Characteristics of Successful Sustainable Fishery Initiatives

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Over the past six years, Wilderness Markets has assessed sustainable fisheries investment opportunities in more than fifteen different wild capture fisheries worldwide. Our specific objective is defining how to make conservation-based approaches a viable financial alternative to current wild capture fishing practices.

We have enjoyed working with numerous international and national partners on field assessments, desk reviews and systemic fishery improvement project (FIP) assessments. Much of our public work and partners can be reviewed at this link.  Fisheries assessed ranged from the United States, Mexico, Indonesia, the Dominican Republic, Grenada, Guyana, Chile, and four Caribbean-wide fisheries. Along the way, we have also reviewed a number of fisheries in Africa.

Behind these public reports are a series of financial models we created to quantify the viability of alternatives considered in different fisheries. These models move beyond the scientific and policy recommendations associated with fishery reform to account for the financial implications associated with existing or proposed measures. These models weigh the financial costs and benefits of changes in management, data collection and use, infrastructure and capacity development in the context of existing value chains and markets. 

Whereas others have ably demonstrated the potential upside associated with fisheries reform through significant economic modeling,[1]and others have documented key characteristics of FIPs,[2] we have focused on how and where the specific financial benefits may be realized in a value chain. We identify how the “upside” may be used to compensate for the costs of fisheries reform and improvement such as gear change, improved management, etc. Our focus has been on the financial implications for fishery participants, especially fishers.

Through our work and others’, the variables listed below have been identified as having a direct impact the financial viability of fisheries reform. These five variables have been examined across a range of fisheries and found to be consistent. It is important to note that these operate in the context of sustainable fishing interventions, most likely in a “parallel” model.

  • Product value 
  • Stock recovery cycle[3]
  • Infrastructure Access[4],[5]
  • Supply chain length[6], [7]
  • Organizational homogeneity and capacity[8]

These variables are focused specifically on the potential likelihood of securing the financial incentives necessary to address the costs of fisheries reform or improvements, i.e., ability to pay for conservation measures through the improved value of the fishery. These benefits may then be utilized to justify reform or directly support sustainable fishing practices.  

The priority quantitative variables that have a direct impact on the financial equation are:

Product Value 

Value refers to not only the price of the seafood, but also to the margin retained by the participant in the value chain, whether fisher, first receiver or processor. This is a combination of the price, operational capacity, input costs and volumes associated with a participant. 

Products handled by participants capable of securing comparatively high value in seafood markets were found to be more capable of absorbing the incremental costs associated with fisheries reform and conservation focused measures. Lower value products – either due to the inherent value of the stock, low volumes, operational inefficiency or poor capacity leading to low margins are less likely to be viable. The willingness of participants to engage in changes in practices such as gear change and harvest control regulations, is directly proportional to the value generated by the seafood product and realized by the participant. 

Stock Recovery Cycle

Life cycles, fecundity, biomass levels, fishing effort mortality, predation and habitat health are all critical components in defining the costs of conservation related measures. Short recovery cycles reduce the wait time to realize benefits in a fishery, capping social, political and financial costs associated with fisheries reform. 

The primary qualitative factors that influence the financial equation are:

Infrastructure Access

Domestic and global supply chains require sanitary and safe foods, therefore access to appropriate storage and transport is a significant driver of product quality and value. In seafood, this typically means access to HACCP compliant facilities able to reliably provide clean ice, cold storage and timely transportation. The absence of these factors negatively impacts value.

This variable is routinely exploited by supply chain participants (including well meaning development organizations) to attempt to integrate new products into global and domestic supply chains. Unfortunately, negative social and environmental consequences are not always considered by these participants, nor is there typically a simple mechanism for integrating or compensating fishers or others for improvement costs. 

Supply Chain Length

Supply chain length includes both the geographic distance and the number of participants “touching” a product in the supply chain. Extensive travel distances between points of harvest and market drive up costs of transportation, ice and storage, and lead to product deterioration. Each “middleman” in the supply chain adds handling and cost margins to the product. While these costs may be absorbed by the end market, long supply chains decrease the likelihood of compensating those bearing the cost of fishery reform and improvement, usually fishers. 

Organizational Homogeneity and Capacity

When considering artisanal and small scale fisheries, community cultural homogeneity has been identified as a critical component of community based fisheries management and reform efforts. Successful efforts are entirely dependent on alignment around goals[9], which is easier to achieve in geographically remote, culturally homogenous communities. Regardless of the financial upside, heterogenous community efforts close to major cities are challenging. 

At the corporate level, strong leadership and the ability to effectively respond to market signals has been well documented in value chain literature and in pilot projects we have tested.

At its base level, the presence of a functioning investable entity is a significant advantage in successfully addressing the characteristics identified above. 

Based on our review of a range of different fisheries, the above characteristics have a significant impact on the success or failure of sustainable fisheries initiatives, particularly in emerging market contexts where the financial and social implications of fisheries reform are often ignored by the conservation community.

Unless these factors are integrated into projects aimed to curb overfishing, conservation efforts are unlikely to succeed and the unsustainable status quo is likely to continue.

We welcome your comments, thoughts and views on the above.

[1]Costello C, Ovando D, Clavelle, T, Strauss, K, Hilborn, R, Melnychuk, M, Branch, T, Gaines, S, Szuwalski, C, Cabral, R, Rader, D, and Leland, A. (2016). Global fishery prospects under contrasting management regimes. Proceedings of the National Academy of Sciences.113. 201520420. 10.1073/pnas.1520420113. 

[2]https://www.ceaconsulting.com/wp-content/uploads/Global-Landscape-Review-of-FIPs-Summary.pdf

[3]http://investinvibrantoceans.org/wp-content/uploads/documents/Executive_Summary_FINAL_rev_1-15-16.pdf

[4]Anderson J, Anderson C, Chu J, Meredith J, Asche F, Sylvia G, et al. (2015) The Fishery Performance Indicators: A Management Tool for Triple Bottom Line Outcomes. PLoS ONE10(5): e0122809. https://doi.org/10.1371/journal.pone.0122809

[5]Basurto X, Bennett A, Hudson Weaver A, Rodriguez-Van Dyck S, and Aceves-Bueno J-S. 2013.

Cooperative and noncooperative strategies for small-scale fisheries’ self-governance in the globalization

era: implications for conservation. Ecology and Society. 18. 10.5751/ES-05673-180438.

[6]Ibid.

[7]Wilderness Markets. 2016. Connecting the Dots: Linking Sustainable Wild Capture Fisheries Initiatives and Impact Investors.http://www.wildernessmarkets.com/our-work/connecting-the-dots/

[8]McCay BJ, Micheli F, Ponce-Díaz G, Murray G, Shester G, Ramirez-Sanchez S, and Weisman, W. (2014). Cooperatives, concessions, and co-management on the Pacific coast of Mexico. Marine Policy,44,49–59. doi:10.1016/j.marpol.2013.08.001. 

[9]Csaky, Eva (2014) Smallholder Global Value Chain Participation: The Role of Aggregation (PhD Dissertation, Duke University)

Is Losing the Amazon Inevitable?

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As the Amazon burns, and the world responds, this might be a good time to reflect on some of the key drivers of this tragedy.

Three major trends have combined to create the conditions that make it almost inevitable that the forest would be burned.

  • Global population increase & increased global middle class
  • Tragedy of the commons
  • Lack of a viable alternative to developing the Amazon

Plenty of ink has been spilt on the first two trends. Populations continue to increase around the globe, with Brazil’s alone increasing from 72 million in 1960 to over 209 million in 2017 according to the World Bank, an increase of almost threefold. At the same time, GDP per capita has risen from $205 in 1960 to $9,812 in 2017. These increase are mirrored around the world, particularly in emerging markets.

The tragedy of the commons has meant that rainforest areas like the Amazon in Brazil and tropical rainforests in countries like Indonesia have been an easy target for both small scale and industrial scale producers of soy, wheat, beef and palm oil.

Global demand for cheap beef, soy, wheat and palm oil– which we in the west are as guilty of driving – provides the markets for these products and the incentive to destroy these natural ecosystems, despite their value as “the lungs of the world”.

Which brings us to the third trend – there is no value in conservation for the people living in these countries. Now that we’ve deforested the north (as the Brazilian President put it), we are dependent upon the south for these ecosystem services. However, despite the many millions of dollars spent on conservation related activities, conservation of these natural resources is simply not a viable alternative to deforestation. In all our modeling for wild capture fisheries, we often find that the costs of conservation increase production costs over and above what the “market” will pay, and that the majority of these costs fall on producers – who face the choice of complying, and potentially going out of business, or finding other markets for their product.

In deforestation, as in wild capture fisheries, as long as there is no way to recognize the resource as an asset, and to provide a realistic payment for ecosystem services provided by those assets, it is unlikely we will ever save the Amazon – or, for that matter, any wild ecosystem, including wild capture fisheries.

The sooner we recognize the need to develop viable assets that provide realistic payments for ecosystem services to incentivize maintenance of priority ecosystems, the sooner we will secure their future.

Fisheries Improvements & Social Impacts

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Many years ago, when I was a hotel manager at a resort in a national marine park, I was roundly castigated for employing poachers as guards and fishermen as boat operators for our visitors. The prevailing sentiment was one of enforcement to protect the national marine park – and the expulsion of the local people. While we had made significant strides in improving enforcement, the local people were facing a social challenge – they had no alternatives. 

The recent Interim Policy on Forced Labor, Child Labor, or Human Trafficking by Fisheryprogress.org is a reminder of the challenges the seafood conservation community is facing in the 21stCentury. It is an important step forward for Fisheries Improvement Projects which seek to secure seafood sustainability and it is encouraging to note the role of Conservation International (CI) in developing the Social Responsibility Assessment Tool for the Seafood Sector (full disclosure – I am a former employee of CI). However, I would propose that while it is essential to know that we are “doing no harm” we also need to understand the implications of the decisions inherent in effective FIPs and need to ensure that fishery participants either have a stake in the upside or have an alternative source of income.

Fisheries Improvement Projects (FIPs) have historically focused almost entirely on environmental metrics to date. One of the central issues associated with effective FIPs relates to good governance of the fishery. While there are a myriad of issues associated with “good governance”, I would propose that the willingness of local leaders and harvesters to adopt less impactful fishing practices is directly proportional to their financial gain and  / or to their alternative opportunities. 

In most of the FIPs we have reviewed or surveyed, there is no mechanism for harvesters to secure any hypothetical “upside” and they have woefully few alternative opportunities. They simply have no way of adapting to the changes – a factor that remains unaddressed in the current FIP framework. Faced with this, is it any surprise that national and local governments are slow to enforce environmentally appropriate regulations? 

So, while we congratulate Fisheryprogress.org on this step forward, it is important to keep the broader picture in mind – in an era of dwindling fish stocks, growing populations, fragmented global markets and populist leaders, the likelihood of “environment only” or “no negative” approaches succeeding in restoring fisheries is slim to none – and risks being passed as irrelevant. The sooner we can begin to address the social and financial implications of seafood sustainability, the sooner we will see these initiatives succeed. 

Oh – and that marine park? Watamu Marine National Park and its numerous supporters continue to develop innovative solutions to turtle conservation and marine protected areas.

LEVERAGE LEAD FIRMS: ENDURANCE AND EFFICIENCY

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Lead Firm Pilot Projects

When we evaluate value chains, we look for lead firms: small, medium, or large enterprises that are linked to many other players in the value chain and can influence the practices of these commercial partners. Ideally, these firms are thought leaders in their fields and open to innovation. Building on our value chain and market research, we work with these firms to lead by example. We collaboratively design and implement pilot projects that help overcome barriers to triple bottom line business growth.

Through these projects, we test our research findings, learn more about what will work on the ground, and iterate on real-world solutions. These pilot projects not only improve business practices within the lead firm, but throughout the fishery value chain. When successful, they generate financial returns that demonstrate the viability of new approaches in the industry and inspire other businesses to follow suit, thus improving industry competitiveness. They create new norms in the market that are sustained because of their business value rather than relying on ongoing philanthropic support or government subsidies to succeed.

Crab fishermen in Indonesia receiving their “Kartu Nelayan”, guaranteeing their access to benefits such as life insurance

Role of Lead Firms

Sustainable and profitable fisheries are built on secure tenure, sustainable harvests, and monitoring and enforcement, according to research behind the report, “Towards Investment in Sustainable Fisheries”. Rather than waiting indefinitely for these enabling environment conditions to transpire, using a lead firm approach allows project developers to leverage the assets and abilities of industry to progress towards better managed fisheries. In return for their contributions, lead firms in fisheries promote decreased supply volatility; increased long-term availability of the resource; improved supply chain efficiency, and more.

Lead Firm Project Goals and Benefits

Wilderness Markets’ goal with lead firm projects is to attract private, return-seeking impact investment and complement ongoing work by fishery managers and NGOs to improve fisheries. This approach enables local fishermen to adopt sustainable practices faster than waiting for the government to independently create and enforce management changes, and without the economic hardship for fishermen that often accompanies changes in fishery regulations. It will also bolsters business advocacy for more effective fisheries management policies and enforcement through a local cooperative structure.

Lead Firm Experience

From 2016 to 2017 we engaged with a lead firm, Blue Star Foods, in the blue swimming crab fishery in Indonesia. Our primary goals were to engage a lead firm to secure change on the water and development an investment model. We gained some valuable learnings, including the importance of fisher organizations; the need for ongoing, structured and unstructured facilitation between stakeholders; and the importance of pre-agreements for data collection analysis, and management.

Parallel Approach
Sumatran Fisherman with Blue Swimming Crabs

By working with a lead firm, the financial viability of data collection and management was validated, and many of the improvements in the value chain have continued to date, despite the project ending in 2017. [

For the fishermen, participation in the project included signing up for the Indonesian fisher ID card – Kartu Nelayan – which conferred immediate benefits to the fishers, such as life insurance. The government also benefitted from getting better counts of fishermen in the area. Through their participation, harvesters were provided clear and reliable financial benefits for small-scale fishermen to make gear changes; follow harvest control measures; and take on other sustainable fishing practices.

Successful Lead Firm Characteristics

  • Industry leaders: innovation, technology, experience
  • Highly connected in the value chain: linked to large numbers of producers
  • High capacity: can provide technical assistance, credit and inputs
  • Financially stable: can make long-term investments towards sustainability
  • Excellent market access and understanding: connected with multiple markets (to decrease risk) and routinely attend industry events and conduct analysis to stay attuned to market dynamics
  • Respected influencer: others in the industry look to them for thought leadership and hold them high esteem
  • Willingness: firm indicates a willingness to work with project developers, including signed agreements

Adapted from: “Integrating Very Poor Producers into Value Chains: Field Guide” by USAID, fhi360 and World Vision, October 2012.

Blue Star Foods initiative shows 3BL efforts work

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lead firm crab

BSC fisherman with new vessel tracking device

Blue Star Foods, the Miami, Florida based seafood specialist, is proving that it is possible to have a sustainable and profitable business in the seafood industry.

The title of a recent article posted on Under Current News sums it up: Blue Star Foods’ founder sees ‘3BL’ effort resonating more with crab buyers.

In 2015, Blue Star Foods partnered with Wilderness Markets to develop their Triple Bottom Line (3BL) strategy. The company wanted to design and implement appropriate financial and social incentives to enable fishermen in their supply chain to transition faster to sustainable fishing practices. Through its purchasing power and relationships, Blue Star was in a strong position to influence the practices of a range of processors who have commercial relationships with a network of mini-plants, collectors, and fishermen. We designed and tested a pilot initiative in one site in Indonesia, which has since been expanded.

Triple bottom line refers to the idea of pursuing environmental, economic, and financial goals simultaneously. Our work often centers around the research and data collection needed to modify or create a value chain that fosters this model with existing practitioners.

“We chose to work with Wilderness markets to develop our 3BL strategy because of their experience with impact investing AND expertise with wild-caught fisheries. That foundational work has made implementation a success.”— John Keeler, Executive Chairman & CSO, Blue Star Foods

For Blue Star Foods, our work helped the company originate, design and develop the strategy (find the report in more detail here).

They have implemented it with vigor, and it’s paying off.

After only two years, they are seeing progress in the sustainability of blue swimming crab fisheries in Indonesia and have expanded their efforts to include the Philippines. In the process, these sustainability practices are positively impacting the social well being of harvesters and workers, and improving sales to more large-scale foodservice, retail and institutional buyers.

Read the article to learn more about the impact Blue Star Foods has seen and how companies may integrate the benefits of developing and implementing 3BL strategies.

Value Rescue in Fisheries

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Do you know of fisheries that have considered or implemented Value Rescue?

 

Your knowledge can help others scale fisheries’ enterprises with positive social, economic and environmental impacts.

We are researching fishing groups, including businesses, associations, co-operatives and similar entities that have tried improving the value of their catch or production while also improving their social and/or environmental performance.

We are conducting case studies to characterize these interventions and then develop best practice manuals and other materials that can be shared to create a community of practice and scale implementation of the value rescue methodology around the world.

You can play a role by submitting basic information (location, contact information, intervention, etc.) that we can follow-up for additional research. Click here to begin the 15-minute survey.

What is Value Rescue in Seafood:

a process to improve the social and environmental performance of sustainable fisheries through improved financial incentives, product differentiation and market segmentation

Key components:

  • Enhancing social cohesiveness and decision making around resource management
  • Community based management of sustainable fisheries
  • Culturally appropriate business decision making
  • Product differentiation to secure market access and pricing advantages tied to mission

 

We’ll be closing the survey on July 31. Contact Jada at jada (at) wildernessmarkets.com if you encounter any problems submitting your reply or have questions.

 

 

Investing in sustainability – the role of intangibles

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“Early in the twenty-first century, a quiet revolution occurred. For the first time, the major developed economies began to invest more in intangible assets, like design, branding, R&D, and software, than in tangible assets, like machinery, buildings, and computers. For all sorts of businesses, from tech firms and pharma companies to coffee shops and gyms, the ability to deploy assets that one can neither see nor touch is increasingly the main source of long-term success[1]”.

Rated as one of the Financial Times Best Books of 2017, Capitalism without Capital is a useful and timely read as we consider sustainability based investment broadly, and sustainable wild capture fisheries specifically. It goes a long way to explaining and addressing one of the many challenges the sustainability community faces when evaluating and considering how to transition “projects” to enterprises.

Wilderness Markets and others have made considerable progress in identifying, developing and deploying appropriate due diligence questions to address investment risk as well as developing appropriate business plans and models, most recently in wild capture fisheries (with the World Bank). However, these criteria either ignore or assume the presence of effective intangible development capacity which is seldom the case with most natural resource “projects” nurtured by NGO’s and many communities. These “projects” often lack both the human and intellectual capital to effectively develop and grow businesses, leading to an over emphasis on tangible assets.

Yet, as is clearly defined in this book, this is where significant value is to be gained. In the abscense of effective design, branding, R&D and software, the likelihood of enterprise success is marginal, seldom providing the risk adjusted returns investors would like to see.

The social implication of this trend are also discussed in the book. It provides good perspective on how inequality is both a result and a cause of this investment trend, resulting in a negative vicious cycle. Applying equally to groups and individuals, in both developed and developing markets, participants are unable to upgrade skills due to economic challenges (or an overreliance on tangibles), thus depriving them of the resources needed to upgrade their skills. We have seen this in fisheries in the United States, Mexico and Asia.

Intangibles also have significant implications regarding the appropriate types of capital to be deployed. Given the nature of intangibles – identified as the 4 S’s (scaleability; sunkenness; spillovers and synergies), these types of investment are more appropriate to equity than to debt, which has implications on the recently launched debt funds in sustainable fisheries and oceans.

As we and others continue to evaluate and explore how best to attract private capital to a range of sustainability markets, this book provides good perspective on an important topic.

[1] Jonathan Haskel & Stian Westlake, Capitalism without Capital; The Rise of the Intangible Economy, Princeton University Press 2017

The Finance Gap in Sustainable Wild Capture Fisheries

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Over the past few years, three broad strategies have evolved to address the challenge of achieving sustainable wild capture fisheries. These consist of:

  • Addressing governance, regulation and policy
  • Providing preferential access to markets via certification mechanisms and Fishery Improvement Plans
  • Aggregating mission aligned capital

While each of these strategies have merits in and of themselves, they function best if their implementation is aligned, particularly in emerging markets where parallel or consolidated approaches are more likely to succeed than a serial approach. The implementation of these three strategies independently of each other often result in distortions that misalign incentives. As a consequence, this lack of alignment has resulted in few real world business examples or models that can effectively scale across fisheries, geographies and communities. Despite the attractiveness of economics of fisheries reform in at a macro level, the financial implications for practitioners in the real world have been challenging.

We especially note the development of mission aligned capital for sustainable fisheries in the past year. The Althelia Sustainable Oceans Fund and the Rare Meloy Fund are now either operational, or close to being operational. These new facilities represent important progress in this space.

While these represent important steps forward, they do not, as of yet, address the demands of current market conditions, particularly in emerging markets. Based on our field assessments in Asia, Latin America, parts of Africa and the United States, the reality is that the majority of the demand lies in defining, developing and testing sustainable fisheries instruments and models that may, one day, be eligible for the Meloy Fund or the Oceans Fund.

One sequence of fund development is to a) prove a concept, b) grow and refine and c) to deploy large scale capital (courtesy of Dalberg Global Advisors).

  1. Prove the concept – at this stage, practioners are testing financial instruments and models in a variety of settings with a wide variance of risk – returns and a great deal of tail risk. Transactions are often small, with high transaction costs, and with limited to no track record. While the Meloy Fund may most closely approximate these characteristics, the Funds requirements and relatively high return requirements and minimum transaction sizes remain a mismatch for the sector.
  2. Grow and Refine – at this stage, practioners are aggregating small scale proven models into larger vehicles; allocating and pricing risk appropriately; have a track record to demonstrate risk returns and an experienced team.
  3. Deploy Large Scale Capital – at this stage, practitioners are able to deploy large pools of institutional capital towards proven concepts; have more stable returns with lower tail risks and lower transaction costs as well as strong comparable track records for the sector and fund managers.

Based on our reviews, in the absence of financial instruments and model with documented and understandable risk, the sustainable wild capture fisheries sector appears to have a significant funding gap at the “Prove the Concept” stage. Resources are required to define these instruments and models, ideally with existing sector participants, many of whom are searching for approaches to transition NGO driven projects to investable entities with very limited success to date.

In reality, there is a significant pool of potential projects in the form of Fishery Improvement Plans, fishery projects, blue economy projects and alternative livelihood projects in many geographies. While Wilderness Markets has developed a systematic analysis of the potential investment opportunities in a number of fisheries, we have been struck by the rather random approach to this challenges and the lack of resources to systematically support the transition to investable entities that may, one day, be eligible for investment from the Meloy Fund or the Oceans Fund.

The Wild Blue Crab Investment Model – a case study

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Industry stakeholders understand that overfishing undercuts long-term value and prevents realization of full economic potential in local communities. The question is, what to do about it? Wilderness Markets and Blue Star Foods collaborated on a pilot program to develop one potential solution.

Problem

Rising demand for seafood combined with limited public spending on fishery management systems has led to overfishing worldwide. As of 2013, almost a third (31.4 percent) of fish stocks were fished at biologically unsustainable levels, a 10 percent increase since 1974 (FAO 2016). In 2016, just over 58 percent of fisheries were considered fully exploited, with no expected room for further expansion (FAO 2016). Recent research indicates that these numbers are actually underestimated: FAO statistics do not include thousands of small-scale fisheries, recreational fishing, accidental catch of non-target species, and illegal fishing because they aren’t measured (Costello et al. 2012; Pauly and Zeller 2016). In addition, global trends mask the fact that many individual fisheries have collapsed and fishing boats have moved on to exploit new species (CEA 2012). This undercuts fisheries’ ability to provide long-term social and economic benefits to the local communities.

Wilderness Markets and others in numerous fisheries have conducted extensive value chain research. This research indicates that while the harvesters tend to bear the costs of fisheries management improvements, the economic benefit tends to be captured by participants further up the value chain – aggregators, processors and exporters. This is particularly the case in emerging market fisheries, where several factors collide:

  • The inability to evaluate stock status and fishery conditions, due to the lack of reliable fishery data and track records, make it difficult to assess investment risk and rewards.
  • The current open access nature of fishery and the absence of tenure rights and enforcement mechanisms do not allow the benefits of fishing improvements to accrue to specific fishermen.
  • The large, numbers of individual, unregulated fishermen, who tend to operate opportunistically, making it costly to negotiate and monitor fishery improvement agreements.
  • The lack of successfully tested models for implementing traceability measures means that there are few investment opportunities and few models to emulate.

Using Blue Swimming Crab in Indonesia as an example, research shows that while processors in the value chain stand to benefit from improved BSC management, these companies do not typically invest directly in helping fishermen transition to sustainable practices due to the above factors. While many processors are interested in supporting sustainability, it is difficult for them to demonstrate reliable return on investment (ROI) to their investors to justify financing these efforts.

Because of these hurdles, fishery improvement efforts end up relying on ongoing philanthropic support or government subsidies, without reliable economic incentives for change built into existing business models.

Parallel Approach

Sumatran Fisherman with Blue Swimming Crabs

Wilderness Markets teamed with Blue Star Foods, a Miami, Fla.-based distributor of quality crabmeat, to explore creating an industry-led sustainability initiative within the BSC fishery in Indonesia, Indonesia with the hope it would provide a blueprint for other fisheries.

Approach

The first step in our approach was to gain a clear understanding of the concerns and needs of impact investors, believing this understanding will allow development organizations, NGOs, and others, to better sequence their interventions (that is, through their risk instruments, matching capital, public and concessional financing, technical assistance, and macro-level reforms, and policy initiatives) to encourage private sector participation while leveraging and preserving scarce public dollars for critical public investments.

We specifically explored the central challenges that keep impact investors from participating in sustainable fisheries:

  1. A lack of reliable fishery data
  2. Ineffective fisheries management
  3. Unreliable infrastructure systems
  4. A paucity of investment-ready enterprises

The team analyzed the current state of fishery data collection, resource management, infrastructure systems, and enterprise capacity in the fishery. We found that — like many fisheries in emerging markets — the BSC fishery lacked reliable data and, despite new national fishery policies, functioned largely without effective management and enforcement. We also found strong, established commercial and social relationships within the value chain that point to the power and influence of a small group of 16 processors that buy BSC from 400 mini-plants that, in turn, purchase crab from more than 65,000 fishermen.

Using the data collected, we identified and analyzed three models for sequencing and combining different sources of capital to overcome obstacles:

  1. Serial approach: Public and philanthropic funders first support the establishment of strong governance arrangements, improved data collection, and fishery management. Once these initiatives mitigate some of the risk associated with a fishery investment, then return-seeking investors are incentivized to finance sustainable infrastructure projects (often through public-private partnerships) and/or enterprises along the value chain, focused on outcomes that achieve a triple bottom line: social responsibility, economic value, and environmental impact.
  2. Consolidated approach: Governments negotiate agreements with a single private sector entity or cooperative to delegate fishery management responsibilities. The private firm or cooperative then simultaneously invests in fishery data, management, infrastructure, and triple bottom line enterprises.
  3. Parallel approach: A range of investors and other stakeholders (for example, governments, nonprofit organizations, fishing collectives) develop coordinated investments to improve fisheries data, management, infrastructure, and triple bottom line enterprises. Efforts can be separately funded, but they work in tandem and share the ultimate goal of achieving sustainable catch with an appropriately capitalized and profitable fishing sector.

Outcome

Based on our findings, we identified the “parallel approach” as the most appropriate for the BSC fishery in Indonesia. We coupled this with a “lead firm strategy,” in which a “market maker” firm ensures market access and aligns economic incentives for change. This industry-led sustainability initiative draws on the experience Wilderness Market has in a number of other sustainable agricultural markets.

In this case, the strategy works with a U.S. based lead firm, to create financial and social incentives to

Lead firm and harvester

Lead firm and harvester meeting

enable fishermen to transition faster to sustainable fishing practices and improve management. Through its purchasing power and economic and cultural relationships, the lead firm is in a strong position to influence the practices of a range of processors, who have commercial and cultural relationships with a network of mini-plants, collectors, and fishermen.

Together with the lead firm and local harvesters, we developed a pilot model based on a partnership between the lead firm and a producer organization or fishing cooperative. The model brings together limited amounts of philanthropic capital and relies primarily on private capital to provides financial, social, and environmental returns. This return-driven model includes:

  • Purchase commitments based on price, quality and standards
  • Investments in fishermen cooperatives to motivate gear improvements and sustainable practices
  • Improved fishery data collection and traceability
  • Support for harvest control compliance

The pilot project is designed to align and attract private, return-seeking impact investment to the fishery and complement ongoing work by NGOs in the region to improve fishery management. Critically, it is designed to address the lack of loyalty in relationships between local harvesters and the supply chain, thus providing a basis to address the return on investment for improved fishery management.

Provision of ice is a key concern

We expect this approach will enable local fishermen to better organize, adopt sustainable practices faster than waiting for the government to create and enforce management changes on its own, and address the economic hardships fishermen face when resolving changes in fishery regulations. It will also help bolster local business and community support and advocacy for more effective fisheries management policies and enforcement through a legal, local cooperative structure.

The new facility focuses on utilizing good data to address a prioritized sequence of fishery management measures related to size, sex and seasonality in BSC fisheries in Indonesia[1], where illegal and destructive fishing practices are pushing crab populations toward collapse. By strategically investing capital in priority data, fisheries management[2] and harvest related changes, the facility proposes to share the upside of recovery with local harvesters and business through the value chain.

Vessel tracking unit to improve traceability

This impact initiative is aligned with local regulations in Indonesia[3] to further assure social, environmental and economic impact.

As a result of better data collection, alignment of economic incentives and effective supply chain management, the fishery will produce higher yields of BSC. It will also provide a traceable, sustainably harvested product that will have a competitive advantage in key U.S. and E.U. markets where the lead firm and supporting investors will be able to recoup their investments in sustainable practices.

Ultimately, we hope to help establish a management or governance unit of key stakeholders — including fishers, mini-plant operators, district and provincial heads, processors, scientists and APRI representatives (the association of Indonesian crab processors)  — in order to address factors in the enabling environment, which will strengthen this pilot.

Why It’s Successful

We believe this pilot will help overcome a key roadblock in creating sustainable fisheries in emerging markets: it provides a concrete, “proof of concept” that can demonstrate the financial success of sustainability investments and encourage other fishing industries to design similar programs.

By embedding sustainability requirements within existing value chain relationships and practices, we will:

  • Demonstrate the financial viability of investments in fishery data collection and management, thus attracting additional private sector action and corporate investment in, and support for, these practices.
  • Create new norms in the fishery that are sustained because of their business value rather than relying on ongoing philanthropic support; government subsidies or inefficient enforcement to succeed.
  • Provide clear and reliable financial benefits for small-scale harvesters to make gear changes, follow harvest control measures, and take on other sustainable fishing practices. This alignment of immediate economic well being with sustainability practices will improve compliance and reduce the short-term, negative impacts of fishery restrictions on local economies and communities.
  • Test a new, “parallel” investment model for combining philanthropic, government, and private sector funding to address fishery management issues. If successful, this model can be tailored and applied to other fisheries in emerging markets.

While we are starting with BSC fisheries Indonesia, the problems these fisheries face are common in a number of emerging market fisheries. We are building a model that can be rapidly modified, applied and scaled in a variety of fisheries around the globe.

We believe the pilot BSC program will help overcome a key roadblock in creating sustainable fisheries in emerging markets because it provides a concrete “proof of concept.”

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[1] “Indonesian Blue Swimming Crab Value Chain Summary”. 2015. Wilderness Markets. http://www.wildernessmarkets.com/portfolio/indonesian-blue-swimming-crab-value-chain-summary/

[2] Jeremy Prince. 2015. Indonesia BSC Spawning Ratios. Unpublished data from personal communication.

[3] RPP Rajungan, decree number 56/Permen – KP/2016 for BSC Fisheries Management

Sustainable Fisheries – the role of the fishermen

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Significant attention is being paid to the oceans. Between the UN Oceans Conference as the recent Economist leader, attention is (finally!) being given to the significant and numerous benefits and threats to the worlds oceans.

At a time of increasing populations, increased demand for healthy proteins – and arguably a climate imperative – human consumption of seafood is increasing exponentially. Wild capture seafoods are increasingly losing ground to aquaculture raised seafoods, for better or worse.

So why should we continue to care about wild capture seafoods? Isn’t sort of like expecting we should still live off wild buffalo and antelope?

It is – and the problem is, many emerging market countries are still dependent on wild capture fisheries for social, political and economic outcomes. Many emerging market economies depend on a sustained source of seafood to address social and poverty concerns. Fisheries related political decisions –in the form of subsidies and / or gear – are good politics at election time. And the national and global supply chains themselves are valuable sources of foreign currency in many countries.

While significant progress has been made to improve fisheries management in developed countries with strong rule of law, challenges remain on the open ocean and in many emerging markets. As summarized in a series of reports we completed, these challenges cut to the core of why fisheries remain “unmanaged”. We would argue that a developed world, legal first approach (which we call the “serial” approach) will not work in many emerging markets.

What is instead needed is a concerted effort to engage fishermen, gather reliable data and find culturally appropriate solutions in conjunction with the supply chain. These efforts can be complimentary – and inform – efforts to address legal and regulatory requirements in “parallel”, allowing fishermen to realize the benefits of changes in practices, presenting value chain actors and regulators with clear data on landings, and doing so in a culturally appropriate manner.

Our recent efforts in the United States and in Asia continue to support this theory.

In the United States, now that the west coast groundfish fishery is in recovery, fishermen face the reality that the market price is below the cost of landing the fish as management costs have increased while revenues have remained flat (or declined when adjusted for inflation) for the higher volume species. The market, in effect, compares US groundfish to imported white fish and sets the price at the lower of the two, in large part due to the volumes, but also due to the lower costs of imports. Unless prices and market access improve for US groundfish fishermen, its unlikely many of them will remain in business (and this in turn will imperil the funding of the fisheries management system).

In Indonesia, the bigger challenge relates to the lack of registration of fishermen and vessels, poor landings data and limited data on fishing sites and practices, particularly in artisanal fisheries which are increasingly being drawn into national and global supply chains due to the increased demand. In many countries, fishermen are essentially unregistered, have limited access to services and are not legally recognized. In nearly all the emerging market value chains we reviewed, the first legally recognized stage of the value chain was the aggregator or middle person. This legal recognition is important – it enables access to government and private services and it allows managers to define and engage with users.

It will continue to be challenging to manage these historically productive fisheries unless these challenges are addressed in a culturally appropriate manner.

Wilderness Markets is developing a range of measures building on the interests of fishermen that address these challenges in US and developing country fisheries. These include improving market access and recognition for fishermen with industry; addressing fishermen registration and organization; ensuring good data is collected and made available to all relevant parties as well as aligning economic incentives. An essential underpinning of all this work is the need to engage with, and facilitate, changes in practices in existing firms.

As we are seeing in our work, systems change is possible, it takes the combination of a bottom up approach and a systematic assessment of metrics to keep everyone on track.