Shrimp Stocks: Losing Their Flavour

With Ecuador steadily increasing its shrimp export volumes since 2010 and its growth rate surging over recent years, India’s shrimp exports have taken a major hit. The article outlines the reasons why this has happened and the challenges that need to be overcome 

Over the years India’s marine products industry has emerged as a significant export success. From a humble export base of `45 crore in 1971-72, it reached a massive `60,523.89 crore in FY24. Shrimp remains the backbone of these exports, contributing a substantial 70 per cent. India was once the largest shrimp exporter globally but has lost that position to Ecuador since 2019-20. Since then, Ecuador has continued to widen its lead each year, posing challenges for India’s shrimp exporters.

Shrimp Industry Performance
The performance of India’s major shrimp companies from FY13-FY18 compared to FY19-FY24 reveals a marked shift in growth trends

Strong Growth in FY13-FY18
Between FY13 and FY18, shrimp companies recorded robust growth rates in both revenue and profits. Avanti Feeds led the sector with remarkable revenue CAGR of 40.2 per cent and a net profit CAGR of 73.1 per cent. Other companies, including Apex Frozen Foods and Coastal Corporation, also demonstrated double-digit growth, showcasing the industry’s strength during this period.

In stark contrast, the FY19-FY24 period reflects a downturn, with most companies experiencing reduced growth rates. This is evident in the five-year performance of shrimp stocks, which have significantly underperformed compared to the BSE 500 index. Avanti Feeds, for example, witnessed its revenue growth dip to 9 per cent, while net profit growth declined to 5.1 per cent. Both Apex Frozen Foods and Coastal Corporation reported negative growth in revenue and profits, while Zeal Aqua and Waterbase Limited faced slower growth or incurred losses. This industry-wide slowdown aligns with India losing its shrimp export leadership to Ecuador, pointing to deeper challenges in the sector.

Factors behind the FY19-FY24
Slowdown Corona Virus Pandemic’s Impact on Exports to the US India’s shrimp industry faced a USD 1.5 billion loss due to the corona virus pandemic, which disrupted the global supply chain and created a glut in the market. As a result, shrimp producers were left with surplus stock during 2020-21. Triggered by the pandemic, the lockdowns and restaurant closures in key markets further reduced demand, which led to a sharp decline in shrimp prices.

Global Prices of Shrimp from 2014 – 2024

The United States, a primary importer of Indian shrimp, typically relies heavily on Indian suppliers. However, the pandemic triggered a sharp rise in shipping costs, creating additional challenges for Indian exporters. This issue was exacerbated by logistical delays that extended shipping times from India to the US from the usual 35-45 days to 3-4 months. In contrast, Ecuador benefited from its geographical proximity to the US, with shipping times as short as 15 days. This gave Ecuador a significant logistical advantage over India and other Asian suppliers during a critical period.

Over the past three years, shrimp feed prices have shown extreme volatility, largely driven by a 40 per cent rise in fishmeal prices due to global supply constraints. Fishmeal is a key component of shrimp feed, and its cost increase has put a strain on the industry, squeezing profit margins for shrimp farmers. This rise in feed costs has further dampened India’s shrimp sector profitability, adding to the overall slowdown.

Ecuador’s Rapid Expansion
Ecuador has steadily increased its shrimp export volumes since 2010, and its growth rate has surged over recent years, especially compared to India.

While Indian shrimp farms are generally small, with most farmers operating five-acre plots, Ecuador’s industry is highly consolidated. Large companies professionally manage expansive shrimp farms, which allow Ecuador to achieve higher productivity and profitability. This consolidation and modernisation give Ecuador a competitive edge in terms of efficiency and cost-effectiveness.

With an oversupply of shrimp produced in Ecuador, prices on the global market have trended downward, affecting Indian exporters who struggle to compete on both cost and scale. Ecuador has been competing in various markets, including the US, Europe, and other regions where India once had a strong presence.

Latest Trade Developments Impacting
Indian Shrimp Exports In a recent development, the US Department of Commerce (DOC) imposed a higher countervailing duty (CVD) on Indian frozen water shrimp as part of its anti-dumping investigations India faces a 5.7 per cent CVD, while Ecuador, Indonesia, and Vietnam have lower rates at 3.75 per cent and 2.84 per cent, respectively. This tariff disparity may significantly impact India’s market positioning and profitability in the US market.

The US Department of Commerce’s final ruling is a severe blow to Indian shrimp exporters, as the US currently accounts for 40 per cent of India’s seafood exports, valued at USD 2.9 billion. This has led to a decline in Indian farm-gate prices for shrimp. In addition to the 5.7 per cent countervailing duty (CVD), an anti-dumping duty of 1.3 per cent is also applied to Indian shrimp, with the potential for further increases. These duties could make Indian shrimp some of the most expensive in the US market, potentially pushing Indian suppliers out of the competition.

Ecuador’s CVD Negotiations
In March, the US Department of Commerce (DOC) issued a preliminary ruling on countervailing duties (CVD) for shrimp exports. Ecuador initially faced high CVD rates but successfully negotiated a final duty of 3.75 per cent, much lower than India’s 5.7 per cent. For India, this disparity—alongside an additional 1.3 per cent anti-dumping duty—makes Indian shrimp among the most expensive in the US. Industry leaders warn that these high tariffs could heavily impact India’s USD 2.9 billion shrimp exports to the US, which represent 40 per cent of the country’s seafood exports. With Ecuador’s lower CVD rate and faster shipping times, Indian exporters are at a considerable disadvantage, potentially losing market share in the US.

Conclusion
Ecuador's rise, intense global competition, declining shrimp prices, and rising feed costs indicate a challenging future for India’s shrimp sector. The recent imposition of higher tariffs in the US could further hinder Indian exporters, making it crucial for the industry to address productivity, efficiency and cost challenges if it wants to regain a competitive edge. Given the uncertainties and pressures in the sector, it may be wise for investors to avoid shrimp-related stocks.