Addressing Collapsing Prices at the Dock

Throughout the South Atlantic and Gulf coasts, shrimpers are appropriately asking what has caused dock prices to hit record lows.

Although imports remain an overwhelming presence in the U.S. market, the antidumping duties successfully countered the twin trends of rapidly increasing imports volumes and declining import prices experienced between 2000 and 2003. Total import volume of shrimp in
2008 was below the total import volume of shrimp for 2006 and, through the first six months of 2009, import volumes have remained on par with the first six months of 2008. Similarly, import prices have remained relatively stable and have been so since the imposition of antidumping duties in February 2005.

Nevertheless, the antidumping duties are not functioning optimally – substantial quantities of shrimp, particularly Chinese-origin shrimp, are circumventing the antidumping orders and, during the last fiscal year, more antidumping duties on shrimp imports went uncollected than collected. Still, the antidumping duty orders continue to play an important role in the market.

Efforts to address the current collapse of prices at docks throughout the country must first begin with an understanding of the cause of the price declines based on facts. An objective review of the facts demonstrates that while shrimp fishermen have largely been denied the benefits of trade relief and the marketing efforts conducted on behalf of domestic wild-caught shrimp, shrimpers have been forced to disproportionately bear the burden of the current downturn in demand for domestic shrimp.

Prices for domestic shrimp at the wholesale level have fluctuated significantly. For nearly all count sizes, wholesale prices for domestic shrimp recovered significantly in 2008, before beginning to fall back to 2006-2007 levels this year. These price trends, however, are not what shrimpers have experienced at the docks.

  • Although wholesale prices for headless, shell-on U15, 16-20, and 21-25 count shrimp increased by between 13 and 25 percent from 2007 to 2008, prices paid to shrimp fishermen at the dock for landed shrimp used to make those tails increased only by 2 percent during the same time period.
  • Similarly, wholesale prices for headless shell-on 31-35, 36-40, and 41-50 count shrimp increased by between 20 and 30 percent from 2007 to 2008, prices paid to shrimpers at the dock for landed shrimp used to make those tails increased only by roughly 10 percent during the same time period. At the same time, relatively small declines in wholesale prices for domestic shrimp have precipitated massive declines in dock prices.
  • Wholesale prices for U15, 16-20, 21-25, and 26-30 count headless, shell-on shrimp fell by between 15 and 30 percent between 2008 and 2009. Dock prices for landed shrimp used to make those tails, however, have fallen by almost 50 percent over the same time period.
  • An even more drastic divergence occurred with respect to medium-sized shrimp. Wholesale prices for 31-35, 36-40, and 41-50 count headless, shell-on shrimp fell by between 8 and 10 percent between 2008 and 2009. Dock prices for landed shrimp used to make those tails, however, have fallen by almost 45 percent over the same time period.
  • For small shrimp, wholesale prices for 51-60 headless, shell-on count shrimp fell by less than 8 percent between 2008 and 2009 (wholesale prices for 61-70 count shrimp actually increased), while dock prices for landed shrimp used to make those tails fell between 42 and 55 percent over the same time period.

In sum, price movements at the dock do not reflect price movements for domestic shrimp at the wholesale level and, as such, do not appear to be the result of market forces. Thus, the claim that the collapse in dock prices is due largely to a downturn in the market for domestic, wild-caught shrimp is unsupported by empirical data. Such a claim appears to be one of a number of myths regarding the current market situation that are unsupported by objective evidence.

Myth #1: Low demand and high supply of both domestic and imported shrimp have forced a worldwide decline in shrimp prices.
Available price information does not support this claim. For large shrimp, wholesale domestic prices have, in fact, dropped below the prices of comparable wholesale import prices. Indeed, for a number of products, imported prices have actually increased in 2009, while domestic wholesale prices have uniformly declined (although not to the same degree as dockside prices).

Myth #2: Shrimp processors are working at either slim or negative profit margins because low demand and low prices have forced processors to sell inventory purchased at higher prices last year below cost at a loss.

First, a review of available price information indicates that processors were able to sell shrimp purchased in 2007 at significantly higher prices in 2008. These increased prices and margins were not reflected in prices paid at the dock for landed shrimp in 2008.

Second, the relevant cost consideration for shrimp purchasers is not the cost of a single unit of shrimp but, instead, the average acquisition cost of shrimp used to produce merchandise held in inventory. Dockside prices have declined at orders of magnitude beyond declines experienced at the wholesale level. Pricing analysis indicates that operating margins have been retained largely by massive declines in prices paid at the dock for landed shrimp. Put simply, whatever losses might be experienced because of lower prices for tails sold this year from shrimp purchased last year is made up for by replacing that inventory with shrimp purchased at extremely low prices this year.

In the original investigation of dumped shrimp conducted by the U.S. International Trade Commission (“ITC”), the agency noted that processors actually improved their financial performance when import volumes increased and prices declined by shifting the negative effects of import competition to fishermen. The ITC explained:

“Because fishermen’s operating performance in interim 2004 was worse than it was in interim 2003, the improved financial performance processors experienced in interim 2004 are not indicative of improvements in the industry as a whole. Rather, processors appear in interim 2004 to have shifted to fishermen a greater share of the impact of the subject imports.” (emphases added).

Myth #3: The credit crunch has significantly reduced the volume of domestic shrimp that can be purchased from shrimp fishermen.

Difficulties with access to credit affect all shrimp purchasers, whether of imported or domestic shrimp. Yet, imported shrimp volumes and prices have remained comparably stable while dockside prices have plummeted.

Further, massive amounts of capital have been injected into the shrimp processing industry over the last three years. During this short time period, twenty-nine members of the American Shrimp Processors Association have received over $80 million in distributions of collected antidumping duties. (In comparison, thousands of shrimp fishermen have received, collectively, less than half that amount in distributions). Over $13.5 million of the $81 million was distributed just a few months ago.

While there are undoubtedly anecdotal tales of expenditures designed to improve and enhance processing capacity, there is no objective evidence that these funds have been substantially reinvested in the industry in any meaningful way.

Myth #4: Dockside prices will recover if more funds are invested in domestic marketing campaigns and programs are developed to draw down inventory buildup.

No objective data exists with respect to the amount of either domestic or imported shrimp held in cold storage inventory. However, even if it is taken as a given that a significant amount of inventory overhang afflicts the domestic industry, drawing down that inventory through increasing demand at the wholesale level does not necessarily mean that shrimp fishermen will enjoy the benefits of that increased demand. Available pricing data indicates that the majority of the price increase enjoyed at the wholesale level in 2008 was not passed on to fishermen in the form of higher dockside prices.

The significant divergence between trends in wholesale and dockside prices for domestic shrimp underscores the necessity of insuring that any marketing campaign or government procurement program designed for wild-caught shrimp benefits the entire industry and does not simply boost the profits of one segment of the industry.

As the domestic industry and policymakers work to address the dire state of the shrimp fishing industry in the United States, industry unity is essential. Nevertheless, the need for industry unity must not result in a failure to identify and address important contributing factors to the current market environment. A number of factors have combined to exploit the vulnerable condition of shrimp fishermen throughout the country. If the prospects for commercial shrimp fishermen are to improve, each of these factors must be addressed in order to insure the survival of the industry.

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