1. The supply chain for farmed fish by Frank Asche University of Stavanger 08.06.05

2. World production of seafood

3. Starting point 1.Supply chains from fisheries, aquaculture and agriculture are different compete under different biological, technological and organizational conditions 2.Technological innovations are changing the supply chains fundamentally 3.Supermarket chains have become more important for all food sectors over time Innovations in the supply chain gives the same effect for the consumer or downstream processor as cost reductions at the producer level In addition it influence the product forms that can be brought to the market

4. Are aquaculture fundamentally different from fisheries? No, not if one compare mussel fisheries and mussel farming Yes, if one look at poorly regulated fisheries and intensive finfish farming Anderson indicates that there is a continum depending on regulatory structure and degree of control with the production process The contol over the production process is aquacultures largest potential, but also creates som of the largest challenges Intensive aquaculture gives most control

5. Tesco in UK Salmon filet: 76 NOK/kg

6. …Tesco in Poland Salmon filet: 28.80 NOK/kg

7. The product is not only the physical seafood product…

8. …but also a set of services for the industrial buyers related to: Volume Timing and frequency Flexibility Cost efficiency in distribution Food safety etc.

9. Buyers demand a composite product Price: (a) Price level, (b) linkage to market prices, (b) quantity discounts. Volume and timing: (a) Total volume, (b) regularity of deliveries, (c) flexibility in deliveries, e.g. in relation to ”normal” volumes and times of delivery. Raw material attributes: (a) Size distribution, e.g. fillets, (b) quality attributes, e.g. colour, fat, texture, taste, (c) fresh vs frozen, (d) uniform quality, (e) shelf life. Product range and differentiation: (a) Fish species, (b) Product varieties, e.g. easy-to-cook, ethnic foods, healthy foods, (c) private labels / brands, (d) consumer advertising. Production process: (a) Raw materials in feed, (b) environmental effects of production, (c) animal welfare, (d) third party certification, e.g. ISO, EMAS, (e) traceability. Transaction costs: (a) Negotiation, (b) planning, (c) control and enforcement, (d) transportation and (e) storage. Aquaculture and agriculture can deliver, wild fisheries in general cannot

10. Representative value chains Farm Regional trans- port. Primary& second. process. Domestic trans- port Fish farm Local transp. Primary proces- sing Inter- national transp. Secon- dary proces- sing Domestic trans- port. Fishing vessel Primary proces- sing Inter- national transp. Importer/ whole- saler Secon- dary proces- sing Domestic trans- port. Domestic trans- port. Fisheries Aquaculture Agriculture Time, transaction costs Final buyer

11. Fresh products - when does the clock start to tick? Farm Regional trans- port. Primary& second. process. Domestic trans- port Fish farm Local transp. Primary proces- sing Inter- national transp. Secon- dary proces- sing Domestic trans- port. Fishing vessel Primary proces- sing Inter- national transp. Importer/ whole- saler Secon- dary proces- sing Domestic trans- port. Domestic trans- port. Fisheries Aquaculture Agriculture Time, transaction costs Final buyer

12. The technology in processing and distribution has changed… Old technology Output volume Unit cost (USD/kg) Optimal output

13. …leading to an increase in minimum efficient scale, but also the cost of deviating from that scale Old technology New technology Output volume Unit cost (USD/kg) Optimal output BeforeNow

14. New technologies Require larger quantity to operate at an efficient scale Lower processing or distribution cost, but Requires high capacity utilization Control of supplies and coordination in the supply chain is necessary to realize the lower costs

15. Salmon prices to Norwegian fish farmers and french retailers

16. Prices in the value chain for cod to UK

17. Supply chain innovations are important For fresh cod, the fishermen get 10-15% of the retail value For salmon, the farmer gets 40-50% This implies that the retail price of salmon relatively to cod is cut by more than a half becuase of more efficient distribution This is possible because of control and scale Consumers and downstream processors are only concerned about the retail price, not where the cost savings occur

18. Product forms are changing: Markeshares for fresh salmon product forms at French supermarkets

19. Is salmon demanded primarily because it is salmon?

20. Is salmon demanded primarily because it is salmon? Or because it is reliable delivery, reasonably priced fresh fish?

21. Is tilapia the salmon of the future? Or is it some other fast growing tropical species that we have not even heard of? The market will be highly competitive, and cost considerations will probably leave only a handful of large volume species

22. European capture production volume by country 1990-2003

23. European fisheries and aquaculture production 1990-2003 Source: FAO

24. Wild fisheries gives some market opportunities There is little doubt that the supplies of wild fish will decline, and as such become less competitive It is only partially the case that this gives extra opportunities for aquacultured products, as they are often sold in completely different market segments and are using different distribution channels

25. Fresh & chilled products’ share of total frozen, fresh and chilled import quantity into European countries Source: FAO Aquaculture Fisheries

26. Some buyers and suppliers in the food industry Food giants Meat product suppliers Large seafood companies Fish farmers Small-scale seafood suppliers

27. The traditional small-scale seafood suppliers Small-scale seafood suppliers Have dominated seafood sector so far Sales generally less than 100 mill. USD Many have relied on a stagnant capture production And traditional spot oriented supply chains where the market clears explicitly at each level

28. The traditional small-scale seafood suppliers Small-scale seafood suppliers Low capacity utilization in processing and distribution Cannot satisfy retailers’ requirements wrt. volumes, product range, etc. Squeezed between volatile raw material prices and increasing demands for stable consumer prices Limited resources for product development and promotion Share of branded products low

29. The traditional small-scale seafood suppliers Small-scale seafood suppliers Low capacity utilization in processing and distribution Cannot satisfy retailers’ requirements wrt. volumes, product range, etc. Squeezed between volatile raw material prices and increasing demands for stable consumer prices Limited resources for product development and promotion Share of branded products low Low average profitability and high risk

30. The salmon companies Salmon companies Often vertically integrated farming-processing- distribution 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

31. Retail prices on selected food products and retail price index in UK

34. The salmon companies Salmon companies Is the ‘one-species’ strategy viable?

35. The new players – large seafood companies Large seafood companies Sales 500 mill. to 1.2 bn USD Expanding rapidly Moving downstream in value chains Supply a broad range of species and products

36. The new players – large seafood companies Large seafood companies Try to copy some of the strategies of leading food companies Global sourcing of seafood Adaption to retailer requirements (product range, volumes, regularity, etc.) Market intelligence Economies of scope in purchasing, processing and distribution Invest in brands

37. Where are profits made today? Primary production (farmers and fishers) Processing and distribution Retailers Profitability Food giants’ brands Meat products from agriculture Seafood industry products

38. Where are profits made in the future? Primary production (farmers and fishers) Processing and distribution Retailers Profitability Food giants’ brands Meat products from agriculture Seafood industry products

39. Where are profits made in the future? Primary production (farmers and fishers) Processing and distribution Retailers Profitability Food giants’ brands Meat products from agriculture Seafood industry products Requires structural changes here!

40. Where are profits made in the future? Primary production (farmers and fishers) Processing and distribution Retailers Profitability Food giants’ brands Meat products from agriculture Seafood industry products The focus of expanding seafood companies!

41. The seafood industry has so far largely ignored: 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

42. Assets in seafood value chains Resource capital Fixed capital vessels, farms & processing Intangible capital downstream in value chain Present focus: Resource capital Fixed capital vessels, farms & processing Intangible capital downstream in value chain Future focus: Product flow

43. This is the focus of the expanding seafood companies Large 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 European seafood industry will be fundamentally different from what we see today

44. The aquaculture industry is moving towards becoming a food industry

45. The aquaculture industry is moving towards becoming a food industry This allow the producers to increase productivity in the supply chain, and to deliver composite products at the custumers’ specifications

46. The aquaculture industry is moving towards becoming a food industry This allow the producers to increase productivity in the supply chain, and to deliver composite products at the custumers’ specifications Will there be room for wild fish except as for pet food?