While it’s considered a low-value product compared to other seafood, frozen ribbon fish exports from India has started regaining momentum after a decline over the last few years. Though the export numbers may not be on par with those of frozen shrimps and prawns, the growth potential of this product is huge. The pros and cons of exporting ribbon fish - dissected and analysed for you Mr. Exporter!
BY Anishaa Kumar | December 2017 Issue | The Dollar Business
Come Chinese New Year, ribbon fish or cutlass as they are otherwise known, whether braised, seared or grilled, become an ubiquitous part of the Chinese menu. Interestingly, a large chunk of ribbon fish arrive on the Chinese or Vietnamese table from Indian shores. You may not have seen this fish in Indian markets or recipes and while they are evidently not as glamorous as other varieties of seafood like shrimps, crabs, freshwater fishes and other crustaceans; ribbon fish contributes significantly to India’s marine product exports.
Demand in numbers
While India is a large exporter of ribbon fish, the business hasn’t been exactly smooth for exporters. Over the last few years, the export of ribbon fish has gone through its share of upheavals. In FY2017, the exports of frozen ribbon fish from India reached $199.46 million, up by 18% from FY2016, but was still a decline of 34.3% from FY2014. India, however, continues to be an important source of frozen ribbon fish in the international market. If one looks at the seven-month period between January 2017 and July 2017, India’s exports of frozen ribbon fish witnessed a 42.8% year-on-year (y-o-y) jump during the period.
Explaining the growth in export numbers, Rajesh Masani, Owner of Veraval (Gujarat)-based Kartik Cold Storage, says, “Our business depends a lot on the catch. This year, the catch of ribbon fish has been very good and this has translated into higher exports as there is hardly any domestic market for the fish.”
Currently, when it comes to export of ribbon fish from India, Vietnam is by far the largest exporting destination with China coming a distant second. In FY2017, India exports of frozen ribbon fish to Vietnam were worth $180.95 million, while that to China were worth a mere $16.97 million. Interestingly, the end consumer of most of India’s ribbon fish exports is China. This anomaly, according to exporters, has to do with the high import duties imposed by China on exports from India. Exporters say that most Indian cargoes of ribbon fish go to China through Vietnam in order to avoid the high import taxes levied by China. Exporters also say that China also places restrictions on the number of cargoes that can be imported.
The demand in China, Masani says, is especially high during the Chinese New Year that falls in February. The demand, he says, grows from October till January. It then picks up again at the end of February. This ensures that the demand for ribbon fish is constant. Another reason, as per Chandresh Suyani, Proprietor of the Veraval (Gujarat)-based Chandrashila Exports, that makes it popular amongst lower-income communities in China and Vietnam is its low price.
Overall, India has seen a growing catch of ribbon fish. According to data from the Central Marine Fisheries Export Institute, the annual national landing volume increased from 177,259 metric tonne (MT) in 2015 to 217,100 MT in 2016. Well, that’s 22.4% y-o-y increase!
Of volume and value
The catch is increasing and so are exports, but exporters rue about the low profitability of the product. K. S. Jayakrishnan of the Kerala-based Relish Custom Foods, says that as it is a low-value product with high demand, fluctuations in procurement price can have an impact on the margin. For instance, during some months, if there is more demand for fishes like mackerel, the international price of ribbon fish may decline. “Otherwise too, it is a competitive sector and margins are usually thin,” adds Jayakrishnan.
Azaz H. Patni, CEO of Sun Exports, another Veraval-based seafood exporter, concurs. “There is so much competition that the profit margin is almost negligible. It all depends on the catch. On some days we make profits and on other days we have losses,” he says. In fact, when it comes to China, one of the largest markets for the product, exporters of frozen ribbon fish operate on wafer-thin margins. “There are very few opportunities of making big profits. Sometimes, when there is a good catch and we are able to load the catch immediately into containers, we may make a decent profit. But, usually, it is a high-volume, low-margin business for us because of the limits of our negotiating power,” says Masani.
Currently, exporters of ribbon fish receive a 7% reward under Merchandise Exports from India Scheme (MEIS) and a 0.4% duty drawback and according to them they are actually surviving on these benefits. In fact, exporters complain that there has been a sharp decline in incentives over the years. At one point in time, according to exporters, they were receiving a total incentive of 18% which has has been reduced to a mere 7.4% today.
The profitability, Jayakrishnan adds, depends on various factors including domestic prices and demand – it can vary from 5% to even 25%. The average price of the fish usually hovers around Rs.150-160 per kg, depending on the size and weight of the fish. The prices start from Rs.60 per kg, for a very small fish.
Apart from the cost of procurement of the fish, exporters also incur a variety of additional costs. Exporters say that there is an additional expense of at least Rs.30 per kg which includes overheads like electricity, labour, wastage, etc.
While in countries like China ribbon fish is a delicacy, in many other markets most varieties of ribbon fish are used as bait feed and hence fetch low prices. This also limits the chances of exploring new markets for exports.
Despite the odds...
Despite the challenges, being a low-value product also has its advantages, say some exporters. For the export of shrimps, exporters are faced by numerous restrictions and regulations regarding the presence of antibiotics. But as ribbon fish is a low-value product and comes directly from the sea, Jayakrishnan says that it is usually easier to export the fish while maintaining quality standards.
Suyani of Chandrashila Exports agrees and says, “We have a requirement for testing and certification, but the process is fairly straight-forward. We just have to send the sample to a MPEDA-recognised lab that conduct the tests. Once it conducts the test, it give us a certificate and we can go ahead. The process is easy to comply with and is not expensive.”
A buyers’ market
Exporters of ribbon fish believe that a bit of government support and some financial assistance from banks can go a long way in providing the sector the much-needed boost. “We do not get any assistance from the government with regards to storage facilities. Even banks do not give us credit. If we had these facilities, we could negotiate a better deal with Chinese importers,” says Masani.
And not just Masani, almost all ribbon fish exporters feel that even when the catch and landing is good they are powerless at the bargaining table because of the lack of these facilities. Masani explains, “The Chinese, who are our main buyers, come down personally to negotiate deals in various ribbon fish exporting hubs in India. We have had problems this year as the importers are offering a lower price, which is at least 40 cents per kg less than that they were offering last year. They are able to get away with this because they know that Indian exporters have no other market for ribbon fish and at the same time they have no proper facilities to store the catch for a long time. This has always been one of our biggest challenges as it gives them an upper hand in negotiations. We end up working on their terms and conditions.”
Issues like the Doklam standoff with China have also proven to be a challenge. Suyani says that the standoff had restricted the visits of prospective Chinese importers. “Usually, importers from China come and stay for a couple of months and finalise the deals. However, this year only a small fraction of the usual number of Chinese importers visited,” he explains.
Indian exporters also find themselves in a challenging position due to increasing competition from neighbouring countries like Pakistan and Bangladesh as these countries enjoy a price advantage over India. Masani explains, “The price of the fish is lower in Pakistan because of low operating cost. Bangladesh is also a big competition as exporters their receive huge government subsidies. We also face competition from companies in Indonesia, Singapore, Iran, etc.”
A new wave ahead?
Despite concerns on competition and price, most exporters The Dollar Business spoke to believe that the demand for frozen ribbon fish is expected to rise in the coming days and India will continue to be an important sourcing hub for importers in China. Further, an emerging market that exporters from India can tap on is South Korea. “South Korea imports the headless, tailless variety of ribbon fish. A bit of value addition can fetch Indian exporters a better price in this market,” says Jayakrishnan. Overall, the chances of higher profits are increasing as there is a rising demand for the processed ribbon fish from supermarkets in Europe and US where the Chinese and South Korean diaspora is expanding.
Having said that, China will always remain a major buyer of Indian ribbon fish. But then, options are emerging that will reduce their negotiating power. And that is good news for Indian exporters of ribbon fish as this high-volume product can then fetch a better price too!
For exporters, India is thus proving to be a worthwhile market. Poonam Gupta, CEO, PG Paper Company Ltd., a UK-based exporter, says, “India has a huge population and its per capita usage of paper is still lower compared to most developed countries, and that provide enormous opportunities for growth. The fact that plastic is being increasingly replaced by paper as a more environment-friendly alternative by corporates is also propelling the demand for paper in India.”
Gupta, of PG Paper, feels that domestic Indian paper industry also has enormous potential and opportunities for growth. “The industry has witnessed a steady growth over the last few years. And, I expect that the industry will be on positive growth trajectory in the coming years, leading to increase in domestic production as well as imports,” she says.
Of course, when it comes to profitability, importers offer mixed opinions. But then, most importers The Dollar Business spoke to say that the margin is usually fixed and is around 2% or in some cases lower, depending on the market price and the dollar conversion rate. The market, these importers say, adjust according to the international prices making higher profits difficult.
Importers are quite positive about the growth in demand of paper and paperboard in India despite the narrow profit margins. An increase in literacy, changes in lifestyle and a populace that is increasingly environment conscious, coupled with growth in sectors like organised retail, FMCG, packaging and construction means the demand for paper is here to stay. Question is, will importers be able to write their own future on paper?
TDB: What challenges do you face while exporting ribbon fish?
Rajesh Masani (RM): Ribbon fish is a low-value product. Indian exporters are at a disadvantage because the Chinese, who are our main buyers, come down personally to negotiate the deals in various ribbon fish export hubs across India. We have had problems this year as the importers are offering a lower price, which is at least 40 cents per kg less than that they were offering last year. They are able to get away with this because they know that the Indian seafood companies have no other market for ribbon fish. This is our biggest challenge as it gives them an upper hand in negotiations. And we end up working on their terms and conditions. We also do not get any assistance from the government with regards to storage facilities. Even banks do not give us credit facilities. If we had these facilities, we could negotiate a better deal with Chinese importers.
TDB: With the product being low in value and requiring additional packaging and storage facilities, how does it impact your profit margins?
RM: The additional cost we incur for exports of ribbon fish include electricity, freight, labour costs, etc., and adds at least Rs.30 per kilogram to our expenses. When it comes exporting to China, it has always been a high-volume, low-margin business for us. There are very few opportunities of making big profits. Sometimes, when there is a good catch and we are able to load the catch immediately into containers, we may make a decent profit. But, usually, it is a high-volume, low-margin business for us because of the limits of our negotiating power.
We pray that at least our high labour and electricity costs are factored in our incentives. It is difficult to be optimistic because our government isn’t supportive. These are perishable goods and we need good storage facilities. Banks also need lend to fishermen. Without money, the fishermen cannot fish as they need operating expense for their trawlers.
TDB: What are the characteristics of the Chinese market? And which is your most important market?
RM: Almost 99% of our export shipments are destined for China, with the rest going to South Korea. The demand peaks during the Chinese New Year, which falls in January-February – the Chinese consume most ribbon fish during these festivities. The peak season for exports of frozen ribbon fish is therefore from September till the end of December. That said, there is a year-round demand for the product.
TDB: What factors impact the export demand for frozen ribbon fish?
Chandresh Suyani (CS): One of the main factors that impact the export of ribbon fish from India is the catch and landing in nearby countries. Some time ago, Indonesia used to have a good catch and importers in China and Vietnam preferred to import from Indonesia as the price was less, and so was the distance. The catch is now better in India.
TDB: What are your biggest markets for ribbon fish?
CS: Our biggest export markets, when it comes to ribbon fish, are Vietnam and China. The reason for an increased demand in these regions is that ribbon fish is popular amongst the lower income population in these countries.
While ribbon fish is also locally available in these countries, the supply is not enough to meet their growing domestic demand. This has forced China and Vietnam to resort to imports. The only time the demand for the Indian produce slackens is when the catch is good in Indonesia. The price we can fetch also reduces during these times.
TDB: What are the testing and certification requirements that exporters of frozen ribbon fish have to follow? How difficult is it to follow these compliance?
CS: We have a requirement for testing and certification but the process is fairly straight forward. We just have to send the sample to the lab. MPEDA, our export promotion council, has a couple of recognised labs that conduct the tests. Once they conduct the test, they give us a certificate after which we can go ahead. It is not very difficult to comply with and is not a very expensive process.
TDB: What are the challenges faced by Indian exporters of frozen ribbon fish? What needs to be done to increase India’s exports of this fish?
CS: There is no domestic demand. It is a 100% export-oriented product and apart from competition that arises, when there is good catch in nearby countries, we face no other challenges. There is a perennial demand for ribbon fish, so if there is a good catch and landing, there will be good exports. We did face some challenges during the Doklam standoff with China. This standoff resulted in less visits by prospective Chinese importers of ribbon fish to India. Usually, importers from China come and stay in India for a couple of months to finalise the business agreements. During the standoff at Doklam only a small fraction of the usual number of Chinese importers came to India. With the standoff over, it is business as usual.