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Improve Data to Improve Sustainability

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/

Governance or a Markets Approach? Both. Adopt a Parallel Approach to Fisheries Reform

In our previous posts, we’ve discussed reasons and ways for involving private capital in fisheries reform, including taking a lead firm approach. This post about the parallel approach is a direct follow-up to the three models we propose for investment sequencing; we recommend checking out that post first.

Overview

Is there only one way to make a fishery sustainable? We don’t think so. That said, we do know that there are some key areas that need support on the way to sustainability. Indeed, whether to consider a “governance” or “markets” approach to fishery sustainability is a false dichotomy. In areas where a market is present, which is most, governance and markets must be considered simultaneously and balanced for the short and long-term benefits.

The working model we’re developing adopts a parallel approach to address the challenges associated with developing countries fishery reform. In this approach, the markets, and by definition, the private sector, are key partners. The commercial relationships with harvesters developed by this model are critical to ensuring support for long term fisheries reform given the lack of representation and organization at the base of the value chain. We explain our thinking in more detail below.

Approaches to Management

Under ideal circumstances, fisheries reform would have a “serial” approach to design, implement, and enforce regulations. Scientific and economic data would be the bases for robust fisheries management. With reasonable assurance that stocks will not be overfished, value chain participants can plan investments in tandem with stock recoveries.

Serial or Parallel Approach?

Emerging market fisheries face significant social and political concerns to the serial approach. For example, legislating changes that result in reduced fishing effort to promote species and stock recovery has political and social ramifications that not all governments are prepared to address. Furthermore, the cost of enforcing such changes are likely to be higher than what is considered normal – both in monetary and social terms.

Parallel Approach

Given the desire to reform fisheries while also demonstrating the economic benefits associated with such reform, we propose that a “parallel” approach may be more appropriate in emerging markets. In this approach, different actors work in tandem to develop and implement measures to increase sustainability.

What’s are the Management Basics?

Investments to improve data and management are primary concerns for fisheries reform as these will demonstrate the success and costs of various efforts. Though species, geographies and cultural norms vary, there are some agreed-upon fishery management principals which will be informed and supported by good data. These include five parameters for:

  1. size,
  2. sex,
  3. seasons,
  4. geographies and
  5. ability to access to the fishery.

Generally, social and legal changes necessary to create and enforce these management measures increase as complexity and distance from the resource increases. The degree to which the value chain can enforce them runs in the opposite direction. That is, the value chain has the greatest potential to enforce size, sex and seasons, but their ability to enforce rules decreases for geographic restrictions and even more so for access control. Rulemaking must involve local society and governments, and their participation is particularly important for complex tasks like access and geography restrictions.

The blue swimming crab (BSC) fishery in Indonesia is a good example of a parallel approach opportunity that currently engages both the value chain and government. National government has already adopted and passed restrictions regarding size and sex. The challenge now is how best to implement and enforce these efforts.

Working Model

In our parallel approach model, value chain stakeholders in Indonesia have begun gathering data to help inform and reinforce decision-making. At the same time, the provincial government, in cooperation and communication with the local community, will set standards and provide enforcement for the five parameters. Managing seasonality, geographic limits and access restrictions are also actionable through the value chain. However, these will require a higher degree of social acceptance, enforcement and value chain adoption. Good data from working closely with cooperatives and harvesters will provide foundation for the harvest control strategies. We envision starting with the easiest strategies first, essentially moving from 1 (size) down to 5 (access control) over a period of less than four years for creation and testing of the rules. It is imperative that the local government and community create the standards to ensure the lead firm can work to establish sustainability within the fishery.

The value chain and lead firm approaches provide a valuable opportunity to implement effective enforcement needed to achieve sustainability. Value chain participants can insist on the adoption of these standards, which may then be verified based on effective data collection and using internal and external audits. The current working model also includes a proposal for the lead firm to make purchases through a preferred supplier network currently formed as a cooperative. Consequently, access to finance for value chain stakeholders will be contingent upon their compliance with the rules. Working in collaboration with local cooperatives and harvesters, the economics of this fishery are such that all participants should benefit from improved BSC size and  abundance.

Final Thoughts on the Parallel Approach

Ideally, government would provide the necessary framework and policies to implement these strategies, while providing effective enforcement as in the serial approach to reform. However, in the absence of this involvement, providing market-based opportunities to adopt these measures in a socially acceptable manner may provide a viable alternative approach, which is why the parallel approach is the most viable in many fisheries like BSC in Indonesia.

West Coast Groundfish Pilot: What’s Next for Developing Local Markets?

A previous post outlined the results of the recent market demand research for West Coast groundfish. This post follows-up with more detail on the proposed West Coast groundfish pilot.

Purpose and Intent

And now what? That was our first question after learning the results from the market demand research. Those results indicated that next efforts to improve demand and pricing for West Coast groundfish should focus on selling minimally processed products to suppliers and buyers in the grocery retail and full service restaurant sectors. The answer is a pilot project; one designed to test the findings which will help U.S. West Coast fishermen expand into regional market.

This project would aim to raise commercial buyers’ and suppliers’ awareness of U.S. West Coast Groundfish as a domestic, sustainable source of whitefish and prove that these fisheries can provide a reliable supply of local fish. As a result, it will establish new markets and demonstrate the benefits and availability of West Coast groundfish to other buyers and suppliers.

Rationale

A pilot project, with defined sales periods and goals, will provide room to experiment to build relationships and to understand the market dynamics. Without a pilot, it will be difficult, if not impossible, to rally collaborative action or justify further investments in the fishery. Harvesters and buyers envision a pilot as being a first step in creating an ongoing sales effort that expands beyond the West Coast within two to three years, possibly sooner.

A successful pilot is key to having larger, sophisticated customers purchase significant quantities for a substantial part of their operations; the pilot also develops the tools they need to successfully use and continue purchasing the fish. Assuming the pilot results in positive values, harvesters, trusts, buyers, NGO’s, and potential investors will have information necessary to make decisions about infrastructure, marketing and other investments. In addition, they can start sizing-up plans in the local, regional and national markets, all of which are important to increasing quota attainment.

Framework

To create organizational capacity that endures beyond the period of the pilot, it needs to be structured carefully. The fishermen and the buyers need to feel comfortable with their roles and build knowledge useful for future efforts. Because of this, the pilot project will endeavor to work within the existing supply chain to build the ability of the harvest groups and processors to provide reliable supply. Memorandums of understanding and contracts for the pilot have to be written so all the parties involved understand their roles and feel comfortable with their responsibilities. Of utmost importance, the pilot design must incorporate a way for the value chain to continue the work after the pilot concludes.

Target Outcomes

Some specific questions the pilot should be designed to answer revolve around the conditions and requirements for supply and pricing. At the outset, stakeholders will need to address legal restrictions on collaboration. The pilot should also define the incentives or conditions needed to gain cooperation between the processors and the groundfish harvesters. Also, the pilot should delineate the amount of fish, prices, and timing (flow of supply and seasons). Finally, the pilot will try to determine the level of transparency needed to build trust so that value chain actors can work together as a team to create value.

Final Thoughts

Regardless of who carries out the work, a pilot is the best next step for the West Coast groundfish stakeholders. The ultimate goals are easy – improve profits for those paying for management – but the route has to be carefully plotted. Building trust and knowledge and demonstrating improved values are key. We can get there, but we have to keep the focus on the end goal of a sustainable fishery, which means ensuring profitability for the harvesters.

Regional Demand and Opportunities for West Coast Groundfish

Our latest project, West Coast Groundfish Regional Market Demand and Opportunities, explored the market demand for U.S. West Coast groundfish in Oregon, Washington, and California. This post is a brief summary of that work. For more, please check out the executive summary of the report.

Background

Faced with plummeting catch levels and fish populations near collapse, many fishing boats left the U.S. West Coast groundfish fishery in the 1990’s and 2000’s. Commercial seafood buyers on the West Coast then turned to other whitefish, including Asian tilapia and Alaskan pollock.

Today, under new management systems, U.S. West Coast groundfish populations have rebounded and are fished sustainably – more than 20 species now rate as a “green, best choice” or “yellow, good alternative” with the Seafood Watch program, and 13 have received Marine Stewardship Council certification. With this conservation success in hand, how does U.S. West Coast groundfish regain a competitive market position and ensure that the recovery story includes economic success for fishermen?

Several studies have looked at the production side of this question, outlining supply chain hurdles and infrastructure issues that keep fishermen from reaping higher prices. This study is the first to look at the demand side of the market: how much whitefish West Coast buyers purchase; what potential there is to sell sustainable, U.S. West Coast groundfish in these regional markets; and how fishermen can increase the price per pound that they receive for their fish.

Methodology

Through a combination of market analyses, buyer surveys, industry interviews, and expert review, Changing Tastes and Wilderness Markets examined the current demand for West Coast groundfish in Washington, Oregon, and California. We identified categories of commercial buyers (e.g., restaurants, retail grocery stores) and types of seafood products that hold the greatest potential to increase economic gain for fishermen. We also explored the key barriers that fishermen will need to overcome to sell more product in these markets.

Results

Our results shows that focusing on selling minimally processed products to grocery and full service restaurant sectors holds the greatest potential to improve sales and profits for U.S. West Coast groundfish fisheries. Consequently, the next logical step is to test these findings. To do so, and help U.S. West Coast fishermen expand into regional markets, we recommend the development and launch of a pilot project. This project would aim to raise commercial buyers’ and suppliers’ awareness of U.S. West Coast groundfish as a domestic, sustainable source of whitefish and prove that these fisheries can provide a reliable supply of local fish to West Coast markets. If successful, it will establish new markets and demonstrate the benefits and availability of West Coast groundfish to buyers and suppliers.

We welcome your feedback on the market report and pilot concept. We hope that this research will stimulate additional conversations and partnerships that can help the U.S. West Coast groundfish fishery become a model of both ecological and economic success.

Prepared with support from:
The David and Lucile Packard Foundation and The Gordon and Betty Moore Foundation

For more of our work with U.S. West Coast Groundfish, please see our previous report, “West Coast Groundfish in California Value Chain Assessment.” 

Lead Firm Strategy Implementation – Indonesian Blue Swimming Crab

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.

Current Paths for Sustainable Fisheries Investment

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.

 

What does stock health tell us about potential investments?

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.

Indonesia Stock Status

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.

Map of Indonesian Fishery Management Areas (WPP)

Disclaimer

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.

US West Coast Groundfish – Key Market Channels

Continuing our market demand assessment work with US West Coast Groundfish, our partner, Changing Tastes completed an assessment of key distribution channels to prepare for the survey they’ve just initiated. In this post, we discuss what the key distribution channels are, their preferences for fresh and frozen, and why any of that matters.

As we and others have said, the story of US West Coast Groundfish is one of best fish stories you probably haven’t heard. The fishery was declared an economic disaster in 2000, but in 2014 thirteen species were MSC certified in 2014, eight groundfish in the California Groundfish Collective fishery are green-rated by Seafood Watch plus more from the fishery that are green- or yellow-rated. In an effort to increase overall value in the fishery, we’re working with Changing Tastes to help determine who could be purchasing this fish and the key characteristics of demand.

Changing Tastes recently initiated a survey to assess demand, but they had to identify key market channels in order to focus assessment efforts. The following information is based on their work, which they completed using a combination of methods, including:

  • Government data for whitefish consumption
  • Publicly and privately held company data
  • Professional opinion gained from working with some of the nation’s largest restaurant and food service companies and grocers

Total sales of whitefish (a broad category that would include the species landed in the fishery) are estimated at US $542.9 million in the three West Coast states based on US government data, with $442.7 million of that spent in California. Total dollar value of whitefish was second to shrimp, unsurprisingly.

 

Click to see table of approximate dollar values

Sales and format value comparisons of whitefish in California, Oregon and Washington. Green is the proportion of the value sold fresh; blue is the proportion sold frozen. Size of the graph is relative to the total values of whitefish bought. (“School and government institutions” and “Hotels” are shown larger than their proportion of the total for visibility purposes. Grocery is actually ten times larger than hotel, and 40 times larger than schools and governments.)

These channel categories are generalizations—different companies and brands within each category may use different mixes of fresh and frozen—but the generalizations are useful for determining which channels to concentrate on for survey completion.

Interestingly, an unpublished May 2016 study by Globescan noted that California consumers are 20% more likely than the average national consumer to buy fish from fresh counters in grocery stores.

Click to see table of approximate volumes

Click to see table of approximate volumes

Changing Tastes then screened the channels using their professional opinion on parameters based on the desired outcome of improved values, including their ability of a market channel to:

  • pay a premium for higher quality, local or sustainable
  • use whole or minimally processed fish, frozen or fresh
  • practice seasonality by varying menu options
  • be flexible with species offered

Based on values, volumes and their professional opinion, Changing Tastes is prioritizing receiving feedback from the following channels, and the specialty distributors who supply them:

  1. grocery
  2. full service restaurants
  3. institutional foodservice sub-segment of colleges, corporate dining, and cultural and leisure destinations
  4. hotels

The survey started landing in inboxes last week. By mid-October, we should have more to report about the initial findings. Until then, if you have questions, comments or suggestions, we’d love to hear from you.