10 April 2016
India faces shrimp industry growing pains
Some of my friends in India are starting to show some concern about shrimp prices, as they have been sharply declining since last month.
The two big issues that are having an effect are anti-dumping charges and antibiotics (rejections).
In 2013 and 2014 according to provisional figures from the Marine Products Export Development Authority (MPEDA), India’s seafood exports were valued at USD 4.5 billion, and for the first time exceeding a million metric in weight. Based on the previous year, this was approximately 30 percent higher than the previous year. Aquaculture shrimp exports were booming, accounting for more than half of that total, and on a deep rising curve.
India was able to significantly increase its global market share for shrimp, cashing in on the EMS syndrome difficulties in East and Southeast Asian countries. Processing plants in East Asian countries had to depend on shrimp imports from India in order to meet their order commitments to U.S. and European importers. The U.S. was the largest market by value for Indian shrimp exports, accounting for more than half of all shrimp exports, followed by Southeast Asian countries (16.1 percent), the EU (15.82 percent) and Japan (4.94 percent). Note the likelihood is that much of the 16.1 percent to Southeast Asia was re-processed and on-forwarded to the U.S., etc.
The U.S. department of commerce (U.S. DoC) in its 10th annual review has increased the weighted average ADD on shrimp imports from India to 4.98 percent, up from 2.96 percent.
ICRA Limited is an Indian independent, professional investment information and credit rating agency and they have been reported recently as saying: “Hike in anti-dumping duty (ADD) by USA for shrimp exports may lead to higher prices and making Indian shrimp uncompetitive.” This, my friends, has come to fruition creating a major financial hit for exporters.
“Indian cultivation has over the past five years moved largely from low-volume high-value Penaeus monodon (black tiger) to high-volume Penaeus vannamei. Nearly 39 percent of the value of shrimp exported from India lands in USA, making it the largest consumer of Indian shrimps,” ICRA added.
ICRA believes that the higher reliance on the U.S. as the destination market and the ability to squeeze the input supply chain would lead to processors/exporters passing on increases in costs to farmers, as has been witnessed in the past.
Typically, processors enjoy a superior bargaining power with the farmers considering the limited shelf life of unprocessed shrimp, the bulk sourcing by domestic processors and given that some of the large processors finance the farmers’ working capital requirements in exchange for contracted supply. This is one of the infrastructure issues which hurts developing countries because if they had a way of holding the harvested shrimp back from immediate sale they would have more control.
It is well known that farmers bear the price-risk and bear the uncertainty when there are rises and falls or increase in duties, taxes and global prices given the intensely competitive and highly fragmented nature of the shrimp processing industry, which in India sees 223 entities exporting to the U.S. alone.
As per previous situations when the global prices had increased steeply due to concerns of limited global supply due to disease outbreaks, the benefits were reaped by farmers.
However, when processed shrimp prices started declining sharply due to higher stocks with wholesalers in the consuming countries, amidst increase in global supply with the Southeast Asian countries gradually recovering from disease outbreak, farmers’ profits were impacted while the processors remained insulated.
It does seem that shrimp farmers are not united and not as organized as the processing and export sectors. With the average unit size of shrimp farms being less than 2ha, they do not have capacity to negotiate shrimp price with processors. Shrimp processors and exporters are not risk takers in shrimp-farming; it is only shrimp farmers who are affected by various risks in shrimp farming. Over a period of time, it is generally observed that shrimp farmers are at a net loss. I am led to believe that even ‘shrimp crop insurance’ is beyond the reach of shrimp farmers.
A potential solution is for shrimp farmers to consider creating their own organization, capable of at least holding and/or freezing their production. Some may say they could look at full integration into processing and exporting, so that they really can share in the export price. The latter may be a bridge too far, but by establishing structured shrimp farming cooperatives or something similar, they could probably achieve a better balance than they have now.
Kerala University of Fisheries and Ocean Studies (KUFOS) last year suggested that they would form farmers groups to better organize and spread Vannamei shrimp farming in the state and to help farmers to export the produce without intermediaries.
The industry majors remain skeptical about backward integration owing to the susceptibility of margins in the farming business to the volatility in processed shrimp prices, ICRA remarked.
The Seafood Exports Association of India watches the growing importance of seafood processing, and has observed that at least 150 of the 350 processing facilities in India have received EU approval. The factories are located in 20 clusters along the East and West Coast of India, and are prime for development into international seafood processing hubs.
India is now considered by many as being on track to supply valued seafood products in convenience packs, using the latest technology. Exports to Japan may still consist of raw materials for reprocessing, but seafood exports to countries such as the U.S. now increasingly comprise high value products for direct use in the food service industry or for retail sale by supermarkets. Other seafood exports also include crabs, lobsters and various species of fish. Traditionally, the Indian seafood industry has comprised almost exclusively of small- and medium-sized family enterprises, but there is a growing trend for large corporate companies to invest in the seafood industry.
On the antibiotics issue, it was mentioned to me that some unscrupulous feed suppliers have included antibiotics without the farmers being aware. It should be noted the reason they do this is because they are aiming for better survival when using their branded products, but this is not a good approach as it could lead to rejection in overseas markets. There needs to be more understanding of the trust that is required within the shrimp value chain. Consequently, traceability is still a big concern compared to other countries.
Being a growing industry, there is always going to be teething problems. One of the reasons these issues persist, I have been advised by friends, is that many people are just too proud to admit, rectify and adapt to requirements for products that are held to higher standards and scrutiny than that is necessary in domestic markets and regulations.
I travelled in India earlier this month, and will be heading back there in October.