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.
In 2015, Wilderness Markets completed a value chain summary of the blue swimming crab (BSC) fishery in Indonesia in which we analyzed the current state of fishery data systems, resource management, infrastructure, and enterprise capacity. Based on these findings, we recommend a lead firm strategy to move the fishery toward sustainability. Like many fisheries in emerging markets, the Indonesian BSC fishery lacks reliable data and, despite new national policies, functions largely without effective management. The value chain has strong, established commercial and social relationships, indicative of the power and influence of a small group of 16 processors buying from 400 mini-plants that, in turn, purchase crab from more than 65,000 fishermen.
In this case, the lead firm is a U.S. based company, Blue Star Foods. Blue Star is working to create financial and social incentives to enable fishermen to transition faster to sustainable fishing practices. Through its purchasing power and relationships, Blue Star is therefore in strong position to influence the practices of a range of processors, who have commercial relationships with a network of mini-plants, collectors, and fishermen.
Lead Firm Pilot Design
With Blue Star and local harvesters, we are developing an investment model based on a pilot partnership between the lead firm and a fishing cooperative (in development). The model brings together philanthropic and private capital and provides financial, social, and environmental returns. It includes:
- Purchase commitments based on price, quality and standards
- Investments in fishermen cooperatives to motivate gear improvements
- Improved fishery data collection and traceability
- Support for harvest control compliance
This pilot is designed to attract private, return-seeking impact investment and complement ongoing work by NGOs to improve fishery management. We expect this approach will enable 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 bolster business advocacy for more effective fisheries management policies and enforcement through a local cooperative structure.
Goals and expected outcomes
Ultimately, as a result of better data collection and effective management, the fishery will produce higher yields of BSC. It will also provide a traceable, sustainably harvested product with a competitive advantage in key U.S. and E.U. markets. This will then allow Blue Star and supporting investors to recoup their investments in sustainable practices.
By embedding this lead firm work within existing value chain relationships and practices, we aim to:
- Demonstrate the financial viability of investments in fishery data collection and management, thus attracting additional private investment in these practices.
- Create new norms that are sustained because of their business value and not ongoing philanthropic support or government subsidies.
- Provide clear and reliable financial benefits for small-scale fishermen to make gear changes; follow harvest control measures; and take on other sustainable fishing practices. Immediate economic well-being is thereby aligned with sustainable practices to improve compliance and reduce the localized short-term, negative impacts of fishery restrictions.
- Finally, test a new, “parallel” investment model for combining philanthropic, government, and private sector funding to address fishery management. If successful, other emerging market fisheries can tailor the model.
We are currently seeking additional partners to join us in this lead firm pilot project. Please get in touch with us if you would like more information and/or would like to get involved.
What’s an easy way for an investor to tell if a natural resource-based enterprise is going to be viable in three to five years? Part of that answer lies in evaluating the business and the regulatory environments in which it operates, but for natural resources in particular, the resource base trend needs to be examined; is it predicted that there will be more or less in the future, based on current extraction rates and scientific estimates of the resource level? And for conservation-focused impact investments, how can investors ensure they are not using more than the ecosystem can sustain?
In wild-capture fisheries, this translates to: “Will there be more or less of the fish to harvest in the future? Will my investment exacerbate overfishing?” Less fish to harvest means the effort level, and thus costs, will need to increase to find the remaining fish.
We’ve recently been puzzling through the easiest way for banks and impact investors to gauge the investability of fisheries enterprises, with a focus on Indonesia. Indonesia hosts some of the most biodiverse ocean ecosystems on our planet and is the world’s second largest harvester of wild capture fish. Banks and investors need quick, easily understood data that doesn’t unnecessarily burden their due diligence process but ensures they aren’t contributing to overfishing.
One tool that is already available in many fisheries is the stock assessment status, usually indicated as under- or moderately exploited, fully exploited, or over-exploited. The exploitation levels reflect scientific data on whether the fish in a fishery (the stock) are being sustainably harvested. Fully exploited indicates a stock that is thought to be fished and reproducing at nearly equal rates, i.e., the amount of fish harvested is the same as the fish being hatched and surviving to maturity. Over-exploited means harvest rates are too high, and under-exploited means they could increase rates without having a harmful effect on stocks.
Indonesia’s Ministry of Marine Affairs and Fisheries recently released the results of the National Commission on Stock Assessments (NOMOR 47/KEPMEN-KP/2016 TENTANG). The assessment provides an updated snapshot of ministry data in each fishery management area for the status of nine Indonesian fishery stocks.
In addition to focusing government investments on improving the fishery health, we think the data can be useful for banks and investors. The assessment data can help investors quickly determine the potential health of the resource an enterprise relies on, helping to ensure they are not causing more fish to be used than can be replaced. The key to balancing conservation and investment entails finding new opportunities to do more, without using more.
The findings and conclusions in this report represent the interpretations of Wilderness Markets and do not necessarily reflect the view of expert stakeholders. This publication has been prepared solely for informational purposes, and has been prepared in good faith on the basis of information available at the date of publication without any independent verification. Wilderness Markets does not guarantee or warrant the accuracy, reliability, adequacy, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. Charts and graphs provided herein are for illustrative purposes only. Nothing contained herein constitutes investment, legal, tax, or other advice nor is it to be relied on in making an investment or other decision. Readers are responsible for assessing the relevance and accuracy of the content of this publication. this publication should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell securities or to adopt any investment strategy.