Beruflich Dokumente
Kultur Dokumente
to Sustainable Shrimp
Production in India
THE CASE FOR IMPROVED ECONOMICS AND
SUSTAINABILITY
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A STRATEGIC APPROACH
TO SUSTAINABLE SHRIMP
PRODUCTION IN INDIA
THE CASE FOR IMPROVED ECONOMICS AND SUSTAINABILITY
HOLGER RUBEL
WENDY WOODS
DAVID PÉREZ
SHALINI UNNIKRISHNAN
SOPHIE ZIELCKE
CHARLOTTE LIDY
CAROLIN LANFER
4 EXECUTIVE SUMMARY
3 3 APPENDIX
Functional Feed, Water Improvement Systems, and Solar Energy
• Details on Functional Feed
• Details on Water Improvement Systems—Biofloc and RAS
• Details on Solar Energy
Market Dynamics and Environmental Impact of Immediate
Change
• Feed Mills
• Hatcheries
• Farmers
• Middlemen
• Processors and Exporters
S hrimp farming has been a huge success story for India. From
2011 through 2018, the country’s farmed-shrimp industry grew by
23% and, through 2024, is expected to grow by 11%, far surpassing
global growth rates of 5.6%. With such explosive growth, the country
has established itself as the second-largest farmed-shrimp producer in
the world, after China. Despite this extraordinary growth story, India
is facing increasing challenges.
more than tripled from about 1.2 million tons In 2018, the global shrimp market experi-
in 2000 to some 4.2 million tons in 2017. As enced a decrease in prices that was the result
the global population and consumer afflu- of high inventory levels in import nations
ence grow, farm-raised shrimp are becoming such as the US, further squeezing profit mar-
an increasingly important source of protein gins and giving low-cost players, such as India,
around the world. In the US alone, the an advantage.
average annual consumption of shrimp has
risen to four pounds per capita. The global trend toward environmentally sus-
tainable and socially responsible food pro-
In 2017, the global market for shrimp, includ- duction has raised questions about food safe-
ing farm-raised and wild-caught shrimp, was ty and sustainability within the shrimp
valued at around $40 billion. The dominant industry. Retailers, regulators, and consumers
species of farmed shrimp, Litopenaeus vann- have become much more attuned to the neg-
amei (L. vannamei), or whiteleg shrimp, ac- ative environmental and social impact as-
counts for about $14 billion. Shrimp produc- pects of unregulated shrimp production,
tion worldwide is expected to grow by 5.6% including the use of banned chemicals, envi-
annually, with the greatest demand coming ronmental degradation, and human and la-
from China and the US. bor rights violations.
The overall industry is growing at a record In a world with 24-hours-a-day access to so-
pace, but not all shrimp producers are thriving. cial media, ongoing consumer awareness
In the early years of this century, China, Thai- campaigns, new regulations in importing
land, and Vietnam were leaders in the shrimp countries, and accelerated dissemination of
farming sector—and India was only the information worldwide, retailers face intense
sixth-largest shrimp producer. But the com- pressure to protect their brands from the
petitive landscape has shifted. Outbreaks of damage that results from product recalls,
disease and rising labor costs have threat- scandals, and supply chains that are disrupt-
ened this once-thriving industry, and India, ed by new import controls.
which has dramatically increased its share in
the global shrimp market by producing large As more attention is focused on these issues,
volumes at low prices, has become the retailers, regulators, and, in some cases, con-
For the following reasons, India’s farmed-shrimp •• Abundant Land That Enabled Quick
industry has been thriving in recent years: Expanding of Production. Shrimp-
farming areas have expanded rapidly,
•• Strong Demand While Competitors particularly in Andhra Pradesh, and,
Struggle with Disease Outbreaks. Two unlike in other countries, land availability
29 China 1,200
14 India 600
12 Indonesia 490
11 Ecuador 480
11 Vietnam 450
8 Thailand 327
3 Mexico 128
2 Bangladesh 80
2 Philippines 62
1 Myanmar 54
1 Brazil 52
1 Malaysia 43
5 Other 209
Total 4,175
Sources: Cámara Nacional de Acuacultura; Food and Agricultural Organization of the United Nations; FishStat Plus, 2016; Thailand Department
of Fisheries; Imarc Research; BCG analysis.
Note: The figure for India is for fiscal year 2017–2018.
has not been a limiting factor. Most farms India is by far the largest global shrimp ex-
are not registered, and many don’t adhere porter, and shrimp is the country’s largest agri-
to governmental standards, so shrimp cultural export. Until recently, less than 5% of
production has done considerable damage total production was for domestic consump-
to the environment. Still, the government tion. In recent years, domestic consumption
has little power to enforce regulations on has increased to around 20% of total produc-
unregistered farms. tion—primarily fresh shrimp. Approximately
90% of processed shrimp, mostly frozen, is ex-
•• Focus on High-Volume Exports with ported. Some 40% of shrimp is exported to the
Only Basic Processing. India’s farmed- US, followed by approximately 30% to Viet-
shrimp producers have focused primarily nam and nearly 15% to the EU. (See Exhibit 3.)
on high-volume production of low-cost, The growth rate of India’s exports has slowed
minimally processed shrimp almost recently. In 2017, exports grew 31%, but in
exclusively for the export market. This 2018 they grew only 8%.
focus allows producers to export their
products quickly without the cost of
additional processing and investment. India’s Value Chain Is Complex
However, value-added processing is far The value chain of India’s farmed-shrimp in-
more profitable. dustry comprises several interrelated steps:
Maharashtra Orissa
14%
Species Share of total 7% Species Share of total
production (%) production (%)
6%
L. vannamei 1.5 1% L. vannamei 4.7
P. monodon 0.01 P. monodon 11.3
61%
Tamil Nadu and Puducherry Andhra Pradesh
Species Share of total Species Share of total
production (%) 9% production (%)
L. vannamei 11.0 L. vannamei 72.7
P. monodon 1.4 P. monodon 4.6
Exhibit 3 | The US Accounts for the Highest Share—40%—of India’s Shrimp Exports, Followed
by Vietnam, the EU, and Japan
EU
14%
US Japan
40% 6%
Vietnam
28%
Other
6%
Feed mills Hatcheries Farmers Middlemen and Processors Local markets International
commission agents Exporters retailers
•• Feed Mills. Two players, Avanti Feeds and •• Processors. Generally, both the process-
CP India, together control approximately ing and the exporting are managed by one
70% of the shrimp feed market. Several company. The market is highly fragment-
midsize companies control 20%, and the ed. Nekkanti Sea Foods and Avanti Feeds
rest of the market is highly fragmented. have the largest processing capacities.
•• Hatcheries. BMR Group controls 20% to Across the value chain, there are some fully
25% of the market, but the rest of the integrated players. The two largest, Avanti
market is very fragmented. Five to seven Feeds and CP India, own feed mills, hatcher-
large-scale hatcheries, including BMR ies, farms, processors, and export facilities. In
Group, control around 60% of the market. addition to these fully integrated players, var-
ious midsize downstream players—such as
•• Farmers. Approximately 90% of shrimp Devi Fisheries—own farms as well as process-
farms are managed by small or midsize ing and export facilities. Many smaller play-
players; large corporate players, including ers, such as Nekkanti Sea Foods, focus on
BMR Group and Devi Fisheries, control processing and distribution only.
10% of farms and shrimp farm hectares.
en its still relatively weak domestic market Despite these challenges, India’s shrimp pro-
for farmed shrimp, the shift toward traceabili- ducers are reluctant to change their methods:
ty and sustainability affects India more than the industry is currently profitable, and the
other countries, such as Indonesia, with supply chain costs remain low. While it’s true
strong domestic demand. Because most farms that India continues to dominate the global
in India are not registered and India’s govern- export market, growth rates are slowing, and
ment has very little control over unregistered inaction poses a high risk.
farms, establishing traceability will be chal-
lenging. For a number of reasons, however, The following are the risks of inaction for the
it’s important that India shift toward trace- industry overall:
ability and sustainability now. By raising sus-
tainability standards in the supply chain, the •• Reputational damage due to contaminat-
Indian shrimp industry can tap into new mar- ed shrimp and unsustainable practices
kets, build an even stronger competitive posi- could affect profitability for years.
tion, and become a leader in this segment.
•• Import refusals and loss of market access
could threaten up to $2 billion in exports
Low Survival Rates and (from a total of $4.9 billion).
Increasing Disease Risk
Approximately 80% of L. vannamei farms in The following are the risks of inaction for
India are semi-intensively farmed. With sur- producers:
vival rates of just 55%, Indian farms are sig-
nificantly less productive than those in other •• Farms that do not comply with stricter
countries—even in countries such as Thai- environmental standards that are being
land that have been previously ravaged by more strongly enforced by local authori-
disease. India has thus far been spared a ma- ties could be shut down.
jor disease outbreak, but its rapidly growing
farms have low biosecurity standards and •• Producers that fall behind in sustainabili-
therefore disease risk is high. Industry experts ty and traceability could lose market share
expect that Indian farmers will face a major and access.
disease outbreak eventually.
•• Producers that use unsustainable methods
With more than 100,000 shrimp farms in op- will become less productive over time,
eration, more than 90% of them family resulting in operational and financial
owned and only 1% registered with the Coast- losses.
al Aquaculture Authority, India will find it
difficult to implement change quickly. But im-
proved survival rates can boost production by
300,000 metric tons of shrimp (equal to 50%
of production volume in 2017) and create
production value of $1.5 billion annually.
In this section, we briefly review how each Growth Enhancement Functional Feed. This
player in India’s farmed-shrimp value chain is used to increase shrimp growth rates and
can benefit from these short-term improve- allow farmers to sell larger shrimp at a
ments. (See Exhibits 7 and 8.) potentially higher price or to accelerate
improving efficiencies
growth cycles and, therefore, farm through- chase the expensive feed only when there’s a
put. It offers a positive business case for feed direct economic benefit, such as when global
mills, potentially increasing EBIT margins by shrimp prices rise significantly. It does offer a
130% per kilogram of shrimp feed sold. This good opportunity for feed mills to diversify
increase in profitability is achieved by their portfolios, boost revenues, and improve
charging a premium of as much as 20%, profit margins, but a complete shift is not rec-
offsetting the additional production costs. ommended. To attain these benefits, it is im-
portant that feed mills market functional
However, when farmers invest in growth en- feed and educate farmers on its benefits. (See
hancement functional feed, their feed conver- the Appendix for a discussion of growth en-
sion ratio (FCR) is drastically reduced.1 The hancement and health enhancement func-
immediate demand for feed may drop, reduc- tional feed.)
ing revenues by up to 16% per kilogram of
shrimp produced, but this decline can be off- A feed mill that extends its product portfolio
set by other factors, including the ability to by selling functional feed can increase profits,
charge higher prices for functional feed and help farmers increase production volumes,
an overall uptick in demand for feed (as and support growth within the shrimp indus-
shrimp grow faster and demand increases). try as a whole. Feed mills have both a clear
incentive and a responsibility to act. Switch-
Health Enhancement Functional Feed. This ing to functional feed also benefits the envi-
type of feed can enhance shrimp health and ronment by decreasing land use—as a result
disease resistance, and it also offers several of reduced FCR—by up to 15% per kilogram
benefits for feed mills, not the least of which of shrimp produced, improving water quality
is that feed mills can charge premiums of up by reducing feed waste, decreasing the use of
to 50%. Production and feed ingredient costs antibiotics, and requiring less fish meal and
will likely increase by 10% to 20%, but these fish oil. However, these benefits materialize
costs are typically offset by the revenue only if functional feed is widely used, and the
boost. positive environmental impact depends on
what substitutes are used for fish meal.
It is fair to assume that the demand for func-
tional feed will increase in the years to come, Feed mills are responsible also for careful
but it will not completely displace regular consideration of the production of the feed’s
feed from the market: farmers will likely pur- ingredients. Worldwide, the demand for fish
$1.00 $6.99
Costs per kilogram
$2.18 $3.75 per kilogram of shrimp per kilogram
per 1,000 PL
of feed of shrimp
EBIT margin of up to 23% even EBIT margin: Increase: EBIT margin: Increase:
during disease outbreaks
versus 11% with basic feed Up to 27% 22% Up to 36% 61%
In a best-case scenario, farmers benefit from In most cases, effective RAS implementation
an EBIT increase of up to 30%, resulting in an requires considerable financial investment
EBIT margin of about 29% per kilogram of owing to the need to install new facilities and
shrimp sold. At worst, if farmers are not able train workers in what is an advanced farming
to fully benefit from the advantages of bio- technique. However, because RAS offer the
floc, they still achieve a small increase in opportunity to intensify production, these
EBIT, leading to an EBIT margin of about systems also allow larger output per hectare.
26%. The increase in EBIT margins is a result
of decreased costs for feed and chemicals For producers that can afford the investment,
combined with the potential to grow shrimp sophisticated RAS—some costing $150,000
faster or larger within a given period of time per hectare—can potentially increase EBIT
because of the high protein content of biofloc. margins by up to 22% per kilogram of shrimp
produced, resulting in an overall EBIT margin
With this opportunity, large farms tend to of about 27%. This increase assumes that
have an advantage over small farms, because farmers can reduce fixed costs by 50% and
they have better access to knowledge and ex- variable costs by 15%, owing to higher stock-
pertise—imperatives for the successful use of ing densities, reduced labor costs because of
biofloc. However, as it can be difficult to scale automation, and reduced pond preparation
this method, small farms have the advantage costs. The margin increase will counterbal-
of being positioned to apply the method on a ance the capital investment that results in the
limited scale. fourfold increase in deprecation per kilogram
of shrimp, as well as the higher costs for the
For farmers with the right equipment—such electricity needed to support the use of the
as aerators and monitoring equipment—as filters and constant aeration.
well as access to the necessary training and
knowledge to maintain biofloc in ponds, this RAS are expensive and require special knowl-
approach is a promising option. Used properly, edge to implement. Their application is,
it can reduce water pollution and prevent eu- therefore, limited to supply chain actors with
trophication of natural ecosystems by reusing access to sufficient funding and expertise.
water. In some cases, however, its incorrect ap- There are simple, low-cost filter systems avail-
plication can have an adverse effect on the able as alternatives to RAS, but they tend to
heterotrophic pond environment by adding ex- be less effective. To reduce the investment
cessive waste material to the water, possibly costs per farmer, RAS can be used in farm
reducing shrimp survival rates. (See the Ap- collectives to spread costs among adjacent
pendix for additional information on biofloc.) farms.
RAS are sophisticated filtering systems that The use of RAS likely reduces the intake of
treat water so that it can be reused in the new water (except to make up for seepage
same location.2 Such closed-loop systems of- and evaporation), but it also causes a surge in
fer two significant benefits: no unfiltered total energy and feed use owing to increased
wastewater is discharged into the local envi- stocking densities. Using renewable energy
ronment, and demand for “new” water is re- and functional feed and leaving a minimal
duced. In an ideal case, no water exchange is environmental footprint could potentially
required. Moreover, these systems can im- mitigate this negative effect.
prove farm and resource efficiency and boost
productivity, as they reduce the need for pro- Beyond these benefits, the application of wa-
duction inputs such as chemicals, feed, and ter filters combined with higher stocking den-
~40% ~10%
<20% ~100%
Recently, domestic xx% Volume flowing through
consumption rose to a particular channel
Farm gate about 20% from less than
5% a few years ago
Sources: Indian Journal of Pure & Applied Biosciences; expert interviews; BCG analysis.
Note: Some middlemen in India are called commission agents. This value chain analysis focuses on farmed shrimp in the Navsari district of
Gujarat. Data is for 2017.
As these integrated players shift toward more Traceability is key. No market claims can be
environmentally sound production, they also made in the absence of transparency and
must think carefully about how changes will traceability. With traceability, supply chain
play out at each step along the value chain. actions become visible, and actors can be
For example, when integrated players use held accountable for their actions. This, in
growth enhancement functional feed, their turn, creates an incentive for sustainable and
feed mills will likely experience a 16% decline responsible production. Importers and regu-
in feed sales, but if their farms adopt RAS lators, as well as a niche consumer segment,
Retailers and importers are pushing for full •• More Efficient Farms. With detailed
traceability: it represents a necessity and a data- and analytics-based records for each
business opportunity. As one former execu- step along the supply chain, shrimp farms
tive of a major retailer in North America said, and production facilities can streamline
“If you could establish a fully traceable sup- operations, thereby increasing production
ply chain, so you know where your product is volumes. Traceability can increase
coming from at each step of the chain…that operational efficiency through record
would have tremendous value. That is what keeping, but that works only if farms take
everyone wants and needs.” Consumers, too, action accordingly.
are increasingly demanding it.
•• Sustainable Production. With traceabili-
While traceable shrimp is still a niche mar- ty, retailers can punish producers for their
ket, that market is growing quickly, and Indi- unsustainable practices by refraining from
an shrimp suppliers and buyers have much to buying, and retailers along with consum-
ers can reward producers for their sustain- for traceable food products, making
able practices by paying price premiums. traceability a market differentiator. To
And traceability enables precise tracking spread the wealth along the supply chain,
of production locations, potentially some technology providers, for example,
identifying farms located in, for example, are working to develop ways to share the
no-go areas such as protected mangrove rewards with upstream players through
forests. token currencies and other incentives.
Closed-loop systems in indoor facilities are With higher levels of intensification, stocking
already underway in Thailand, Vietnam, the densities and farm output per hectare have
US, and Europe. The Thai conglomerate CP grown, and the amount of land required to
(which is also one of the leaders in India), for produce a kilogram of shrimp has typically
To continue competing on a global level in the •• Reductions in costs and logistics because
future, closed-loop and indoor farming repre- production can be located close to
sent the next step for India. In addition, it processing
makes it possible for companies to mitigate the
increasing environmental hazards and risks the •• Simplified transportation and faster access
shrimp industry faces. to global markets
The closed-loop system offers the following •• Consistent year-round production with a
clear advantages: secure supply of high-quality commodity
shrimp
•• Higher yields and reduced operational
risks that are the result of having com- •• No mangrove deforestation due to
plete control over input, lower disease construction in highlands
rates, smaller land requirements, and
efficient feed use •• Control over inputs and no use of anti-
biotics
•• Improved and stable revenue streams
•• Opportunity to increase control over
•• Significantly reduced environmental social responsibility and ensure ethical
impact due to less water and land use conduct
Farming systems
Land use
Disease risk
Biosecurity
Stocking
Opportunities density
Efficiency
India's current position
This Appendix provides an overview of the and short-term business case analyses of the
technical details of functional feed, water im- various value chain participants: feed mills,
provement systems, and solar energy, inclu- hatcheries, farmers, and middlemen, as well
ding a discussion of the business case for so- as processors and exporters.
lar energy, as well as the market dynamics
This section of the Appendix focuses on three This improvement in growth, which helps
factors—functional feed, water, and solar en- farmers increase the number of production
ergy—that can drive improvements to both cycles per year if they use the feed continu-
the economics and environmental footprint ously, can lead to significant improvements in
of shrimp farming. biomass and productivity.
For example, bioactive powder (Novacq) can •• Similarly, additives such as Digestarom
improve growth rates of farmed shrimp: improve gut health and improve FCR.
•• It reduces reliance on harvesting wild fish •• In tests with CP basic feed in Thailand,
for feed. Liptofry increased FCR and survival rates
under normal conditions and led to stable
•• Its use promotes up to 20% to 30% faster survival rates when challenged by early-
growth. mortality-syndrome bacteria.
FOCUS
Cost impact Higher feed costs; Higher feed costs; Minor cost factor Possibility of high High impact on costs
less feed required crop loss avoided investment costs for based on efficiency
new technology and risk management
Potential impact on
labor
Requirements Larger shrimp; Consideration of Farmers have New technology to Farmers rely on feed
and assumptions higher sales price the risk of disease appropriate storage support new feeds mills for information
possible and crop loss and improve impact and best management
No known major
and success practices
issues
Results
EBIT margins are Loss from diseases No significant impact Support for successful Critical for FCR,
32% higher for avoided; higher on farmers’ P&L introduction of new survival, and risks on
farmers revenues feeds farms
Clear quantifiable business case Prerequisite for quantifiable business cases Not relevant to the business case
Two approaches to improving water quality With RAS, water is treated through multiple
during shrimp production—biofloc and filters, allowing for its reuse, and no unfil-
RAS—have been modeled in detailed scenar- tered wastewater is discharged into the local
ios. (See Exhibit 15a.) ecosystem. The most common systems in-
clude a mechanical biofilter and a degasser.
With biofloc, carbohydrates are added to the The water is enriched with oxygen and disin-
water, increasing the carbon-to-nitrogen ratio. fected with ultraviolet light before it is read-
The nitrogenous waste blends with other bac- mitted to ponds.
teria, algae, and fungi, creating a biofloc that
increases water quality while reducing FCR, RAS offers significant advantages for farmers:
Nonexhaustive
• Low-to-no water discharge
• Better than conventional systems
• Emphasis on microbial manipulation
• Use of microbial loop system to remove toxic nitrogen compound
Zero water discharge • Microbial consortia added regularly to the system
• Microbial component kept dominant in the system
• Need for additional compartment for separated microbial cultivation
• No water discharge
• Involvement of many treatment processes, including physical and chemical treatments
• Microbial compartment in the biofilter
• Biofilter has defined microbial consortia
• Isolated, clear-water system
RAS • Main purpose: biologically secured and hygienic aquaculture product
• Higher investment and operational costs than for other systems
•• The various filters and water treatments •• RAS reduce the need for chemicals, and
improve water quality. automation decreases labor requirements.
•• Water conditions are continuously Still, it’s important to consider the challenges
monitored and, if necessary, automatically that RAS pose to wide implementation:
adjusted, reducing the stress level of the
shrimp and enabling farmers to increase •• Installation of the necessary filters and
stocking densities. treatment tools imposes high upfront
FOCUS
• Improved feed conversion rate • Increased survival rate • Diversified economic income
• Decreased required protein • Increased stocking densities
content in artificial feed • Decreased disease risk
Advantages • Increased growth rate • Stabilized water conditions
• Increased energy costs (energy • Significant initial investment • Decreased shrimp productivity
outtakes critical) costs from $15,000 to >$300,000 • Disease spread among
• Advanced technical skills • Increased energy costs additional species or plants
required • Advanced technical skills • Advanced technical skills
Disadvantages • Constant monitoring needed required required
• Further research necessary • Constant monitoring needed • Further research necessary
Exhibit 15b | The Addition of Carbohydrates to the Water Leads to the Assimilation of Nitrogenous Waste
Farmers add Owing to the additional The nitrogenous waste Similar or higher
carbohydrates in the carbohydrates, the ratio (unused feed and protein levels (25% to
Reduced
form of molasses or of carbon to nitrogen excreta) is assimilated 50%, compared with FCR
cornmeal to water increases and—together with 35% in regular feed) and Because it has
other bacteria, fat content (0.5% to nutritional value,
algae, and 15%, compared with 4% biofloc reduces the
fungi—compounded to 6% in regular feed) amount of
as biofloc of biofloc additional feed
required
•• Sophisticated RAS that include significant Each option has different implications in
alterations to the production facilities, terms of land use, water evaporation, electric-
equipment, and possibly even indoor ity production, and investment costs, which
operations, can cost $300,000 per hectare range for ground-mounted PV systems from
or more to set up. $1 million per megawatt to $1.7 million per
megawatt, including storage costs. Farm size,
•• With greater control over the culture location, and regional characteristics—includ-
environment, it is possible to mitigate the ing the cost of fuel, reliability of the energy
outbreak of disease. However, should an supply from the grid, and solar irradiation—
outbreak occur, it would affect a larger should all be taken into account prior to mak-
amount of shrimp as a result of increased ing an investment.
stocking densities, resulting in greater losses.
Exhibit 16 | Evaluation of Four Types of Renewable Energy Sources for Shrimp Farming
FOCUS
Location Evaluation of solar radiation Evaluation of average wind Evaluation of available Evaluation of solar radiation
requirements required speed required biomass in region required required
PV has a relatively large Shrimp farms located in flat Limited commercial Limited commercial
footprint and occupies land coastal areas that offer only small-scale projects and small-scale projects and
that could be used for light sea breezes instead of technologies; environmental technologies; required land
ponds strong winds impact of generated gas is a potential issue (similar
Disadvantages to solar power)
To calculate the business case for each step Business Case. Exhibit 18 shows the average
along India’s shrimp value chain, the base economics of today’s feed mills. We looked at
case (today’s average) was derived from BCG two types of functional feed: growth enhance-
knowledge, proprietary data, and industry ex- ment and health enhancement.
pertise and was subsequently validated in ex-
pert interviews and with secondary research. Growth Enhancement Functional Feed. The use
of growth enhancement functional feed en-
The analysis then identified key parameters ables higher efficiency in shrimp farming: de-
affected by changes to current operations and mand falls when farmers use functional feed,
estimated their business impact. Each busi- and revenues could decline by as much as
ness case calculation is displayed as a relative 16% owing to lower feed mill sales.
delta to today’s average, the base case. For
each step along the value chain, we also ana- However, there is the possibility of increasing
lyzed the overall market structure and the en- today’s EBIT margins by 130%, and, as farm-
vironmental impact of immediate change. ers will not use functional feed continuously,
the impact on feed mill revenues is expected
to be marginal.
Feed Mills
Market Dynamics. In 2017, the shrimp feed The following are the assumptions on which
industry in India produced about 862,000 we based the business case calculations for
metric tons. Production is expected to grow at growth enhancement functional feed for feed
about 11% per year. Most feed players are mills:
located in Andhra Pradesh, where they have
easy access to farmers and lower transporta- •• Revenues per kilogram of feed sold
tion costs. (See Exhibit 17.) increase because feed mills can charge a
price premium of up to 20%.
The feed market is dominated by two players,
Avanti Feeds and CP India, with a combined •• Production and input costs increase about
market share of around 70%. Approximately 6% per kilogram of feed produced.
90% of the feed reaches the farmer through a
well-established dealer network. Dealers of- •• The potential FCR improvement at the
ten provide smaller farmers with credit. Di- farm level is 30% for half of the growth
rect sales are common only to large corporate cycle, leading to an overall FCR of 1.11,
farmers. reducing demand.
Orissa 53 6 30 4–5
Andhra Pradesh
Tamil Nadu 74 9 21 8–9
Sources: Marine Products Exports Development Authority; expert interviews; BCG analysis.
Note: Figures are based on 2017 numbers.
8 100 3 6 91 32 9 23 21 3 3
1.09 0.09
1.00 0.03 0.06
0.91 0.32
0.09
0.23
0.21
0.03 0.03
Revenues EBIT Total Depreciation Fixed COGS Fish meal Flour SPC Other raw Direct labor Packaging
cost costs materials costs
Health Enhancement Functional Feed. Feed mills •• Production and input costs increase about
can charge a premium price of up to 50%. The 15% per kilogram of feed produced.
premiums result in a profit margin increase of
260% compared with today’s average EBIT •• The disease survival rate increases from a
margin. (See Exhibit 19.) The following are range of 20% to 30% to a range of 70% to
the assumptions on which we based the busi- 75%. (This is particularly relevant for
ness case calculations for health enhancement farmers who deal with high risk of
functional feed for feed mills: disease.)
•• Revenues per kilogram of feed sold Environmental Impact. The overall impact on
increase because feed mills can charge a the environment is limited, but feed mills
price premium of up to 50%. enable positive change at the farm level:
19% 30%
COGS Operating Depreciation Total cost EBIT Revenues COGS Operating Depreciation Total cost EBIT Revenues
costs costs
Cost savings or revenues / EBIT increase, based on today's average Cost increases or revenues / EBIT decrease, based on today's average
•• The use of health enhancement function- while only around 15 hatcheries are located
al feed for feed mills improves efficiency on the West Coast.
and reduces farm waste. With lower
mortality rates, for example, less feed goes The market is very fragmented with the
to waste. biggest player, BMR Group, having 20% to
25% market share. L. vannamei brood-
•• Through reduced feed use in general and stock is sourced primarily from the US, but
the inclusion of ingredients that replace local Indian broodstock is increasingly
fish meal and oil, the use of land, water, common.
and antibiotics and the need for wild-
caught fish are reduced. (See Exhibit 20.) High-quality PL is essential for preventing
disease, and therefore the relationships be-
•• It’s important to further consider ingredi- tween hatcheries and farmers are crucial. In
ents used in functional feed—as substi- addition, the hatchery sector is regulated to
tutes for fish meal—in terms of their prevent nationwide outbreaks of diseases and
effect on the environment. Greater ensure a stable supply of PL.
dependence on soy, for example, has
negative implications for the environ- Business Case. Exhibit 21 illustrates the
ment, because soybean production is average economics of today’s hatcheries.
causing widespread deforestation. Even with no quantitative business case
assessment, it’s clear that high-quality PL
contributes to better results for the industry
Hatcheries overall.
Market Dynamics. The PL market in India has
been growing at around 26% in recent years Environmental Impact. The hatcheries have
and has reached more than 50 billion PL in only limited impact, and water treatment and
2017. India has more than 300 L. vannamei antipollution measures could further reduce
shrimp hatcheries. their impact. Better PL quality leads to better
survival for shrimp, reducing the impact of
Almost all hatcheries are located on the East failed production on farms. This is a key
Coast of India, primarily in Andhra Pradesh, driver for future value.
Land use Water use and Chemicals and Use of fish and
pollution antibiotics wild catch
52 100 24 11 65 3 19 11 11 3 18
4.54 2.36
2.18 0.51
0.25
1.42 0.06 0.41
0.24
0.24
0.06 0.39
Revenues EBIT Total Depreciation Fixed COGS Broodstock Feed Chemicals Fuel and Supplies Labor
cost costs and antibiotics power
22 100 3 9 88 13 45 6 6 7 5 3 2 3
4.83 1.08
3.75 0.12 0.30 3.33 0.49
1.69
Revenues EBIT Total Depreciation Fixed COGS PL Feed Energy: Energy: Probiotics Labor Harvesting Pond Other
cost costs purchase grid locally and preparation
sourced sourced chemicals
30% 7%
COGS Operating Depreciation Total cost EBIT Revenues COGS Operating Depreciation Total cost EBIT Revenues
costs costs
can be achieved only with long-term plan- feed can indirectly reduce the impact of
ning, management, and foresight. overfishing and lead to a positive environ-
mental impact.
The business case calculations for health en-
hancement functional feed for farms are Biofloc and RAS. The business case for using
based on the following: biofloc depends on a farm’s technical manage-
ment, which influences prices, costs, and pro-
•• Feed is sold at a premium of up to 50% duction parameters such as FCR and growth
above the price of conventional feed. cycles. In the best-case scenario, farmers
achieve EBIT margins as high as 29%, increas-
•• There is no change in FCR, but survival ing margins as much as 30%. Even in the worst-
rates rise from a range of 20% to 30% to a case scenario, margins increase slightly, leading
range of 70% to 75%. to overall EBIT margins of 26%. If farmers are
knowledgeable and consistently monitor the
•• Scenario 1. Using basic feed for the entire system, they can expect to achieve the best-
production, about 80% of the crops are case scenario. (See Exhibit 24.)
successful with a 55% survival rate, and
20% of crops hit by disease have a survival The assumptions for business case calcula-
rate of only 20%. tions for biofloc for farms include the fol-
lowing:
•• Scenario 2. Using basic feed two-thirds of
the time, successful crops have a 55% •• Energy costs increase 20% to 40% owing to
survival rate, and using health enhance- the extended need for aerators.
ment functional feed one-third of the time
to avoid disease achieves a survival rate as •• The costs for skilled labor increase 5% to
high as 74%. 10% owing to the need for higher controls
and constant supervision.
Environmental Impact. If farmers increase
their efficiency, less feed will pollute the •• FCR decreases by 25% because biofloc can
water, and the use of growth enhancement be used partly as a feed source.
0.18 0.30 0.12 3.56 0.08 0.30 0.12 3.56 0.50 0.12 3.50
0.15
1.08 1.08 1.08
0.15 0.41
4.83 4.83
3.14 3.24 2.82
COGS
Operating
costs
Depreciation
Total cost
EBIT
Revenues
COGS
Operating
costs
Depreciation
Total cost
EBIT
Revenues
COGS
Operating
costs
Depreciation
Total cost
EBIT
Revenues
Cost savings or revenues / EBIT increase, based on today's average Cost increases or revenues / EBIT decrease, based on today's average
•• The costs for chemicals decrease by 3% to •• Stocking densities could increase fourfold,
7% owing to water quality improvement owing to better water quality and im-
through biofloc use. proved monitoring of water conditions.
•• The additional cost for cornmeal as a •• Investment costs of $150,000 per hectare,
carbohydrate source ranges from $0.23 depreciated over ten years, could lead to
to $0.36 per kilogram. (For a kilogram an expected yearly yield of 30,000 kilo-
of shrimp, approximately 0.6 kilograms grams per hectare (based on increased
of cornmeal is a required biofloc ingre- stocking densities).
dient.)
•• The risk of disease is lower due to superi-
•• The survival rate is similar to that of a or water quality and higher biosecurity,
system without biofloc. leading to improved survival rates.
•• Due to the protein content in biofloc, •• Variable costs decrease by 15%, reflecting
the growth rate increases by as much as increased energy and maintenance costs,
27%, allowing farmers to benefit from a reduced labor costs due to higher automa-
2% to 4% higher sales price for larger tion and stocking densities, lower chemi-
shrimp. cal requirements, and less disease risk.
Farms that use RAS can see EBIT margins •• Higher stocking densities lead to a 50%
rise by up to 22% per kilogram at the farm decrease in fixed costs.
gate, achieving EBIT margins as high as 27%.
Additionally, overall revenues are boosted The increase in stocking densities is maxi-
owing to higher stocking densities and, conse- mized in indoor systems. Therefore, an invest-
quently, yields. ment in RAS is recommended only as part of
a shift to indoor systems. With indoor farm-
Assumptions for business case calculations ing, the water quality and shrimp conditions
for RAS include the following: can be fully controlled to minimize contami-
Exhibit 25 | The Use of Solar Energy Generates a 12% Increase in EBIT Margins
Solar energy
25%
0.13 4.83
3.20
Cost savings or revenues / EBIT increase, based on today's average Cost increases or revenues / EBIT decrease, based on today's average
•• The grid energy price is $83 per megawatt •• FCR is reduced by 15% owing to the use of
hour, and the diesel energy price is $300 functional feed during half of the produc-
per megawatt hour. tion cycle.
Exhibit 26 | A Combined Solution Can Increase EBIT Margins by About 61%—a Higher Potential Benefit
Than a Standalone Solution
Further research required
Functional feed, RAS, and solar energy Functional feed, biofloc, and solar energy
($ per kilogram of shrimp) ($ per kilogram of shrimp)
Up to ~61% EBIT margin increase Up to 40% EBIT margin increase
36% 31%
COGS Operating Depreciation Total cost EBIT Revenues COGS Operating Depreciation Total cost EBIT Revenues
costs costs
Cost savings or revenues / EBIT increase, based on today's average Cost increases or revenues / EBIT decrease, based on today's average
Assumptions for business case calculations The network of middlemen that collect and
for the combination of growth enhancement aggregate shrimp from multiple farms and
functional feed and biofloc for farms include then deliver the regrouped batches of shrimp
the following: to processors is a major point of nontranspar-
ency along the value chain. During this proc-
•• FCR improves up to 32%, as the functional ess, the origin of single shrimp products be-
feed and biofloc can reduce FCR. Compare comes untraceable. Owing to their practices
this with a 15% reduction through the use and the sector’s informality, middlemen pres-
of growth enhancement functional feed ent major challenges to progressing toward
and a 25% reduction through biofloc. (The traceable supply chains.
effect on the FCR is not the sum of both
standalone options; the combined impact Business Case. No quantitative business case
has not yet been studied in depth.) was assessed, but middlemen can play a key
role in moving the industry toward traceabili-
•• The sales price increases up to 10% be- ty. Currently, it is difficult to trace and track
cause a higher price can be achieved for shrimp in India because, in many cases,
larger shrimp. Accelerated growth through middlemen mix and sort shrimp from multi-
the combined use of functional feed and ple farms.
the high protein content of biofloc lead to
even higher prices achievable in the Environmental Impact. Middlemen can
market if global shrimp prices are corre- decrease their environmental footprint by
spondingly high. ensuring that no drugs or other illegal sub-
stances are injected into shrimp, that shrimp is
•• Additional cost assumptions for biofloc not farmed in mangrove areas, and by provid-
(averaged best and worst cases) include ing guidance to farmers on best practices.
for skilled labor, increases of 8%; for
energy, increases of 30%; for chemicals,
decreases of 5%; and for cornmeal as a Processors and Exporters
carbohydrate source, about $0.30 per Market Dynamics. Shrimp processors in India
kilogram—about 0.65 kilograms of are highly fragmented, with more than 400
cornmeal per kilogram of shrimp pro- processors. Larger and integrated players
duced—needed for biofloc development. such as Nekkanti Sea Foods and Avanti Feeds
have the largest processing capacities. The
However, as indicated before, the combina- Indian shrimp and seafood processing
tion of the two options still needs in-depth as- industry, which is regionally very fragmented,
sessment, and these assumptions must be is located mainly in port cities.
validated through further research.
There are various types of processing, such as
shrimp with or without heads and shrimp
Middlemen with or without tails. The type of processing
Market Dynamics. Middlemen handle business depends on the preferences of export coun-
interactions between the fragmented farmers tries. With limited value-added processing fa-
Because processors are at the intersection Environmental Impact. Processors’ support for
of buyers and retailers, they are directly af- traceability would reduce land use, as well as
fected if retailers refuse, owing to environ- water and energy consumption. Processors also
mental concerns, to buy Indian shrimp or if have an obligation to improve social norms
retailers want better traceability and sustain- and concerns, including labor conditions.
• Subjected to block freezing and blast freezing • Subjected to value added processing
• Volume share: ~60% • Volume share: ~40%
• EBIT margins: ~8% • EBIT Margins: ~20%
• Typical products: headless, shell on; peeled, deveined, • Typical products: cooked, breaded, and sushi
and tail on; peeled, deveined, and head on; shell on
Sources: Equirus; Imarc Research; Export Genius; news articles; BCG analysis.
7.61 0.62
6.99 0.02 0.02 6.96 6.67
Revenues EBIT Total Depreciation Fixed COGS Raw Electricity Labor Packaging Transportation Other costs
cost costs materials
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