Global demand for shrimp is estimated to contract by 20 per cent due to the outbreak of Covid-19 pandemic around the world followed by localised demand disruptions. As per an ICRA note, there is bound to be considerable volatility through the year.
Higher-cost protein consumption like shrimp is also linked to economic conditions which in turn impacts demand. Falling shrimp prices has impacted farm stocking levels in several markets globally and in India, during April and May, however, stocking has started picking up in June with recovery in prices. Globally, markets like Vietnam, which have been able to control the pandemic better are increasing supply while countries like the recently hit Ecuador could see lower stocking and supply in the coming months.
Pavethra Ponniah, VP and sector head, ICRA, said, “Given the multiple countries involved, local conditions and the evolving situation around the pandemic, global supply predictions will be fraught with risk. However, there is a broad consensus on falling supply in the global markets. The interplay of falling demand and supply will decide the eventual prices, which will stay volatile through the coming months.”
The shrimp industry was first hit by the pandemic and lockdowns in China, a key player in global demand supply dynamics. Extended lockdowns, during the annual week-long Chinese New Year holiday, till well into February 2020 lead to a global demand-supply imbalance.
Subsequently, with the global spread of the pandemic across continents, deeper demand disruptions resulted in a sharp fall in Indian (and global) farm gate shrimp prices in early March 2020. Panicked farmers harvested their crop early, leading to an oversupply in few markets. Global buyers attempted to renegotiate prices and global prices stayed low till early May 2020. This impacted stocking levels in several markets, including India.
Although prices have recovered in May 2020 since Covid-lows on the back of Chinese demand and also in other key markets of USA and Europe, demand is limited to the retail segment. Developed markets source shrimp for retail and food services. Closure of foodservices globally has led to increase in home cooking and this has sharply altered buying patterns.
Globally, retail store buying of frozen and value-added shrimp stock has increased, compared to foodservices earlier. As retail outlets ran low on stock, buying recommenced in USA and European markets. Supply constraints in other sources of protein like beef and pork, also impacted by the pandemic, switched protein consumption to shrimp.
Consequently, despite the weak market conditions, YTD May 2020, shrimp imports by USA alone grew by 3.8 per cent to 2.57 lakh MT, with strong off-take from Ecuador and Indonesia.
However, as countries emerged from lockdowns in May and June, newer outbreaks and lockdowns have led to considerable price volatility. The recent detection of the virus on the packaging of shrimp imported by China from Ecuador has again impacted demand and prices. CY2020 is likely to continue to witness such disruptions.
International trade in processed shrimp was an estimated 30.5 lakh MT in CY2019, of which India the largest exporter accounted for 6.65 lakh MT of exports, closely followed by Ecuador at over 6.34 MT of processed shrimp. Along with smaller exporting nations, Vietnam and Indonesia, the four countries together account for over 60 per cent of the global trade.
As for the largest importers, China, USA and Europe, imported 7-7.2 lakh MT each of processed shrimp in CY2019 followed by Japan a distant fourth. China with high levels of domestic consumption is not only the world’s largest importer but also largest shrimp producing nation.
Coming to the domestic shrimp industry, the shrimp farming community in India is highly fragmented and is a price taker, mostly from the larger processors. For the processors, the procurement price (from the farmer) is linked to global demand and hence buyer prices. The shrimp processing segment comprise of few large and several smaller players.
The larger processors have over the years been moving up the value chain from block freezing to IQF, further to value-added and eventually cooked shrimp. The smaller processors are more focussed on the block segment.
Although demand disruption has hit processors and farmers alike, the latter has to normally bear majority of the brunt of falling prices. However, as farm gate prices collapse, farmers stop stocking and availability of raw shrimp to processors reduces, impacting their volumes and margins. Processors have also been hit by manpower and logistics issue. Nevertheless, the low farm-gate prices in April and May led to several Indian processors procuring and cold storing the shrimp for later processing.
Large processors with in-house manpower continued to function at reduced capacity however labour issues continue to plague processors in June 20 also. In the coming months, labour availability will be contingent on localised lockdowns and subsequent viral flare-ups.
Ponniah adds, “During FY2021, ICRA expects shrimp processors to report volume declines across the board. Processors catering to specific markets could suffer from periodic disruptions like Ecuador’s supplies to China in the coming months. Further, processors catering to the food service sector would also be significantly more impacted than those selling for retail sales. Impact on processor margins would be a function of global prices in key source markets, the ability to source profitably from farmers and keep factory utilisation levels high with adequate labour.”