Coronavirus effect: Shrimp exports to decline on weakening global demand

India’s shrimp exports are likely to decline 10-15 per cent in the next few quarters because of weakening global demand following the coronavirus outbreak in China, the biggest importer of Indian seafood after the United States.

“China largely imports lower-value added and block frozen shrimp from India, demand of which is serviced by several small exporters and a few large players. Companies with high exposure to Chinese markets would feel immediate impact as demand falls. Smaller companies with limited financial flexibility will among most-affected. The broader impact on India would stem from not only a reduction in Chinese demand but a correction in prices as global supply-demand dynamics are disturbed,” said Pavethra Ponniah, vice-president and sector head, ICRA.

For China, major sources of frozen shrimp imports are Ecuador (50.7 per cent during 11MCY19), 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 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 would lead to a 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 would wreak havoc on all types of seafood, the impact of which would be felt on the entire value chain. Port clearance for seafood containers at 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. 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, it acted as a market stabiliser during CY19, when demand from the US, the 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 in CY19. China closely follows with imports of 650,000 tonnes, despite it being the largest producer globally. During the second half of CY19, 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 last year. Vietnam, more a re-exporter than consumer, was the largest conduit for unreported shrimp imports into China until FY19. With China cracking down on imports via Vietnam, India’s direct exports to China jumped in FY20.

"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 affected,” 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 are showing signs of contraction during the seasonal peak stock month of February. This could reduce supply over the next few months.