Asian Disease Forces Jumbo Price Hike for Shrimp in USA
A Big Problem With Shrimp
The sales success of Bubba Gump Shrimp Co. notwithstanding, the United States produces only about 10 percent of the shrimp we consume. The rest comes from Asia, and all across the continent, a disease known as early mortality syndrome is killing farm-raised shrimp. That's hurting shrimp supplies and raising the cost of the shrimp that the U.S. imports.
Complicating matters, last summer the U.S. Department of Commerce issued a ruling penalizing China, Ecuador, India, Malaysia and Vietnam for unfairly subsidizing their shrimp exports -- i.e., selling shrimp too cheaply to the U.S. (The U.S. International Trade Commission ultimately decided not to impose countervailing duties on these countries' exports. But just the threat of doing so in future may act to support prices.)
According to the Beaumont Enterprise newspaper, Gulf of Mexico headless shrimp are fetching $7.50 right off the boat. Restaurants pay about $2 more a pound for these same shrimp -- and by the time it reaches your plate, the price has risen even more to pad the restaurateurs' profit margins.
Shrimp's Shrinking Popularity
Yet even so, last month, the Associated Press reported that the spiking price of shrimp did a real number on shrimp specialists like Darden Restaurants' (DRI) Red Lobster, inflating costs by 30 percent and scaring away sticker-price-shocked customers. Even offers of all-you-can-eat shrimp, at higher prices, weren't enough to prevent an 8.8 percent decline in sales last quarter.
Sales are likely to fall outside the restaurant industry as well. According to analysts at Rabobank, Americans consume an average of four pounds of shrimp per person annually. But with prices rising relentlessly, Rabobank thinks that number fell in 2013. With prices still higher in 2014, consumption is likely to fall even further.
To Every Shrimp, There Is a Season
Given all this bad news for shrimp-lovers, is there any good news to report? There is -- courtesy of Economics 101.
%VIRTUAL-article-sponsoredlinks%Low supplies beget high prices, which in turn encourage shrimp producers to find ways to boost supply and capture those high prices as profit. Reporting on the shrimp story earlier this week, the Beaumont Enterprise expressed the hope that "farmers will eventually find" a cure for early mortality syndrome, curing the crisis of high shrimp costs soon after.
Meanwhile, these high shrimp prices will give greater incentive to growers in other countries, where early mortality syndrome hasn't reared its ugly head, to increase their own production and claim those high profits for themselves. When these two trends merge, we could quickly see an influx of new shrimp onto the market, driving prices back down.
How soon could that happen? Sooner than you think. According to research out of Louisiana State University, "the life cycle of a shrimp" is exceedingly short, and your average shrimp only needs about one year to go from egg to trawler to dining table.
Could be, a year from now, CNN will be reporting not on an "acute shrimp shortage," but on the amazing American shrimp glut. Bon appetit!
Correction: This article has been updated to clarify the source of price information for headless shrimp, as well as the expressed expectation for finding a cure for the mortality syndrome.
Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.