Shrimp farming investors have their heads in the sand, focused on growth while ignoring risks from climate change and coastal damage to the billions of dollars they have invested.
So says a new report by Planet Tracker, which found investors have $63 billion exposed to shrimp farming, which it calls the most valuable traded farmed seafood commodity.
Shrimp farming’s rapid growth has come at the cost of ravaged mangrove forests and the churning out of more greenhouse gas per kilogram than beef processing. Public companies and private equity firms aren’t addressing the issue in their financial disclosures, the report says.
None of 20 investment firms studied by the London-based financial think tank in “Shell Shock – Mangrove Deforestation Threat to Farmed Shrimp Investments” mentioned deforestation or carbon emissions in their portfolios. These firms hold a combined 61% investment stake in 27 publicly traded companies with major shrimp farming operations.
Shrimp farming companies themselves provide scant detail about their financial performance, which the report said limits investors’ ability to make comparisons across the sector and to forecast earnings accurately. Just four of the companies disclose shrimp-specific revenue and operating margins. Financial data providers such as Bloomberg also don’t consider environmental issues in their valuations of companies.
Investors may find it increasingly difficult to judge investments in the sector as regulatory changes related to deforestation and the use of antibiotics add costs to shrimping operations. The report noted that the situation has been exacerbated in recent years as commercial farmers have boosted productivity, particularly in a few areas of Southeast Asia, and adopted “relatively unsophisticated farming models” to compensate for falling prices.
The lack of disclosure “could compound environment-related top-line revenue and gross profit margin risks,” said Matthew McLuckie, director of research at Planet Tracker and one of the report’s authors.
“Unless capital markets embrace greater transparency, they risk higher exposure to production and price shocks due to nature-related supply- and demand-side constraints, exacerbating investors’ inability to calculate company valuations accurately,” he said.
The report called for greater transparency in reporting financial data and accountability by shrimp farming companies that are contributing to deforestation.
Marine shrimp and prawns were the second-most valuable species in aquaculture, accounting for almost 14% of a global market that includes different freshwater and saltwater marine life, according to a 2017 report by the Food and Agriculture Organization of the United Nations.
- The global shrimp market was worth $45 billion as of 2018, and is expected to grow at a compounded annual growth rate of as much as 5.2% between last year and 2025, the study said.
- Farmed shrimp was responsible for about 30% of mangrove deforestation and changes to coastal areas in Southeast Asia. Such farming has also affected nearby wild fish populations.