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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.

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

Improve Data to Improve Sustainability

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Case Study:
Developing and Implementing SIMP Compatible Seafood Data Reporting and Traceability System in the Crab Supply Chain

Problem Statement and Opportunity

The U.S. implementation of the Seafood Import and Monitoring Program (SIMP)[1] on 1 January 2018 establishes reporting and recordkeeping requirements to prevent illegal, unreported and unregulated (IUU) seafood from entering the U.S. The onus of proof is placed on the importer of record to provide and report key data from harvest to U.S. entry. In geographically diffuse supply chains, like blue swimming crab from Southeast Asia, with thousands of “points of entry”, i.e., fishers, tracking landings to the vessel is far less straightforward than short and narrow supply chains, such as skipjack tuna or sardines. This reporting requirement, while worthwhile, will require U.S. seafood importers to incorporate cost-effective traceability initiatives in their often-complex supply chains.

There is a growing appreciation that the needs of fishers and their communities must be addressed in order to improve the underlying causes of fishery exploitation in the developing world, particularly for small-scale fisheries. -California Environmental Associates

The requirement also presents an opportunity to promote resource sustainability through supply chain transparency and catch monitoring. Despite pledges to abide by size limits, U.S. importers of blue swimming crab (BSC) have difficulty ensuring their supply chain partners are buying only crabs larger than the agreed minimum size of 10cm and excluding berried females. The application along with a web-based reporting tool we developed can meet the requirements of the SIMP, as well as the European Catch Documentation (CD) requirements, and elucidate the in-country supply chain. By tracking landings by vessel and by harvester, this tool further provides the opportunity to address key social and environmental outcomes associated with the Sustainable Development Goals[2] (SDGs), which gives seafood importers a mulit-purpose toolkit to both decrease their reporting costs and increase the sustainability of the crab stocks.

The opportunity to spur social and economic impact should not be underestimated. Educating, engaging and rewarding fishers and communities directly for complying with ecological goals like minimum size, berried females, no-take areas, and more offers an opportunity to engage communities directly in resource management and provide key links to SDGs. Aside from nascent work by Fair Trade[3] and SmartFish[4], there are few fishery sustainability efforts that actually benefit the fishers that form the foundation of many supply seafood chains. Indeed, most efforts impose costs on fishing communities—time, foregone income, capital for new equipment—without providing benefits. Our tool allows identification of compliant fishers, so they can be awarded price premiums and other incentives.

Supply chain transparency is beneficial to the U.S. importer not only in terms of identifying good actors and meeting reporting requirements, but also gives them an edge in the marketplace full of otherwise opaque supply chains.

Provision of ice is a key concern

Assessment

When initially considering how to provide BSC supply chain transparency from the ocean to the end buyer, we researched existing options, hoping to find one that could be customized to the supply chain. We conducted a desk review, scouring the internet and our personal network to identify all available options. In total, we reviewed nearly forty systems that provided varying levels of traceability; of these, we interviewed approximately six potential providers that met or came close to our key considerations:

  1. Ease of use – the user interface needed to be easy for data collectors in Indonesia and importers in the U.S. to use
  2. Utility for marketing purposes – a consumer-facing component was a must
  3. Facilitate regulatory compliance – must collect and provide data required by the SIMP and EU CD in a straightforward format
  4. Mapping – needs to provide maps of fishing locations to determine which areas are best for avoiding undersized and berried crabs
  5. Business model – a cost effective and durable business model that did not result in excessive fees or costs to each level of the value chain
  6. Data access, storage and ownership – data must be accessible by multiple parties within the value chain, stored in Indonesia, and owned by the funding company
  7. Reasonable set-up costs – ideally, a system would be compatible with existing software and hardware and would require little in the way of training. A team should be able to begin data collection with a few hours or less of upfront training on the system interface and they should be able to readily convey to the fishers the benefits of the system.
  8. Geographic and cultural relevance – the system needed to function in rural, relatively isolated areas with little to no telecommunications access
  9. Engage Harvesters and Vessel owners in order to build their understanding and the relative importance of adhering to harvest control regulation
  10. Ease of integration – overall, the platform needed to be easy to readily integrate into the supply chain.

Findings from Assessment

None of the reviewed systems met the requirements of the lead firm with the exception of the Pelagic Data Systems units for vessel management, i.e., vessel tracking. Due to the cost of acquisition and the relatively high ongoing costs of use, these were installed on a trial basis. This test was not successful, and cheaper, more effective units were identified.

Development

Not finding a suitable existing program, Blue Star Foods decided to develop their own application to gather data tied to their marketing goals and objectives around supply chain integrity. The SIMP and EU CD data requirements were integrated into the data collection system. Wilderness Markets worked closely with an app-development team to develop an Android and iOS  application and support the field trials. After the initial field trials, the system was deployed to in-house teams from Blue Star Foods Indonesian partners, consisting of procurement and quality control specialists.

Implementation and Deployment

Data was collected at selected mini-plants and landing sites during a six-month period. Both harvesters and data collectors were simply encouraged to log landings during the pilot phase without any indication or reference to IUU or other considerations. They were not penalized or otherwise reprimanded for reporting undersized or berried crabs during this time period. Vessel tracking data was collected for a select number of boats during this period, which could be matched to landings data.

Parallel Approach

Sumatran Fisherman with Blue Swimming Crabs

Initial learning points

  • Data collection required additional training of procurement and quality control teams. This in turn required an additional budget to be implemented effectively.
  • The pilot only covered a small portion of overall U.S. imports from Indonesia (less than 1%) – the current opacity of the supply chain means we did not know how much each mini-plant contributes to the supply chain before the pilot
  • The system efficiency is high enough that recording all landings at a mini-plant or at a landing site is possible, though unless a quality control individual is onsite continually, it cannot guarantee there will be no side selling unless all buyers agree to use the system.
  • The data feedback loop to management has been significantly shortened and is possible in nearly real-time allowing:
    • Faster identification of low productivity landing sites
    • Faster identification of high productivity landing sites
    • Faster identification of undersized and/or berried crab seasons and locations
  • Data integrity and accuracy continues to be an issue and needs to be worked on – Due to their small size, most vessels are unregistered so vessel identification is challenging. Usual data integrity and accuracy issues for data collection operations exist, such as ensuring consistent data entry, checking entries for errors, etc.

Initial Data Findings

  • Initial indications, based on sampling approximately 10% of the harvest per vessel, are that up to 25% of landings can likely be classified as IUU (berried females & sub 10cm).
  • Boats with lowest supply chain loyalty appear to have higher levels of IUU (an assumption to be tested in additional sites)
  • It is now possible to identify the specific boats that are causing the high levels of infractions, and to address with through the supply chain in a focused manner.
  • Less than 20% of the surveyed vessels were responsible for 80% of the IUU landings

Fishery Management Implications

The ability to specifically identify vessels not complying with agreed harvest controls will permit a more targeted, focused and cost-effective approach to monitoring and enforcement of infractions. With less than 20% of the vessels are causing 80% of the issues with regards to IUU landings, efforts can be made to reduce IUU in a focused manner.

The data provides:

  • Ability to provide shore-based landing information
  • Ability to identify both geographic and seasonal potential closure options based on real data
  • Ability to target enforcement based on recorded infractions

lead firm crab

BSC fisherman with new vessel tracking device

Links to SDGs

In addition to the business and fishery management implications, the findings are directly linked to at least three SDGs:

SDG 8 Decent Work and Economic Growth

Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

Biological data indicates a quick (less than 1 year) stock recovery when undersized crabs are left in the water, thereby increasing the economic value of the fishery and decoupling growth from environmental degradation (Target 8.4)

SDG 9 Industry, Innovation and Infrastructure

Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

Increasing the transparency of the supply chain means that small-scale enterprises, like the mini-plants, can have better access to financial services (Target 9.3).

SDG 14 Life Below Water

Conserve and sustainably use the oceans, seas and marine resources for sustainable development

Using the data generated by the app, progress can be made towards sustainably managing fish stocks, combatting IUU, and providing meaningful market access for small-scale artisanal fishers (Targets 14.4, 14.6 and 14.B).

Recommendations and Next Steps

A key recommendation of the initial pilot is the need to establish unique vessel IDs with the support of local government authorities, which will allow more meaningful monitoring and enforcement of landings.

In addition, the need to engage with, and involve, other firms purchasing from the fishery was identified in order to reduce the opportunities for side selling.

A second phase is being planned to address the constraints of the first. The goal of the second phase is to:

  • Capture a minimum of 25% of the Blue Star Foods Indonesia sourcing;
  • Integrate improved vessel activity geographic data
  • Expand geographically
  • Include more processors, mini-plants and fishers in Indonesia, particularly in co-packer conditions
  • Replicate into the Blue Star Foods Philippine supply chain

Conclusion

The drivers of market access compliance requirements, improved social and financial impact in in artisinal fisheries and greater supply chain integration are powerful drivers for change in any industry. The relatively low cost now associated with data capture tools mean lead firms can utilize almost ubiquitous cell phone availability to cost effectively assess the degree and extent of IUU in their supply chain, while strengthening their impact objectives and improving market recognition.

This approach provides resource managers and NGOs as well as development agencies with a relevant, cost effective tool to engage private sector supply chains in achieving SDGs in a measurable, informed and data driven manner.

 

[1] “U.S. Seafood Import Monitoring Program”. Retrieved on 7 March 2018 from: https://www.iuufishing.noaa.gov/RecommendationsandActions/RECOMMENDATION1415/FinalRuleTraceability.aspx

[2] “Sustainable Development Goals”. Retrieved on 19 March 2018 from https://sustainabledevelopment.un.org/?menu=1300

[3] “Capture Fisheries Standard (CFS)”. Retrieved on 8 March 2018 from: https://www.fairtradecertified.org/business/producer-certification

[4] “Rescate de Valor”. (English: Value Rescue) Retrieved on 8 March 2018 from: http://rescatedevalor.org/

How to Develop Impact Investment Opportunities in Sustainable Fisheries

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The Need for Sustainable Fisheries Finance

We know all the problems associated with overfishing and we know that research shows:
1) that switching to more sustainable management will lead to increased revenues and food security; and
2) the cost for doing so exceeds what can be provided through traditional development and philanthropic organization.

How do we get past the second to make the first possible? Supported by the World Bank, and with input from dozens of impact investors and fishery experts, we detail the main barriers and potential approaches to overcome them in our latest paper: Developing Impact Investment Opportunities for Return-Seeking Capital in Sustainable Marine Capture Fisheries.

Who Should Read This Paper

This paper provides an overview for international development organizations, development finance institutions, NGOs, and the governments they work with of (i) the key concerns that impact investors may have when considering the financing of sustainable fisheries, and (ii) potential approaches for public-private partnerships to overcome these obstacles. It is intended as a primer for these actors, to understand the perspective of the commercial impact investor.

Overview

This paper explains the central challenges that keep impact investors from participating in sustainable fisheries, and is structured along four main barriers:

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

It then proposes three models for sequencing and combining different sources of capital to overcome these obstacles:

  • 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.
  • 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.
  • 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.

Each of these sequencing models presents particular challenges and opportunities. Structuring investments to achieve triple bottom line outcomes is still a new idea within the fisheries sector. There is growing evidence from other sectors, however, including agriculture and forestry, that these types of investments are achievable. Examples include the Moringa Fund[1] and Livelihood Funds,[2] which bring together public institutions, private investors, and NGOs, using innovative investment models to simultaneously address environmental degradation, climate change, and rural poverty while helping businesses become more sustainable.

The Impetus

Attracting impact investments is critical for the future of fishery recovery and expansion—these projects cannot rely on short-term loans and grants; they need longer-term finance that is committed to sustainability and responsibility. Development organizations, NGOs, and other noncommercial actors have a critical and catalytic role to play in crowding-in impact investment for sustainable fisheries by sharing risk with the private sector, promoting policy reforms, and funding interventions (through either concessional lending, grants, and/or technical assistance) with the intention of removing the barriers to impact investment.

Read the paper: Developing Impact Investment Opportunities for Return-Seeking Capital in Sustainable Marine Capture Fisheries

 

[1] The Moringa Fund is a EUR 84 million investment fund that targets profitable large-scale agroforestry projects with high environmental and social impact in Latin America and Sub-Saharan Africa. The fund makes equity investments of EUR 4–10 million per project and adds value through its technical skills, environmental and social expertise, and global network.

[2] The Livelihood Funds are a series of investment funds created by Danone, which brings together investors—including Schneider Electric, Crédit Agricole S. A., Michelin, Hermès, SAP, CDC Climat, La Poste, Firmenich, and Voyageurs du Monde—to invest over EUR 40 million to finance nine on-the-ground programs for mangrove restoration, agroforestry, and rural energy.

 

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.

How Crabs, Fishermen, and Bankers Benefit from Better Data in Indonesia

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In our previous post, we discussed why we and others have concluded that good data is crucial to fisheries management and investment decisions. This post dives deeper into our work to incorporate better data collection, analysis and availability into the Indonesian blue swimming crab (BSC) fishery.

How many fishermen are there? Where are they fishing?

Is this gear actually catching larger crabs? Is the gear cost-effective?

If we want to invest in improvements, how can we figure out if there will still be enough crabs to catch in the future to provide revenue? How risky is the investment?

These questions are ones we asked as we started working with a lead firm in Lampung, a province in South Sumatra, Indonesia. The answers to these questions were not available. Therefore, we’re helping to find the answers through a mobile data collection app to create better data.

About the fishery

Blue swimming crabs (BSC) is an important source of revenue for fishermen who sell their landings into the export-oriented BSC value chain. Since BSC first started being harvested commercially in the Lampung area, crab sizes at capture are reportedly getting smaller and there are fewer of them, indicating a stock that is or is becoming overfished.

BSC only require a short time between successive generations (less than 2 years). That, combined with their relative lack of mobility, mean that conservation efforts will have more immediate results than a fishery like snapper or tuna.

Why this fishery is a target for impact investment

The high value of crabmeat and the short time window for stock recovery translate to higher likelihood of return on investment. Investments in fisheries, if done from an impact orientation, can readily incorporate triple-bottom line outcomes that incorporate environmental, economic, and social returns.

Environmental: Improve the availability of crab through improvements to stock health.

Economic: Achieve a market premium through differentiation based on transparency, traceability, and sustainability

Social: Involve harvesters  in management and compensate them for the costs associated with adopting more sustainable practices

Each one of these impact areas requires better data for design and monitoring and evaluation.

What we’re doing to improve investability

The fishery needed more data to help with management and de-risking investments, but the mechanism had to be:

  • easy to use
  • affordable
  • replicable
  • scalable

The data needs to:

  • answer questions about stock health
  • provide traceability and transparency
  • be easy to access and share with multiple stakeholders, including private companies, multiple governments and NGOs.

Working with our lead firm partners, we created a mobile app for use on Android or iOS devices. The app will provide information to prove both transparency and traceability. Because of the platform, it can easily be tweaked to use in other geographies and fisheries as well as being useable offline – a must for developing country fisheries.

Value chain use of the data

Industry can use the data for monitoring and enforcement of regulations. In Lampung, there are agreements not to land or buy crabs that will negatively impact stock health. These agreements forbid landing berried females and crabs less than 10cm. There are also agreements to support gear change from gill nets which will allow for a more selective harvest. Data collected through the app will therefore be used by individual companies to validate and verify these requirements.

Companies will use the data collected to guide buying strategies to protect stock health and increase price premiums. Data indicate where the best size crabs are being landed and the firm encourages buying from those areas. They are also planning to provide rewards to help fishermen to purchase sustainable gear.

Environmental impacts of the data

On the more environmental side, data can be accessed by fishery managers for determining appropriate access and effort controls which will impact stock health. Managers can use the data for determining local seasonality based on size and sex of the landings; this, in turn, can help determine the crucial times and locations for fishery closures. The efficacy of gear change on landings can also be assessed using the data.

Not only can government use the data, if aggregated appropriately, the NGO community and private companies can use it for their conservation and development programming.

Social implications of data collection

The app collects data about the fishermen, including their basic contact information, landings data, and vessel affiliation. The landings data for individual fishermen will serve as a record of their income from BSC fishing. Accordingly, financial institutions, like banks, can use this data to determine their bankability.

Circling around – how does this relate to the broad issues of improved management and investment?

Management will benefit from better data on size, sex, landed weight and geography for localized management plans. Stock assessments will also improve with better data. Also relevant, the process of data collection has helped identify unregistered fishermen. Because of this, they can be provided with the opportunity to register for their federal fisher i.d. card (“Kartu Nelayan”). Among other things, this gives fishery managers a better sense of the number and characteristics of fishermen in the area so that efforts to manage the fishery will include them.

Implications for investment are multi-level. At the company or even industry level, investors can use the landings data for individual companies. In addition, the improved stock assessments and record of the expected recovery will serve them when determining value chain investment risk. Correspondingly, at the personal level, the data contributes to financial inclusion for the fishermen: it serves as a record of income for fishermen to banks and having their Kartu Nelayan gives them the opportunity to receive potential government benefits.

What’s next for better data

In this fishery specifically, we’re working to address legal issues related to data collection, ownership and sharing in cooperation with the ministry of fisheries and aquaculture and NGOs active in the fishery. At the same time, we want to ensure the ongoing usefulness of the data mechanism we’ve helped to develop.

We’ve also developed an investable model, designed for philanthropic and impact investors.

To stay updated on our efforts to capture better data or learn more about the investable model, subscribe or send us an email. Both options are below.

Lead Firm Strategy Implementation – Indonesian Blue Swimming Crab

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Overview

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.

BSC traps

Sumatran vessel with collapsible traps

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.

lead firm crab

BSC fisherman with new vessel tracking device

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.

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

Current Paths for Sustainable Fisheries Investment

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lnvestors, including impact investors, can invest in the fisheries sector through two general approaches (see figure below). The first, more traditional, approach invests in fishing or seafood supply chain businesses. Examples at the level of fishers in supply chain include funding for fishing companies or cooperatives to purchase more sustainable fishing gear (e.g., that excludes bycatch or protects ocean habitats), improve vessels, or buy cold storage equipment. Further up the supply chain are investments in processing and logistics businesses. Return on these investments stems from increased productivity and efficiency of fishing; reduced waste; increased access to markets; ; and/or higher product values.

Sus. Opps

The second approach for investors is at the resource level. For example, in some fisheries like West Coast Groundfish in the United States, investors can purchase rights to fish with the potential to sell or lease these rights for environmental, social, and/or financial benefit in the future.  Similar to purchasing equity or stock in a company, equity in the right to fish in a limited-access fishery can be bought and sold. Examples include tradable fishing licenses, effort quota (such as vessel days), and fishing quota. Return on these investments relies on fish populations maintaining or increasing in abundance in the future.

These resource-level investments in the second approach require legally enforceable rights and robust tenure systems.  As such, they currently exist almost exclusively in developed country fisheries that have robust ocean policies and strong legal systems to create, manage, and enforce ownership and transfer of fishing rights. Few of these resource-level investment opportunities exist in developing country fisheries.

Because of the open access nature of fisheries, without fisheries policy and management in place, investments in the supply chain are unlikely, in and of themselves, to improve the health of a fishery. They may reduce the impact of a participating firm or entity, but unless all firms apply the same standard, negative practices will continue to impede the recovery of a fishery.

More impactful are  well structured resource level investments intrinsically tied to the biological recovery of a fishery. Improved fishery health will likely benefit these investments and thus drive a virtuous circle of fishery improvements, leading to improved social and economic outcomes, which in turn increases the economic value of the fishery.

Stock Health

Adapted from: Inamdar, Neel, Larry Band, Miguel Jorge, and Jada Tullos Anderson. Developing Impact Investment Opportunities for Return-Seeking Capital in Sustainable Marine Capture Fisheries. Edited by Ashley Simons. Washington, D.C.: World Bank Group, 2016.

 

Developing investment opportunities in sustainable marine capture fisheries

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Marine fisheries provide an important source of food and livelihoods for millions of people globally, contributing more than US $274 billion to the global economy[1] and some estimates of the potential net gain for improved management at US $600-$1400 billion in present value over fifty years after rebuilding fish stocks[2].

How can governments, development banks, philanthropic grant-makers, and nonprofit organizations create the conditions that will attract and recruit impact investors to participate in the sustainable fisheries sector and contribute to the long-term value of global fisheries? We at Wilderness Markets recently tackled this question as part of our work with World Bank.

The first step is to clearly understand the barriers that keep these investors from engaging with sustainable fisheries and the information they need to evaluate investments. With this knowledge in hand, leaders in government, international development, and philanthropy can align their own funding to create the conditions for more capital to contribute to sustainable fisheries.

The central challenges that keep return-seeking investors from participating in sustainable fisheries fall into four main categories: a lack of fishery data, ineffective fisheries management, unreliable infrastructure systems, and a paucity of investment-ready opportunities.

We propose three potential models for sequencing and combining different sources of capital to overcome these obstacles and achieve sustainable fisheries:

  • Serial Approach: Public and philanthropic funders first support the establishment of strong governance, data collection, and management of a fishery. Based on the de-risking effort of these initial projects, return-seeking investors subsequently fund sustainable infrastructure projects (often in conjunction with public resources) and/or enterprises focused on triple bottom line outcomes.

Investment Models, Serial Graphic

  • 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.

Investment Models, Consolidated Graphic

  • Parallel Approach: A range of investors and other stakeholders (e.g., governments, nonprofit organizations, fishing collectives) develop concurrent and coordinated investments in fisheries data, management, infrastructure, and triple bottom line enterprises. Each effort is separately funded, but they work in tandem and share the ultimate goal of achieving sustainable catch with an appropriately capitalized and profitable fishing sector.

Investment Models, Parallel Graphic

Each of the above sequencing models has pros and cons, and each warrants additional exploration; making return-seeking investments that achieve the triple bottom line outcomes of social, environmental, and economic benefits is early on in it its evolution within the fisheries sector. They hold potential to attract additional funds and encourage private-sector approaches to help speed the transition to sustainable fisheries.

Adapted from: Inamdar, Neel, Larry Band, Miguel Jorge, and Jada Tullos Anderson. Developing Impact Investment Opportunities for Return-Seeking Capital in Sustainable Marine Capture Fisheries. Edited by Ashley Simons. Washington, D.C.: World Bank Group, 2016.

[1] World Bank. 2012. “Hidden Harvest: The Global Contribution of Capture Fisheries.” 66469–GLB. https://openknowledge.worldbank.org/bitstream/handle/10986/11873/664690ESW0P1210120HiddenHarvest0web.pdf?sequence=1

[2] Sumaila, Ussif Rashid, William Cheung, Andrew Dyck, Kamal Gueye, Ling Huang, Vicky Lam, Daniel Pauly, et al. 2012. “Benefits of Rebuilding Global Marine Fisheries Outweigh Costs.” Edited by Julian Clifton. PLoS ONE 7 (7): e40542. doi:10.1371/journal.pone.0040542.