More investments from US shrimp importers are expected in Indian processors and farmers, sources told Undercurrent News, after Aqua Star announced a deal for an unspecified stake in Sagar Grandhi Exports.
“At least” one other US importer is looking at a similar investment in India, where the target is to produce 1 million metric tons of shrimp by 2020, said one source with a packer in the Asian country, who declined to be quoted by name.
It makes sense for US importers to invest in shrimp producing countries such as India, both due to market requirements and also the application of the seafood import monitoring program (SIMP) for shrimp in nine months, sources said.
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Investing in countries like India “makes sense now, especially with SIMP”, which will mean importers must comply with the National Marine Fisheries Service’s (NMFS) new record keeping rules, said Kevin Tang, CEO of Sunnyvale Seafood, the US operation of China’s Zhanjiang Guolian Aquatic Products.
This is because it will give the importer more control and influence, in order to meet the NMFS traceability requirements in nine months, he told Undercurrent. By signing a massive $1.3 trillion fiscal 2018 spending bill into law on Friday, US president Donald Trump averted a federal government shutdown and started the clock ticking for NMFS to begin requiring shrimp and abalone importers to comply with its new record-keeping rules.
During the recent Boston seafood show, Tang told Undercurrent Sunnyvale/Guolian is looking at investments in India, as well as other Asian countries. Also, Bryan Rosenberg, the CEO of Thai Union Group-owned importer Tri-Union Frozen Products – which trades as Chicken of the Sea Frozen Foods – recently said its new joint venture plant in India offers something “different” for the US market.
“We are seeing more and more large US buyers moving towards direct supplier/factory purchases through long-term contracts. The pricing through importers, if any are involved, is also being based on a cost-plus model,” the source with an Indian packer Undercurrent.
“I don’t see any advantage and don’t think it [Aqua Star’s investment in India] has anything to do with SIMP,” he said, however.
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"Their [Aqua Star] purchases from this plant would probably be small compared to their overall purchases from India and/or other countries," the Indian source said.
“I think the bigger driver is the trend of retailers and other end users to bypass importers and buy direct,” said a second Asia-based shrimp sector source, who asked not to be quoted by name.
“For Aqua Star, I guess they are looking to the future and concerned about the direction the business is going, especially in terms of direct purchases from end users,” the second source told Undercurrent.
“I wouldn’t be surprised to see other importers look at doing the same. Although it might not be so easy,” he said.
When asked for clarification, he compared the experience of finding a partner to invest in to “tiptoeing though a minefield, barefoot” for a US importer.
According to the source with an Indian packer, Sagar Grandhi has been “packing exclusively for Aqua Star for many years”.
The investment will help Aqua Star “when they offer programs for large customers”, he told Undercurrent.
Aqua Star declined to comment for this story beyond a statement issued Monday.
Large customers, most notably Walmart-owned Sam’s Club, are looking to source more seafood direct. This has cost Rubicon Resources, a US-based shrimp importer acquired for over $100 million by Canada’s High Liner Foods, a lot of business.
High Liner has warned Rubicon’s sales and profits will drop in 2018, as a big customer – known to be Sam’s – continues to source more direct. The deal could have cost former High Liner CEO Keith Decker his job, an analyst covering the company recently said.
The Aqua Star press release on the Sagar Grandhi investment makes a big play of the “vertical integration” the deal brings.
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“We are very pleased to enter into this ownership agreement now, as Aqua Star has been our exclusive North American and strategic global partners since we first established Sagar Grandhi in 1996. The global marketplace wishes to work as closely with primary producers as possible and this partnership allows us to accelerate that process in North America particularly, as well as other parts of the world,” said Chella Rao Grandhi and Balaji Grandhi, the owners of the shrimp firm.
“With the added benefits of vertical integration, and diversified processing capabilities that include value added products, shrimp rings, tempura, breaded and battered shrimp we are on a path together to continually add value to our customers and meet their go-forward requirements in every aspect,” Dirk Leuenberger, Aqua Star CEO said in the statement.
According to Leuenberger, Sagar Grandhi is “strategically located” in Chittedu, in the Nellore District of Andhra Pradesh, which is a major source for shrimp raw material that cultivates over 10,000 hectares and produces over 150,000 metric tons per year.
“The staggering number of farms under the Sagar umbrella helps us respond to customer demands consistently on a year round basis, with the highest levels of certification and commitment to quality at all times,” he said.
Sagar Grandhi has two plants with capacity of over 125t per day, he said.
During Boston, Tang, the CEO of California-based shrimp importer Sunnyvale, told Undercurrent the company plans to do deeper processing this year and invest in shrimp farms and processing plants in India, Thailand or Indonesia.
“We don’t want to be just a commodity company,” Tang said.
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The idea is to co-own farms and processing plants in shrimp producing-countries, so that Sunnyvale – which has the Walmart shrimp business – has full traceability. He said the firm has already made some investments, though he wouldn’t say where and how much.
The plans have crystalized amid the current “oversupply” of Indian shrimp on the market – which has driven down profit margins for importers – and growth of Indian shrimp companies exporting to the US. 80% of Sunnyvale’s business is in shrimp, said Tang.
“The Indians are coming. They can sell direct,” he said.
Several Indian shrimp packers have already gone public, with more planning initial public offerings (IPOs) in the future.
On March 19, Live Mint, an Indian news site, reported Devi Fisheries, the country’s largest shrimp exporter, has hired an investment bank for an IPO.
Devi Fisheries joins shrimp firm Nekkanti Sea Foods, Sandhya Marines and Devi Seafoods in filing for IPOs. Apex Frozen Foods did an IPO earlier in the year and Avanti Feeds, Thai Union’s joint venture partner, has been listed for several years.
This does not present an opening for US importers to invest however, said the first source quoted, with an Indian packer.
I don’t think this would work though the IPOs. You need to be an India citizen or an FI [foreign institutional investor] to invest through an IPO or buy shares on the stock exchange," he told Undercurrent.