3. CASE STUDIES

This chapter contains case studies on four different fisheries in four different countries. Two of these countries are in Europe and two are in Africa. These case studies are based on the methodology presented in previous chapters and are all systematically described in the same manner. The first step is to describe the marketing chain (product form) for the selected species. Most marketing chains have several different value chains, servicing different consumer markets. The criteria for selecting each value chain are based on the relative share of the product in the total production of each species, data availability and relevance to other case studies for comparison of results. Once the value chain has been selected individual components are identified and value added activities at each level are calculated. Finally the value chain is constructed from the value added activities at each level of the chain.

Data used in these case studies are mostly secondary data collected from official documents and Web resources. In some cases this data is supplemented by primary data collected at source in each country.

3.1 Iceland

The Icelandic cod fishery is a highly capitalized fishery with multiple fleet segments and a wide variety of seafood products. The cod fishery is also the single most important fishery in Iceland in terms of export value. Catch is harvested year round by vessels of three main categories: the in-shore fleet using hook and line, the long lining and gillnet fleet, and the trawler fleet. Over the past decade the total annual catch has ranged between 200 000 and 260 000 tonnes. This catch is sold fresh, frozen, salted and dried. The utilization of the catch depends on factors like the size and texture of the fish. Large cod is preferred as an input in the processing of salted cod while medium sized cod is preferred for processing frozen cod fillets. Figure 9 shows an example of the catch and its disposition to various markets.

The figure shows that there are several underlying value chains in the production of Icelandic cod products. These value chains have different levels or stages from the very short ones with whole fish sold at foreign fish markets to the longer value added products with two or more processing stages selling their products to catering and restaurants. Cod products are mainly sold to three markets; Europe, US and Asia, with the bulk of the catch going to Europe and the US. The US market focuses primarily on the restaurant/catering business while the European market is more mixed between restaurants and retail.

Fish is exported by ships or airfreight. Over the past years efficient airfreight systems have developed allowing fresh fish from Icelandic waters to be in retail stores within 48 hours in Europe and 72 hours in the United States. Exporting by ship takes at least five days. Rapid changes in the shipping and airfreight industries in Iceland, along with computerized and centralized fish auction has been the main driving force behind this development.

Even though the European market is the largest, with more than 75 percent of all seafood exports going to the European Economic Area (EEA), it is also the most segmented with many country specific sub-markets within the EU and EEA. In contrast on the US market Icelandic companies offer a more homogenous range of products over all states. The US cod market is also the single most important market for cod with more than 12 percent of the total export value in cod for 2003. Hence, for the purpose of this study it was determined that the value chain for cod fillets on the US market would best demonstrate the distribution of revenues through the value chain.

The value chain

The value chain for cod fillets sold on the US market has five segments; Fishing, processing, exporting, marketing/distribution and finally retailing or food service, such as restaurants or catering. Figure 10 shows a schematic representation for frozen cod fillets from Iceland sold in the US.

Most of the cod exported to the US is harvested by trawlers owned by the large processing firms. The processing firms do both primary and secondary processing with the final product being individually quick frozen cod fillets and portions of fillets. The final products are sold through two export companies in the US,^[13] both are owned by two of the largest export companies in Iceland, the SIF group and the Icelandic group. Both SIF and Icelandic use a network of brokers and US owned distribution/marketing companies to sell their products throughout the United States. Hence, Icelanders control the entire value chain from fishing, through primary and secondary processing and exporting, as well as a part of the distribution network.

Value chain analysis for Icelandic cod products

The trawler fleet in Iceland caught approximately 80 000 tonnes in 2001, or 33 percent of the total cod catch of 240 000 metric tons. The trawler catch was valued at 33 billion Icelandic krónur at 2001 price level (or US$318 million valued at 2001 exchange rates). Operating costs (excluding depreciation and other capital costs) are estimated at 23 billion Icelandic krónur which gives an operating margin of 8.2 billion Icelandic krónur for the entire trawler fleet. Financial charges and depreciation amounted to 8 billion kronur, giving a net profit of 0.2 billion krónur for the trawler fleet (wetfish and freezing trawlers). Individual costs items are shown in Figure 11.

Figure 11 shows crew share and other wages are the largest cost items for harvesting of cod. This item accounts for 40 percent of the total revenue for the fleet. Fuel and maintenance are the other large cost categories with 13 percent and 9 percent respectively. Fishing gear accounts for 4 percent of total revenue and other categories account for less. It is interesting to note that quota rentals have a very low share in the total revenue of the trawler fleet, while other fleet categories have a substantially higher percentage for this category (up to 8 percent for medium sized boats). This reflects the nature of the operations where trawler companies tend to be large multi-vessel firms which hold their own quota. The operating margin is 15 percent of total revenue. The operating margins pay all other expenses including depreciation, capital expenses and taxes. In 2001 the net profit was estimated by Statistics Iceland to be 2.7 percent of gross revenues assuming a 6 percent cost of capital to the user.

The 240 000-tonne annual catch resulted in 116 000 tonnes of exported seafood products, with 46 000 tonnes used for freezing of whole fish, fillets and fillet portions. Of the 46 000 tonnes of cod products, 14 000 tonnes were exported to the United States. The total (FOB) value of frozen cod products exported to the US was 7.5 billion Icelandic krónur in 2001. These products are processed in the same processing plants as cod products sold to other markets and therefore it is difficult to assign costs to specific product forms. An attempt was made to estimate these costs by doing a survey with several main processing companies. A phone survey was conducted with 7 Icelandic processing companies asking them about production costs of IQF fillets. That survey indicated a relatively higher raw material cost than in the official statistics on production costs by Statistics Iceland. Other cost items from the survey were similar to the official survey. An attempt was then made to combine the survey data with the overall industry wide data collected by Statistics Iceland. The result is believed to give a consistent estimate of individual cost items in processing frozen fillets and fillet portions. The share of individual cost categories is shown in Figure 12.

The operating margin is similar to the fishing fleet. However, capital expenses, including deprecation were much lower, relatively speaking, for the processing industry than the fishing industry. As a result profitability in the processing sector was good in 2001, with net profits of 5 billion Icelandic krónur (18 percent of total earnings in the freezing sector as a whole) as estimated by Statistics Iceland using a fixed cost of capital of 6 percent.

Unfortunately information is not available on the individual cost items for distribution and marketing of cod fillets in the United States for reasons of commercial confidentiality, since there are two competing Icelandic companies that sell cod fillets in the US market.^[14] However, the cost items consist of transportation costs, tariffs, insurance, storage, marketing, distribution, capital costs and other costs. The products are mostly sold to foodservice establishment (restaurants, catering).

With the information above we can construct the entire value chain for Icelandic cod products exported to the US foodservice market by calculating the value added at each stage, where value added represents the services used to get the product from one stage to the next. This is illustrated by reference to one kilogram of final product sold in the US market for which prices have to be established at each level of the value chain.

First and most difficult is the retail price. No consistent and centralized data collection exists for retail seafood prices in the United States and all official information is published at highly aggregated levels. Hence information was collected by looking at samples of prices for different products. An additional difficulty is that most of these products are sold to restaurants and other food service establishments with further added value and other ingredients before selling it to the final customer. A rule of thumb within the industry is that the main item of any meal served in a restaurant should not cost more than 30 percent of the menu price for that dish. Typical prices for battered cod in US restaurants range between US$8 and US$14 per serving. Further assuming that the average portion is 8 oz. it is possible to deduce^[15] a retail price for the fish fillet in the range of US$12 to US$20 per kilogram of fillet, or US$6 to US$10 per pound. The median price for Icelandic cod fillet at the wholesale level (Brown, 2001) was US$3.6 per pound, or US$7.9 per kilogram, which is the value that retailers/restaurants paid on the average in 2001. Hence it is safe to assume US$14 as a reasonable estimate for the retail price of Icelandic cod fillet sold on the US retail market in 2001. This US$14 dissipated through the value chain both in terms of segments and individual cost categories. Figure 13 shows the percentage share of each segment in the value addition through the cod fillet value chain.

The retail level contributes about 33 percent of the value added to the product. This value addition includes everything that is needed to provide the customer with the product, such as facilities and services. The next level is wholesale and/or secondary processing. The products imported from Iceland as IQF fillets are most often further processed as breaded or battered fillets. This level also provides a sales network and distribution of the products to the retail level. The wholesale level has about 19 percent of the total value added in the value chain. The third level is processing. This processing is conducted within Iceland and is in the form of cutting the fillet from whole fish, and cleaning, skinning, cutting and freezing the fillet. This primary processing contributes about 29 percent of the total value added in this value chain. In most cases the processing facilities also operate the fishing vessels, harvesting the cod for the land based factories, but these fishing activities contribute about 19 percent to the total value. Overall then it can be concluded that activities within Iceland contribute about 48 percent of the total value and activities in the United States about 52 percent. Icelandic companies own companies that provide a further 19 percent of the total value and hence Icelandic companies control about 70 percent of the total value chain for Icelandic cod fillets sold in US restaurants and catering establishments. The primary activity of fishing derives 19 percent while getting the product into consumable form and getting it to the market receives 81 percent. The 81 percent is a similar share for the marketing bill as the share for the US marketing bill (see Figure 8).

The year 2001 was an unusually profitable year for the Icelandic fishing industry since the Icelandic króna depreciated in value, resulting in very high prices measured in krónur. It is therefore interesting to examine how these values have changed over time. Figure 14 provides an overview of the development at each segment of the value chain from 2000 through 2004.

This figure shows the impact of the depreciation and then appreciation of the Icelandic króna. As prices in Icelandic krónur became higher the fishing companies and processing companies received a higher share in the total value chain assuming the retail and wholesale levels could not increase their price in US dollars and hence they received a smaller share of the total value, measured in Icelandic krónur. As the Icelandic krónur appreciated in 2004 the retail and wholesale firms received a higher portion of the value chain. It should be emphasized here that this does not reflect how profitable each level was at the same time but rather shows how the same activities can vary in importance between years when there are external changes such as exchange fluctuations. This also shows the importance of using time series when monitoring the distribution of seafood value throughout the value chain.

Overall it can then be concluded that there has been relative stability in the cod fillet value chain on the US market with a 50/50 split between the primary (fishing and filleting) and secondary (distribution and marketing) sectors.

Analysing the Icelandic seafood value chain for frozen cod exported to the United States has yielded several interesting facts. The harvesting sector receives about 19 percent of the wholesale value in the US. The largest single cost item in the harvesting sector is wages, at 40 percent of total revenues. Fuel and fishing gear are the second largest with 10 percent each. In the processing sector raw material is the single largest cost item with 44 percent of total revenues going towards purchase of raw material. Wages account for 19 percent of the total and other items are less than 10 percent. An interesting fact here is that the operating margin is 23 percent for the Icelandic processing industry. The operating margin is calculated before interest, taxes and profits and given that the Icelandic processing industry is capital intensive, as a result of general use of computerized manufacturing technology, it is not surprising that capital costs could be substantial within this sector. Another explanation is that 2001 was an exceptionally good year for Icelandic fisheries since the Icelandic krónur was valued at record low levels throughout the year, benefiting Icelandic export companies.

It was not possible to yield specific cost items from the wholesale/distribution sector but this sector receives about half of the overall wholesale value. This is not surprising since marketing of food products has become the single largest cost item associated with food production, as was seen in the case of US agriculture (see section 2.4).

In the past five years Icelandic fishing companies have been consolidating and have also invested in fishing and seafood companies overseas. This is seen as a response to developments in the retail sector where there is a high level of concentration in the food retail and catering business. Hence these companies are trying to become bigger players in the value chain in order to be better prepared to meet the demands of a highly competitive market.

The situation for the Icelandic cod fishery is much like the one described in figure 1 in section two, where there is a well managed fishery which is a net exporter of seafood products. Historically Icelanders have exported all their cod while consuming the closely related, but lower valued haddock. Hence, high international market prices lead to almost no domestic consumption of cod. The market system from retail level to fish markets also seems to be efficient both in physical transportation and price formation. Figure 14 showed that the share each sector acquires in the value chain changes quite rapidly with changes in exchange rates and other external factors. Good fisheries management systems along with strong infrastructure and efficient marketing systems result in a strong seafood sector which, in the case of cod exported to the US, leads to a high degree of control by Icelandic companies over a large share of the seafood value chain.

3.2 United Republic of Tanzania^[16]

Lake Victoria is the second largest lake in the world after Lake Superior in North America. It is shared by three East African countries: United Republic of Tanzania (51 percent), Uganda (43 percent) and Kenya (6 percent). It is estimated that the lake has a cachement area of about 194 200 km2. The lake provides all the basic resources for the population in the area such as food and water as well as means for trade and transport linking the three riparian states. It forms a natural, social, geographical and political bridge linking the three countries.

The lake supports the most important fisheries in East Africa owing to its diversity, nutritional and economic values. It is the most productive inland fishery in the world; an introduced species, Nile perch (Lates niloticus), holding the leadership in abundance and socio-economic value. Other fish in order of importance are the native, sardine-like dagaa (Rastrineobola argentea); and the Nile tilapia (Oreochromis niloticus), which was also introduced to the lake’s ecosystem.

During the late 1970s Nile perch contributed only 2 percent of the lake’s fisheries, while Haplochromis contributed about 80 percent and the remainder was other mixed species. The Nile perch population exploded and became the dominant population in the lake by mid-1980, followed by a rapid decrease or disappearance of other native species (Witte et. al., 1992). As Nile perch increased it consumed a good proportion of the indigenous fish species, which then formed a relatively good source of income and cheap protein for the local population. Being an exotic fish species, Nile perch was not well accepted initially by the local consumers and this triggered an outcry by the local population that Nile perch was a menace, which should be eliminated from the lake. However, this was no longer a feasible approach since elimination of Nile perch at this stage would have had a further adverse impact on the whole ecosystem.

In the early 1990s investment began for the exploitation of the Nile perch stock on the Tanzanian side of the lake, resulting in the establishment of a number of Nile perch processing plants. Its abundance has led to the development of several important export-oriented Nile perch fish processing establishments in the riparian regions of Kagera, Mara and Mwanza; as well as the processing of byproducts for local and regional markets. The main products are frozen and fresh/chilled fillets as well as headed and gutted fish and more recently skins, which are exported to various overseas markets. Trimmings and carcasses are processed locally for local consumers and the regional markets of Zaire, Rwanda and Burundi. In general, the Nile perch industry provides direct and indirect benefits to more than 2 000 000 individuals (i.e. fishers/processors/traders and service providers).

The structure of the marketing chain for Nile perch in the Tanzanian economy is shown in Figure 15.

Harvesting is primarily based on artisanal fisheries from canoes, using either sails or outboard motors. Fishermen own their own boat or operate boats owned by a processing plant or a fish collector. Often the fishermen are obliged to land at a specific processing plant or a fish collector due to loan contracts. These contracts are on a barter level, i.e. a fisherman is provided with an outboard motor or net but a certain percentage of the future catch is retained as a payment for the motor or net.

Nile perch fish processors are of two categories; artisanal and industrial processors. The artisanal fish processors aim exclusively at the internal and regional market while the industrial processors are geared for the export markets, the main markets being the European Union, Japan, United States, Israel and Australia. What is rejected by the processing plants for export is sold to the domestic/regional market in various product forms, including fresh, smoked and salted.

The processing plants primarily produce fresh and frozen fillets. These fillets are exported directly, or through export brokers, to foreign markets. Nile perch exports account for about 15 percent by value of Tanzania exports and the European Union market absorbs about 60 percent of Nile perch fillets exports. Since the European market is the most important for Tanzania it was decided to make a detailed examination of the value chain for Nile Perch fillets exported to the European Union.

The value chain

The value chain for the Tanzanian Lake Victoria Nile perch fishery, exported to the European Union, is split into five different segments; fishing, fish buyers/collectors (on shore collectors), processors, exporters and the EU retail market, as shown in Figure 16.

Mechanized industrial fishing was prohibited in 1994. Fishers with little capital use canoes (planked and/or dug-out) that are propelled by paddles and sails and only a few relatively rich fishers utilize outboard engines. Use of outboard engines has made it possible for poor fishers to reach distant fishing grounds as their fishing boats are towed by a mother fishing boat under a special arrangement where by the engine owner is paid a fee for towing a fleet of canoes to and from the fishing grounds. Gillnets and long lines are the major fishing gears for catching Nile perch for export purposes.

The second group of fishers is that with all modern facilities for commercial small scale fishing. Such fishers have boats with hygienic fish holds and are powered by engines. On average such boats can carry up to five (5) tonnes.

The standard practice for processing Nile perch is to land the fish at one of many landing stations dotted along the lake’s shoreline and on the numerous islands in the lake. It is also collected directly from fishers by collector boats at the fishing grounds and ferried directly to the fish processing plants without passing through the landing sites.

The fish processing establishment forms the third segment in the flow diagram. This segment receives all fish (raw material) collected from segments 1 and 2. The segment is also important as it is the main source for raw materials used in preparing products intended for local and regional markets. The raw materials for these two segments come from the fish rejected by the exporter as being of poor quality, byproducts or illegally caught fish seized by the authorities and latter sold as low grade fish.

The final market segment is the export market. Usually, fish is sold in bulk to European Union importers. They in turn sell the fish to wholesalers, supermarkets, processors, etc. The fillets are also re-exported straight away (with the same or different identity). There are companies or consignors based in the European Union that are major importers of Nile perch fillets and trade the same product to other destinations such as USA, Australia and South America. Fillets are also sold to factories for further processing.

Value chain analysis for Tanzanian Lake Victoria Nile perch

The annual average ex-vessel price for Nile perch from 1994 to year 2003 is shown in Figure 17. Prices are per kilogram and are quoted in US$.

In almost all cases, respondents informed interviewers that the price for Nile perch at the landing station or at beach level is not determined by fishers but by collectors who are directly influenced by the processing plants. Factors such as transportation costs, availability of transportation vessel or vehicles at the time of landing will automatically influence the prices at this level. Independent fishers can have their day when there is a shortage of fish while "contract" fishers work at the prices agreed. The growth of an individual fishers operation is constrained by the fact that they have no preservation facilities and therefore delay in sale would result in low quality fish, which means lower prices.

Figure 17 shows a progressive increase in Nile perch prices at the landing sites, except for 1999 when the European Union imposed a ban on imports of Nile perch products from the Lake Victoria region due to a cholera outbreak. The ban resulted in significant economic losses to the population of the three riparian countries of Lake Victoria.

In the last three years prices have abruptly gone up because of a decline in landed quantities of Nile perch. This might be due to over exploitation of the resource leading to shortage of supply of raw materials. A fisher is now forced by circumstances to invest more in terms of fishing effort and has to fish in distant places compared to the end of the 1990s. The national fishers survey for 2002 shows a substantial increase in the fishing effort, but at the end of a day a fisher comes back home with less Nile perch than before. That means that Nile perch harvesting costs are higher compared to past years. This represents a situation as described in Figure 4 in chapter 2 where it is shown that increased prices due to an excessive demand from foreign markets can have an adverse effect on the resource if there is no proper fisheries management system in place.

The average prices in US$ paid to fisherman by collectors, and to collectors by processing plants is shown in Figure 18. The shaded areas show the net price for each market segment. Increased demand from the EU has obviously resulted in increased prices at these levels though the price increase has not been symmetrical.

Other factors such as, raw materials, cost of packaging materials, salaries and other running costs (electricity, taxes etc.) are not shown on the graph; hence it only shows net revenues but not cost of harvesting, transporting and handling.

The export market will determine the type of product traded and this reflects the final price to the consumer. Higher orders of fresh chilled Nile perch fillets by a buyer from the European Union market will drive an exporter to increase his bid price in acquiring raw materials so that the order is filled in the shortest possible time. Such instances result in intense competition resulting in price increase which benefits the collecting agent but not necessarily the fisher. Figure 18 shows this situation towards the end of 2003. Prices increase both at the fishing and fish collecting levels, but the increase at the fish collecting level is relatively higher than at the fishers’ level.

In 1996 the government imposed a minimum export price to be reported for all exports. This was due to systematic under-reporting of prices by the fish processors and other exporters of Nile perch from the United Republic of Tanzania. This minimum export price was lowered in 2000 after the market collapse because of the cholera scare in 1999. Fish collectors have increased their share in the past few years but fishers still get a higher share than the collectors. From the fishers revenues one must subtract cost of harvesting, including nets, capital costs for investments, wages, etc. Unfortunately this information was not available. However, it has been noted that increased pressure on the Nile perch fish stocks has lead to increased effort/kg of harvest. This simply means that fishermen must work harder for each kilogram of fish harvested.

Prices at the processing level are shown in Figure 19 (i.e. prices which the processing plants receive for their product).

The price reflects the minimum export price implemented by the government in order to collect export tax or levies. Due to the structure of the export market the above graph does not give any meaningful information for this analysis. It is more relevant to examine import prices to the EU, shown in Figure 20.

The figure shows average values for fresh and frozen fillets imported by the European Union. Import prices have risen over the past seven years, reflecting increased demand for, and less supply, of Nile perch in the European Union. Though this price increase has not been reflected in the export prices from the United Republic of Tanzania it has obviously been reflected in the increase in prices to fish collectors and fishers, as shown in Figure 18. The price increase is therefore transferred through the entire value chain.

In order to look at the distribution of value through the value chain the year 2001 was selected. The biggest challenge was to establish a retail price for Nile perch. Retail values are difficult to obtain but Bambona (2002) estimated retail value between US$11 and US$12 per kilogram of fillet in 2002. Hence in this study a retail value of US$10 was selected as the price for a kilogram of fresh fillet sold at the retail level in EU in 2001. It is emphasized that this is a rough estimate of the true retail value.

When the retail price has been established one simply subtracts the import value to find the value added at the retail level, and then subtracts the export value from the United Republic of Tanzania from the import value in order to find the value added at the import level. The value added at the processing level is shown with the value added at the import level due to problems with reporting of export prices in the country, as mentioned earlier. Value added at the collector level is the fish purchased by the processors minus the cost of raw material. The raw material is the harvest by the fisherman. In order to make one kilogram of fillets one needs 2.8 kilograms of raw material, assuming a yield ratio of 35 percent. Since only 35 percent of the fish is used to make the fillet 65 percent is left as byproducts. In the United Republic of Tanzania most of these byproducts are sold on local and regional markets. Hence, the price of the raw material should be split proportionally between the main product (fillets) and the byproducts (offcuts, skeleton, head, etc.). This is however rather problematic and complicates the analysis considerably. One can also argue that the cost of raw material for the byproducts is almost zero, since the processor would simply throw the byproducts away if there was no market for them. If there is no market for the fillet it would simply mean that there is no market for the fish at all. Hence in this analysis the price of the whole fish is considered to be the cost of the raw material for producing fish fillets from Nile perch.

In order to make one kilogram of fillet the processor needs to buy 2.8 kilograms of fish. The revenue received by the collectors and fisherman is therefore the value of 2.8 kilograms rather than price/kg as is usually reported.

Unfortunately individual cost categories are not available for each segment of the value added chain, but the major categories are known. Hence Figure 21 shows the percentage of value addition at each segment in the value chain, with references to the major cost categories at each level.

The figure shows that fishers obtain about 15 percent of the value of the retail price for Nile perch while fish collectors obtain about 5 percent of the retail value. The processing and export sector in the United Republic of Tanzania obtain between 10 and 15 percent of the retail value and the processor and EU importers (which might be the Tanzanian exporter) receive a combined about 20 percent of the retail value. The retailer receives about 60 percent of the retail value. The 15 percent received by the fishermen is similar to the average 19 percent received by the US farmer for his products, and is also similar to the percentage share the Icelandic fisherman receives for a cod fillet.

Data collected at collector and factory level in Tanzania indicate that several changes have occurred in the cost of producing Nile perch fillet in the United Republic of Tanzania. Notably labour costs have increased over the years but transportation costs have declined due to better roads and other infrastructure. Transportation costs are though still a big part of the domestic and export value added. Transportation cost pr. kg. of fillet is as high as US$1.50 from the United Republic of Tanzania to the EU, and higher to the United States and Asian markets. Domestic transportation costs might be as high as 20 to 25 percent of the value added at the collector and processing levels.

The above analysis has shown that the value chain for Nile perch fillets from the United Republic of Tanzania to the EU has a similar structure to other value chains for fisheries and agricultural products. Fishermen are receiving higher prices due to increased demand, but the price increase is not perfectly symmetric between market segments, indicating that price formation could be improved through better distribution of information. Higher prices should mean higher revenues for Tanzanian fishers and hence they should be better off. However, as shown in Figure 4 in section 2.3 this does not have to be the case and reports of decreased landings and increased effort on behalf of the fishers is an indicator that higher prices are starting to have adverse effects on the Nile perch fish stock in Lake Victoria. In order for the Tanzanians to enjoy the benefit of higher prices it is necessary to implement a sustainable fisheries management system. Tanzanian fishers can not expect to obtain a much higher percentage in the value chain compared to other value chains. The marketing system of Nile perch seems to be fairly efficient in distributing the products from the United Republic of Tanzania to the marketplace. However, high transportation costs due to lack of infrastructure make the system relatively expensive. The system also seems to be very ad-hoc as short term fluctuations in demand and supply can cause considerable (and often local) price fluctuations. This increases uncertainty and makes it more difficult for businesses to engage in long term arrangements with wholesalers and retailers. Regulated minimum export prices also make it difficult to estimate the share which Tanzania receives in the entire value chain, but it seems that Tanzanian fishing industries control a smaller part of the value chain than for example Icelandic companies. This makes it more difficult for the United Republic of Tanzania to compete on the globalized world market for white fish fillets. The analysis above also shows that there is considerable room for improving efficiency and profitability in the Tanzanian fisheries by improving infrastructure, establishing a fisheries management system (which controls total allowable catch) and by assisting Tanzanian fish traders to gain control over a bigger portion of the value chain, through collective efforts and improved business strategies.

3.3 Morocco^[17]

The Kingdom of Morocco has a 3500 km coastline extending along the Mediterranean from the north to the Canary Islands on the Atlantic coast in the south. This corresponds to an EEZ of 1.1 million km2. Morocco is the top fish producer in Africa and ranked as the 21st largest producer in the world in 2000 (FAO, 2006). According to official information the exploitable aquatic resources of Morocco can be estimated as between 1.5 and 2.5 million tonnes annually, with a value US$1 billion (Eurofish 2005).

Fishing in Morocco can be categorized into three major fisheries; coastal, artisanal and industrial (Malvarosa, 2002). In total more than 21 000 vessels participate in these three fisheries of which the artisanal fleet has the greatest in number of vessels (18 000) but the industrial fleet is largest in GRT (146 000 GRT). The coastal and artisanal vessels fish in the coastal areas but the industrial vessels fish in deep sea waters within the Moroccan EEZ.

The artisanal fleet consists of 18 000 vessels scattered along the entire coast, though the biggest concentrations are on the south part of the Atlantic coast. They have outboard engines and usually a crew of two to three. These are day-fishers that land their catch fresh.

There are four different types of boats used in the coastal fleet; purse seiners, bottom trawlers, longliners and mixed gear boats. In 1999 there were 2523 vessels with a total 76,761 GRT (an average size of 30 GRT) (Malvarosa, 2002). However, these vessels differ greatly in numbers, length and GRT. In 1998 this fleet segment consisted of 428 trawlers, 397 purse seiners, 971 long-liners, 587 multipurpose vessels and 103 other fishing vessels. The majority of these boats makes 150 to 250 fishing trips per year and contributes about 70 percent of total catches. In 2002 the coastal fleet landed 770 000 metric tons, valued at 208 million Euros, with pelagic species (mostly sardines and anchovies) being the mainstay of the catch. Most purse seiners harvest both anchovies and sardines.

The industrial fleet had 454 vessels in 1998, totaling 146 000 GRT (an average size of 321 GRT). In some cases these vessels have freezing capacity and can stay out fishing for several days or weeks. This fishery harvests the most valuable species, including several mollusc species, whitefish and shrimp. In 2002 the industrial fleet caught 134 000 tonnes, valued at US$460 million, by far the most important category measured in terms of value.

In terms of volume the sardine is the most important species accounting for 60 to 75 percent of the annual catch between 1997 and 2002. Anchovies are the second most important species for the coastal fleet, with a total of 40 220 tonnes in 1999, valued at 79.39 millions of MDH, or US$7.7 million.

Fish caught on the Moroccan coasts is sold at the central fish market, fish landing sites or through the certifying counter for fish destined for further processing into canned fish or by-products (fishmeal or fish oil). This counter is called "Comptoir d’agréage du poisson industriel" or CAPI. Wholesalers and retailers are the main agents involved in fresh fish distribution and trade.

This study is mostly concerned with value added products from Morocco. Semi-processed anchovies are the most important of these and this product also has the major part of the total market share of similar products in the United States and several European countries. Though there is no specific anchovy fishing fleet, the majority of the anchovies are caught by the coastal fishing fleet (purse seiners) and the artisanal fleet targeting sardine. Hence, information for the purse seiners and information about anchovy processing will be used for this study.

Anchovy is a small pelagic fish which can be marketed fresh, frozen, dried, smoked, salted and/or canned and is destined for human consumption. It can also be processed as fishmeal and fish oil for animal feed.

Similar to other small pelagic fish, anchovy is handled and transported in fish boxes with or without ice both for processing and marketing for human consumption. More recently, some fishing boats have introduced tanks using refrigerated sea water or chilled sea water to preserve the fish until landing.

The most common way of processing anchovies is by packing the salted fillets in oil, mainly olive oil. The traditional three-piece can has been replaced by new easy open cans of 48 g to 800 g. The other popular packaging medium for salted anchovies is glass containers.

The value chain

There are several value chains for anchovy products, based on product form and the final market for consumption. In terms of country of destination: 35 percent of anchovy exports go to France, 24 percent to Italy and 16 percent to the United States. The market share of Moroccan anchovies in the US semi-processed anchovy market is close to 50 percent (based on trade statistics from 2000) and hence the US market is an important market for Moroccan producers. Due to ease of data collection from US trade statistics and the fact that the US market is a major market for Moroccan anchovy processors the value chain for semi-processed anchovies produced for that market was selected as the objective of this study. The value chain for this market is shown in Figure 22.

The fishermen land their catch either directly at the processing plants, through CAPI offices or to a fish trader who buys on behalf of the processing companies. The processing companies for semiprocessed anchovies are concentrated in the middle part of the country with 10 out of 25 factories situated in Agadir. Some of the processing firms produce and export under their own label while others produce for specific marketing companies.

Value chain analysis for Moroccan anchovies

In Morocco both the coastal fleet and the artisanal fleet harvest anchovies which are used for salted products subsequently exported to the EU, Japan and the United States. The bulk of the catch comes from the coastal fleet: up to 85 percent of the pelagic catch (Baddyr and Guénette, 2001). The focus here is therefore on purse seine vessels in the coastal fleet. In order to estimate operating costs for these vessels a survey of 15 vessels in this category was conducted. Table 5 shows the descriptive statistics for the sample.

The vessels have a crew of 24 to 35 fishermen, depending on size and technology used on board.

TABLE 5: Average vessel characteristics for a sample of Moroccan purse seiners

Looking at the expense side of the operation Figure 23 shows that crew share and other wage related costs (wage taxes, social security, etc.) account for 39 percent of total revenue of this fleet. Fuel accounts for 9 percent and fishing gear and maintenance account for 6 percent. Fixed costs and other non-categorized costs make up 24 percent of total revenue, a figure that includes insurance costs, taxes (other than income tax) and fees, various rental charges, auction charges etc. The operating margin comes to 22 percent of total revenue. The operating margin is used to pay for depreciation of equipment, capital costs, income tax and dividend to owners.

In 2000 Moroccan fishermen harvested close to 40 000 tonnes of anchovy which 25 factories used to make about 12 000 tonnes of semi-preserved anchovies in various product forms. The two main product forms are salted and cured in olive oil. Both processing methods take several months and require substantial manual labour and know-how. In Morocco this know-how has evolved over the past 80 years, making many of the Moroccan anchovy products well known, with big market shares for this specific product, both in the United States and in Europe. In order to estimate the production cost for semi-preserved products figures were obtained from the annual operating costs of a medium sized processing facility using 1 500 tonnes of anchovies per year. Given that this is a representative company rather than information based on the average values for several firms the numbers below must be seen as a crude approximation of overall production costs in the anchovy industry.

The cost of raw material represents more than 57 percent of total revenues while wages take only 10 percent. The raw materials are anchovies and other fish used in the process, oil and salt. Energy, packaging and transportation and other costs account for 3 percent of the total costs. The operating margin of 30 percent is quite high but there may be two explanations for that. First in the data collected no fixed costs were included and hence the fixed costs must be a part of the operating margin. Also the processing method takes several months which means that it ties up operating capital. Capital costs might therefore be high for this industry. Unfortunately it was not possible to verify these hypotheses due to lack of data. It is interesting to note that despite substantial price decreases in landed value of anchovies they still account for as much as 40 percent of the total production costs, while oil and salt account for 19 percent combined. The average wholesale value at the factory gates for processed anchovy was 52.2 DHM/kg or equivalent to US$4.91 in the year 2000.

It proved difficult to obtain a reliable estimate of anchovy prices at the retail level in the United States. Estimates ranged from US$10 to US$39/kg. Since average retail prices and volumes were not known it was decided to use only the import values to estimate the value chain for Moroccan anchovies imported to the United States. In 2000 the average import value for whole anchovy fillets cured in olive oil was US$5.95/kg, and had decreased by 21 percent from its high of US$7.46 in 1998.

Figure 25 shows only a part of the value chain: that part which represents the export value chain from fishing to importing the product into the United States. This indicates that the value chain for Moroccan anchovies follows a similar pattern to other highly processed food products, such as canned tomatoes, corn flakes and corn syrup (see Table 1). This is not surprising since the processing is complicated and requires several ingredients and time before it matures as semipreserved anchovy fillets.

This is however only part of the value chain because in order to complete the picture information on retail prices is needed. A website advertised Moroccan anchovy fillets in oil for US$39/kg in 2004 but in April 2004 a similar product sold for US$11/kg in Rome, Italy and a household consumption survey done in 2001 in Italy calculated average prices paid for anchovies as US$19/kg. Assuming that prices have not changed considerably since 2000, and assuming that there have not been substantial changes in the cost categories over the same time period it would be possible to construct the value chain for Moroccan anchovies exported to Italy. Though these calculations are based on strong assumptions the value chain for Moroccan anchovies sold in Italy is shown in the next figure. This is done to show how it could look, but it is emphasized that the Moroccan data needs to be updated in order to make this more realistic.

Figure 26 shows that 75 percent of the added value occurs within the retail sector, 21 percent within the processing sector and 3 percent within the fishing sector, reflecting a value chain for a highly processed product.

The analysis shows that the situation for the Moroccan anchovy fishery is similar to the case study presented in Figure 1 in chapter two. The fish stocks are stable providing a relatively stable supply of anchovy for the processing firms. The processing level is fairly sophisticated and the market for raw material seems to be relatively transparent, since processors start to import raw material if local prices rise. The CAPI system should also be able to provide accurate information on prices and quantities available at any given time. The strong traditions and development of private labels by Moroccan processors have resulted in Moroccans apparently controlling a fairly high portion of the value chain. Hence the proportion of the retail price retained by the retail sector is surprising. Given the inaccuracy of the data those results should not be extrapolated to all Moroccan anchovy products but it shows that the Moroccan value chain warrants much more detailed study in order to estimate each segment in the value chain.

3.4 Denmark^[18]

The international market for herring is characterized by the presence of three strong market areas: Northern Europe, Japan and West Africa. They are supplied by a limited number of fish stocks from the North Atlantic and North Pacific Oceans.

The North European market, covering the area to the north of the longitude going through Paris and Moscow, demands a variety of herring products, with sweet pickled herring preferred in Western Europe and frozen herring preferred in Eastern Europe countries. The Japanese market prefers herring with roe and the West African market demands large quantities of frozen whole herring.

Denmark geographically placed between the North Atlantic stocks and the three markets is the world’s largest processor of herring, based on domestic raw materials as well as on imports from Norway and other countries. Figure 27 shows a schematic graph of the marketing chain for herring processed in Denmark.

Raw material comes from harvesting activities and imports. Raw material is mainly imported from other Nordic countries, such as Norway and Iceland. Domestic harvesting is done by two fleet segments, industrialized vessels and small vessels. They both harvest several species including herring, mackerel and other fish for reduction. The industrialized segment includes 38 larger vessels (pelagic trawlers and purse seines) which together account for 90 percent of total Danish landings of herring and with 50 percent of their turnover originating from landings of herring.

Denmark produces two processed herring products: salted herring in bulk containers and pickled herring in glass. Salted herring is a semi-processed product and is the most important item. It is used either to process pickled herring in glass for final consumption or is exported directly for further processing in the importing country which is mainly Germany. In Germany salted herring is used for fish salads but also for the production of pickled herring in glass. Both products are sold for final consumption in Germany. Besides the export of salted herring some quantities of fresh herring and flaps of herring (gutted herring products without head and bones leaving only fillets and skin) are also exported. This analysis focuses on the value chain for pickled herring produced and consumed in Denmark.

The value chain

The value chain for the Danish production of pickled herring in glass containers consists of four segments; Harvesting and salting (primary processing), pickled herring in glass (secondary processing), and the retail market (domestic consumption) as shown in Figure 28.

The total catch in 1998 in the North Atlantic Ocean was 2.4 million tonnes. Catches in the Northeast Atlantic make up 90 percent of this with the Atlanto-Scandian herring being the most important. Norway is by far the largest supplier, with catches of over 830 000 tonnes, followed by Iceland, Sweden, Denmark, the Russian Federation and the United Kingdom, all with catches less than 300 000 tonnes. Catches in the North Pacific Ocean have been of increasing importance in recent years.

Processing of herring in Denmark is limited to six-eight companies that process salted herring while only six further companies are known to process pickled herring in glass. The industry employs approximately 400 people.

Analysing the value chain

Based on the above data the price spreads and supplies of herring products, designated for human consumption along the domestic value chain in Denmark are shown in Figure 29.

From Figure 29 it appears that the shares of fishers and processors of salted herring remained relatively stable over the period as did the retail price, implying that only the distribution of price spread between retailers and processors of pickled herring in glass changes. Even then the change is not substantial.

Distribution of value added

Based on the data and the method described above, the distribution of value added is estimated in Table 6, where the share of each cost component of total turnover in each company segment is shown. The fisheries segment, one processing segment including producers of salted herring and pickled herring in glass, a retailer segment including only fishmongers and a wholesale segment are shown.

TABLE 6: Accounts statistics, percentage of turnover, average 1998-2000

Account statistics for the industry are shown in Table 6 with all numbers in relation to turnover in the segment. For the herring fisheries segment, wages are the largest cost item, but costs related to maintaining the capital stock, such as financial expenditures, depreciation and maintenance are also substantial. Raw material costs only include fuel. The negative net profit reveals that in 2000 the activities of the fleet were limited by fisheries management decisions, implying that it might not have been possible to utilize the capital stock fully.

For the three other segments costs of purchased goods is by far the largest element, as the companies need to purchase goods in order to maintain their activities. For processors and fishmongers, wage and other ordinary expenses are also large, while depreciation and financial expenditure are on a lower level than in the fisheries segment. For wholesalers, wage and other ordinary expenses are also on a certain level, although the costs of purchased goods are more than 90 percent of turnover. Net profit is positive in all the three segments, although close to zero in the processing and wholesale segment. This shows that net profit, as a percentage of turnover, increases along the value chain. One explanation of this situation might be that there is more flexibility at the top of the value chain. It is easier and less costly for fishmongers and wholesalers to change activity, than it is for fishing companies and processors, due to the presence of a large and relatively unified capital stock (vessels and plants).

Figure 30 shows the relative value added for all segments of the value chain and the relative share of each cost item in the value adding process itself. Note that raw material does not appear in the list of individual cost items since this is net value addition at each level (i.e. revenues minus cost of raw material from the previous segment). Capital costs and profits are not included either in order to make this figure more comparable to similar figures in the three other case studies. Herring in the retail market is a highly processed product, going through at lease two processing stages. The herring fishery is a large scale industrial fishery, with high catch volume per boat. This is well reflected in the cost structure of the harvesting sector. Capital expenses, such as maintenance, depreciation, capital costs and operating margin combined constitute a little over 40 percent of total revenues. Though the harvesting sector receives a relatively small share of the value chain individual fishermen receive relatively high wages on a national and global level.

This outcome is based on the assumption that the total cost structure of all fish processing companies is representative for both the salted herring processors and for the processors of pickled herring in glass. It also assumes that the cost structure of fishmongers is representative also for supermarkets and that wholesale activities related to herring are not different from other wholesale activities. In particular the cost share of purchased goods by processors seems too high for the processors of salted herring and processors of pickled herring in glass, as herring is a low valued fish species. Provided that this is the case, processors costs of purchased goods are overestimated and other costs components underestimated.