A Strategic Approach To Sustainable Shrimp Production in India

A Strategic Approach
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
ALEXANDER MEYER ZUM FELDE
SOPHIE ZIELCKE
CHARLOTTE LIDY
CAROLIN LANFER
January 2020 | Boston Consulting Group

CONTENTS
4 EXECUTIVE SUMMARY
6 MARKET FORCES ARE RESHAPING THE GLOBAL SHRIMP

INDUSTRY
8 INDIA’S SHRIMP INDUSTRY IS THRIVING BUT IS

VULNERABLE TO THREATS
The Basics of India’s Shrimp Industry
India’s Value Chain Is Complex
1 2 INDIA: THE CASE FOR CHANGE

Limited Value-Added Processing
Market Demand and Traceability Regulations
Low Survival Rates and Increasing Disease Risk
1 4 SHRIMP PRODUCERS CAN CREATE IMMEDIATE ECONOMIC

VALUE
Feed Mills: Increase Profit Margins and Diversify the Portfolio with
Functional Feed
Hatcheries: Ensure the Quality of Post-Larvae Shrimp Through
Selective Breeding
Farmers: Immediate Change Can Increase Profits, but Broader
Changes Will Be Required
Middlemen: Increase the Pace of Change Through Education,
Finance, and Traceability
Processors: Important Drivers for Change as the Industry Moves
Toward Sustainability
Immediate Change Is Limited—Disruptive Transformation Is
Needed
2 3 INTEGRATED PLAYERS MUST SUPPORT THE SHIFT

TO TRACEABILITY
2 5 PRODUCERS CAN STAY AHEAD OF STRICT EXPORT

STANDARDS
The Far-Reaching Business Benefits of Traceability
Traceability Can Be Managed with Different Levels of Effectiveness
and Maturity
Technology-Enabled Traceability Offers a Promising Path Forward
2 | A Strategic Approach to Sustainable Shrimp Production in India

2 9 LONG TERM, INDOOR FARMS WILL TRANSFORM
INDIA’S SHRIMP INDUSTRY
3 2 INDIA’S SHRIMP INDUSTRY MUST TRANSFORM WHILE

TIMES ARE STILL GOOD
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
5 1 NOTE TO THE READER
Boston Consulting Group | 3

EXECUTIVE SUMMARY
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.
India has a very strong competitive position. International

demand is high, and the potential for growth is excellent.
Still, four developments threaten the industry’s future profita-
bility.
•• Low Shrimp Survival Rates and Increasing Disease Risk. The

survival rates of India’s farmed shrimp are low—just 55%, which is
significantly lower than the rates of many other countries. Thus
far, unlike Thailand, India has not been affected by devastating
diseases, but because its rapidly growing farms have low biosecuri-
ty standards, experts are predicting that India will eventually
suffer from disease outbreaks.
•• Limited Value-Added Processing Capacity. Value-added process-

ing is a profitable business, but India’s capacity is limited: 28% of
its exports are sent to Vietnam for further processing. Not only is
this a lost revenue opportunity, it also hinders efforts to achieve
product traceability.
•• Strict Traceability Standards. In 2018, the US Congress extended

coverage of the Seafood Import Monitoring Program to shrimp,
requiring stricter reporting and record keeping for shrimp imports.
Given that India exports 40% of its shrimp to the US, there’s
pressure for India to provide traceability across its supply chain.
Because most shrimp farms in India are unregistered, however, it’s
very difficult for the government to regulate farmed shrimp.

•• Increasing Environmental Pressure. Shrimp farms have expanded
rapidly, paying minimal attention to environmental impact.
While the Indian farmed-shrimp market continues to expand quick-

ly, farmers need to implement significant changes in production.
•• To increase profitability, expand resource efficiency, and reduce

disease risk, India’s shrimp industry should make immediate changes
in three areas: feed, water treatment, and renewable energy.
•• These changes should be viewed as just the first steps toward a

much more sustainable approach to shrimp farming.
To maintain their strong ties to the US market, India’s shrimp

producers must offer fully traceable products.
•• Regulators and retailers, pushed by consumer demands and

reputational concerns, are becoming increasingly concerned about
food safety and sustainability.
•• India’s shrimp producers are not well positioned to fulfill major

importers’ ever-stricter traceability requirements.
•• By offering a fully traceable product, India can respond to chang-

ing consumer demands, stay ahead of tightening US import
standards, and defend its leading position in the mass market.
To protect farms against outbreaks of disease and environmental

risks, a shift to closed-loop—and ultimately—indoor systems
could be a game changer.
•• Closed-loop systems, such as recirculating aquaculture systems,

represent a significant opportunity for increasing efficiency and
output on farms while reducing the risk of disease and pressure on
the environment.
•• To protect shrimp ponds from environmental hazards, stabilize wa-

ter quality, and reduce disease risk, companies should consider
shifting to fully closed indoor systems. This production method
allows farm operators to increase stocking densities and support a
fully traceable product with low environmental impact.
•• As major importers continue to institute stricter regulations on

seafood imports, the demand for sustainable shrimp will only
grow. By shifting to closed-loop—or even indoor—farming, Indian
shrimp producers can meet this demand and position themselves
at the forefront of this movement.
Fast growth in recent years has masked a host of challenges that

face India’s farmed-shrimp market. To maintain its leadership
position and strengthen ties with the US market, India’s shrimp
producers must quickly make the transition to traceability and
sustainability.

MARKET FORCES ARE
RESHAPING THE GLOBAL
SHRIMP INDUSTRY
F armed shrimp are among the fastest-

growing food products in the world. In
less than two decades, global production has
second-largest shrimp producer worldwide,
after China.
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-

sumers are demanding sustainably produced, As the demand for sustainability grows, there
traceable products in nearly all food catego- is increasing urgency for a paradigm shift to-
ries. From 2012 through 2017, the sustainable ward truly responsible production and sourc-
seafood segment in major European markets ing. Retailers’ pledges of sustainability and
grew by about 12% while market demand for niche consumers’ increasing willingness to
other seafood segments declined. Similar purchase sustainable products represent for-
trends have been observed in the US, though ward movement. However, the definition of
on a smaller scale, and the growth of sustain- “sustainability” is not consistently precise.
able products in China has been driven main- There are many different ways to define sus-
ly by food safety scandals and government tainability, and retailers and consumers may
targets. Overall, there is growing demand for unknowingly purchase products that fall
responsibly produced shrimp, and a niche short in fundamental areas, such as environ-
consumer segment is willing to pay a premi- mental stewardship and social responsibility.
um for it.
To foster real change, the industry must es-
A 2015 survey of approximately 3,000 con- tablish a clear definition of what it means for
sumers worldwide found that 68% wanted to food to be labeled sustainable. To put it sim-
know where their food was coming from and ply, sustainable products should be produced
how it was being produced. While statistics today in ways that do not compromise the
show that this consumer-driven pressure is ability to produce those same products to-
currently less urgent in the US and China, morrow. Products should minimize environ-
these countries have introduced stricter im- mental degradation and the use of natural re-
port regulations and government targets. sources and should be traceable across the
supply chain to provide greater transparency
Nearly all major retail chains, supermarkets, and accountability. For sustainability to have
and convenience stores around the world maximum impact, it is important for all
have pledged to increase their share of sus- stakeholders to understand and adhere to
tainably produced food—including shrimp these fundamental principles.
and other seafood categories—and an in-
creasing number of major retailers are requir- To defend its current strong competitive posi-
ing suppliers to sign contracts and carry out tion and to maintain exceptional growth, In-
in-depth due diligence to ensure traceability dia needs to embrace sustainability. As chang-
and adherence to ecofriendly production es are implemented across the supply chain,
methods as a form of legal risk insurance. the industry must align on the definition of
Regulators, too, are increasing their monitor- sustainability and establish mechanisms that
ing of shrimp imports for drug and chemical will hold all actors accountable.
residuals and are threatening to ban imports.
Any company charged with regulatory viola-
tions risks suffering serious economic losses
and reputational damage.

IS THRIVING BUT IS
VULNERABLE TO THREATS
I ndia, whose global competitive posi-

tion was strengthened owing to outbreaks
of diseases and production issues in Thailand
important competitors, Vietnam and
Thailand, have lost a lot of ground as a
result of disease outbreaks.
and Vietnam in the early years of this
decade, is currently the second-largest shrimp Thailand, formerly the second-largest
producer in the world, with a global market shrimp producer, has seen its production
share of 14%. In 2017, the country produced cut in half since 2012 owing to a series of
around 600,000 metric tons of shrimp. (See disease outbreaks. Even though India
Exhibit 1.) India’s production value, which is introduced L. vannamei only in 2010, by
currently estimated to be more than $3 bil- 2014, it was able to surpass Thailand’s
lion, has grown at a 32% CAGR since 2010. production volume, filling the gap that
opened up when other countries could
not meet market demand.
The Basics of India’s Shrimp
Industry •• Competitive Advantage Due to Lower
There are two farmed-shrimp species in In- Production Costs. India’s production
dia: L. vannamei, also known as whiteleg costs are lower than those of many other
shrimp, and Penaeus monodon, or P. mono- countries, thanks, in part, to low labor
don (black tiger shrimp). L. vannamei ac- costs and strong governmental support for
counts for about 80% of production, growing the shrimp industry. The Indian govern-
at an 18% CAGR over the past five years. ment has been providing subsidies for
Most L. vannamei is produced in Andhra processing facilities, offering crop and
Pradesh. P. monodon has declined in impor- equipment insurance, and investing in
tance, growing at a 5% CAGR over the past broodstock facilities and local breeding
five years. Most P. monodon is produced in programs. In the future, governmental
West Bengal. (See Exhibit 2.) The focus of this support for shrimp farming could be
report is mainly on L. vannamei since it is the linked more closely to environmental
primary driver of market growth. standards and regulations.
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

Exhibit 1 | With a 14% Market Share, India Is the World’s Second-Largest Shrimp Producer
Global aquaculture production of shrimp, 2017
Market share (%)
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
0 1,000 2,000 3,000 4,000
Production volume (kilotons)
Official figures, reviewed and adjusted in response to overestimations by official authorities
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:

Exhibit 2 | There Are Strong Regional Differences in India’s Shrimp Production
Gujarat West Bengal

Species Share of total Species Share of total
production (%) production (%)
L. vannamei 8.1 L. vannamei 1.7
P. monodon 1.5 P. monodon 76.1
Maharashtra Orissa
14%
Species Share of total 7% Species Share of total
production (%) production (%)
6%
L. vannamei 1.5 1% L. vannamei 4.7
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
Sources: Marine Products Exports Development Authority, 2016; BCG analysis.

Note: The number on each state represents the percentage of India’s total shrimp production for either L. vannamei or P. monodon; colored rows
in the tables indicate the most significant markets contributing to L. vannamei or P. monodon production, respectively.
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%
Sources: UN Comtrade; Imarc Research; BCG analysis.

Note: This data includes all species of shrimp and is based on FY 2018 data.

Exhibit 4 | India’s Farmed-Shrimp Supply Chain
Feed mills Hatcheries Farmers Middlemen and Processors Local markets International
commission agents Exporters retailers
Source: BCG analysis.

Note: This report focuses on feed mills, hatcheries, farmers, middlemen, and processors.
feed mills, hatcheries, farmers, middlemen •• Middlemen. These intermediaries, also

and commission agents, processors, exporters, called commission agents, play a role
and retailers. (See Exhibit 4.) between farmers and all other segments
of the value chain. Middlemen in India
This report focuses on the first five steps: control about 40% of production.
•• 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.

INDIA
THE CASE FOR CHANGE
I ndia’s shrimp industry is currently in a Market Demand and Traceability

strong competitive position in the global Regulations
market, but three market forces are threaten- In 2018, the US expanded its Seafood Import
ing its position: limited value-added process- Monitoring Program (SIMP), which establish-
ing capabilities, lack of traceability, and an es reporting and record-keeping requirements
intensifying need to cope with low productivi- for seafood imports, to cover shrimp. Because
ty and the high risk of disease. (See Exhibit 5.) the US is India’s most important export mar-
ket, SIMP has had a major impact on the In-
dian shrimp industry, especially when stan-
Limited Value-Added Processing dards have been strictly enforced. Given
Most of the shrimp in India undergo basic proc- India’s relatively low traceability standards,
essing and are sold to other countries for addi- SIMP will likely have a negative impact.
tional value-added processing and reexport. Ap-
proximately 30% of India’s farmed-shrimp is ex- In the wake of food safety scandals, China
ported to Vietnam for further processing. has also imposed stricter import regulations
Value-added shrimp products are more profit- by passing new legislation and urging life-
able, but India has limited value-added proc- time bans on offending importers. Although
essing capacities. EBIT margins for frozen China is not a main export market for India,
shrimp with minimal processing are about 8%, these moves exemplify the current global
whereas value-added processed shrimp’s EBIT trend toward increased traceability and high-
margins are around 20%. This lost-revenue op- er health standards.
portunity limits the industry’s overall profits.
The demand for traceability is fueled also by
A few large processing companies, such as a fast-growing niche market for sustainable
Avanti Feeds, Castle Rock Fisheries, Devi and traceable seafood, and some companies
Fisheries, and Apex Frozen Foods, produce are beginning to capitalize on this trend. A
high-quality, processed shrimp and have all group of companies in Ecuador, for example,
the certifications in place to export their established the Sustainable Shrimp Partner-
products directly to food companies in the US ship to produce fully traceable shrimp while
and Europe. Avanti Feeds, for example, sells improving social and environmental perfor-
80% to 85% of its processed shrimp to retail mance. As first movers act on this trend to-
chains such as Walmart and restaurants such ward traceability, India finds itself in a pre-
as Red Lobster, which maintain very high carious position regarding its exports. It risks
quality standards. losing share in the global shrimp market. Giv-

Exhibit 5 | The Case for Change in India Is Driven by Three Factors
Limited value-added Lack of traceability Low productivity and

processing capabilities high disease risk
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.

SHRIMP PRODUCERS CAN
CREATE IMMEDIATE
ECONOMIC VALUE
T hree imperatives inform the future of Feed Mills: Increase Profit

India’s farmed-shrimp industry: Margins and Diversify the
Portfolio with Functional Feed
•• Pursue immediate change to alter current The feed market in India is expected to grow
practices on an individual level, increasing at 11% per year through 2022, in line with In-
efficiency and productivity while improv- dia’s overall shrimp market. While some
ing profit margins. large corporate farms buy feed directly
from feed mills, the vast majority of farm-
•• Collaborate to achieve product trace- ers—90%—use a well-established dealer net-
ability. work. Feed dealers often supply farmers with
materials and credit, and they even link them
•• Shift to indoor shrimp farming by investing to processors, acting like middlemen or com-
in closed-containment indoor facilities that mission agents.
reduce contamination, increase output,
minimize environmental footprint, and Feed mills have an opportunity to expand
improve accountability. (See Exhibit 6.) their portfolios to include functional feed—
basic feed that has been enhanced with addi-
The shift to traceability, transparency, and in- tives, such as proteins, vitamins, or probiotics
door farming offers the highest potential for (but never antibiotics), to achieve a specific
successfully defending the currently strong outcome. It is not uncommon for feed mills to
competitive position of India’s shrimp indus- improve basic feed with additives, but func-
try, but this will require considerable capital tional feed is slightly different from improved
investment, extensive expertise, and time. In basic feed: it is used in specific circumstances
the meantime, there are several immediate to achieve a specific outcome, usually in-
changes that actors along the value chain, cludes more additives, and is therefore de-
particularly feed mills and farmers, can im- fined as its own feed category.
plement to significantly improve financial
performance and resource efficiency and cre- Two types of functional feed have high
ate environmental benefits. potential.
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

Exhibit 6 | Several Levers Can Maximize Business Success While Creating Positive Environmental and
Social Impact
Lowest
Immediate short-term changes Levers for short-term changes

Act on single levers and implement
step-by-step changes 1 Improved feed use
Innovative feeds to boost productivity and
reduce environmental impact
Integrated player
Implement multiple short-term changes 2 Improved water treatment
at once Reduced freshwater use and pollution while
Impact
improving efficiencies
Supply chain collaboration through 3 Improved clean-energy use

Reduction of carbon footprint and access to
traceability reliable, cheaper energy sources than diesel
Fully traceable and transparent supply generators
chains
Improved health
Highest
No chemical or drug use to increase shrimp

Sustainable intensification health and to prevent entry line refusals
Significant industry shift to superintensive
indoor shrimp farming Improved social issues
Social equality and adherence to international
labor standards

Note: Our focus is on levers 1, 2, and 3.
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

Exhibit 7 | Current Average Economics per Value Chain Step
Feed mills Hatcheries Farmers Middlemen Processors Local National

market retailers
Exporters International
retailers
$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
$1.09 $7.61 $8.30

Price $4.53 $4.83 per kilogram of shrimp per kilogram per kilogram
per kilogram
per 1,000 PL of frozen
of feed of frozen shrimp
shrimp, the for export,
price at the including freight
factory gate and insurance
EBIT ~8 ~50 ~22 ~10 ~10
margins %
Example for base-case Works on a Frozen shrimp
scenario commission- products
Long-term based model dominate the
margin market
~20% EBIT Value-added
margin
~20% EBIT

Note: Based on an exchange rate of 1 Indian rupee = $0.0151; PL = post-larvae shrimp.
1
Frozen shrimp constitutes more than 80% of all shrimp exports.
Exhibit 8 | The Economics of Short-Term Improvements
Status quo Feed Water Combination
Growth enhancement Growth enhancement

EBIT margin: Increase: with biofloc
EBIT margin: None EBIT margin: Increase:
Up to 19% 130%
~8% Up to 19% 130%
Feed In the sale of functional
feed, overall feed mill
mill level Health enhancement
EBIT margins depend Potential revenue loss
EBIT margin: Increase: on the feed portfolio of through improved farm
individual farms efficiency, with a similar
Up to 30% 260% increase in farming output
Growth enhancement Biofloc Growth enhancement with

biofloc and energy
EBIT margin: EBIT margin: Increase: EBIT margin: Increase:
Positive, but further
~22% Up to 30% 32% Up to 29% 30% studies are required
Farm
level Health Growth enhancement with
enhancement RAS RAS and energy
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%

Note: EBIT margin is based on feed per kilogram sold. RAS = recirculating aquaculture systems. Rounding errors are possible.

meal in shrimp feed has led to the depletion an government is strongly investing in and
of some wild-capture fisheries and, in some supporting the development of local breeding
cases, serious human and labor rights abuses programs. SPF shrimp broodstock is now be-
on fishing vessels. Similarly, the cultivation of ing produced locally by the Rajiv Gandhi Cen-
plant ingredients such as soy and corn for tre for Aquaculture and more broodstock cen-
shrimp feed creates a high burden on land use. ters are planned. Local broodstock can lower
The natural resources used in feed—so-called shipping costs and reduce mortality rates
embodied resources—represent a hidden, but during transit. Also, a shift to domestic brood-
vitally important, depletion of resources and stock can help the Indian shrimp industry be-
thus need to be considered carefully. come more independent and significantly re-
duce the potential spread of diseases from
Some feed mills and raw-material suppliers foreign countries.
are experimenting with fish meal and soy-
bean meal replacements, using, for example, Individual hatcheries should focus on improv-
alternative and less resource-intensive ingre- ing quality by domesticating broodstock and
dients such as marine microbes. At the same implementing selective breeding practices to
time, some companies are experimenting compete more effectively against the signifi-
with black soldier fly larvae, an efficient bio- cant market power of integrated players. Be-
convertor and a valuable feeding resource. cause developing better PL involves genetic
Applied at large scale, these innovations testing and investments in R&D, implementa-
could have far-reaching impact beyond the tion might be rather difficult for small hatch-
shrimp supply chain. eries. Institutions and players with the neces-
sary means should, therefore, continue to
The industry is also working to develop feed support small hatcheries in these efforts. (See
production methods, such as extrusion (cook- the Appendix for a discussion of the business
ing under high temperature and processing case for hatcheries.)
under high pressure) and the manufacture of
pelleted feeds (no cooking and processing un-
der much less pressure). Both of these ap- Farmers: Immediate Change Can
proaches have the potential to improve the Increase Profits, but Broader
digestibility of feed ingredients. Changes Will Be Required
The farming market in India is highly frag-
mented. With many unregistered farms locat-
Hatcheries: Ensure the Quality ed in geographically diverse regions, circum-
of Post-Larvae Shrimp Through stances vary strongly and profit volatility
Selective Breeding remains high. Profit margins vary significantly.
Post-larvae shrimp (PL) produced by hatcher- With a good crop, farmers can expect margins
ies are critically important for farmers. High- of 22% to 25% per kilogram of shrimp sold,
quality PL production can improve grow-out but farming carries high risk owing to out-
farm survival rates as well as the quality and breaks of disease and crop failures; therefore,
health of shrimp, ultimately benefiting the the average margins over a period of two to
entire industry. Hence, hatcheries represent a three years is more likely to be around 20%.
crucial enabler.
We have identified multiple business oppor-
Although our analysis did not reveal many tunities for implementing immediate change
opportunities for hatcheries to implement at individual farms by slightly altering exist-
short-term changes in feeding techniques or ing production systems. These opportunities
water treatment systems, hatcheries that of- can help farmers improve production effi-
fer high-quality PL with benefits such as spe- ciencies, reduce resource use, and increase
cific pathogen-free (SPF) broodstock can profit margins.
charge premiums for their products.
That said, the overall effect remains small
Many hatcheries in India still rely on import- compared with the more holistic levers of
ed broodstock from the US. However, the Indi- change, such as sophisticated closed-loop and

indoor systems. The environmental benefits business case can be made, but each farmer
and control over the supply chain are also rel- must evaluate the feasibility and economic vi-
atively limited in comparison with more ho- ability of purchasing expensive health en-
listic changes in production practices. hancement feed against the potential losses
from outbreaks of disease.
Key Opportunity 1: Functional feed can
increase profits by up to about 32%, and only As long as farmers can afford the upfront
minimal training is required. India’s farmers costs of growth enhancement and health en-
have much to gain by using growth enhance- hancement functional feed, they know when
ment and health enhancement functional to use it, and they have the management
feed on their shrimp farms—if they use them skills to use it diligently, functional feed rep-
in a specialized manner to address specific resents a relatively easy win: no investment
challenges. or technological upgrades are required. There
is also some environmental benefit—the re-
Growth enhancement functional feed has the sult, for the most part, of better farm man-
potential to accelerate shrimp growth rates or agement—which is a prerequisite for the suc-
to produce larger shrimp. Farmers are likely cess of using this feed. (See the Appendix for
to opt for growth enhancement functional a discussion of growth enhancement and
feed when global shrimp prices rise and they health enhancement functional feed.)
want to take advantage of the opportunity.
Under these circumstances, it can be benefi- Key Opportunity 2: Better water treatment
cial to use growth enhancement feed during can improve water use and quality while
the second half of the growth cycle to boost boosting EBIT margins. Intensive outdoor
growth rates and reduce FCR. When growth shrimp production systems require consider-
enhancement functional feed is managed able amounts of fresh water and are major
properly, FCR can be reduced by a total of sources of pollution. In these throughput
15%, and the larger shrimp can be sold for up systems, once a growth cycle is completed,
to 6% more, significantly improving EBIT discharged effluents—along with the chemi-
margins. This approach, which drastically re- cals, fertilizers, and antibiotics used to treat
duces quantities of feed needed per kilogram the water—can leak into the environment.
of shrimp produced, compensates for the
higher feed price—up to 20% per kilogram. More farms are using closed-loop systems that
Farmers who manage to sell larger shrimp at improve water quality and reduce water dis-
higher market prices can achieve EBIT mar- charge. These applications vary widely in their
gins of up to 30%, representing increases of as mode of action, ease of use, and feasibility.
much as 32% over average EBIT margins. If
global shrimp prices increase, fast-growing There are farming technologies that use alter-
shrimp could allow for an additional produc- natives to chemicals and fertilizers to en-
tion cycle, significantly increasing farming hance water quality, as well as filter systems
output. that aim to recycle water and reduce waste-
water leakage into the environment.
Health enhancement functional feed, which
can cost up to 50% more than basic feed, ap- Two systems that are focused on improving
pears quite expensive when the consideration water quality and reducing wastewater dis-
is a single use per kilogram of shrimp pro- charge through circulation and filtering are
duced. However, should farmers anticipate biofloc and recirculating aquaculture systems
disease outbreaks, health enhancement feed (RAS). (See the Appendix for additional infor-
can achieve an EBIT margin of up to 23% be- mation on water treatment systems.)
cause the feed drastically increases survival
rates during disease outbreaks. Biofloc allows shrimp farmers to improve wa-
ter quality and provide an additional feed
This scenario assumes that farmers can pre- source at the same time. Carbohydrates are
vent disease outbreaks that could affect up to added to pond water to compound waste
20% of their annual production. A positive products that can then be eaten by shrimp.

There is significant variability in the business fertilizers, and therefore can lead to higher
benefits for farmers because it can be tricky EBIT margins for farmers. RAS can be basic
to implement and scale biofloc. Results can biofilters or more sophisticated water recircu-
vary widely from one farm to the next, and a lating systems and can vary in effectiveness,
preparation phase is required to ensure a suc- investment and operating costs, and environ-
cessful introduction of this method. mental impact.
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-

sities represents a first step toward sustain- Key Opportunity 4: Combining functional
able intensification of shrimp farming, which feed, water treatment systems, and solar
is the direction the industry will likely take energy could maximize economic benefits
in the near future. (See the Appendix for and environmental impact. Producers that
additional information on the business case seek to maximize the effect of immediate,
for RAS.) short-term change can combine growth
enhancement functional feed, closed-loop
Key Opportunity 3: Solar energy can reduce systems such as RAS, and solar energy. If
local energy generation costs. In India, farmers implement these correctly, combin-
energy represents a major cost sink for ing these three strategies can achieve EBIT
farmers. Shrimp farms located in remote margins of up to 36%—an increase of 61%
areas are faced with frequent energy outages, compared with today’s average. This is an
so they often have to resort to using diesel improvement of as much as 20% compared
generators, which are expensive (accounting with the standalone use of functional feed,
for up to 20% of total costs) and sources of up to 33% compared with standalone use of
pollution. Cost estimates vary for farmers RAS, and up to 44% compared with a stand-
depending on their access to the grid network alone solar energy solution.
and the frequency of power outages, but
many farmers have to deal with this problem. The combination of functional feed and RAS
For these farms, renewable solar energy offers several benefits, including an increase
represents a reliable, economic, and clean in volume through higher stocking intensities,
alternative. more efficient production, higher survival
rates, better water treatment, and reduced
There are three types of solar energy avail- wastewater discharge. Nevertheless, the risk
able to shrimp producers: photovoltaic (PV) of disease remains high and cannot be fully
cells that can be installed on the ground in mitigated in this scenario. Farmers would not
close proximity to ponds and with a tracking continually use functional feed combined
system, PV cells that can be installed above with RAS. Rather, they would take advantage
the surface of ponds, and PV cells with a of growth enhancement feed whenever there
tracking system that can be installed above is a surge in global shrimp prices to maximize
ponds. Through the tracking system, the an- shrimp production volumes.
gle of cells is adjusted depending on the di-
rection of highest solar radiation. Moreover, Another option is to combine growth en-
battery storage is required to ensure a contin- hancement functional feed with biofloc and
uous supply of energy. solar energy. The combination of growth en-
hancement functional feed and biofloc af-
Although on the basis of the cost per mega- fects the same production parameters, and its
watt hour, solar energy is more expensive efficacy is difficult to predict. However, it is
than grid energy, it is significantly less costly likely superior to standalone options.
than diesel. Replacing diesel generators with
solar energy can yield a 12% EBIT increase While these combined approaches have
per kilogram of shrimp, resulting in a total promise, they also require farming expertise
EBIT margin of about 25%. This said, the ini- and changes in production and farm manage-
tial investment for PV systems requires signif- ment. They are, therefore, not likely to be
icant capex investments—up to $26,000 per widely adopted unless farmers receive guid-
hectare depending on the system, or about ance from key partners across the value
$15,000 not including battery use. Small chain, including representatives from feed
farms in remote areas might not be able to mills and processors, as well as technology
afford this. But as batteries and solar power providers for sophisticated systems such as
become less costly, this option could eventu- RAS. Without knowledge sharing across the
ally be more affordable for remote farms as industry, these techniques will very rarely be
well as grid users.3 (See the Appendix for a used. (See the Appendix for a detailed discus-
more detailed discussion on the business case sion of combining functional feed, water
for solar energy.) treatment systems, and solar energy.)

Middlemen: Increase the Pace about ways to produce shrimp more sustain-
of Change Through Education, ably and, thus, differentiate their products in
Finance, and Traceability the market. By becoming more involved in
Middlemen, also known as commission the shift toward sustainability, middlemen
agents, play a key role in India’s farmed- can stay relevant in an industry that might
shrimp supply chain. (See Exhibit 9.) They otherwise, over time, cut them out. Until this
frequently serve as gatekeepers and facilita- threat materializes—most likely from proces-
tors between shrimp farmers and processors, sors—middlemen are unlikely to see the
in many cases, providing raw materials and need to make the required effort. (See the
financing for farmers and helping processors Appendix for a discussion of the business
sort, preprocess, and transport shrimp. In case for middlemen.)
some cases, farmers are heavily dependent
on middlemen because the farmers are in
debt or they have strong family ties. Processors: Important Drivers for
Change as the Industry Moves
Middlemen play an informal role in the value Toward Sustainability
chain, keep minimal records on shrimp pur- Shrimp processing in India is highly frag-
chased and sold, and act with little regulatory mented. The majority of processors focus on
or company oversight. A shift in how middle- basic shrimp processing, and large quantities
men conduct their business will be key to the are exported to Vietnam for further, value-
industry’s successful transformation to a added processing. If India’s processors were
more traceable and sustainable supply chain. to upgrade their facilities to provide value-
added processing, they would achieve signifi-
Middlemen are uniquely positioned to sup- cantly higher sales prices for shrimp.
port farmers as they improve their produc-
tion systems and technologies across the val- Most processors handle exports as well, and
ue chain. For example, middlemen can that means that they have a clear incentive to
provide detailed records to help track shrimp help mitigate risk in the supply chain. When
along the value chain and can inform farmers importing countries establish new regula-
Exhibit 9 | Middlemen Play a Critical Role from Farmers to Processors
Farmers and ~40% ~90%

processors have
mutual agreements;
processors often sell Processor Export market
feed to them and
buy back their
harvested shrimp
~100%
~40% ~10%
Commission agents Domestic market

Farmers
<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.

tions, such as SIMP in the US, processors and Immediate Change Is Limited—
exporters must translate these requirements Disruptive Transformation Is
into actions. Needed
The short-term changes outlined above offer
Around 40% of production volume reaches several immediate benefits for Indian shrimp
processors directly from farmers, so there is producers, but because the changes are im-
an opportunity to encourage the production plemented on an individual basis, they do not
of high-quality, responsibly farmed shrimp promote the kind of wide-ranging change
and to reduce disease risks to ensure a stable that’s needed to secure the industry’s future.
shrimp supply. Processors stand to benefit
when farmers produce sustainable shrimp, If India attains its projected growth rate of
because they can obtain a price premium. 11% per year over the next five years, the to-
Due to the fragmented market, this is espe- tal value of the Indian shrimp market will
cially critical for large standalone processors reach $6.53 billion by 2024 (up from $3.06
that face stiff competition from integrated billion in 2017). Compared with the global
players with more control over their supply growth rate at just 5.6% per year, this would
chain, as well as players in other shrimp- be a massive gain for India. However, this val-
producing markets that are already at the ue cannot be achieved unless India’s shrimp
forefront of traceability. producers look beyond short-term, immediate
gains and focus instead on developing an in-
Nevertheless, around 40% of shrimp produc- novative business model focused on long-
tion in India is managed by commission term, inclusive sustainability.
agents—an added challenge to achieving
traceability. Processors can step up and deliv-
er the much-needed transparency that mid-
dlemen typically fail to provide. (See the Ap-
pendix for a more detailed discussion of the
business case for processors.)

INTEGRATED PLAYERS
MUST SUPPORT THE SHIFT
TO TRACEABILITY
S tandalone players can make short-

term changes that help their business
thrive, but integrated players are uniquely
and solar energy at the same time, farmers
can achieve a 61% increase in their profit
margins and a fourfold increase in stocking
positioned to leverage changes on a grand densities. These dramatic improvements in
scale. India’s two largest integrated players— the farming segment could, as a result, more
Avanti Feeds and CP India—own their own than compensate for the losses in feed mills
feed mills, hatcheries, and processing facili- and support a virtuous cycle: higher farming
ties, and they manage their exports. In output encourages additional shrimp farming,
addition, they either own farms or they which increases the overall demand for feed.
contract with individual farmers and closely
supervise farm management and shrimp In addition to short-term changes, integrated
quality. players have a much more transformative op-
portunity within reach. With strong market
But even integrated players such as Avanti power, access to financing, and the ability to
Feeds and CP India have limited control over scale, integrated players can push the entire
certain steps in the supply chain. Avanti industry in a new direction and advocate for
Feeds is the second-largest processor with ap- an industry that delivers superior results at
proximately 40% of the market share in feed, every level—for businesses, the environment,
but the company has little direct influence and society as a whole. Once leaders blaze
over hatcheries and farms. CP India has some the trail, others will be inclined to follow.
30% of the feed market, a significant share of
hatcheries, but less influence over farms and Two major shifts in the industry are already
processing. Nevertheless, these players are observable in some countries, and these will
well positioned to support the shift toward significantly transform the global shrimp mar-
traceability. ket: full traceability and closed-loop systems.
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,

are pushing for this at the global level. Retail- For companies vying to become industry
ers, too, want to track and trace products leaders, closed-loop systems are the next logi-
from pond to plate so that they can avoid cal step. These allow for the production of
product recalls and minimize the potential large shrimp quantities in a controlled envi-
for reputational damage. With more than ronment, reducing disease risk as well as mit-
100,000 farms, this will not be easy to achieve igating major environmental hazards.
in India, but integrated players are positioned
well to achieve full product traceability and
become leaders of the rest of the industry.

PRODUCERS CAN STAY
AHEAD OF STRICT
EXPORT STANDARDS
T o create value along the entire supply

chain, leaders in the shrimp industry
must ensure greater accountability and
gain by adhering to new government regula-
tions focused on source of origin, as well as
by catering to environmentally and socially
transparency and ultimately implement full conscious consumers who are willing to pay
product traceability throughout the supply more for greater assurances. First movers in
chain. this space can expect to achieve price premi-
ums for fully traceable shrimp. Although
As noted, regulators are requiring greater traceability will eventually become the new
transparency as a precondition for shrimp im- norm and prices will come down accordingly,
port approvals, and they have repeatedly re- India should act now to differentiate itself
fused shrimp imports that fail to provide and avoid being surpassed by competitors al-
clean, contamination-free products. From ready moving in this direction.
2014 through March 2019, 396 lines of entry
from India were rejected at the US border,
largely due to salmonella. (In all, 1,300 The Far-Reaching Business
shrimp imports were refused by the US.) Re- Benefits of Traceability
jections may increase even more now that Exhibit 10 outlines the following advantages
the SIMP program requires stricter data re- and potential economic benefits of traceabili-
porting and record keeping. ty for all players across the value chain:
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-

Exhibit 10 | The Business Benefits of Traceability Are Multifold
More efficient farms Sustainable access to markets

• Traceability allows for leveraging of data analytics • There is a growing demand for traceable products
• With traceability, production can be streamlined • Transparency is likely to become a major
to increase volumes purchasing criterion
• Traceability is an enabler: farms and producers • Increasing numbers of regulatory bodies require
must act to increase efficiency traceability
Sustainable production Brand enhancement

• Transparency and accountability along the supply • Traceability can be leveraged as a marketing
chain induce sustainable behavior differentiator
• Traceability allows for rewards and punishment of • Branding as a high-quality, high-value, traceable
producers of sustainable and unsustainable supply chain attracts buyers and consumers alike
products, respectively
Improved logistics Opportunity for premium pricing

• Optimizing transportation routes with analytics • Some consumers are willing to pay premiums for
• Traceability allows for the minimization of food traceable food
waste during transfer • Increased wealth will spread along the value
• Traceability enhances the ability to deliver fresh chain through token currencies and other
products reliably rewards
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.
•• Improved Logistics. Transportation To achieve these benefits, every player in the

routes can be analyzed and optimized, supply chain must participate and share
minimizing food waste during transport trusted data with multiple stakeholders.
and maximizing the ability to deliver fresh Shielding supply chain data in modern value
products. chains challenges the trust of those purchas-
ing products and calls into question the reli-
•• Sustainable Access to Markets. Buyers, ability of companies that are perceived to
especially those in sophisticated markets, have something to hide.
will increasingly demand traceable
products and eventually drop suppliers In addition to the business opportunities, there
and markets that are not fully transparent are also environmental benefits. Traceability
and that represent a sustained reputation- can drastically reduce the ongoing mangrove
al risk. Import authorities are establishing deforestation. Today, it is nearly impossible to
reporting and record-keeping require- discern whether shrimp are coming from man-
ments for imports of certain seafood grove areas, but traceability could provide
products to prevent illegal, unreported, much-needed insight into this issue. Moreover,
and unregulated and misrepresented players that are not destroying mangroves gain
seafood from entering their markets. the opportunity to credibly provide this type of
information to retailers and consumers and dif-
•• Brand Enhancement. Traceability ferentiate their product.
secures the brand image and can be used
as a key marketing differentiator when Middlemen pose a major challenge: their
other claims cannot be validated. movements are hard to track, and virtually no
records of their operations exist. To avoid los-
•• Opportunity for Premium Pricing. Some ing significance or, worse, posing an obstacle
consumers are willing to pay a premium to industry advancement, middlemen will

need to formalize their operations to provide the analysis of a set of elements that make up
greater transparency and accountability. The a material or a species. Analysts can identify
industry is also quite fragmented at the farm the country of origin of imported shrimp with
level. There is minimal data collection and lit- up to 98% accuracy.4 This technology rep-
tle incentive to share data. In a fully traceable resents a significant advance, but it serves only
supply chain, each player must contribute to to verify the country of production. It does not
the collective industry effort. When traceabil- represent full supply chain transparency, be-
ity is done right, everyone wins. cause it cannot track back to the specific farm
where the shrimp were grown, verify the pro-
duction technologies and methods applied
Traceability Can Be Managed during production, or trace the trading route of
with Different Levels of the shrimp from production to point of entry.
Effectiveness and Maturity
There are many ways to implement traceabil- Consequently, the technique adds another
ity in supply chains, including supply chain layer of oversight on the path toward trace-
integration and software solutions. (See Ex- ability, but it is insufficient on its own. To
hibit 11.) achieve full supply chain traceability, technol-
ogy and software-enabled solutions represent
For example, integrated players that have full the most promising options.
control over their supply chains could provide
traceability. This is easier said than done.
Some integrated players produce less shrimp Technology-Enabled Traceability
than their processing facilities have the ca- Offers a Promising Path Forward
pacity to process. As a consequence, they turn Traceability along the supply chain allows re-
to middlemen for shrimp to fill their excess tailers to demonstrate environmental and so-
capacity, creating a significant traceability cial compliance, but it is not enough simply
challenge. And because they rely on middle- to make the claim. The industry needs tools
men, it’s very hard to trace shrimp. that can accurately monitor and verify sus-
tainable practices and hold players account-
Another technique is to verify the country of able to uniformly agreed-upon standards.
origin through elemental profiling. This new Various technology-enabled traceability solu-
technique has emerged to provide a check on tions, with differing levels of sophistication,
traceability claims. The procedure involves are currently being developed.
Exhibit 11 | Traceability Is the Future Norm for Supply Chains
Traceability can be addressed in multiple ways Necessity

Vertically Full control of the supply chain by one vertically • Regulators require traceable products to
integrated integrated company overlooking operations from authorize imports
players production to export and sale • Retailers select suppliers upon provision of
traceability and sustainability standards
Analysis of shrimp species, allowing for • Consumers are increasingly aware of
Elemental
determination of country of origin with up to sustainability issues and are beginning to
profiling
98% accuracy adapt buying decisions
Technology-enabled traceability ranging from

Software Opportunity
easy-to-deploy mobile applications to
solutions such
sophisticated blockchain and Internet of Things
as blockchain • Niche market allows for premium pricing of
solutions
up to 40% for traceable and sustainable
Production standards implemented on the farm products
Certifications and processing levels and labeled accordingly at • New market access is provided through
the point of sale high-quality traceable products
• Reduction of bottlenecks and increased
efficiency are results of supply chain tracking
Certifications provide only perceived traceability

Mobile applications can capture farm, pro- Several large supermarkets, including
duction, and transaction data in real time to Walmart in the US and Carrefour in the EU,
ensure full transparency. In this scenario, all have already deployed blockchain to track
players across the supply chain share records the provenance of products in their food sup-
for each transaction: farmers can easily up- ply chains. Although they have determined
load data to accessible online platforms, and that they can no longer opt not to know
all product transactions and movements are where food originates, they do not yet apply
registered at each step of the supply chain. this standard to shrimp. The shrimp supply
chain is complicated. Shrimp farmers are
Mobile apps are easy to use, accessible, and highly fragmented, middlemen play an out-
affordable even for the smallest farmers, but size role in the value chain, and very little
they require every player along the supply farming or hatchery data is collected, let
chain to share truthful, verifiable data. There- alone shared across the supply chain. Consis-
fore, traceability must be coupled with trans- tent data collection is a prerequisite for suc-
parency. cessful traceability, and its lack consequently
poses a significant barrier to implementation.
Pairing the Internet of Things (IoT) with
blockchain represents another promising Many technology companies, including IBM,
technological solution for tracing global food VeChain, Provenance, ConsenSys, and the new-
chains, in part because these technologies are ly founded OpenSC food-tracking platform are
rapidly becoming more affordable and acces- enabling traceability for various products, but
sible. Here is a quick look at how IoT and these are more appropriate for products with
blockchain can be used: less complex supply chains than that of the
shrimp industry. Will shrimp be next?
•• IoT devices capture production data at the
source—for example, from shrimp farms. Due to the dispersion of hatcheries, farms,
and processors, and the sheer number of
•• This captured data is stored on ledgers, farms spread across India, full traceability
which can time stamp, track, and auto- will present challenges to implementation.
mate transactions so that events can be Nevertheless, the industry as a whole needs
audited in real time. to act to ensure continuing access to major
markets. Although traceability has the poten-
•• As long as the suppliers enter accurate tial to improve farm management and pre-
data, the blockchain establishes proof of serve natural resources, it does not boost pro-
quality and provenance across the entire duction volumes. For that, an even bolder
value chain. approach is needed.

LONG TERM, INDOOR
FARMS WILL TRANSFORM
W hile economic value can be derived

from immediate change, traceability is
rapidly becoming a business imperative, and
example, has invested in indoor farms and
plans to shift all production in Thailand to in-
door ponds over the next five to ten years.
many companies are pioneering new and With this shift, CP expects to increase capaci-
disruptive farming methods. Indian shrimp ty in Thailand to at least 100 metric tons per
producers have the opportunity to innovate hectare compared with the typical 18 to 50
in this area before sustainability and trace- metric tons per hectare produced annually in
ability become the new normal. traditional outdoor systems.
One of the most promising opportunities is Similarly, in Vietnam, the shrimp-producing

the shift to high-intensity, high-volume company Viet-Uc is investing heavily in
shrimp farming in closed systems. Compared indoor-farming complexes and plans
with outdoor production, closed-loop systems eventually to achieve 100% indoor pro-
provide significant environmental and finan- duction.
cial advantages. These systems aim to reduce,
reuse, and recycle water on the farm using Because of the high capital investment, scale,
various methods, including filters. With high- and new construction required to implement
er biosecurity, farmers can increase stocking indoor farms, these farms will—in the short-
densities while reducing wastewater dis- term—be financially viable for large-scale in-
charge. tegrated players only. Furthermore, integrat-
ed players can combine indoor farming with
The benefits of closed-loop systems can be full traceability if they exert power through-
further accelerated by operating indoors. The out the value chain. With indoor farming, in-
pond environment can be fully controlled so tegrated players could build even a state-of-
that external factors have only minor impact the-art facility that combines all stages of
on shrimp production. In addition, farmers shrimp production—from breeding to proc-
can ensure constant conditions in ponds, re- essing—under one roof, thereby guaranteeing
spond to diseases quicker, and mitigate envi- total biosecurity and control over the culture
ronmental hazards and risks. environment.
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

decreased. In turn, there will be increases Indoor farming offers several advantages:
in the risk of disease, total energy use, and
per unit energy use. The disease risk can •• Traceability as long as the entire pro-
be mitigated by closed-containment farm duction process is integrated and the
operations and indoor systems. (See Exhi- shrimp are not sold to processors by
bit 12.) middlemen
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
Exhibit 12 | India’s L. Vannamei Production System
Farming systems
Extensive Semi-intensive Intensive Superintensive

RAS Indoor
Risks and opportunities
Land use
Risks Water effluent
Disease risk
Biosecurity
Stocking
Opportunities density
Efficiency
India's current position

Note: L. vannamei = Litopenaeus vannamei; RAS = recirculating aquaculture systems.

The business case for indoor farming is still Although indoor-farming industry disruption
evolving. The investment costs—up to will likely be led by large-scale industry lead-
$200,000 per hectare of pond area—are high ers, small to midsize producers can begin
compared with current costs for construction moving in this direction by implementing
of about $6,000 per hectare of pond area for closed-loop systems, such as RAS. When com-
conventional outdoor ponds. And interna- bined with removable pond covers, which add
tional sales prices for commodity shrimp are, protection against external contaminants,
at least for the foreseeable future, low, mak- even small to midsize players can create
ing the business case for wholesale transfor- closed systems with better control and in-
mation an uphill climb in the short term and creased productivity, supporting the long-term
midterm. industry shift to low-impact indoor farms.

MUST TRANSFORM WHILE
TIMES ARE STILL GOOD
S ome 3 billion people rely on wild-

caught seafood and aquaculture products
as their primary sources of protein, and it is
the entire food industry and require all its
participants to reduce their environmental
impact.
becoming an increasingly important source of
protein around the world. India must respond. Other Asian countries,
such as Thailand and Vietnam, have little
Indian producers are already feeling the pres- choice but to take immediate action to save
sure from policymakers to provide traceabili- their struggling shrimp industries. Therefore,
ty, and because of their strong competitive they have already taken steps toward closed-
position and reputation as reliable sources of loop indoor intensification. Despite these
shrimp, they have an excellent opportunity to early initiatives, there is not yet a clear win-
be among the frontrunners in traceability ner in the sustainable and traceable market
and sustainability. With India’s comparably segment.
low domestic demand and strong export fo-
cus, the push for traceability is particularly To defend their global leadership position
critical for the industry’s lasting success and and deliver lasting environmental and social
will eventually become the new norm in impact, Indian shrimp producers must invest
global shrimp supply chains. in full supply chain traceability as well as
R&D for closed-loop indoor farming. In em-
This is not just a business imperative. In light bracing this approach, India will have oppor-
of the growing global population and increas- tunities to increase profitability across the
ing demand for food, shrimp producers will board while satisfying consumer demand and
face increasing pressure to safeguard the bio- regulatory requirements for food safety, trace-
diversity and ecosystems that are vital for our ability, and ecofriendly business practices. If
planet’s well-being. There is already strong the industry can successfully navigate these
pressure, globally and nationally, to halt man- transitions, participants will reap rewards for
grove deforestation. These challenges affect generations to come.

APPENDIX
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

APPENDIX
FUNCTIONAL FEED, WATER IMPROVEMENT SYSTEMS,
AND SOLAR ENERGY
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.
Health enhancement functional feed aims to im-

Details on Functional Feed prove shrimp survival and to increase produc-
The costs and operational requirements asso- tivity by optimizing the shrimp’s digestive ef-
ciated with functional feed vary among farm- ficiency.
ers. (See Exhibit 13.)
This type of feed is especially useful for miti-
Growth enhancement functional feed is a com- gating risk when the threat of disease is high.
plete feed (rather than an isolated compound)
that is designed to promote specific physiolog- For example, phytobiotic additives can pro-
ical effects that allow farmers to grow larger mote better health:
shrimp faster and more efficiently.
•• They can be used in functional feed or as
Many varieties of functional feed are avail- separate additives.
able on the market, and companies are com-
peting to develop the most effective products. •• Phytobiotics produced from herbs and
We define growth enhancement functional organic acids are known to be effective at
feed as feed that includes a variety of addi- boosting immunity and improving
tives—such as special proteins, vitamins, and functional properties of the compounds in
probiotics—that promote faster growth. the gut.
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.

Exhibit 13 | Functional Feed: The Impact, Costs, Requirements, and Results
FOCUS
Growth Health Transportation Feeding method Farming system

enhancement enhancement and storage and technology and management
functional feed functional feed
Operational Potential for FCR Avoidance of crop Appropriate storage Method and Critical for overall
impact improvement loss at times of high important to technology relevant to operational success
risk of disease maintain feed quality FCR and survival rate and controlling risk of
Possibility of larger
disease
shrimp
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

Note: FCR = feed conversion ratio.
Details on Water Improvement as it can also be used as a feed source for

Systems—Biofloc and RAS shrimp. (See Exhibit 15b.)
Water treatment systems aim to improve wa-
ter quality, reduce water use, and recycle wa- Biofloc can have positive environmental im-
ter. They vary in application and effects, pact. It leads to a statistically relevant de-
terms of sophistication, levels of water reuse, crease—up to 73%—in pond water nitrite
and cost. Many systems use microbes to regu- levels: 0.13 milligrams per liter of nitrite-
late water quality and imitate natural water nitrogen. This represents a significant im-
conditions. Exhibit 14 provides an overview provement and is in line with the maximum
of commonly used closed-loop and microbial nitrite level—0.18 milligrams per liter—man-
systems. dated to protect freshwater aquatic life.
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:

Exhibit 14 | Overview of Water Quality Enhancement and Closed-Loop Systems
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

• Addition of carbon source to enhance heterotrophic bacteria consortium
• Emphasis on the system’s carbon-to-nitrogen ratio
• Conversion of “waste” nitrogen to highly concentrated total suspended solid (microbial biomass)
Biofloc that can act as high-protein feed for cultured animal
• Optimal aeration and biofloc ingredient mix required

• Need for organic substrate such as bamboo for periphyton attachment
• Organic input such as manure and chemical fertilizers to trigger periphyton growth
Periphyton • Occasional need for additional carbon source to maintain the carbon-to-nitrogen ratio
• Periphyton acts as toxic nitrogen removal system and food source for cultured animals
• Low water discharge

• Use of formed biofilm to remove toxic nitrogen compound during culture period
• No control of microbial consortia
Biofilm • A potential food source for cultured animals
• Need for additional reactor and attachment substrate

• Defined microbial consortia in biofilm (predominantly nitrifying bacteria)
• Main purpose: removal of toxic nitrogen substance from the system
• Applicable in the system or in an external unit such as a biofilter
Defined biofilm
• 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
• Low water discharge

• Use of batch system
• Use of primarily autotrophic microalgae as microbial component in the system
• Utilization of chemical fertilizer and organic waste to trigger phytoplankton growth
Green-water • No control of the system’s microbe community
technique • Main purpose: to provide natural food for cultured animals
Sources: Gede Suantika et al., Aquaculture Engineering, 2018; BCG analysis.

Note: RAS = recirculating aquaculture 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

Exhibit 15a | Capital Investment and Operating Costs Are the Main Concerns in Method Selection
FOCUS
Water treatment: Water recycling: Integrated aquaculture:

biofloc system RAS integrated multitrophic
system
Inserting bacteria Treating water Introducing additional
or chemicals to allow for water reuse species that use waste
to reduce water pollution within farms as a source of nutrients
• 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

Note: RAS = recirculating aquaculture systems.
Exhibit 15b | The Addition of Carbohydrates to the Water Leads to the Assimilation of Nitrogenous Waste
Input: Chemical reaction Improved

carbohydrates water
quality
The reduction of
Increases the Stimulates Shrimp use biofloc nitrogen improves
carbon-to-nitrogen heterophobic as a feed source the water quality
ratio microbial growth
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
Source: Aquaculture; BCG analysis.

Note: FCR = feed conversion ratio.

investment costs that vary depending on Details on Solar Energy
the overall size of the farm (larger farms Farmers in remote locations with no grid ac-
benefit from economies of scale), sophisti- cess or intermittent grid access can reduce
cation of the system, and the equipment their environmental footprint and avoid dis-
(some of which requires higher energy use). ruptions in energy supply by shifting toward
renewable energy. Four types of renewable
•• Basic biofilters that are integrated into energy are available—solar power, wind pow-
existing production systems without er, biomass, and solar thermal power. Our
further investments in equipment can be analysis focused on solar. (See Exhibit 16.)
obtained at a cost that ranges from
$15,000 to $50,000 per hectare, which There are three types of solar energy avail-
could be high for farmers. able to shrimp producers: PV cells that can be
installed on the ground in close proximity to
•• Investment costs for more sophisticated ponds and with a tracking system, PV cells
systems that use filtration systems and that can be installed above the surface of
specialized pond equipment range from ponds, and PV cells with a tracking system
$50,000 to $150,000 per hectare. that can be installed above ponds.
•• 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
Solar power Wind power Biomass Solar thermal power
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
Relatively small land Potential synergies: biomass Can be stored more

Potential synergies with footprint in the case of can be grown in the same efficiently than electrical
aquaculture in the case of small-scale wind turbines ponds as shrimp; seaweed energy
floating PV systems that can be placed close to also improves water quality
Advantages the ponds or on the
aerators
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)
Sources: Commonwealth Scientific and Industrial Research Organisation; BCG analysis.

Note: PV = photovoltaic.

APPENDIX
MARKET DYNAMICS AND ENVIRONMENTAL IMPACT
OF IMMEDIATE CHANGE
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.

Exhibit 17 | About 60% of India’s Shrimp Feed Comes from Andhra Pradesh
Shrimp feed volume in 2017, by region
Volume, 2017 Market share CAGR, CAGR

Region
(kilotons) (%) 2013–2017 (%) 2018–2022E (%)
Andhra Pradesh 514 60 19 9–10
Gujarat and
West Bengal 80 9 41 16–18
Maharashtra
Gujarat and
Maharashtra Orissa West Bengal 133 15 17 8–9
Orissa 53 6 30 4–5
Andhra Pradesh
Tamil Nadu 74 9 21 8–9
Tamil Nadu Others 8 1 6 1–2
Total 862 100 20 11
Sources: Marine Products Exports Development Authority; expert interviews; BCG analysis.
Note: Figures are based on 2017 numbers.
Exhibit 18 | The Economics of Today’s Average Feed Mill

EBIT margin (%) Share of total costs (%)
8 100 3 6 91 32 9 23 21 3 3
Amount per kilogram of feed ($)
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

Note: COGS = cost of goods sold; SPC = soy protein concentrate. Because of rounding, not all numbers add up to the totals shown.
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:

Exhibit 19 | Feed Mills Can Increase Margins
Growth enhancement functional feed Health enhancement functional feed
($ per kilogram of feed) ($ per kilogram of feed)
~130% EBIT margin increase over today’s average ~260% EBIT margin increase over today’s average
EBIT margin EBIT margin
19% 30%
0.16 0.21 0.39 0.54
0.06 0.03 1.06

0.06 0.06 0.03 1.15
0.09 0.15
0.09
1.09
0.91 1.09
0.91
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

Note: COGS = cost of goods sold. Because of rounding, not all numbers add up to the totals shown.
•• 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.

Exhibit 20 | A Shift to More Efficient Functional Feed Reduces Negative Environmental Impact
Land use Water use and Chemicals and Use of fish and
pollution antibiotics wild catch
Up to 15% land use Reduced water Replacement of For growth and

reduction for feed due pollution due to more antibiotics with health enhancement:
to increased feed efficient feed with less probiotics Substitution of fish
efficiency (during half feed waste in the water meal and fish oil in
Nutrient content:
of the growth cycle) development for both
growth enhancement
kinds of functional feed
Improved resource use Reduced water Replacement of Ambition to replace all

and reduced waste due pollution due to more antibiotics with fish meal use with
to increased survival efficient feed with less probiotics; plant-based nutrients
rate and shrimp loss feed waste in the water health improvements
avoidance through, for example,
Nutrient content: the use of phytobiotics
health enhancement and amino acids reduce
the need for medical
interventions
Exhibit 21 | The Average Economics of Hatcheries Today
EBIT margin (%) Share of total costs (%)
52 100 24 11 65 3 19 11 11 3 18
Amount per thousand PL ($)
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

Note: COGS = cost of goods sold; PL = post-larvae shrimp. Because of rounding, not all numbers add up to the totals shown.
Farmers players, and most are family-run operations.

Market Dynamics. The farming market in While there are more than 100,000 L. vanna-
India is very fragmented. Large corporate mei farms in India, only around 1% of farms
players, such as BMR Group and Devi Fisher- are officially registered with the Coastal
ies, control only 10% of the farms and 10% of Aquaculture Authority. The majority of
the area under culture. Approximately 90% of L. vannamei farms are located in Andhra
the farms are managed by small or midsize Pradesh, which is responsible for some 70%

of L. vannamei production. P. monodon farms The assumptions for the business case calcu-
are mainly in West Bengal. lations for growth enhancement functional
feed are the following:
Approximately 80% of Indian farms are
semi-intensively farmed, with stocking densi- •• Shrimp that grow faster or to a larger size
ties of about 30 PL per square meter, and sur- within the same timeframe can achieve
vival rates have been relatively low (around price premiums of up to 6%.
55%). Many of these farms are clustered to-
gether. Only some 15% of farms operate in- •• Growth enhancement functional feed
tensively with high stocking densities. lowers FCR by 30% in general, but be-
cause it is used during only half of the
Middlemen, or commission agents, in India growth cycle, the FCR would be lowered
still play a significant role in the lives of indi- by 15%, compensating for the 20% in-
vidual farmers: 40% of farmed shrimp is dis- crease in feed prices.
tributed to processors through commission
agents. Approximately 40% of farmers have •• There is no need for a larger investment,
direct agreements with processors who sell but it is assumed that farmers can pay
feed to farmers and buy back their harvested higher feed costs up front.
shrimp in return. Less than 20% of shrimp is
sold at the farm gate directly for local mar- The use of health enhancement functional
kets without further processing. feed if used continuously is not economically
viable for farmers: it would result in a steep
Business Case. Exhibit 22 shows the average decrease in EBIT and possibly negative EBIT
economics of today’s farms. We explored the margins caused by sharp increases—as much
impact of a number of factors related to farm as 50%—in feed costs. However, if disease
economics and environmental impact, outbreaks are anticipated, it would be possi-
individually and in combination: functional ble to achieve an EBIT margin as high as
feed, biofloc, RAS, and solar energy. 23%, compared with 11%, when disease hits
while basic feed is being used. This assumes
Functional Feed. The use of growth enhance- that 20% of crops are affected by disease and
ment functional feed can lead to EBIT mar- treated with health enhancement feed.
gins of up to 30% at the farm level, represent- Health enhancement feed serves as a risk
ing an increase of up to 32% in EBIT margins management tool for farmers. Although it of-
over today’s average. (See Exhibit 23.) fers a clear financial incentive, its benefits
Exhibit 22 | The Average Economics of Farms
EBIT margin (%) Share of total cost (%)
22 100 3 9 88 13 45 6 6 7 5 3 2 3
Amount per exported kilogram of shrimp ($)
4.83 1.08
3.75 0.12 0.30 3.33 0.49
1.69
0.22 0.21 0.25 0.17 0.10 0.08 0.12
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

Note: PL = post-larvae shrimp; COGS = cost of goods sold. Because of rounding, not all numbers add up to the totals shown.

Exhibit 23 | Growth Enhancement Functional Feed Has an EBIT Margin Increase of up to 32%
Growth enhancement functional feed Health enhancement functional feed
($ per kilogram of shrimp) ($ per kilogram of shrimp)
Up to 32% EBIT margin increase over today’s average ~66% EBIT margin loss from today’s average
30% 7%
0.43 0.29 0.72 4.83
0.30 0.12 4.46

0.72
0.12 3.61 0.36
0.30
0.13 1.08
4.83
3.19 3.32
costs costs
Cost savings or revenues / EBIT increase, based on today's average

Health enhancement functional feed needs to be considered in times
Cost increases or revenues / EBIT decrease, based on today's average when harvest losses would normally occur owing to disease outbreaks.
In this case, health enhancement feed can achieve up to 23% EBIT
margins compared with a drop to 11% EBIT margins with basic feed.

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.

Exhibit 24 | Biofloc Can Increase EBIT Margins by as Much as 30%, While RAS Can Increase Them by as
Much as 22%
Biofloc ($ per kilogram of shrimp) RAS ($ per kilogram of shrimp)
Up to ~30% EBIT margin increase ~20% EBIT margin increase
Best case Worst case

EBIT margin EBIT margin EBIT margin
29% 26% 27%
0.38 0.20 0.19 0.10 0.24 4.83
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

Note: RAS = recirculating aquaculture systems; COGS = cost of goods sold. Because of rounding, not all numbers add up to the totals shown.
•• 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-

nation, allowing for even higher stocking den- than grid energy, it is significantly less costly
sities and higher survival rates. than diesel. Replacing diesel generators with
solar energy can yield an increase of up to
Environmental Impact. The environmental 12% in EBIT margins. This said, the initial in-
impact of biofloc and RAS is positive. With vestment for PV systems requires significant
biofloc, better water quality leads to less investments—up to $15,000 to $25,000 per
pollution, eutrophication, and ground water hectare, depending on the system and if bat-
contamination, permitting water recycling tery storage is required—which small farms
and reducing water intake. Lower FCR has an in remote areas may not be able to afford.5
indirect impact on feed production and the But as the costs of batteries and solar power
potential to reduce the amount of wild fish continue to decrease, this option could even-
used in feed. RAS reduce the use of new tually become more affordable for remote
intake water (except to make up for seepage farms as well as grid users.
and evaporation), but because energy con-
sumption is higher, there is the risk of higher The total EBIT margin can be as high as 25%
air pollution if diesel generators are used. when solar energy is combined with grid en-
Still, the use of RAS has the potential to ergy, representing an increase of up to 12%
reduce land use, because the increase in EBIT margin compared with today’s average.
stocking densities allows for higher output (See Exhibit 25.)
per hectare.
Assumptions for business case calculations
Solar Energy. The use of solar energy can be for solar energy for farms include the
beneficial for farms in remote areas with an following:
unstable grid connection. Currently, these
farms use diesel generators to ensure a con- •• A levelized cost of energy for solar
stant energy supply. Diesel generators are ex- options, including batteries, is estimated
pensive and a source of pollution. For a re- to be higher than for grid energy but
mote farm with an unreliable grid connec- significantly lower than for diesel genera-
tion, renewable solar energy represents a reli- tor use.
able, economic, and clean alternative.
•• The shift to solar energy is relevant and
Although on the basis of the cost per mega- applicable only for farms in remote areas
watt hour, solar energy is more expensive with high diesel generator use.
Exhibit 25 | The Use of Solar Energy Generates a 12% Increase in EBIT Margins
Solar energy
Amount per kilogram of shrimp ($) EBIT margin
25%
0.13 4.83
0.30 3.62 1.08

0.12 0.12
1.08
3.20
COGS Operating Depreciation Total cost EBIT Revenues

costs


•• A levelized cost of energy for solar is $119 •• Doubled stocking density is possible due
per megawatt hour for a ground-mounted to better water quality and improved
PV system with the tracking option. monitoring of water conditions.
•• 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.
Environmental Impact. In terms of environ- •• A 6% increase in the shrimp sales price is

mental impact, solar energy, unlike diesel- due to larger shrimp size based on the use
generated and grid-sourced energy, reduces of functional feed.
carbon emissions. However, in some cases,
construction of solar panels still affects •• For half the growth cycle, there is a 20%
land use. increase in the feed sales price, and
additional feed mill costs are incurred.
Combined Options: Growth Enhancement Func-
tional Feed, RAS, and Solar Energy. The combi- •• A 15% decrease in overall variable costs is
nation of growth enhancement functional the result of the combination of a cost
feed, RAS, and solar energy yields EBIT mar- increase that is due to the use of function-
gins as high as 36%, representing an increase al feed and a decrease in the cost per
of 61% over the base case. (See Exhibit 26.) kilogram that is due to the use of RAS and
solar energy.
The assumptions for business case calcula-
tions for the combined use of growth en- •• There is a 50% decrease in fixed costs due
hancement functional feed, RAS, and solar to RAS.
energy for farms include the following:
•• Investment costs of $150,000 per hectare
•• The assumptions are comparable to are depreciated over ten years with an
standalone solutions, as the three meth- expected yearly yield of 30,000 kilograms
ods affect different variables. per hectare.
Exhibit 26 | A Combined Solution Can Increase EBIT Margins by About 61%—a Higher Potential Benefit
Than a Standalone Solution
Further research required
Functional feed, RAS, and solar energy Functional feed, biofloc, and solar energy
($ per kilogram of shrimp) ($ per kilogram of shrimp)
Up to ~61% EBIT margin increase Up to 40% EBIT margin increase
36% 31%
0.78 0.31 0.59 0.49
0.72 0.41 3.28 0.12 0.30 3.64

0.15 0.10
1.08 1.08
0.15 0.12 4.83 4.83
2.60 3.22
costs costs

Note: RAS = recirculating aquaculture systems; COGS = cost of goods sold. Because of rounding, not all numbers add up to the totals shown.

Combined Options: Growth Enhancement Func- and processors. There are great differences in
tional Feed, Biofloc, and Solar Energy. The com- the role and activity of middlemen across the
bination of functional feed, biofloc, and solar country, but generally such commission agents
energy provides a better business case than provide the link between farmers and proces-
today’s average economics. Nevertheless, it is sors. Their operating model also differs by
difficult to compare it with the standalone region and state, but many operate on a
feed or biofloc business case, as both improve- commission basis and achieve EBIT margins of
ment levers—growth enhancement functional around 10%. Farmers choose middlemen for
feed and biofloc—affect the same production various reasons: to ensure transportation of
parameters (for example, FCR), and their com- shrimp to processors, to outsource sales risks,
bined impact has not been studied yet. and to provide financing.
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-

cilities in India, 60% of Indian shrimp is block able supply chains and are willing to pay a
frozen after basic processing (for example, premium.
headless shrimp without shells), and 40% re-
ceives more value-added processing (for ex- This opportunity for premium pricing cur-
ample, ready-to-eat cooked shrimp). Basic fro- rently exists only for niche markets: the main-
zen shrimp achieve EBIT margins of around stream market is competing on price. If proc-
8%, whereas value-added processing achieves essors drive positive change in the upstream
EBIT margins of some 20%. (See Exhibit 27.) supply chain, they will yield high benefits, in-
cluding sustained access to larger quantities
Business Case. Exhibit 28 illustrates the of high-quality shrimp, market access, and
average economics of today’s processors. good relationships with buyer markets.
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.
Exhibit 27 | Profitability of Frozen Shrimp Compared with Prepared Shrimp
Frozen shrimp Prepared shrimp
• 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.
Exhibit 28 | Today’s Average Economics of Processors

EBIT margin (%) Share of total cost (%)
~8 100 0.3 0.2 99 95 0.1 0.5 3 0.5 0.5
Amount per exported kilogram of shrimp ($)
7.61 0.62
6.99 0.02 0.02 6.96 6.67
0.01 0.04 0.19 0.03 0.03
Revenues EBIT Total Depreciation Fixed COGS Raw Electricity Labor Packaging Transportation Other costs
cost costs materials

1
To produce 1 kilogram of frozen shrimp requires at least 1.3 kilograms of raw shrimp.

Notes 4. Li Li, Claude E. Boyd, Phoebe Racine, Aaron McNevin,
1. FCR indicates how much feed is needed for the et al. “Assessment of elemental profiling for distinguish-
production of 1 kilogram of shrimp. ing geographic origin of aquacultured shrimp from
2. RAS provide farmers with a way to reuse water on India, Thailand and Vietnam,” Food Control 80 (2017):
the farm, thus dramatically reducing freshwater intake 162–69.
as well as wastewater discharge into the environment. 5. This is based on the energy use per hectare of shrimp
3. Based on energy use per hectare of shrimp produced produced per year: 30 tons of shrimp with electricity
per year: approximately 30 tons of shrimp with electricity requirements of 125 megawatt hours per year.
requirements of about 125 megawatts per year.

NOTE TO THE READER
About the Authors Acknowledgments For Further Contact

Holger Rubel is a managing direc- The authors wish to express their If you would like to discuss the
tor and senior partner in the Frank- gratitude to Sabine Miltner, themes and content of this report,
furt office of Boston Consulting Maureen Geesey, and Bernd Cordes please contact one of the authors:
Group, the global topic leader for of the Gordon and Betty Moore
green energy, and an expert on total Foundation, as well as Aaron
societal impact and sustainability. McNevin of WWF-US. Holger Rubel
Wendy Woods is a managing di- Managing Director and Senior Partner
rector and senior partner in the The authors are grateful to BCG Frankfurt
firm’s Boston office and the global Matthew Clark for marketing sup- +49 69 915020
leader of the Social Impact practice. port and to Amy Strong for writing rubel.holger@bcg.com
David Pérez is a managing director assistance. They thank Katherine Wendy Woods
and partner in BCG’s Stockholm Andrews, Elyse Friedman, Kim Managing Director and Senior Partner
office and the global leader on Friedman, Abby Garland, and BCG Boston
aquaculture topics. Shalini Shannon Nardi for editorial and +1 617 973 1200
Unnikrishnan is a managing direc- production support. woods.wendy@bcg.com
tor and partner in the firm’s Chica-
go office and an expert on total so- David Pérez
cietal impact and sustainability. Managing Director and Partner
Alexander Meyer zum Felde is an BCG Stockholm
associate director in BCG’s Ham- +46 8 402 44 00
burg office who focuses on total so- perez.david@bcg.com
cietal impact and sustainability and
Shalini Unnikrishnan
circular economy. Sophie Zielcke is
Managing Director and Partner
a project leader in the firm’s Berlin
BCG Chicago
office who works on total societal
+1 312 993 3300
impact and sustainability as well as
unnikrishnan.shalini@bcg.com
the agriculture topic. Charlotte
Lidy is a consultant in BCG’s Alexander Meyer zum Felde
New York office who works on total Associate Director
societal impact and sustainability. BCG Hamburg
Carolin Lanfer is an associate in +49 40 309960
the firm’s Cologne office who works meyer.zum.felde.alexander@bcg.com
on total societal impact and sus-
tainability. Sophie Zielcke
Project Leader
BCG Berlin
+49 30 2887 10
zielcke.sophie@bcg.com
This report is commissioned and Charlotte Lidy
funded by the Gordon and Betty Consultant
Moore Foundation. The Gordon and BCG New York
Betty Moore Foundation fosters +1 212 446 2800
path-breaking scientific discovery, lidy.charlotte@bcg.com
environmental conservation, pa-
tient care improvements and pres- Carolin Lanfer
ervation of the special character of Associate
the Bay Area. Visit Moore.org or fol- BCG Cologne
low @MooreFound. +49 221 550050
lanfer.carolin@bcg.com

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A Strategic Approach

ALEXANDER MEYER ZUM FELDE

January 2020 | Boston Consulting Group

6 MARKET FORCES ARE RESHAPING THE GLOBAL SHRIMP

8 INDIA’S SHRIMP INDUSTRY IS THRIVING BUT IS

1 2 INDIA: THE CASE FOR CHANGE

1 4 SHRIMP PRODUCERS CAN CREATE IMMEDIATE ECONOMIC

2 3 INTEGRATED PLAYERS MUST SUPPORT THE SHIFT

2 5 PRODUCERS CAN STAY AHEAD OF STRICT EXPORT

2 | A Strategic Approach to Sustainable Shrimp Production in India

3 2 INDIA’S SHRIMP INDUSTRY MUST TRANSFORM WHILE

5 1 NOTE TO THE READER

Boston Consulting Group | 3

India has a very strong competitive position. International

•• Low Shrimp Survival Rates and Increasing Disease Risk. The

•• Limited Value-Added Processing Capacity. Value-added process-

•• Strict Traceability Standards. In 2018, the US Congress extended

4 | A Strategic Approach to Sustainable Shrimp Production in India

While the Indian farmed-shrimp market continues to expand quick-

•• To increase profitability, expand resource efficiency, and reduce

•• These changes should be viewed as just the first steps toward a

To maintain their strong ties to the US market, India’s shrimp

•• Regulators and retailers, pushed by consumer demands and

•• India’s shrimp producers are not well positioned to fulfill major

•• By offering a fully traceable product, India can respond to chang-

To protect farms against outbreaks of disease and environmental

•• Closed-loop systems, such as recirculating aquaculture systems,

•• To protect shrimp ponds from environmental hazards, stabilize wa-

•• As major importers continue to institute stricter regulations on

Fast growth in recent years has masked a host of challenges that

Boston Consulting Group | 5

F armed shrimp are among the fastest-

6 | A Strategic Approach to Sustainable Shrimp Production in India

Boston Consulting Group | 7

I ndia, whose global competitive posi-

8 | A Strategic Approach to Sustainable Shrimp Production in India

0 1,000 2,000 3,000 4,000

Production volume (kilotons)

Official figures, reviewed and adjusted in response to overestimations by official authorities

Boston Consulting Group | 9

Gujarat West Bengal

Sources: Marine Products Exports Development Authority, 2016; BCG analysis.

Sources: UN Comtrade; Imarc Research; BCG analysis.

10 | A Strategic Approach to Sustainable Shrimp Production in India

Source: BCG analysis.

feed mills, hatcheries, farmers, middlemen •• Middlemen. These intermediaries, also

Boston Consulting Group | 11

I ndia’s shrimp industry is currently in a Market Demand and Traceability

12 | A Strategic Approach to Sustainable Shrimp Production in India

Limited value-added Lack of traceability Low productivity and

Source: BCG analysis.

Boston Consulting Group | 13

T hree imperatives inform the future of Feed Mills: Increase Profit

14 | A Strategic Approach to Sustainable Shrimp Production in India

Immediate short-term changes Levers for short-term changes

Supply chain collaboration through 3 Improved clean-energy use

No chemical or drug use to increase shrimp

Source: BCG analysis.

Boston Consulting Group | 15

Feed mills Hatcheries Farmers Middlemen Processors Local National

$1.09 $7.61 $8.30

Source: BCG analysis.

Exhibit 8 | The Economics of Short-Term Improvements