The future of fishing and the seafood industry

1
The future of fishing and the seafood industry

• Ragnar Tveteras
• University of Stavanger, Norway
• International Fishmeal and Fish Oil Organisation
• Annual Conference 2006
• Barcelona, Spain

2
Issues

• Global supply trends
• Global demand trends
• Development of prices at different stages of
  supply chain for selected species/products
• Emergence of large suppliers of seafood with
  focus on processing and distribution
• At what stages of seafood supply chains will
  profits be earned in the future?
• Strategic challenges for the aquaculture industry

3
The global supply from the oceans
FAO 2005
4
Global exports of seafood products from developed
and developing countries
5
Largest importers of seafood
6
Supply side trends in food fisheries

• Many food fisheries struggle with poor regulation
• Both in developed and developing countries, for
  example, the European Union
• Technology and capacity versus political will and
  resources
• It will take a long time to improve regulation
  performance
• Some food fisheries sectors are improving their
  competitiveness through increased ability to
  supply modern distribution channels with e.g.
  fresh fish

7
Supply side trends in aquaculture

• Continuous innovation
• Declining production costs
• Consolidation in salmon aquaculture
• Winning the battle of distribution into retail
  outlets
• The species supply mix in the future will depend
  much on fish meal oil substitution
• Increased penetration from developing countries
  to 1. world markets

8
Production costs in farming in the sea and on land
9
Production costs in salmon Norwegian farming
Source Norwegian Directorate of Fisheries
10
Global meat production 1961-2005
11
GDP growth rates
12
Global seafood demand trends

• Income growth in many countries
• Middle class grows
• Accompanied by development of modern food
  distribution systems and shift in distribution
  channels to consumers
• Shift from cheap proteins to more luxury seafood
• Industrialized aquaculture species benefits
  particularly from this
• Health trends in developed countries
• Omega-3 is one of the winners when consumers
  search for healthy alternatives in their diets
• Fish meal oil sector benefit from increased
  demand for fish in general and carnivorous fish
  and shrimp in particular

13
Some buyers and suppliers in the European food
industry
Salmon companies
Small-scale seafood suppliers
Large seafood companies
Food giants
Meat product suppliers
14
The salmon companies
Salmon companies

• Often vertically integrated farming-processing-dis
  tribution
• Largest companies have yet not exploited
  coordination and scale economies fully
• High variability in profitability across
  companies
• But have set the standard for supply of seafood
  in several areas
• Volume, timing and prices

15
Retail prices on selected food products and
retail price index in UK
16
Retail prices on selected food products and
retail price index in UK
17
Retail prices on selected food products and
retail price index in UK
18
The salmon companies
Salmon companies

• Often vertically integrated farming-processing-dis
  tribution
• Largest companies have yet not exploited
  coordination and scale economies fully
• High variability in profitability across
  companies
• But have set the standard for supply of seafood
  in several areas
• Volume, timing and prices
• Availability of fresh fish to consumers

19
Fresh chilled products share of total frozen,
fresh and chilled import quantity into European
countries
Aquaculture
Fisheries
Source FAO
20
The salmon companies
Salmon companies

• Is the one-species strategy viable?
• When will they include significant volumes of
  other species?
• How will the salmon sector deal with increased
  scarcity of fish meal and oil?

21
The new players large seafood companies

• Sales 500 mill. to 1.2 billion USD
• Expanding rapidly
• Moving downstream in value chains
• Supply a broad range of species and products

Large seafood companies
22
The new players large seafood companies

• Try to copy some of the strategies of leading
  food companies
• Global sourcing of seafood
• Adaptation to retailer requirements (product
  range, volumes, regularity, etc.)
• Market intelligence
• Economies of scope in purchasing, processing and
  distribution
• Invest in brands

Large seafood companies
23
Where are profits made today?
Profitability
Food giants brands
Well-regulated fisheries!
Meat products from agriculture
Seafood industry products
Processing and distribution
Retailers
Primary production (farmers and fishers)
24
Where are profits made in the future?
Profitability
Food giants brands
Meat products from agriculture
Seafood industry products
Processing and distribution
Retailers
Primary production (farmers and fishers)
25
Where are profits made in the future?
Profitability
Food giants brands
Feed fisheries and processing?
Meat products from agriculture
Seafood industry products
Requires structural changes here!
Processing and distribution
Retailers
Primary production (farmers and fishers)
26
Where are profits made in the future?
Profitability
Food giants brands
Meat products from agriculture
Seafood industry products
The focus of expanding seafood companies!
Processing and distribution
Retailers
Primary production (farmers and fishers)
27
The seafood industry has so far largely ignored

• The traditional seafood industry has so far
  largely ignored the importance of investments in
  downstream activities
• Knowledge on consumers and buyers
• Product development
• Branding and promotion
• Distribution systems
• Relationships with buyers
• Most of these investments are in intangible assets

28
Assets in seafood value chains
Historical focus
Fixed capital vessels, farms processing
Resource capital
Intangible capital downstream in value chain
Product flow
Future focus?
Intangible capital downstream in value chain
Resource capital
Fixed capital vessels, farms processing
29
This is the focus of the expanding seafood
companies

• They are betting that the highest returns on
  investment in seafood value chains are in
  downstream activities
• If they are correct the future seafood industry
  will be fundamentally different from what we see
  today

Large seafood companies
30
But the growth of the seafood sector,
particularly aquaculture, has not gone
unnoticed...
31
Global seafood industry is subject to increased
scrutiny

• Growth and success increase visibility
• Focus on sustainability and food safety
• Aquaculture products are being undermined by
  adverse criticism on sustainability

32
Concerns about sustainability...
33
Salmon consumption dropped 20 in Spain after the
Science article
Requiem for salmon
Salmon creates fear
34
The traffic light is red for several aquaculture
species
Farmed salmonWater pollutionDamage to coastal
habitatsthreats to wild salmon stockschemical
usetoxics in farmed fish
Farmed salmon Major environmental impact!
35
Sustainability and food safety - major risks

• Sustainability and food safety are major
  strategic risks for industrialized aquaculture
• The aquaculture industry, both feed producers and
  fish farmers, have to manage these risks
• A more consolidated industry will together with
  other stakeholders (NGOs and final buyers) be
  able to exercise increased pressure on parts of
  the industry that do not perform according to
  their standards

36
Where is the fish meal and oil industry in this
picture?

• The industry supplies feed inputs that will only
  become more scarce in the future
• How high prices will go depends on
• Rate of growth for species that use fish meal
  oil intensively depends on consumers
  willingness-to-pay
• Omega-3 trends
• Effect of innovations on substitution
  possibilities with vegetable alternatives
• The perceived sustainability and food safety of
  seafood with high fish meal oil inclusion rates

37
Concluding remarks

• Fish meal and oil are valuable assets, not only
  due to a limited global supply, but also because
  of the health benefits they bring to consumers
• But buyers of fishmeal and fish oil for the
  aquaculture sector, both in developed and
  developing countries, face challenges from
  markets in North America, EU and other rich
  countries
• By forming strategic alliances with buyers and
  other stakeholders in the aquaculture sector to
  deal with issues of concern, whether real or
  perceived, the fish meal oil industry adds
  value and reduce risk for buyers...
• ... and at the same time adds value and reduces
  risk for itself