Global shrimp prices are expected to face pressure over the next few months, as global trade adjusts to the changing demand dynamics in China, a key importer and consumer of farmed shrimp. The sizable domestic production (estimated at over 10.0 lakh MT) and consumption of shrimp in China, makes China a key price-mover in the global markets. In fact, China was a market stabiliser during CY2019, when global demand from USA, EU and Japan floundered.
Says, Ms. Pavethra Ponniah, Vice President and Sector Head, ICRA Ltd, "The rapidly spreading novel coronovirus (COVID-19) pandemic, which originated in Wuhan, China, is believed to be zoonotic and since has been transmitted human-to-human. 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."
In terms of global trade, USA has traditionally been the largest importer of shrimp, with imports of 6.98 lakh MT of frozen shrimp in CY2019. China closely followed USA, with imports of 6.5 lakh MT; this is despite China being the largest producer globally. During the second half of CY2019, China overtook USA 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 the 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. China and Vietnam together now account for 25% of shrimp exports from India (in value terms) while 45% plus of India's exports are shipped to the USA.
For China, the key sources of frozen shrimp imports are Ecuador (50.7% during 11M CY2019); India (24%); and Vietnam and Thailand (at a cumulative 9.6%). Typically, Q3 and Q4 account for over 60% of the shrimp imported by China annually. Demand peaks in December and January of each year, before falling to seasonal lows in February, post the Chinese New Year. The Chinese New Year in January is a critical period of heightened consumption in local Chinese markets which clears the channel inventory, leading to fresh buying by March, which will not be curtailed.
Until FY2019, Vietnam's share in India's shrimp exports was 16% while China's share was at 9%. The trend reversal happened in 9M FY2020 when Vietnam's share fell to 4% while China's share climbed 226% to 21%.
As far as impact on India is concerned, ICRA notes that with China largely importing lower-value added and block frozen shrimp from India, the 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. Ecuadorian shrimp prices have already started correcting, as demand from their biggest source market China contracted. The impact of fall in global shrimp prices on the Indian exporters would depend on their pricing contracts with their customers. 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. Given the lead time of 3-4 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.
On a related note China is a key market for live seafood from India and this limited shelf-life market is already facing the brunt of the heightened Chinese regulations on live markets. Live and chilled seafood accounts for about Rs.1,000 crores of exports from India and this includes items like crabs, lobsters, whelks etc.
"India, like all other large exporters, including Ecuador would have to wait-and-watch for the spread and severity of the pandemic and the impact on demand in China, post the Chinese lunar holiday in February 2020. While a confluence of factors like the ability to find alternative markets, reduction in supply over the next 3-4 months, early harvesting, and delayed stocking will determine how the dynamics play out, the immediate term correction in shrimp prices is a given," adds Ms. Ponniah.