A Strategic Approach To Sustainable Shrimp Production in Vietnam The Case For Improved Economics and Sustainability

A Strategic Approach
to Sustainable Shrimp
Production in Vietnam
THE CASE FOR IMPROVED ECONOMICS AND
SUSTAINABILITY
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A STRATEGIC APPROACH
TO SUSTAINABLE SHRIMP
PRODUCTION IN VIETNAM
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
August 2019 | Boston Consulting Group

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

INDUSTRY
8 VIETNAM IS LOSING GROUND TO OTHER SHRIMP-FARMING

NATIONS
Growth of the Vietnamese Shrimp Industry Is Sluggish
The Government Is Pushing for Sustainability and Efficiency in
Shrimp Farming
The Shrimp Value Chain Is Complex
1 3 VIETNAM: THE CASE FOR CHANGE

Low Productivity Levels Harm Vietnam’s Ability to Compete in the
Mass Market and on Price
Diseases and Environmental Degradation Threaten Farm Survival
Lack of Traceability Poses the Risk of More Import Refusals
Reliance on Imports for Reexport Renders Processors Vulnerable
to Market Developments
1 7 IMMEDIATE CHANGES CAN DELIVER SHORT-TERM

ECONOMIC VALUE
Feed Mills: Higher Profits When the Portfolio Is Expanded to
Include Functional Feed
Hatcheries: It Is Time to End the Dependence on Imported
Broodstock
Farmers: Opportunity to Boost Production and Quality and to
Reduce Environmental Damage
Middlemen: A Major Challenge to Overcome as the Industry Shifts
Toward Sustainability
Processors: Imperative to Improve Traceability and Reduce Import
Dependency
True Change Is Achievable Only When Industry Players Work
Together
2 9 INTEGRATED AND LARGE PLAYERS MUST ACHIEVE

SIGNIFICANT CHANGE
2 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

3 0 COLLABORATION ACROSS THE VALUE CHAIN CAN
ENSURE INDUSTRY HEALTH
The Far-Reaching Business Benefits of Traceability
Traceability Is the Key to a Bright Future for Vietnam’s Farmed-
Shrimp Industry
Technology-Enabled Traceability Offers a Promising Path Forward
3 5 LONG TERM, INDOOR FARMING WILL DISRUPT THE ENTIRE

INDUSTRY
3 8 THE TIME TO ACT IS NOW
3 9 APPENDIX
Functional Feed, Water Improvement Systems, and Solar Energy
• Details on Functional Feed
• Details on Water Treatment and Improvement Systems—Biofloc
and RAS
• Details on Solar Energy
Market Dynamics and the Environmental Impact of Immediate
Change
• Feed Mills
• Hatcheries
• Farmers
• Middlemen
• Processors and Exporters
5 7 NOTE TO THE READER
Boston Consulting Group | 3

EXECUTIVE SUMMARY
T he Vietnamese shrimp industry must take immediate action to

keep up with fast-moving competitors.
•• Early in this century’s second decade, Vietnam, trailing China and

Thailand, was the third-largest shrimp producer in the world, but
nations such as India, Indonesia, and Ecuador have surpassed
Vietnam in productivity. Vietnam is now the fifth-largest producer,
with a global market share of about 11%, and its shrimp produc-
tion is expected to increase by only about 2% in 2019.
•• Vietnam has developed a robust business model around reexports.

Other countries, such as India, export raw shrimp to Vietnam for
additional processing and reexport. This model has been success-
ful for many years, but it makes product traceability difficult and
creates a dependency on other countries for imports.
•• The Vietnamese government recently developed a master plan for

expanding shrimp exports and supporting more sustainable
shrimp-farming methods. To achieve these goals, shrimp producers
need to make significant operational changes.
Vietnamese shrimp producers can make short-term changes to

improve existing systems and boost EBIT margins, but those
changes would be only stopgap measures.
•• New and improved farming methods—including functional feed

that promotes shrimp growth and health, as well as treatment
systems that improve water quality—are emerging. These methods
can boost farming efficiency and EBIT margins by up to about 40%
in the near term and can improve biosecurity on individual farms.
•• But these short-term changes don’t address the risks inherent in

the Vietnamese shrimp industry’s current business model—nor do
they help the industry move toward sustainability.

To unlock the industry’s potential, boosting productivity, increas-
ing traceability, and conserving resources are imperatives for
Vietnamese shrimp producers.
•• Import authorities in major markets, such as the US and the EU,

are instituting and enforcing tougher regulations to increase food
safety. China, too, is demanding higher standards and controlling
formal and informal trade more closely. If Vietnam fails to meet
these stricter import regulations, it risks forfeiting more than
$2 billion in revenues.
•• As global consumers and retailers grow increasingly concerned

about the environmental and social issues surrounding the shrimp
industry—including water pollution, destruction of coastal habi-
tats, and human and labor rights abuses—the push for product
traceability is intensifying.
•• Traceability will be difficult to achieve in Vietnam because the mar-

ket is highly fragmented, middlemen play an outsize role, and the
reexport model makes it difficult to achieve end-to-end transparency.
•• But full product traceability across the supply chain offers signifi-
cant long-term benefits, allowing producers to maintain full
market access, enter new niche markets, charge premium prices
for a niche segment, avoid import bans and product recalls, and
gain a competitive edge within the industry.
With closed-loop systems and indoor farming, large Vietnamese

shrimp producers could position themselves as pioneers among
industry leaders.
•• Closed-loop systems, such as recirculating aquaculture systems,

represent a significant opportunity for increasing efficiency and
output on farms while reducing disease risk and pressure on the
environment.
•• Taking one more step, indoor farming would further accelerate

these effects and facilitate traceability for players with control over
the supply chain. However, as it requires a major financial invest-
ment as well as in-depth technical knowledge, and because it can
be difficult to scale, this option is viable primarily for large players,
of which there are only a few in Vietnam.
•• If implemented on a large scale, closed-loop systems and indoor

farming present a path to strong future performance.
By moving toward traceability and indoor farming, the Vietnam-

ese shrimp industry could build a solid foundation for the future.
Competitors are moving quickly, and the time to act is now.
This report highlights the current and near-term challenges that face
the Vietnamese shrimp-farming industry and offers recommendations
for what Vietnamese shrimp producers and traders can do to create a
sustainable and traceable business model.

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

growing food products in the world. In
less than two decades, global production has
ing large volumes at low prices. India has be-
come the second-largest shrimp producer
worldwide, accounting for 14% of global
more than tripled from about 1.2 million shrimp production with 600,000 metric tons
metric tons in 2000 to about 4.2 million produced annually, while Vietnam’s produc-
metric tons in 2017. As the global population tion is stagnating at 450,000 metric tons.
and consumer affluence grow, farm-raised
shrimp is becoming an increasingly import- In 2018, the global shrimp market experi-
ant source of protein around the world. In the enced a price drop that was the result of high
US alone, the average annual consumption of inventory levels in import nations such as the
shrimp has risen to four pounds per capita. US, further squeezing profit margins and giv-
ing low-cost players an advantage.
In 2017, the global market for shrimp, includ-
ing wild-caught and farm-raised shrimp, was Vietnamese producers must find new ways to
valued at about $40 billion. The dominant stay ahead of fast-moving, low-price competi-
species of farmed shrimp, Litopenaeus tors while coping with demand dynamics.
vannamei (L. vannamei), or whiteleg shrimp,
accounted for about $14 billion. Shrimp pro- The global trend toward environmentally sus-
duction worldwide is expected to grow by tainable and socially responsible food pro-
more than 5% annually, with the greatest de- duction has raised questions about food safe-
mand coming from China and the US. ty and sustainability within the shrimp
industry. Retailers, regulators, and consumers
The overall industry is growing at a record have become much more attuned to the neg-
pace, but not all shrimp producers are thriving. ative environmental and social impact of as-
pects of unregulated shrimp production, in-
In the early years of this century, Thailand cluding the use of banned chemicals,
and Vietnam were leaders in the shrimp- environmental degradation, and human and
farming sector, but the competitive landscape labor rights violations.
has shifted. Disease outbreaks and rising la-
bor costs have threatened this once-thriving In a world with 24-hour access to social me-
industry in both countries, and competitors dia, ongoing consumer awareness campaigns,
such as India and Indonesia have seized the new regulations in importing countries, and
opportunity to dramatically increase their accelerated dissemination of information
share in the global shrimp market by produc- worldwide, retailers face intense pressure to

protect their brands from the damage that re- There are many different ways to define sus-
sults from product recalls, scandals, and sup- tainability, and retailers and consumers may
ply chains that are disrupted by new import unknowingly purchase products that fall
controls. short in fundamental areas, such as environ-
mental stewardship and social responsibility.
As more attention is focused on these issues,
retailers, regulators, and, in some cases, con- To foster real change, it is important to estab-
sumers are demanding sustainable, traceable lish a clear definition of what it means for
products in nearly all food categories. From food to be labeled sustainable. Stated simply,
2012 through 2017, the sustainable-seafood sustainable products should be produced to-
segment in major European markets grew by day in ways that do not compromise the abili-
about 12%, while market demand for other ty to produce those same products tomorrow.
seafood segments declined. Similar trends Products should use no antibiotics, minimize
have been observed in the US, though on a damage to the environment, preserve natural
smaller scale. The growth of sustainable prod- resources, and be traceable across the supply
ucts in China has been driven mainly by food chain to provide greater transparency and ac-
safety scandals and government targets. Over- countability. For sustainability to have maxi-
all, there is growing demand for responsibly mum impact, it is important for all stakehold-
produced shrimp, and a niche segment is will- ers to understand and adhere to these
ing to pay a premium for it. fundamental principles.
A 2015 survey of approximately 3,000 con- These global trends have affected many
sumers worldwide found that about 68% shrimp-producing countries and will increas-
wanted to know where their food was coming ingly shape their future. Vietnam is being
from and how it was produced. While statis- heavily influenced by these market forces and
tics show that this consumer-driven pressure related risks, but opportunities for the na-
is currently less urgent in the US and China, tion’s shrimp-farming industry are plentiful.
these countries have introduced stricter im- In this report, we analyze the current state of
port regulations and government targets. the shrimp-farming industry in Vietnam, ex-
amine future implications for the market, and
Nearly all major retail chains, supermarkets, provide recommendations for action.
and convenience stores around the world
have pledged to increase their share of sus-
tainably produced food, including shrimp and
other seafood categories, and an increasing
number of major retailers are requiring sup-
pliers to sign contracts that ensure traceabili-
ty and adherence to ecofriendly production
methods as a form of legal risk insurance.
Regulators, too, are increasing their monitor-
ing of shrimp imports for drug and chemical
residuals and are threatening to ban imports.
Any company charged with regulatory viola-
tions would risk suffering serious economic
losses and reputational damage.
As the demand for sustainability grows, there

is increasing urgency for a paradigm shift to-
ward truly responsible production and sourc-
ing. Retailers’ pledges of sustainability and
niche consumers’ increasing willingness to
purchase sustainable products represent for-
ward movement. However, the definition of
“sustainability” is not consistently precise.

VIETNAM IS LOSING
GROUND TO OTHER
SHRIMP-FARMING NATIONS
V ietnam is the fifth-largest shrimp

producer globally. In 2017, the Vietnamese
shrimp industry produced roughly 450,000
about 50% of the overall value of seafood ex-
ports.
metric tons, accounting for about 11% of global In 2017, the fishery sector contributed about
output.1 (See Exhibit 1.) With low production 4% to 5% to the Vietnamese GDP and 0.2 per-
levels, high occurrence of disease, and growing centage points to overall GDP growth of about
challenges associated with environmental 7%. Farmed-shrimp revenues from exports ac-
degradation, Vietnam has struggled to com- counted for about 2% of the total GDP.
pete with low-price competitors. In recent
years, Vietnam has been overtaken by Indone- The aquaculture sector in Vietnam employed
sia, India, and Ecuador in terms of production about 1.6 million people in 2017, mostly
volume. women. Shrimp farming provides a livelihood
and income for about 220,000 Vietnamese
farmers, mostly on small farms run by fami-
Growth of the Vietnamese Shrimp lies who depend on shrimp farming for their
Industry Is Sluggish income and suffer considerably when there
Despite the Vietnamese government’s growth are harvest losses.
targets of 7%, in the first two months of 2019,
the shrimp industry’s annual growth rate was There are two farmed-shrimp species in Viet-
only 1%.2 Overall growth levels for 2019 are nam: L. vannamei, also known as whiteleg
forecast at just about 2%, lagging well behind shrimp, and Penaeus monodon, or P. mono-
global growth levels of more than 5% and his- don (black tiger shrimp). L. vannamei ac-
toric growth levels in Vietnam. counts for about 60% of production and that
share is growing. P. monodon accounts for
According to official—likely overstated—sta- about 40% of total production, experiencing
tistics, in 2017, Vietnam’s farmed-shrimp ex- only marginal and even negative growth
port market was valued at $3.4 billion. On the rates. Export prices for the two shrimp spe-
basis of the value of the total shrimp market, cies vary significantly, but L. vannamei is gen-
this translates to an overall global market erally cheaper.4 Competitors, such as India,
share of about 9%.3 are undercutting Vietnam’s pricing of L.
vannemei by as much as 15%.
By volume, farmed shrimp is, after catfish,
the second most important aquaculture In 2017, the most important export nations
species in Vietnam, and it accounts for for Vietnam were the EU, Japan, China, and

Exhibit 1 | With 11% Market Share, Vietnam Is the World’s Fifth-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 Agriculture Organization of the United Nations (FAO), FishStat Plus (2016); Thailand
Department of Fisheries; Imarc Research; BCG analysis.
Note: The figure for India is for fiscal year 2017–2018.
the US. (See Exhibit 2.) Given that shrimp has The Government Is Pushing for
historically been part of the illicit “grey” Sustainability and Efficiency in
trade between Vietnam and China, exports to Shrimp Farming
China may be significantly higher than offi-
cial statistics indicate. Shrimp farming has taken a toll on the environ-
ment. Mangrove deforestation, which was a seri-
Overall, Vietnam maintains favorable posi- ous problem from the 1980s and into this centu-
tions with its major export countries. Viet- ry, has exposed coastlines to storms and
nam’s exports receive preferential tariffs un- tsunamis, and water pollution contributes to eu-
der the EU’s generalized system of pref- trophication and the loss of biodiversity.
erences, and the US lifted its antidumping
tariffs in 2018. The Mekong Delta is in special danger. Accord-
ing to government officials, in the years from
Vietnam’s government is also working to se- 2010 through 2015, the delta sank five to ten
cure stronger trade deals with major trade centimeters, and erosion has eliminated 300
partners.5 The Vietnamese shrimp industry hectares of land since 2005. Government offi-
must bolster its productivity and achieve cials have warned that if this trend continues,
traceability: the export markets are open and the Mekong Delta could disappear within the
receptive. next 100 years.

Exhibit 2 | Vietnamese Official Shrimp Exports to Major Buying Markets, 2017
CANADA EU
JAPAN
4.0% 22.4%
18.3%
USA SOUTH
17.1% CHINA KOREA
17.7% 9.9%
OTHER
10.6%
Sources: Vietnam Association of Seafood Exporters and Producers, 2018; BCG analysis.
The government has issued a number of de- tion primarily for large players, as the future of
crees aimed at halting environmental degra- sustainable shrimp farming in Vietnam.
dation and improving the economic perfor-
mance of the industry. They address the In 2013, the government, through the Minis-
following: try of Agriculture and Rural Development, is-
sued a master plan for the development of
•• Improving conditions of L. vannamei the shrimp industry. With the help of various
shrimp hatcheries and farming, including government-led incentives, such as credit ac-
technical standards for breeding, facilities, cess and technology grants to spur invest-
and farming methods ment, by 2020, the shrimp-farming industry
should be established as a key economic seg-
•• Implementing certification standards, such ment. The government has set out ambitious
as VietGAP and better management targets: to produce 1.3 million metric tons of
practices farmed shrimp and to achieve about $12 bil-
lion in export revenues by 2030. Industry ex-
•• Improving technical expertise and train- perts, however, judge these growth targets to
ing for small-scale farmers be somewhat unrealistic, especially the multi-
fold increase in export revenues: it assumes a
•• Fostering collaboration along different steep increase in shrimp prices at a time
supply chain segments, for example, when global shrimp prices are declining and
between hatcheries and farms the Vietnamese shrimp industry is stagnating.
•• Reducing land conversion and protecting The national master plan sets out aggressive
forests growth levels and aims to promote shrimp
farming, but without clear economic incen-
•• Phasing out the use of antibiotics and tives and responsibilities, the successful en-
chemicals forcement of regulations related to more sus-
tainable and responsible farming will be
Officials view certified ecofarming and indoor limited. Players across the supply chain must
superintensive shrimp farming, which is an op- take action.

The Shrimp Value Chain generally, the processing and the export-
Is Complex ing are handled by one company. These
Vietnam’s farmed-shrimp industry consists of are typically medium- to large-scale
several interrelated value chain steps: feed companies, formerly state run and now
mills, hatcheries, farmers, middlemen, proces- undergoing privatization. Many processors
sors, exporters, and retailers. (See Exhibit 3.) also import unprocessed shrimp from
other countries, especially India and
This report focuses on the first five steps of Ecuador, for reexport to China and other
the value chain: importing nations.
•• Feed Mills. Vietnam’s feed mill market is Across the value chain, fully integrated play-
highly consolidated: four players account ers—companies that own both upstream sup-
for about 85% of market share. Generally, pliers and downstream buyers—are still rela-
feed is distributed by shops or middlemen, tively rare: Minh Phu Seafood, which
not directly by feed mills. operates on a global scale, is the largest inte-
grated player in Vietnam and sells both L.
•• Hatcheries. The hatchery business is vannamei and P. monodon. (See the sidebar
fragmented. One large player, Viet Uc “A Comparison of Two Species: L. Vannamei
Seafood, controls about 25% of the and P. Monodon.”)
market, along with a limited number of
other large-scale and international There are partially integrated players. These
players. Approximately 2,500 small are companies with some upstream or down-
hatcheries claim about 50% of the market. stream expertise that are beginning to diver-
sify but are not yet fully integrated across the
•• Farmers. The farming industry is largely value chain. Processors such as Quoc Viet
fragmented. Commercial players account Foods, Fimex VN, and Vietnam Clean Sea-
for about 35% of production output, food, for example, have integrated vertically
mainly for L. vannamei, but most of the into farming or hatcheries in order to func-
farmers operate on a small scale with tion more independently.
limited knowledge of efficient farm
management and new technologies. Several companies—such as Stapimex and
Moreover, most farmers have only mini- Camimex Group—specialize in combined
mal access to capital and financing. processing and exporting. “Pure” players—
such as Grobest Industrial Viêt Nam, Cargill
•• Middlemen. Middlemen handle about Vietnam, and Uni-President Enterprises—ex-
80% of all farmed shrimp in Vietnam, and ist mainly in the feed mill sector or are small,
many play a role in helping farmers family-owned businesses, particularly in
financially by, for example, offering credit. farms and hatcheries.
•• Processors. About 70% of the shrimp

processed in Vietnam is exported, and
Exhibit 3 | Vietnam’s Farmed-Shrimp Supply Chain
Feed mills Hatcheries Farmers Middlemen Processors Local markets National retailers
Exporters International
retailers
Source: BCG analysis.

Note: This report focuses on feed mills, hatcheries, farmers, middlemen, and processors.

A COMPARISON OF TWO SPECIES: L. VANNAMEI AND
P. MONODON
Litopenaeus vannamei, also known as farmed intensively and has a reputation for
whiteleg shrimp, makes up 60% of Viet- being more disease resistant, is typically
nam’s shrimp market. This species was produced by large companies. P. monodon,
introduced into Vietnam in the early years on the other hand, is produced mostly in
of this century and has fueled the growth of extensive or semi-intensive farms that
the Vietnamese shrimp industry since then. require large amounts of land. (See the
exhibit below.)
Penaeus monodon, a species native to
Vietnam, accounts for about 40% of its This species is typically produced by
shrimp market. Although Vietnam is the small-scale farmers in the Mekong Delta.
global leader in P. monodon production, P. monodon farmers achieve higher profit
this market has grown by less than 1% per margins—47% compared with 21% for L.
year, and recently that rate has declined. vannamei. The output is, however, much
lower than L. vannamei output—200 to 550
L. vannamei, which has been the popular kilograms per hectare compared with 7 to
choice for farmers because it can be 15 metric tons per hectare.
Vietnam’s Shrimp Production and Production Area, 2013–2017

Kilotons per hectare
600
CAGR,
427,000
28% 2013–2017
400 L. vannamei
357,840 340,571 357,600
255,670
200 241,590 249,207 251,700 256,400 CAGR,
160,130 0.1% 2013–2017
P. monodon
0
2013 2014 2015 2016 2017
L. vannamei yield (metric tons) L. vannamei area
P. monodon yield (metric tons) P. monodon area
Sources: Vietnam Association of Seafood Exporters and Producers, 2018; BCG analysis.
Note: L. vannamei = Litopenaeus vannamei; P. monodon = Penaeus monodon. The official production numbers
are categorically overstated, but the split of species is indicative for the market.

VIETNAM
THE CASE FOR CHANGE
T he Vietnamese shrimp industry is

facing four key vulnerabilities that have
the potential to further undermine its po-
foreign feed market. Additionally, there is still
heavy reliance on imported broodstock, fur-
ther increasing costs and dependency on for-
sition in the global market: low productivity eign markets and making it difficult to com-
levels, disease and environmental degrada- pete on volume and price.
tion, lack of traceability, and overreliance on
reexports. (See Exhibit 4.) These farm-level problems ultimately cascade
along the entire supply chain. Competitors
such as Indonesia and India have surpassed
Low Productivity Levels Harm Vietnam in total shrimp production, with pre-
Vietnam’s Ability to Compete in dicted growth rates of about 8% and 11% per
the Mass Market and on Price year, respectively, compared with Vietnam’s
Although the Vietnamese shrimp industry is current growth rate of about 2%.
generally profitable with positive EBIT mar-
gins across all levels of the value chain, pro- At current growth levels, Indonesia and India
ductivity on shrimp farms is low relative to are on track to achieve, by 2025, output of
production levels in competing countries. some 900,000 metric tons and about 1.4 mil-
lion metric tons, respectively. If growth contin-
There are about 220,000 shrimp farms in ues at recent rates, Vietnam will produce about
Vietnam, and 65% of them are small family 630,000 metric tons by 2025, reducing its global
farms. The implied average farming output market share to less than 10% and further di-
per hectare in Vietnam is only about 1.3 met- minishing its role in the global marketplace.7
ric tons per hectare per year; competing na-
tions achieve average implied output levels of If Vietnam were to match the growth of its
up to 6.6 metric tons per hectare—approxi- competitors by increasing efficiency at the
mately five times Vietnam’s productivity.6 farm level, it could produce up to 65% more
shrimp by 2025, adding up to about $300 mil-
Many small-scale farmers lack the expertise lion in value each year, based on export value.
and financial means that would allow them
to implement more sophisticated farming By increasing its efficiency on farms, the shrimp
technologies and farm management tech- industry in Vietnam has the potential to in-
niques. Instead, many of them are challenged crease yields, spread fixed costs, and reduce in-
by high production costs, as well as high costs put costs, leading to higher EBIT margins and
for feed due to the power of the concentrated an enhanced ability to compete on price.

Exhibit 4 | The Case for Change Is Driven by Four Factors in Vietnam
Low productivity High risk of disease and Regulations of import Reliance on raw-material
environmental degradation authorities, retail pressure, imports for processing
and consumer demand
Diseases and Environmental Furthermore, shrimp farming has caused

Degradation Threaten Farm widespread environmental damage. In the
Survival Mekong Delta, which accounts for about
Poor farm management and excessive use of 80% of Vietnam’s overall farming output,
natural resources has not only reduced produc- nearly all the land has been cleared for
tivity in Vietnamese shrimp supply chains but shrimp farming. This practice has exposed
has also exposed farms to high disease risks the coastline to erosion and made shrimp
and harvest losses owing to environmental di- farms more vulnerable to storms, typhoons,
sasters such as droughts, floods, and storms. and strong winds. In addition, groundwater
pumped to fill ponds causes the land to sub-
The major shrimp farming areas in the Me- side and allows brackish water to encroach
kong Delta, including the Ca Mau, Bac Lieu, on the delta and damage other crops, such as
Soc Trang, and Tien Giang provinces, have rice. As mentioned earlier, a confluence of
been affected by disease outbreaks in recent factors puts the Mekong Delta at risk of van-
years. These regions were less affected by the ishing altogether.
2012–2013 early mortality syndrome (EMS)
outbreak than was Thailand, which, for exam- Heavy use of antibiotics also harms the envi-
ple, lost about 50% in production volume. ronment, limits biodiversity, and endangers
However, they have endured several disease the health of shrimp and consumers alike. Af-
outbreaks. Depending on the exact location ter every harvest, untreated wastewater is
and year, these provinces have lost from 20% discharged into the waterways. The World
to 60% of their harvest, owing primarily to Bank estimates that about 3.3 billion cubic
poor farm management and the impact of meters of wastewater from shrimp farming is
environmental disasters. leaked into rivers and waterways each year.
Because this contaminated water is pumped
Disease outbreaks undermine Vietnam’s abil- up again and used by other farmers, chemi-
ity to compete. If a disease outbreak in the cals are added to remove organic matter from
Mekong Delta were to cut harvest rates by the water, creating more pollution and fur-
50%, affecting as much as 60% of the region’s ther increasing disease risk.
farms, that would translate into harvest losses
of about 70,000 to 220,000 metric tons, ac- Collective action is required to break the
counting for about 15% to 50% of overall an- downward spiral of disease outbreaks, low
nual industry production. Major losses like productivity, and environmental degradation.
these can bankrupt small farmers, many of It is crucial to educate small-scale farmers
whom are heavily in debt for feed and antibi- about practical changes that they can and
otics. Additionally, large players do not have must make and to equip them with the
the farm production capacity to serve de- means for improving farming methods while
mand by themselves and, hence, rely on the reducing their environmental footprint. By
additional production of small-scale farmers doing so, there is the potential to add about
who are protected but not sufficiently sup- $0.5 billion to $1.5 billion in value (based on
ported by the government. exports) to the entire industry.

Lack of Traceability Poses the Furthermore, shrimp is often soaked in sugar
Risk of More Import Refusals water to increase the weight and achieve
In recent years, import authorities in major higher sales prices. This is legal, but at times,
shrimp-importing nations have increased illegal substances, such as carboxymethyl
their requirements for traceable products and cellulose powder and agar, are injected into
started scrutinizing imports for drug contami- the shrimp to increase the weight.9 The local
nation. The US Seafood Import Monitoring authorities and the Vietnamese police contin-
Program, for example, requires product trace- ue to investigate and prosecute such illegal
ability for farmed shrimp, and the EU re- activities, but the players are sophisticated at
quires preapproval of export companies in hiding these practices.
their trade databases.
The Vietnamese shrimp industry generates
Vietnam’s shrimp industry has already experi- $2.5 billion in value from exports to the US,
enced a large number of entry line refusals to the EU, Japan, and South Korea, but the lack
the US, the EU, and Japan owing to drug and of traceability puts much of this value at risk.
chemical residuals. From 2012 through 2017, Just as Vietnam was able to increase its mar-
the US refused about 155 entry lines of Viet- ket share when India faced drug contamina-
namese shrimp, the EU refused 48, and Japan tion issues in the past, competitors will be
refused 169, accounting for about 30% of all re- able to absorb Vietnam’s market share if its
jected entry lines for shrimp.8 (See Exhibit 5.) shrimp exports are refused. Despite Viet-
nam’s favorable relationship with major
Although the industry standard is just 30%, trade partners, the reputational damage from
Japan currently examines all Vietnamese drug-contaminated Vietnamese shrimp has
shrimp imports. South Korea issued an explic- already taken effect. In 2018, Vietnam saw its
it warning in 2018 after discovering that exports to major markets decreasing, result-
shrimp imports from Vietnam were contami- ing in an overall annual decline in export val-
nated with nitrofuran and other antibiotics. ue of about 8%.
High use of chemicals and antibiotics in Viet- Vietnam’s government and large proces-
namese shrimp farming remains a common sors recognize the need to mitigate the risk
practice: many small farms continue to use and are increasing inspections. They are
drugs and chemicals to control diseases and implementing traceability tools such as a
treat polluted water. blockchain-enabled traceability platform
from Te-Food, which is supposed to go live in
Middlemen add to the complexity of the Viet- Vietnam in 2019. However, this initiative in-
namese shrimp supply chain by mixing batch- cludes just a limited number of farms and
es of shrimp from different farms, in some does not involve middlemen. To ensure sus-
cases, combining healthy, clean, sustainably tained access to crucial export markets, ac-
farmed shrimp with contaminated shrimp. tion is needed at all levels of the value chain.
Exhibit 5 | Significant Amounts of Vietnamese Shrimp Have Been Refused Because of Antibiotic Use
Shrimp antibiotic and antimicrobial refusals
(Number of occurrences, 2012–2017)
US EU Japan
600 466 60 48 49 200 169

400 40
87 155 167 100 40
200 53 20 5 1 1 9
0 0 0
All China Vietnam India Malaysia China Vietnam India Indonesia Thailand China India Vietnam
others
Sources: Southern Shrimp Alliance, 2018; BCG analysis.

There is a clear need and opportunity for If Vietnam should suffer a supply shortage,
Vietnamese shrimp producers to increase India could fill the gap, threatening Viet-
traceability and provide environmentally nam’s position as a trusted and reliable sup-
friendly and clean products to ensure sus- plier.
tained market access and tap into a highly lu-
crative future market. Some players in Viet- Such a scenario would have dramatic impact
nam are recognizing the need as well as the on the Vietnamese shrimp industry, reducing
market for responsibly and efficiently pro- the revenues of shrimp processors and export-
duced shrimp, and they are seizing the oppor- ers and threatening the livelihoods of thou-
tunity. Viet Uc, for example, has established sands of people employed in the segment.
full-containment indoor shrimp farms with
integrated operations in Vietnam. Improvements on farms could greatly benefit
Vietnamese processing companies. If Viet-
nam’s farmers were to increase their yield,
Reliance on Imports for Reexport they could offer more input to processing
Renders Processors Vulnerable to companies at cheaper prices than current im-
ports.
Market Developments
The Vietnamese processing industry current- Even including the added cost of middlemen,
ly imports from low-cost countries such as In- farm gate prices for L. vannamei stand at
dia and Ecuador, processes the imported about $4.50 per kilogram in Vietnam—sig-
shrimp, and then reexports it to major import nificantly less than import prices from Ecua-
markets. dor (about $6.60) and India (about $7.10).
The lower cost of the raw materials would
The reexporting business model has been in enable processors to achieve higher margins
place since 2009, and it has proved successful or compete better on price in the overall
thus far. It means, however, that the Vietnam- market.
ese shrimp industry is heavily dependent on
the production and export prices of other It is important to acknowledge the presence
shrimp-producing nations. of Vietnam’s grey exports to China. Experts
estimate that up to about 270,000 metric tons
From January through September 2017, Viet- of shrimp are exported to China each year
nam imported about 150,000 metric tons of through the port of Hai Phong. But these ille-
shrimp from Ecuador and about 110,000 met- gal exports to China are declining as well, fur-
ric tons from India—together accounting for ther destabilizing Vietnam’s position.
more than 50% of Vietnam’s total annual
processing output. This approach increases If Vietnam builds up its domestic production,
input costs for processors and decreases ends its reliance on outsourced shrimp, and
transparency within the supply chain, mak- rebrands itself as a price-competitive-but-
ing it difficult to implement traceability. high-quality exporter, it will have a niche
opportunity that few global players can
India, in particular, is beginning to shift its offer.
processing capabilities toward more value-
added, sophisticated production, and the The Vietnamese shrimp industry is losing
growth of the segment is estimated at about ground in the global marketplace. Although
11% annually. If India were to increase its some individual players and the government
processing capabilities by adding some 5,000 recognize the need for change, a collective ef-
metric tons to its value-added production, fort is required to push the industry toward
and if these 5,000 metric tons were deducted sustained economic success.
directly from the volume that Vietnam cur-
rently imports from India, Vietnam would Only then can the risks be turned into oppor-
lose about 2% of its overall processed ex- tunities and the Vietnamese shrimp industry
ports—a value estimated to be as much as as a whole can continue to compete success-
about $60 million. fully in the international market.

IMMEDIATE CHANGES CAN
DELIVER SHORT-TERM
ECONOMIC VALUE
V ietnam’s farmed-shrimp industry

has three paths into the future: pursue
immediate, short-term changes that will
ers in Vietnam are still struggling with low
survival rates and low levels of productivity.
increase resource efficiency and improve Feed mills have an important opportunity to
profit margins; collaborate to achieve product expand their portfolio by using functional
traceability; and make a bold shift to inten- feed. Functional feed is basic feed that has
sive, closed-containment facilities to reduce been enhanced with additives, such as pro-
contamination, boost production, and ensure teins, vitamins, or probiotics (but never antibi-
traceability. (See Exhibit 6.) otics), to achieve a specific outcome. It is not
uncommon for feed mills to improve basic
In the long-term, a fully traceable supply feed with additives, but functional feed is
chain and closed-containment intensification slightly different from improved basic feed: it
will yield the highest business, environmental, is used in specific circumstances to achieve a
and social impact, but certain other actions specific outcome, usually includes more addi-
that can be taken immediately—especially by tives, and is therefore defined as its own feed
feed mills and farmers—can improve perfor- category.
mance and create positive change. These im-
provements are focused on three areas: feed, The use of functional feed represents a signif-
water quality, and energy. icant opportunity for feed mills and farmers
alike. Feed mills can sell premium feed at pre-
Exhibits 7 and 8 illustrate the ways that mium prices and benefit from the innovation
each player in Vietnam’s shrimp value in their markets, and farmers can significant-
chain can benefit from these short-term ly increase production and shrimp quality.
improvements. (See the Appendix for busi-
ness case details on each player in the value Two types of functional feed have high
chain.) potential.
Growth Enhancement Functional Feed. This

Feed Mills: Higher Profits When is used to increase shrimp growth rates and
the Portfolio Is Expanded to allow farmers to sell larger shrimp at a
Include Functional Feed potentially higher price or to accelerate
The feed market in Vietnam is dominated by growth cycles and, therefore, farm through-
international players. Basic feed accounts for put. It offers a positive business case for feed
more than 95% of the feed supply, but farm- mills. Although its production cost per

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

Lowest
Immediate short-term change

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 2 Improved water treatment

Implement multiple short-term changes Reduce freshwater use and pollution while
at once improving efficiencies
Impact
3 Improved, clean energy use

Supply chain collaboration through Reduce carbon footprint and improve access to
traceability green, reliable, cheaper energy sources
Fully traceable and transparent supply
chains Improved health
No chemicals or drug use to increase shrimp
health and prevent entry line of shrimp
Sustainable intensification
Highest
Significant industry shift to super Improved social issues

intensive indoor shrimp farming Social equality and adherence to international
labor standards

Note: Our focus is on levers 1, 2, and 3.
kilogram of product sold is 6% higher, feed that are able to tap into this value will ulti-
mills can charge price premiums of up to 20%, mately benefit from a diversified feed portfo-
leading to an EBIT margin of as much as lio, added revenues, and higher average profit
26%—an increase of up to about 58% over margins. It is, therefore, important for feed
today’s average EBIT margins. At the same mills to market functional feed, educate farm-
time, farmers using functional feed can drasti- ers on its application and benefits, and high-
cally reduce their feed conversion ratio (FCR), light how these benefits outweigh the upfront
which reduces feed mill revenues based on costs. Even so, many farmers in Vietnam will
farm sales per kilogram of shrimp produced. not be able to afford the feed.
However, as functional feed is used only as a
supplement to basic feed, it offers the opportu- Functional feed reduces FCR, so less feed is
nity for feed mills to expand their product port- required. Reduced feed demand ideally trans-
folios: they can offer a higher-margin premium lates into reduced land required for feed pro-
product without endangering overall sales. duction. Switiching to functional feed also
benefits the environment by decreasing land
Health Enhancement Functional Feed. This use by up to 15% per kilogram of shrimp, im-
type of feed can enhance shrimp health and proving water quality by reducing feed waste,
disease resistance, and it also offers several decreasing the use of antibiotics, and requir-
benefits for feed mills, not the least of which ing less fish meal and fish oil.10 However,
is that feed mills can, in an optimal case, these benefits manifest only if functional
charge premiums of up to 50%, generating feed is widely used, and the positive environ-
profit margins of up to about 36%, more than mental impact depends on what is substitut-
double today’s average. ed for fish meal. (See the Appendix for a dis-
cussion of growth enhancement and health
A total industry shift to functional feed is un- enhancement functional feed.)
likely given its high cost and the fact that it is
used only when global shrimp prices are high. Feed mills are responsible also for consider-
However, an increase in market share is high- ing the production of input ingredients for
ly likely and could boost total feed market feed. Worldwide, demand for fish meal in
growth due to faster growth rates and better shrimp feed has led to the depletion of some
survival rates. A 1% increase in the total feed wild-capture fisheries and, in some cases, se-
market volume, currently estimated at rious human and labor rights abuses on fish-
550,000 metric tons per year, would generate ing vessels. Similarly, the cultivation of plant
up to $7 million of value per year. Feed mills ingredients such as soy and corn for shrimp

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

market retailers
Exporters International
retailers
Costs $0.92 $2,774 $3.30 $4.35 $8.83 per kilogram exported product
per kilogram per million PL per kilogram per kilogram
of feed 80 pieces Markups:
per kilogram 20% to 30%
for shrimp
Price $1.10 $3,814 $4.17 $4.48 $9.70 per kilogram exported product sold in
per kilogram per million PL per kilogram per kilogram
of feed 80 pieces
supermarkets
per kilogram
EBIT
margins ~15 25 to 30 ~20 ~0.5 to 3 ~10
%
For cooked (value-added) shrimp

Note: PL= post-larvae shrimp; L. vannamei = Litopenaeus vannamei; P. monodon = Penaeus monodon. Calculations for L. vannamei intensive
production are based on the average price for 80 pieces per kilogram; costs are the average costs per value chain step; margins include
considerations such as survival rates; because of rounding, not all numbers add up to the totals shown.
Exhibit 8 | The Economics of Short-Term Improvements
Status quo Feed Water Combination

Growth enhancement Growth enhancement
with biofloc
EBIT margin: EBIT margin: Increase: None EBIT margin: Increase:
Feed
~15% Up to 26% +58% In the sale of functional
Up to 26% +58%
mill level feed, overall feed mill
Health enhancement EBIT margins depend Potential revenue loss
on the feed portfolio through improved farm
EBIT margin: Increase:
of individual farms efficiency with similar
Up to 36% +117% increase in farming output
Growth enhancement Biofloc Growth enhancement

with biofloc
EBIT margin: EBIT margin: Increase: EBIT margin: Increase:
Positive, but further studies
~20% Up to 28% +36% Up to 29% +40% are required
Farm
level Health Growth enhancement
enhancement RAS with RAS
EBIT margin of 20% even EBIT margin: Increase: EBIT margin: Increase:
during disease outbreaks More
versus 8% with basic feed Up to 27% +29% than 34% +61%
Note: EBIT margin is based on feed per kilogram sold. RAS = recirculating aquaculture systems. Rounding errors are possible.
feed creates a burden on land use. The use of Some feed mills and raw-material suppliers
natural resources for making feed—so-called are experimenting with fish meal and soy-
embodied resources—represents a hidden, bean meal replacements, using, for example,
but vitally important, depletion of resources alternative and less resource-intensive ingre-
and thus requires careful consideration. dients. Viet Uc is already using feed that re-

places fish meal with marine microbes, imi- breeding techniques can improve shrimp sur-
tating what shrimp would eat in their natural vival, reduce the risk of disease, and enable
habitat. Reportedly, these microbes enhance hatcheries to focus on breeding PL that grow
growth. At the same time, some companies faster and larger.
are experimenting with black soldier fly lar-
vae, an efficient bioconvertor and a valuable Recent studies have shown that specific
feeding resource. Once applied at large scale, pathogen-free lines of selected stocks, main-
these innovations could have far-reaching im- tained under the proper conditions, even bear
pact beyond the shrimp supply chain. the potential to reestablish farm populations
in the event of stock losses caused by disease
The industry is using such feed-producing in- outbreaks. It is not uncommon for farmers to
novations as extrusion (cooking under high return poor-quality PL to hatcheries and de-
temperature and processing under high pres- mand replacement PL to compensate for pro-
sure) and pelleting (no cooking and process- duction losses. In providing high-quality,
ing under much less pressure) as well. Both of healthy PL, hatcheries significantly reduce
these approaches have the potential to im- production costs and increase output on
prove the digestibility of feed ingredients. farms, and reduce their own costs.
Our analysis did not reveal many opportuni-

Hatcheries: It Is Time to End ties for hatcheries to implement short-term
the Dependence on Imported changes in feeding techniques or water treat-
ment systems, but hatcheries that offer
Broodstock high-quality PL can charge premium prices for
Post-larvae shrimp (PL) produced by hatcher- their products. Viet Uc, for example, is the
ies are critically important for farmers. first company in Vietnam to cultivate
High-quality PL production can improve high-quality broodstock, eliminating its de-
grow-out farm survival rates, as well as the pendence on broodstock imports. Viet Uc also
quality and health of shrimp, ultimately ben- uses high-quality PL in its indoor systems.
efiting the entire industry. Hence, hatcheries
represent a crucial enabler. To help minimize disease risk and allow
standalone players to more effectively com-
There are about 2,500 hatcheries in Vietnam. pete against the significant market power of
The hatchery industry in Vietnam is widely integrated players, individual hatcheries
fragmented with many small-scale backyard should focus on improving quality by domesti-
hatcheries and only a few large commercial cating broodstock and implementing selective
hatcheries. The largest, owned by Viet Uc, breeding practices. Because developing better
produces about 15 billion PL per year using PL involves genetic testing and investments in
intensive indoor-production methods. R&D, this can be difficult for smaller hatcher-
ies to implement. Therefore, institutions and
The hatchery survival rate in Vietnam is only players with the necessary means should sup-
35% to 40%—lower than survival rates in port small hatcheries in these efforts. (See the
competing shrimp-farming nations such as Appendix for a more detailed discussion of
Ecuador, where the survival rate is about the business case for hatcheries.)
60%. The Vietnamese government is making
an effort to improve these numbers by track-
ing broodstock imports and imposing strict Farmers: Opportunity to Boost
rules on how often broodstock can be used Production and Quality and to
and recycled for the production of shrimp.
Reduce Environmental Damage
The large majority of hatcheries still rely on Too many shrimp producers in Vietnam work
imported broodstock. The local supply cannot inefficiently and fail to maximize their poten-
satisfy demand, so hatcheries import 200,000 tial. They lose large portions of their harvest
to 250,000 L. vannamei breeding shrimp per owing to poor farming management and a
year. Domestic broodstock and selective lack of technical expertise.

We have identified multiple business oppor- tional feed could help them achieve an EBIT
tunities for implementing immediate change margin of up to 20% because the feed dra-
at individual farms by slightly altering exist- matically increases survival rates during dis-
ing production systems. Four opportunities, in ease outbreaks. This compares quite favor-
particular, enable farmers to improve produc- ably with the 8% EBIT margin when only
tion efficiencies, reduce resource use, and in- basic feed is used. This scenario assumes that
crease profit margins. That said, the cumula- farmers can prevent a disease outbreak that
tive effect of these four key opportunities would affect up to 20% of their annual pro-
remains small compared with the more holis- duction, and it offers a significant opportuni-
tic levers of transitioning to traceability and ty for farmers to achieve reliable output and
indoor farming. break out of the boom-and-bust cycle. This is
particularly valuable for small-scale Vietnam-
Key Opportunity 1: Under the right circum- ese farmers who may find themselves forced
stances, functional feed boosts profitability. to take out loans to finance farm operations
Farmers can use different types of functional and who run the risk of bankruptcy when
feed under specific circumstances to reduce faced with major harvest losses.
FCR and improve shrimp survival rates.
When applied in a specialized way to address A positive business case can be made for this
specific challenges, growth enhancement and approach, but each farmer must evaluate the
health enhancement functional feed can feasibility and economic viability of purchas-
benefit Vietnamese shrimp farms. ing expensive health enhancement functional
feed against the potential losses from disease
Growth enhancement functional feed has the outbreaks.
potential to accelerate shrimp growth rates or
to produce larger shrimp, and farmers can ben- Still, the analysis suggests that there is a clear
efit from prices that are about 6% higher for value proposition for farmers in Vietnam to
larger shrimp. When global shrimp prices rise, shift to growth enhancement and health en-
farmers might want to take advantage of the hancement functional feed when specific cir-
opportunity: it can be beneficial to use growth cumstances call for it. It represents a relatively
enhancement feed during the second half of easy win since no investment or technological
the growth cycle to boost growth rates and re- upgrades are required. That said, because most
duce FCR. When growth enhancement func- Vietnamese farms operate on a small scale,
tional feed is managed properly, FCR can be re- farmers may not be able to afford the upfront
duced by a total of 15%, reflecting a 30% reduc- costs. And those who can afford such an invest-
tion during the second half of the growth cycle. ment may need to be trained to know when to
use functional feed and how to manage it opti-
Using growth enhancement feed, farmers can mally. There are also some environmental ben-
achieve EBIT margins of up to about 28% per efits, most of which are the results of better
kilogram of shrimp sold—a relative increase farm management, which is a prerequisite for
of more than about 36% in EBIT margins. If the success of using this feed. (See the Appen-
global shrimp prices stay high, fast-growing dix for a more detailed discussion of growth
shrimp could allow for an additional produc- enhancement and health enhancement func-
tion cycle, significantly increasing farming tional feed.)
output. These gains will offset the additional
upfront costs of purchasing functional feed, Key Opportunity 2a: Better water treatment
which is significantly more expensive than can improve water use and quality while
basic feed. boosting EBIT margins. Intensive outdoor
shrimp production systems require consider-
Health enhancement functional feed, which able amounts of fresh water and are major
can cost up to 50% more than basic feed, ap- sources of pollution. In these throughput
pears quite expensive when the consideration systems, once a growth cycle is complete,
is a single use per kilogram of shrimp pro- discharged effluents—along with the chemi-
duced. However, should farmers anticipate cals, fertilizers, and antibiotics used to treat
disease outbreaks, health enhancement func- the water—can leak into the environment.

More farms are using closed-loop treatment ment—and access to the necessary training
systems to improve water quality and reduce and knowledge for creating equilibrium in
water discharge. These applications vary each pond, this is a promising option. When
widely in their mode of action, ease of use, used properly, it can reduce water pollution
and feasibility. and prevent eutrophication of natural ecosys-
tems by reusing water. In some cases, howev-
Some farming technologies use alternatives er, its incorrect application can have an ad-
to chemicals and fertilizers to enhance water verse effect on the heterotrophic pond
quality, as well as filter systems that aim to environment, creating excessive waste mate-
recycle water and reduce wastewater leakage rial in the water and possibly reducing
into the environment. shrimp survival rates.
Two of these systems are biofloc and recircu- RAS are sophisticated filtering systems that
lating aquaculture systems (RAS). (See the treat water so it can be reused in the same lo-
Appendix for additional information on wa- cation.11 Such closed-loop systems offer two
ter treatment systems.) significant benefits: no unfiltered wastewater
is discharged into the local environment, and
Biofloc allows shrimp farmers to improve wa- the demand for “new” water is reduced. Ide-
ter quality and simultaneously provide an ad- ally, no water exchange is required. Moreover,
ditional feed source. Carbohydrates are add- as these systems reduce the need for such
ed to pond water to aggregate waste products production inputs as chemicals and fertiliz-
that are eaten by shrimp. ers, RAS improve farm and resource efficien-
cy and boost productivity, leading to higher
There is significant variability in the business EBIT margins for farmers.
benefits for farmers because implementing
and scaling biofloc can be tricky. In the best- The systems range from basic biofilters to
case scenario, biofloc can yield EBIT margins more sophisticated water recirculating sys-
of up to 29%, increasing today’s average by as tems. They vary in effectiveness, investment
much as 40%. If not implemented diligently, and operating costs, and environmental im-
the effect can be EBIT margins as low as 24%. pact. The implementation of such systems is
urgently needed, especially in regions such as
The change in EBIT margins is a result of de- the Mekong Delta, where ground water use
creased costs for feed and chemicals, for ex- and pollution are endangering the environ-
ample, combined with the potential to grow ment. As noted, the Mekong Delta is current-
shrimp faster or larger during a given period ly at risk of disappearing if current processes
of time, thus increasing revenues. This is due continue.
to biofloc’s higher protein content.
Effective RAS implementation usually re-
This approach, which is relatively inexpen- quires a high financial investment owing to
sive and easy to implement and doesn’t re- the need to install new facilities and train
quire significant changes in current farming workers in this advanced farming technique,
systems, is suitable for small-scale farmers but it also promotes higher output per hect-
with limited financial means. However, be- are since it offers the opportunity to intensify
cause the application of biofloc must be mon- production.
itored carefully and requires advanced farm-
ing expertise and equipment, it’s not an For producers that can afford the investment,
option for all small-scale farmers. sophisticated RAS—some at a cost of
$150,000 per hectare—can boost EBIT mar-
When using biofloc, most large companies gins by as much as 29% per kilogram of
have an advantage over smaller farms in shrimp produced. This increase in EBIT mar-
terms of the required knowledge and exper- gins assumes that farmers can double stock-
tise. For farmers with the equipment that is ing densities to counterbalance the capital in-
required in large-scale production systems— vestment and the higher electricity costs due
such as aerators and monitoring equip- to the use of aerators. Hence, the implemen-

tation of RAS not only leads to higher EBIT changed, risk of disease is still high, and the
margins per kilogram of shrimp produced but structural problems of the Vietnamese shrimp
also to higher overall output and revenues. supply chain are not addressed in this scenario.
Because these systems are expensive and re- Another option is to combine growth en-
quire special knowledge to implement, RAS hancement functional feed with biofloc. The
application is limited to supply chain actors combined impact of these two solutions af-
with access to sufficient funding and exper- fect the same production parameters: the
tise. There are simple, low-cost filter systems feed conversion and growth rate. Still, even
available as an alternative to RAS, but they though its efficacy can be hard to predict, it is
tend to be less effective. To reduce the invest- in the end likely to yield results that are supe-
ment costs per farmer, RAS can be used in rior to standalone options.
farm collectives to spread costs among adja-
cent farms. While these combined approaches have prom-
ising potential, they also require farming ex-
The use of RAS likely reduces freshwater pertise and changes in production and farm
needs, but it also causes increases in energy management. They are, therefore, not likely to
and feed use due to increased stocking densi- be widely adopted unless farmers receive
ties. Using renewable energy and functional guidance from key partners across the value
feed with a minimal environmental footprint chain, including representatives from feed
could potentially mitigate this negative effect. mills and processors, as well as technology
providers for sophisticated systems such as
Beyond these benefits, the application of aer- RAS. Without knowledge sharing across the
ators combined with higher stocking densities industry, these techniques will be very rarely
represents a first step toward sustainable in- used. Additionally, funding these changes will
tensification of shrimp farming, which is the challenge small-scale farmers. (See the Appen-
direction the industry will likely take in the dix for a detailed discussion of combining
near future. (See the Appendix for additional functional feed and water treatment systems.)
information on RAS.)
Key Opportunity 3: Solar energy offers
Key Opportunity 2b: Combining water treat- superior EBIT margins and a dependable
ment with growth enhancement functional energy source for farms that rely on diesel
feed compounds the business and environ- generators. Electricity is a necessary but
mental benefits. Producers that seek to costly and sometimes unreliable component
maximize the effect of immediate, short-term of shrimp farming. Although grid-sourced
change can combine growth enhancement energy is economical, in farming regions with
functional feed with either RAS or biofloc. frequent energy outages, such as the Mekong
Delta, generators are frequently used to
When using growth enhancement feed in provide backup energy. Diesel generators are
combination with closed-loop systems, such costly (with up to about 5% higher energy
as RAS, farmers can obtain EBIT margins of costs if 30% of energy is from generators
up to about 34%—an increase of as much as rather than the grid), and they contribute
about 61% over today’s average. It is also an high carbon emissions. Renewable energy
improvement of as much as about 26%, com- sources, such as solar energy generated by
pared with the standalone use of RAS and as photovoltaic (PV) systems, are viable, relative-
much as about 21%, compared with stand- ly inexpensive, and environmentally friendly
alone functional feed. alternatives.
The combination of functional feed and RAS When farms rely on generators for backup
offers several benefits: increased volume energy, EBIT margins are reduced to about
through higher stocking intensities, more effi- 17% owing to high fuel costs of about $224
cient production, higher survival rates, better per megawatt hour. In contrast, solar energy
water treatment, and reduced wastewater dis- could offer absolute EBIT margins of up to
charge. Nonetheless, traceability remains un- about 20%. While this represents a drop of up

to about 6% in EBIT margins compared with financing for farmers. This wide network of
running purely on grid energy, it increases middlemen currently handles about 70% of
EBIT margins by more than about 17% com- all farmed shrimp produced in Vietnam.
pared with diesel generator use due to lower
unit costs. Despite the many services that middlemen
provide, they represent a major challenge for
Farmers exposed to frequent electricity outag- Vietnam’s shift toward product traceability:
es should consider implementing renewable they often mix shrimp batches from different
energy. There is, however, one drawback: farmers, making it very difficult to trace prov-
ground-mounted PV systems require signifi- enance. In addition, middlemen have alleged-
cant capex investments of up to $20,000 per ly injected shrimp with water and even illegal
hectare, depending on the system (about substances, tarnishing Vietnam’s reputation
$12,000 not including battery use), which as a reliable exporter and increasing the risk
small farms in remote areas might not be able of entry line refusals in major markets, such
to afford. But as the cost of batteries and solar as the US, the EU, and Japan.
power continue to decrease, this option could
become more affordable for remote farms as Because middlemen play an informal role in
well as grid users. (See the Appendix for a the value chain, keep minimal records on
more detailed discussion of solar energy.) shrimp purchased and sold, and are subject
to little regulatory or company oversight, a
The immediate changes regarding feed, water shift in how they conduct their business will
quality, and energy can help farmers improve be key for the industry’s successful transfor-
production methods, be more environmental- mation to a more traceable and sustainable
ly sound producers, and achieve higher profit supply chain. (See Exhibit 9.)
margins. Currently, farmers represent a signif-
icant bottleneck in the Vietnamese farmed- By becoming more involved in the shift toward
shrimp supply chain. Operating with low pro- sustainability, middlemen can stay relevant in
ductivity and efficiency, these farms have low an industry that might otherwise cut them out
shrimp survival rates and poor farm manage- over time. In Vietnam, there is an urgent need
ment. Short-term changes are a first step for for middlemen to keep strict records and stop
tackling these problems. Farmers are key to mixing shrimp batches. These are two of the
the transformation of the entire supply most pressing issues in the supply chain. (See
chain’s profitability, output, and quality. the Appendix for a more detailed discussion of
the business case for middlemen.)
Because these short-term changes in produc-
tion methods are implemented on an individ-
ual basis, it is unlikely that they will suffi- Processors: Imperative to Improve
ciently address the structural and environ- Traceability and Reduce Import
mental challenges the industry is facing. To Dependency
truly transform the industry and create last- About 70% of Vietnam’s processed shrimp is
ing financial returns and environmental exported to the EU, Japan, China, and the US.
change, a holistic approach is needed. Typically, processors handle exports as well,
and they are, therefore, directly affected by
allegations of ethical and environmental mis-
Middlemen: A Major Challenge to conduct in farmed-shrimp supply chains.
Overcome as the Industry Shifts Vietnam’s processing is largely fragmented,
Toward Sustainability and approximately 100 processors account for
Middlemen play a key role in the Vietnamese most of the exports. A number of large com-
farmed-shrimp supply chain. In many cases, panies have the finances, expertise, and so-
they serve as gatekeepers and facilitators be- phistication to drive the industry forward.
tween shrimp farmers and shrimp processors,
as well as between hatcheries and farmers Vietnam is widely known for its value-added
and among feed mills and hatcheries and processing capabilities, and Vietnamese proc-
farmers. They often play an important role in essors import large quantities of shrimp from

Exhibit 9 | Middlemen Play a Critical Role from Farm to Processing
~70% to 80% use a broker
~67% to 76%
~85%
Local collector Broker

A local collector pays farmers in cash A broker aggregates
and helps transport shrimp; a single shrimp and sells to
collector services ~100 to 200 farms processors
5% to 19%
Shrimp farm Fresh to local markets Processor

The local market is usually supplied A processor works with up to
with shrimp that stopped growing 15 brokers; even integrated
due to diseases processors with their own
farms can cover only 30%
of their processing demand
~14% to 19% themselves; the remaining
~10% 70% is purchased from
collectors
Direct sales
L. vannamei X% P. monodon X%
Sources: Expert interviews; Journal of Cleaner Production, 2011; BCG analysis.
countries such as India for additional process- cient, traceable, and sustainable shrimp value
ing. The processed shrimp is then reexported. chain. (See the Appendix for a discussion of
the business case for processors.)
Processors also serve as intermediaries be-
tween shrimp farmers and importers and
sometimes even retailers, so it is in their in- True Change Is Achievable
terest to help farmers reduce disease risk and Only When Industry Players
reliably produce more responsibly farmed,
Work Together
high-quality shrimp.
The short-term changes of individual players
Improving the productivity of farmers also outlined above offer several immediate benefits
yields significant benefits for processors: for Vietnamese shrimp producers. They would
be able to create additional value of $30 million
•• Eliminating the reliance on imports from in export revenues over the next five years.
other shrimp-farming nations for process- Shrimp producers are currently positioned to
ing and reexport create just $0.7 million to $2.1 million of addi-
tional value (based on exports) in one year.
•• Providing traceable, clean, and sustain-
ably produced shrimp at sustained Over the next five years, the industry could
volumes to maintain relationships with reduce water use by as much as 0.4%, saving
buyers and meet export regulations up to 125 million cubic meters, preventing up to
90 million cubic meters of wastewater leakage,
•• Allowing processors to maintain market and reducing feed use by 3,700 metric tons
access and develop strong relationships per year.12 These changes could boost EBIT
with buyers and retailers margins by as much as 40% in individual
cases.
Processors have a responsibility and a clear
incentive to engage with farmers and middle- Although this represents a meaningful step
men to implement more sustainable produc- forward, the value created by these changes
tion methods and work toward a fully effi- pales in comparison with the value that can

be created if the industry were to set its able energy options can bring about short-
sights higher. If Vietnam’s shrimp producers term gains, but true change can be achieved
were able to implement traceability and only when the industry works together on a
achieve growth levels on a par with India’s, larger scale. What’s needed is an innovative
for example, they could add up to $300 mil- business model focused on long-term sustain-
lion annually to Vietnam’s shrimp industry. ability. (See the sidebar “An Opportunity to
Short-term changes, on the other hand, would Create Business Value and Positive Environ-
reap only about 2% of this value, or about mental Impact by Converting P. Monodon
$6 million annually. Farms.”)
Increasing water quality and use, using spe-

cial functional feed, or switching to renew-
AN OPPORTUNITY TO CREATE BUSINESS VALUE AND

POSITIVE ENVIRONMENTAL IMPACT BY CONVERTING
P. MONODON FARMS
P. monodon, a shrimp species that is native nance costs that result from soil
to Vietnam, was traditionally farmed in degradation.
mangrove areas, its natural habitat. While
stocking densities on farms are much With lower shrimp yields and productivity
higher than in shrimp’s natural habitat, it losses over the years, shrimp farming in
soon became evident that mangrove areas mangrove areas is not recommended. The
are not ideal for shrimp farming: business case for shrimp farming there is
not as favorable as that for shrimp farming
•• Unfavorable Pond Construction. Low in supratidal areas or as favorable as the
sea levels prevent construction of deep standalone value of mangrove areas.
ponds and complete drainage of used
water during and after farming cycles. Mangroves contribute up to about $4,000
to $8,000 per hectare per year of stand-
•• Low-Quality Soil. Soil embankments alone value in terms of carbon sequestra-
used as natural barriers at the edges of tion, coastal protection, forestry, and
ponds tend to decrease in size over fisheries. Over a ten-year period, this value
time and eventually to breach. is eight times the potential value of shrimp
farming in mangrove areas. Many farmers
•• Low-Quality Water. Soil in mangrove have realized the disadvantages that
areas is highly organic with high acid mangrove areas present to shrimp farming
sulfate potential and low pH levels. and have abandoned these areas for
Shrimp farming requires low acidity. supratidal areas, where they cultivate
L. vannamei shrimp intensively. Some
•• High Stress Levels That Result in countries have stopped shrimp farming in
Higher Risk of Disease. Low pH levels mangroves. In Thailand, for example,
stress shrimp and can reduce pond water P. monodon farming in mangrove areas is
nutrients, leading to serious threats to now prohibited by law. In Vietnam, however,
health and susceptibility to disease. P. monodon still accounts for some 70% of
the total land used for shrimp farming.
•• Higher Overall Costs. Construction
and production costs are generally Integrated Mangrove Shrimp Farming Is
higher due, for example, to initial Neither Economically Viable nor
soil reclamation before pond construc- Environmentally Sound
tion, extensive use of lime to increase Vietnam’s shrimp industry is working with
water quality, and higher mainte- NGOs and several certification bodies to

P. MONODON FARMS (continued)
produce certified P. monodon shrimp in move has the potential to shift industry
integrated mangrove shrimp-farming value by as much as $2.7 billion based on
systems, in which mangrove trees are export revenues.
planted alongside shrimp ponds to create a
more natural habitat. In theory, these While the shift to L. vannamei is promising,
systems adhere to set mangrove-to-pond- it does require considerable capital
area ratios and aim to imitate the natural investment and technical knowledge,
habitat of P. monodon, reducing the especially when done in the most environ-
environmental impact. mentally responsible way. P. monodon
farmers tend to be small-scale farmers
However, the positive business and environ- without access to capital or expertise, so for
mental impact of these systems is question- them, there is a significant challenge to
able. Buyers promise price premiums to implementation.
certified farms, but these premiums are
achievable only when the entire market has If farms are converted in ways that do not
high value. Furthermore, the output volume respect the environment, the increase in
and production costs are similar to exten- productivity will be very short-lived. And
sive production systems. For these reasons, although L. vannamei farming can be done
the business case is rarely compelling. intensively, it also presents some sustain-
ability challenges—including water
The environmental benefits are also pollution and disease outbreaks—and
unclear. In many cases, farmers do not farmers must address these issues directly
adhere to the mangrove-to-pond-area in order to thrive.
ratios, and that means that they are still
deforesting or cutting mangroves just to Businesses Can Contribute to
replant them elsewhere. By diminishing Environmental Protection
mangrove density, shrimp farmers are Farmers should acknowledge the value of
unwittingly eliminating a key characteristic mangrove areas and work with communi-
of healthy mangrove areas and failing to ties to foster awareness of the benefits of
capitalize on their standalone value. This mangroves and develop opportunities to
approach is therefore viable for neither capitalize on those benefits. The growing
businesses nor the environment. carbon-offsetting trend can open up new
economic opportunities for farmers in
Sustainable Intensification and Vietnam to abandon extensive P. monodon
Mangrove Protection Reap Business shrimp farming, especially in the Mekong
Benefits and Protect the Environment Delta, which was once covered with
P. monodon farms should seek alternative 250,000 hectares of dense mangrove
farming methods. One promising solution forests. Farmers can have their reforesta-
is to switch from P. monodon to intensive tion or forest protection initiatives certi-
L. vannamei farming. In doing this, the fied—as verified carbon standard or Gold
industry could boost productivity by up to Standard—in exchange for a defined
80% without having to convert additional amount of money per ton of carbon dioxide
land or construct new ponds. L. vannamei that the initiative can store.
intensive farms can be stocked up to 13
times more densely than P. monodon By protecting mangroves instead of
farms, offering up to 20 times the annual engaging in risky and expensive shrimp
revenues and tripling average productivity farming, farmers could achieve superior
per hectare. (See the exhibit below.) This profit margins and secure revenues, but

P. MONODON FARMS (continued)
they need to consider that the certification deforestation and funds reforestation
process is currently still complicated and projects. Such initiatives should be promot-
costly. Nevertheless, the current carbon- ed by NGOs and local communities to raise
offsetting trend does give shrimp farmers awareness and unlock the full economic
an economically viable alternative to potential of mangrove forests.
P. Monodon Cannot Be Intensified Beyond 60 PL per Square Meter
Stocking density Superintensive

Extensive Semi-intensive Intensive
per square meter or Supraintensive
P. monodon 2 PL 5 to 20 PL 20 to 60 PL NA
L. vannamei 4 to 10 PL 10 to 60 PL 60 to 300 PL 300 to 750 PL
Disclaimer
Stocking densities depend on country specifics as well as farm characteristics; therefore,
wide ranges are provided
Sources: FAO; BCG analysis.
Note: PL = post-larvae shrimp; L. vannamei = Litopenaeus vannamei; P. monodon = Penaeus monodon; NA = not
applicable.

INTEGRATED AND LARGE
PLAYERS MUST ACHIEVE
SIGNIFICANT CHANGE
W hile small, standalone players can

make short-term changes that suit their
business model and specific circumstances,
calls and minimize the potential for reputa-
tional damage, want to track and trace prod-
ucts from pond to plate.
integrated and large players are uniquely
positioned to pioneer broad-based changes Vietnam has relatively few players that are
across the entire industry. With strong market fully integrated across the value chain, but
power, access to financing, and the ability to this is beginning to change. Many large proc-
scale, fully integrated players—which can essors and exporters that have historically re-
make improvements and implement changes lied on reexports are expanding into the
quickly and efficiently at every step along the farming and hatchery business—an import-
supply chain—are positioned to push the ant step toward traceability.
industry in a new direction.
With increasing power and control over criti-
No market claims can be made in the ab- cal parts of their supply chains, these inte-
sence of transparency and traceability. If ac- grated players can become frontrunners for
tivity along the supply chain is visible, actors’ traceability in the industry. On the other
accountability creates an incentive for sus- hand, if large Vietnamese shrimp producers
tainable and responsible production. Import- do not take action, traceability will be nearly
ers and regulators, as well as a niche consum- impossible, and the lack of traceability will
er segment, are pushing for this at the global undermine the industry’s long-term future.
level. And retailers, eager to avoid product re-

COLLABORATION ACROSS
THE VALUE CHAIN CAN
ENSURE INDUSTRY HEALTH
G iven that 70% of Vietnam’s exports—

worth $2.5 billion—go to the US, the EU,
Japan, and South Korea, refused shipments
obstacle to industry advancement, middle-
men will need to formalize their operations
to provide greater transparency and account-
can have serious repercussions on the overall ability. In addition, the industry is quite frag-
value chain. The US Food and Drug Adminis- mented at the farm level, with minimal data
tration, for example, has cited multiple collection and little incentive to share data.
problems with Vietnamese shrimp imports, Furthermore, Vietnam’s reexporting busi-
including salmonella, drug contamination, ness makes it very difficult to trace the prove-
and mislabeling. China, which has historically nance of shrimp.
had less strict import requirements, is
increasingly monitoring imports and prioritiz- Nevertheless, with the demand for traceabili-
ing food safety. ty becoming the norm, the shrimp industry
in Vietnam needs to act now to gain a com-
Consequently, retailers and importers are petitive edge and ensure industry survival.
pushing for full traceability, which is both a Every player in the supply chain must par-
necessity and a business opportunity. Con- ticipate and share reliable data among multi-
sumers demand it, and a niche segment is ple stakeholders. Shielding supply chain data
willing to pay a premium for sustainable in modern value chains erodes the trust of
products. As one former executive of a major those purchasing products and makes it ap-
retailer in North America said, “If you could pear as though companies have something
establish a fully traceable supply chain, so to hide.
you know where your product is coming from
at each step of the chain… that would have
tremendous value. That is what everyone The Far-Reaching Business
wants and needs.” Benefits of Traceability
Exhibit 10 outlines traceability’s important
Traceability represents a complex challenge economic benefits for all players across the
in Vietnam. Middlemen are heavily involved value chain:
in transactions—not just with farmers and
processors but also with feed mills and hatch- •• More Efficient Farms. With detailed
eries. Middlemen pose a major challenge as data- and analytics-based records for each
their movements are hard to track and virtu- step along the supply chain, shrimp farms
ally no records of their operations exist. To and production facilities can streamline
avoid losing significance or, worse, posing an operations, thereby increasing production

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
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
volumes. Traceability can increase •• Brand Enhancement. Traceability

operational efficiency through record secures the brand image and can be used
keeping, but that works only if farms take as a key marketing differentiator when
action accordingly. other claims cannot be validated.
•• Sustainable Production. With traceabili- •• Opportunity for Premium Pricing.

ty, retailers can punish producers for their Because some consumers are willing to
unsustainable practices by refraining from pay a premium for traceable food prod-
buying, and retailers along with consum- ucts, traceability is a market differentiator.
ers can reward producers for their sustain- To spread the wealth along the supply
able practices by paying price premiums. chain, some technology providers, for
And traceability enables precise tracking example, are working to develop ways to
of production locations, potentially share the rewards with upstream players
identifying farms located in, for example, through token currencies and other
protected and no-go areas such as protect- incentives.
ed mangrove forests.
•• Improved Logistics. Transportation routes Traceability Is the Key to a Bright

can be analyzed and optimized, minimizing Future for Vietnam’s Farmed-
food waste during transport and maximiz- Shrimp Industry
ing the ability to deliver fresh products. There are many ways to implement traceabil-
ity in supply chains, ranging from supply
•• Sustainable Access to Markets. Buyers, chain integration to software solutions. (See
especially those in sophisticated markets, Exhibit 11.)
will increasingly demand traceable
products and eventually drop suppliers One way is for integrated players that have
and markets that are not fully transparent full control over their supply chains to pro-
and that represent a sustained reputation- vide traceability. However, because of the
al risk. Import authorities are establishing heavy reliance on reexports and middlemen
reporting and record-keeping require- and the relatively small number of truly inte-
ments for imports of certain seafood grated players, this is easier said than done.
products to prevent illegal, unreported,
unregulated, and misrepresented seafood Another technique is to verify the country of
from entering their markets. origin through elemental profiling. This new

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 easy-to-deploy mobile applications to
solutions such sophisticated blockchain and Internet of Things Opportunity
as blockchain solutions
• Niche market allows for premium pricing of
Production standards implemented on the farm up to 40% for traceable and sustainable
Certifications and processing levels and labeled accordingly at products
the point of sale • New market access is provided through
high-quality traceable products
Certifications provide only perceived traceability • Reduction of bottlenecks and increased
efficiency are results of supply chain tracking
technique has emerged to verify traceability load data to accessible online platforms, and
claims. The procedure involves the analysis of all product transactions and movements are
a set of elements that make up a material or registered at each step of the supply chain.
a species. Analysts can identify the country of
origin of imported shrimp with up to 98% ac- This solution is easy to use, accessible, and af-
curacy.13 This technology represents a signifi- fordable even for the smallest farmers. How-
cant advance, but it serves only to verify the ever, it does not entirely solve the issue of
country of production. It does not represent data verification, and it relies on truthful
full supply chain transparency, because it specifications and uploaded data from all in-
cannot track back to the specific farm where volved players.
the shrimp was grown, verify the production
technologies and methods used, or trace the Pairing the Internet of Things (IoT) with
trading route of the shrimp from production blockchain represents another promising
to point of entry. technology solution for tracing global food
chains, in part because these technologies are
Elemental profiling adds a layer of oversight rapidly becoming more affordable and acces-
to the path toward traceability, but it is insuf- sible. Here is a quick look at how IoT and
ficient on its own. To achieve full supply blockchain can be used:
chain traceability, technology- and software-
enabled solutions represent the most promis- •• IoT devices capture production data at the
ing options. source—for example, from shrimp farms.
•• The captured data is stored in ledgers,

Technology-Enabled Traceability which can time stamp, track, and auto-
Offers a Promising Path Forward mate transactions so that events can be
Various technology-enabled traceability solu- audited in real time.
tions, with differing levels of sophistication,
are currently being developed. •• As long as the suppliers enter accurate
data, the blockchain establishes proof of
Mobile applications can capture farm, pro- quality and provenance across the entire
duction, and transaction data in real time to value chain.
ensure full transparency. In this scenario, all
players across the supply chain share records Several large supermarkets, including
for each transaction: farmers can easily up- Walmart in the US and Carrefour in the EU,

have already deployed blockchain to track company is collaborating with Vietnam’s gov-
the provenance of products in their food sup- ernment, and the testing phase will involve
ply chains, but this technology has not yet about a thousand small-scale farms. This pilot
been used to track shrimp. Technology com- is a step in the right direction, but middlemen
panies, including IBM, VeChain, Provenance still pose problems. The traceability pilot ex-
Technologies, and ConsenSys, as well as the cludes middlemen, but because most proces-
newly founded OpenSC food-tracking plat- sors in Vietnam still rely on them, shrimp
form, are providing traceability for various from certified farms and uncertified farms
products with less complex supply chains can be mixed in a single batch, making it dif-
than that of the shrimp industry. Consistent ficult to trace shrimp along the value chain.
data collection is a prerequisite for successful (See the sidebar “Certifications: There Are No
traceability, and its lack poses significant bar- Shortcuts to Full Traceability.”)
riers to implementation.
The Vietnamese government and a handful
As import authorities in key buying nations of companies have begun to make traceabili-
such as Japan advocate for more traceability ty a priority, but there is much more work to
in the shrimp supply chain, Vietnamese be done. Traceability requires action at every
supply chain actors are feeling pressure to link along the supply chain, and the various
respond, and technology companies are parts of the industry must work together to
innovating to provide new solutions for trace- implement these far-reaching changes. If
ability. Te-Food, a blockchain technology pro- traceability can be achieved, Vietnam will
vider, is planning to launch a pilot for track- not merely survive—it will thrive in the de-
ing shrimp in the Mekong Delta. The cades ahead.
CERTIFICATIONS: THERE ARE NO SHORTCUTS TO FULL

TRACEABILITY
Retailers and producers, in collaboration certified, and this number is expected to
with certification bodies, offer many climb by about 5% annually through 2025.
certifications for seafood and shrimp A small proportion of customers will pay
products. Many of these certifications can premiums that can be as high as 40% in
have a positive impact on certain produc- specialty stores for shrimp certified as
tion or supply chain elements, but many do sustainably produced and fully traceable.
not address environmental and social
issues in the farmed-shrimp value chain. Certification standards and practices are
problematic for the following reasons:
Furthermore, because the supply chain is
so complex, it is nearly impossible to •• Certification standards vary, and each
guarantee with 100% certainty that shrimp certifying organization establishes
producers adhere to certification standards. minimum or maximum limits for such
In many cases, the lack of traceability of concerns as antibiotics and chemicals,
certified supply chains renders labeling land use, and water pollution. Many fail
untrustworthy and provides “perceived” to differentiate between essential and
rather than actual sustainability and innocuous requirements.
responsibly produced shrimp.
•• Shrimp farm certifications are not
Because no reliable alternative to these necessarily product certifications; they
certifications currently exists, many are, instead, focused on farming
consumers accept them as proof of processes.
sustainability and increasingly demand
labeled seafood. In 2016, about 14% of •• Controls and audits on farms and at
seafood—farmed and caught—was processing factories occur infrequent-

CERTIFICATIONS: THERE ARE NO SHORTCUTS TO FULL
TRACEABILITY (continued)
ly—at most twice a year. Furthermore, •• Shrimp from certified farms and
only a subset of farms in collectives is noncertified farms are, in many cases,
checked and audited, and there is no collected from a single middleman and
mechanism for confirming that all mixed in a single batch, making it
farms within a collective adhere to the impossible to separate the sustainably
stated standards. Even for those that from the nonsustainably produced
are controlled, only one day’s evidence shrimp.
is collected, and neither farming
practices nor impacts are monitored Certifications aim to provide transparency
over an extended time period. on sustainability and production standards,
but implementation is close to impossible
•• Many certifications have been awarded in Vietnam’s fragmented shrimp supply
before traceability has been demon- chain. To achieve reliable traceability, all
strated. players must participate and provide
continuous transparency into their produc-
•• In many cases, the cost of adhering to tion methods and inputs. This can be
certification standards and altering achieved only with collaboration, constant
production processes is not shared monitoring, and a platform that captures
along the supply chain, burdening only tamper-free, truthful records. There are no
farms or processors. From a social- shortcuts to traceability, and what has
equality perspective, this represents a worked for the Vietnamese shrimp industry
major pitfall. in the past—providing certified products
without proof of traceability detached from
•• It is nearly impossible to compare one certification—will not succeed. More
protein product—shrimp, fish, or holistic approaches to supply chain
meat—with another protein product, integrity are necessary. Over the long term,
because certifications differ, depending indoor farming is poised to disrupt the
on species. entire industry.

LONG TERM, INDOOR
FARMING WILL DISRUPT
THE ENTIRE INDUSTRY
I n addition to the collective effort to

establish technology-enabled traceability
within the supply chain, large Vietnamese
nam, given its relatively low overall farming
productivity.
shrimp producers could overhaul shrimp Similarly, Charoen Pokphand Group (CP), in
production at its very core. One of the most Thailand, has invested in indoor farms and
promising opportunities is the shift to plans to shift all production to indoor ponds
high-intensity, high-volume shrimp farming in over the next five to ten years.
closed systems. Closed-loop systems provide a
significant improvement over today’s produc- Because of the high capital investment, scale,
tion methods and an important shift toward and new construction required, in the short
sustainable intensification. The effect of term, indoor farms will be financially viable
closed-loop systems can be further accelerat- only for large-scale integrated players. As Viet
ed by moving them indoors. Uc is already proving with indoor farming, an
integrated player can build a state-of-the-art
Viet Uc is building indoor facilities in Viet- facility that combines all stages of shrimp
nam, investing about $44 million in intensive production—from breeding to processing—
indoor farms that cover about 315 hectares in under one roof, thereby guaranteeing total
the Mekong Delta. The company has built one biosecurity and control over the culture envi-
of the largest hatcheries in the world. Its ca- ronment. This approach offers closed-loop-
pacity of about 15 billion PL per year allows system and indoor-farming advantages.
the company to have total control over brood-
stock. It has also built a feed mill and shrimp- Closed-loop-system advantages include the
processing plant, and all of these facilities are following:
under one roof. With this vertical integration,
Viet Uc controls production from start to fin- •• Higher yields and reduced operational
ish and can provide full traceability and sus- risks that are the result of having com-
tainability over the entire supply chain. plete control over input, lower disease
rates, smaller land requirements, and
The company expects to produce 120 to 130 efficient feed use
metric tons of shrimp per hectare per year,
significantly outperforming the standard 18 •• Improved and stable revenue streams
to 50 metric tons per hectare of intensive out-
door shrimp farms. This huge boost in pro- •• Significantly reduced environmental
ductivity could be a game changer in Viet- impact due to less water and land use

Indoor-farming advantages include the fol- sities and high land use levels per kilogram of
lowing: shrimp produced—to more intensified sys-
tems.14 With the shift toward intensification,
•• Traceability as long as the entire produc- stocking densities and farm output per hec-
tion process is integrated and the shrimp tare increase and the need for land and water
are not sold to processors by middlemen per kilogram of shrimp output potentially de-
creases. In turn, total energy use (and per
•• Lower costs and fewer logistics require- unit energy use at the rates achieved today)
ments because production can be located increases. And when farms are not well man-
close to processing aged, disease risk also increases. Indoor farms
can mitigate disease risk and wastewater dis-
•• Simplified transportation and faster access charge, and a transition to renewable energy
to global markets can reduce energy costs.
•• Consistent year-round production with a Vietnam’s farm productivity has been rela-
secure supply of high-quality commodity tively low, not only because of its reliance
shrimp upon extensive P. monodon shrimp farming
but also because compared with other coun-
•• No mangrove deforestation due to the tries, L. vannamei intensive farming has low-
construction in highlands er output than average. Shrimp production
systems and intensification levels vary signifi-
•• More sophisticated, automated, and cantly in Vietnam, but overall productivity re-
monitored control over inputs and no use mains low enough to cause concern. (See Ex-
of antibiotics hibit 13.)
•• Disease risk mitigation through a cleaner Solutions for small to midsize players in Viet-
environment nam are needed to holistically and inclusively
improve farm efficiency and productivity.
•• Avoidance of external contamination One step in the right direction would be to
implement closed-loop systems, such as RAS.
•• Opportunity to increase control over When combined with removable covers on
social responsibility and ensure ethical ponds, which add protection from external
conduct contaminants, even small to midsize players
can create “indoor” closed systems with bet-
The business case for indoor farming is still ter control and higher productivity, support-
evolving. The investment costs of up to ing the long-term industry shift to lower-
$200,000 per hectare of pond area and opera- impact indoor farms.
tional costs of up to about $4.37 per kilogram
(compared with conventional farming costs:
about $3.30 per kilogram of shrimp) for large
indoor farms in Southeast Asia are high, and
international sales prices for commodity
shrimp are, at least for the foreseeable future,
low, making the business case for wholesale
transformation an uphill climb in the short
term and midterm. (See Exhibit 12.)
Although indoor farming is complex and scal-

ing up requires a certain level of expertise, it
promises to be the future of shrimp farming.
Throughout the history of shrimp farming, in-

dustry players have moved from extensive
systems—characterized by low stocking den-

Exhibit 12 | In Vietnam, Indoor-Farming Production Costs Are About $1.10 Higher per Kilogram of Shrimp
A cost comparison of conventional outdoor and indoor farming Main cost driver: energy with additional
with RAS ($ per kilogram of shrimp) higher labor, interest, and depreciation costs
PL PL costs are slightly reduced owing to improved

survival rate (from 6o% to 70%)
Feed
Chemicals Feed and chemical costs are stable
4.37 0.07
4.17 Energy
0.07 0.38 Energy consumption and costs climb by a
0.01 Pond preparation factor of 2.5 with RAS and the increased use of
0.01 3.30 technology solutions and automation
0.02 Labor
0.51 1.72
0.02 Harvesting support Labor costs increase significantly owing to a
0.02 shift from low-skill to high-skill labor despite the
0.02 Other variable costs
0.34 overall reduction in the amount of labor
0.10 required
0.10 1.72 0.59 Maintenance
0.10 Pond treatment
0.00 Depreciation reflects high investment costs of
0.34 0.71 $20,000 per 1,000 square meters of pond,
0.24 0.23 Other fixed costs
0.04 around $0.20 per kilogram, based on production
0.24 Depreciation
0.09 of 10 kilograms per square meter annually over
0.00
Interest 10 years
Conventional Indoor farm Sales price at
outdoor farm with RAS the farm gate Sales price Interest reflects financing through bank loans
Sources: Expert interviews; BCG analysis.

Note: RAS = recirculating aquaculture systems. PL = post-larvae shrimp. Because of rounding, not all numbers add up to the totals shown.
1
Expert estimates.
Exhibit 13 | Farming Systems for L. Vannamei: Intensification Mitigates Environmental Impact While
Boosting Productivity and Quality
Vietnam
Farming systems
Extensive Semi-intensive Intensive Superintensive

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

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

THE TIME TO ACT IS NOW
T he Vietnamese shrimp-farming
industry is under immense pressure to
develop more sustainable practices. As one of
to farm shrimp in a manner that protects re-
sources, conserves the environment, and ben-
efits all actors along the supply chain without
the former leading nations in shrimp farming, violating labor laws and human rights or risk-
Vietnam has an opportunity to make progress ing the health of consumers.
at many levels: by implementing short-term
changes, fostering traceability, and innovating Vietnamese players must respond, not only
in the space of indoor shrimp farming to improving production at an individual level
increase efficiency without further land but also lifting the industry from import de-
conversion. pendency and mitigating the risk of future
import refusals due to contaminated shrimp.
Shrimp is becoming an ever more important
source of protein around the world, shifting By embracing this approach, Vietnam can
from being a luxury product consumed in reverse its downward trend, produce high-
predominantly Western markets to being a quality and safe products, and preserve natu-
mass-market product that is increasingly ral resources. If the industry navigates these
available and sought after in developing transitions successfully, participants will reap
countries. Vietnam faces a significant busi- rewards for generations to come.
ness opportunity as well as the responsibility

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, middlemen, as well as
ding a discussion of the business case for so- 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 •• Its use promotes up to 20% to 30% faster
three factors—functional feed, water im- growth.
provement systems, and solar energy—that
can drive improvements to both the econom- This improvement in growth, which helps
ics and environmental footprint of shrimp farmers increase cycles per year, improves
farming. biomass and productivity.
Health enhancement functional feed aims to

Details on Functional Feed improve shrimp survival and productivity
The costs and operational requirements asso- by optimizing the shrimp’s digestive efficien-
ciated with functional feed vary among farm- cy. This type of feed is especially useful for
ers. (See Exhibit 14.) mitigating risk when the threat of disease
is high.
Growth enhancement functional feed is a com-
plete feed (rather than an isolated com- For example, phytobiotic additives can pro-
pound) that is designed to promote specific mote better health:
physiological effects that allow farmers to
grow shrimp faster and larger. •• They can be used in functional feed or as
separate additives.
Many varieties of functional feed are avail-
able on the market, and companies are com- •• Phytobiotics produced from herbs and
peting to develop the most effective products. organic acids are known to be effective at
We define growth enhancement functional boosting immunity and improving
feed as feed that includes a variety of addi- functional properties of the compounds in
tives—such as special proteins, vitamins, the gut.
and probiotics—that promote faster shrimp
growth. •• Similarly, additives such as Digestarom
improve gut health and improve FCR.
For example, bioactive powder (Novacq)
can improve growth rates of farmed •• In tests with CP basic feed in Thailand,
shrimp: Liptofry increased FCR and survival rates
under normal conditions and led to stable
•• It reduces reliance on harvesting wild fish survival rates when challenged by EMS
for feed. bacteria.

Exhibit 14 | 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 36% higher for Loss from disease No significant impact Support for successful Critical for FCR,
farmers avoided; higher on farmers’ P&L introduction of new survival, and risks on
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 Treatment and teria, algae, and fungi, creating a biofloc that
Improvement Systems—Biofloc improves water quality while reducing FCR,
and RAS as it can also be used as a feed source for
Water treatment systems aim to improve wa- shrimp. (See Exhibit 16b.)
ter quality, reduce water use, and recycle wa-
ter. They vary in application and effects in Biofloc can have positive environmental im-
terms of sophistication, levels of water reuse, pact. It leads to a statistically relevant de-
and cost. Many systems use microbes to regu- crease—as much as 73%—in nitrite levels in
late water quality and imitate natural water pond water to 0.13 milligrams per liter of
conditions. Exhibit 15 provides an overview nitrite-nitrogen. This represents a significant
of commonly used closed-loop and microbial improvement and is in line with the maxi-
systems. mum nitrite level—0.18 milligrams per liter—
mandated to protect freshwater aquatic life.
Two approaches to improve water quality
during shrimp production—biofloc and RAS— With RAS, water is treated through multiple
have been modeled in detailed scenarios, but filters, allowing for its reuse, and no unfil-
the capital investment and operating costs can tered wastewater is discharged into the local
present challenges. (See Exhibit 16a.) ecosystem. The most common systems in-
clude a mechanical biofilter and a degasser.
With biofloc, carbohydrates are added to wa- The water is enriched with oxygen and disin-
ter, increasing the carbon-to-nitrogen ratio. fected with ultraviolet light before it is read-
The nitrogenous waste blends with other bac- mitted to ponds.

Exhibit 15 | 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
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 animal
• 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 animal
• 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 animal
Sources: Gede Suantika et al., Aquaculture Engineering, 2018; BCG analysis.

Note: RAS = recirculating aquaculture systems.
RAS offer significant advantages for farmers: shrimp and enabling farmers to increase
stocking densities.
•• The various filter and water treatments
improve the water quality. •• RAS reduce the need for chemicals, and
automation decreases labor requirements.
•• Water conditions are continuously
monitored and, if necessary, automatically Still, it’s important to consider the challenges
adjusted, reducing the stress level of the that RAS pose to broad implementation:

Exhibit 16a | 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 16b | The Addition of Carbohydrates to the Water Leads to the Assimilation of Nitrogenous Waste
Improved
water
Input: Chemical reaction quality
carbohydrates
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 35% FCR
cornmeal to water increases and—together with in regular feed) and fat Because it has
other bacteria, content (0.5% to 15% nutritional value,
algae, and compared with 4% to biofloc reduces the
fungi—compounded 6% in regular feed) of amount of
as biofloc biofloc additional feed
required
Sources: Aquaculture; BCG analysis.

Note: FCR = feed conversion ratio.
•• Installation of the necessary filters and benefit from economies of scale), sophisti-
treatments imposes high upfront invest- cation of the system, and the equipment
ment costs that vary depending on the used (some of which require higher
overall size of the farm (larger farms energy use).

•• Basic biofilters that are integrated into Details on Solar Energy
existing production systems without The shrimp-farming industry has an opportu-
further investments in equipment can nity to reduce its environmental footprint
be obtained at a low cost that rang- and avoid disruptions in its energy supply by
es from $15,000 to $50,000 per hec- shifting toward renewable energy. Four types
tare. of renewable energy are available—solar
power, wind power, biomass, and solar ther-
•• Investment costs for the more sophis- mal power. Our analysis focused on solar.
ticated systems that use filtration sys- (See Exhibit 17.)
tems and specialized pond equipment
range from $50,000 to $150,000 per There are three types of solar energy available
hectare. to shrimp producers: PV cells that can be in-
stalled on the ground in close proximity to
•• Sophisticated recirculating aquaculture ponds, PV cells that can be installed above the
systems that include significant alterations surface of ponds, and PV cells with a tracking
to the production facilities and equip- system that can be installed above ponds.
ment—and possibly even involve indoor
operations—can cost $300,000 per hectare Each option has different implications in
or more to set up. terms of land use, water evaporation, electric-
ity production, and investment costs, which
•• With greater control over the culture range from $1.7 million per megawatt to
environment, it is possible to mitigate the $1.9 million per megawatt, including storage
outbreak of disease. However, should an costs. Farm size, location, and regional char-
outbreak occur, it would affect a larger acteristics—including the cost of fuel, reliabil-
amount of shrimp as a result of increased ity of the energy supply from the grid, and so-
stocking densities, resulting in greater lar irradiation—should all be taken into
losses. account prior to making an investment.
Exhibit 17 | 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
Potential synergies with Relatively small land Potential synergies: biomass Can be stored more
aquaculture in the case of footprint in the case of can be grown in the same efficiently than electrical
floating PV systems small-scale wind turbines ponds as shrimp; seaweed energy
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 THE ENVIRONMENTAL IMPACT
OF IMMEDIATE CHANGE
To calculate the business case for each player The feed market is dominated by basic feed.
in the Vietnamese shrimp value chain, the Only 5% to 10% is certified and/or functional
base case (today’s average) was derived from feed. The share of certified feed varies signifi-
BCG knowledge, proprietary data, and industry cantly, depending on overall shrimp market
expertise and subsequently validated in expert prices. When, owing to low overall shrimp
interviews and with secondary research. The market prices, farmers are struggling to sell
analysis then identified key parameters affect- their shrimp at a profit, they are reluctant to
ed by changes to current operations and esti- purchase the more expensive feed.
mated their business impact. Each business
case calculation is displayed as a relative delta However, functional feed has significant po-
to today’s average, the base case. tential in Vietnam, where the farming indus-
try must deal with low survival rates and high
For each player along the value chain, we also FCR. Feed mills should promote the various
analyzed the overall market structure and the benefits of enhanced feed types to help farm-
environmental impact of immediate change. ers understand the business value.
Business Case. A feed mill selling basic feed

Feed Mills currently sells its products for about $1.10
Market Dynamics. The feed industry in per kilogram, with an EBIT margin of about
Vietnam is dominated by large international 17%. Exhibit 18 shows the average economics
players. Overall feed use for the aquaculture of today’s feed mills.
industry is growing rapidly and expected to
reach a market size of 4.3 million metric tons Growth Enhancement Functional Feed. Feed
in 2019 as compared with 3.3 million metric mills can achieve EBIT margins of up to about
tons in 2017. Shrimp feed is estimated at 26% on sales of functional feed. This is up to
550,000 metric tons, valued at $600 million about 58% higher than current EBIT margins
in 2017. per kilogram of product sold. However, as
functional feed increases farm efficiency, rev-
The major players in Vietnam—Grobest In- enues per kilogram of shrimp produced for
dustrial Viêt Nam, CP, Uni-President Enter- feed mills could decrease.
prises, and Thang Long—represent about 85%
of the market. The rest of the market compris- Ideally, improved growth and sales potential
es small to midsize local and international for farmers would lead to an increase in vol-
players with small operations in Vietnam. ume and utilization. This, in turn, would fur-

Exhibit 18 | The Economics of Today’s Average Feed Mill
EBIT margin % Share of total cost %
17 5 1 3 6 85 40 8 2 15 6 1 7 5 1
Amount per kilogram of feed ($)
1.10 0.18
0.92 0.05
0.01 0.03 0.06
0.78 0.37
0.07
0.02 0.14
0.06
0.01 0.06
0.05
0.01
Total Feed: Feed: Feed: Feed: Feed: other Energy: Labor
Revenues EBIT Depreciation Overhead Other COGS
cost fish meal flour fish oil SPC raw material grid
Utilities Energy: local Transportation

generation

Note: SPC = soy protein concentrate; COGS = cost of goods sold; Because of rounding, not all numbers add up to the totals shown.
ther increase demand for functional feed. Ad- The following are the assumptions on which we
ditionally, as functional feed will not be used based the business case calculations for health
by farms on a regular basis, there is little risk enhancement functional feed for feed mills:
of decreased revenues for feed mills, but the
opportunity to boost profit margins through •• Costs for ingredients and production
the extended product portfolio is significant. on a per kilogram basis increases by
(See Exhibit 19.) 10% to 20%, with about 15% assumed
as the basis of the business case calcu-
The following are the assumptions on which lation.
we based the business case calculations for
growth enhancement functional feed for feed •• The health enhancement functional feed
mills: imparts the possibility of charging price
premiums of 50% or more.
•• Revenues per kilogram of feed sold
increase because feed mills can charge a •• The price premium is justified by a
price premium of up to 20% for growth significantly improved disease survival
enhancement functional feed. rate from below 20% to between 70% and
80% during disease outbreaks.
•• Production and input costs increase about
6% per kilogram of feed produced. Environmental Impact. The overall impact
on the environment is limited, but feed
•• The potential FCR improvement at the mills enable positive change at the farm
farm level is 30% for half of the growth level. Individual players can position them-
cycle, leading to an FCR of about 1.1 selves on the forefront of innovations, sharing
compared with about 1.3 for ba- best practices in Vietnam with other coun-
sic feed. tries:
Health Enhancement Functional Feed. This type •• Land use is reduced by up to 15% owing to
of feed offers an even better business case for increased feed efficiency; the use of resourc-
feed mills: superior profit margins of about es is improved, and there is less waste
36%, increasing today’s average margins by a because the survival rate is higher and
multiple of 2.2. shrimp loss is minimal. (See Exhibit 20.)

Exhibit 19 | Feed Mills Can More Than Double Their Margins
Growth enhancement functional feed Health enhancement functional feed
($ per kilogram of feed) ($ per kilogram of feed)
Up to 58% EBIT margin increase over today's average Up to 117% EBIT margin increase over today's average
EBIT margin EBIT margin
26% 36%
0.17 0.22 0.41 0.55
0.09 0.05
0.06 0.09 0.05
0.18 0.14
0.18
1.10
0.78 0.97 1.06 1.10
0.78
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.
•• Water pollution is reduced owing to more PL survival rates are very low, whether grown
efficient feed and less feed waste in water domestically or imported—at great expense—
bodies. Also, there is less use of antibiotics from the US, Singapore, and Thailand. About
and less reliance on fish meal and fish oil. 80% of PL market sales are controlled by
The goal is to replace all fish meal use agents or distributors who charge farmers addi-
with plant-based nutrients. tional premiums of up to 20%.
•• It’s important to further consider ingredi- Quality and survival of PL are major concerns
ents used in functional feed—as a substi- for hatchery owners and farmers, who de-
tute for fish meal—in terms of their effect pend upon PL as a crucial input. PL survival
on the environment. Greater dependence rates are about 35% to 40%, so hatcheries
on soy, for example, has negative environ- should improve their management to in-
mental implications, as soybean production crease PL survival, potentially increasing
is causing widespread deforestation. shrimp production multifold.
Business Case. Exhibit 21 illustrates the

Hatcheries average economics of today’s hatcheries.
Market Dynamics. The overall demand for Even with no quantitative business case
PL, which are crucial inputs for shrimp assessment, it’s clear that high-quality PL
production, stands at about 120 billion PL per contribute to better results for the industry
year (assuming full capacity and perfect overall.
survival rates).
Environmental Impact. Despite their informal
The largest producer of PL, with about 20% of organization in the supply chain, hatcheries
the market, is Viet Uc. A single hatchery can are a focal point for intervention because of
produce about 15 billion PL per year. CP’s the relevance of high-quality, healthy PL for
market share is 15%. Overall, however, the the entire supply chain. Increasing the
hatchery market is highly fragmented with a survival rates and quality of PL would im-
large number of backyard hatcheries run by pact the business model of hatcheries signifi-
families. In total, there are some 2,500 hatch- cantly since they have low survival rates
eries, of which 600 are estimated to produce overall. Higher survival rates would reduce
PL for L. vannamei shrimp. waste and improve reputation, allowing

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

reduction for feed due pollution due to more antibiotics with For growth and
to increased feed efficient feed with less probiotics health enhancement:
efficiency (during half feed waste in water Substitution of fish
of the growth cycle) body meal and fish oil in
Nutrient content:
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 water health improvements
avoidance body through, for example,
Nutrient content: phytobiotics and amino
health enhancement acids reduce the need
for medical
interventions
Exhibit 21 | The Average Economics of Hatcheries Today

EBIT margin % Share of total cost %
27 10 90 13 7 21 4 11 5 9 15 5
Amount per thousand PL ($)
3,814 1,040
2,774 277 Grid energy,

2,496 347 generator only
198 for outages
583
97 302
139 277
83 333
139
Revenues EBIT Total Maintenance COGS Broodstock Feed for Feed: Feed: Feed: Probiotics Energy: Skilled Unskilled other
cost broodstock artemia algae dry seeds grid labor labor

Note: COGS = cost of goods sold. PL = post-larvae shrimp. Because of rounding, not all numbers add up to the totals shown.
hatcheries to charge higher prices for good- Farmers

quality PL. Water treatment and antipollu- Market Dynamics. The shrimp-farming
tion measures could further reduce the market in Vietnam is widely fragmented. A
environmental impact of hatcheries. Bet- handful of large-scale farms, including BIM
ter PL quality leads to better survival for Foods, Minh Phu Seafood, Quoc Viet Foods,
shrimp, reducing the impact of failed produc- Viet Uc, and CP (including their contracted
tion on farms. This is a key driver for future farms), account for approximately 35% of
value. farming output. About 65% of farming output

comes from some 220,000 small-scale farms The farming process has become increas-
raising L. vannamei and P. monodon. ingly technical, with innovations in aeration
and oxygenation, water pumps, feeding ma-
In 2017, the estimated production stood at chines, and tanks. Because investing in these
450,000 metric tons; about 60% (or 270,000 innovations can be costly, they are used pri-
metric tons) was L. vannamei. Hundreds of marily on the larger farms, but they can
commercial farms and more than 90% of the greatly reduce risk and increase survival
large-scale farms located mainly in the Me- rates.
kong Delta and central Vietnam produce L.
vannamei intensively. Business Case. Exhibit 22 shows the average
economics of today’s farmers. We explored
Viet Uc is advancing fully indoor superinten- the impact of a number of factors related to
sive production methods, integrating farms, farm economics and environmental impact,
feed, hatcheries, and processing to produce individually and in combination: functional
fully traceable, clean, and healthy shrimp. feed, biofloc, RAS, and solar energy.
But most farmers in Vietnam are poor, and
they purchase shrimp feed and PL from trad- Growth Enhancement Functional Feed. Farmers
ers and informal shops without knowing their can achieve EBIT margins of about 28% per
origin. kilogram of shrimp sold when using growth
enhancement functional feed. This is a rela-
The shrimp survival rates in Vietnam remain tive increase of 36% and an increase of
relatively low at 60%—compared with 65% in $0.39 per kilogram in absolute terms. (See
disease-plagued Thailand—and yields are Exhibit 23.)
lower than in neighboring countries ranging
from 7 to 15 metric tons per crop from only The assumptions for business case calcula-
two or three crops per year. tions for growth enhancement functional
feed are the following:
Although farm gate prices vary significantly, a
price of $4.17 per kilogram—at 80 pieces per •• The margin increase is driven by the
kilogram—of L. vannamei was assumed with ability to charge a sales price that is 6%
an EBIT margin of 21%. higher for larger shrimp.
Exhibit 22 | The Average Economics of Farmers
EBIT margin % Share of total cost
21 1 1 3 95 15 52 10 7 7 2 <1 <1
Amount per kilogram of shrimp ($)
4.17 0.87
3.31 0.04 0.02 0.10 3.15 0.51

1.72
0.34
0.24
0.24
0.07 0.01 0.02
Revenues EBIT Total Depreciation Pond treatment COGS PL purchase Chemicals Labor Pond Other
cost and drugs preparation variable costs
Maintenance and repair Shrimp feed Electricity: grid Labor: temporary
support

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 with an EBIT Margin Increase of up to 36%
Growth enhancement functional feed Health enhancement functional feed

($ per kilogram of shrimp) ($ per kilogram of shrimp)
Up to 36% EBIT margin increase over today's average Up to 88% EBIT margin loss from today's average
EBIT margin
EBIT margin
3%
28%
0.76
0.39 0.25
0.60 0.12 0.04 4.06
0.30 0.12 0.04 3.16 0.11
0.87 4.17 4.17
3.00 3.30
costs costs
Health enhancement feed needs to be considered in times when harvest

losses would normally occur owing to disease outbreaks. In this case, health
enhancement feed can achieve up to 20% EBIT margins compared with a
drop to 8% EBIT margins with basic feed.
Cost savings or revenues / EBIT increase, based on today’s average Cost increases or revenues / EBIT decrease, based on today’s average

•• The high price for functional feed is fits requires long-term planning, manage-
compensated for by a reduction of up to ment, and foresight.
15% in FCR due to the higher nutritional
value of functional feed, which is used for The business case calculations for health en-
the second half of the growth cycle. hancement functional feed are based on the
following:
Health Enhancement Functional Feed. Measured
on a profit per kilogram basis, health en- •• Feed is sold at a premium of up to 50%
hancement functional feed is not a profitable over basic feed.
alternative to conventional feed. The 50%
higher price of shrimp feed reduces the EBIT •• No change in FCR, but survival rates rise
margin to 3%—a drop of 88% from 21%, to- from 20% to about 70% to 80%.
day’s EBIT margin. However, if disease out-
breaks are anticipated, an EBIT margin of up •• Scenario 1. With basic feed for the entire
to 21% can be achieved—compared with 8%, production, about 80% of crops are
today’s average—assuming that 20% of the successful with a 60% survival rate, and
harvest is affected by disease. 20% of crops hit by disease have a survival
rate of only 20%.
By preventing disease outbreaks, health en-
hancement functional feed yields superior •• Scenario 2. With basic feed two-thirds of
revenues and profits in the long term with the time, successful crops have a 60%
survival rates of about 73% (compared with survival rate, and using health enhance-
60% with basic feed). During times of a dis- ment functional feed one-third of the time
ease outbreak, survival rates can increase to avoid disease achieves a survival rate as
from less than 20% to about 70% to 80%. high as 73%.
Health enhancement functional feed serves
as a risk management tool for farmers with a Environmental Impact. If farmers increase
clear financial incentive, but achieving bene- their efficiency, less feed will pollute the water,

and the use of growth enhancement feed can •• Energy costs increase 20% to 40% owing to
indirectly reduce the impact of overfishing and the extended need for aerators.
lead to a positive environmental impact.
•• The cost of skilled labor rises 5% to 10%
Biofloc and RAS. The business case for using owing to the need for higher controls and
biofloc depends on the farm’s technical man- constant supervision.
agement, which influences prices, costs, and
production parameters (such as FCR and •• FCR decreases by 25% because biofloc can
growth cycles). be used partly as a feed source.
In the best case, biofloc can yield EBIT mar- •• The costs for chemicals decrease 3% to 7% as
gins of up to about 29%, a relative increase of water quality improves through biofloc use.
up to about 40% over today’s average. In the
worst case, biofloc yields EBIT margins of up •• The additional cost for cornmeal as a
to about 24%, an increase of about 15% over carbohydrate source ranges from about
today’s average, or it can even lead to a de- $0.28 to $0.44 per kilogram. To produce a
cline in EBIT margins. Results vary depend- kilogram of shrimp, approximately 0.65
ing on the farm’s technical management, kilograms of cornmeal is a required
which influences prices, costs, and parame- biofloc ingredient.
ters such as FCR and growth cycles. If farmers
are knowledgeable and consistently monitor •• In the worst-case scenario, variable costs
the system, they can expect to achieve the stagnate or decrease by 2%, and in the best
best-case scenario. If the application of bio- case, costs decrease by as much as 7%.
floc fails, EBIT margins could drop signifi-
cantly. (See Exhibit 24.) •• Because of the protein content in biofloc,
the growth rate increases by as much as
The assumptions for business case calculations 27%, raising the sales price of the larger
for biofloc for farms include the following: shrimp by 2% to 4%.
Exhibit 24 | Biofloc Can Increase EBIT Margins by as Much as 40%, While RAS Can Increase Them by as
Much as 29%
Biofloc ($ per kilogram of shrimp) RAS ($ per kilogram of shrimp)
Up to 40% EBIT margin increase over today's average Up to 29% EBIT margin increase
over today's average
Best case Worst case
EBIT margin EBIT margin EBIT margin
29% 24% 27%
0.40 0.17 0.15 0.08 0.08 4.17
0.06 0.12 0.04 3.24 0.47 0.28 3.05

0.23 0.12 0.04 3.07 0.06
0.87 0.87
0.87 0.06 0.04
4.17 4.17
2.91 3.08 2.67
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.

Farms that use RAS can achieve EBIT mar- growth enhancement functional feed and
gins as high as 27% per kilogram of shrimp RAS yields EBIT margins of up to 34%, in-
produced, increasing today’s average EBIT creasing EBIT margins by as much as about
margins by up to 29%. 61% over today’s average. When compared
with the standalone functional feed and RAS
Assumptions for the business case calcula- cases, the combined case offers up to about
tions for RAS for farms include the following: 21% and about 26% higher EBIT margins, re-
spectively. (See Exhibit 25.)
•• The possibility of a twofold increase in
stocking densities due to better water The assumptions for business case calcula-
quality and monitoring of water conditions tions for the combined use of growth en-
hancement functional feed and RAS for
•• Investment costs of $150,000 per hectare, farms include the following:
depreciated over ten years and leading to
an expected yearly yield of 50,000 kilo- •• Assumptions are comparable to stand-
grams per hectare (based on increased alone solutions, as both methods affect
stocking densities) different variables.
•• A 15% decrease in variable costs, reflect- •• Doubled stocking density is possible

ing increased energy and maintenance owing to higher water quality and im-
costs, reduced labor costs due to higher proved monitoring of water conditions.
automation and higher stocking densities,
reductions in the amount of chemicals •• Reduction of FCR by 15% is due to the use
required, and lower disease risk of functional feed during half of the
production cycle.
•• A 50% decrease in fixed costs due to
higher stocking densities •• A 6% increase in the sales price of shrimp
due to larger shrimp size is based on the
When considering RAS, farmers should keep use of functional feed.
in mind that indoor intensive farming will be
the key to long-term survival and success in •• For half the growth cycle, there is a 20%
the industry—and RAS represents a first pre- increase in the feed sales price (and
parative step. additional feed mill costs are incurred).
Environmental Impact. The environmental •• Variable costs decrease by as much as

impact of biofloc and RAS is positive. With about 19% based on RAS use.
biofloc, better water quality leads to less
pollution, eutrophication, and ground water •• A 50% decrease in fixed costs is due to RAS.
contamination, permitting water recycling
and reducing water intake. Lower FCR has an •• Investment costs of $150,000 per hectare
indirect impact on feed production and the are depreciated over ten years with an
potential to reduce the amount of wild fish expected yearly yield of 50,000 kilograms
used in feed. per hectare—double today’s average.
RAS reduces the use of new intake water (ex- Combined Options: Growth Enhancement Func-
cept to make up for seepage and evaporation), tional Feed and Biofloc. The combination of
but because energy consumption is higher, functional feed and biofloc is likely to offer a
there is the risk of higher air pollution. Still, better business case than standalone options,
the use of RAS has the potential to reduce as both affect the same production parameters.
land use because the increase in stocking den-
sities allows for higher output per hectare. Assumptions for the business case for the
combination of growth enhancement func-
Combined Options: Growth Enhancement Func- tional feed and biofloc for farms include the
tional Feed and RAS. The combination of following:

Exhibit 25 | A Combined Solution Can Increase EBIT Margin by as Much as 61%, a Higher Potential
Benefit Than a Standalone Solution
Further research required
Functional feed and RAS ($ per kilogram of shrimp) Functional feed and biofloc ($ per kilogram of shrimp)
Up to 61% EBIT margin increase over today's average Up to 60% EBIT margin increase over today's average
EBIT margin
EBIT margin
34%
33%
0.62 0.25
0.66 0.42
0.59
0.06 0.28 2.93 0.25 0.12 0.04 3.05
0.06 0.04 0.87 0.87
4.17 4.17
2.55 2.89
costs costs

Note: RAS = recirculating aquaculture systems; COGS = cost of goods sold. Because of rounding, not all numbers add up to the totals shown.
•• FCR improves up to 32%, as the functional sessment, and these assumptions must be
feed and biofloc can reduce FCR. This is validated through further research.
compared with a 15% reduction through
the use of growth enhancement functional Solar Energy. When farmers rely on a genera-
feed and a 25% reduction through biofloc. tor for backup energy, EBIT margins are re-
(The effect on FCR is not the sum of both duced by more than 20% to 17% owing to
standalone options, as the combined high fuel costs of about $224 per megawatt
impact has not yet been studied in depth.) hour. When solar energy is used instead of
diesel generators, EBIT margins could rise
•• The sales price increases up to 10% about 20%, which is a drop of up to about 6%
because a higher price can be achieved for in EBIT margins when compared with today’s
larger shrimp. (Accelerated growth average (assuming a stable grid energy sup-
through the combined use of functional ply). (See Exhibit 26.)
feed and the high protein content of
biofloc leads to even higher prices achiev- Assumptions for business case calculations
able in the market if global shrimp prices for solar energy include the following:15
are correspondingly high.)
•• A levelized cost of energy for solar
•• Additional assumptions for biofloc options, including batteries, is currently
(averaged best and worst cases) include a estimated to be higher than grid energy
skilled labor increase of 8%, an energy but significantly lower than diesel genera-
increase of 30%, a chemical decrease of tor use.
5%, and the price for cornmeal as a
carbohydrate source at approximately •• Electricity is 70% from the grid and 30%
$0.36 per kilogram with 0.65 kilograms of diesel generated.
cornmeal needed per kilogram of shrimp
produced. •• An average levelized cost of energy for
solar of ground-mounted tracking, floating
However, as indicated above, the combina- tracking, and floating PV systems is $115
tion of the two options still needs in-depth as- per megawatt hour.

Exhibit 26 | The Use of Solar Energy Trumps Diesel Results for EBIT by as Much as 17%
30% energy from diesel generator 30% energy from solar

($ per kilogram of shrimp) ($ per kilogram of shrimp)
Up to 20% EBIT margin decrease compared Up to 6% EBIT margin decrease compared with today's
with today's average average, but a 17% increase compared with diesel use
+17%
EBIT margin EBIT margin
17% 20%
0.17 4.17 0.05 4.17
0.17 0.12 0.04 3.47 0.05 0.12 0.04 3.36

0.70 0.82
3.14 3.14
costs costs

•• The grid energy price is $65 per megawatt Middlemen

hour, and the diesel price is $224 per Market Dynamics. In Vietnam, middlemen
megawatt hour. play a crucial role in the supply chain. A
single middleman may be responsible for
•• This is applicable only for players in connecting some 100 farmers at one time
remote areas or in areas with unreliable with processors, and they handle about 70%
grid energy. of all shrimp produced. Often multiple layers
of middlemen aggregate shrimp from various
Farmers who are exposed to frequent elec- farms, which prevents full transparency on
tricity outages should consider implementing the shrimp’s provenance.
renewable energy sources, which offer a bet-
ter business case than generators. This would Middlemen buy and resell shrimp, earning
also decrease carbon dioxide emissions and low profit margins of 0.5% to 3%, depending
the environmental footprint associated with on their position within the value chain and
them. the services added.
Environmental Impact. Farmers are the For the Vietnamese supply chain to maintain
key lever for transforming the entire supply a strong connection with the Western and
chain in terms of profitability, volume, and Japanese export markets, it should find ways
shrimp quality. Farmers can make a posi- to operate without middlemen so the shrimp
tive contribution to the environment and can be traced more reliably.
ensure the sustainable, long-term survival of
operations: their livelihoods depend on it. Business Case. No quantitative business case
Solar energy results in lower carbon emis- was assessed, but middlemen can play a key
sions than do diesel generators and grid- role in moving the industry toward traceabili-
sourced energy. However, construction ty. Currently, it’s difficult to trace and track
of solar panels can, in some cases, affect shrimp in Vietnam because, in many cases,
land use. middlemen mix and sort shrimp from multi-

ple farms. Exhibit 27 illustrates the average primarily by major companies that were once
margins of middlemen. state owned but have been privatized.
Environmental Impact. If the industry aims Processors typically achieve profit margins of
to provide fully traceable shrimp, middlemen about 10%, depending on the type of process-
might have to be cut out. Alternatively, ing and shrimp.
shrimp producers could formalize the role,
working with a few trusted middlemen who Business Case. Exhibit 28 illustrates the
provide buyers with clean, traceable shrimp. average economics of today’s processors. No
Middlemen can also decrease their environ- quantitative business case was assessed, but
mental footprint by ensuring that no drugs as processors exist at the intersection of
are injected into shrimp and by providing buyers and retailers, they are directly affected
guidance to farmers on best practices. if retailers refuse to buy Vietnamese shrimp
owing to social or environmental concerns or
if retailers want better traceability and
Processors and Exporters sustainability and are willing to pay a premi-
Market Dynamics. There are about 500 um price. This opportunity currently exists
processors in Vietnam. Approximately 200 only for a niche market, because the main-
processors have a license to export to the EU, stream market competes on price. If proces-
but only about 100 handle major exports to sors enable the upstream supply chain, they
Western markets. can yield high benefits, including sustained
access to larger quantities of high-quality
About 70% of farmed shrimp is processed for shrimp, market access, and good relationships
export, and approximately 160,000 to 210,000 with buyer markets.
metric tons of these exports were at one time
imported from other countries—such as India Environmental Impact. Processors in Viet-
and Ecuador—and then reprocessed for ex- nam have a decent amount of market power
port. About 30% of processing is value added— in the supply chain: they buy shrimp in large
for example, the shrimp are cooked or bread- quantities from farmers and pass on the
ed—and the remainder is simple processing. market price for shrimp. With their direct
connection to export markets, processors also
Exports tend to be more formalized than oth- have to comply with regulations and retailer
er steps in the value chain. They are managed and importer demands directly. This provides
Exhibit 27 |The Average Economics of Middlemen
Eample of L. vannamei
Transportation
Depreciation
Labor costs
Other costs
Sales price:
Sales price:
Purchasing
wholesale
Total cost
collector
Value
price
Ice
($ per kilogram)
Unit value 4.17 0.02 0.03 0.08 0.01 0.04 4.35 4.37 4.48
Share of
~96 <1 ~1 ~2 <1 ~1 100 ~0.5 2.5
the total(%)
Margins earned by
collectors and wholesalers
Sources: Journal of Food and Agriculture; BCG analysis.

Note: L. vannamei = Litopenaeus vannamei. Because of rounding, not all numbers add up to the totals shown.

Exhibit 28 | The Average Economics of Processors
EBIT margin (%) Share of total cost (%)
9 2 5 6 87 76 3 1 3 4
Amount per exported kilogram of shrimp ($)
9.70 0.87
8.83 0.22 0.45 0.49 7.67 6.72
0.30 0.06 0.24 0.35
Revenues EBIT Total cost Direct Depreciation Fixed costs COGS Shrimp Packaging Chemicals Energy: grid Labor
manufacturing and drugs
overhead

Note: COGS = cost of goods sold. Because of rounding, not all numbers add up to the totals shown. Production output of 1 kilogram of frozen
shrimp requires at least 1.3 kilograms of raw shrimp.
a strong incentive to support the shift toward Including P. monodon production, the average output
level is reduced to about 0.7 metric tons per hectare for
traceability along the entire supply chain. If the entire industry. Calculations are based on the total
processors support traceability, this will farmed-shrimp output and total land use, including
reduce land use as well as water and energy water treatment systems, facilities, and buildings—not
just pond area.
consumption.
7. This assumes a growth rate of about 4.3%, which was
derived from an average of past and current growth
rates. There are no official forecasts for production.
8. Southern Shrimp Alliance, 2018.
9. Carboxymethyl cellulose powder is a gelling agent
that is sometimes used as a laxative. This information is
Notes from several sources, including Viêt Nam News,
1. This estimate, based on data of the Food and SeafoodSource News, and Southern Shrimp Alliance.
Agriculture Organization of the United Nations (FAO),
10. FCR indicates how much feed is needed for the
has been adjusted for production losses due to disease
production of 1 kilogram of shrimp.
and harvest losses.
11. RAS provide the ability to reuse water on the farm,
2. Vietnam’s government has set a national action plan
thereby dramatically reducing freshwater intake as well
for the development of the shrimp industry through
as wastewater discharge into the environment.
2030. The plan, which sets growth targets of 1.3 million
metric tons of shrimp output and $12 billion in export 12. The effects on the feed market, as well as the impact
value, includes the creation of a high-tech shrimp indus- on land and fish use, should be examined separately.
try and a large-scale ecofriendly shrimp-farming area. 13. Li Li, Claude E. Boyd, Phoebe Racine, Aaron
3. The export value is based on data from the Vietnam McNevin, et al. “Assessment of elemental profiling for
Association of Seafood Exporters and Producers and distinguishing geographic origin of aquacultured shrimp
FAO. from India, Thailand and Vietnam,” Food Control 80
(2017): 162–69.
4. The business case analysis and recommendations in
this report are focused mainly on L. vannamei, as it is 14. PL stocked per square meter in brackish water for
considered the major species in shrimp farming. P. the production of shrimp.
monodon production has been declining since the early 15. Further assumptions for the calculation of levelized
years of this century. However, general issues and trends energy costs: fuel costs are $0.72 per liter, the weighted
are also relevant for P. monodon production. average cost of capital is 9%, the capital expenditure for
5. For example, in 2018, Vietnam and the EU finalized ground mounted PV is $1.7 million per megawatt hour,
the terms of a free trade agreement that is expected to the operating expenditure is 2% of capital expenditure,
be ratified in 2019. and the mean capacity factor for solar irradiation is
about 15%.
6. This takes into account only L. vannamei production.

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 con-
tor and senior partner in the Frank- gratitude to Sabine Miltner, tent of this report, please contact
furt office of Boston Consulting Maureen Geesey, and Bernd one of the authors:
Group, the global topic leader for Cordes of the Gordon and Betty
green energy, and an expert on total Moore Foundation, and Aaron Holger Rubel
societal impact and sustainability. McNevin of WWF-US. Managing Director and Senior Partner
Wendy Woods is a managing di- BCG Frankfurt
rector and senior partner in the The authors are grateful to +49 69 915020
firm’s Boston office and the global Matthew Clark for marketing sup- rubel.holger@bcg.com
leader of the Social Impact practice. port and to Amy Strong for writing Wendy Woods
David Pérez is a managing director assistance. They thank Katherine Managing Director and Senior Partner
and partner in BCG’s Stockholm of- Andrews, Elyse Friedman, Kim BCG Boston
fice and the global leader on aqua- Friedman, Abby Garland, and +1 617 973 1200
culture topics. Shalini Unnikrish- Shannon Nardi for editorial and woods.wendy@bcg.com
nan is a managing director and production support.
partner in the firm’s Chicago office David Pérez
and an expert on total societal im- Managing Director and Partner
pact and sustainability. Alexander BCG Stockholm
Meyer zum Felde is an associate +46 8 402 44 00
director in BCG’s Hamburg office. perez.david@bcg.com
He focuses on total societal impact
and sustainability and circular Shalini Unnikrishnan
economy. Sophie Zielcke is a proj- Managing Director and Partner
ect leader in the firm’s Berlin office BCG Chicago
who works on total societal impact +1 312 993 3300
and sustainability as well as the ag- unnikrishnan.shalini@bcg.com
riculture topic. Charlotte Lidy is an
associate in BCG’s Munich office Alexander Meyer zum Felde
and works on total societal impact Associate Director
and sustainability. Carolin Lanfer BCG Hamburg
is an associate in the firm’s Cologne +49 40 309960
office and works on total societal meyer.zum.felde.alexander@bcg.com
impact and sustainability. 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 Associate
Moore Foundation. The Gordon and BCG Munich
Betty Moore Foundation fosters +49 89 231740
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 To Sustainable Shrimp Production in Vietnam The Case For Improved Economics and Sustainability

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A Strategic Approach

ALEXANDER MEYER ZUM FELDE

August 2019 | Boston Consulting Group

6 MARKET FORCES ARE RESHAPING THE GLOBAL SHRIMP

8 VIETNAM IS LOSING GROUND TO OTHER SHRIMP-FARMING

1 3 VIETNAM: THE CASE FOR CHANGE

1 7 IMMEDIATE CHANGES CAN DELIVER SHORT-TERM

2 9 INTEGRATED AND LARGE PLAYERS MUST ACHIEVE

2 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

3 5 LONG TERM, INDOOR FARMING WILL DISRUPT THE ENTIRE

3 8 THE TIME TO ACT IS NOW

5 7 NOTE TO THE READER

Boston Consulting Group | 3

T he Vietnamese shrimp industry must take immediate action to

•• Early in this century’s second decade, Vietnam, trailing China and

•• Vietnam has developed a robust business model around reexports.

•• The Vietnamese government recently developed a master plan for

Vietnamese shrimp producers can make short-term changes to

•• New and improved farming methods—including functional feed

•• But these short-term changes don’t address the risks inherent in

4 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

•• Import authorities in major markets, such as the US and the EU,

•• As global consumers and retailers grow increasingly concerned

•• Traceability will be difficult to achieve in Vietnam because the mar-

With closed-loop systems and indoor farming, large Vietnamese

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

•• Taking one more step, indoor farming would further accelerate

•• If implemented on a large scale, closed-loop systems and indoor

By moving toward traceability and indoor farming, the Vietnam-

Boston Consulting Group | 5

F armed shrimp is among the fastest-

6 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

As the demand for sustainability grows, there

Boston Consulting Group | 7

V ietnam is the fifth-largest shrimp

8 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

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

10 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

•• Processors. About 70% of the shrimp

Exhibit 3 | Vietnam’s Farmed-Shrimp Supply Chain

Source: BCG analysis.

Boston Consulting Group | 11

Vietnam’s Shrimp Production and Production Area, 2013–2017

L. vannamei yield (metric tons) L. vannamei area

P. monodon yield (metric tons) P. monodon area

12 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

T he Vietnamese shrimp industry is

Boston Consulting Group | 13

Source: BCG analysis.

Diseases and Environmental Furthermore, shrimp farming has caused

14 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

600 466 60 48 49 200 169

Sources: Southern Shrimp Alliance, 2018; BCG analysis.

Boston Consulting Group | 15

16 | A Strategic Approach to Sustainable Shrimp Production in Vietnam

V ietnam’s farmed-shrimp industry

Growth Enhancement Functional Feed. This

Boston Consulting Group | 17

Levers for short-term changes

Immediate short-term change