FAO Seafood Price Index

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FAO Seafood Price Index

• Developed in cooperation by the UN Food and
  Agricultural Organization (FAO), University of
  Stavanger (UiS) and the Norwegian Seafood Export
  Council (NSEC)
• FAO, 3. Nov. 2008

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Objectives

• The main objectives are to create a seafood price
  index that
• Indicates the long-term price trend
• Reflects the global demand and supply situation
  in international seafood trade
• is relevant for both traded and non-traded
  seafood products

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Objectives

• To achieve these objectives the fish price index
  should comprise as large part of seafood trade as
  possible
• The scope of the index must be evaluated against
  the meaningfullness of aggregating over different
  species and product formats
• The scope refers to the share of seafood trade
  represented by the index

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Motivation

• Seafood has become an increasingly important
  source of healthy proteins due to the growth of
  aquaculture
• The global rise in food prices have made the
  development of seafood prices a topical issue
• There are currently (to our knowledge) no
  representative seafood price index that can be
  used to gauge the development of fish prices in
  comparison to e.g. other food prices
• However, it should be feasible to construct a
  global seafood price index using trade data

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Relevance for local seafood markets

• A price index based on international trade data
  will often be relevant for local/regional seafood
  markets
• Many local seafood producers and fishermen are
  exposed to increasing international competition
  through growing seafood imports
• This must be seen in relation to the
  globalization of seafood markets (trade is
  increasing faster than production)

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Growth in seafood trade

• Adjusted for inflation, trade value has increased
  threefold from 1976 to 2006 from 28.3 billion USD
  to 86.4 billion USD
• During the same period the volume has increased
  from 7.9 million tones to 31.3 million tonnes, or
  almost fourfold
• Hence, the unit value of the seafood has
  decreased, increasing seafoods competitiveness
  as a food source

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Factors explaining growth in seafood trade
(Anderson, Asche and Tveteras, 2008)

• Transportations and logistics have improved
  significantly
• Progress in conservation technology has
  continued, allowing more seafood to be traded
• Aquaculture production has increased
  significantly (production control and innovation
  in supply chain)
• Several institutional changes has promoted trade
  (200 miles Exclusive Economic Zone (EEZ) in 1977,
  GATT)
• Total seafood production has continued to
  increase, increasing the available supply to be
  traded.

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Seafood trade characteristics

• The growth of aquaculture has allowed predictable
  supplies, which suits large retail chains whose
  scale economies is built on efficient logistics
  of large, reliable volumes
• Although aquaculture has introduced some degree
  of standarization, seafood trade is still
  characterised by a wide diversity of products
• In comparison, trade in meat consists of
  relatively few and homogenous products
• The challenge when constructing a price index is
  the diversity of traded seafood products

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The aggregation issue

• There is a trade off when aggregating over many
  species and product formats
• When the number of species and product formats
  included in a price index increases
• the representativeness of the index increases
• the accuracy of the index in signalling actual
  price changes decreases

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The aggregation issue

• The price signalling issue arises because of a
  composition effect
• when the composition of the imported products
  change the price will also change
• This is caused by changes in quality/attributes
  of the imported products
• For example a larger import share of high value
  species will most likely increase the fish price
  index

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Coming to terms with the aggregation issue

• To reduce the composition effect in the price
  index, it is preferable with species and product
  formats that belong to the same market should be
  included, i.e., products that are strong
  substitutes
• In technical terms this implies including only
  products that follow similar stochastic price
  trends
• To judge whether products are in the same market
  one can use a combination of
• Visual inspection of price data
• Expert knowledge of seafood markets
• Cointegration analysis

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Coming to terms with the aggregation issue

• Since it is an objective to have a fish price
  index with a wide coverage, we will not provide a
  very strict criteria to judge if products belong
  to the same market
• In fact, we probably need to accept products that
  do NOT belong to the same market
• Expert knowledge can assist us regarding
  understanding the relationship among seafood
  prices

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Fish price index using import trade statistics

• First, only import trade data will be used to
  develop a fish price index
• The major seafood markets such as USA, Japan, and
  EU have
• The most accessible trade data
• The majority of seafood imports
• Since exports have less tariffs associated with
  them such figures can be preferable over imports,
  but the composition of seafood exports from these
  three markets is less representative of global
  seafood trade

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Description of US Seafood Imports
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Seafood value import shares to USA by processing
(USD)
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Seafood quantity import shares to USA by
processing (product weight)
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Seafood value import shares to USA by species
group (USD)
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Seafood quantity import shares to USA by species
group (product weight)
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A more disaggagregated view at seafood imports

• The cructaceans and salmonid are relatively
  homogenous species group, dominated by a few
  aquacultured products
• White fish and pelagic, on the other hand,
  consists of more diverse species
• In the following we will take a closer look at
  the composition of these two groups
• The group other fish cannot be disaggregated
  further on a species basis

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US white fish imports

• Measured by value 68 of white fish imports were
  frozen (where 60 are frozen fillet) in 2007
• 20 were fresh (13 fillet and 7 whole)
• This means that in 2007 88 of white fish imports
  were fresh or frozen products (including whole,
  fillet and fish meat)
• We now take a closer look at frozen white fish
  by far the most important product category in
  white fish imports

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US Imports of frozen white fish by species(1000
tonnes product weight)
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Pelagic imports

• Pelagic imports represents another diverse
  species group
• As a firste division, pelagic imports can be
  categorized into large and small pelagics
• Large pelagics are dominated by tuna-like species
• Small pelagics contains species like herring,
  mackerel, sardines, anchovies etc.
• As marketing of tuna is quite distinct from other
  seafood species, we consider to exclude tuna
  imports when constructing the price index

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Small pelagic imports

• In 2007 77 of small pelagics were prepared or
  conserved in some manner
• 14 were frozen whole and 2 were fresh whole
• The remaining 7 were dried, salted or smoked
• A challenge when representing this group in a
  fish price index is the large degree of
  processing involved for the majority of the
  imports

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Small pelagic imports by value (USD)
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2. Price Analysis of US data
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Price determination

• From an economics point of view one may interpret
  seafood prices as determined by supply and demand
  in a competitive marketplace
• Low trade barriers
• Low barriers to entry
• Supply of a particular fish species is affected
  by changes in production costs (e.g. biomass,
  fuel prices, feed prices and technology influence
  the production costs)
• When fuel prices increase the costs of capture
  increases
• When the price of fish feed increases the cost of
  aquaculture increases
• Demand of a particular fish species is affected
  by several factors, such as consumers income,
  the degree of competition with other species
  (substitutes), composition and changes in the use
  of the species, amongst other

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Annual US import prices for frozen seafood
(Import unit values normalized to 1 in 2000)
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Annual US import prices for fresh seafood (Import
unit values normalized to 1 in 2000)
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3. Presentation of the FAO Price Seafood Index
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Calculation and Coverage

• A Fisher price index is used, which is a weighted
  index of the Laspeyres and the Paasche index
• Imports of fresh and frozen seafood products to
  EU, Japan and USA
• The FAO seafood price index covers
• Around 34 of global seafood imports
• Almost 50 of joint imports to EU, Japan and USA
• Around 46 of imports to EU
• Around 41 of import to Japan
• Around 60 of imports to USA

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Coverage

• The index excludes
• tuna and other large pelagics
• plants
• molluscs
• conserved/prepared/dried/salted products
• meal and oil

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Output

• The aggregate FAO Seafood Price Index
• Additional indices
• White fish
• Other fish
• Cructaceans (mainly shrimp)
• Salmon
• Small pelagics
• Fish meal (this is not part of the FAO main
  index)
• These indices can be further disaggregated on the
  three markets EU, Japan and USA

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FAO Seafood Price Index(Jan. 1994 Aug. 2008)
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Changes in Seafood Prices

• According to the FAO index, average annual growth
  in nominal seafood prices in the last
• 1 year was 7.5
• 5 years was 6.4
• 10 years was 2.2

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and these are the sub-indices contained in the
FAO index
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and these are the sub-indices contained in the
FAO index
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and these are the sub-indices contained in the
FAO index
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and these are the sub-indices contained in the
FAO index
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Average annual growth in the nominal prices of
major seafood product groups
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White Fish Prices
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Other Fish Prices
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Salmon Prices
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Crustaceans Prices
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Small Pelagic Prices
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Tuna Prices
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Are these 3 regional markets integrated?Results
from cointegration tests
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FAO Seafood Price Indexwith and without tuna
(Jan. 1994 Aug. 2008)
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Summary

• We have a new seafood price index available
• The index can be disaggregated into sub-indices
  based on
• Market EU, Japan and USA
• Species other fish, white fish, salmonid,
  cructaceans, small pelagic and tuna
• We need to agree on product and market coverage
  and calculation method