Shrinking shrimps

More and less
It should be mentioned here that at present there are about 120-130 shrimp processing plants in Bangladesh (let's not fight over the figures but take them as they are). Almost all of them are located in greater Khulna district where the shrimp farms are located. The fries or PL -- the main raw material for shrimp -- have to fly from Cox's Bazar to Jessore and then distributed through a chain of middlemen to hundreds of farms. However, the capacity utilization of the existing plants is reported to be 30 per cent, on average. Again, out of 122-130 plants, only 30-40 plants are reported to be equipped with modern shrimp processing facilities as demanded by the major buyers like USA and EU. We can recall that shrimp exporters in the past had to pay heavy tolls for violating health related standards and some of them by now, possibly, have learnt form the lapses. Admittedly, meeting the standards of the buyers warrants huge investment in plants and quite understandably few could perhaps access to such huge resources.

The law of economics suggests that there should be no more shrimp processing plants in the wake of awful underutilisation of existing capacities and hence the government should keep hands off from giving permission for establishment of shrimp processing plants. It could be learnt that out of 130-140 plants, 6-7 plants were given permission to operate over the last two years or so. In a country where the average capacity utilisation is barely 30 per cent, how could new investors step into the business?

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To the critics, there could be two important reasons for the so-called "suicidal survival" strategy. First, getting a permission to establish a plant means an access to bank credit worth Tk.20-30 million initially and then to a credit limit for working capital by three fold of the initial capital investment. Some of the newcomers allegedly have little experience in shrimp production and exports and are in fact attempting to seize upon the 'bale out' operation of the government from time to time. That means, some of the investors are aware of the fact that, from time to time, government has been providing medicine for some of the sick industries and to that extent the "suicidal strategy" could reap home a good return. Second, the bank concerned sets upon the limit to working capital. Bank officials allegedly collude with investors to earn a rent. Third, the present policy of providing cash incentive on shrimp exports to the tune of 10 per cent has to do with the growth of shrimp processing plants. An investor might think that his plant could exceed costs by 10 per cent and even then remain at break even. And finally, an investor might be hooked on to a particular political party and the reward is for the services he had rendered during the past days.

All of these factors tend to militate against the basic premises of economics.

The overcrowding of the shrimp processing plants in Bangladesh is giving rise to an unhealthy competition in the local market for raw materials. We all know that the basic raw materials for the processing plants are shrimps cultivated across wide areas of Khulna and Satkhira. Also known is the fact that the productivity of shrimp cultivation is pitifully low. It is 130-135kg/ha compared to 500kg/ha or more in other countries. Our discussions with shrimp farmers reveal that the mortality rate of fries or PLs varies between 60-70 per cent. That means out of 100 fries released in the pond, the farmer fetches home only 30-40 shrimps -- one of the lowest in the world. This is only one part of the story. The other part relates to health of the existing ones. Complaints run wild that the shrimps supplied are not of good quality. Imputing a three per cent rejection rate on account of sick shrimps, we find that the farmer is paid for 21-30 shrimps. Needless to mention, the wild allegation that production environment is unhealthy holds true in many cases, if not in all cases.

The cost of shrimp cultivation thus remains very high. The higher the costs of production, the greater the burden falls on the resource poor farmers. The rich farms can absorb the risk or shocks in many ways since their income is more diversified than the poor. Any way, the low supply in the market paves way for a rise in the price of shrimps that processors tend to buy. Too many farms chasing too few shrimps! The advent of the new farms in the market is making things worse since these are also vying for a part in the market. With demand curve shifting to the right and supply curve drifting downward, the equilibrium price remains skyrocketing. Do the farms benefit from such high price?

Perhaps farmers could immensely benefit in the wake of auction of shrimp where each and every farmer and processor or agent could participate. Unfortunately, the prices of shrimps are not determined by the market but dictated by the processors. They provide a rate to the their appointed commission agents who, in turn, convey the message down the time. The processors buy raw materials from commission agents, who again by them form sub-agents and sub agents from fariahs and fariahs from farms. The whole chain of procurement involves three to four stages and each stage claims, on average 7-10 per cent margin. Thus, the benefit of rise in the price of shrimps in the market is pocketed by the middlemen rather than by the farmers. On the other hand, there are many farmers who take advances form the agents and thus are tied to the "conditionality". Had there been meaningful market information, better communication and storage capacity at farm level, a part of the rise in price could be transmitted down to farms. By and large, more plants might mean less shrimps per unit and hence less net profit.

Top and bottom
Shrimp production is thus shrinking, possibly not in terms of acreage but in terms of productivity. The government does not have any policy regarding shrimps. What we still observe is a bale out operation for the exporters during a crisis. One such crisis creeped in following the 9/11 twin tower turmoil and the subsequent fall in demand in the major importing country, USA. The 10 per cent cash subsidy scheme has been in operation since then. Such kind of bale outs have been in evidence in the past also. By and large, the government has always been keen to be kind to the top of the ladder in shrimp related business. But sordidly, no such scheme has been taken up for the farmers who tend to lie at the bottom and produce the basic raw materials for the processor.

Our field level survey suggests that pursuing a pragmatic policy, the shrimp production per unit land could be raised two to three times. That is possible through adoption of local technology in the preparation of ponds, awareness building and providing farmers with new knowledge in shrimp production. Farmers need to make the dykes wider and deeper so that contaminated water cannot flow from adjacent ponds. They need to erect nets to negate any movement of frogs, snakes etc. from other ponds carrying virus. They need to have a water reservoir to water the pond with clean fill. They need to have water treatment.

Many of these are fixed costs and could be recouped over a period of time. If a farmer could invest Tk.20-30 thousand per season, the yield could be twice as much. The increased yield could swell the market to shift the supply curve to the right and given the demand, the price would come down. A lower price of shrimps could mean a lot to the exporters to compete in the international market. The present policy of subsidising the exporters during the crisis is welcome but a sustainable supply of shrimps need policies for farmers too.

Smiling small
Appreciably, some NGOs are working in forming cooperatives among small shrimp cultivators. That is novel idea and we would expect that NGOs like Grameen Bank and BRAC would come forward to help small shrimp farms. The government could create a special fund for shrimp farmers. It is high time that we addressed the issue of low productivity in shrimp for the sake of capturing a respectable part of the world market. Environmental hazards, social conflicts and other problems could only be addressed through the persuasion of pragmatic polices that involve all the actors in the game. Bearing in mind various linkages, small shrimp farmers should claim some help from government.

Abdul Bayes is a Professor of Economics at Jahangirnagar University.