India's shrimp traders fear $1 bn loss as long-term US contracts face heat

India’s shrimp sector is in turmoil for the second consecutive day on Friday due to the impact of US tariffs.

 

Traders fear that US customers may back out of long-term contracts, leading to an estimated loss of around $1 billion. Additionally, farm-gate prices for shrimp are expected to fall by nearly ₹70 per kg for every 50-count batch.

 

Shrimp are sold based on count, with a 50-count representing 20 grams of shrimp (50 pieces per kg). Until recently, 50-count shrimp were priced around ₹350 per kg. This count is common for Vannamei shrimp, the primary variety exported from India to the US.

 

The price drop is attributed to shrimp processors halting their purchase plans, which could severely impact growers. This is especially concerning as 70 per cent of India's shrimp production occurs during the summer months.

 

“Farmers are already in panic. If you consider 26 per cent tariff and if all this 26 per cent gets passed on to the farmers then it will be a huge loss because average 50-count price of Vannamei shrimps is around ₹350 per kg and if prices drop by 20 per cent then farmers will stand to lose anywhere around ₹60-70 per kg,” Divya Kumar Gulati, chairman of Compound Livestock Feed Manufacturers Association, a body representing India’s livestock sector, told Business Standard.

 

He said that even if the processors absorb 10 per cent of the hike and pass on the rest to the farmers, prices will soften by around ₹30-40 per kg.

 

Gulati said with processors already putting on hold all shrimp purchases from farmers’ huge quantities of investment is at stake as farmers on an average put an investment of around ₹1 lakh on a one-hectare shrimp pond. 

 

A big chunk of the shrimp ponds from which exports happen are in Andhra Pradesh .

 

"The shrimp seeds are already in the ponds and nobody knows their fate now," he added.

 

The US on Thursday, slapped a 26 per cent tariff on all goods imported from India as part of its reciprocal tariff measures.

 

This levy, along with other existing duties, will drive the total effective duties from seafood imported from India to close to 39 per cent, with some experts saying it may even touch 45 per cent.

 

For India, the US is its largest shrimp market, with exports touching close to $1.9 billion in FY24, with varieties like ‘Vannamei’ and ‘Black Tiger’ cornering the lion’s share.

 

On the other side of the spectrum, with US customers backing out from long-term deals or putting them on hold, uncertainty has also gripped packed shrimps worth almost ₹3,000 crore bound to the US.

 

“Normally, our contracts are for three months to one year for buyers in the US, retail and food services (restaurants). All those long-term contracts will be on hold now. The impact, including pending orders and those in transit, will be around $1 billion,” said Pawan Kumar G, president of the Seafood Exporters Association of India.

 

“Tariffs will start from April 5, and whatever is loaded after that will attract some 10 per cent tariff, and maybe after April 9, it may be 26 per cent. Whatever is already on water may not attract it is the information I am getting from consumers,” said Anand K, Sandhya Marines.

 

Traders said it is difficult to diversify to other markets because Vietnam, Europe’s second biggest exporter, already has a free-trade agreement with them.

 

“There is panic all around, and we may see some knee-jerk reactions too. Though we are better placed than Indonesia, Vietnam, and Thailand in terms of tariff. Our major rival in the US market, Ecuador, has a tariff of only 10 per cent. This means the differential tariff between the two countries (India and Ecuador) will be more than 20 per cent, after factoring in a countervailing duty of around 6 per cent,” Anand explained.

 

“Though customers may absorb the tariff in the near future, once Ecuador ramps up the production, the shift may happen,” he said.

 

Trade sources said that even more concerning than the future contracts are the containers already in transit.

 

“We are not totally clear on the future of around ₹2,000 crore worth of shrimp already in the sea. On top of it, we are sitting on another ₹2,000 crore worth of inventory, which is packed for the US market for shipments, which may be charged with an additional tariff of ₹560 crore. If this is applicable for the containers in transit, the immediate total impact may be around ₹1,200 crore,” Kumar added. 

Shrinking prospects

 

> US is India’s largest shrimp market. FY24 exports were around $1.9 billion

> Europe is the second major market. It is already dominated by Vietnam, which has a free-trade agreement with them

> The 26% tariff, along with existing duties, will push up effective duties from seafood imported from India to close to 39%

> Shrimps are sold on the basis of counts and 50 count: 20 grams of shrimp of 50 pieces in a kg

> Farm-gate prices have dropped because shrimp processors have put their purchase plans on hold

> Huge investment at stake as  farmers on an average put an investment of around ₹1 lakh on a one-hectare shrimp pond