It’s a manual assembly line in progress during the post-lunch hour inside Cochin Frozen Food Exports’ (CFFE) Aroor unit. We stumble around in our oversized rubber boots as we wade through an ankle-level froth covering the floor. Dressed in bright pink plastic coats, around 30 women manoeuvre the shop floor with sophisticated ease. Stage one involves fishing out lumps of frozen Vannamei (white) shrimp that lie in huge plastic container trolleys. From there they make their way to a dozen eager hands who dispense the prized catch after peeling and de-veining it in a matter of seconds. They then get dipped into the ice buckets again, before being transported for their final journey. After a cold water bath down the sliding conveyor belt, the shrimp pass through a freezing tunnel and come out looking plump and scrumptious on the other side ready to be packaged in plastic pouches.
Thereafter, whichever marine food processing plant, we visit, we are starved for variety and the production head informs us that with fishermen returning to the seas only in another week, shrimps are all they have currently stocked up on. But, P Dinesh, joint MD and CEO, CFFE, delves further into the issue, “The sea catch from Kerala’s coast has considerably reduced. The Andhra Pradesh government has been actively promoting Vannamei shrimp farming, which is why we have moved to sourcing our raw material from there to continue production. This has added to procurement costs.” India, being the second-largest fish producer in the world after China, accounts for 6% of global fish production. And cultured shrimp account for 70% of the value of total sea food exports of Rs.30,421 crore in FY16.
Dinesh also traces how Kochi has relinquished its place as India’s sea food hub to states such as Gujarat and Andhra which he claims does more business than the southern state in terms of volume and value respectively. Started in 1989, CFFE is a Rs.70 crore-sea food exporter to Europe, US, Japan, China and Vietnam. The company, which sells cuttlefish, octopus, squids, yellowfin tuna and others, has seen sales to Europe, the third-largest destination for Indian sea-food exports, fall from 30% to 10% in the current fiscal. Dinesh points out that one reason is lower prices for the catch from China, Ecuador, and Vietnam, besides neighbouring Pakistan and Bangladesh. Data from the Marine Products Exports Development Authority show that exports fell from $5.5 billion in FY15 to $4.7 billion in FY16. “Unless the cost of operation does not meet the value of the catch, the fishing industry will not be profitable. The government could subsidise diesel costs for fishermen,” he suggests.
Too cold for comfort
Marine food exporters are also facing the heat of stringent testing norms from importing countries. The EU announced a shift in its policy of increasing sampling norms from 10% of consignment to 50% last year, thus, affecting Indian exporters who will have to bear the costs. Adding to this is the case of South African regulatory authorities detaining 100 containers of Vannamei shrimp consignment over fears of the Vibrio cholera bacteria. Dinesh recalls a recent consignment to Japan being rejected over detection of banned antibiotics in the shrimp. “Despite the consignment sample being tested at our end, the Japanese authorities claim to have found traces of a banned antibiotic. There are some allegations on a variation in their testing method, the government should arrange for bilateral meetings to address our concerns and standardise the testing process. There is no awareness on which antibiotics can or cannot be used. With the result, people like us end up paying the price,” he laments. With no respite in sight and an unclear vision of exports next year, Dinesh has put his plans on hold for another factory despite purchasing land for the same.
The scenario is a lot different some 20 km up north at the Marine Drive office of Abad Fisheries in Kochi district. Part of the Rs.1,100 crore Abad Group, the seafood division accounts for Rs.700 crore and is managed through five separate entities. What started in 1931 as a sun-dried shrimp exporter, today finds a spot among the top five seafood exporters from Kochi with 70% of exports finding its way to Europe and the company clocking a 20% YOY growth.
Faraz Javeed, director, Abad Fisheries points out a plausible reason for the shrinking margins of smaller players, “For many companies, the biggest challenge is increasing competition from Thailand and Vietnam. Also, the cost of finance is too high.” Javeed is undeterred by fears of an economic slowdown in overseas markets. “Prices may fluctuate, but the volume of demand remains the same. In countries like Spain, Italy and Portugal, seafood is not a luxury but part of daily fare,” he explains. Abad Fisheries is looking at entering newer markets with more value-added seafood products and plans to capture a bigger share of the organised domestic market, which includes its recent venture Wildfish, a fish boutique where you can take your pick from a wide range of seafood — live, chilled, and dressed.
Competition heats up
Another important segment that makes for a significant share of Kochi’s economy would be the treasured spices trade. FY17 thus far seems to have been a good year for small traders, agents and big companies alike. India accounts for 48% of export of spices in terms of volume and 45% in terms of value. Kochi houses the headquarters of some the major spice, oleoresin and blended spice exporters such as Eastern Condiments, Synthite Industries, Plant Lipids and the likes, besides Indian subsidiaries of foreign firms such as the London-based AB Mauri and the Holland-based Nedspice.
Spices exports grew 5% in volume and 7% in value terms in the first half of FY17 at 437,360 tonne and Rs.8,416 crore, respectively. “India is still known as the trading hub of spices. Other countries buy spices from here, process it and sell it outside at 10x or 20x the actual price. The government must help the industry move towards building our processing capabilities,” says Prakash Namboodiri, chairman, All India Spices Exporters Forum (AISEF) and general manager at AB Mauri. He points out that about 90% of spices grown in the country are consumed in the homeland itself leaving exporters with only 8% of the produce for the overseas market.
Viju Jacob, MD, Synthite Industries, whose spices division accounts for 80% of the group’s annual turnover of around Rs.1,400 crore, makes a comparison with China, “From one acre of chilli in India, we get 600 kilos whereas in China you get 1,400-1,600 kilos. Where are our agricultural universities and research centres? Are we doing any research on high-productive seeds?” India, once touted to be the single-largest producer of black pepper is facing stiff competition from Vietnam that boasts of an annual production of 1.75 lakh tonne, whereas Indian production had dropped to a dismal 40,000 tonne. While Vietnamese pepper isn’t considered inferior, it doesn’t carry the premium tag of a Tellicherry or Malabar pepper, but with lower prices offered by the south east Asian country, traders contend that’s where the customers are heading. “It is also because of the way we do spice farming in India. We do not have any large format or corporate farming practices. Here pepper is always grown with another crop, mostly coffee,” Namboodiri explains. The logic being that if a particular commodity doesn’t do well that particular year, the farmer makes money off the other crop he is cultivating.
Indian cardamom export orders also have thinned owing to the availability of a cheaper Guatemalan variant, which accounts for 66% of the world’s cardamom production. This led to the Spices Board offering financial assistance of around Rs.7 crore to 23,000 cardamom farmers hit by the fall in prices last year.
Increasing domestic demand, however, is more than making up for weak exports. Anand Kishor is the managing partner at the Rs.250 crore Kuruwa Enterprises, which is an approved vendor for retail spice brands such as Eastern Condiments, Aachi Masala, Everest Masala, Ramdev and the likes. The domestic business accounts for 70% of its revenue and it has an average daily production capacity of 75 tonne of black pepper, 5-6 tonne of nutmeg and 12-15 tonne of ginger and is running seven days a week to meet the growing demand. “Since 2010, the home market has grown significantly. The consumption levels in India and China are increasing,” explains Kishor. While labour costs have increased over the years, Kishor adds that the trade unions are a lot more flexible nowadays. Even Navas Meeran of Eastern Condiments is looking to expand further in the domestic market. The firm is on track with its capex plans for FY18, with a new factory at Kota scheduled to begin production from February.
However, a common bone of contention raised for all spice players is the need for government intervention to arrest the use of banned insecticides that affect exports. “One must remember that even if another brand’s consignment is rejected, it affects Indian brand overseas. Pesticides banned across the world are available in the Indian market. The government must curtail their availability,” reasons Meeran. Jacob of Synthite which supplies material for snacking divisions of FMCG behemoths such as Unilever, PepsiCo and Nestle, says, “There are no regulations on the use of pesticides. As a result, we suffer.” He answers in the affirmative when asked if Synthite has ever faced a rejection over the issue. He also recalls how despite taking up the matter (while being the vice-chairman of Spices Board) with senior government officials in Kerala, it resulted in no action.
While the Spices Board has set up modern laboratories for smaller firms to test samples prior to applying for import certificates, there is a lot to be done. Namboodiri explains how firms such as AB Mauri and others push for backward-integration but unless the directive comes from a government authority, it is difficult to change practices on the farm land. “From our own experience working with chilli farmers, it has taken us 10 years to educate and change practices of using insecticides. Since this is cultivated as a mono-crop, the risk is higher if something goes wrong. The farmers keep spraying pesticides, no matter whether the chemical is harmful or not. We need to educate them,” adds Namboodiri.
Chemical imbalance
A walk along the bylanes of Edayar Industrial Estate in Kochi throws up a chemical unit at every intersection. Most of these small or medium sized enterprises are not happy about the business environment in the state. AA Joseph of Jonarin Pigments minces no words, “If you are a chemical company here, it is very difficult to do business. Even if your factory is in an industrial estate, every day people and local politicians come over to create trouble. This is an industrial belt for chemical units; still we face this issue.” Kochi is host to state-run firms such as Travancore Cochin Chemicals, FACT and Hindustan Insecticides even as other big firms have moved out.
Shaji Varghese, chairman, Cochin Chamber of Commerce, and also director at shipping agency, Agencia Commercial Maritima Logistics, says, “Binani shut down in Eloor owing to environmental issues. There are vested interests operating under the garb of activism which makes it difficult for the government to take a stand.”
Jonarin’s Joseph believes chemical SMEs will soon be history. Started in 1976, Jonarin manufactures chemicals for detergents, soaps and hygiene chemicals and supplies them to clients such as Taj Hotels, Le Meridien, Southern Railways, McDowell Distilleries in Kerala, Tamil Nadu and Karnataka. The Rs.12 crore company had a tough time with the state government’s liquor prohibition policy. “The hospitality industry clients contribute about 80% revenues to our business. We supply our products to around 730 bar-attached hotels in Kerala. When the government’s liquor policy resulted in licences being cancelled, their business suffered and, in turn, impacted us severely,” he says.
The previous Congress-run state government had launched a policy banning the sale and consumption of liquor in four-star properties and the ones below that ranking. While the current CM Pinarayi Vijayan has expressed plans to initiate a roll-back, the tourism industry has already been affected. Varghese expands, “The liquor policy was clearly not a well-thought one by the government. Meetings in commerce chambers across the country have revealed a 20-25% decline in tourists post-prohibition.” This has had an indirect impact on chemical manufacturers.
OA Nizam of Industrial and Fine Chemicals (IFC) is also the president of the Kerala Small Scale Industries Association. IFC manufactures sulfur for rubber products and clocks an annual turnover of around Rs.10 crore. The company also supplies to rubber coir mattress makers such as Kurl-On, Duroflex and tyre manufacturers such as Apollo Tyres, TVS Srichakra, Midas, Eastern Treads, etc. He also outlines the trouble faced by chemical firms in Kochi, “The Pollution Control Board in Kerala is very strict. They will assign a certificate only after thorough inspection. However, despite securing these certificates, even if one person registers a complaint against a unit, it will be issued a closure notice without giving any time to rectify the emission.” Apart from this, Nizam is also bearing the brunt of fluctuating sulphur prices, as he sources his raw material from a local refinery, unlike bigger firms who ship it from the Middle East.
Given that his product is used as a raw material for other rubber manufacturers, the demonetisation impact has hit him indirectly. “The cash leverage has reduced resulting in customers delaying the purchase of such products. Our sales have reduced by 30-40% since,” he says. However, he is confident of things going back to normalcy soon. Amid the gloom among chemical manufacturers in Kochi, there is one SME that seems to have overcome the issues plaguing its peers.
Meet NS Namboodiri, MD, Associated Rubber Chemicals (ARC) that manufactures zinc oxide, rubber chemicals, and tread marking inks. What began as a chemicals trading firm under an apartment staircase in 1990, is now a Rs.50-crore enterprise. ARC supplies raw materials to companies such as Hindustan Latex, Apollo Tyres, Goodyear, Ceat, and MRF Tyres. It is the authorised agent for Godrej Industries and also exports to countries like Vietnam, Thailand and Malaysia. While domestic sales account for a higher share of the business, Namboodiri claims there is significant growth every year in exports with an overall 20% YOY and expects turnover of Rs.70 crore next year. He also reiterates the concern of his peers, “Kochi is not good for chemical industries, there is not enough space, and a lot of environmental issues crop up. When I once stocked material at a branch in Thrissur we had people coming to us and telling that they had cancer because of the chemicals.” He claims that they do spend a lot of money to ensure emissions are as per regulations.
Ease of business
While Kerala may have been notorious for its trade unions in the past, most of the surveyed participants claim they haven’t had any major issue in the past one year. Labour costs have increased across the board by 10-15%. Migrant labour from states such as Bihar, Assam, and Manipur is readily available in certain industrial belts.
Apart from industry-specific issues, there is a common concern — the rate of borrowing. Despite talks of lower interest rates, firms still pay 12-15% on fresh borrowings. “The interest rate for agricultural loans is around 7%. Why can’t it be the same for the industry, as it contributes significantly to the tax revenue? In a competitive environment, the current rates are too high,” laments Nizam.
Though the SMEs are happy about the hike in the credit guarantee scheme of Rs.2 crore, Kishor tells us how the ground reality is different. “I approached a few banks to apply for a loan under the new credit limit. But the bank seems to be unaware of the announcement, claiming that they haven’t received any RBI directive. Loans are still being offered up to Rs.10,000, what business can we run with that?”
The only positive that the units are looking at is the implementation of GST. Jonarin’s Joseph says, “Today, if I have to bring material from Mumbai, it should ideally take only 2-3 days, but it takes 10-15 days and let’s not forget the bribes in between. GST will result in an unhindered national highway network from Srinagar to Kanyakumari.”
A clear disconnect between initiatives announced and implementation on the ground is quite evident. All the sources interviewed, regardless of whether they represented a small or a large enterprise, lamented about the lack of support for industries. “The government has to support both industry and agriculture. It’s not a question of either or,” sums up Jacob of Synthite.
