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Opinions expressed in the case studies and any errors or omissions therein are the responsibility of their authors and not of the editors of this volume or of the institutions with which they are affiliated. The authors of the case studies wish to disassociate the institutions with which they are associated from opinions expressed in the case studies and from any errors or omission therein.

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> Introduction

ON THIS PAGE: 
> I. Background
> II. The problem in context
> The Japanese market
> The European Union market
> The US market
> III. The players and their roles
> Responses to chloramphenicol contamination
> Responses and Action to Cheap Imported Shrimp
> IV. Lessons for others
> Bibliography
 

I. Background    back to top

Among Indonesia’s fishery products, shrimps contribute the largest foreign exchange earnings. The total value of shrimp exports in 2002, for example, was US$840 million, accounting for about 50% of the total value of fishery exports. However, shrimp exports have been declining during 2000-3. In 2000, Indonesia exported 144,035 tons (US$1,003 million) of shrimp, but this declined to 127, 334 tons in 2001 and 122,050 tons in 2002, or around US$940 million and US$840 million, respectively (Central Bureau of Statistics 2003). As an archipelagic country, Indonesia has 17,508 islands and 81,000 km of coastline which provide an excellent resource for brackish-water shrimp farming to support the growth of shrimp exports.

Japan is the largest export market for Indonesian shrimp, followed by the European Union (EU) and the United States. From the total export amount (122,050 tons) in 2002, 60% was shipped to Japan, 16.5% to the United States and 11.5% to the EU. Indonesia’s shrimp exports to Japan were, on average, 53,000 tons per year, or about 30% of Japan’s total shrimp imports. Meanwhile, Indonesia’s share of (frozen) shrimp exports to the United States is only 5-6%, which is much lower than that of Thailand (31%), Ecuador (20%) and Mexico (13%). Other export competing countries are Bangladesh, China, India, the Philippines, Taiwan and some Latin American countries.

The shrimp business in Indonesia is now under serious challenge, both internally and externally. Internally, the shrimp business faces many problems, especially in the production (farming) phase, such as disease infestation, shortage of shrimp fry, shrimp feed and medicine, regional planning and infrastructure, and farmer empowerment. Externally, the current flooding of relatively ‘cheap’ imported shrimp into Indonesia has had a detrimental effect on the profitability of businesses. Some of them went bankrupt and a large number have been in financial difficulties. Depressed world prices had begun in 2002, when the US government enacted an anti-dumping measure against China, Thailand, Vietnam, Brazil and Ecuador. This low price will potentially reduce incentives for doing business, reduce the quality of Indonesian shrimp and eventually reduce Indonesia’s competitiveness in the world market.

The other external challenge is associated with quality standards used by major importers, namely Japan, the United States and the EU. Indonesia’s shrimps have been found to be infected by viruses and highly contaminated by antibiotics such as oxytetracyline, chlortetracyline, and chloramphenicol (Kompas, 3 January 2004). The EU has since September 2001 required virus-free as well as antibiotic-free shrimp imports, the relevant regulation(1) strictly obliges all imported shrimp to be free from chloramphenicol,(2) which is commonly used as for controlling disease by shrimp growers to fight against a number of viruses, and thus to increase shrimp productivity. The Indonesian government has long banned the use of chloramphenicol for animal health protection and as a supplement ingredient in animal feed.(3) The government, along with the Indonesian Fishery Business Association (GAPPINDO), has actively encouraged farmers to abandon the use of chloramphenicol, particularly during the harvest stage of cultivation.

Considering the Indonesian production system, efforts to meet this quality standard would likely be the major constraint and challenge for Indonesia’s shrimp production in the near future. It was reported that brackish-water shrimp ponds in Indonesia amounted to 380,000 hectares, 80% of which is cultivated traditionally. Shrimp production using this system is vulnerable to virus infestation, and the use of antibiotics such as chloramphenicol is common.

II. The problem in context    back to top

This study is aimed at identifying policy and actions in response to the above two challenges, namely coping with ‘cheap’ imported shrimps and meeting importers’ quality standard. The following are research questions regarding the first challenge: what are appropriate government policies in response to such a challenge? Should Indonesia temporarily ban shrimp imports, as is now being urged by GAPPINDO? Is there any alternative to border measures (protection)?

With regard to quality, the following questions need to be answered. What must the government do to help the shrimp business (particularly traditional shrimp growers) to comply with the quality standard set by the importing countries? What role can the government adopt to help growers increase productivity as well as the quality of shrimp products? What must shrimp growers do to solve their problems and at the same time capture maximum gains stemming from trade liberalization? What can Japan, the EU and the United States do, in a mutually collaborative spirit, to help Indonesia’s shrimp producers to comply with the required quality standard without necessarily increasing their production costs? How can the so-called ‘trade facilitation’ under the Doha Agenda soon be realized to help developing countries to gain from trade liberalization? More specifically, how can Indonesia (or its delegations) put this on the agenda of the next WTO round or in bilateral negotiations?

The Japanese market    back to top

Indonesia’s shrimp exports to Japan have been declining during the period 2001-3. Total exports in 2001 were 55,617 tons (70.3 billion yen), declining to 53,607 tons (65.6 billion yen) in 2002 and 52,367 tons in 2003. The exports to Japan are mainly frozen, whose volume grew at a rate of less than 1%, while its value dropped by 8% during the same period. Meanwhile, fresh and canned shrimp exports declined significantly, by 8% and 36% respectively.

The declining export trend will probably continue. Japanese importers have recently refused to import shrimps from Indonesia since they are contaminated by chloramphenicol (Bisnis Indonesia, 20 January 2004).(4) According to Mohammad Ramli, PT Bosowa Dataran’s manager, Indonesian exporters are now obliged to attach a letter of declaration indicating that they are exporting chloramphenicol-free shrimps. Fortunately, there Japanese importers have shown understanding and co-operation towards Indonesia’s exporters in undertaking pre-shipment inspection to avoid any possibility of rejection.

The European Union market    back to top

The September 2001 EU regulation obliging all imported shrimp to be free from chloramphenicol was discussed intensively during the second meeting of the ASEAN Fishery Federation (AFA) in Bangkok (4-6 November 2003). AFA member countries revealed their concern about the potential adverse effects of such a regulation. To mitigate the immediate adverse effects, AFA has proposed to the EU the gradual implementation of a zero chloramphenicol content over five years, namely 3 parts per billion (ppb) for the first three years, 1.5 ppb for the remaining two years and finally zero ppb. Some analysts and traders raised their objection to this regulation, pointing out that chloramphenicol is naturally produced by Streptomyces venezuela in the soil and in plankton which is eventually fed to the shrimps. A zero content of chloramphenicol in shrimp may therefore be impossible.

The US market    back to top

The US Shrimp Trade Action Committee, an ad hoc committee of the Southern Shrimps Association (SSA), sent an anti-dumping petition to the Department of Commerce and the International Trade Commission dated 31 December 2003 (Bisnis Indonesia, 2 January 2004). It sought anti-dumping action against six shrimp exporting countries, namely Brazil, China, Ecuador, India, Thailand and Vietnam, claiming that these six countries practised unfair trading which harmed the US shrimp grower. Indonesia was, fortunately, not included in this anti-dumping action.

There are two implications of the US action that need to be considered. First, although Indonesia was not included in the anti-dumping action, this measure should be considered as a sign of a future threat to the Indonesian shrimp business and exporters. The US government may decide to take action against Indonesia in future, particularly if Indonesia is found to be re-exporting imported shrimps from China, Thailand and Vietnam. There are signs that some ‘rent seeking’ traders may be undertaking ‘transshipment’ of imported shrimps from these three countries to the main export destination, including the United States. Indonesia’s shrimp imports from China, Thailand and Vietnam have been increasing recently, as a result of the US anti-dumping action against these countries (Kompas, 10 July 2004).

Second, this anti-dumping measure will obviously open a window of opportunity for Indonesia to increase its shrimp exports (and its share) to the United States. High tariffs on Chinese and Vietnamese shrimp imports will make Indonesian shrimps more competitive in the US market. The question, however, is whether Indonesia is able to take advantage of this opportunity. Since the United States imposed anti-dumping duties on Thailand, China and other main exporters, Indonesian exports of shrimp to the United States have increased significantly, from 15,253.5 tonnes in January-August 2003 to 26,679.3 tonnes in January-August 2004, or by about 75% (Putro 2004). The increase has been mainly associated with cultivated shrimps.

III. The players and their roles    back to top

Responses to chloramphenicol contamination

There are two choices for shrimp growers in response to the chloramphenicol problem: the first is using synthetic chloramphenicol that would increase shrimp production and result in shrimp that were ‘free’ from salmonella, but contaminated with chloramphenicol. Second, by abandoning the use of chloramphenicol, growers could produce chloramphenicol (mostly) free shrimp, but would probably reduce their shrimp production due to salmonella infestation. The second option, if chosen, would not free shrimp growers from the quality problem, as the EU also requires salmonella-free (non-contaminated) shrimps. Needless to say, shrimp growers in Indonesia are thus facing a dilemma. For developing countries such as Indonesia, producing salmonella-free as well as chloramphenicol-free shrimps appears to be a difficult, if not impossible, goal to attain at the moment. A more sensible and fairer solution would be for the EU governments to help developing country exporters to comply with such standards. Facilitation through trade, such as technical and financial assistance, can be set up bilaterally or, though WTO fora, multilaterally.

Natural chloramphenicol can easily be distinguished from its synthetic counterpart by a special instrument introduced by the EU. The question is whether this device can be cheaply accessed by typical small-scale Indonesia shrimp growers. The EU should also be willing to bear part, if not all, of the pre- and post-inspection costs regarding quality standard inspection procedures. It is a challenge not only to the Indonesian government but to all world leaders to promote freer and fairer trade in line with the Doha Agenda of the WTO.

Responses and Action to Cheap Imported Shrimp    back to top

The world market price of white shrimp is expected to drop due to a peak harvest in many shrimp-producing countries. China, for example, will likely produce more than 350,000 tons of white shrimps in 2005, while Vietnam and Thailand will each produce around 250,000 tons. If shrimp imports from these countries are not controlled, the domestic price of shrimp in Indonesia will certainly be depressed, and shrimp growers will suffer large losses.

The price of white shrimps declined continuously throughout 2004. It dropped from US$7.2 per kg in April to US$6.2 in October, and around US$5.8 in December. The instability in world prices has been transmitted to the domestic market. The domestic price of white shrimp in May 2003 was Rp 36,000 per kg, dropping to Rp 18,000 per kg in December; it increased to around Rp 30,000 in January 2004, then fluctuated somewhat in the course of the year, settling in the range of Rp 25,000-Rp 26,000 per kg in the last two months.

Indonesia’s shrimp imports from China, Thailand and Vietnam increased in the period June-August 2004, as a result of the US anti-dumping policy towards these countries. The imported shrimps eventually depressed Indonesia’s domestic prices, since some of them are marketed domestically. At the same time unit production costs have been reported as increasing (to more than Rp 20,000 per kg) in line with an increase in the prices of feed and shrimp fry (Kompas, 10 July 2004).

The issue of low-priced imports is a very controversial one for the Indonesian shrimp industry. GAPPINDO urged the government to impose either a high tariff or non-tariff barriers including an import ban, arguing that cheap imported shrimp will destroy domestic production and hurt shrimp growers. However, the Association of Cold Storage Firms strongly disagreed, on the grounds that they would be possibly facing a shortage of shrimps for their needs. After a series of meetings with the relevant stakeholders, the government, through a joint decree issued by the Ministry of Marine Affairs and Fisheries and the Ministry of Trade, decided on a six-month ban on the import of shrimps from Brazil, China, Ecuador, India, Thailand and Vietnam from 28 December 2004.

In addition to protecting domestic shrimp growers, the import ban was also aimed at responding to the US government’s concern over the possibility of transshipment through Indonesia. The US Department of Commerce reminded the Indonesian government to be alert to the transshipment activities of countries that are the targets of the US anti-dumping duties (Bisnis Indonesia, 20 November 2004). This reminder was sent in relation to Indonesia’s increasing shrimp imports from China and Thailand during the period of 2003-4, particularly during the last few months.

The Indonesian government, through the Ministry of Marine Affairs and Fishery, announced the formation of the Indonesian Shrimp Commission on 8 October 2004, consisting of government policy-makers, academicians and business representatives (GAPPINDO). Its mission is (i) to prepare a draft of the shrimp industry’s development policy, including production, processing and international marketing development policy; (ii) to harmonize the downstream and upstream shrimp industries; and (iii) to empower the shrimp entrepreneurs, especially in terms of technology, management and financial capacity (Pasaribu 2004).

The shrimp market needs to become more diversified in terms of both product and market in order to counter cheap shrimp imports. This calls for a high level of technical assistance from both the government and international organizations (such as the FAO) in order to increase the value added of the product, such as quick-frozen, peeled, butterfly-cut shrimp, and cooked products. Industry development through technical assistance can be implemented by offering simple, low-cost technologies for value adding and by matching buyers and sellers to facilitate market diversification. Indonesia can also promote a locally specific or national quality brand (seal) the better to compete in the international market.

In order to foster the development of the national shrimp industry, the government should focus on promoting the conducive regulation of the business environment, such as consistent regulations, a regional master plan and land zoning, improving public infrastructure, promoting research and development, in particular into productivity and quality enhancing, as well as into disease-resistant technologies. These are all public domain undertakings which because of their high cost could not be tackled by private enterprises and shrimp growers. This view was put forward by the chairman of the Nusantara Fishery Community, Masyarakat Perikanan Nusantara-MPI, who stated that government had so far been too busy to tackle such technical matters as cultivation practices.

It is worth noting the performance of the Shrimp Club, established in Lampung by GAPPINDO, with a total memberships of thirty-eight firms comprising farmers, hatcheries, and feed producers and suppliers. The club mostly produces Venname shrimp, accounting for about half the total Venname shrimp production in Lampung. According to the head of the Shrimp Club, the club’s activities include giving technical assistance to members, establishing partnerships with the provincial government, undertaking productivity-enhancing studies, running experimental trials for new shrimp varieties such as Udang Biru (Litopenaeus stylirostris), and establishing long-term contracts with exporters and other market outlets including hypermarkets.

The successful experience of Nurdin Abdullah, president of PT Hakata Marine Indonesia (HMI), offers new hope of changing the sad story of Indonesian shrimp into a success story. He invited Japanese investors to establish a joint-venture firm specializing in the production of high-quality shrimp fry and food products. At present, not only does the firm supply high-quality shrimp fry, but it has been able to produce and supply ‘ShrimpGuard’, a disease-preventing antibody which can be added to shrimp food, which was developed jointly with Kyushu Medical in Japan. The main intention is to rebuild the shrimp industry in south Sulawesi so that it becomes the leading province producing giant tiger prawn (udang windu), which has been reported as being Indonesia’s second-largest export earner. Nurdin Abdullah is committed to improving the province’s production potential (Kompas, 29 November 2004).

In order to comply with international safety and quality standards, Indonesia needs technical assistance from its trading partners, which are mainly developed countries, including technology transfers, equipment, expertise and training, and trade facilitation. Other initiatives need to be promoted. More joint ventures with investors from major export destinations need to be established in the near future. Through such initiatives, transfers of technology and market-based knowledge can be expected to take place, and developing country exporters will gradually be able to meet the quality standard set by developed countries.

IV. Lessons for others    back to top

Indonesia’s shrimp business has been facing serious constraints and challenges, only some of which have been partially tackled. The most critical challenges are related to quality standards, including freedom from antibiotic contamination, imposed by developed country importers, with which the Indonesian shrimp growers lack the capacity to comply. Other problems are the low productivity and high cost of production of domestic shrimps. This last problem creates difficulties in managing trade policy against cheap imported shrimps from major shrimp exporters such as China, Thailand and Vietnam.

In response to the EU quality standards, the Indonesian government has issued a number of regulations including that of banning cloramphenicol use. In 2001 the government reiterated a chloramphenicol banning regulation that had been enacted in 1982, and established a special task force, at both the regional and national levels, to enforce the ban. Regular monitoring is carried out in all major shrimp producing regions. This action has been a success, as shown by the fact that only 8.6% out of a total sample of 10, 115 from seven provinces was found to contain cloramphenicol.

The Indonesian government has recently tightened the conditions of issuance of import quality and health certificates in order to avoid the possibility of shrimp transshipment to the United States via Singapore. This initiative is a response to the increasing trend of transshipment using Indonesia’s export certificates, and has been found to be very effective in controlling transshipments and in avoiding Indonesia being involved in possible circumventions through transshipments. In addition to imposing a temporary import ban, Indonesia has also prepared an instrument for the management of the importation of shrimps. In order to stabilize domestic prices and to support domestic shrimp growers, shrimp importers are obliged to absorb domestically produced shrimps according to an import-absorption ratio. This instrument is expected to be effective in guaranteeing that farmers receive reasonable farm-gate prices for their shrimps during the peak harvest period.

Any barrier to trade means an increasing cost for trading. For a developing country exporter like Indonesia, the quality standard imposed strictly by importing countries is difficult and costly to meet. Producing salmonella-free as well as chloramphenicol-free shrimps appears to be difficult, if not impossible, to attain at present. A more sensible and fairer way is for developed countries (such as Japan, the United States and EU countries) to help developing country exporters to comply with such quality standards. Trade facilitations, such as technical and financial assistance, can be set either bilaterally or multilaterally though WTO fora.

Last but not least, the government must provide a better environment for doing business as well as promoting new investment in the shrimp business. Among others things are improving relevant public infrastructures, promoting consistent regulations and laws and their enforcement, and political stability. In the case of the shrimp business, the government must increase its research and development budget to promote disease-resistant varieties and productivity-enhancing technologies. All these are considered as non trade-distorting domestic supports that is, ‘green box’ supports as defined by the WTO Agreement on Agriculture.

Bibliography    back to top

Central Bureau of Statistics (2003), Statistical Yearbook of Indonesia 2002, Jakarta: Central Bureau of Statistics
 
(Central Bureau of Statistics), Statistical Yearbook of Indonesia 2003, Jakarta: Central Bureau of Statistics
 
Bisnis Indonesia (2 Jan. 2004), ‘Udang RI Lolos Tuduhan Dumping’ (Indonesian Shrimp Released from Anti-Dumping Act) www.bisnisindonesia.com
 
Bisnis Indonesia (20 Jan. 2004), ‘Jepang Tolak Udang Gunakan Antibiotik’ (Japan Refuses Antibiotic-contaminated Shrimp) www.bisnisindonesia.com
 
Dursin, R. (2001), ‘Indonesia: Shrimp Farming Destroying Mangroves’, Inter Press Service
 
Kompas (26 April 2000), ‘Industri Tambak Udang Ancam Ekosistem Pesisir’ (Shrimp Pond Industry Destroys Coastal Ecosystem), www.kompas.com
 
Kompas (3 Jan. 2004), ‘Segera Benahi Udang untuk Meningkatkan Pangsa Pasar’ (Reorganize Shrimp Business Immediately to Increase the Market Share). www.kompas.com
 
Kompas (10 July 2004), ‘Dipertimbangkan Larangan Sementara Impor Udang’ (Temporary Shrimp Import Ban To Be Considered), www.kompas.com
 
Kompas (15 Oct. 2004), ‘Harga Udang Dunia Tertekan Panen Raya’ (Shrimp World Price Decrease Due to Harvest Period), www.kompas.com
 
Kompas (27 Oct. 2004), ‘Di Sumatera Utara: Ribuan Hektar Tambak Udang Ditelantarkan’ (North Sumatera: Thousands of Hectares of Brackish-Water Shrimp Ponds are Abandoned), www.kompas.com
 
Kompas (26 Nov. 2004), ‘Impor Udang Melonjak 75 Persen’ (Shrimp Imports Rise 75%), www.kompas.com
 
Kompas (29 Nov. 2004), ‘Nurdin Mengembalikan Kejayaan Udang SulSel’ (Nurdin Restores Shrimp Development in North Sulawesi), www.kompas.com
 
Kompas (28 January 2005), ‘SKB Larangan Impor Udang Segera Dicabut’ (Joint Letter on Shrimp Import Ban To Be Released Immediately), www.kompas.com
 
Kuljis, A. M. and Brown, C. L. (2004), A Market Study of Specific Pathogen-Free Shrimp, Centre for Tropical and Subtropical Aquaculture Publication 112, aquanic.org/publicat/usda_rac/tr/ctsa/spfmkta.htm
 
Pasaribu, A. P. H. (2004), ‘Press Conference on the Indonesian Shrimp Commission by the Head of the Centre of Information’, Jakarta: Ministry of Marine Affairs and Fisheries
 
Putro, S. (2004), ‘Perkembangan Pasar Utama’ (Development of Main Market), paper presented at National Shrimp Workshop, Jakarta, 2 Dec. 2004
 
Seitz, W. D., Nelson, G. C. and Halcrow, H. G. (1994). Economics of Resources, Agriculture, and Food, New York: McGraw-Hill
 
Siregar, P. R. (2001), Indonesia: Mounting Tensions over Industrial Shrimp Farming, WRM Bulletin No. 51, October 2001
 
Subardjo, S. (2004), ‘APCI dan Kesepakatan Makasar’ (APCI and Makasar Commitment), paper presented at National Shrimp Workshop, Jakarta, 2 Dec. 2004
 
Sukadi, F. (2004), ‘Kebijakan Produksi Udang Budidaya’ (Shrimp Culture Production Policy), paper presented at National Shrimp Workshop, Jakarta, 2 Dec. 2004
 
Suryadarma, J. (2004), ‘Lompatan Besar dimulai dari Langkah Kecil’ (A Big Jump Is Started from a Small Step), paper presented at National Shrimp Workshop, Jakarta, 2 Dec. 2004

NOTES:
1.- EU-No. 001/705/EC. back to text
2.- A chloramphenicol content of less than 0.5 ppb used to be allowed to enter the EU market. Some analysts and traders raised their objection to this regulation by claiming that chloramphenicol is naturally produced by Streptomyces venezuela in the soil and plankton which is eventually eaten by shrimps. back to text
3.- Surat Edaran Dirjen Peternakan 1143/IV-a tanggal, 19 Nov. 1982. back to text
4.- It was reported that Chinese shrimps have been rejected by Japanese importers because they have been found to be contaminated with chloramphenicol. back to text
 

* Rina Oktaviani is a Lecturer in the Department of Socio-economic Studies, Faculty of Agriculture, Bogor Agricultural University; Erwidodo is a Senior Researcher at the Centre of Agro-socio-economic Research (CASER), Ministry of Agriculture, Indonesia.