,956 kg (85,806 lbs) per year. With an average price of $5.24/lb, the annual sales revenues after Year 4 would be $449,623. By staggering the stocking schedule, the 24 raceways in this production system would allow for a harvest of market size shrimp every two to three days. This strategy could be crucial if your target market requires constant supply of fresh prawns.

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Freshwater Shrimp Farming in Alberta

Pro Forma Income Statement

Year 1 Income Shrimp Other Total Income Cash Expenses Operating Interest Total Cash Expenses Net Cash Income Non Cash Adjustments Depreciation Income Before Tax Taxes Income Tax Social Security Medicare Total Taxes Net Income $0 $0 $0 $0 -$58,610 $0 $0 $0 $0 -$18,018 $1,933 $1,598 $374 $3,906 $8,974 $17,942 $6,882 $2,413 $27,237 $55,972 $17,942 $6,882 $2,413 $27,237 $55,972 $17,942 $6,882 $2,413 $27,237 $55,972 $17,942 $6,882 $2,413 $27,237 $55,972 $17,942 $6,882 $2,413 $27,237 $55,972 $17,942 $6,882 $2,413 $27,237 $55,972 $17,942 $6,882 $2,413 $27,237 $55,972 $25,402 -$58,610 $44,362 -$18,018 $66,037 $12,880 $66,037 $83,209 $66,037 $83,209 $66,037 $83,209 $66,037 $83,209 $66,037 $83,209 $66,037 $83,209 $66,037 $83,209 $76,920 $0 $76,920 -$33,208 $173,489 $0 $173,489 $26,344 $270,780 $0 $270,780 $78,917 $300,377 $0 $300,377 $149,246 $300,377 $0 $300,377 $149,246 $300,377 $0 $300,377 $149,246 $300,377 $0 $300,377 $149,246 $300,377 $0 $300,377 $149,246 $300,377 $300,377 $0 $0 $300,377 $300,377 $149,246 $149,246 $43,712 $0 $43,712 $199,833 $0 $199,833 $349,697 $0 $349,697 $449,623 $0 $449,623 $449,623 $0 $449,623 $449,623 $0 $449,623 $449,623 $0 $449,623 $449,623 $0 $449,623 $449,623 $449,623 $0 $0 $449,623 $449,623 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

The Pro forma income statement shows a net loss of $58,610 and $18,019 respectively in year 1 and year 2. However, this tendency reverses course in year 3 to reach a net income of $8,984. A steady net income of $56,000 is registered in subsequent years.

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Freshwater Shrimp Farming in Alberta

Pro Forma Cash Flow Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 $0 $30,000 $30,000 $30,000 $132,968 $229,135 $280,024 $356,896 $416,912 $494,845 Beginning Cash Balance Receipts Pounds of shrimp sold $8,342 $38,136 $66,736 $85,806 $85,806 $85,806 $85,806 $85,806 $85,806 $85,806 $5.24 $5.24 $5.24 $5.24 $5.24 $5.24 $5.24 $5.24 $5.24 Average price per lbs $5.24 $43,712 $199,833 $349,697 $449,623 $449,623 $449,623 $449,623 $449,623 $449,623 $449,623 Total Cash Inflow Operating Expenses $13,799 $31,230 $48,660 $52,292 $52,292 $52,292 $52,292 $52,292 $52,292 $52,292 Shrimp Post Larvae $10,411 $30,342 $51,435 $61,265 $61,265 $61,265 $61,265 $61,265 $61,265 $61,265 Feed $17,098 $34,195 $51,293 $51,293 $51,293 $51,293 $51,293 $51,293 $51,293 $51,293 Labor $12,652 $23,202 $33,801 $33,801 $33,801 $33,801 $33,801 $33,801 $33,801 $33,801 Electricity $2,988 $11,433 $19,849 $25,342 $25,342 $25,342 $25,342 $25,342 $25,342 $25,342 Fuel $0 $0 $0 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 Office rental $8,976 $17,953 $26,929 $26,929 $26,929 $26,929 $26,929 $26,929 $26,929 $26,929 Repairs & Maintenance $639 $1,875 $3,111 $3,590 $3,590 $3,590 $3,590 $3,590 $3,590 $3,590 Operating Supplies $379 $1,731 $3,030 $3,896 $3,896 $3,896 $3,896 $3,896 $3,896 $3,896 Ice & Packing $379 $1,731 $3,030 $3,896 $3,896 $3,896 $3,896 $3,896 $3,896 $3,896 Marketing $379 $1,731 $3,030 $3,896 $3,896 $3,896 $3,896 $3,896 $3,896 $3,896 Shipping & Sales $189 $866 $1,515 $1,948 $1,948 $1,948 $1,948 $1,948 $1,948 $1,948 Accounting Fees $189 $866 $1,515 $1,948 $1,948 $1,948 $1,948 $1,948 $1,948 $1,948 Legal Fees $2,120 $1,600 $1,489 $0 $0 $0 $0 $0 $0 $0 Insurance $6,721 $14,732 $22,812 $25,003 $25,003 $25,003 $25,003 $25,003 $25,003 $25,003 Contingency Rate Total operating Costs $76,919 $173,487 $271,499 $301,099 $301,099 $301,099 $301,099 $301,099 $301,099 $301,099 Capital Expenditures $0 $0 $0 $0 $0 $0 New capital Investment $212,026 $160,026 $148,943 $0 $0 $0 $0 $6,450 $10,783 $56,927 $30,944 $47,800 $29,883 $29,683 Capital Replacement Taxes $0 $0 $1,933 $17,492 $17,492 $17,492 $17,492 $17,492 $17,492 $17,492 Income Tax $0 $0 $1,598 $6,882 $6,882 $6,882 $6,882 $6,882 $6,882 $6,882 Social Security $0 $0 $374 $2,413 $2,413 $2,413 $2,413 $2,413 $2,413 $2,413 Medicare $288,945 $333,513 $424,347 $334,336 $338,669 $384,813 $358,830 $375,686 $357,769 $357,569 Total Cash Outflow -$245,233 -$133,680 -$74,650 $115,287 $110,954 $64,810 $90,793 $73,937 $91,854 $92,054 Cash Available $0 $0 $0 $0 $0 $0 Investors Paid in Capital $275,232 $133,683 $73,922 $0 $30,000 $30,000 $30,000 $145,559 $256,785 $321,867 $412,932 $487,141 $579,266 $671,592 Ending Cash Balance

The cash flow statement shows a healthy cash position throughout the 10-year planning horizon. Although the available cash was negative in the first 3 years of operations, it was offset by the investors paid-in capital. Breakeven analysis revealed a price of $4.28 per pound of whole shrimp is a must in order to recover all costs including non-cash costs such as depreciation. Meanwhile, according to EUROFISH, current prices of shrimp as of October 2004 are US$8/kg or $3.64/lb, which are 15 percent lower than quoted prices. Not withstanding prices fluctuation, it is evident that this

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Freshwater Shrimp Farming in Alberta

type of venture is not meant to serve the wholesale industry but may be efficient by mainly focusing on a niche market that is looking for high quality, freshness and the ability to trace and know the producer, with a focus on regional or locally grown ingredients. Sensitivity analysis revealed that improving the survival rate and the growth rate of shrimp would have a drastic and positive impact on the bottom line. For example, improving the survival rate from 61 percent to 75 percent would increase the Internal Rate of Return (IRR) from 11 percent to 33 percent or reduce the required sales price from $5.24/lbs to only $4.6/lbs.

Opportunities and Barriers

As with any newly developing industry, the freshwater shrimp industry is bound to face many barriers, especially technical and marketing barriers. We prefer to think of them as opportunities and when resolved would assist in jump-starting a freshwater shrimp farming industry. For the purpose of this study, we will focus on highlighting the major ones:

Lack of extensive and technical data suited to Alberta environment; Lack of specialized human resources capable of resolving production issues; Lack of benchmarks pertaining to new energy saving technologies; Lack of risk management tools.

Recommendations
It is evident that world shrimp supply is reaching maximum output. To satisfy the growing demand, shrimp aquaculture would have to fill the gap, as less than half of all marine food will come from capture fisheries. Alberta should position itself to take advantage of this forecasted trend. Due to the lack of reliable data tailored to Alberta, we do not recommend nor promote widespread intensive freshwater shrimp farming. However, we recognize the need for a pilot project that will shed the light on many aspect of farming shrimp in recirculating water within the province. The objectives are to establish technical benchmarks, such as water quality and disease management, survival rates, costs of production and marketing challenges. It would be wise to include newly developed technologies, such as geothermal energy to investigate their efficiencies in meeting the heating requirements, as well as costs reduction. If successful, the extension project could be used as a source of expertise to assist in the development of this industry and a means for building capacity and human resources training and development.

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Freshwater Shrimp Farming in Alberta

References FAO, Food & Agriculture Organization: www.fao.org Market Outlook in the International Fish & Seafood Sector: Canadian Perspective By H. M. Johnson and Associates, November, 2002 Agriculture & Agri-Food Canada Institute of Food and Agriculture Science, University of Florida GUIDE TO INTENSIVE AQUACULTURE IN MANITOBA Manitoba Water Stewardship Fisheries Branch, April 2004 Eurofish: http://www.eurofish.dk/ US Department of Agriculture (USDA) Office of Commissioner for Aquaculture Development, Canada Aquanet Canada: http://www.aquanet.ca/English/links/stats.php Statistics Canada National Oceanic & Atmospheric Administration, NOAA. http://www.st.nmfs.gov/st5/FisheriesDependentData.html Shrimp News International: http://www.shrimpnews.com Shrimp Daddy Inc: http://www.aquatechgroup.com Fisheries and Oceans Canada Market Outlook in the International Fish & Seafood Sector, Study No. 2 Canadian Perspective by H. M. Johnson and Associates, November 2002. Potential for Pandalus Shrimp in Southern Europe, Helga Josupeit, November 2004.

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