changes in the domestic part of the icelandic demersal species value chain. Ögmundur knútsson phd,...
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Changes in the domestic part of the Icelandic demersal species value chain.
Ögmundur Knútsson PhD, University of Akureyri, [email protected] Gestsson, University of Akureyri, [email protected]
Ólafur Klemensson, Central Bank of Iceland, [email protected]án Gunnlaugsson, University of Akureyri, [email protected]
2
Introduction
• Aims of the Study– Examining the aspect of changes in the domestic part
of the Icelandic demersal value chain• to widen our ongoing study on the structural, organisational
and productivity changes in the Icelandic fisheries sector• Main study emphasis is on Demersal species
– Reporting changes in the Icelandic fish industry (IFi´s) value chain
• Period of research: From the 1990 fall of the big marketing organisations to date
– Main emphasis on the last 5 – 7 years
3
Previous Studies– Strategic Alliances; The Role of the Central Firm in Governing,
Strategic Alliances Between Small and Medium Size Companies; The Case of the Icelandic Fish Industry • PhD thesis about the role of the big marketing organisation in Icelandic
fish industry from their establishment up to 2001 (Ögmundur Knútsson)
– From producers’ sales organisations to global marketing conglomerates; how the Icelandic seafood exporting companies changed– Ólafur Klemensson and Ögmundur Knútsson
– Structural changes in the Icelandic fisheries sector (1990-2007) – a value chain analysis– Ögmundur Knútsson, Ólafur Klemensson and Helgi Gestsson
• Value chain analysis for cod and haddock fillets
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Methodology of the study• Methods
– Primary data was collected through semi-structured interviews with managers over 40 IFi´s companies and marketing companies
• Secondary data– Statistics Iceland– Association of Icelandic Fish Markets– Central Bank of Iceland– Fisheries´ Pricing Bureau (Verðlagsstofa skiptaverðs)– Federation of Fish Processing Plants– Published value chain reports
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Icelandic fish Industry 1990• 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• The SMO´s played important role in the Icelandic
fish industry in general– Established strong marketing net in USA, Europe,
Eastern-Europe and Asia in traditional frozen and salted products
– Subsidiaries‘ in secondary processing in USA and UK– Created good quality system
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Challenge of the ´90
• 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 production for further processing
• Power conflict between producers and the SMO´s
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Total catch in cod tonnes equivalents
19501953
19561959
19621965
19681971
19741977
19801983
19861989
19921995
19982001
20042007
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
Total cod equable
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Main changes in ´90
• Fish markets were established in 1987 and started to play important role in the early ´90
• Comprehensive ITQ fisheries management system was introduced in 1991
• EEA agreement in 1994-liberalising trade with the EU• Importance of the US marked for frozen fish
drastically diminished and moved to Europe• Increased emphasis on fresh fish in the late ´90• Stock market established in early ´90
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Main changes in the ´90s
• In 1994 the monopoly of export of salted fish was lifted• But the SMOs kept their strong position most of the 1990s• In 1997 the last SMO´s changed its policy and abolished
producers duty of selling all there products through the company
• In 1992 first fishing company was listed on the stock market– In 1998, 20 companies listed– In 2004, 8 companies listed– In 2009, 1 company listed
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Changes 1997 - 2002
• Producers established their own marketing divisions– Producers experimenting with freedom– Ad-hoc sales looking for the highest price– Lot of opportunistic sale management
• Access to capital through the stock market• Concentration in all sectors• Increased emphasis on specialisation
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Changes 1997 - 2002
• The year 2000 seems to be the turning point for the industry in many aspects:– Starting to make profit– The companies on the stock market began to de-list– Increased access to capital through the credit market came
instead– High investment in production equipment and in vessels
• SME´s marketing companies enter the industry
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Net Profit of fishing and processing
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-10
-5
0
5
10
15
20
25
30
Fishing and processing (Demersal)
Fishing (Demersal)
Processing (Demersal)
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Changes in the last 5 – 7 yearsValue added is:• by fulfilling wishes of buyers through robust technical
development• through the specialisation in species that can easily and steadily
be sourced from fish markets and tailor-made products to the retailers´ stringent wishes
• by using commission sales and marketing companies in direct relationship with foreign distributors, secondary-processors and retailers
• by cutting out links in the value chain and doing business directly with foreign distributors, processors or retailers
• outsourcing certain functions both domestically and abroad
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Changes in the last 5 – 7 years
In recent years, a three-tier structure characterises the exporting and marketing activities in Iceland;– the two large exporting and marketing companies,
Icelandic and Iceland Seafood International (ISI), holding a market share of 35-40% in frozen and salted products
– the fish processing companies´ own marketing divisions
– independent marketing companies often in close cooperation, affiliated with fish processing plants and distributors and retailers.
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Main changes• Concentration in quota holdings and in processing• More specialisation• Better handling and grading of wet fish in harvesting
• Shorter fishing trips
• Improvements in logistics and transport technology• Increased emphasis on high-tech production
– Increased productivity– Higher efficiency in the industry, – Especially in land processing– Higher yield pr. volume of wet-fish
• Vertically integrated companies have moved into marketing with own marketing divisions
• More direct marketing connections/cooperation– Products are moving deeper into the markets
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Number of fishing vessels
0
200
400
600
800
1000
1200
1400
1600
1800
2000
1992 1999 2001 2002 2003 2004 2005 2006 2007
Total number of vessels
Number of small vessels
Number of traw lers
Number of vessels w ith 96% of quota/catch
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Number of fish processing companies
0
50
100
150
200
1992 1995 2000 2007
Freezing FAS Salting Chilled
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Total numbers of jobs in fish industry
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Fishing
Processing
Total fishing and processing
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Productivity Cod tonne equivalents pr. Job/Year
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
20
40
60
80
100
120
140
160
180
200
Fishing
Processing
Total fishing and processing
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Value creation
• The domestic part of the value chain is returning up to 60% of the total value adding– Compared to previous studies domestic value
creation is getting higher• Value creation is highest in fresh fillets• Value creation is highest in direct marketing
connections
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The relative value creation in cod/haddock export to the UK (week 27 2009)
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Total catch and value
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Driving forces for change• ITQ system
– Precondition for concentration, efficiency and adaptation of the industry
• Auction fish markets– Supports specialisation– Facilitates
exchange/transactions– Creates stability– Feeds market information and
market signals to the fishermen– High price has put pressure on
further value creation/innovation
• Easier access to capital – Stock market– Credit markets
• Structural changes– Direct market
connection/cooperation– Larger companies with
own marketing divisions– Outsourcing– Fewer actors in the value
change and bigger actors
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Overview of the IFi´s value chain
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Conclusions
• After the demise of the three sales and marketing organisations a temporary trend in spot market sales and opportunistic sales emerged. Recently (the last 5-7 years) this has changed so that today the spot market sales are avoided when possible. Instead cooperation flourishes with emphasis on trust and long term relationships.
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Conclusions cont.
• Direct contact between producers and retailers in the global value chain seem to have created additional value. This is in accordance with the results of previous studies on the cooperation in the value chain
• For the IFi´s value chain the key success factors are reliability, quality, stability and efficiency, where companies are able to bring the right quality raw material through high tech processes with world class yield to deliver top products up to buyers fullest wishes in the right markets
• After the fall of SMO’s a general feeling of a loss of a generic image of the origin and quality of the Icelandic fish products can be noticed.
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Conclusion
• The Icelandic fish industry has been able to adopt to difficult business environment
• Companies have the freedom to position themselves in different strategic position in the value chain
• Before 1997 the value chain was harvesting / product driven
• After 1997 and especially 2000 there are clear signs that the value chain is becoming more market driven
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Conclusion – cont.
• Two key factors for an efficient effective market driven value chain are • the coordination of harvesting, production and marketing
of a vertically integrated company trough a pull from its international buyers
• For independent processors-the possibility of specialisation and stability through sourcing wet fish at fish markets and using the operations of fish markets
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Thank You!