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Indonesia

CP Prima, Huge Lossses, New Deal for Farmers

 

   

 

Measured in hectares, Central Proteinaprima (CP Prima) is one of the largest shrimp farms in the world.  It had a bad financial year in 2015, and 2016 was even worse.

 

In its annual report covering the 12 months ending on December 31, 2015, CP Prima noted a net loss of $91.5 million and a cumulative loss of $265.5 million.  At that time, independent auditor Purwantono, Sungkoro and Surja noted “the existence of a material uncertainty that may cast significant doubt about the company and its subsidiaries’ ability to continue as going concerns.”

 

One year later, for the year ending on December 31, 2016, CP Prima reported a loss of $150 million and a cumulative loss of $411.9 million, and again auditors questioned its ability to survive as a business.

 

The most serious increase in expenses seems to have come from debts owed to CP by its farmers, who purchase feed, postlarvae, power and banking services from CP.

 

CP Prima noted that as of October 17, 2016, its cooperation with farmers would end, to be replaced by a new partnership in which the company would “release farmers’ receivables, take over farmers’ loans to the banks, [and] give termination compensation.”

 

Now, individual farmers have the option to buy feed, fry, electricity and water from anyone and can sell their shrimp harvests to CP Prima or any other party.

 

CP Prima will continue to operate its hatcheries, feed mills, farms and processing plants, to serve its existing domestic and international customers.

 

CPB (Centralpertiwi Bahari), CP Prima’s main farming operation in Lampung, Sumatra, started its operation in 1995.  Its production peaked in 2008—after having switched from Penaeus monodon to P. vannamei farming.

 

In 2009, CPB suffered a severe IMNV [infectious myonecrosis virus] outbreak.  Although it has implemented several efforts to increase shrimp farming productivity—such as pond revitalization and improvements in feed, water, fry and biosecurity—it has not been able to achieve pre-outbreak production levels.

 

Citing a positive experience with its “Kampung Vanamei” experiment with independent farmers, CP Prima hopes the new working arrangement with all its farmers will finally improve its financial performance and cash flow.

 

CP Prima president Irwan Tirtariyadi said, “What the company did in 2016 is to change how we operate...our shrimp farms, specifically on how we structure our partnership with the farmers.  In the previous partnership model, the company provided electricity...and working capital to the farmers.  Those two factors could have been supplied more efficiently by a state-owned electricity company and a government-sponsored, low-interest aquaculture-financing program.  These two key factors were not available when we started the partnership 20 years ago, hence the company had to supply them.”

 

The operating changes will take some time to materialize, as an electricity company needs to build power lines to the region and a bank will have to supply some capital, said Tirtariyadi.  “Meanwhile, the farmers continue their farming activity in low-density culture and keep supplying shrimp to our plants.  Our processing plant will mainly rely on the shrimp supply from our other farm in south Sumatra.”

 

The revenue associated with CPB’s activity is roughly 15-20% of CP Prima’s consolidated revenue, he added.  “There is a short-term negative impact to our profit and loss, but the trade-off is for the company to avoid providing further working capital...to the farmers....”

 

In 2016, income from the sale of shrimp products fell from $218 to $173 million, while sales of feeds rose from $375 to $398 million.  Sales of shrimp fry fell from $25.8 million to $24.1 million.  The firm had no single customer that represented more than 10% of consolidated net sales in 2015 or 2016.

 

In June 2016, CP Prima said it was set to ramp up exports to Europe on increased demand, which it credited to gaining Aquaculture Stewardship Council certification.  At the time Irwan Tirtariyadi said, “With this certificate, our products will sell better in the international market, especially in Europe.”

 

The company plans to market its products in Italy, Cyprus and the Scandinavian countries, while continuing to serve its existing customers in the United Kingdom, Holland and Germany.

 

Source: Undercurrent News.  Editor, Tom Seaman (undercurrent@undercurrentnews.com).  CP Prima Cuts Farmers Loose as It Racks Up $150m Losses.  Neil Ramsden (neil.ramsden@undercurrentnews.co).  April 20, 2017.

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