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.

Dr. Richard Leakey – Presentation on Conservation

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Dr. Richard Leakey recently presented some thoughts on conservation in Cape Town at the 2017 Conservation Lab.

He made some excellent comments regarding the current and future challenges of conservation in the age of climate change, population growth and prosperity that need to be incorporated into many Conservation NGO strategies and agendas (particularly in fisheries).

I hope you enjoy it as much as I did – its worth the time.

Investing for Sustainable Fisheries Needs Funding for Capacity Building

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Impact investors are ready to invest increasing amounts of impact capital in sustainable fisheries; what’s missing are  profitable businesses and organizations with the capacity to accept investment. These profitable “investible entities” aren’t emerging apace because the entrepreneurial ecosystem to develop their business capacity is lagging.

Read more

Is this what success looks like?

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An ongoing discussion between people in the conservation finance community is how we define success.

Reviewing the data – which we like to do (see below) – does not demonstrate much success in addressing species or biodiversity loss.

Perhaps it is time for a review of what has really worked in the conservation finance. Not only do we need to contend with increasing resource demand and population growth, but now we have to increasingly address the impacts of climate change on these less than resilient ecosystems.

If this is what success looks like, I would hate to see failure.

Image Courtesy of Treehugger & Racing Extinction

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.

 

 

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.

Leverage the Middle for Improved Fishery Management and Revenue

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The New Middleman: Service Provider and Quality Assure

“Middle man — the very term itself is associated with extra hoops to jump through, farmers being cheated, and limited value being offered to farmers and value chains generally. The idea of cutting out the middle man is frequently thought of as a selling point, casting these intermediaries as the “bad guys” of the value chain, worth avoiding whenever possible.” -Robert Anyang, Chemonics

Reading this recently on the Agrilinks blog, I subconsciously substituted “fisher” for “farmer” because the same is true for our marine resources. Our friends at Smartfish, in Mexico, led us to imagine how a “good middleman” could lead to a more equitable distribution of money along the value chain, i.e., greater social impact, while also promoting fishery health, i.e., environmental impact.

Leveraging the Middle

Parallel Approach to Fisheries Development

At Wilderness Markets, we believe that middlemen, whether they are called intermediaries, buyers, or agents, can provide a vital link in low governance fisheries. (We consider simultaneous governance and value chain development in emerging markets as a “parallel approach” to fisheries. You can read more about this here and here.) Processors and distributors committed to promoting responsible fishing can employ “good middlemen”. These can provide services and also act as service providers and informal fishing rules enforcers  in geographies where official government management is lacking.

The Current Role of Middlemen (and Women)

Often viewed as part of the problem, in many instances independent middle buyers often take on a great amount of risk in the value chain. By paying cash for goods, they then take responsibility for ensuring they’re able to make a profit. This may require days of transport, during which any delays or excess heat cause spoilage and loss of value. They also take on the burden of finding the best paying buyer. In Indonesian tuna, snapper and swimming crab value chains, middle buyers also forward cash and supplies to the fishermen they purchase from.

Yes, some middle buyers take advantage of the harvesters they buy from – charging exorbitant interest, or not paying a fair amount for the product. This is an opportunity for competitors.

Better Use of Resources: The Role of Intermediaries in Parallel Development

Smart end buyers have started taking advantage of these vacuums as opportunities to assure quality, but this could be leveraged even more. So far we’ve seen a processor in Indonesia who keeps local middle buyer on their payroll; the community knows and trusts her, and she targets the best quality tunas. She pays well and in-cash; however, she does not let the community know she’s actually working on behalf of the processor because they fear the community may either not want to sell to her or may expect higher prices.

In Indonesia, fisheries are generally data poor and enforcement of regulations, if they exist, is lax in most fisheries. As is common, the fishing industry is as or more developed than fishery management. This situation is prime for parallel development, whereby industry, government, NGOs, and philanthropy work together to promote sustainable development of the fishery so that fishers can continue to harvest but not to the detriment of successive generations.

Localized data collection and management are increasingly popular ideas and are of great interest in the blue swimming crab (BSC) fisheries where exporters are trying to avoid overfishing due to its high costs, like smaller and fewer crabs, that may force companies to eventually relocate their operations. Efforts like this is one of the ways to increase enforcement in locations where the government has difficulty doing so. Middle buyers working on behalf of companies affiliated with exporters can promote responsible fishing is by not buying undersize or actively reproducing females.

Leveraging the Middle

Sumatran Fisherman with Blue Swimming Crabs

Using the Middle for Management

We recently worked with one US importer of Indonesian BSC (about 80% of Indonesian BSC is exported to the US) to create a mobile app that allows the picking plants, who are a first or second level “middleman”, to keep track of landings data, including size, fishing grounds, and weight. Among the benefits are the ability to avoid areas with undersize crabs and egg-bearing females. As both have lower quality meat, it means that not only are the plants more able to avoid this lower quality crab, but also that the crab population has more of an opportunity to regenerate. A win for the plants, the fishers (who can make more money) and the environment.

Working together to promote smarter management produces benefits for fishers and the environment which improves stability of the resource for the importers. Companies can gain more agency over the product quality as well as improve fishery management by employing middlemen as agents and intermediaries.

 

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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.”

——

[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

Coral Reefs and Ocean Health

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Every so often, we run across reports that force us to stop and question our assumptions. Recent papers on global warming and the impact on oceans is a topic we have been monitoring for a couple of years now, with each new paper more depressing than the last.

It is our view that the role of ocean warming on stock health, and by extension, investment risks associated with stock health is either ignored or underestimated in most wild capture fisheries investment models.  However, with little information on which to base this assumption, it has been difficult to express this disconnect. Furthermore, most of the impacts are felt at the base of the supply chain  – by fishers and fishing firms.

A recent open paper in the journal Nature provides some interesting context. Titled “Coral reef degradation is not correlated with local human population density”, the research appears to “suggests that local factors such as fishing and pollution are having minimal effects or that their impacts are masked by global drivers such as ocean warming” and …. “findings indicate that local management alone cannot restore coral populations or increase the resilience of reefs to large-scale impacts. They also highlight the truly global reach of anthropogenic warming and the immediate need for drastic and sustained cuts in carbon emissions.”

If these findings are true – and we are unsure there is scientific consensus around them – it will have significant implications for wild capture value chains, local populations and for the range of local and community based efforts attempting to address overfishing through local management.

We would welcome comments or thoughts on this paper, which can be accessed at this link.

Bruno, J. F. and Valdivia, A. Coral reef degradation is not correlated with local human population density. Sci. Rep. 6, 29778; doi: 10.1038/srep29778 (2016).