The Fish and Seafood Value Chain

Fish and seafood value chain

Seafood products are among the most important internationally traded food commodities. The world seafood industry plays a significant role in the economic and social well-being of many nations, as well as in the feeding of a significant part of the world’s population. Fishing and fish farming have emerged as one of the major food processing occupations of mankind. In ancient times, economically and socially backward people were employed in this profession. The advent of modern mechanized fishing vessels has brought vast changes in the attitude of the public fishing and seafood processing. From low income and socially backward communities the profession has shifted to the hands of industrialists and technologists. Today fishing and processing activities provide employment to millions of people around the world.

The world’s population is expected to increase by 36% from the year 2000 to 2030, to 8.3 billion. It is also expected that the estimated total seafood demand will be 183 million tons by 2030, but the estimated supply will be only 150 to 160 million tonnes. Thus, there is a sizable gap between demand and supply. However, global capture fisheries will be able to provide only 80-100 million tons of fish annually on a sustainable basis. The global seafood market is estimated at R 1 530 billion per annum. Also, the world demand for seafood increases by 3% each year. The world largest seafood consumption in the world is by Japan, followed by European Union with the top five consumed species being salmon, shrimp, tilapia, catfish and crab.

In 2000 the value of international fish trade was about R 934 billion, while the total value of all agricultural trade was R 6 595 billion. The welfare effect for society from free trade is well known and several authors have shown that this also applies to trade in natural resources. However, the results are often specific to the resource itself and the structure of the economy. The rapid increase in seafood trade over the past decades and the fact that most of the trade is exports from developing countries to the more developed countries has led to increasing concerns over the effects of trade on sustainability of fisheries and the distribution of benefits from these trade activities to the primary sectors.

Though the theoretical background of international trade is well known the research conducted so far has offered limited insights into how seafood value (or price) is distributed over the chain of production, processing and marketing of seafood products.

The Creation of Customer Value:

Fish Processing Companies today are facing accelerating change in many areas, including better-educated and more demanding consumers, new technology, and globalization of markets. As a result, competition is the toughest it has ever been.

Customer value is the ratio of benefits to the sacrifice necessary to obtain those benefits. The customer determines the value of both the benefits and the sacrifices. Customer value is created when customer expectations regarding product quality, service quality, and value-based price are met or exceeded. Understanding the relationship among these three components is essential to creating customer value and achieving success in today’s highly competitive markets.

Theoretical Framework:

The definition of value creation varies a lot. Porter (1985) introduces the value chain as a basic tool when analysing the sources of competitive advantage. “The value chain disaggregates a firm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of differentiation.” In figure 1 the company structure of a large salmon producer is visualised. This is an example of a typical value chain in the sector.

A question is in which part of the value chain value should be created. Decreased value creation in the transport sector due to lower transport costs, may lead to opportunities for higher market shares and increased value creation in the other value chain activities.
The value of a product bought by a consumer is defined as the sum of the increased values each industry add to the product. Mathematically, the value an industry adds to a product is the value the product achieves after the value-adding activity, minus the use of services/products produced by other industries.
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To gain competitive advantage over its rivals, a firm must deliver value to its customers through performing these activities more efficiently than its competitors, or by performing the activities in a unique way that creates greater differentiation.

More efficient solutions in the transport sector demands better performance in the so-called supply chain. Aitken (1998) define the supply chain as:

“A network of connected and interdependent organizations mutually and cooperatively working together to control manage and improve the flow of materials and information from suppliers to end users”.

In Handfield and Nichols (1999) the supply chain management is defined as: “The management of upstream and downstream relationships with suppliers and consumers to deliver superior customer value at less cost to the supply chain as a whole.”

Three key outcomes of success in the supply chain is better, faster and cheaper. These goals are significant because they combine customer-based measures of performance in terms of total quality with internal measures of resource and asset utilization. These activities are therefore the drivers for performance in logistics and supply chain management (Christopher, 1998).

Value adding time is often thought of as time spent doing something which creates value the customer is prepared to pay for. Both Christopher (1998) and Riggs and Robbins (1998) points at three key drivers for performance in the supply chain:
• Better quality/service
• Lower transport costs
• Faster transport time

Since logistics represents activities in the value chain, we will assume that better performance in the supply chain will also lead to increased value in the value chain. The increased performance in the supply chain might occur through:

Lower costs: Cost efficient solutions (as reduced costs through larger volumes, lower use of fuel, lower demand for labour force etc.) and lower external costs.

Faster transport and higher transport quality: Higher frequency, door-to-door transport and/or faster transports, flexibility (volume, departure time etc.) and perfect order achievement and ability to deliver.

Faster transports often lead to higher product prices, especially in fish markets. Better service, as flexibility with respect to delivery times and the possibility for door-to-door transports will in some situations, when transporting fresh fish for instance, be necessary to deliver products of high quality.

Methodological framework:

An investigation on how infrastructure investments could add value to Norwegian fish production was recently done. Based on the theoretical framework, an empirical analysis was made, and differences studied from the key performance indicators in the supply chain. The results indicate the competitive performance of the value chain of Norwegian fish transports. About 20 export companies and 10 transport companies were interviewed about basic logistic organisation, markets and delivery times. Questions were mainly related to transport of fresh fish, but information about sea transport of frozen fish were also included in the survey. Considerably uncertainty in the material was discovered. Differences in markets, products and production areas in Norway creates a rather complex picture of the transports. It was decided therefore to choose a qualitative evaluation of the results and compared them with other sources when possible. Another task was to quantify the value created by Norwegian fish transports. In the project it was not realistic to estimate the annual value created by these transports, since such an exercise will include many other industries. However, calculations were made of the aggregated transport costs, and let this work as indicators of the value created by sea, road and air transport from the producing regions. Finally, the study indicated how the markets would react to changes in the transport costs and the transport time.

Freight transport as value adding activity:

The demand for freight transport and the structure of global freight transport suppliers is changing rapidly. Increased globalisation leads to increased competition, restructuring and geographical specialisation. In the fresh fish segment, markets are often characterised by global competition with several multinational players. The industry has gone through several structural changes during the last five years:
• Economies of scale have led to increased industrialisation, market power, stability of deliveries and reduced geographic risk.
• Vertical integration has resulted in improved logistics and product development.
• Better feeding and feeding technology, for instance better salmon vaccines, routines and processes.

The increased efficiency and the higher production level in the sector lead to an increased use of road transports, and this will demand investments in road infrastructure. In Norway and in many other European countries, the authorities wish to transfer goods from road to sea due to capacity problems, congestion and pollution. Norwegian engineers are therefore trying to find technological solutions which allows faster fresh fish transports at sea.

Conclusion:

Until new technology is developed it will be important to maintain efficient road transports for fish and seafood products. Investing in road infrastructure from production areas to main ports could accelerate the process of transferring sea transports of fresh fish into economic profitable solutions. The potential of added value by developing express routes at sea also points out directions for further work: A more detailed research, which draws the line between the production areas who benefit from such new technology-based transports and the areas where the producers will prefer road transport anyway, would be useful. The same type of research must be done with a focus on the other end of the supply chain. The question is: which markets are willingly to pay for these improved services?

References:

FAO Fisheries Circulation No. 1019: Revenue Distribution Through the Seafood Value Chain.

Hackshaw, L. Evaluating and Developing a Market-Driven Value Chain that Provides High Quality Fresh Fish Products for the local Market in Antigua and Barbuda.

Larsen, I.K. Freight transport as value adding activity: A case study of Norwegian fish transports.

Murray, F., Taskov, D. & Bostock, J. Value Chains – Power Point Presentation, Institute of Aquaculture, University of Stirling.

Theuri, F.S., Mwirigi, F.M. & Namusonge, G. Determinants of Value Addition in the Seafood Industry in Developing Countries: An Analysis of the Kenyan Context.

Contact the author:

E-mail: hbs@sun.ac.za
(Some of the pictures are from Google Images)

Author

  • Manager, Division of Aquaculture, Department of Animal Sciences, Stellenbosch University

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