BORN TO BE WILD? Dr. Ögmundur Knútsson University of Akureyri, Dr. Daði Már Kristófersson University of Iceland

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1 BORN TO BE WILD? Dr. Ögmundur Knútsson University of Akureyri, Dr. Daði Már Kristófersson University of Iceland )

2 BORN TO BE WILD? Can wild capture fishers be competitive with aquaculture and agriculture? Or it is born to be wild and serve the bulk markets? High quantity low value Characteristic of the industry Seasonal Depending on weather Highly regulation Subsidies in many cases

3 STANDARDIZATION OF FOOD Standardization and consolidation in food processing and retail Demands high level of control over production process

4 AGRICULTURE High level of control What, when, how much...

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6 FISHERIES Limited output control catch attributes future catches Can control some things What and when each vessel can fish Difficult to control other things Tomorrows catches

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8 ICELANDIC STORY No domestic markets Export or die High degree of vertical integrated companies (fishing, processing and marketing) Mainly small and medium size companies (SMEs) employees Two large international marketing companies with secondary processing abroad Few traditional fishing companies with operation in countries outside Iceland Today the Icelandic fish industry is a high tech innovative industry and one of the most profitable fishing industries in the world it has not always been this way...

9 NET PROFIT IN FISHING AND FISH PROCESSING,

10 CHALLENGE OF THE 90 Export from Iceland was restricted by monopoly and duopoly until mid-1990 Three sale and marketing organisations (SMO) were the main players in fish/seafood export from Iceland Conflict of interest in value creation Primary processing in Iceland versus secondary processing abroad Lack of marketing connection and information downstream and upstream Information pre-cooked and information flow was ruled by SMO s High percent of production went into low value bulk production for further processing Quantity driven value chain

11 MAIN CHANGES IN 90 Fish markets were established in 1987 Comprehensive ITQ fisheries management system was introduced in 1991 EEA agreement in 1994, In 1994 the monopoly of export of salted fish was lifted In 1997 the last SMO s changed its policy and abolished producers duty of selling all there products through the company Producers established their own marketing divisions Producers experimenting with freedom Ad-hoc sales looking for the highest price Lot of opportunistic sale management Consolidation in all sectors Increased emphasis on specialisation Fishing Processing Increased emphasis on fresh fish export

12 DRIVING FORCES FOR CHANGE ITQ system Structural changes Precondition for Direct market consolidation, connection/cooperation Specialisation in spices Larger companies with own Creates a strong incentive marketing divisions to maximize value Outsourcing Auction fish markets Fewer actors in the value Supports specialisation chain and bigger actors Creates stability Small specialised firms Feeds market information Innovation and market signals to the Higher throughput fishermen Higher yields High price has put a Accurate size and weight of pressure on further value fillet cuts creation/innovation More value creation from waste

13 Fish leather used by shoe & fashion industry Canned fish liver products Enzymes used for natural fish flavourings Fish liver oil Roe, caviar and spreads Dried products Pharmaceutical tissue and nerve-regeneration products Enzymes from the gut used for cosmetics, hygiene & pharmaceutical products Beauty collagens (anti-aging products) Gelatin pharmaceutical capsules Hand & foot creams for preventing and treating diabetic ulchers

14 Value creation is highest in direct marketing connections Specialisation have increased value creation Governance of the Value chain by use of marketing information VALUE CREATION Less is more Marketing driven Value Chain?

15 COMPARISON BETWEEN NORWAY AND ICELAND Similarities Catch composition in demersal fisheries Fisheries management systems Technology Processing Dissimilarities Market regulation Economic importance of the fishing industry

16 COMPOSITION ICELAND AND NORWAY 45% Frozen Frosinn whole heill 40% 35% 30% 25% 20% Ísland Noregur 15% 10% 5% 0% % Fresh Ferskur whole heill 25% 20% 15% 10% 5% 0% Frozen fillets 45% Frosin flök 40% 35% 30% 25% 20% 15% 10% 5% 0% % Fresh Fersk fillets flök 12% 10% 8% 6% 4% 2% 0% (Source: Hagstofa Íslands, Eksportutvalget for fisk)

17 COMPARISON Harvest Norway Harvest Iceland Price Norway Price Iceland (Source: Hagstofa Íslands, Eksportutvalget for fisk)

18 NEW ZEALAND World s 6th largest EEZ and 10th largest coastline. NZ $1.53 billion of seafood exported in 2011; 1.2% of total global fisheries trade (MED, 2012). Industry captures very little final market value bulk commodity driven (MED, 2011). Many seafood businesses struggle to create, deliver and capture value. Many struggle to survive. Wild capture - no major growth opportunities. Aquaculture - limited opportunities (MPI, 2013). Vertical integrated industry, High degree of consolidation with 4 dominating companies Lack of competition Glen Simmons, 2014

19 FINFISH EXPORTS Average nominal export prices for hoki declined from the peak in 2000 of NZ $4.50 per kg to below NZ $3.30 per kg in 2010.

20 FISHERIES REGULATIONS AND THE SUPPLY OF ATTRIBUTES Fishers X X Processors??? Consumers Structure of the industry Ban of vertical integration First gate price unconnected to the markets Norway Newfoundland FMS TAC Timing Landing obligations

21 COMPETITIVE VALUE CHAIN Very large benefits from well functioning value chains Coordination of consumer demand and fishing activity generates more valuable products Even flow of high quality raw material creates potential for full utilization of raw material Large increase in value added Role of governments Important that the industry have the flexibility to adopt to the business environment with their own strategy and strategy position Restriction can be very harmful for the industry, it must be able to maximise its operations in different ways Not without limits There is no right way or strategy some companies are independent other vertical integrated in cooperation or go it alone strategy

22 BORN TO BE WILD? Market orientation is crucial in value creation in fisheries Requires a quota system, liberalized fish markets and good market access Effect evident when compared to Norway Not without cost ITQ s and liberalized fish markets improve profitability but at a cost Rural development Uncertainty in rural primary industries affects secondary industries Instant millionaires created by quota trade To be competitive the fish industry need to be tamed

23 THANK YOU!