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2006-08-01 | Report

Market Analysis Of Major Fish Product Markets In The Benguela Current Large Marine Ecosystem. BCLME Project LMR/SE/03/02

Leiman, Anthony and Timothy Harris. 2006. “Market Analysis Of Major Fish Product Markets In The Benguela Current Large Marine Ecosystem. BCLME Project LMR/SE/03/02 ” Reports
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This report forms just one part of an integrated research effort on the BCLME fisheries being carried out by “The Consortium”. It is anticipated that, as the rest of the BCLME projects advance, new information relevant to this study will come to light. This is particularly true for project LMR/SE/03/03, for example. The Consortium wishes to reserve the right to update this marketing report if and when the relevant information becomes available.

Most industries can increase the value of their turnover by increasing production. The fishing industry generally cannot; its sustainable annual harvest is limited and uncertain. This means that there are only three basic strategies available to increase total returns in the industry:
· Increase the sustainable harvest by letting depleted stocks recover,
· cut costs, or
· add value.

Each of these strategies has implications for the marketing of fish products. The industry is a
reciprocating system; infrastructure and quota constraints determine what value adding
processes are most appropriate, and these in turn determine how the products should be
marketed. Conversely, the market demand for specific products indicates the sort of
processing needed and this in turn drives the effort directed at different branches of the
industry.

For this reason a marketing analysis has to appraise the fishing sector holistically. This report
accordingly comments on the State interventions in areas such as such as infrastructure,
labour, quota, interest rates and exchange rates. It also treats decision variables of the
industry (gear, processing technology and branding) and market variables, particularly
information on product quality and price.

Successful marketing requires products tailored to meet the needs of consumers. Fish
products are identified by their characteristics. Price is obviously one of these; others include
species, size, quality, processing and additional content, food safety, ecological impact and
packaging. These can be used to analyse the markets for the BCLME’s fish products.

Some markets weight price above all else. The highly competitive African market for dried
fish is an example. The product is largely dried horse mackerel, but includes a range of other
species from shark to mullet. It not only competes against dried mackerel from West Africa
but also against dried fish from Europe (Norway and Iceland are the world’s two largest
producers of dried fish). This is a market in which firms from all three BCLME states
participate, and in which small enterprises can use local knowledge and contacts to secure
niche markets.

At the other extreme, the world trade in hakes is an example of a market that involves a much broader set of product characteristics. Some act as barriers to entry (e.g. satisfying the Hazard Analysis Critical Control Point System – HACCP, or the demands of the EU inspectorate). Quality aware commercial buyers also set detailed product specifications that
can include minutiae of geographic origin, sub-species, catching technology and time taken
before processing. How significant these are relative to price is not constant, but typically
varies with the available supply of substitutes and the state of the global economy. Marketing
such products is a skilled occupation and not one quickly learned. Nonetheless, it is the point
at which firms either succeed or fail.

This report concludes that traders with the skills and market experience needed to market
high valued fish effectively are scarce. More importantly, their scarcity is an effective barrier
to entry in the industry and is likely to remain so. It also found that there were only moderate
scale economies in catching fish, but profound economies of scale and scope when
processing and marketing them for ‘First World’ markets. In consequence the processing and
marketing of these products is naturally oligopolistic. Small firms may catch fish, but joint
processing and marketing arrangements would be necessary for them to participate more
fully in the industry. The profits are at the higher levels of the value chain, and not in the
actual fishing.

If oligopoly control is not desired, the only feasible options are to establish a single channel
marketing board, or for small firms to cooperate. An example of such cooperation, albeit in a
much less sophisticated market, is the SA Inshore Fishing Association which was formed by
fourteen fishmeal producers in South Africa and Namibia to coordinate and market their
output.

International standards associations help signal the characteristics of products intended for
the world market. These standards include the US Department of Agriculture and the Food
and Drug Administration, ISO ratings, HACCP, the EU inspectorate, and the South African
Bureau of Standards. Sustainable harvesting and processing standards are increasingly
recognised through eco-labelling which will be the subject of a separate report. Packaging is
generally dictated by the demands of the buyer. Effectively, firms hoping to compete
internationally must meet First World standards in harvesting and processing. Increasingly,
such processing demands a smaller, more skilled and permanently contracted workforce,
and is typically also more capital intensive.

International standards are a particular problem in Angola. Although South African and
Namibian firms have managed to satisfy international norms at their land-based processing
plants, Angolan plants have had more difficulty. The country’s poor infrastructure and
uncertainty of electricity supply partly explain the problem. The policy implications are
complex and the recent abandonment of the E.U. – Angola fisheries agreement provide a
pointer in this regard.

Under the Law of the Sea, when a country lacks the domestic capacity to exploit its fisheries,
its waters can be opened to foreign fleets. In the long run Angola’s oil wealth may be used to
improve its infrastructure and train its labour force, allowing a greater measure of successful
onshore whitefish processing. In the short-run, however, despite the country’s high level of
unemployment, the successful marketing of Angolan hake is likely to depend on factory
freezer-trawlers rather than land based processing.

Catching, processing and marketing are interdependent functions, and State interference
with any one of them will impact on the others. In South Africa and Namibia the authorities
have tried to keep up employment in the industry. In particular they have used implicit and
explicit incentives to keep land based processing of wet fish in place. It is clear, however,
that the return on capital is greater when catch is processed at sea. This report argues that
this intervention may have perverse outcomes, hindering recapitalisation and penalising
small producers.

In addition to uncertain catches, exporters face two further risks: price instability and
exchange rate fluctuations. The appropriate strategy varies with the product: If prices
temporarily fall or the domestic currency strengthens, producers can increase inventory of
tinned fish. Dried fish can be stored, sold into local markets or exchanged using countertrade
agreements. Alternative markets can also be sought to reduce risk. Producers
expecting such risks in frozen or fresh fish can reduce risk by selling forward and using
exchange rate futures. Some flexibility also comes when producers have the option of
processing locally or transhipping and processing elsewhere.

A brief summary of the state of the commercial fisheries in the BCLME States is presented in
Table 1.

 

Species

South Africa

Namibia

Angola

Comment

Hake

Locally owned oligopoly. Domestic and foreign sales. Country both imports and exports

Local and foreign oligopoly. Export largely to Spain. Long-line trawl debate needs clarification

Foreign fleet plus some local. M. Polli lower value. Consider using freezer-trawl in short run.

 

Natural oligopoly. State’s role to monitor and control harvest.

 

Small pelagics and mid-water trawl

Catching: mixed size firms. Marketing and processing: large and small local firms. Canning partly oligopolistic. Net import of pilchard

Catching: mixed size firms. Marketing and processing: large and small firms. Major markets are SACU, West Africa and DRC

 

Artisanal fleet Ostensibly protected and subsidized, but unmonitored. Value adding inefficient. Transhipping of product. Large potential domestic market.

Bait and dried fish offer an entry to niche markets. Fishmeal shows role for cooperatives. Angolan local market needs road and rail access, especially if Southern ports Are to develop.

Tuna

Little domestic processing

No current domestic processing though conversion of pilchard canneries is mooted

No domestic processing

Foreign participation cut in SA and Namibia. Catch exported, tins imported.

Rock lobster

Potential for

SMMEs, especially in catching. Large firms still dominate distribution

Resource depleted, but potential for SMMEs

N/A

 

World prices geographically and seasonally variable. If SMMEs are to market then a single channel state marketing board may be useful

Red crab

N/A

Resource depleted. Foreign control

Resource depleted. Foreign control

Specialist market.

 

Co-author:

T. Harris