Tax will kill shrimp industry
KOTA KINABALU: Aquaculture farmers and frozen seafood processors yesterday appealed to the State Government to abolish the imposition of five per cent State Sales Tax (SST) on farmed shrimp taken out of Sabah.
Their spokesperson, QL Resources Berhad Group Managing Director Chia Song Kooi, said the taxation would kill the RM500 million shrimp farming and processing industry in Sabah.
“The five per cent SST imposition will put all the shrimp aquaculture and processors in a very challenging and negative business environment, especially in the current highly competitive global export market.
“We have to compete with the major exporters such as India, Vietnam, Indonesia, Ecuador and Thailand.”
He said Sabah's shrimp production was about 15,000 metric tons (mt) per year, whereas the local consumption was merely about 2,000 mt per year.
“The current domestic market size in Sabah is too small to consume the quantity of farmed shrimp produced locally.
“The processors have to export about 85 per cent of the farmed shrimp to the highly competitive international market,” he said in a press conference with the industry players here yesterday.
There are an estimated 75 shrimp farms and 50 shrimp processing plants in Sabah, which employ around 20,000 workers combined. About 80 to 90 per cent of the workers are locals. The local aquaculture farms mainly cultivate Vannamei shrimp whereas tiger prawns only comprised five per cent of their production.
Chia said shrimp farming in Sabah was still at its early stage and small scale in comparison to the major production countries which have achieved their economies of scale.
Last year, he said India produced 600,000 mt of shrimp, followed by Ecuador (460,000 mt), Vietnam (400,000 mt), Indonesia (300,000 mt) and Thailand (250,000 mt).
He said industry players in Sabah had to bear high costs in importing shrimp feeds and farming equipment from Peninsular and other countries such as Thailand, Vietnam and China; high inbound sea freight charges for feeds and other supplements; and high outbound sea freight charges for frozen shrimp export.
He said the shrimps produced locally were exported to China, Taiwan, Japan, Korea, Australia and the Middle East.
“Exporting from Sabah to China costs us USD 1,800 for a 40-foot container while exporting from Peninsular Malaysia to the same destination only costs about USD 800 to USD 900.”
He said shrimp processors also had to import packaging materials from West Malaysia and China, and bear the increase of minimum wages to RM1,100 per month next year. This would increase the production cost at farm level and seafood processing plants.
Furthermore, Chia lamented that Sabah farmers were struggling to sell their farmed shrimp in view of the current trade war and weak demand in China and United States.
He said the intense competition from the major shrimp export countries such as India, Vietnam and Ecuador have further reduced the selling price.
“The Food and Agriculture Organization of the United Nations reported the crash in shrimp export prices in the year 2019, with prices fallen to cost level in India and some even below cost in other producing countries in South East Asia.
“The world is facing a global oversupply of shrimp.”
Chia said many countries were giving various incentives to encourage farmed shrimp export to earn export revenue and reduce trade deficit.
“The imposition of the five per cent SST will put Sabah farmed shrimp and seafood in a very uncompetitive position in the international market.
“The processors will be forced to lower the purchase price from the farmers to stay competitive and maintain a decent margin, while farmers are forced to sell below cost to keep the business going.”
He said the shrimp farmers were only earning around 10 per cent profit margin while the profit margin of shrimp processing plants was even lower at three to five per cent, adding that aquaculture was also a high risk business due to diseases that could affect the production.
“When the farmers and the seafood processors start losing money, they will have to lay off the workforce.
“The State will face more unemployment in the rural area and loss in export revenue which will be a chain effect to other industries.”
Chia said the Federal Government encouraged the development and export of the aquaculture industry but the State Government’s announcement on the imposition of SST to take fishing commodities out of the State would discourage export of aquaculture operators.
He said the previous State Government had actually gazetted the SST on the export of seafood back in 2014 but the implementation of tax was deferred indefinitely upon objection from industry players.
“We appeal to the State Government to understand in depth the challenges faced by the shrimp farming and processing industry in Sabah, where an export friendly policy is essential for the development of the aquaculture industry as well as fisheries industry in the State.”
Also present at the press conference were representatives from one of the world’s largest players in the food business, Charoen Pokphand Group, Kiang Huat Seagull Trading Frozen Food Sdn Bhd, Sunlight Inno Seafood Sdn Bhd, Hai Leng Enterprise Sdn Bhd, Warisan Hikmat Sdn Bhd, KB Aquaculture Sdn Bhd and Pegagau Aquaculture Sdn Bhd.