Business Today

Growth On A Platter

Aquaculture gains momentum on the back of meteoric rise in shrimp exports to the West and steady increase in domestic consumption of packaged fish.
By Nevin John | Print Edition: July 3, 2016

It is often said politics makes for strange bedfellows, but the same could be said about businessmen. Take, for instance, the case of Kamlesh Gupta, 47. The finance graduate from Temple University, Philadelphia, could have easily secured a white-collar job, but instead chose to get into the 'thick of things' - and almost knee-deep in the brackish waters of Kerala and Gujarat - to spend the past 20 years surrounded by shrimps, despite being a vegetarian. And, with good reason.

Now that India is fast emerging as a major aquaculture destination, Gupta's early entry into shrimp production with WestCoast, a Rs 650-crore fully-integrated seafood company, has paid rich dividends. Gupta, however, is not the only early mover to reap profits when Indian aquaculture grew by leaps and bounds in the 2009 to 2015 period. Many, including Alluri Indra Kumar, the 54-year-old Chairman and Mana-ging Director of the Rs 1,800-crore Avanti Feeds, and FMCG major ITC had also jumped into the fray to make the most of the booming sector. Between 2009/10 and 2014/15, value of shrimp exports grew 437 per cent from Rs 4,182.35 crore to Rs 22,468.12 crore, while that of marine products rose 300 per cent to Rs 33,441.61 crore.

"The US, Europe and South-East Asia are the biggest markets for Indian shrimps now. Growth prospects are also high for Indian firms as traditional seafood exporters like Thailand and Vietnam are in trouble," says Kumar of Avanti Feeds. Recently, South-East Asian economies, including Taiwan and Indonesia, have also come under increased scrutiny for human rights violation in production of seafood. In February, US President Barack Obama had banned import of seafood caught by bonded labourers from the region. Subsequently, there has been an increase in the number of rejections of seafood shipments by the US Food and Drug Administra-tion (FDA), primarily due to poor quality. Ironically, however, a few unorganised Indian companies also feature in that list, despite a good show by the organised players.

Alluri Indra Kumar, Chairman and Managing Director, Avanti Feeds (Photo: Vivan Mehra)

"Growth prospects are high for Indian firms as traditional seafood exporters like Thailand and Vietnam are in trouble"

India is also attracting investments from global majors. Last month, Thailand-based Thai Union Group PCL, the world's largest producer of canned tuna, acquired a strategic 40 per cent stake in Avanti Feeds' frozen foods business for approximately Rs 125 crore. "The purchase of the stake will add production capacity to meet growing demand," the Thai firm said in a statement. This, at a time when output in Thailand is at less than half the level of 2013.

No doubt, it is advantage India - the aquaculture exports market is becoming less competitive, India is considered reliable with both quality and service commitments, and the domestic market is witnessing rising packaged fish demand - but can aquaculture turn the tide in its favour?

Promising Past

In fact, aquaculture in India got more than its fair share of opportunities, especially after 2009, when major shrimp-producing nations, including Thailand (the world's biggest shrimp exporter back then) and Vietnam, were struck by the early mortality syndrome, or EMS, a disease that attacks the shrimp's hepatopancreas, an organ crucial to digestion, bringing down production by an estimated 30 per cent.

To their credit, shrimp producers in India immediately lobbied with the central government to allow import of whiteleg or Pacific white shrimp (Litopenaeus Vannamei) from the US for cultivation. "The popular white shrimp gained prominence with the introduction of SPF (specific pathogen free) broodstock or parent stock," says Gupta. Vannamei takes less time to grow to market size, is more resistant to disease and is more affordable. Today, it accounts for over 60 per cent of India's marine exports by value, and has helped increase export price realisation of frozen shrimps from $6.7 a kg in 2009/10 to $10.4 a kg in 2014/15. Earlier, India was known as a leader in farming black tiger (Penaeus Monodon), which still comes at a 25-30 per cent premium compared to Vannamei.

Infographics by: Tanmoy Chakraborty

India, in fact, has a century-old history of fish farming, both along the coast as well as inland, besides almost four decades of experience in scientific farming. One of the pioneering states was Kerala, where paddy fields and low-lying areas in floodplains, and those connected to estuaries and estuarine creeks, became the cradle of traditional aquaculture, as monsoon rains and tidal waters brought natural seeds of finfish and shellfish. This eventually led to the practice of 'trapping and holding' till optimum size was attained. Under the traditional system, shrimp filtration was practised as a rotational crop in paddy fields during November-April.

In fact, aquaculture became so lucrative in the early 1990s that farmers moved away from paddy cultivation to breed shrimps for exports - dried prawn kernels were exported to Burma, Singapore, Colombo, Hong Kong and Mauritius. The rapid expansion of shrimp aquaculture also contributed significantly to the decline of Chilka lake's fisheries and bird population. And, this forced the government to announce a blanket ban on aquaculture in 1994. After three years, when the ban was lifted following a Supreme Court order, scientific aquaculture picked up pace in Kerala. However, over time, states along the east coast - Andhra Pradesh, Odisha, West Bengal and Tamil Nadu - took the lead, despite the fact that India's west coast is longer. In fact, Andhra Pradesh contributes 85 per cent of fish production by volumes.

As coastal aquaculture was picking up in India with the world's appetite for fish witnessing a steady rise, Gupta of WestCoast set up a shrimp hatchery at Kotda, Gujarat, in 1997. He started supplying seeds, feed, farming know-how and credit to local farmers and, subsequently, built a processing plant in Surat in 2007 to enter the lucrative export market. Today, WestCoast has its own hatcheries, aquafarms, processing units, retail outlets and export centres.

Major Exports

In 2014/15, shrimp was the most sought after in India's seafood export basket in terms of both quantity and value, accounting for a share of 34.01 per cent in quantity and 67.19 per cent of the total US dollar earnings. Fish, is the second largest at 29.44 per cent in quantity and 11.24 per cent in value, followed by cuttlefish at 7.83 per cent and 5.46 per cent, and squid at 6.62 per cent and 3.81 per cent in quantity and value, respectively.

Export of value-added products during the fiscal year increased to 95,436 MT from 84,549 MT in 2013/14, recording 12.88 per cent growth, with value-added shrimp items topping the list with a share of 63.54 per cent in quantity terms and 75.37 per cent in dollar terms. The EU is the biggest destination for value-added products, followed by the US, South-East Asia, Middle-East, China and Japan. The share of value-added products to the total export is 9.07 per cent in quantity terms and 13.54 per cent in dollar terms.

Towards Sustainable Growth

The recent rise in exports and wide acceptance of Indian products, however, have more to do with organised farming. A World Bank report says 62 per cent of seafood will be farm-raised by 2030 compared to 45 per cent in 2009 to meet the growing demand.

This provides opportunities for Indian firms to expand further, given the land bank available for aquaculture. According to estimates, 11 lakh hectares are available for brackish water shrimp cultivation, of which only 8.5 per cent, or one lakh hectare, is under cultivation. "Compared to other South-East Asian countries, which are saturated, the advantage with India is that large tracts of unused land are available for aquaculture," says Leena Nair, former chairman, Marine Products Exports Develop-ment Authority (MPEDA).

The other positive is that nearly 60 per cent of the installed capacity spread across 465 shrimp processing plants in India has approvals from the European Union. "Our shrimps are quite popular in Europe and Japan. India is one of the top exporters to the US. In future, there is a lot of scope for diversification and value addition to India's seafood exports," adds Nair.

Developed economies are also particular with the concept of 'traceability' of seafood - tracing the origins of a product to assure quality standards of hatcheries where the seeds were matured, farms where it was reared, and the processing and logistics of a product. Therefore, says Gupta, companies that supply quality seed and feed, and share the right aquaculture practice with farmers, stand to gain in the export market.

Kamlesh Gupta, Managing Director, WestCoast Group (Rachit Goswami)

"Firms that supply quality seeds and feed, and share the right aquaculture practice with farmers, stand to gain in exports"

Says Ravi Kumar Yellanki, Manager Director, Vaisakhi Bio-Marine, a Rs 100-crore company in the hatchery and farming segment: "Intensive sea farming - in moving cages - will gain momentum in the coming years and the quality of fish will be better. However, it will be costly." Cage culture is primarily a breeding enclosure with minimum predatory pressure, where fish is reared organically with well-monitored probiotic diet and well-maintained external environment. India has 4.5 million hectares of fresh water resources, which could be utilised for cage culture.

WestCoast has already taken 1,200 hectares on lease in Varasgaon reservoir and 800 hectares in Panshet reservoir near Pune for cage culture of Tilapia fish - the largest consumed variety in the world. Tilapia can be an excellent base fish for value-added products, such as fish fries, fish fingers and fish cutlet. At present, the market for base fish is controlled by Basa (Pangasius Bocourti), which is imported from Vietnam. WestCoast aims to replace Basa with Tilapia. Besides, unorganised inland fish farming primarily revolves around the carp varieties, such as Catla, Rohu and Mrigal, across all major fish-producing states, and in Punjab, Haryana, Rajasthan and Uttarakhand.

Favourable Future

Aquaculture companies are also set to exploit the growing domestic market. "During the boom time, most companies have invested in the business, increasing capacities across the value chain. With a slowdown in demand in the past one year, the capacity is under-utilised," says Yellanki. However, domestic demand is steadily on the rise.

In February, ITC Chairman Y.C. Deveshwar said it would soon foray into packaged frozen shrimps and fish business. "We already export shrimps, but there is an equally big opportunity to sell packaged frozen shrimps." Sunil Chandiramani, CEO, Nyka Advisory Services and former head of Advisory Business, EY, agrees. "Major players in the segment are achieving operational efficiency through enterprise resource planning (ERP). Harvesting and shrimp feeding techniques, previously done manually, are becoming automated. On the retail side, (exclusive fish retail) outlets in metros and Tier I cities offer cleaned fish in a variety of ways - cut, sliced, steak, chops and fillet," he explains.

Kumar says frozen fish is not the first choice of Indians as households prefer fresh fish, and the market needs to evolve. Avanti Feeds, which started as a feed manufacturing firm, has gradually achieved vertical integration and is now present across the value chain. In feed, Avanti has a 35 per cent market share, next only to Thailand-based CP, which is at 40 per cent. WestCoast is the sole distributor of feed for CP in Gujarat and Maharashtra.

Challenges on the Way

Lack of policies and reform-oriented schemes to boost fish farming in Gujarat, Maharashtra, Goa, Karna-taka and Kerala, in comparison to robust farmer- and industry-friendly schemes in Andhra Pradesh, Odisha and West Bengal, have been a major setback for the industry.

Andhra Pradesh, for instance, recently came up with multiple schemes for farmers and feed and seed manufacturers, including interest subsidy on loans and cut in power tariffs from Rs 4.65 to Rs 3.75 per unit. The state government also offers interest subvention of 6 per cent, capital subsidy of 50 per cent on shrimp processing units, reefer van subsidy of 50 per cent, 100 per cent stamp duty exemption for land registration of aquaculture units, 50 per cent subsidy on mechanisation (pumps and aerators) and 60 per cent subsidy for feed manufacturing.

On the contrary, despite a crowded east coast, the Gujarat government has allotted just 6,000 hectares of the total 3.76 lakh hectare available for aquaculture along the west coast. "The state government is not enthusiastic enough to promote aquaculture," says Yellanki of Vaisakhi Bio-Marine. The other worry for the industry is the bureaucracy. It has to deal with three ministries - Coastal Aquaculture Autho-rity (Ministry of Agriculture) for approvals relating to aquaculture, Ministry of Food Processing for fish processing, and Marine Products Exports Development Authority (Ministry of Commerce) for exports - which results in delays and confusion. The demand for a separate Ministry of Fisheries has, so far, fallen on deaf ears.

Untapped Opportunities

Experts say if fish production, retailing and distribution are made more robust and organised, and cold chain infrastructure and technology go through a major overhaul, the success of exports could be replicated in the domestic market, as it would enable deeper penetration of frozen and value-added products. On the other hand, the MPEDA says that demand for Indian species, such as Tilapia, could see a rise in the US and European Union and has pegged a projected annual revenue of Rs 700 crore for 2016/17. The MPEDA feels aquaculture companies undergoing vertical integration in processing, exports and retail will be immensely benefited as there is a tremendous opportunity in the making.

"Fish is an affordable and healthy source of valuable protein. World over, the demand is increasing for seafood, which is considered to have more healthy proteins compared to chicken or red meat. According to United Nations estimates, global population could exceed the nine billion by 2050 from the present seven billion. Aquacul-ture will be the only source to make this valuable protein available to the global population," says Chandira-mani of Nyka Advisory Services.

With the farmed seafood sector witnessing a strong tailwind, a little assistance from the states and the Centre could only help Indian aquaculture conquer new horizons.

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