India’s shrimp exports are likely to decline by 10-15 per cent in coming quarters due to weakening global demand following the coronavirus crisis in China, the second largest importer of India’s seafood after the United States.
“China largely imports lower-value added and block frozen shrimp from India to which demand is serviced by several smaller exporters and few large players. Companies with high concentration on the Chinese markets would be impacted immediately, as demand falls. Smaller companies with limited financial flexibility will be impacted most. The broader impact on India would stem from not only a reduction in Chinese demand but a correction in prices as the global supply-demand dynamics are disturbed,” said Pavethra Ponniah, Vice President and Sector Head, Icra.
For China, the key sources of frozen shrimp imports are Ecuador (50.7 per cent during 11MCY2019), India (24 per cent); and Vietnam and Thailand (at a cumulative 9.6 per cent). China imports around 60 per cent of its annual consumption between July and December to meet its uptick in demand in December and January every year, before falling to seasonal lows in February, post the Chinese New Year.
This period of Chinese high consumption has been disrupted by the Chinese lockdown on cities and movement following the coronavirus pandemic. China along with Vietnam contributes nearly 25 per cent of India’s overall annual seafood exports.
“The reactionary unprecedented massive shutdown in China will lead to contraction in Chinese demand for seafood, leading to a supply glut in the global market. Apart from the reduced demand, disruption in China’s internal logistics: for unloading, storing and further processing, will play havoc with all types of seafoods, impact of which will be felt along the entire value chain, leading up to the farmers. Port clearance for seafood containers in Chinese ports would be difficult in the current environment, effectively cutting off the supply pipeline temporarily,” said Ponniah.
Global shrimp prices are expected to face pressure over the next few months, as trade adjusts to the changing demand dynamics in China, a key importer and consumer of farmed shrimp. Domestic production is estimated at over 1 million tonnes. Its sizeable shrimp consumption makes China a key price-mover in the global markets. In fact, China was a market stabiliser during CY2019, when global demand from the US, European Union and Japan floundered.
In terms of global trade, the US has traditionally been the largest importer of shrimp, with imports of 698,000 tonnes of frozen shrimp in CY2019. China closely follows with imports of 650,000 tonnes; this is despite China being the largest producer globally. During the second half of CY2019, China overtook the US to become the largest shrimp importer globally, with its increasing domestic consumption far surpassing disease-hit domestic production.
The European Union, Japan and Vietnam are other key shrimp importing countries. The European Union and Japan have reported largely flat shrimp imports over the past five years while imports by Vietnam crashed during CY2019. Vietnam, more a re-exporter than a consumer, was the largest conduit for unreported shrimp imports into China until FY2019. With China cracking down on imports via Vietnam, India’s direct exports to China jumped in FY2020.
"Indian companies already locked into quarterly to annual price contracts would not feel the immediate impact. However, the margins of companies selling on spot prices would be impacted,” said an industry expert.
Given the lead time of three - four months for cultivation, immediate term supply of shrimp is inelastic. However, stocking levels in Indian farms is showing signs of contraction, during the seasonally peak stock month of February. This could reduce supply over the next few months.
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