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)

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.

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.

How Poor Data is Holding Back Fisheries Reform AND Impact Investors

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The Problem(s)


Poor management of fisheries is calculated to result in losses of USD $83 billion to the world economy each year. As cited in many other fisheries papers, data indicates an alarming proportion of fisheries, nearly 90 percent in 2013, are fully overfished, depleted or recovering, an increase from 75 percent just eight years prior.  Investments in fisheries could provide net benefits of USD $54 billion per year.

 If developing countries fisheries are to continue their role as a primary source of protein and income for millions, more than just public and philanthropic money must be invested in recovery and management.  Reform needs private capital. Unfortunately, there is a dearth of investable, risk-adjusted entities in sustainable fisheries that can meet triple bottom line goals. This then hampers participation of impact investment capital. Simply put, although there are investors with money, there are not nearly enough viable entities in which to invest. This challenge is further compounded by poor data.

The Role of Data for Management and Investment


Often bypassed in fishery initiatives, capturing good data is critical to both fisheries management and investment. Among other data points, management requires data about size, sex, species, nursery areas and seasonality to be able to manage the fishery to ensure continuity of the resource. Investors need to be able to assess risk to their prospective investments. For fisheries, this means understanding how well the fishery will perform in the future, i.e., whether there will be more fish in the sea and how many. Management data and investment data go hand-in-hand.

Indeed, in “Towards Investment in Sustainable Fisheries”, the three key enablers of sustainable and profitable fisheries are secure tenure, sustainable harvests, and robust monitoring and enforcement, each of which relies on robust data. Investable entities and risk management are key requirements for investment that build off these enablers. Encourage Capital’s strategy for small-scale seafood investments also relies on interventions driven by data, including catch accounting systems, and product tracking and traceability.

 Lack of data is identified as one of the major concerns with regards to stock health and effective resource management in the major domestic and export fisheries of Indonesia, the number two producer of wild-caught fish in the world. Indeed, for industry, the lack of clear recommendations and supporting data is a significant issue from a decision-making perspective. This lack of data and analysis directly affects efforts to build consensus and accountability at all levels of the value chain.

Stay Tuned…


Data is critical to ensuring food security and income through better managed fisheries and investments thereto, which is why data collection, analysis and sharing is one of the focus areas of our work in Indonesia. Follow us to see our next post, where we share what we’re working on in to get better data in Indonesia.

Fishing cooperatives in Indonesia?

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Why we are helping to setting up a harvester cooperative in Indonesia’s blue swimming crab fishery

Wilderness Markets, in collaboration with Blue Star Foods (USA), PT Blue Star Nusantara through one of its subsidiaries PT Siger Jaya Abadi, recently teamed up to assist in the formation of a harvester cooperative in Indonesia. We were recently honored to participate in the launch of the cooperative in Maringgai.

Based on our experience in coffee, cocoa, tea, cashew, macadamia and honey value chains, we have plenty of experience on the advantages and disadvantages of working with producer organizations (POs), usually cooperatives (1). They often fail, riven by poor management, member disagreement and poor financials. Indeed, Dalberg (2) attributes some of the main reasons for lack of smallholder participation to one or more of the following reasons:

  • POs provide poor services because of low internal capacity
  • Insufficient access to resources like financing and technical assistance
  • Exclusion of smallholders and women from POs
  • Weak governance and leadership of the PO
  • State intervention in POs for political gain

So why did we decide to support this initiative?

  1. Improve harvester representation in the fishery: Many of the harvesters in this fishery are unregistered individuals, with limited access to services and no mechanism for representation
  2. Secure access to technical assistance for harvesters for best fishing practices
  3. Create access to financing for harvesters to support their transition to more sustainable fishing methods to decrease pressure on the fishery
  4. Improve economies of scale: Developing an aggregation mechanism like a PO to permit harvester participation in a global value chain on key issues such as price, quantity and standards.

1. Improve Harvester Representation

Field research in the fishery indicated low levels of harvester registration via the national fisher identification card (Kartu Nelayan). Therefore, these individuals are unable to access a range of government services.

At the same time, the Government of Indonesia has established benefits for cooperative structures to effectively serve its population; however, by not having a cooperative structure in place the harvesters are unable to access these services.

2. Secure Access to Technical Assistance

In addition to government assistance, strong opportunities exist for other value chain stakeholders to provide technical assistance and financing for harvesters. Working closely with Blue Star Foods and its subsidiaries, primarily around reducing environmental impacts and improving harvest value, Wilderness Markets has identified a series of technical assistance measures that Blue Star Foods has committed to supporting. These include access to improved pricing, changes in gear to address the ecosystem impacts of gill nets and increasing access to cold storage and ice to improve product quality.

3. Create Access to Financing

Extensive interviews with a range of national and international banks focused on supporting producer organizations revealed considerable barriers to participating in this sector. These included the lack of individual registration, the lack of payment and history records and the lack of harvester aggregation. Furthermore, most banks stated a preference for at least three years’ worth of records and transaction history for producer organizations.

4. Improve Economies of Scale

While harvesters have historically been able to access markets at the collector or mini-plant picking stations, they have done so at a significant disadvantage to their financial interests. Historically, this may not have been an issue to the remainder of the value chain, but increasing concerns regarding quality and sustainability are resulting in a greater focus on the role of mini-plants and their relationships with harvesters. In the blue swimming crab fishery in Indonesia, where over 90% of production is exported into an increasingly global and competitive market, the value chain can no longer afford to ignore the harvesters and if the harvesters are to remain competitive, they must increase their participation.

“In fact production organized based on GVCs [Global Value Chains] and production networks, governed in part through the use of standards, has increased the need for farmers to be organized in order to be included in modern market trade.” –Dr. Eva Csaky, 2014 (3)

A final consideration relates to equity. Across a range of fisheries Wilderness Markets has evaluated, there is a striking lack of any formal organization to represent harvester’s own interests, to aggregate services and access value chains. This has, more often than not, resulted in harvesters being “price takers” for their efforts, while financial benefits have aggregated in the middle of the supply chain.

Conclusion

Wilderness Markets is only too aware of the failure rate associated with cooperatives. A key difference in this case is the close involvement of the value chain partners to ensure market access; a price incentive for improved practices and gear change; and technical support. Building-in a financial incentive for the cooperative and its members to change practices is a key consideration in the process, as is building a financial track record for the organization and its members to permit them to effectively access financing from the formal banking sector in the future.

A key finding of Csaky’s 2014 dissertation (4) was that “Cooperatives are at a disadvantage compared to other producer organization (PO) forms in achieving the conditions of global value chain access.” Additionally, lead firm driven efforts linking smallholders to markets like the international crab market have been more successful than those initiated by producers, i.e., top-down efforts are more successful than bottom-up efforts in these markets. In light of this, Wilderness Markets is actively exploring how the cooperative structure, which is recognized in Indonesia, can be formally partnered with existing value chain actors to effectively achieve financial, social and fishery management objectives to create a hybrid structure.

1. The terms “producer organization” and “cooperative” have different legal implications in different countries. Here we use producer organization in keeping with the original authors language or as an umbrella term that includes multiple forms of producer organizations, including cooperatives.
2. Dalberg. “Farmer Aggregation and Access to Finance”. 2013. Presentation. http://www.ico.org/documents/cy2012-13/forum/forum-3-zook-e.pdf
3. Csaky, Eva Szalkai. (2014). “Smallholder Global Value Chain Participation: The Role of Aggregation” (Unpublished doctoral dissertation). Duke University, Durham, NC. http://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/9384/Csaky_duke_0066D_12557.pdf?sequence=1
4. Ibid

What lessons can be learned from the Icelandic cod value chain?

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Iceland - Siglufirði Siglufjörður By Hansueli Krapf This file was uploaded with Commonist. [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

Iceland – Siglufirði Siglufjörður By Hansueli Krapf This file was uploaded with Commonist. [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

Icelandic cod first came to our attention at Wilderness Markets when we were collaborating with Future of Fish on research into financing needs in the US Northeast Multispecies Sector Program. How can cod from, Iceland, over 2000 miles away be not only cheaper but of equal or better quality than cod caught from just outside your proverbial front door?

A series of papers highlights important developments and key factors in the success of the Icelandic cod value chain since the ‘90s. The series include:

  1. The Effects of Fisheries Management on the Icelandic Demersal Fish Value Chain, 2016[1]
  2. A Comparison of the Icelandic Cod Value Chain and the Yellow Fin Tuna Value Chain of Sri Lanka, 2010[2]
  3. The Role of Fish Markets in the Icelandic Value Chain of Cod, 2010[3]
  4. The Importance of SMEs in the Icelandic Fisheries Global Value Chain, July 2009[4]
  5. Structural Changes in the Icelandic Fisheries Sector – A Value Chain Analysis, 2008[5]

Before digging in too far, two aspects of the Icelandic versus the New England value chains can’t be overlooked—the relatively small population of Iceland and the relatively high landings of cod.  For disputed reasons (climate change, better management, etc.) Iceland has a much healthier, i.e. more abundant stock, and hundred-fold greater landings than New England. Along with much higher landings, a far lower population means a robust export market.

2016-06-23

[6]

Key factors and developments:

  • Increased efficiency at multiple levels of the value chain has helped improve value
  • Domestic value creation, specifically in the form of fresh fillets, has added significant value
  • Information flow (availability of information) and knowledge drive value
  • Use of marketing information to govern the value chain through vertical integrated companies and fish auction markets
  • Fish markets (auctions) improve efficiency and improve the consistency of supply for the value chain by acting as clearinghouses and support speculation
  • Consolidation of vessels, fishermen, processors, processing workers, and quota ownership have occurred in significant number
  • Increased specializations in fishing and processing

An interesting aspect that warranted a whole paper is the role of the fish markets, effectively online auctions, wherein all bidding is done through one computerized system owned by 15 independent markets since 2000. These private markets only handle 20% of the landings by volume but have a high value in terms of value chain efficiency because they allow for specialization (buyers can sell or swap species not needed for production), provide stability (buyers can ‘top-up’ if they are short on supply) and creates market-driven value for species. The rise in general groundfish prices by 20% from 1999 to 2008 is thought to be partially attributed to the fish market system.

Some key aspects of the Icelandic cod value chain, like low human population in Iceland and abundance of target species in their waters, don’t readily translate to Wilderness Markets’ recent focus on the Indonesian and U.S. West Coast fisheries. Others do. For instance, in the paper on the importance of small and medium enterprises (SMEs), the increase in vertically integrated companies means those companies have better control of the reliability, quality and delivery of fisheries products. Their competitive advantages are related to quality assurance knowledge, good logistics and dedicated export and sales management. On an almost reverse timeline for the U.S. West Coast groundfish fishery in California, fish handling in Iceland improved in the ‘90s and ‘00s by investments in better onboard cooling systems, shorter fishing trips and logistics improvements.

In the 2016 paper, they also describe the structure of the value chain before the export licensing system was abolished in the 1980s—importantly, and with implications for other value chains – the three large marketing and sales organizations that controlled most of the fish failed to send market signals back to producers. The new, vertically integrated companies that replaced these organizations heeded signals from foreign customers and improved product quality and successfully added value domestically by switching processing to Iceland instead of overseas.

We have witnessed this same disconnect in many other fisheries; fishermen don’t seem to have any idea about the needs and demands of the end markets and have no incentive to meet these demands. In one of the most telling statements in the series, an interviewee states, “They [the Norwegians] are still mostly thinking about catching while we have reached the point where we think about serving the market.” Most fishermen have not yet been able to reach this stage, hindering their ability to realize improved value for their work.

We’re hopeful that the end-market research currently underway in California will provide market data that can be turned into increased value for the harvesters working diligently to promote sustainability.

[1] Knútsson, Ö., Kristófersson, D. M., & Gestsson, H. (2016). The effects of fisheries management on the Icelandic demersal fish value chain. Marine Policy, 63, 172-179..

[2] Knútsson, Ö., Gestsson, H., Klemensson, O., Thordarson, G., & Amaralal, L. (2010). A Comparison of the Icelandic Cod Value Chain and the Yellow Fin Tuna Value Chain in Sri Lanka.

[3] Knútsson, Ö., Klemensson, Ó., & Gestsson, H. (2010). The Role of Fish-Markets in the Icelandic Value Chain of Cod.

[4] Knútsson, Ö., Gestsson, H., & Klemensson, Ó. (2009, July). The importance of SMEs in the Icelandic fisheries global value chain. In IXX EAFE Conference Proceedings (pp. 6-9).

[5] Knútsson, Ö., Klemensson, Ó., & Gestsson, H. (2008). Structural changes in the Icelandic fisheries sector-a value chain analysis.

[6] New England Population: http://www.dlt.ri.gov/lmi/census/pop/neweng.htm
Iceland Population: http://www.iceland.is/the-big-picture/quick-facts

US landings: http://www.st.nmfs.noaa.gov/commercial-fisheries/commercial-landings/annual-landings/index
Icelandic landings: http://icefishnews.com/wp-content/uploads/2013/05/Marko-partners-%C3%ADslenski-kv%C3%B3tinn.png

 

Markets for Groundfish in California, Part 4 of 4

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This is part 4 of a 4-part series intended to invite conversations in advance of our planned end market demand analysis for groundfish in California. The larger goal is to provide quantified end market data to inform profitable value chain investments that will positively impact harvesters, local communities and the ocean.

Waste and discards

The opaquest parts of the value chain are the discard and waste streams; we don’t have volume figures to distinguish between discards and processing trimmings and how much of each goes to secondary processors or to landfills. We believe this to be important given the high level of biomass discarded – in some cases as much as 70% of the landed fish (e.g. Dover sole, which has one of the higher quotas).

We identified one secondary processor and were told that disposing of processing byproducts is not a moneymaker; indeed, disposing of trimmings is a cost for processors which may be passed to harvesters. Just how much of a cost is unknown. Also unknown is what proportion is sent to the secondary processor and how much may be destined for landfill. In addition, we don’t know what volume of fish or fish waste enter this stream since the final end-market forms for domestic consumption is unknown (and thus how much fish is processed or sold whole is unknown).

A potential local solution to unvalued fishery byproducts was initiated in Morro Bay in which local farmers picked up bins of fish parts and turned them into soil amendment. However, discovery of state regulations that limit processing of the fish parts prohibited the continuation or expansion of the program.[1]

Questions: Would improving the value of discards and trimmings improve the value realized by harvesters? Is this a viable alternative market?

Final Thoughts

The West Coast Groundfish fishery could be a case study for successful fisheries management for hundreds of other fisheries around the world if it weren’t for the fact that so many harvesters still seem to be struggling economically. Until the harvesters are profitable enough to cover management costs, the most important part of the puzzle isn’t in place. Figuring out where the different pieces fit—value drivers, product flows and the like—will be a boon not only to these harvesters and their communities, but also to parties interested in investing in this, and other, fisheries.

[1] Kathy Johnston, “Hook, Line, and Sinker,” New Times, December 7, 2011, Volume 26, Issue 19 edition, http://www.newtimesslo.com/news/7042/hook-line-and-sinker/.

Sustainable Fisheries Finance – An Integrated Value Chain Approach (Part 1)

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As our need for the oceans to provide us with food and livelihoods increases, the sustainability of fisheries becomes increasingly vital. One of the key components of fisheries value chain sustainability is the long-term economic sustainability of the fishermen. Without proper conditions to allow organizations to innovate and scale, economic, ecological and social returns are even more difficult to realize.

Wilderness Markets, with the support of the David and Lucile Packard Foundation and the Gordon and Betty Moore Foundation, undertook a series of fishery value chain assessments to better understand the opportunities and constraints for private impact capital to flow into wild capture fisheries markets

Over the course of 220 interviews, we assessed four developing country fisheries (DCFs) in two countries and one fishery in the U.S. Each fishery we assessed provided a piece of a larger puzzle, allowing us to identify the components of a sustainable seafood value chain and its relationship to stock health, which in turn, drives value chain health. We present this value chain as an “Integrated Framework” below.

A number of lessons may be taken from this framework:

  • Stock Health is positively impacted by the “Key Enablers of Sustainability”, but not by value chain interventions.
  • In reality, our findings indicate that in the absence of the Key Enablers, value chain dynamics, no matter how well intentioned, result in higher rates of stock depletion
  • Firm level and market level upgrading strategies are unlikely to result in stock health improvements in the absence of the Key Enablers
  • The majority of Developing Country Fisheries do not have any investable mechanism at the resource level in which to invest
  • The majority of Developing Country Artisanal Fisheries (as opposed to Industrial) are further challenged due to the lack of investable entities and legal recognition of fishers / harvesters, with Shoreside Service (03) providers as the first legally recognized entity in the value chain – not the harvesters (02).

We will explore what this means (including how Fisheries Improvement Plans or FIPs link into this) in a series of upcoming posts. We welcome your comments and inputs to this discussion.Wilderness Integrated Framework Feb 2016

Markets for Groundfish in California, Part 3 of 4

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This is part 3 of a 4-part series intended to invite conversations in advance of our planned end market demand analysis for groundfish in California. The larger goal is to provide quantified end market data to inform profitable value chain investments that will positively impact harvesters, local communities and the ocean.

Can local demand be met with local fish AND will it increase prices paid to harvesters?

Determining the consumption of seafood products in California with any precision, much less the product characteristics or species composition, is difficult. Considering average per capita seafood consumption in the U.S. is 14.6 pounds per person and 2014 California population is an estimated 38.8 million people, expected seafood consumption in California is about 257,000 metric tons. This is about 38 times the groundfish landings in 2014.  

Estimates from 1993 through 2004 show that estimated consumption of flatfish, a subcategory of groundfish that includes fish like Dover and petrale sole, should be 5,300 metric tons in California. [1] Compare this to the 2,845 metric tons of flatfish landed in California in 2014 and you realize it’s far less than estimated consumption and even lower when processing is considered. Again, this indicates a substantial market that would be interested in purchasing groundfish.

Another strong indication comes from recent work by Changing Tastes.[2] “Whitefish” and “other” currently compose 20% and 15% of U.S. consumer purchases from all sources. Whitefish is a generic and nebulous category, but groundfish species should fall somewhere in either “Whitefish” or the “other” category. The math again indicates a substantial market–about 90,000 metric tons of “Whitefish” and “other” are expected to be consumed in California each year.

All the data indicate there should be a local market for California groundfish, at least based on estimated consumption volumes. However, the characteristics of demand are largely unknown, so we’re unsure whether this is true once product characteristics like flavor and texture are accounted for.

What affect are imported groundfish having on prices?

Despite the data indicating a fairly substantial market for seafood in California, prices in real dollars have remained flat or even declined at some California ports. If there were local market demand, we would expect to see prices at least hold steady, if not increase.

Figure 4 California price comparisons adjusted for inflation, sablefish, Dover and petrale sole, 2008-2014

Fig4

Figures 5 and 6 Price comparisons at major California groundfish trawl ports, adjusted for inflation, petrale and sablefish, 2008-2014

Price graphs

When the unit values of flatfish and other groundfish imported into California are compared to groundfish exported from California, as in Figure 5, the imported unit values are higher. Perhaps the fish being exported is of too low a quality to have a local market, or maybe it isn’t a fish that Californians like to eat. It may be that the imported fish has characteristics that local groundfish don’t have. But just what these characteristics are that are deciding values are largely unknown.

Figure 7 Unit value ($/mt) comparisons of foreign imports and foreign exports of groundfish from California

Fig5

Why are prices flat and why aren’t more groundfish being caught?

The data we have indicates there should be a large enough market within California to absorb all landings and that prices at the dock seem to be flat or declining in real dollars at some California ports. We also know that the quota for many species is not being used, i.e., the scientifically-informed regulations allow harvesters to catch more fish, but they are not. Altogether, this data indicates a disconnect or a mismatch between the end market and harvester level—if there is indeed market demand for groundfish, it is not extending to the harvesters in the form of better prices. If it were, we would expect to see all of the quota being used.

Questions: Why is this? Are the species they land not marketable? Is the quality not good enough? Is the catch volume not steady enough? And if catch volume isn’t steady enough, what level does it need to be and would freezing be a way to overcome this hurdle?

[1] Malden C. Nesheim, Ann L. Yaktine, and Institute of Medicine (U.S.), eds., Seafood Choices: Balancing Benefits and Risks (Washington, D.C: National Academies Press, 2007).
[2] “US Seafood Market Segmentation Study: An Assessment of Relative Purchasing Power and Risks in the U.S. Fish and Seafood Marketplace,” December 1, 2015.