A new Indonesian government regulation that forces exporters to deposit part of their earnings in a government-controlled bank account is another blow to the nation’s shrimp exporters and processors, who are already suffering from a global demand slump and rising feed and production costs.
The regulation requires exporters sending cargo with a value of USD 250,000 (EUR 232,000) or more to deposit at least 30 percent of their earnings for a minimum of three months in a special bank account controlled by the Indonesian government. The government’s justification for the regulation, which took effect on 1 August, is that Indonesian exporters often retain their foreign exchange earnings overseas in order to capitalize on more favorable interest rates and to support their international operations.
“It’s the aim of the government to keep more money within the country for financial stability,” Sander Visch, the lead analyst at Norwegian aquaculture and fisheries data firm Kontali, said during the 2023 Shrimp Summit, which took place in Vietnam. “But it will have an enormous effect on the operations of exporters and processors, meaning it will be very difficult for them to buy shrimp at higher prices.”
Exporters who comply with the regulation will receive tax incentives, but those who fail to make the required deposit may have their export permissions suspended. A lobbying effort has cropped up in response to the regulation, aimed at mitigating or eliminating the rule, which is opposed by several of Indonesia’s largest industries.
“It is hoped that the enactment of the regulation will propel Indonesia’s economic development to be more in line with export of natural resources products, which continues to enjoy strong growth. For now, the government is focusing on four sectors, namely mining, plantation, forestry, and fishery, as they are the largest contributors to the nation’s [export earnings],” a 3 August brief from the Indonesian law firm Assegaf Hamzah and Partners said. “In light of the regulation, exporters in the foregoing sectors must examine their business plan and make the necessary adjustment on, among others, their cash flow management. It may be the case that as a result of the regulation, a portion of their [export earnings] that has been earmarked for business support must now be reserved for at least three months. We expect that the government will issue further implementing regulations in the future to regulate, among others, the details of the incentives offered under this regulation.”
The rule could threaten Indonesia’s ambitious target of USD 7.6 billion (EUR 7.1 billion) for its exports of fishery and marine products in 2023, according to the Jakarta Globe. Indonesia is the world’s top exporter of tuna and blue swimming crab, and is one of the world’s biggest shrimp exporters as well. Indonesia earned approximately USD 6.2 billion (EUR 5.67 billion) from its exports of fishery and marine products in 2022, with shrimp accounting for USD 2.2 billion (EUR 2 billion) in exports in 2021, making it Indonesia’s most valuable seafood export.
The country’s total shrimp exports in the first five months of this year totaled USD 710 million (EUR 657.5 million), as farmgate shrimp prices in Indonesia dropped to USD 3.69 (EUR 3.42) per kilogram in July 2023, from an average of USD 4.54 (EUR 4.20) per kilogram the year prior for 60-counts. The drop in price has hurt many farmers’ profitability, according to Visch, and as has been the case in other Asian countries, shrimp farmers in Indonesia are reluctant to begin stocking due to low global demand and prices.
“We see this going on for a long time,” Visch said. “At a certain moment in Indonesia, there was hardly any price difference between 40- and 60-counts. For the most part, [Indonesian shrimp farmers] have continued to farm 40-counts because that is what they’re used to, but [when] the cost of production goes up a bit, they have not compensated for that,” Visch said.
Indonesia exported 87,638 metric tons (MT) of vannamei in the first half of 2023, a 19 percent drop year over year and the lowest H1 total since 2019. In Q2 2023, there was a 15 percent year-over-year drop, which was actually a slight improvement over the 23 percent decline seen in Q1 2023, according to Shrimp Insights Founder Willem van der Pjil.
The U.S. – Indonesia’s largest market for shrimp exports – bought 68 percent of Indonesia’s total shrimp exports in the first half of this year, but U.S. shrimp imports overall have continued to shrivel. Indonesia’s U.S. shrimp exports tumbled 41 percent year over year from January to May 2023, with the sales of shell-on products contracting 51 percent.
Since the decline in its overall exports was smaller than the U.S. decrease, van der Pjil has predicted that Indonesian farmers might be storing more of their products domestically and may have also found alternative markets for their goods.
Shrimp exports from Indonesia, and also from Vietnam, have been hit harder by the recent downturn in the market compared to other shrimp-producing nations like Ecuador and India. Both Vietnam and Indonesia face higher production costs than Ecuador and India, and there was a substantial year-over-year decline in both of their export volumes.
Competition has also risen from Ecuador and India in the supply of cooked and value-added shrimp.
“While [Indonesia and Vietnam] had their competitive edge in producing cooked and further value-added products, Ecuador and India are investing heavily in this segment in order to diversify their options; It is likely that Vietnamese and Indonesian exporters will soon experience increased competition from both countries for these market segments,” van der Pjil said.
Photo courtesy of FarisFitrianto/Shutterstock
