Financial Daily from THE HINDU group of publications
Monday, Aug 30, 2004
Agri-Biz & Commodities - Insight
Seafood industry looks for lifeline
Mony K. Mathew
Each of these problems had surfaced in quick succession and exposed the structural weakness of the industry, taking a toll on the operating profits of the exporters. What added to its woes were the huge investments that had to be made to upgrade the facilities and infrastructure to conform to the EU regulations and HACCP standards. Though the exports in absolute terms continued to increase, the margins eroded due to unprecedented upheaval in business environment.
The EU ban had choked the industry's cash flow, leading to delay in settlement of interest on working capital and term loans. It is estimated that nearly 60 seafood exporters in Kerala are under the debt recovery tribunals.
According to a study by the Kerala State Industrial Development Corporation (KSIDC), there are 91 registered seafood units in Kerala, of which 42 are approved by the European Union. The total capital investment in these units is Rs 250 crore. But the capacity utilisation of the units has been hovering around 20 per cent mainly because of raw material scarcity.
According to the study, the industry in Kerala has established itself as a leading player in the global seafood business, exporting to more than 70 countries. The other strengths of the industry include highly skilled labour, low production cost and a cluster of units close to the Kochi port.
On the flip side, the low share of value-added products in the total exports, ineffective marketing efforts and the absence of brand value, have been a drag on the industry. And proper value-addition is done only in the case of shrimp and does not cover other popular export species such as cuttlefish and squid. Besides, the latest processing and packaging technologies have remained elusive due to capital constraints.
Another major weakness of the industry is the lack of potable water supply system, meeting the required 62 specifications, for the landing centres, peeling sheds and processing units. There are also no proper effluent treatment facilities at pre-processing and processing units.
The study points out that the domestic industry is facing increasing competition from newly-emerging exporting countries such as China and Vietnam. At the same time, there have been little efforts on the part of the domestic industry to enhance the image of its products in terms of quality and value-addition, for Indian products are still treated as raw material by many importing countries. It has been found that several semi-processed items are taken to countries such as China and Thailand where they are re-processed and exported to Europe, the US and Japan.
In the circumstances, various suggestions have been made to rejuvenate the industry and put it on an even keel. One of them is to create an Indian logo as a joint effort of the exporters, the Marine Products Export Development Agency (MPEDA) and the Union Ministry of Commerce. The brand equity thus created can be better marketed for higher sales realisation.
Another suggestion pertains to the establishment of a seafood industry modernisation fund by the Government for providing soft loans for the development of infrastructure and the modernisation of the industry. A case has also been made for the creation of an exclusive ministry for fisheries to boost the marine exports from the country. The financial institutions, on their part, should consider converting a portion of their loans to the units into equity.
As for the industry in Kerala, the KSIDC is working on a package to revive the industry in the State. One of the proposals is to amalgamate 10 or more units into a single company, thereby utilising the strengths and positive features of the individual units.
The equity base of the companies may be increased by revaluation of the assets owned by them. The assets not needed may be sold to increase liquidity.
To facilitate the revival programme, it is proposed to constitute a study group with representations from financial institutions, banks, investors, industrial management and financial experts.
And all recovery proceedings should be kept on hold till the study group completes its report.
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