Difference between revisions of "Deliverable 3.4"

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Cod importance has dwindled, but it is still of major importance to Iceland and Norway and growing importance in Newfoundland and therefore it is important to look at industry and market dynamics, opportunities and threats in the value chain of cod for these countries.
 
Cod importance has dwindled, but it is still of major importance to Iceland and Norway and growing importance in Newfoundland and therefore it is important to look at industry and market dynamics, opportunities and threats in the value chain of cod for these countries.
 +
  
 
==== Main producers ====
 
==== Main producers ====
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[[File:D34 fig 2.png|center|Figure 2]] ''Figure 2. Supply of Atlantic cod from the North Atlantic waters, by country, 1000 tonnes, 2000–2018. Source: FAO and (*) Groundfish Forum''
 
[[File:D34 fig 2.png|center|Figure 2]] ''Figure 2. Supply of Atlantic cod from the North Atlantic waters, by country, 1000 tonnes, 2000–2018. Source: FAO and (*) Groundfish Forum''
  
FIgure 2 shows a relatively stable distribution of cod catches until the increase in the quotas for Northeast Atlantic cod about 2009, where Norway and Russia increased their share. Moreover, it shows that the catch of US/CAN fell until the end of this period, when it rose again, and that Greenland catches have increased over the period. As can been seen in Figure 2, The International Council for the Exploration of the Sea (ICES) has recommended a 20 percent cut in the Barents Sea cod quota for 2018. However, the Joint Russian Federation- Norwegian Fisheries Commission in October 2017 agreed on the 2018 quotas, which include a 13 percent cut in the Barents Sea cod quota to 775.000 tonnes (FAO).
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&nbsp;
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Figure 2 shows a relatively stable distribution of cod catches until the increase in the quotas for Northeast Atlantic cod about 2009, where Norway and Russia increased their share. Moreover, it shows that the catch of US/CAN fell until the end of this period, when it rose again, and that Greenland catches have increased over the period. As can been seen in Figure 2, The International Council for the Exploration of the Sea (ICES) has recommended a 20 percent cut in the Barents Sea cod quota for 2018. However, the Joint Russian Federation- Norwegian Fisheries Commission in October 2017 agreed on the 2018 quotas, which include a 13 percent cut in the Barents Sea cod quota to 775.000 tonnes (FAO).
  
 
==== Main markets ====
 
==== Main markets ====
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*Regional distribution safeguarded by fleet composition, and limited transferability between regions for some licenses/participation rights.  
 
*Regional distribution safeguarded by fleet composition, and limited transferability between regions for some licenses/participation rights.  
 
*Quota year is the same as the almanac year.
 
*Quota year is the same as the almanac year.
 +
  
 
===== Iceland =====
 
===== Iceland =====
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The ownership of quotas involves the right to catch the fish but does not entail ownership of the fish stock. Thus, it is claimed that the quota does not mean the ownership of the fish but rather the right to catch the fish.  Since 2001 small boats has been allocated TAC (Total allowable catches) and all effort based system abolished until 2009 when coastal fisheries was introduced. As can be seen in figure the share of small boats of the TAC was 14.2% in 1992 and is 22.3% in 2016. It peaked in 2001 when it was 24.1% of the TAC in cod. Part of this increase can be explained with changes in classification of small boats as in 2013 when small boat definition went from 15 gross registered tonnes (GRT) to 30 GRT.
 
The ownership of quotas involves the right to catch the fish but does not entail ownership of the fish stock. Thus, it is claimed that the quota does not mean the ownership of the fish but rather the right to catch the fish.  Since 2001 small boats has been allocated TAC (Total allowable catches) and all effort based system abolished until 2009 when coastal fisheries was introduced. As can be seen in figure the share of small boats of the TAC was 14.2% in 1992 and is 22.3% in 2016. It peaked in 2001 when it was 24.1% of the TAC in cod. Part of this increase can be explained with changes in classification of small boats as in 2013 when small boat definition went from 15 gross registered tonnes (GRT) to 30 GRT.
  
*The emphasis of the fisheries management system since 2001 has been to simplify the system and bring all into the quota  
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*The emphasis of the fisheries management system since 2001 has been to simplify the system and bring all into the quota system of ITQ and TAC system. Against this, open access fishing was introduced in 2009 when new system was introduced for small boat called costal fishing (isl. strandveiði).  
 
+
*By the 1990 Act the fishing year was set from 1. September to 31. August in the following year but previously it had been based on the calendar year. This was an effort to channel fishing of the groundfish stocks away from the summer months, when quality suffers more quickly and many regular factory workers are on vacation.
system of ITQ and TAC system. Against this, open access fishing was introduced in 2009 when new system was introduced for small boat called costal fishing (isl. strandveiði).
 
 
 
*By the 1990 Act the fishing year was set from 1. September to 31. August in the following year but previously  
 
 
 
it had been based on the calendar year. This was an effort to channel fishing of the groundfish stocks away from the summer months, when quality suffers more quickly and many regular factory workers are on vacation.
 
  
 
===== Newfoundland =====
 
===== Newfoundland =====
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==== Entry barriers into the system: ====
 
==== Entry barriers into the system: ====
 +
  
 
===== Norway =====
 
===== Norway =====
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The activity demand in the Participation Act states that in order to own a fishing vessel one have to be an active fisher.
 
The activity demand in the Participation Act states that in order to own a fishing vessel one have to be an active fisher.
  
*Many exceptions have been granted. Firstly, on the same footing as active fishers are administrative fishing vessel  
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*Many exceptions have been granted. Firstly, on the same footing as active fishers are administrative fishing vessel owners – caretaking the daily operation of vessels from land.  Also, as the filleting industry in the north of Norway was built up and prioritised as whole year employers, many filleting firms were granted cod trawl licenses, which today are held by two big processing concerns (Lerøy and Nergård)  
 
 
owners – caretaking the daily operation of vessels from land.  Also, as the filleting industry in the north of Norway was built up and prioritised as whole year employers, many filleting firms were granted cod trawl licenses, which today are held by two big processing concerns (Lerøy and Nergård)
 
 
 
 
*To become a registered fisher, you have to live in Norway and work on a registered Norwegian fishing vessel  
 
*To become a registered fisher, you have to live in Norway and work on a registered Norwegian fishing vessel  
 
*To get a vessel registered a as a fishing vessels, demands have to be met regarding size class and operating areas.  
 
*To get a vessel registered a as a fishing vessels, demands have to be met regarding size class and operating areas.  
  
 
Like in other western society fisheries, the closure of the commons have increased the capital intensity, and labour is to a large degree substituted by capital intensive production equipment. Foreigners can buy vessels below 15 meters in Norway and control no more than 40 per cent for boats above 15 metres. Processing industry - no nationality limitations exists
 
Like in other western society fisheries, the closure of the commons have increased the capital intensity, and labour is to a large degree substituted by capital intensive production equipment. Foreigners can buy vessels below 15 meters in Norway and control no more than 40 per cent for boats above 15 metres. Processing industry - no nationality limitations exists
 +
  
 
===== Iceland =====
 
===== Iceland =====
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*Open access  
 
*Open access  
 
*Low profitability (returning loss for all years of operation)  
 
*Low profitability (returning loss for all years of operation)  
*Coastal fishing is limited to small boats with maximum two handlines per person and  
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*Coastal fishing is limited to small boats with maximum two handlines per person and maximum two person on the boat. The maximum 650 kg catch per day and fishing is limited to four days a week.  
 
+
*There are also limits of TAC for each area for the small boats.  
maximum two person on the boat. The maximum 650 kg catch per day and fishing is limited to four days a week.
 
 
 
*There are also limits of TAC for each area for the small  
 
 
 
boats.
 
  
 
&nbsp;
 
&nbsp;
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==== Quota ownership and quota prices ====
 
==== Quota ownership and quota prices ====
 +
  
 
===== Norway =====
 
===== Norway =====
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There is in Norway a consolidation limit for cod for both conventional off-shore vessels (auto-liners) and cod trawlers, but not for coastal vessels.
 
There is in Norway a consolidation limit for cod for both conventional off-shore vessels (auto-liners) and cod trawlers, but not for coastal vessels.
  
*Firms owning conventional off-shore vessels cannot, directly or indirectly, own vessels that  
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*Firms owning conventional off-shore vessels cannot, directly or indirectly, own vessels that control more than 15 per cent of the group quota for any of the species included.  
 
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*For cod trawler, firms cannot control more vessels exceeding more than the number that controls 12 quota factors. With today’s quota ceiling (maximum four quota factors per vessel), it means 3 full structured vessels and about 13 per cent of the group quota for cod trawlers.  
control more than 15 per cent of the group quota for any of the species included.
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*However, there are specific rules for ship owners that also own processing facilities, which is the reason that the two before mentioned cod trawler ship owners have more vessels than the limit of the Act. Quotas can be transferred among vessels in a vessel owning company, but only upon authorities’ approval. Also, other eases of transferability exist (renting quotas, ship wrecking, replacement permit – in awaiting of new vessel, and others) A quota flexibility between years is also possible, but within the cod fishery, this is only possible on group level – not for individual vessels. An overfishing of the vessel groups’ cod quota one year will be claimed against next year’s quota, and vice versa if the full quota is not taken. For the vessel groups with a limited number of vessels, this individual vessel quota flexibility between years will be effectuated over the turn of the year from 2017 to 2018. Coastal vessels will have to wait longer until this can be effectuated, since so many extraordinary schemes exists for these vessels Quotas within Norwegian fisheries are transferable, but there exists no central brokerage system where quota prices are noted.
 
 
*For cod trawler, firms cannot control more vessels exceeding more than the number that  
 
 
 
controls 12 quota factors. With today’s quota ceiling (maximum four quota factors per vessel), it means 3 full structured vessels and about 13 per cent of the group quota for cod trawlers.
 
 
 
*However, there are specific rules for ship owners that also own  
 
 
 
processing facilities, which is the reason that the two before mentioned cod trawler ship owners have more vessels than the limit of the Act. Quotas can be transferred among vessels in a vessel owning company, but only upon authorities’ approval. Also, other eases of transferability exist (renting quotas, ship wrecking, replacement permit – in awaiting of new vessel, and others) A quota flexibility between years is also possible, but within the cod fishery, this is only possible on group level – not for individual vessels. An overfishing of the vessel groups’ cod quota one year will be claimed against next year’s quota, and vice versa if the full quota is not taken. For the vessel groups with a limited number of vessels, this individual vessel quota flexibility between years will be effectuated over the turn of the year from 2017 to 2018. Coastal vessels will have to wait longer until this can be effectuated, since so many extraordinary schemes exists for these vessels Quotas within Norwegian fisheries are transferable, but there exists no central brokerage system where quota prices are noted.
 
  
 
===== Iceland =====
 
===== Iceland =====
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&nbsp;
 
&nbsp;
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===== Iceland =====
 
===== Iceland =====
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'''Closures'''
 
'''Closures'''
  
*Marine Institute has licences to introduce closures fishing areas if for example share of small fish  
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*Marine Institute has licences to introduce closures fishing areas if for example share of small fish is too high according to landing or historical landing data Discard ban  
 
 
is too high according to landing or historical landing data Discard ban
 
 
 
 
*There are measurement’s in place to avoid discard  
 
*There are measurement’s in place to avoid discard  
 
*Limited withdraw on unwanted catch form TAC  
 
*Limited withdraw on unwanted catch form TAC  
*Up to 5% of fish that is damage can be landed as VS fish special weighted and not withdraw from TAC  
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*Up to 5% of fish that is damage can be landed as VS fish special weighted and not withdraw from TAC
  
 
===== Newfoundland =====
 
===== Newfoundland =====
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=== Market approach ===
 
=== Market approach ===
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==== Differences in exports ====
 
==== Differences in exports ====
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[[File:D34 fig 4.png|center|Figure 4]] ''Figure 4. Export of whole unprocessed fish from Norway and Iceland as share of total exports.''
 
[[File:D34 fig 4.png|center|Figure 4]] ''Figure 4. Export of whole unprocessed fish from Norway and Iceland as share of total exports.''
  
*Export of whole fish from Norway has rather been increasing in the recent  
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*Export of whole fish from Norway has rather been increasing in the recent years. Part of that could be the increase in catch in Norway or from around 215.000 thousand tons in 2008 to 422 thousand tons in 2015. This export is both frozen H/G (headed and gutted) and fresh.  
 
+
*Norwegian have focused a lot the last year of marketing their H/G fresh fish as Skrei where they select the best fish for export under the brand name Skrei and receive premium for that export.  
years. Part of that could be the increase in catch in Norway or from around 215.000 thousand tons in 2008 to 422 thousand tons in 2015. This export is both frozen H/G (headed and gutted) and fresh.
+
*Export from Iceland has been increasing slightly and is mainly fresh with head on and is up to 9.7% in 2016 from 4.1% in 2011.  
 
+
*Newfoundland export of whole fish fluctuates a lot between years; somewhat determined by the fluctuating TAC and weekly allocation/permissible catch rates. Another way to look at the processing stage of the value chain is to look at the share of fillets in the export from those countries. In figure 3, all fillets export is summarized. This takes into account whole fillets, fillets portions and fillets from different processing; fresh, frozen and dried.  
*Norwegian have focused a lot the last year of marketing their H/G fresh  
 
 
 
fish as Skrei where they select the best fish for export under the brand name Skrei and receive premium for that export.
 
 
 
*Export from Iceland has been increasing slightly and is mainly fresh with  
 
 
 
head on and is up to 9.7% in 2016 from 4.1% in 2011.
 
 
 
*Newfoundland export of whole fish fluctuates a lot between years;  
 
 
 
somewhat determined by the fluctuating TAC and weekly allocation/permissible catch rates. Another way to look at the processing stage of the value chain is to look at the share of fillets in the export from those countries. In figure 3, all fillets export is summarized. This takes into account whole fillets, fillets portions and fillets from different processing; fresh, frozen and dried.
 
  
 
[[File:D34 fig 5.png|center|Figure 5]] ''Figure 5. Total share of volume of fillets in export from Norway, Iceland and Newfoundland.''
 
[[File:D34 fig 5.png|center|Figure 5]] ''Figure 5. Total share of volume of fillets in export from Norway, Iceland and Newfoundland.''
  
*Fillets production is very limited in Norway and accounts for less than 10%  
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*Fillets production is very limited in Norway and accounts for less than 10% of the export in 2016 and the share has been decreasing. The fillets production is mainly frozen in Norway.  
 
+
*Iceland Fillet production is stable from around 55% to almost 60% of the total export. The 12.1&nbsp;% of the export are fresh fillets or fillet parts, 21% is frozen and 10.3% are salted both frozen lightly salted and as salted fillets.  
of the export in 2016 and the share has been decreasing. The fillets production is mainly frozen in Norway.
 
 
 
*Iceland Fillet production is stable from around 55% to almost 60% of the  
 
 
 
total export. The 12.1&nbsp;% of the export are fresh fillets or fillet parts, 21% is frozen and 10.3% are salted both frozen lightly salted and as salted fillets.
 
 
 
 
*Newfoundland export of fillets fluctuates between years.  
 
*Newfoundland export of fillets fluctuates between years.  
  
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&nbsp;
 
&nbsp;
  
*The volume of fresh fillets as a share of the total export in Norway has  
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*The volume of fresh fillets as a share of the total export in Norway has been decreasing in share although the real quantity has not been reduced as the share as quantity of landed cod has increased considerable in this period. It is interesting that the price per kg of exported fillets are lower than for Icelandic fillets, which could suggest more export of whole fillets instead of fillet portions (loin cut) export from Iceland or lower price in the market.
 +
*The export of fresh fillets has been increasing it share in Iceland as well as price per kg which can mainly be traced to higher degree of portioning in Iceland today due to water jet cutting in the processing part of the value chain.
 +
*The share of fresh fillets in Newfoundland was decreasing from 2011 when it was 10.1% to 2015 when it was 1.5%. Then in 2016 it was up to 22% of the total export. Price of the export is in most cases (except 2014) much lower than fresh fillets from Norway and Iceland.
  
been decreasing in share although the real quantity has not been reduced as the share as quantity of landed cod has increased considerable in this period. It is interesting that the price per kg of exported fillets are lower than for Icelandic fillets, which could suggest more export of whole fillets instead of fillet portions (loin cut) export from Iceland or lower price in the market.
+
[[File:D34 fig 7.png|center|Figure 7]] ''Figure 7. Share of export for frozen fillets by volume and average export price.''
  
*The export of fresh fillets has been increasing it share in Iceland as well as
+
*The share of the Norwegian frozen fillets export is decreasing or from around 6% in 2011 to 2.9% in 2016. What is interesting is that the Norwegian receive higher price per kg of fillet than Iceland. One reason for this could the focus of fresh fillet portions (loin cut) in Iceland leaving the tail and belly flap behind less valuable part of the fillet.
 +
*Newfoundland have just under 30% of their export in frozen fillet and the price is in between Iceland and Norway except for 2013 when they receive the highest price of the three nations. The traditional markets of cod from all the three countries is the salted fish markets mainly in the Mediterranean countries.
  
price per kg which can mainly be traced to higher degree of portioning in Iceland today due to water jet cutting in the processing part of the value chain.
+
[[File:D34 fig 8.png|center|Figure 8]] ''Figure 8. Total share of volume of salted fish in export from Norway, Iceland and Newfoundland''
  
*The share of fresh fillets in Newfoundland was decreasing from 2011 when
+
*Salt fish export form Iceland is divided between fillets and split fish. The share of export of split fish has been decreasing and the share of fillets increasing.
 +
*The Norwegian export is mainly spited fish or clipfish dried salted that is counted as dried fish.
 +
*The NL export consists of cod fillets dried and salted in brine (with/out smoking) and wet salted
  
it was 10.1% to 2015 when it was 1.5%. Then in 2016 it was up to 22% of the total export. Price of the export is in most cases (except 2014) much lower than fresh fillets from Norway and Iceland.
+
The export of dried fish is also important for Norway and Iceland but not for the Newfoundland cod. The total share of salted and/or dried fish for NL has decreased over time. Between the years 2005-2010, NL salt fish exports ranged from 8-37% of total exports. This decreased from 2011-2016 where exports varied from 0% to 8.5%
  
[[File:D34 fig 7.png|center|Figure 7]] ''Figure 7. Share of export for frozen fillets by volume and average export price.''
+
[[File:D34 fig 9.png|center|Figure 9]] ''Figure 9. Total share of volume of dried fish in export from Norway and Iceland''
  
*The share of the Norwegian frozen fillets export is decreasing or from
+
*The export of dried fish from Iceland is mostly dried head and frames.
  
around 6% in 2011 to 2.9% in 2016. What is interesting is that the Norwegian receive higher price per kg of fillet than Iceland. One reason for this could the focus of fresh fillet portions (loin cut) in Iceland leaving the tail and belly flap behind less valuable part of the fillet.
+
*The Norwegian export is stock fish. The main markets is Italy, which Norwegian have overtaken almost completely.  
  
*Newfoundland have just under 30% of their export in frozen fillet and the
+
To summarise the marketing and production part together, it is interesting to look at how much value each of the value chains are returning for per kilo of cod. From Figure 10 it can been seen that from 2010, Iceland has in most cases been returning highest value per kg of cod.
 
 
price is in between Iceland and Norway except for 2013 when they receive the highest price of the three nations. The traditional markets of cod from all the three countries is the salted fish markets mainly in the Mediterranean countries.
 
 
 
[[File:D34 fig 8.png|center|Figure 8]] ''Figure 8. Total share of volume of salted fish in export from Norway, Iceland and Newfoundland''
 
 
 
*Salt fish export form Iceland is divided between fillets and split fish. The
 
 
 
share of export of split fish has been decreasing and the share of fillets increasing.
 
 
 
*The Norwegian export is mainly spited fish or clipfish dried salted that is
 
 
 
counted as dried fish.
 
 
 
*The NL export consists of cod fillets dried and salted in brine (with/out
 
 
 
smoking) and wet salted
 
 
 
The export of dried fish is also important for Norway and Iceland but not for the Newfoundland cod. The total share of salted and/or dried fish for NL has decreased over time. Between the years 2005-2010, NL salt fish exports ranged from 8-37% of total exports. This decreased from 2011-2016 where exports varied from 0% to 8.5%
 
 
 
[[File:D34 fig 9.png|center|Figure 9]] ''Figure 9. Total share of volume of dried fish in export from Norway and Iceland''
 
 
 
*The export of dried fish from Iceland is mostly dried head and frames.
 
 
 
*The Norwegian export is stock fish. The main markets is Italy, which
 
 
 
Norwegian have overtaken almost completely.
 
 
 
To summarise the marketing and production part together, it is interesting to look at how much value each of the value chains are returning for per kilo of cod. From Figure 10 it can been seen that from 2010, Iceland has in most cases been returning highest value per kg of cod.
 
  
 
[[File:D34 fig 10.png|center|Figure 10]] ''Figure 10 Total value of export per kg of cod landed''
 
[[File:D34 fig 10.png|center|Figure 10]] ''Figure 10 Total value of export per kg of cod landed''
  
*This method of calculating value creation does not take into account stock  
+
*This method of calculating value creation does not take into account stock in the beginning of the year or at the end of the year. So that could affect the numbers especially in Newfoundland that focuses on frozen products.
 
 
in the beginning of the year or at the end of the year. So that could affect the numbers especially in Newfoundland that focuses on frozen products.
 
  
 
==== Summary of main influencing factors regarding market approach ====
 
==== Summary of main influencing factors regarding market approach ====
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=== Processing ===
 
=== Processing ===
 +
  
 
==== Profitability and performance ====
 
==== Profitability and performance ====
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Main issues:
 
Main issues:
  
*The best profit in Norway is in dried stockfish and clipfish, that is dried  
+
*The best profit in Norway is in dried stockfish and clipfish, that is dried salted fish. Salting and drying in Iceland is mainly salt fish. Light salted and even light salted and frozen. Profitability is much higher than in salted production in Norway, where production is mainly traditionally salted fish.  
 
+
*Stockfish production in Norway is returning healthy EBIT for most year. The stockfish production is aimed for high end niche markets in Italy and lower value markets in Nigeria.  
salted fish. Salting and drying in Iceland is mainly salt fish. Light salted and even light salted and frozen. Profitability is much higher than in salted production in Norway, where production is mainly traditionally salted fish.
+
*Drying of whole fish is very limited, the main product of the drying sector in Iceland are heads and bone frames.  
 
 
*Stockfish production in Norway is returning healthy EBIT for most year. The  
 
 
 
stockfish production is aimed for high end niche markets in Italy and lower value markets in Nigeria.
 
 
 
*Drying of whole fish is very limited, the main product of the drying sector  
 
 
 
in Iceland are heads and bone frames.
 
  
 
[[File:D34 fig 13.png|center|Figure 13]] ''Figure 13. Net profit as share of revenue in filleting processing in Norway and frozen production in Iceland 1997-2015''
 
[[File:D34 fig 13.png|center|Figure 13]] ''Figure 13. Net profit as share of revenue in filleting processing in Norway and frozen production in Iceland 1997-2015''
  
*Compering export and profitability on fillets production it is possible to  
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*Compering export and profitability on fillets production it is possible to compare the frozen production in Iceland with the filleting production in Norway. The frozen products from Iceland are mainly fillets or fillets portions. It is obvious that there is great difference in profitability although the profitability in Norway has been improving since 2008. One of the influencing factor on the performance of the processing industry is the flow of fish to the processing part. It is interesting to see the distribution of catches for Norway and Iceland as is done in Figure 14, were the flow is shown as monthly share of total catches for the year vs. export price of fresh fillets for these countries in 2014.  
 
 
compare the frozen production in Iceland with the filleting production in Norway. The frozen products from Iceland are mainly fillets or fillets portions. It is obvious that there is great difference in profitability although the profitability in Norway has been improving since 2008. One of the influencing factor on the performance of the processing industry is the flow of fish to the processing part. It is interesting to see the distribution of catches for Norway and Iceland as is done in Figure 14, were the flow is shown as monthly share of total catches for the year vs. export price of fresh fillets for these countries in 2014.
 
  
 
[[File:D34 fig 14.png|center|Figure 14]] ''Figure 14. Monthly catches of cod as share of total catches for 2014 and export price in Euro per kg for fresh fillets.''
 
[[File:D34 fig 14.png|center|Figure 14]] ''Figure 14. Monthly catches of cod as share of total catches for 2014 and export price in Euro per kg for fresh fillets.''
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&nbsp;
 
&nbsp;
  
*Norway has around 62.1% of the total catch landed in the first four months  
+
*Norway has around 62.1% of the total catch landed in the first four months of the year while in Iceland the 39.2% of the total catch is caught during that period.  
 
+
*During the first four months the price is lower than in the rest of the year and Iceland receives higher prices every month, except in December.
of the year while in Iceland the 39.2% of the total catch is caught during that period.
 
 
 
*During the first four months the price is lower than in the rest of the year  
 
 
 
and Iceland receives higher prices every month, except in December.
 
  
 
==== By-products ====
 
==== By-products ====
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| Undetermined
 
| Undetermined
 
|}
 
|}
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=== Price settling mechanism ===
 
=== Price settling mechanism ===
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*Auction markets sells around 16% of the total landed cod,  
 
*Auction markets sells around 16% of the total landed cod,  
*The VICs are responsible for around 70% of the landed catch and process  
+
*The VICs are responsible for around 70% of the landed catch and process most of the catches in own processing facilities. The price to the VIC ́s is connected to the auction price in Iceland.
 +
*Contracts between individual boat owners and producers is responsible for 14% of the first sales. In Norway there are two main form of trade of fish from fisherman to producers:
 +
*Fresh fish is traded upon direct agreements between seller and buyer, but with minimise price settling according to Act of the Fish Sales organizations (Fiskesalgslagsloven), which gives sales organizations owned by the fishers monopoly in the first hand trade of fish. In the case of cod, two of those organization are responsible for nearly 99&nbsp;% of all cod landed by Norwegian fishers (in 2016). The sales organizations are responsible for setting minimum prices for fish which is in most cases the price in the transaction.
 +
*Frozen fish is sold on auction or by own acquisition, where the vessel owner upon landing himself takes care the sale of fish. In general, frozen cod either goes to clipfish production or is exported unprocessed abroad, while fresh cod to a greater degree is processed where it is landed. In Newfoundland first hand price is negated before the start of the respective fishing season.
 +
*This is done by The Fish, Food and Allied Workers Union (FFAW) and the processing companies convene as a price settling panel to negotiate the first gate prices paid to harvesters.
 +
*The grade or quality of the product constitutes the price received with cod graded as either Grade A, B, C, or reject. The negotiated price is considered the minimum price and it is often augmented by the processing companies.
  
most of the catches in own processing facilities. The price to the VIC ́s is connected to the auction price in Iceland.
+
==== Price according to fishing gear ====
  
*Contracts between individual boat owners and producers is responsible
+
It is important to understand if the price settling mechanism is rewarding fisherman for attribute that could affect the value creation in later stages in the value chain. These attributes are for example quality, timing, size of fish, fishing gear and temperature of the fish. It is impossible to evaluate all those factors, but it is possible to evaluate the ability of the price settling mechanism to pay different price according to fishing gear.
  
for 14% of the first sales. In Norway there are two main form of trade of fish from fisherman to producers:
+
[[File:D34 fig 16.png|center|Figure 16]] ''Figure 16. Norway, price according to fishing gear Euros/kg 2010 to 2016''
  
*Fresh fish is traded upon direct agreements between seller and buyer, but
+
It is clear that the price is different in Norway after according to the fishing gear.
  
with minimise price settling according to Act of the Fish Sales organizations (Fiskesalgslagsloven), which gives sales organizations owned by the fishers monopoly in the first hand trade of fish. In the case of cod, two of those organization are responsible for nearly 99&nbsp;% of all cod landed by Norwegian fishers (in 2016). The sales organizations are responsible for setting minimum prices for fish which is in most cases the price in the transaction.
+
*Longline and trawl receive the highest price but it is interesting that hand line usually gets the lowest price which is in contrast with the general believe that hook and line fish have the best quality.The price difference is quite high or up to 0.58 euro in 2015 between the highest and the lowest. Which means that the lowest price in 33% lower than the highest.  
  
*Frozen fish is sold on auction or by own acquisition, where the vessel
+
[[File:D34 fig 17.png|center|Figure 17]] ''Figure 17. Iceland, price according to fishing gear Euros/kg 2012 to 2016''
  
owner upon landing himself takes care the sale of fish. In general, frozen cod either goes to clipfish production or is exported unprocessed abroad, while fresh cod to a greater degree is processed where it is landed. In Newfoundland first hand price is negated before the start of the respective fishing season.
+
Price varies according to fishing gear in Iceland.
  
*This is done by The Fish, Food and Allied Workers Union (FFAW) and the  
+
*The same trends can be detected as in Norway that the longline and trawl receive usually the highest price. Gillnets receive the lowest price but hand line receive the highest price in 2012, although the share of the total landed cod is rather low.
 +
*The price difference between the highest and lowest price range between 0.25 to 0.51 euros per kilo and is biggest in 2013 when the difference is 27%.
 +
*It is interesting to see the difference in price between hand line in Norway and Iceland that races questions about quality and the how active the price settling mechanism is in identifying and rewarding for quality.
  
processing companies convene as a price settling panel to negotiate the first gate prices paid to harvesters.
+
[[File:D34 fig 18.png|center|Figure 18]] ''Figure 18 Newfoundland, price according to fishing gear Euros/kg 2000 to 2016''
  
*The grade or quality of the product constitutes the price received with cod
+
In Newfoundland there is no difference according to fishing gear indicating there is no efficiency in the price settling mechanism to identify quality and pay incentives for that. There are recent examples were processing companies are engaged in collaborative relationships with harvesters and are paying higher premiums to those using fishing gear that produce a premium product.
  
graded as either Grade A, B, C, or reject. The negotiated price is considered the minimum price and it is often augmented by the processing companies.
+
==== Summary of main influencing factors on value chain dynamic ====
  
==== Price according to fishing gear ====
+
{| class="wikitable" style="width: 100%"
 
+
|-
It is important to understand if the price settling mechanism is rewarding fisherman for attribute that could affect the value creation in later stages in the value chain. These attributes are for example quality, timing, size of fish, fishing gear and temperature of the fish. It is impossible to evaluate all those factors, but it is possible to evaluate the ability of the price settling mechanism to pay different price according to fishing gear.
 
 
 
[[File:D34 fig 16.png|center|Figure 16]] ''Figure 16. Norway, price according to fishing gear Euros/kg 2010 to 2016''
 
 
 
It is clear that the price is different in Norway after according to the fishing gear.
 
 
 
*Longline and trawl receive the highest price but it is interesting that hand
 
 
 
line usually gets the lowest price which is in contrast with the general believe that hook and line fish have the best quality. The price difference is quite high or up to 0.58 euro in 2015 between the highest and the lowest. Which means that the lowest price in 33% lower than the highest.
 
 
 
[[File:D34 fig 17.png|center|Figure 17]] ''Figure 17. Iceland, price according to fishing gear Euros/kg 2012 to 2016''
 
 
 
Price varies according to fishing gear in Iceland.
 
 
 
*The same trends can be detected as in Norway that the longline and trawl
 
 
 
receive usually the highest price. Gillnets receive the lowest price but hand line receive the highest price in 2012, although the share of the total landed cod is rather low.
 
 
 
*The price difference between the highest and lowest price range between
 
 
 
0.25 to 0.51 euros per kilo and is biggest in 2013 when the difference is 27%.
 
 
 
*It is interesting to see the difference in price between hand line in Norway
 
 
 
and Iceland that races questions about quality and the how active the price settling mechanism is in identifying and rewarding for quality.
 
 
 
[[File:D34 fig 18.png|center|Figure 18]] ''Figure 18 Newfoundland, price according to fishing gear Euros/kg 2000 to 2016''
 
 
 
In Newfoundland there is no difference according to fishing gear indicating there is no efficiency in the price settling mechanism to identify quality and pay incentives for that. There are recent examples were processing companies are engaged in collaborative relationships with harvesters and are paying higher premiums to those using fishing gear that produce a premium product.
 
 
 
==== Summary of main influencing factors on value chain dynamic ====
 
 
 
{| class="wikitable" style="width: 100%;"
 
|-
 
 
! Factor
 
! Factor
 
! Iceland
 
! Iceland
Line 675: Line 578:
  
 
=== Fishing ===
 
=== Fishing ===
 +
  
 
==== Fishing gear ====
 
==== Fishing gear ====
Line 684: Line 588:
 
*No active auction markets  
 
*No active auction markets  
 
*Very limited price difference between fishing gear  
 
*Very limited price difference between fishing gear  
*Very limited marketing effect in the relationships between producers and  
+
*Very limited marketing effect in the relationships between producers and fisherman’s.  
 
+
*The use of gillnets and lack of markets connection suggest that most fisherman focus on minimising the cost of fishing and low cost strategy. Trawl is the most important fishing gear in Iceland with around 43% of the total catch in 2016. The main change in development of fishing gear is that the share of gillnets has steadily been decreasing from around 33% in 1982 to 13% in 2006 down to 8.8% in 2016. Longline has been increasing it share or from 11% in 1982 to 37% in 2006 and is around 33.5% in 2016. Use of hand line has increased mainly due to the introduction of coastal fishing in 2008. The share of hand line is around 6% and has double from 2006 when it was around 3% which is similar as in 1982. The reasons are:  
fisherman’s.
+
**The auction market in Iceland is active  
 
+
**Price varies between fishing gear is creating incentives for better quality  
*The use of gillnets and lack of markets connection suggest that most  
+
**The strategy is in most cases on quality and maximising the revenue  
 
 
fisherman focus on minimising the cost of fishing and low cost strategy. Trawl is the most important fishing gear in Iceland with around 43% of the total catch in 2016. The main change in development of fishing gear is that the share of gillnets has steadily been decreasing from around 33% in 1982 to 13% in 2006 down to 8.8% in 2016. Longline has been increasing it share or from 11% in 1982 to 37% in 2006 and is around 33.5% in 2016. Use of hand line has increased mainly due to the introduction of coastal fishing in 2008. The share of hand line is around 6% and has double from 2006 when it was around 3% which is similar as in 1982. The reasons are:
 
 
 
*The auction market in Iceland is active  
 
*Price varies between fishing gear is creating incentives for better quality  
 
*The strategy is in most cases on quality and maximising the revenue  
 
  
 
In Norway, trawl is the most important fishing gear and accounts for 33% in 2016 which is increase of 1% since 2006. The use of gillnets has been going down from 2006 when the share was 28% to 23% in 2016. The biggest increase is in use of Danish seine has been increasing from 17% in 2006 to 22% in 2016. The reasons are:
 
In Norway, trawl is the most important fishing gear and accounts for 33% in 2016 which is increase of 1% since 2006. The use of gillnets has been going down from 2006 when the share was 28% to 23% in 2016. The biggest increase is in use of Danish seine has been increasing from 17% in 2006 to 22% in 2016. The reasons are:
  
 
*Clear difference in price between fishing gear  
 
*Clear difference in price between fishing gear  
*Suggesting quality incentives in the relationship between producers  
+
*Suggesting quality incentives in the relationship between producers and fisherman
 +
*Seasonal fishing and use of gillnet and Danish seine suggest that the focus in fishing is mainly on minimizing cost of fishing
  
and fisherman
 
 
*Seasonal fishing and use of gillnet and Danish seine suggest that the focus
 
 
in fishing is mainly on minimizing cost of fishing
 
  
 
==== Performance and profitability ====
 
==== Performance and profitability ====
Line 713: Line 607:
 
[[File:D34 fig 20.png|center|Figure 20]] ''Figure 20. Profitability for the demersal fishing sector, based on EBIT as share of revenue.''
 
[[File:D34 fig 20.png|center|Figure 20]] ''Figure 20. Profitability for the demersal fishing sector, based on EBIT as share of revenue.''
  
*The profitability in Norway and Iceland varies a lot but the profitability in  
+
*The profitability in Norway and Iceland varies a lot but the profitability in Iceland is considerable higher than in Norway. The EBIT in Norwegian demersal fisheries has been rather low or in most cases below 10% with few exceptions.  
 
+
*There is difference in the fleet groups as in Norway cod trawler are returning highest profitability in the last years and the coastal fleet or smaller vessels are less profitable. The same trend is in Iceland as small boat fleet is returning lower profitability than fresh fish trawler and bigger vessels.  
Iceland is considerable higher than in Norway. The EBIT in Norwegian demersal fisheries has been rather low or in most cases below 10% with few exceptions.
 
 
 
*There is difference in the fleet groups as in Norway cod trawler are  
 
 
 
returning highest profitability in the last years and the coastal fleet or smaller vessels are less profitable. The same trend is in Iceland as small boat fleet is returning lower profitability than fresh fish trawler and bigger vessels.
 
  
 
&nbsp;
 
&nbsp;
Line 842: Line 731:
  
 
==== Iceland ====
 
==== Iceland ====
 +
  
 
===== Governmental form of the value chain =====
 
===== Governmental form of the value chain =====
Line 856: Line 746:
 
'''Producers export links'''
 
'''Producers export links'''
  
*During the period before 1994 when the limited export licences were still  
+
*During the period before 1994 when the limited export licences were still active the governmental structure of the value chain of cod from fishing to markets was Captive form as the sale organisation in key position in the value chain where producers had duty of handing inn all their product for selling thought the SMOs.
 +
*The export part of the value chain has as changed a lot for the last 30 years. The bigger VIC have in many cases established their own marketing division or even their own marketing companies abroad depending on hierarchy form of governance.
 +
*In most cases Icelandic companies are selling to middleman abroad as distributers or wholesalers, although some are selling directly to retail chain as in the fresh fish markets. In most cases companies have contract with buyers that that could be regarded as relational from of governance.
  
active the governmental structure of the value chain of cod from fishing to markets was Captive form as the sale organisation in key position in the value chain where producers had duty of handing inn all their product for selling thought the SMOs.
+
'''Dependency'''
  
*The export part of the value chain has as changed a lot for the last 30
+
*The dependency in the value chain varies a lot depending degree of long term contracts in their business instead of ad hoc sale. In interview with mangers in the Icelandic fish industry it is clear that more and more of the TAC is sold before it is caught. This indicates long term relationship and relational governance form in the export part of the value chain term relationship
  
years. The bigger VIC have in many cases established their own marketing division or even their own marketing companies abroad depending on hierarchy form of governance.
+
'''Power structure/balance'''
  
*In most cases Icelandic companies are selling to middleman abroad as
+
*It is in the nature of quota system that the quota holder has the power in the value chain. Hence it is in the hands of the quota holders when where and how the fish is caught and then for others to try to make the most out of the raw material that is brought onshore. Due to high degree of VICs (70%) in the value chain in Iceland, the negative effects of this power is not real. Auction markets are as well important for power balance as they send markets signal to the independent fisherman about quality, fishing gear and even timing. The power balance between links in the value chain are in good balance in the Icelandic value chain
  
distributers or wholesalers, although some are selling directly to retail chain as in the fresh fish markets. In most cases companies have contract with buyers that that could be regarded as relational from of governance.
+
===== Drive force in the value chain =====
  
'''Dependency'''
+
The drive force in the value chain have changed a lot the last 30 years from having:
 
 
*The dependency in the value chain varies a lot depending degree of long
 
 
 
term contracts in their business instead of ad hoc sale. In interview with mangers in the Icelandic fish industry it is clear that more and more of the TAC is sold before it is caught. This indicates long term relationship and relational governance form in the export part of the value chain term relationship
 
 
 
'''Power structure/balance'''
 
 
 
*It is in the nature of quota system that the quota holder has the power in
 
 
 
the value chain. Hence it is in the hands of the quota holders when where and how the fish is caught and then for others to try to make the most out of the raw material that is brought onshore. Due to high degree of VICs (70%) in the value chain in Iceland, the negative effects of this power is not real. Auction markets are as well important for power balance as they send markets signal to the independent fisherman about quality, fishing gear and even timing. The power balance between links in the value chain are in good balance in the Icelandic value chain
 
 
 
===== Drive force in the value chain =====
 
 
 
The drive force in the value chain have changed a lot the last 30 years from having:
 
  
 
*harvesting/production driven value chain to becoming more and more marketing driven value chain. The main reasons for this changes can be trace to:  
 
*harvesting/production driven value chain to becoming more and more marketing driven value chain. The main reasons for this changes can be trace to:  
Line 896: Line 774:
  
 
==== Norway ====
 
==== Norway ====
 +
  
 
===== Governmental Form =====
 
===== Governmental Form =====
  
*In modern times (after WWII), up until the new seafood export legislation  
+
*In modern times (after WWII), up until the new seafood export legislation in the 1990s, all branches in the cod sector was subject to the trade conditions dictated by the sectoral export commissions. These commissions was leading actors in the centralised export, where they lead negotiations and entered into common agreements for most all important seafood products. They were, like in Iceland at that time, a captive lead firm that explicitly coordinated the export, and by that had great influence on the business environment.  
 
+
*After the new Export Act in 1992, these export commissions were dissolved, and new liberal rules granted practically anyone paying an export fee could to start export of seafood. With this many processors above a certain side (or even just processors that have found it opportunistic) have started their own export. There are of course cooperation between exporters, processors and both, where some quantities/products/species are sold by standalone exporters, while some have caretaker in-house, but in general the structure and governance form in the marketing sector is atomistic. Some large exporters exists within some products, and also some major processing firms dominate the export of other products, but in general a market to modular form of this trade is the usual. This is our impression of the chain as a whole, and we cannot see a big development towards one governmental form or the other throughout the latest 10 to 20 years.  
in the 1990’ies, all branches in the cod sector was subject to the trade conditions dictated by the sectoral export commissions. These commissions was leading actors in the centralised export, where they lead negotiations and entered into common agreements for most all important seafood products. They were, like in Iceland at that time, a captive lead firm that explicitly coordinated the export, and by that had great influence on the business environment.
+
*The power between purchasers and suppliers is balanced in the way that terms of trade is governed by the price, even though relations play a role together with trust and esteem/reputation.  
 
 
*After the new Export Act in 1992, these export commissions were  
 
 
 
dissolved, and new liberal rules granted practically anyone paying an export fee could to start export of seafood. With this many processors above a certain side (or even just processors that have found it opportunistic) have started their own export. There are of course cooperation between exporters, processors and both, where some quantities/products/species are sold by standalone exporters, while some have caretaker in-house, but in general the structure and governance form in the marketing sector is atomistic. Some large exporters exists within some products, and also some major processing firms dominate the export of other products, but in general a market to modular form of this trade is the usual. This is our impression of the chain as a whole, and we cannot see a big development towards one governmental form or the other throughout the latest 10 to 20 years.
 
 
 
*The power between purchasers and suppliers is balanced in the way that  
 
 
 
terms of trade is governed by the price, even though relations play a role together with trust and esteem/reputation.
 
  
 
'''Power balance/structure'''
 
'''Power balance/structure'''
  
*The consolidation in the fleet might have had an effect on the power  
+
*The consolidation in the fleet might have had an effect on the power balance, and some would maintain that the fishing industry have increased their power on expense of the processing industry.  
 
+
*Others again, would maintain that the processing industry, by ways of consolidation in this link of the chain, have ascertained increased power over the fishing/selling side of the transaction.  
balance, and some would maintain that the fishing industry have increased their power on expense of the processing industry.
+
*However, the heterogeneity of the fishing sector makes it impossible to conclude unanimously on this matter. In some areas for some vessel groups consolidation might have increased the fishing side’s power towards the processing sector, whereas in other areas the opposite might be the case. The power balance might also depend on the aggregated demand and supply situation, and as such depend on the cod quota available for the industry.
 
 
*Others again, would maintain that the processing industry, by ways of  
 
 
 
consolidation in this link of the chain, have ascertained increased power over the fishing/selling side of the transaction.
 
 
 
*However, the heterogeneity of the fishing sector makes it impossible to  
 
  
conclude unanimously on this matter. In some areas for some vessel groups consolidation might have increased the fishing side’s power towards the processing sector, whereas in other areas the opposite might be the case. The power balance might also depend on the aggregated demand and supply situation, and as such depend on the cod quota available for the industry.
 
  
 
===== Drive force in the value chain =====
 
===== Drive force in the value chain =====
  
*The development of the Norwegian seafood industry has over time  
+
*The development of the Norwegian seafood industry has over time followed a trend of liberalization, where the emphasis has changed from protection and subsidies (pre-1990’ies) to international competitiveness and environmental and economic sustainability. It is not easy to set a clear division in time where this policy change occurs, but over time the emphasis has gone in that direction.
 +
*From early 1970’ies as a process where resources and resource allocations becomes the main theme in the fisheries policy, while negotiations on subsidies and its distributions becomes secondary.
 +
*In the mid-1990’ies, Norway has left a period with free conduct on the ocean and regulated market behaviour, to one with regulated conduct on sea and free competition in the market. Earlier (pre-1990’ies), the seafood export was organised in trade unions, dependent on product (dried fish, salt fish, fresh fish, frozen fish and clipfish) whereas a deregulation of the seafood export act in early 1990’ies open up for anyone – satisfying a set of objective criteria, to export seafood.
 +
*In the first hand market, the abolishment of subsidies involved that the price wedge between supply and demand was removed, enabling price movements in the market to be directly transferred to fishers.
 +
*Sales organisations’ right to set minimum prices still meant a share of market power on behalf of fishers, but also here the development towards a dynamic minimum price – dependent on objective and observable factors on the market place – have reduced the shielding of fishermen from market signals.
 +
*The reduction of both fishing vessels and purchasers along the coast, has consolidated and professionalised the industry on both sides of the transaction in the first hand market.9.3
  
followed a trend of liberalization, where the emphasis has changed from protection and subsidies (pre-1990’ies) to international competitiveness and environmental and economic sustainability. It is not easy to set a clear division in time where this policy change occurs, but over time the emphasis has gone in that direction.
+
==== Newfoundland ====
  
*From early 1970’ies as a process where resources and resource allocations
 
  
becomes the main theme in the fisheries policy, while negotiations on subsidies and its distributions becomes secondary.
+
===== Governmental Form =====
  
*In the mid-1990’ies, Norway has left a period with free conduct on the  
+
*In Newfoundland it is possible to separate the fishing industry into two sectors. First is the offshore sector that is vertical integrated in fishing, processing and marketing and then inshore fleet, which is based up on individual boat owners where vertical integration is banned.
 +
*Today TAC in cod is only allocated to the inshore sector (TAC will need to exceed 115.000 thousand tons before it is reallocated to the offshore sector).
 +
*The links between boat owner and producers is based on negotiated price between FFAW (The Fish, Food and Allied Workers Union) and associations of producers. There are no auction markets and more or less the negotiated price is used in the transaction.
 +
*The relationship is in some way captive due to lack of active markets in the relationship but in some cases it could be regarded relational where boat owner and producers have some contract about landing of cod and other spices.
 +
*Stakeholders seems to play more active role in governing the value chain and its structure than in other countries as allocation of quota and limits on transferability seems to depend on the stakeholders as FFAW.
  
ocean and regulated market behaviour, to one with regulated conduct on sea and free competition in the market. Earlier (pre-1990’ies), the seafood export was organised in trade unions, dependent on product (dried fish, salt fish, fresh fish, frozen fish and clipfish) whereas a deregulation of the seafood export act in early 1990’ies open up for anyone – satisfying a set of objective criteria, to export seafood.
+
'''Power balance/structure'''
  
*In the first hand market, the abolishment of subsidies involved that the  
+
*Due to the structure of the fisheries management system that is individual vessel do not have TAC (have to follow the weekly limits of catch) and very limited possibility of transferring fishing licenses (stacking up) the power in the value chain lies in the hands of the stakeholders that decides on the system.
 +
*The stakeholders are the policymakers that is the politicians and the parliament that decide on the system. Secondly it is the FFAW that plays big role in influencing the system and deciding of how it is conducted.
 +
*FFAW and negotiated agreements are having significant influence on the free markets; the agreements preventing markets relationship and market influence in the value chain.
  
price wedge between supply and demand was removed, enabling price movements in the market to be directly transferred to fishers.
 
  
*Sales organisations’ right to set minimum prices still meant a
+
===== Drive force in the value chain =====
  
share of market power on behalf of fishers, but also here the development towards a dynamic minimum price – dependent on objective and observable factors on the market place – have reduced the shielding of fishermen from market signals.
+
*Due to low quota in Newfoundland and more important species as lobster and crab, cod have been looked up as filling and not major species in fishing. With foreseeable increase in quota this can become problematic.
 +
*The fishing of cod in gillnet during August points out that the drive force is minimising the cost of fishing rather than anything else.
 +
*Longer season and strict rules about transferring quota (stacking up) points out that the fishing is looked at as a social aspect rather than building up economic sustainable business. The influence of stakeholders seams to affect the economical sustainability of the industry.
  
*The reduction of both fishing vessels and purchasers along the coast, has
 
  
consolidated and professionalised the industry on both sides of the transaction in the first hand market.9.3
+
==== Summary of main influencing factors regarding concentration ====
  
==== Newfoundland ====
+
*The structure and the governance of the value chain, Vertical integration is creating more value per kg of raw material and returning higher profit
 +
**The profitability is higher than in other system
 +
**The market responsive is better
 +
**The flow and stability is better 
 +
*In value chain where vertical integration is banned or limited the strategy of fishing is more or less to minimise the cost of fishing.
 +
**Seasonal fishing
 +
**Use of gillnets is common 
 +
*The auction markets in Iceland has created new source of dynamic in the value chain that is specialisation in production
 +
**Companies selling of species and sizes that do not fit their production mix 
 +
*Iceland has freedom on decide on its structure that is vertical integration or not
 +
*Norway has limits on vertical integration in the coastal fishing
 +
*Newfoundland ban vertical integration in inshore fleet.
 +
*Source of competitiveness of the value chains
  
===== Governmental Form =====
+
{| class="wikitable" style="width: 100%"
 
+
|-
*In Newfoundland it is possible to separate the fishing industry into two
+
! Factor
 
+
! Iceland
sectors. First is the offshore sector that is vertical integrated in fishing, processing and marketing and then inshore fleet, which is based up on individual boat owners where vertical integration is banned.
+
! Norway
 +
! Newfoundland
 +
|-
 +
| Structure of the industry
 +
| Vertical integrations Hierarchy Market through auction markets
 +
| Limits to vertical integrations Individual boat owner and producers
 +
| Ban on vertical integration’s in the inshore fleet. Offshore fleet has no cod quota
 +
|-
 +
| Vertical integrations
 +
| High
 +
| Low
 +
| Low/none in inshore fleet
 +
|-
 +
| Flow of raw material
 +
| Stable controlled by the processing marketing needs
 +
| Seasonal controlled by the catch and seasons
 +
| Seasonal controlled by catch limits and fisherman’s effort
 +
|-
 +
| Governance
 +
| Mainly through hierarchy of VICs or use of auction markets
 +
Market relationship, based on auction markets
  
*Today TAC in cod is only allocated to the inshore sector (TAC will need to
+
| The role of minimum price affect the dynamic in the value chain
 +
| Significant stakeholder involvement such as FFAW
 +
|-
 +
| Coordination
 +
| High in the VICs and based on buyers need in some sense.
 +
In the auction markets coordination is limited
  
exceed 115.000 thousand tons before it is reallocated to the offshore sector).
+
| Low in coastal fleet In the offshore fleet it could be high due to  
 +
vertical integration
  
*The links between boat owner and producers is based on negotiated price
+
| Very low in inshore fleet; some in the offshore sector and cooperatives
 +
|-
 +
| Dependency
 +
| High in the hierarchy low in the market based
 +
| High in the hierarchy low in the market based
 +
| Low but minimum processing requirements can create dependency
 +
between fishing and production
  
between FFAW (The Fish, Food and Allied Workers Union) and associations of producers. There are no auction markets and more or less the negotiated price is used in the transaction.
+
|-
 +
| Power structure/balance
 +
| Twofold Hierarchy with high dependency by sectors and power balance Markets based on
 +
power of quota holders. Low dependency
  
*The relationship is in some way captive due to lack of active markets in
+
| Twofold Hierarchy with high dependency by sectors and power balance Markets based on
 +
power of quota holders. Lowdependency
  
the relationship but in some cases it could be regarded relational where boat owner and producers have some contract about landing of cod and other spices.
+
| Unbalanced power lies in the hands of stakeholders mainly FFAW
 +
|-
 +
| Drive force
 +
| Buyer driven value chain based on coordination of fishing and production through
 +
VICs and auction markets
  
*Stakeholders seems to play more active role in governing the value chain  
+
| Harvesting (product) driven value chain. Based on minimising cost strategy of fisherman’s
 +
| Harvesting (product) driven value chain, Stakeholders driven (FFAW) Based on minimising cost
 +
strategy of fisherman
  
and its structure than in other countries as allocation of quota and limits on transferability seems to depend on the stakeholders as FFAW.
+
|-
 +
| Lead firm
 +
| VICs
 +
| Owner of the off shore fleet.
 +
| None/FFAW on behalf of small boat owners
 +
|-
 +
| Specialisation
 +
| Rather high ITQ in in fishing Auction markets for processing, spices, sizes etc.
 +
| Rather low or limited
 +
| Very low seasonal industry
 +
|}
  
'''Power balance/structure'''
+
=== Strategic Positioning Briefing ===
  
*Due to the structure of the fisheries management system that is individual
+
==== Norway ====
  
vessel do not have TAC (have to follow the weekly limits of catch) and very limited possibility of transferring fishing licenses (stacking up) the power in the value chain lies in the hands of the stakeholders that decides on the system.
+
Norway’s main advantage within the cod sector is the proximity to a productive Barents Sea and a cod stock in good shape. A disadvantage market wise is the seasonality in landings, following the spawning and feeding pattern of the cod. This is also a cost effective advantage, since great volumes can be caught close to the coast as the cod find its way to the spawning grounds of Lofoten. Within the fishing industry, structuring combined with large quotas (at a reasonable first hand price) has increased the profitability in the last decade.
  
*The stakeholders are the policymakers that is the politicians and the  
+
For the processing industry, the high Norwegian labour cost is a disadvantage. Moreover, sectors emphasising a continuous production throughout the year to meet pull market demands, meet great barriers in the seasonal supply of cod. Conventional production (saltfish, clipfish and stockfish) are used to and have adapted to these supply variabilities. Clipfish is also the sector that to the greatest degree have adapted to the relatively new raw material source of frozen cod, which have insulated them from the seasonal supply. The interest from investors stemming from aquaculture can revive the supply chain by ways of competence, financial muscles and the utilization of already established markets, logistics and marketing channels.
  
parliament that decide on the system. Secondly it is the FFAW that plays big role in influencing the system and deciding of how it is conducted.
+
{| class="wikitable" style="width: 100%;"
 
+
|-
*FFAW and negotiated agreements are having significant influence on the
+
! &nbsp;
 
+
! Description
free markets; the agreements preventing markets relationship and market influence in the value chain.
+
! Share cod quota
 
+
! Access barriers
===== Drive force in the value chain =====
+
! Opportunities and upgrade possibilities
 
+
! Threats
*Due to low quota in Newfoundland and more important species as lobster
+
! Value chain relationship
 
+
! Dynamic in the value chain
and crab, cod have been looked up as filling and not major species in fishing. With foreseeable increase in quota this can become problematic.
+
|-
 +
! scope="row" | Open vessel group
 +
| 2000 vessels <11m, max. vessel quota 15-24t (length dep.) guaranteed 11-18t
 +
| 6.8&nbsp;%
 +
| Low
 +
| Pressure due to high uptake and stop. Opportunities in other fisheries than cod, and quota purchase.
 +
| Lower cod quotas. Regional differences in availability and landing opportunities.  
 +
New safety regulations will increase capital demands.
  
*The fishing of cod in gillnet during August points out that the drive force is
+
| Direct agreement with buyers, little influence on price.
 +
| Open fishery with entry under profitable circumstances
 +
|-
 +
! scope="row" | Coastal vessels under 11m
 +
| 1200 vessels, with vessel quota of 25- 50t
 +
| 14.1&nbsp;%
 +
| Relatively low. Higher quota prices up to 350kEUR
 +
| Differentiation through quality, opportunities in other fisheries (king crab, haddock) and co-fishing
 +
| Uncertainty regarding future fisheries management system, (structuring and vessel length
 +
limits). Structural development in landing sites.
  
minimising the cost of fishing rather than anything else.
+
| Direct agreements with buyers. Often close ties with local purchaser.
 +
| Maximize first hand value, often with low cost focus (seasonality).
 +
|-
 +
! scope="row" | Coastal vessels, 11m and above
 +
| 560 vessels, with
 +
structuring, vessel quotas of 50-166t
  
*Longer season and strict rules about transferring quota (stacking up)  
+
| 37.1&nbsp;%
 +
| High - capital intensive, due quota price
 +
| Better handling. Sale contracts with producers. Many generalists with rights in pelagic sector also.
 +
| Uncertainty regarding fisheries management system, potential introduction of resource rent tax, affecting profitability.
 +
| Direct agreements, high mobility and in greater (volume) demand.
 +
| Maximize first hand value, low cost focus (seasonality). On board freezing incr.
 +
|-
 +
! scope="row" | Off shore vessels (auto-line and trawl)
 +
| 26 conventional vessels (autoline), vessel quota >274t 36 cod trawlers, vessel quota >1,096t
 +
| 8&nbsp;%
 +
30.8&nbsp;%
  
points out that the fishing is looked at as a social aspect rather than building up economic sustainable business. The influence of stakeholders seams to affect the economical sustainability of the industry.
+
| Very high
 +
| On board processing potential exploited by few. High quality on hook catch, with price
 +
premium. Tendencies towards own sale. Structuring potential exploited.
  
==== Summary of main influencing factors regarding concentration ====
+
| Currency and quota fluctuations. Uncertainty regarding future management options and resource rent tax.
 +
| Auction sale of frozen fish, tendency towards contracts and own takeover of catch
 +
| Maximize value from catch. Full capacity utilisation with later years’ quotas.
 +
|-
 +
! scope="row" | White fish processing firms
 +
| Companies with processing facilities, some with vessel ownership, some
 +
with export licence. Great heterogeneity.
  
*The structure and the governance of the value chain, Vertical integration is
+
| 0
 +
| Low to medium, dependent of capital intensity of production.
 +
| Choice of product mix. Increasingly capital intensive processing have led to big fresh fish export under high
 +
quotas and seasonality. Falling quotas can counter this dev.
  
creating more value per kg of raw material and returning higher profit
+
| Favourable but unstable currency fluctuations. Seasonality in supply. Much fish surpass traditional supply
 +
channels, to an increasing degree. Thawing have reduced comp. power of fresh. High Norw. salary level.
  
*
+
| Tough competition up- and downstream the value chain, but close ties and trust
**The profitability is higher than in other system
+
| Small margins and low profitability on average. Liquidity challenges in production of conventional prod.
**The market responsive is better
+
|-
**The flow and stability is better 
+
! scope="row" | Export and marketing companies
*In value chain where vertical integration is banned or limited the strategy
+
| Many exporters of varying size, markets and product portfolio.
 +
In-house, stand alone and preferred traders.
  
of fishing is more or less to minimise the cost of fishing.
+
| 0
 +
| Low
 +
| Small degree of own brands in international seafood trade, especially with raw material and semi-finished products.
 +
Supported by the generic marketing of seafood from the Norw. Seafood council.
  
*
+
| Currency fluctuation. Lack of branding. Seasonal landings complicates continuous supply of fresh fish.
**Seasonal fishing
+
| Demanding retail chains and spot markets. Price signals most important but also relational customer ties.
**Use of gillnets is common 
+
| Monitor markets needs and preferences and share market signals to producers. Multiple and regional
*The auction markets in Iceland has created new source of dynamic in the
+
sourcing eases supply continuity
  
value chain that is specialisation in production
+
|}
  
*
+
==== Iceland ====
**Companies selling of species and sizes that do not fit their 
 
  
production mix
+
In general the main strength of the Icelandic system is the distribution of catches around the whole year, strengthen by the start of the quota year on 1. September each year. The industry is putting more emphasis on production of fresh fish instead of frozen or salted product with huge investment in new fresh fish trawlers. The processing companies have also been investing in new equipment, especially regarding water cutting and super-chilling. With super- chilling and good control of temperature in containers, more emphasis has been put in transportation on sea rather than by plane. This is related to cost but also to carbon footprint. There is also more emphasis on markets in N-Amerika and the industry in closely monitoring developments in Asia. VICs are extremely strong as they control more than 2/3 of the cod quota and therefore limited amount is going through the auction markets.
  
*Iceland has freedom on decide on its structure that is vertical integration
+
{| class="wikitable" style="width: 100%;"
 
+
|-
or not
+
! &nbsp;
 
+
! Description
*Norway has limits on vertical integration in the coastal fishing
+
! Share cod quota
*Newfoundland ban vertical integration in inshore fleet.
+
! Access barriers
*Source of competitiveness of the value chains
+
! Opportunities and upgrade possibilities
 
+
! Threats
{| class="wikitable" style="width: 100%;"
+
! Value chain relationship
 +
! Dynamic in the value chain
 
|-
 
|-
! Factor
+
! scope="row" | Independent small boat owners in costal fisheries
! Iceland
+
| <30 tons, number of fishing days limitation.
! Norway
+
| 3.2%
! Newfoundland
 
|-
 
| Structure of the industry
 
| Vertical integrations Hierarchy Market through auction markets
 
| Limits to vertical integrations Individual boat owner and producers
 
| Ban on vertical integration’s in the inshore fleet. Offshore fleet has no cod quota
 
|-
 
| Vertical integrations
 
| High
 
 
| Low
 
| Low
| Low/none in inshore fleet
+
| Better handling, buy quota.
 +
| Unstable currency, uncertainty of number of fishing days resulting in poor profitability.
 +
| Almost all goes through auction markets.
 +
| Lack of dynamic
 
|-
 
|-
| Flow of raw material
+
! scope="row" | Independent small boat owners with quota
| Stable controlled by the processing marketing needs
+
| <30 tons, TAC
| Seasonal controlled by the catch and seasons
+
| 19.4%
| Seasonal controlled by catch limits and fisherman’s effort
+
| High - capital intensive quota price
|-
+
| Can participate in costal fisheries without using their TAC. Better handling. Sale contracts with producers.
| Governance
+
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty regarding resource rent that
| Mainly through hierarchy of VICs or use of auction markets
+
could affect profitability.
Market relationship, based on auction markets
 
  
| The role of minimum price affect the dynamic in the value chain
+
| Auction market around 70%. Rest sold by contract relationships.
| Significant stakeholder involvement such as FFAW
+
| Maximize first sale price.
 
|-
 
|-
| Coordination
+
! scope="row" | Independent big boat owners
| High in the VICs and based on buyers need in some sense.  
+
| >30 tons with TAC
In the auction markets coordination is limited
+
| 7.6%
 +
| High - capital intensive quota price
 +
| Better handling. Sale contracts with producers.
 +
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty
 +
regarding resource rent that could affect profitability. Reduction in number of independent big boat owners.
  
| Low in coastal fleet In the offshore fleet it could be high due to
+
| Mixture of auction market and contract relationship.
vertical integration
+
| Maximize first sale price.
 
 
| Very low in inshore fleet; some in the offshore sector and cooperatives
 
 
|-
 
|-
| Dependency
+
! scope="row" | Individual producer
| High in the hierarchy low in the market based
+
| Supplies fish by contracts and from auction markets. Medium and small size producers with often low  
| High in the hierarchy low in the market based
+
degree of automatization, mainly focusing on fresh niece markets.
| Low but minimum processing requirements can create dependency
 
between fishing and production
 
  
 +
| 0
 +
| Medium - depends on markets needs and level of automatization required.
 +
| Market relationships, product mix, long time source and sales contracts
 +
| Unstable currency, Access to supply do to quota system and high degree of VICs. Lack of branding
 +
| Sourcing form auction market and by contracts with boat owners and other producers.
 +
| Maximize value from bycatches and serving niece markets
 
|-
 
|-
| Power structure/balance
+
! scope="row" | Vertical integrated company in fishing, production and marketing (VICs)
| Twofold Hierarchy with high dependency by sectors and power balance Markets based on
+
| Companies with own boats, processing facilities and marketing office. High degree of atomisation in
power of quota holders. Low dependency
+
processing and fishing. Producing fresh, frozen and salted products.
  
| Twofold Hierarchy with high dependency by sectors and power balance Markets based on
+
| 70.8%
power of quota holders. Lowdependency
+
| Very high - quota price, capital intensive fishing and production.
 +
| Branding, product mix, market relationships, usage of by-products, increase quota share up to limit.
 +
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty regarding resource rent that
 +
could affect profitability. Reduction in number of independent big boat owners. Refresh fish. Lack of branding.
  
| Unbalanced power lies in the hands of stakeholders mainly FFAW
+
| Internal sourcing and auction market when there is shortage of own catches.
 +
| Coordination of fishing and processing according to market needs, current sales and quota limitations.
 
|-
 
|-
| Drive force
+
! scope="row" | Export and marketing companies with no own production
| Buyer driven value chain based on coordination of fishing and production through
+
| One big sales company and number of small companies selling fish products from VICs and smaller producers
VICs and auction markets
+
by long term contracts and adhoc trade. Sourcing fish from Iceland and other countries.
  
| Harvesting (product) driven value chain. Based on minimising cost strategy of fisherman’s
+
| 0
| Harvesting (product) driven value chain, Stakeholders driven (FFAW) Based on minimising cost
+
| Low - depends of market and supply relationships
strategy of fisherman
+
| Branding, market relationship, long time contracts
 +
| Unstable currency, Lack of branding, unstable supply.
 +
| Mixture contract relationship ad hoc trade
 +
| Monitor markets needs and preferences and share market signals to
 +
producers. Risk reduction through network of suppliers.
  
|-
 
| Lead firm
 
| VICs
 
| Owner of the off shore fleet.
 
| None/FFAW on behalf of small boat owners
 
|-
 
| Specialisation
 
| Rather high ITQ in in fishing Auction markets for processing, spices, sizes etc.
 
| Rather low or limited
 
| Very low seasonal industry
 
 
|}
 
|}
  
=== Strategic Positioning Briefing ===
+
&nbsp;
  
==== Norway ====
+
==== Newfoundland and Labrador ====
  
Norway’s main advantage within the cod sector is the proximity to a productive Barents Sea and a cod stock in good shape. A disadvantage market wise is the seasonality in landings, following the spawning and feeding pattern of the cod. This is also a cost effective advantage, since great volumes can be caught close to the coast as the cod find its way to the spawning grounds of Lofoten. Within the fishing industry, structuring combined with large quotas (at a reasonable first hand price) has increased the profitability in the last decade.
+
In general, the main strengths of the Newfoundland and Labrador system is the proximity of the resource to the landing sites and the proximity to the North American markets. The industry is putting more emphasis on the quality of the product and efforts are being made to expand into the fresh fillet markets. Labour costs when compared to European costs are cheaper however the industry is currently very labour dependent as most of processing sector is still manually driven with limited automation. The export market to the US continues to remain strong as the market has shifted to higher value product forms. The resource (harvestable biomass) has remained stable and is expected to grow over the coming years. In recent years, government has been providing financial support for technology enhancement initiatives within the harvesting and processing sectors.
  
For the processing industry, the high Norwegian labour cost is a disadvantage. Moreover, sectors emphasising a continuous production throughout the year to meet pull market demands, meet great barriers in the seasonal supply of cod. Conventional production (saltfish, clipfish and stockfish) are used to and have adapted to these supply variabilities. Clipfish is also the sector that to the greatest degree have adapted to the relatively new raw material source of frozen cod, which have insulated them from the seasonal supply. The interest from investors stemming from aquaculture can revive the supply chain by ways of competence, financial muscles and the utilization of already established markets, logistics and marketing channels.
+
From an economic or value chain perspective the NL cod fishery (and Canadian fisheries in general) is a social resource where market conditions have limited consideration in terms of the structure or management of the industry. Compared to the European market the challenges for the NL market are based on economies of scale as the NL biomass or landed volume is a fraction of that produced by Iceland, Norway and Russia. Some of the challenges with the fishery include the number of vessels and harvesters competing for the limited resource. The current industry structure limits the transferability of quota between vessels thus impacting the self-rationalization within the industry. The current fishery has a seasonality that is not linked to market demand or prices. The fishery does however have the potential to extend its current season so that it operates longer throughout the year and efforts are being made to move in this direction. Strict regulation on enterprise combining and owner operator fleet separation has influenced vertical integration within the industry. The lack of exit barriers has resulted in licenses being sold at extremely high value which is negatively impacting new entrants into the industry as the costs are prohibitive. Demographics are challenging both the harvesting and processing sectors as the average age of participants is >50 years+ and recruitment of people <30 years has been declining. To combat pending labour losses, the fishery (harvesting/processing) will have to move towards more automated systems. For the limited harvestable resource, the number of landing ports (>400) and potentially processing facilities adds a level of complexity to the logistics component of the value chain. Many processing facilities have aging and outdated equipment based on current markets.
  
 
{| class="wikitable" style="width: 100%;"
 
{| class="wikitable" style="width: 100%;"
Line 1,130: Line 1,112:
 
! Dynamic in the value chain
 
! Dynamic in the value chain
 
|-
 
|-
! scope="row" | Open vessel group
+
! scope="row" | Independent small boat owners in inshore/coastal fisheries
| 2000 vessels <11m, max. vessel quota 15-24t (length dep.) guaranteed 11-18t
+
| <65 feet (or 19.8 metre), fishery can be based on a weekly allocation or quota based (e.g. certain NAFO
| 6.8&nbsp;%
+
regions such as 3Ps); number of fishing days/season determined by union and government
| Low
+
 
| Pressure due to high uptake and stop. Opportunities in other fisheries than cod, and quota purchase.
+
| 75+%
| Lower cod quotas. Regional differences in availability and landing opportunities.
+
| High cost for vessels and licences; no new licence being issued must buy existing licences
New safety regulations will increase capital demands.
+
| Can improve on board handling/holding technology; can buy additional licences (2:1 or 3:1).
 +
| Weekly catch allocation is variable and overall stock/quota is uncertain; Negotiated price;
 +
fishing season not necessarily linked to market
  
| Direct agreement with buyers, little influence on price.
+
| Most goes to independent processing companies; portion of catch is processed and sold directly (micro-  
| Open fishery with entry under profitable circumstances
+
vertical integration model)
|-
 
! scope="row" | Coastal vessels under 11m
 
| 1200 vessels, with vessel quota of 25- 50t
 
| 14.1&nbsp;%
 
| Relatively low. Higher quota prices up to 350kEUR
 
| Differentiation through quality, opportunities in other fisheries (king crab, haddock) and co-fishing
 
| Uncertainty regarding future fisheries management system, (structuring and vessel length
 
limits). Structural development in landing sites.
 
  
| Direct agreements with buyers. Often close ties with local purchaser.
+
| Maximize first sale price
| Maximize first hand value, often with low cost focus (seasonality).
 
 
|-
 
|-
! scope="row" | Coastal vessels, 11m and above
+
! scope="row" | Independent boat owners (inshore/mid-shore range)
| 560 vessels, with
+
| 65 feet (19.8 m) – 90 feet (27.4m); fishery can be based on a weekly allocation or
structuring, vessel quotas of 50-166t
+
quota based (e.g. certain NAFO regions such as 3Ps); number of fishing days/season determined by union and government
 +
 
 +
| 20+%
 +
| High cost for vessels and licences; no new licence being issued must buy existing licences
 +
| Can improve on board handling/holding technology; can buy additional licences (2:1 or 3:1).
 +
| Weekly catch allocation is variable and overall stock/quota is uncertain; Negotiated price;
 +
fishing season not necessarily linked to market
  
| 37.1&nbsp;%
+
| Most goes to independent processing companies
| High - capital intensive, due quota price
+
| Maximize first sale price.
| Better handling. Sale contracts with producers. Many generalists with rights in pelagic sector also.
 
| Uncertainty regarding fisheries management system, potential introduction of resource rent tax, affecting profitability.
 
| Direct agreements, high mobility and in greater (volume) demand.
 
| Maximize first hand value, low cost focus (seasonality). On board freezing incr.
 
 
|-
 
|-
! scope="row" | Off shore vessels (auto-line and trawl)
+
! scope="row" | Vertical integrated company in fishing, production and marketing (VICs)
| 26 conventional vessels (autoline), vessel quota >274t 36 cod trawlers, vessel quota >1,096t
+
| Companies with own boats, processing facilities and marketing office. Medium degree of automation
| 8&nbsp;%  
+
processing and fishing. Producing a variety of products frozen, portions, block, fresh
30.8&nbsp;%
+
 
 +
| ~1%
 +
| Very high - quota price, capital intensive fishing and production.
 +
| Improved technology in processing facilities and vessels; building relationships with
 +
smaller vessels for secure product
  
| Very high
+
| Unstable currency, Uncertainty regarding access to quota; regulations preventing growth of
| On board processing potential exploited by few. High quality on hook catch, with price
+
vertically integrated sector
premium. Tendencies towards own sale. Structuring potential exploited.
 
  
| Currency and quota fluctuations. Uncertainty regarding future management options and resource rent tax.
+
| Internal sourcing
| Auction sale of frozen fish, tendency towards contracts and own takeover of catch
+
| Coordination of fishing and processing according to market needs, current sales and quota limitations.
| Maximize value from catch. Full capacity utilisation with later years’ quotas.
 
 
|-
 
|-
! scope="row" | White fish processing firms
+
! scope="row" | Export and marketing companies with no own production
| Companies with processing facilities, some with vessel ownership, some
+
| One big sales company and number of small companies selling fish products from VICs and smaller producers
with export licence. Great heterogeneity.
+
by long term contracts and adhoc trade. Sourcing fish from Iceland and other countries.
 
+
 
 
| 0
 
| 0
| Low to medium, dependent of capital intensity of production.
+
| Low - depends of market and supply relationships
| Choice of product mix. Increasingly capital intensive processing have led to big fresh fish export under high
+
| Branding, market relationship, long time contracts
quotas and seasonality. Falling quotas can counter this dev.
+
| Unstable currency, Lack of branding, unstable supply.
 +
| Variable, based on relationships and access to resources
 +
| Variable, constrained by the seasonality and availability of product; Monitor markets needs and
 +
preferences and share market signals to producers
 +
 
 +
|}
  
| Favourable but unstable currency fluctuations. Seasonality in supply. Much fish surpass traditional supply
+
&nbsp;
channels, to an increasing degree. Thawing have reduced comp. power of fresh. High Norw. salary level.
 
  
| Tough competition up- and downstream the value chain, but close ties and trust
+
==== Summary of Strategic Positioning ====
| Small margins and low profitability on average. Liquidity challenges in production of conventional prod.
 
|-
 
! scope="row" | Export and marketing companies
 
| Many exporters of varying size, markets and product portfolio.
 
In-house, stand alone and preferred traders.
 
  
| 0
+
It is very interesting to see the huge difference in structure and functionality of the value chains between Norway, Iceland and Newfoundland. Previous studies have argued that the superior harvesting and marketing strategies of the Icelandic industry may be rooted in factor conditions that are difficult to duplicate and a rigid institutional framework in Norway and partly the social resource structure of the Newfoundland industry, where market conditions have very limited consideration in terms of the structure or management of the industry. Both in Norway and Newfoundland, this structure or rigid framework is hampering the industry to organise the value chain, to be more market competitive by methods like vertical integration.
| Low
 
| Small degree of own brands in international seafood trade, especially with raw material and semi-finished products.  
 
Supported by the generic marketing of seafood from the Norw. Seafood council.
 
  
| Currency fluctuation. Lack of branding. Seasonal landings complicates continuous supply of fresh fish.
+
The vertically integrated companies in Iceland where the processor owns its own fishing vessels. Unlike the push supply chain system followed by the Norwegian and partly the Newfoundland companies where they must process the fish that they receive, the Icelandic processors places orders to its fishing vessels based on the customer orders and quota status, thus following a pull supply chain system. The Icelandic processors are able to sends orders to the vessels for how much fish of each main spices is wanted, where to catch and to land so they have the desired size and quality of raw material needed for fulfilling customer orders. This structural difference is also affecting the product mix that the countries are going for. Iceland is therefore placing more and more emphasis on fresh fillets and pieces, while the other countries are going for more traditional products, like salted, dried and frozen products. Due to the vertical integration in Iceland, the production plans are developed based on customer orders and then a plan is made for fishing, while in Norway and Newfoundland, the production plans is usually developed after receiving the fish at the processing plant as the information about volumes of specifies caught and quality is not available beforehand.
| Demanding retail chains and spot markets. Price signals most important but also relational customer ties.
 
| Monitor markets needs and preferences and share market signals to producers. Multiple and regional
 
sourcing eases supply continuity
 
  
|}
+
However, the socioeconomic effects of VICs in Iceland and aforementioned consolidation where not addressed in this report.
  
==== Iceland ====
+
&nbsp;
  
In general the main strength of the Icelandic system is the distribution of catches around the whole year, strengthen by the start of the quota year on 1. September each year. The industry is putting more emphasis on production of fresh fish instead of frozen or salted product with huge investment in new fresh fish trawlers. The processing companies have also been investing in new equipment, especially regarding water cutting and super-chilling. With super- chilling and good control of temperature in containers, more emphasis has been put in transportation on sea rather than by plane. This is related to cost but also to carbon footprint. There is also more emphasis on markets in N-Amerika and the industry in closely monitoring developments in Asia. VICs are extremely strong as they control more than 2/3 of the cod quota and therefore limited amount is going through the auction markets.
+
== Atlantic Herring ==
  
{| class="wikitable" style="width: 100%;"
+
=== Executive summary ===
|-
+
 
! &nbsp;
+
It is very interesting to see the difference in structure and functionality of the value chains between Norway, Iceland, Denmark and Newfoundland. The structure of the industries is different as seen in the degree of vertical integration and the limits that government’s put on the industries. It is though surprising how homogeneous the industry is between those nations. The nature of pelagic species that is, seasonality and high catch volumes in short periods, makes the product global commodity for further processing from one season to the next. The main markets are Business to Business (B2B)
! Description
 
! Share cod quota
 
! Access barriers
 
! Opportunities and upgrade possibilities
 
! Threats
 
! Value chain relationship
 
! Dynamic in the value chain
 
|-
 
! scope="row" | Independent small boat owners in costal fisheries
 
| <30 tons, number of fishing days limitation.
 
| 3.2%
 
| Low
 
| Better handling, buy quota.
 
| Unstable currency, uncertainty of number of fishing days resulting in poor profitability.
 
| Almost all goes through auction markets.
 
| Lack of dynamic
 
|-
 
! scope="row" | Independent small boat owners with quota
 
| <30 tons, TAC
 
| 19.4%
 
| High - capital intensive quota price
 
| Can participate in costal fisheries without using their TAC. Better handling. Sale contracts with producers.
 
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty regarding resource rent that
 
could affect profitability.
 
  
| Auction market around 70%. Rest sold by contract relationships.
+
The first noticeable difference observed, apart from the structure, is the price settling mechanism. On one hand it is the Norwegian system that builds on minimum price and auction market which is the same that is used to determine the Danish price. In Iceland the price is decided by the Official Bureau of Ex- Vessel Fish Prices. The Norwegian price is in many cases double that of the price in Iceland. The price obviously affects the profitability of the industry as the Norwegian fishing is benefiting from high price but the processing sector is suffering from low profitability. On the other hand, the processing sector in Iceland is doing well as well as the profitability of the fishing is healthy. It can be claimed that the overall profitability is higher in Iceland due to the freedom of strategically positioning yourself in the value chain and being vertical integrated or not, without external limitation as those that can been seen in Norway, Denmark and Newfoundland. There are certain signs that the price settling mechanism in Iceland could be more efficient like, paying for quality of the raw material. Herring is caught almost completely in pelagic trawl compared with purse seining of virtually all the catch in Norway, that is believed to return better quality than the trawl.
| Maximize first sale price.
 
|-
 
! scope="row" | Independent big boat owners
 
| >30 tons with TAC
 
| 7.6%
 
| High - capital intensive quota price
 
| Better handling. Sale contracts with producers.
 
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty
 
regarding resource rent that could affect profitability. Reduction in number of independent big boat owners.
 
  
| Mixture of auction market and contract relationship.
+
The vertically integrated system where one company owns its own fishing vessels and production has the opportunity to control the flow of the raw material to its production like in Iceland. Instead, in Norway and Denmark this coordination has to been done through auction markets and informal coordination between the owner of fishing vessels and producers. Due to the short fishing season this seems to have less influence on the value chain e.g. compared with cod where the push system is clearly returning less value creation and profitability. In such seasonal value chain as seen in the herring fishing is it is difficult to enter the industry due to high capital cost and the competitiveness builds on economics of scale. The competitiveness of the value chains also depends heavily on other pelagic spices as capelin, mackerel and blue whiting in most of the countries. All this makes upgrading in the value chain difficult. Opportunities to upgrade the value chains in the case of Norway and Iceland are in increasing the production stage of the herring at least part of it into consumer’s value added products instead of B2B commodity. Evidence from Newfoundland and partly Denmark show that more value can be created by focusing more on consumer’s markets. Tariffs, distances from consumer markets and limited seasons can limit this option. The option to increase the processing stage has as well to be 61economically sustainable in competition with countries with lower salary cost and better access to the main markets as for example Poland and other former eastern European countries have, being part of EU.
| Maximize first sale price.
 
|-
 
! scope="row" | Individual producer
 
| Supplies fish by contracts and from auction markets. Medium and small size producers with often low
 
degree of automatization, mainly focusing on fresh niece markets.
 
  
| 0
+
=== National comparison ===
| Medium - depends on markets needs and level of automatization required.
 
| Market relationships, product mix, long time source and sales contracts
 
| Unstable currency, Access to supply do to quota system and high degree of VICs. Lack of branding
 
| Sourcing form auction market and by contracts with boat owners and other producers.
 
| Maximize value from bycatches and serving niece markets
 
|-
 
! scope="row" | Vertical integrated company in fishing, production and marketing (VICs)
 
| Companies with own boats, processing facilities and marketing office. High degree of atomisation in
 
processing and fishing. Producing fresh, frozen and salted products.
 
  
| 70.8%
+
==== Introduction ====
| Very high - quota price, capital intensive fishing and production.
 
| Branding, product mix, market relationships, usage of by-products, increase quota share up to limit.
 
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty regarding resource rent that
 
could affect profitability. Reduction in number of independent big boat owners. Refresh fish. Lack of branding.
 
  
| Internal sourcing and auction market when there is shortage of own catches.
+
===== Global market review - herring =====
| Coordination of fishing and processing according to market needs, current sales and quota limitations.
 
|-
 
! scope="row" | Export and marketing companies with no own production
 
| One big sales company and number of small companies selling fish products from VICs and smaller producers
 
by long term contracts and adhoc trade. Sourcing fish from Iceland and other countries.
 
  
| 0
+
Herring has been an important food for humans since ancient times; 5,000-7,000- year-old herring bones from the stone age have been found in Denmark, both indicating catching and consumption of the fish (Albala, 2011).
| Low - depends of market and supply relationships
 
| Branding, market relationship, long time contracts
 
| Unstable currency, Lack of branding, unstable supply.
 
| Mixture contract relationship ad hoc trade
 
| Monitor markets needs and preferences and share market signals to
 
producers. Risk reduction through network of suppliers.
 
  
|}
+
Herring played an important role in the economic development of Iceland during the last century. Herring revenues built up whole villages, ensured renewal of the fishing fleet and allowed thousands of young Icelanders to educate themselves. (Sigurdsson et al., 2007). Herring still plays a large role in the economy of Iceland with about 4-12% of the total value in fish export (Statistics Iceland, 2018). In Canada, the herring fishery has supported major commercial fisheries on both its Pacific and Atlantic coasts. The development of an almost unlimited world market for herring meal and oil, plus major advances in fishing technology led to overfishing both stocks during the 1950 through to the early 1970’s. Since then, both fisheries have been strictly regulated and the herring fishery is still contributing to the Canadian economy (valued at ~€28 million in 2015.
  
&nbsp;
+
The Atlantic herring is one of the most important pelagic fish species in the world with historic catches ranging from about 4 million tons (1965) to about 880 thousand tons (1979). The catches in 2014 were about 1.631 tons (FAO, 2017). Other (true) herrings are the pacific herring, found in the north Pacific and the Araucanian herring found off the cost of Chile. These latter herrings will not be covered in this report.
  
==== Newfoundland and Labrador ====
+
According to the FAO (2016), fishery production varies greatly among species with the ten most productive species accounting for ~27% of the world’s marine capture fishery production in 2013. Some stocks are regarded as overfished, while most are considered fully fished without potential for further increase in production. The Atlantic herring stocks on both the northeast and the northwest Atlantic are considered fully fished.
  
In general, the main strengths of the Newfoundland and Labrador system is the proximity of the resource to the landing sites and the proximity to the North American markets. The industry is putting more emphasis on the quality of the product and efforts are being made to expand into the fresh fillet markets. Labour costs when compared to European costs are cheaper however the industry is currently very labour dependent as most of processing sector is still manually driven with limited automation. The export market to the US continues to remain strong as the market has shifted to higher value product forms. The resource (harvestable biomass) has remained stable and is expected to grow over the coming years. In recent years, government has been providing financial support for technology enhancement initiatives within the harvesting and processing sectors.
+
[[File:D34 fig 21.png|center|Figure 21]] ''Figure 21. Catches of herring from 1950-2014 (FAO, 2017).''
  
From an economic or value chain perspective the NL cod fishery (and Canadian fisheries in general) is a social resource where market conditions have limited consideration in terms of the structure or management of the industry. Compared to the European market the challenges for the NL market are based on economies of scale as the NL biomass or landed volume is a fraction of that produced by Iceland, Norway and Russia. Some of the challenges with the fishery include the number of vessels and harvesters competing for the limited resource. The current industry structure limits the transferability of quota between vessels thus impacting the self-rationalization within the industry. The current fishery has a seasonality that is not linked to market demand or prices. The fishery does however have the potential to extend its current season so that it operates longer throughout the year and efforts are being made to move in this direction. Strict regulation on enterprise combining and owner operator fleet separation has influenced vertical integration within the industry. The lack of exit barriers has resulted in licenses being sold at extremely high value which is negatively impacting new entrants into the industry as the costs are prohibitive. Demographics are challenging both the harvesting and processing sectors as the average age of participants is >50 years+ and recruitment of people <30 years has been declining. To combat pending labour losses, the fishery (harvesting/processing) will have to move towards more automated systems. For the limited harvestable resource, the number of landing ports (>400) and potentially processing facilities adds a level of complexity to the logistics component of the value chain. Many processing facilities have aging and outdated equipment based on current markets.
+
===== Main producers =====
  
{| class="wikitable" style="width: 100%;"
+
The main producers of Atlantic herring have traditionally been Norway, Iceland, Russia (previously the Soviet Union) and Canada with on average 60% of the herring catch during the last 20 years (1994-2014) (FAO, 2017). The main herring producer within EU are Denmark, Finland, UK, The Netherlands, Germany, France, Poland and Ireland with about 650 thousand tons on average during the period 2012-2014 (FAO, 2017).
|-
 
! &nbsp;
 
! Description
 
! Share cod quota
 
! Access barriers
 
! Opportunities and upgrade possibilities
 
! Threats
 
! Value chain relationship
 
! Dynamic in the value chain
 
|-
 
! scope="row" | Independent small boat owners in inshore/coastal fisheries
 
| <65 feet (or 19.8 metre), fishery can be based on a weekly allocation or quota based (e.g. certain NAFO
 
regions such as 3Ps); number of fishing days/season determined by union and government
 
  
| 75+%
+
[[File:D34 fig 22.png|center|Figure 22]] ''Figure 22. Main producers of herring (FAO, 2017).''
| High cost for vessels and licences; no new licence being issued must buy existing licences
 
| Can improve on board handling/holding technology; can buy additional licences (2:1 or 3:1).
 
| Weekly catch allocation is variable and overall stock/quota is uncertain; Negotiated price;
 
fishing season not necessarily linked to market
 
  
| Most goes to independent processing companies; portion of catch is processed and sold directly (micro-
+
===== Main markets =====
vertical integration model)
 
  
| Maximize first sale price
+
The great majority of landings across countries was destined for human consumption and this share has been growing over time. Still parts of the Atlantic herring catch e.g. the Baltic herring is mainly used for feed production (Anon, 2018).
|-
 
! scope="row" | Independent boat owners (inshore/mid-shore range)
 
| 65 feet (19.8 m) – 90 feet (27.4m); fishery can be based on a weekly allocation or
 
quota based (e.g. certain NAFO regions such as 3Ps); number of fishing days/season determined by union and government
 
  
| 20+%
+
The main food markets for herring have traditionally been Eastern Europe and Russia. Herring has been stable food in these regions both as a good source of relatively cheap fish and as a protein source. In former times much of the herring was salted in the countries catching the herring before export. However, after the collapse of the Soviet Union at the end of 1991 the market for the primary goods has switched largely from salted herring in barrels to frozen herring (whole, headless and gutted, butterfly fillets and single fillets, with or without skin). The frozen herring is both eaten as is, but a large part of the import is used for further processing e.g. for salting and marinating (salting or vinegar curing), smoking or canning. The market in Russia has recently become less important due to political reasons and the frozen herring has been exported mainly to other markets in Eastern Europe.
| High cost for vessels and licences; no new licence being issued must buy existing licences
 
| Can improve on board handling/holding technology; can buy additional licences (2:1 or 3:1).
 
| Weekly catch allocation is variable and overall stock/quota is uncertain; Negotiated price;
 
fishing season not necessarily linked to market
 
  
| Most goes to independent processing companies
+
There are traditional markets in Scandinavia (Sweden, Finland, Denmark and Norway) and in Germany for herring and a (small) part of the Atlantic herring catch is salted (mainly in Norway but also in Denmark, Sweden and Iceland). A large part of the Atlantic herring catch in Newfoundland is also salted for markets in USA. The herring is salted or vinegar cured using traditional recipes into large plastic barrels which serve as the raw material for the final marinated products in glass, plastic or metal containers.
| Maximize first sale price.
 
|-
 
! scope="row" | Vertical integrated company in fishing, production and marketing (VICs)
 
| Companies with own boats, processing facilities and marketing office. Medium degree of automation
 
processing and fishing. Producing a variety of products frozen, portions, block, fresh
 
  
| ~1%
+
There is also a market for herring in various European countries e.g. for matjes in Holland and smoked in France and UK (as kippers) and some other European countries.
| Very high - quota price, capital intensive fishing and production.
 
| Improved technology in processing facilities and vessels; building relationships with
 
smaller vessels for secure product
 
  
| Unstable currency, Uncertainty regarding access to quota; regulations preventing growth of  
+
Herring rest materials (bone, head, and intestines) and the part of the catch not intended for processing is used for meal and oil processing. The main market for these products is Norway as feed for farmed salmon.
vertically integrated sector
 
  
| Internal sourcing
+
===== Value chains flow =====
| Coordination of fishing and processing according to market needs, current sales and quota limitations.
 
|-
 
! scope="row" | Export and marketing companies with no own production
 
| One big sales company and number of small companies selling fish products from VICs and smaller producers
 
by long term contracts and adhoc trade. Sourcing fish from Iceland and other countries.
 
  
| 0
+
In Figure 3a, a visualization of the European herring value chain is given, showing the different stages, and with arrows suggesting the most important flows through the chain. This is by no means a complete rendering of the many value chains for herring, but it illustrates some important features. The most important is probably that herring finds various ways from catch to consumption. Likewise, Figure 3b, provides a visualization of the Canadian (predominantly NL) value chain, illustrating some of the important relationships or channels within the value chain.
| Low - depends of market and supply relationships
 
| Branding, market relationship, long time contracts
 
| Unstable currency, Lack of branding, unstable supply.
 
| Variable, based on relationships and access to resources
 
| Variable, constrained by the seasonality and availability of product; Monitor markets needs and
 
preferences and share market signals to producers
 
  
|}
+
[[File:D34 fig 3a.png|center|Figure 3a]] ''Figure 3a. The European value chain for herring''
  
&nbsp;
+
[[File:D34 fig 3b.png|center|Figure 3b]] ''Figure 3b. The Canadian/NL value chain for herring''
  
==== Summary of Strategic Positioning ====
+
As can be seen in Figure 3a much of the caught herring is landed in another country. Iceland is the exception as all the herring caught is landed in the country. In Canada (Figure 3b) herring is landed in and typically processed, at least at the primary level.
  
It is very interesting to see the huge difference in structure and functionality of the value chains between Norway, Iceland and Newfoundland. Previous studies have argued that the superior harvesting and marketing strategies of the Icelandic industry may be rooted in factor conditions that are difficult to duplicate and a rigid institutional framework in Norway and partly the social resource structure of the Newfoundland industry, where market conditions have very limited consideration in terms of the structure or management of the industry. Both in Norway and Newfoundland, this structure or rigid framework is hampering the industry to organise the value chain, to be more market competitive by methods like vertical integration.
 
  
The vertically integrated companies in Iceland where the processor owns its own fishing vessels. Unlike the push supply chain system followed by the Norwegian and partly the Newfoundland companies where they must process the fish that they receive, the Icelandic processors places orders to its fishing vessels based on the customer orders and quota status, thus following a pull supply chain system. The Icelandic processors are able to sends orders to the vessels for how much fish of each main spices is wanted, where to catch and to land so they have the desired size and quality of raw material needed for fulfilling customer orders. This structural difference is also affecting the product mix that the countries are going for. Iceland is therefore placing more and more emphasis on fresh fillets and pieces, while the other countries are going for more traditional products, like salted, dried and frozen products. Due to the vertical integration in Iceland, the production plans are developed based on customer orders and then a plan is made for fishing, while in Norway and Newfoundland, the production plans is usually developed after receiving the fish at the processing plant as the information about volumes of specifies caught and quality is not available beforehand.
 
  
However, the socioeconomic effects of VICs in Iceland and aforementioned consolidation where not addressed in this report.
+
==== Fisheries Management System ====
  
&nbsp;
+
{| class="wikitable" style="width: 100%"
 +
|-
 +
! &nbsp;
 +
! Norway
 +
! Iceland
 +
! Denmark
 +
! Newfoundland
 +
|-
 +
! scope="row" | General
 +
| Fisheries restrictions in 1971, fisheries ban from 1972. Cooperation between Norway, Iceland and Russia. Licences for purse seiners
 +
introduced in 1973
  
== Atlantic Herring ==
+
| Quota system was first introduced in Iceland on herring fisheries in 1975 and for most all other spices in 1983.
 +
| &nbsp;
 +
| Herring fishery in NL is managed through TAC and sharing arrangements; in the maritime region (e.g. 4WX) the fishery is management through
 +
an Integrated Fisheries Management Plans; which sets quota allocations, fishing seasons and areas; no new licenses are available for either fixed gear or purse seine; harvesters may only hold a license for one gear type; fixed gear licenses are permitted to fish in their Fishing area or port of residence; mobile gear fishers can fish in specified Fishing Areas/zones.
  
=== Executive summary ===
+
|-
 +
! scope="row" | Quota system: Individually Transferable Access
 +
| 850 base tonnes limit
 +
| ITQ implemented in 1991 20% quota ceiling for companies
 +
| Changed in 2003 from ratio allocation to ITQ
 +
| Seasonal quotas vary by fishing zone or region; recipient of a license must have a homeport based in, or be resident of the fishing area of the license
 +
Regulations governing enterprise/license combining- up to two individual quotas; buddy-up provisions are authorized for the herring fishery (Area 14)
  
It is very interesting to see the difference in structure and functionality of the value chains between Norway, Iceland, Denmark and Newfoundland. The structure of the industries is different as seen in the degree of vertical integration and the limits that government’s put on the industries. It is though surprising how homogeneous the industry is between those nations. The nature of pelagic species that is, seasonality and high catch volumes in short periods, makes the product global commodity for further processing from one season to the next. The main markets are Business to Business (B2B)
+
|-
 +
! scope="row" | Entry barriers into the system
 +
| Capital intensive - High price of quota (compared with value of products)
 +
*High investment cost in vessels and technology to chill the fish-on-board Economics of scale and scope
 +
*Multispecies access is necessary (capelin, blue whiting, mackerel)
 +
*Short seasons Requires high catch capacity and financial strength to leave the vessel idle for 6-8 months a year
  
The first noticeable difference observed, apart from the structure, is the price settling mechanism. On one hand it is the Norwegian system that builds on minimum price and auction market which is the same that is used to determine the Danish price. In Iceland the price is decided by the Official Bureau of Ex- Vessel Fish Prices. The Norwegian price is in many cases double that of the price in Iceland. The price obviously affects the profitability of the industry as the Norwegian fishing is benefiting from high price but the processing sector is suffering from low profitability. On the other hand, the processing sector in Iceland is doing well as well as the profitability of the fishing is healthy. It can be claimed that the overall profitability is higher in Iceland due to the freedom of strategically positioning yourself in the value chain and being vertical integrated or not, without external limitation as those that can been seen in Norway, Denmark and Newfoundland. There are certain signs that the price settling mechanism in Iceland could be more efficient like, paying for quality of the raw material. Herring is caught almost completely in pelagic trawl compared with purse seining of virtually all the catch in Norway, that is believed to return better quality than the trawl.
+
| Capital intensive
 +
*High price of quota (compared with value of products)
 +
*High investment cost in vessels and technology to chill the fish-on-board and process the fish Economics of scale and scope
 +
*Multispecies access is necessary (capelin, blue whiting, mackerel)
 +
*Reduces seasonal fluctuations and optimises the use of capital Strict laws govern ownership of vessels holding quota (and processing). Must be  
  
The vertically integrated system where one company owns its own fishing vessels and production has the opportunity to control the flow of the raw material to its production like in Iceland. Instead, in Norway and Denmark this coordination has to been done through auction markets and informal coordination between the owner of fishing vessels and producers. Due to the short fishing season this seems to have less influence on the value chain e.g. compared with cod where the push system is clearly returning less value creation and profitability. In such seasonal value chain as seen in the herring fishing is it is difficult to enter the industry due to high capital cost and the competitiveness builds on economics of scale. The competitiveness of the value chains also depends heavily on other pelagic spices as capelin, mackerel and blue whiting in most of the countries. All this makes upgrading in the value chain difficult. Opportunities to upgrade the value chains in the case of Norway and Iceland are in increasing the production stage of the herring at least part of it into consumer’s value added products instead of B2B commodity. Evidence from Newfoundland and partly Denmark show that more value can be created by focusing more on consumer’s markets. Tariffs, distances from consumer markets and limited seasons can limit this option. The option to increase the processing stage has as well to be 61economically sustainable in competition with countries with lower salary cost and better access to the main markets as for example Poland and other former eastern European countries have, being part of EU.
+
Icelandic or controlled by Icelanders – foreigners can only own 25% in fishing or fish processing companies All professional fishing in Iceland requires a licence Seasonality of the fishing Small boat access
  
=== National comparison ===
+
*Competitive fishing
 +
*Migration creating uncertainty in fishing
 +
*Instability in issuing quotas (political)
  
==== Introduction ====
+
| Capital intensive
 +
Has to be active fisherman that hold quota „slipper skippers“ A status as fisherman with one year as commercial fisherman and 60% of income from fisheries Very high price of the vessels and especially the quotas Limitation of quota concentration Requirement of at least 2/3-ownership of active fishers with a- status.
  
===== Global market review - herring =====
+
| Requires a professional fish harvester certification
 +
Significant investment in terms of education and training and at-sea experience Cost of entry into the fishery is prohibitive due to the high cost of capital investment (vessels, gear, etc.) and the cost of licences Uncertainty over future allocation/quotas and if there will be return on investment
  
Herring has been an important food for humans since ancient times; 5,000-7,000- year-old herring bones from the stone age have been found in Denmark, both indicating catching and consumption of the fish (Albala, 2011).
+
|-
 +
! scope="row" | Exit barriers from the industry
 +
| Quotas and vessels easily sold
 +
| Quotas easily sold and markets available – in Iceland
 +
*Consolidation is set at 20% for herring which can affect exit
  
Herring played an important role in the economic development of Iceland during the last century. Herring revenues built up whole villages, ensured renewal of the fishing fleet and allowed thousands of young Icelanders to educate themselves. (Sigurdsson et al., 2007). Herring still plays a large role in the economy of Iceland with about 4-12% of the total value in fish export (Statistics Iceland, 2018). In Canada, the herring fishery has supported major commercial fisheries on both its Pacific and Atlantic coasts. The development of an almost unlimited world market for herring meal and oil, plus major advances in fishing technology led to overfishing both stocks during the 1950 through to the early 1970’s. Since then, both fisheries have been strictly regulated and the herring fishery is still contributing to the Canadian economy (valued at ~€28 million in 2015.
+
Vessels and equipment can be sold on the open market
  
The Atlantic herring is one of the most important pelagic fish species in the world with historic catches ranging from about 4 million tons (1965) to about 880 thousand tons (1979). The catches in 2014 were about 1.631 tons (FAO, 2017). Other (true) herrings are the pacific herring, found in the north Pacific and the Araucanian herring found off the cost of Chile. These latter herrings will not be covered in this report.
+
| &nbsp;
 +
| Low exit barriers licenses are easily sold; open market for licence No regulations governing the sales
 +
Exit not linked to potential resource re- allocation for new entrants; i.e. portion of share or allocation is not reinvested back into the fishery No financial reinvestment (e.g.no tax or fee) required to be paid by harvester upon sale of licence and exit from the system
  
According to the FAO (2016), fishery production varies greatly among species with the ten most productive species accounting for ~27% of the world’s marine capture fishery production in 2013. Some stocks are regarded as overfished, while most are considered fully fished without potential for further increase in production. The Atlantic herring stocks on both the northeast and the northwest Atlantic are considered fully fished.
+
|-
 +
! scope="row" | Transferability of quota/regional regulations
 +
| No regional restrictions on transferability
 +
| Quota ownership - Limitation on consolidation of quota ownership – max 20% ownership of TAC for herring
 +
*Quota is bound to fishing vessel but companies with number of vessels can transfer quota between vessels
 +
*15% of TAC can be transferred from one year to the next by companies
 +
*5% can be overfished in the fishing year and will then be subtracted from next year TAC
  
[[File:D34 fig 21.png|center|Figure 21]] ''Figure 21. Catches of herring from 1950-2014 (FAO, 2017).''
+
| The regulation of limitation of concentration has been changed over the years with the present
 +
interpretation for the pelagics of a limit of 10% of all pelagic quota, and 2% of the total pelagic quota if the vessel also owns demersal quota &#124; Limit on combining (2:1) shares or allocation Transfer of shares/allocation between vessels is permanent Opportunity to buddy-up is limited to NAFO division 4R trap gear
  
===== Main producers =====
+
|-
 +
! scope="row" | Possibilities to upgrade in the system
 +
| &nbsp;
 +
| There is no restriction on upgrade or move from species but due to the specialisation
 +
of pelagic fishing and processing the vessels/processing are simply too specialized to easily allow a move from pelagic to other species e.g. demersal. This also applies for the processing or freezer trawlers Small boats there are limits, except when going into the coastal or quota system
  
The main producers of Atlantic herring have traditionally been Norway, Iceland, Russia (previously the Soviet Union) and Canada with on average 60% of the herring catch during the last 20 years (1994-2014) (FAO, 2017). The main herring producer within EU are Denmark, Finland, UK, The Netherlands, Germany, France, Poland and Ireland with about 650 thousand tons on average during the period 2012-2014 (FAO, 2017).
+
| &nbsp;
 +
| Limited opportunity for vertical integration based on PIIFCAF; Upgrading is limited to 2 purchased licensed; no new licenses are issued for the fishery
 +
|-
 +
! scope="row" | Management measurements
 +
| Most of the herring quota is caught by large purse seiners.
 +
This is a group of vessels that historically has seen a strong reduction. In later years, though, the number of large purse seiners has stabilised just below 80 vessels. Quota for herring may not be sold without a vessel, but there is still room for expanding the quota for most vessels (only two vessels are at the new limit of 850 base- tonnes (increased from 650 tonnes)).
  
[[File:D34 fig 22.png|center|Figure 22]] ''Figure 22. Main producers of herring (FAO, 2017).''
+
| Landing obligation
 +
*None
  
===== Main markets =====
+
Min processing requirements
  
The great majority of landings across countries was destined for human consumption and this share has been growing over time. Still parts of the Atlantic herring catch e.g. the Baltic herring is mainly used for feed production (Anon, 2018).
+
*None
  
The main food markets for herring have traditionally been Eastern Europe and Russia. Herring has been stable food in these regions both as a good source of relatively cheap fish and as a protein source. In former times much of the herring was salted in the countries catching the herring before export. However, after the collapse of the Soviet Union at the end of 1991 the market for the primary goods has switched largely from salted herring in barrels to frozen herring (whole, headless and gutted, butterfly fillets and single fillets, with or without skin). The frozen herring is both eaten as is, but a large part of the import is used for further processing e.g. for salting and marinating (salting or vinegar curing), smoking or canning. The market in Russia has recently become less important due to political reasons and the frozen herring has been exported mainly to other markets in Eastern Europe.
+
Fishing days – regulations /number of days
  
There are traditional markets in Scandinavia (Sweden, Finland, Denmark and Norway) and in Germany for herring and a (small) part of the Atlantic herring catch is salted (mainly in Norway but also in Denmark, Sweden and Iceland). A large part of the Atlantic herring catch in Newfoundland is also salted for markets in USA. The herring is salted or vinegar cured using traditional recipes into large plastic barrels which serve as the raw material for the final marinated products in glass, plastic or metal containers.
+
*None
  
There is also a market for herring in various European countries e.g. for matjes in Holland and smoked in France and UK (as kippers) and some other European countries.
+
Quantity
  
Herring rest materials (bone, head, and intestines) and the part of the catch not intended for processing is used for meal and oil processing. The main market for these products is Norway as feed for farmed salmon.
+
*None
  
===== Value chains flow =====
+
Closures
  
In Figure 3a, a visualization of the European herring value chain is given, showing the different stages, and with arrows suggesting the most important flows through the chain. This is by no means a complete rendering of the many value chains for herring, but it illustrates some important features. The most important is probably that herring finds various ways from catch to consumption. Likewise, Figure 3b, provides a visualization of the Canadian (predominantly NL) value chain, illustrating some of the important relationships or channels within the value chain.
+
*Marine Institute has licences to introduce closures for fishing areas if for example share of small fish is  
  
[[File:D34 fig 3a.png|center|Figure 3a]] ''Figure 3a. The European value chain for herring''
+
too high according to landing or historical landing data Discard ban
  
[[File:D34 fig 3b.png|center|Figure 3b]] ''Figure 3b. The Canadian/NL value chain for herring''
+
*Herring discards were banned in 1977 (with 5 other species)
 +
*In 1996 a ban on all discards of fish; all species
 +
*There are measurement’s in place to avoid discard
 +
*Limited withdrawal on unwanted catch from TAC
 +
*Up to 0,5% of herring can be landed as VS fish (project fund for fisheries), must be weighted and is not subtracted from
  
As can be seen in Figure 3a much of the caught herring is landed in another country. Iceland is the exception as all the herring caught is landed in the country. In Canada (Figure 3b) herring is landed in and typically processed, at least at the primary level.
+
TAC. 20% goes to the vessel and 80% to the fund
  
==== Fisheries Management System ====
+
*Damaged fish is kept separate and weighted not subtracted from quota
 +
*By-catch should be recorded, but is mainly cod and lumpfish
  
{| class="wikitable" style="width: 100%;"
 
|-
 
! &nbsp;
 
! Norway
 
! Iceland
 
! Denmark
 
! Newfoundland
 
|-
 
! scope="row" | General
 
| Fisheries restrictions in 1971, fisheries ban from 1972. Cooperation between Norway, Iceland and Russia. Licences for purse seiners
 
introduced in 1973
 
 
| Quota system was first introduced in Iceland on herring fisheries in 1975 and for most all other spices in 1983.
 
 
| &nbsp;
 
| &nbsp;
| Herring fishery in NL is managed through TAC and sharing arrangements; in the maritime region (e.g. 4WX) the fishery is management through
+
| Landing obligation
an Integrated Fisheries Management Plans; which sets quota allocations, fishing seasons and areas; no new licenses are available for either fixed gear or purse seine; harvesters may only hold a license for one gear type; fixed gear licenses are permitted to fish in their Fishing area or port of residence; mobile gear fishers can fish in specified Fishing Areas/zones.
+
*must land all catch unless a species exemption is received from DFO
  
|-
+
Minimum processing requirement; cannot process at sea Fishing season is determined annually; Gear restriction in place (e.g. fixed versus mobile gear)
! scope="row" | Quota system: Individually Transferable Access
 
| 850 base tonnes limit
 
| ITQ implemented in 1991 20% quota ceiling for companies
 
| Changed in 2003 from ratio allocation to ITQ
 
| Seasonal quotas vary by fishing zone or region; recipient of a license must have a homeport based in, or be resident of the fishing area of the license
 
Regulations governing enterprise/license combining- up to two individual quotas; buddy-up provisions are authorized for the herring fishery (Area 14)
 
  
|-
+
|}
! scope="row" | Entry barriers into the system:
 
| Capital intensive - High price of quota (compared with value of products)
 
*High investment cost in vessels and technology to chill the fish-on-board Economics of scale and scope
 
*Multispecies access is necessary (capelin, blue whiting, mackerel)
 
*Short seasons Requires high catch capacity and financial strength to leave the vessel idle for 6-8 months a year
 
  
| Capital intensive
+
==== Markets- and production development ====
*High price of quota (compared with value of products)
 
*High investment cost in vessels and technology to chill the fish-on-board and process the fish Economics of scale and scope
 
*Multispecies access is necessary (capelin, blue whiting, mackerel)
 
*Reduces seasonal fluctuations and optimises the use of capital Strict laws govern ownership of vessels holding quota (and processing). Must be
 
  
Icelandic or controlled by Icelanders – foreigners can only own 25% in fishing or fish processing companies All professional fishing in Iceland requires a licence Seasonality of the fishing Small boat access
+
The aim of this section is to demonstrate what the different value chains are providing to markets in product mix, value and share of export as well as the overall value creation within individual countries. This approach demonstrates how responsive/dynamic the value chain is in serving the markets with products and value. It has to be kept in mind however that there is great difference in quantity of raw material within the different value chains. Norway’s total catch in 2015 was 422 thousand tons, Iceland received 244 thousand tons, Denmark about 140 thousand tons and Newfoundland was just over 12 thousand tons.
  
*Competitive fishing
+
===== Differences in exports/productions =====
*Migration creating uncertainty in fishing
 
*Instability in issuing quotas (political)
 
  
| Capital intensive
 
Has to be active fisherman that hold quota „slipper skippers“ A status as fisherman with one year as commercial fisherman and 60% of income from fisheries Very high price of the vessels and especially the quotas Limitation of quota concentration Requirement of at least 2/3-ownership of active fishers with a- status.
 
  
| Requires a professional fish harvester certification
+
====== Products ======
Significant investment in terms of education and training and at-sea experience Cost of entry into the fishery is prohibitive due to the high cost of capital investment (vessels, gear, etc.) and the cost of licences Uncertainty over future allocation/quotas and if there will be return on investment
 
  
|-
+
[[File:D34 fig 23.png|center|Figure 23]] ''Figure 23. Export of whole herring (frozen and fresh) from Denmark, Iceland, Norway and Newfoundland as share of total export volume (fish meal and oil excluded).''
! scope="row" | Exit barriers from the industry
 
| Quotas and vessels easily sold
 
| Quotas easily sold and markets available – in Iceland
 
*Consolidation is set at 20% for herring which can affect exit
 
  
Vessels and equipment can be sold on the open market
+
*Whole herring is a large part of the herring export for all the countries except for Canada. The whole herring is exported mainly as frozen but both Norway and Denmark export as well fresh herring.
 +
*NL market decreasing from 42% in 2000 to 0% in 2016
  
| &nbsp;
+
[[File:D34 fig 24.png|center|Figure 24]] ''Figure 24. Export of herring fillets (single and butterfly, frozen at sea and on land) from''
| Low exit barriers licenses are easily sold; open market for licence No regulations governing the sales
 
Exit not linked to potential resource re- allocation for new entrants; i.e. portion of share or allocation is not reinvested back into the fishery No financial reinvestment (e.g.no tax or fee) required to be paid by harvester upon sale of licence and exit from the system
 
  
|-
+
Denmark, Iceland, Norway and Newfoundland as share of total export volume (fish meal and oil excluded).
! scope="row" | Transferability of quota/regional regulations
 
| No regional restrictions on transferability
 
| Quota ownership - Limitation on consolidation of quota ownership – max 20% ownership of TAC for herring
 
*Quota is bound to fishing vessel but companies with number of vessels can transfer quota between vessels
 
*15% of TAC can be transferred from one year to the next by companies
 
*5% can be overfished in the fishing year and will then be subtracted from next year TAC
 
  
| The regulation of limitation of concentration has been changed over the years with the present
+
*Herring fillets, both single and butterfly fillets frozen at sea or on land, are the most important export category in Iceland indicating the growing importance placed on processing
interpretation for the pelagics of a limit of 10% of all pelagic quota, and 2% of the total pelagic quota if the vessel also owns demersal quota &#124; Limit on combining (2:1) shares or allocation Transfer of shares/allocation between vessels is permanent Opportunity to buddy-up is limited to NAFO division 4R trap gear
+
*Fillets are also of growing importance in Norway, reflecting on the investment made in both Iceland and Norway on investment in processing and automatization of the process. Both countries focus on processing the fish into fillets and using the rest raw materials (offal, bones and heads) for fish meal and oil.
 +
*All the large pelagic processers in Iceland have included in their integrated operation a fish meal plant(s). Figure 25 shows the value of herring fish meal and oil during the last few years for Iceland as share of total herring products export value.
 +
*Fillets are not a large item of the exports from Denmark
 +
*NL market decreasing from 33% in 2008 to 0% in 2016
  
|-
+
[[File:D34 fig 25.png|center|Figure 25]] ''Figure 25. Value of herring product exports from Iceland during the period 1999-2016 as share of total export (fish meal and oil included).''
! scope="row" | Possibilitiesto upgradein thesystem
 
| &nbsp;
 
| There is no restriction on upgrade or move from species but due to the specialisation
 
of pelagic fishing and processing the vessels/processing are simply too specialized to easily allow a move from pelagic to other species e.g. demersal. This also applies for the processing or freezer trawlers Small boats there are limits, except when going into the coastal or quota system
 
  
| &nbsp;
+
[[File:D34 fig 26.png|center|Figure 26]] ''Figure 26. Export of salted, dried and smoked herring products from Denmark, Iceland, Norway and Newfoundland as share of total export volume (fish meal and oil excluded). The figures for Norway include both salted and preserved products.''
| Limited opportunity for vertical integration based on PIIFCAF; Upgrading is limited to 2 purchased licensed; no new licenses are issued for the fishery
 
|-
 
! scope="row" | Management measurements
 
| Most of the herring quota is caught by large purse seiners.  
 
This is a group of vessels that historically has seen a strong reduction. In later years, though, the number of large purse seiners has stabilised just below 80 vessels. Quota for herring may not be sold without a vessel, but there is still room for expanding the quota for most vessels (only two vessels are at the new limit of 850 base- tonnes (increased from 650 tonnes)).
 
  
| Landing obligation
+
*Salted and vinegar cured products are important as raw materials for the Scandinavian herring market as well as for the German market.
*None
+
*Denmark and Norway produce for this market and approximately 3-4% of the herring products are export as salted
 +
*Iceland has virtually stopped salted – 1% or less of the herring is exported as salted
 +
*This is a growing market for NL,- increased from 6% in 2000 to 50% in 2016
  
Min processing requirements
+
[[File:D34 fig 27.png|center|Figure 27]] ''Figure 27. Export of prepared and preserved herring products from Denmark, Iceland and Newfoundland as share of total export volume (fish meal and oil excluded).''
  
*None
+
*Denmark and NL both focus on this market. Denmark exports between 15-25% of the herring as value added products to EU28 countries. Denmark does not have to pay tariffs for the products being a member of EU whereas both Iceland and Norway must pay 10% tariff on prepared and preserved herring products to EU as EEA countries.
 +
*Due to tariffs there is virtually no production of consumer herring goods for export in Iceland and Norway. There is some bulk production in Norway of herring products (in brine or vinegar cured) which form the main ingredient in the consumer goods (mainly jars) which are produced in EU (mostly Sweden) to avoid import taxes
 +
*Newfoundland export a large part of their herring products (>40%) to the US as preserved and prepared goods. No import tariffs are on the products.
  
Fishing days – regulations /number of days
 
  
*None
+
====== Customers ======
  
Quantity
+
Both Norway and Iceland are outside EU and must pay tariffs on value added products and even on some salted herring raw materials into EU. The main markets, though, are eastern European countries, with a long history of eating herring.
  
*None
+
''Table 1. Main buyers of Icelandic herring products (as share of herring export volume and value, excluding meal and oil)''
  
Closures
+
{| class="wikitable" style="width: 100%"
 
+
|-
*Marine Institute has licences to introduce closures for fishing areas if for example share of small fish is
+
! colspan="4" | Volume
 
+
! colspan="3" | Value
too high according to landing or historical landing data Discard ban
+
|-
 
+
! Country
*Herring discards were banned in 1977 (with 5 other species)
+
! 2010
*In 1996 a ban on all discards of fish; all species
+
! 2014
*There are measurement’s in place to avoid discard
+
! 2016
*Limited withdrawal on unwanted catch from TAC
+
! 2010
*Up to 0,5% of herring can be landed as VS fish (project fund for fisheries), must be weighted and is not subtracted from
+
! 2014
 
+
! 2016
TAC. 20% goes to the vessel and 80% to the fund
+
|-
 
+
| Poland
*Damaged fish is kept separate and weighted not subtracted from quota
+
| 33%
*By-catch should be recorded, but is mainly cod and lumpfish
+
| 9%
 
+
| 30%
| &nbsp;
+
| 36%
| Landing obligation
+
| 9%
*must land all catch unless a species exemption is received from DFO
+
| 32%
 
+
|-
Minimum processing requirement; cannot process at sea Fishing season is determined annually; Gear restriction in place (e.g. fixed versus mobile gear)
+
| Ukraine
 
+
| 5%
|}
+
| 2%
 
+
| 18%
==== Markets- and production development ====
+
| 5%
 
+
| 2%
The aim of this section is to demonstrate what the different value chains are providing to markets in product mix, value and share of export as well as the overall value creation within individual countries. This approach demonstrates how responsive/dynamic the value chain is in serving the markets with products and value. It has to be kept in mind however that there is great difference in quantity of raw material within the different value chains. Norway’s total catch in 2015 was 422 thousand tons, Iceland received 244 thousand tons, Denmark about 140 thousand tons and Newfoundland was just over 12 thousand tons.
+
| 20%
 
+
|-
===== Differences in exports/productions =====
+
| Belarus
 
+
| 0%
====== Products ======
+
| 2%
 
+
| 15%
[[File:D34 fig 23.png|center|Figure 23]] ''Figure 23. Export of whole herring (frozen and fresh) from Denmark, Iceland, Norway and Newfoundland as share of total export volume (fish meal and oil excluded).''
+
| 0%
 
+
| 2%
*Whole herring is a large part of the herring export for all the countries
+
| 16%
 
+
|-
except for Canada. The whole herring is exported mainly as frozen but both Norway and Denmark export as well fresh herring.
+
| Lithuania
 
+
| 28%
*NL market decreasing from 42% in 2000 to 0% in 2016
+
| 15%
 
+
| 14%
[[File:D34 fig 24.png|center|Figure 24]] ''Figure 24. Export of herring fillets (single and butterfly, frozen at sea and on land) from''
+
| 25%
 
+
| 14%
Denmark, Iceland, Norway and Newfoundland as share of total export volume (fish meal and oil excluded).
+
| 15%
 +
|-
 +
| Russia
 +
| 22%
 +
| 64%
 +
| 9%
 +
| 20%
 +
| 68%
 +
| 9%
 +
|-
 +
| Holland
 +
| 0%
 +
| 2%
 +
| 0%
 +
| 0%
 +
| 3%
 +
| 0%
 +
|-
 +
| EU28
 +
| 65%
 +
| 30%
 +
| 52%
 +
| 67%
 +
| 31%
 +
| 57%
 +
|-
 +
| EEA
 +
| 65%
 +
| 30%
 +
| 52%
 +
| 68%
 +
| 31%
 +
| 57%
 +
|}
  
*Herring fillets, both single and butterfly fillets frozen at sea or on land, are
+
*Main markets for the products are in Eastern Europe
 +
*The focus is on commodities or raw material (fillets or whole fish) that can be used to produce the final consumer goods. Virtually nothing is produced of the prepared or preserved ready to eat products.
 +
*There is considerable variability of main buyers (as countries) between years; it depends on market conditions and prices to whom the products are sold. Often uncertain market conditions e.g. closure of the Russian market recently, but also lack of loyalty between buyers and supplier
 +
*EU purchases between 30-65% of the products (mainly Poland)
  
the most important export category in Iceland indicating the growing importance placed on processing
+
''Table 2. Main buyers of Norwegian herring products (as share of herring export volume, excluding meal and oil)''
  
*Fillets are also of growing importance in Norway, reflecting on the
+
{| class="wikitable" style="width: 100%"
 
+
|-
investment made in both Iceland and Norway on investment in processing and automatization of the process. Both countries focus on processing the fish into fillets and using the rest raw materials (offal, bones and heads) for fish meal and oil.
+
! Country
 
+
! 2013
*All the large pelagic processers in Iceland have included in their integrated
+
! 2014
 
+
! 2015
operation a fish meal plant(s). Figure 25 shows the value of herring fish meal and oil during the last few years for Iceland as share of total herring products export value.
 
 
 
*Fillets are not a large item of the exports from Denmark
 
*NL market decreasing from 33% in 2008 to 0% in 2016
 
 
 
[[File:D34 fig 25.png|center|Figure 25]] ''Figure 25. Value of herring product exports from Iceland during the period 1999-2016 as share of total export (fish meal and oil included).''
 
 
 
[[File:D34 fig 26.png|center|Figure 26]] ''Figure 26. Export of salted, dried and smoked herring products from Denmark, Iceland, Norway and Newfoundland as share of total export volume (fish meal and oil excluded). The figures for Norway include both salted and preserved products.''
 
 
 
*Salted and vinegar cured products are important as raw materials for the
 
 
 
Scandinavian herring market as well as for the German market.
 
 
 
*Denmark and Norway produce for this market and approximately 3-4% of
 
 
 
the herring products are export as salted
 
 
 
*Iceland has virtually stopped salted – 1% or less of the herring is exported as salted
 
*This is a growing market for NL,- increased from 6% in 2000 to 50% in 2016
 
 
 
[[File:D34 fig 27.png|center|Figure 27]] ''Figure 27. Export of prepared and preserved herring products from Denmark, Iceland and Newfoundland as share of total export volume (fish meal and oil excluded).''
 
 
 
*Denmark and NL both focus on this market. Denmark exports between 15-
 
 
 
25% of the herring as value added products to EU28 countries. Denmark does not have to pay tariffs for the products being a member of EU whereas both Iceland and Norway must pay 10% tariff on prepared and preserved herring products to EU as EEA countries.
 
 
 
*Due to tariffs there is virtually no production of consumer herring goods for
 
 
 
export in Iceland and Norway. There is some bulk production in Norway of herring products (in brine or vinegar cured) which form the main ingredient in the consumer goods (mainly jars) which are produced in EU (mostly Sweden) to avoid import taxes
 
 
 
*Newfoundland export a large part of their herring products (>40%) to the
 
 
 
US as preserved and prepared goods. No import tariffs are on the products.
 
 
 
====== Customers ======
 
 
 
Both Norway and Iceland are outside EU and must pay tariffs on value added products and even on some salted herring raw materials into EU. The main markets, though, are eastern European countries, with a long history of eating herring.
 
 
 
''Table 1. Main buyers of Icelandic herring products (as share of herring export volume and value, excluding meal and oil)''
 
 
 
{| class="wikitable" style="width: 100%;"
 
 
|-
 
|-
! colspan="4" | Volume
+
| Denmark
! colspan="3" | Value
+
| 10%
 +
| 15%
 +
| 18%
 
|-
 
|-
! Country
+
| Germany
! 2010
+
| 10%
! 2014
+
| 14%
! 2016
+
| 15%
! 2010
 
! 2014
 
! 2016
 
 
|-
 
|-
| Poland
+
| Lithuania
| 33%
 
| 9%
 
| 30%
 
| 36%
 
| 9%
 
| 32%
 
|-
 
| Ukraine
 
| 5%
 
| 2%
 
| 18%
 
| 5%
 
| 2%
 
| 20%
 
|-
 
| Belarus
 
| 0%
 
| 2%
 
 
| 15%
 
| 15%
| 0%
 
| 2%
 
 
| 16%
 
| 16%
 +
| 15%
 
|-
 
|-
| Lithuania
+
| Ukraine
| 28%
+
| 12%
 
| 15%
 
| 15%
| 14%
 
| 25%
 
| 14%
 
 
| 15%
 
| 15%
 
|-
 
|-
| Russia
+
| Poland
| 22%
+
| 7%
| 64%
+
| 9%
| 9%
+
| 12%
| 20%
+
|-
| 68%
+
| Netherlands
| 9%
+
| 6%
 +
| 8%
 +
| 11%
 +
|-
 +
| Egypt
 +
| 4%
 +
| 1%
 +
| 7%
 
|-
 
|-
| Holland
+
| Belarus
| 0%
 
 
| 2%
 
| 2%
| 0%
+
| 6%
| 0%
+
| 6%
| 3%
+
|-
 +
| Russia
 +
| 32%
 +
| 17%
 
| 0%
 
| 0%
 
|-
 
|-
 
| EU28
 
| EU28
| 65%
+
| 43%
| 30%
+
| 53%
| 52%
+
| 61%
| 67%
 
| 31%
 
| 57%
 
 
|-
 
|-
 
| EEA
 
| EEA
| 65%
+
| 43%
| 30%
+
| 53%
| 52%
+
| 61%
| 68%
 
| 31%
 
| 57%
 
 
|}
 
|}
  
*Main markets for the products are in Eastern Europe  
+
*Main markets are in Eastern Europe  
*The focus is on commodities or raw material (fillets or whole fish) that can  
+
*The focus is on commodities or raw material (fillets or whole fish) that can be used to produce the final consumer goods. Virtually nothing is produced of the prepared or preserved ready to eat products.
 +
*EU purchases between 43-61% of the products (mainly Denmark, Germany and Lithuania)
 +
*More stability in customer base than seen for Iceland – possibly due to more loyalty between buyers and supplier. Easier logistic routes to markets also help
  
be used to produce the final consumer goods. Virtually nothing is produced of the prepared or preserved ready to eat products.
+
''Table 3. Main buyers of Danish herring products (as share of herring export volume and value, excluding meal and oil)''
  
*There is considerable variability of main buyers (as countries) between
+
*Main markets are in Eastern Europe
 +
*The focus is on commodities or raw material (fillets or whole fish) that can be used to produce the final consumer goods. Virtually nothing is produced of the prepared or preserved ready to eat products.
 +
*EU purchases between 43-61% of the products (mainly Denmark, Germany and Lithuania)  
  
years; it depends on market conditions and prices to whom the products are sold. Often uncertain market conditions e.g. closure of the Russian market recently, but also lack of loyalty between buyers and supplier
+
{| class="wikitable" style="width: 100%"
 
 
*EU purchases between 30-65% of the products (mainly Poland)
 
 
 
''Table 2. Main buyers of Norwegian herring products (as share of herring export volume, excluding meal and oil)''
 
 
 
{| class="wikitable" style="width: 100%;"
 
 
|-
 
|-
 
! Country
 
! Country
! 2013
+
! colspan="3" | Volume
! 2014
+
! colspan="3" | Value
! 2015
 
 
|-
 
|-
| Denmark
+
| Country
| 10%
+
| 2008
| 15%
+
| 2012
| 18%
+
| 2016
 +
| 2008
 +
| 2012
 +
| 2016
 
|-
 
|-
 
| Germany
 
| Germany
| 10%
+
| 61%
| 14%
+
| 61%
| 15%
+
| 59%
 +
| 49%
 +
| 55%
 +
| 51%
 
|-
 
|-
| Lithuania
+
| Poland
| 15%
+
| 16%
 +
| 6%
 +
| 10%
 +
| 24%
 +
| 13%
 
| 16%
 
| 16%
| 15%
 
 
|-
 
|-
| Ukraine
+
| Holland
| 12%
+
| 8%
| 15%
 
| 15%
 
|-
 
| Poland
 
 
| 7%
 
| 7%
| 9%
+
| 8%
 +
| 13%
 +
| 11%
 
| 12%
 
| 12%
 
|-
 
|-
| Netherlands
+
| Norway
 +
| 2%
 
| 6%
 
| 6%
| 8%
+
| 5%
| 11%
+
| 2%
 +
| 5%
 +
| 4%
 
|-
 
|-
| Egypt
+
| UK
| 4%
+
| 2%
 +
| 13%
 +
| 5%
 
| 1%
 
| 1%
| 7%
+
| 8%
 +
| 3%
 
|-
 
|-
| Belarus
+
| Sweden
| 2%
 
| 6%
 
 
| 6%
 
| 6%
|-
+
| 3%
| Russia
+
| 4%
| 32%
+
| 3%
| 17%
+
| 3%
| 0%
+
| 3%
 
|-
 
|-
 
| EU28
 
| EU28
| 43%
+
| 97%
| 53%
+
| 94%
| 61%
+
| 90%
 +
| 97%
 +
| 94%
 +
| 91%
 
|-
 
|-
 
| EEA
 
| EEA
| 43%
+
| 100%
| 53%
+
| 100%
| 61%
+
| 95%
 +
| 99%
 +
| 99%
 +
| 95%
 
|}
 
|}
  
*Main markets are in Eastern Europe
+
*EU is the main market for the products purchasing 90-97% of the products.
*The focus is on commodities or raw material (fillets or whole fish) that can
 
  
be used to produce the final consumer goods. Virtually nothing is produced of the prepared or preserved ready to eat products.
+
The access to the common market is a key (no tariffs) as well as short logistic routes.
  
*EU purchases between 43-61% of the products (mainly Denmark, Germany
+
*High stability in customer base indicating loyalty between supplier and buyer. Germany is by far the biggest market not only for the commodities but also taking the largest share of the value-added products  
  
and Lithuania)
+
''Table 4. Top buyers (based on value) each year for Newfoundland herring products (as share of herring export value, excluding meal and oil)''
  
*More stability in customer base than seen for Iceland – possibly due to
+
{| class="wikitable" style="width: 100%"
 
+
|-
more loyalty between buyers and supplier. Easier logistic routes to markets also help
+
! Country
 
+
! 2011
''Table 3. Main buyers of Danish herring products (as share of herring export volume and value, excluding meal and oil)''
+
! 2012
 
+
! 2013
*Main markets are in Eastern Europe
+
! 2014
*The focus is on commodities or raw material (fillets or whole fish) that can
+
! 2015
 
+
! 2016
be used to produce the final consumer goods. Virtually nothing is produced of the prepared or preserved ready to eat products.
 
 
 
*EU purchases between 43-61% of the products (mainly Denmark, Germany and Lithuania)
 
 
 
{| class="wikitable" style="width: 100%;"
 
 
|-
 
|-
! Country
+
| United States
! colspan="3" | Volume
+
| 83%
! colspan="3" | Value
+
| 53%
|-
+
| 82%
| Country
+
| 53%
| 2008
+
| 64%
| 2012
+
| 64%
| 2016
 
| 2008
 
| 2012
 
| 2016
 
|-
 
| Germany
 
| 61%
 
| 61%
 
| 59%
 
| 49%
 
| 55%
 
| 51%
 
 
|-
 
|-
 
| Poland
 
| Poland
 +
| 2%
 +
| &nbsp;
 +
| &nbsp;
 
| 16%
 
| 16%
| 6%
+
| 15%
| 10%
+
| 15%
| 24%
 
| 13%
 
| 16%
 
 
|-
 
|-
| Holland
+
| Lithuania
| 8%
+
| &nbsp;
| 7%
+
| &nbsp;
| 8%
+
| &nbsp;
| 13%
+
| &nbsp;
| 11%
 
| 12%
 
|-
 
| Norway
 
| 2%
 
| 6%
 
 
| 5%
 
| 5%
 
| 2%
 
| 2%
| 5%
 
| 4%
 
 
|-
 
|-
| UK
+
| C´ote d´Ivory
| 2%
+
| &nbsp;
| 13%
+
| &nbsp;
| 5%
+
| &nbsp;
| 1%
+
| &nbsp;
| 8%
 
 
| 3%
 
| 3%
 +
| &nbsp;
 
|-
 
|-
| Sweden
+
| Germany
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 
| 6%
 
| 6%
| 3%
+
| &nbsp;
 +
|-
 +
| Ukraine
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| 6%
 +
|-
 +
| Japan
 +
| 2%
 +
| 13%
 +
| 2%
 +
| &nbsp;
 +
| &nbsp;
 +
| 3%
 +
|-
 +
| South Africa
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 
| 4%
 
| 4%
 +
| &nbsp;
 +
| 2%
 +
|-
 +
| China
 
| 3%
 
| 3%
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
|-
 +
| Nigeria
 
| 3%
 
| 3%
 +
| 13%
 
| 3%
 
| 3%
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 
|-
 
|-
| EU28
+
| Georgia
| 97%
+
| &nbsp;
| 94%
+
| 5%
| 90%
+
| 3%
| 97%
+
| &nbsp;
| 94%
+
| &nbsp;
| 91%
+
| &nbsp;
 +
|-
 +
| Russian Federation
 +
| &nbsp;
 +
| 6%
 +
| &nbsp;
 +
| 18%
 +
| &nbsp;
 +
| &nbsp;
 
|-
 
|-
| EEA
+
| Egypt
| 100%
+
| &nbsp;
| 100%
+
| &nbsp;
| 95%
+
| 3%
| 99%
+
| &nbsp;
| 99%
+
| &nbsp;
| 95%
+
| &nbsp;
 
|}
 
|}
  
*EU is the main market for the products purchasing 90-97% of the products.  
+
*USA purchases almost 80% of the products. Easy access routes favour products from Canada
 +
*Most of the remainder of the products are exported to East Europe.
 +
 
 +
 
 +
====== Value creation ======
  
The access to the common market is a key (no tariffs) as well as short logistic routes.
+
The below figure shows the value creation within each country based on the total export value for all the herring food products. As it was difficult to obtain accurate information on the total quantity and value of herring meal and oil produced within each country, feed products (meal and oil) are excluded in this comparison and the focus is on exported goods for food purposes.
  
*High stability in customer base indicating loyalty between supplier and  
+
[[File:D34 fig 28.png|center|Figure 28]] ''Figure 28. Value creation in euro/kg of export value of herring products from Iceland, Norway, Denmark and Newfoundland''
  
buyer. Germany is by far the biggest market not only for the commodities but also taking the largest share of the value-added products
+
*Value creation has increased with time mainly due to price increases of herring products as herring quotas have been in steep decline from 2009 until 2017.  
 +
*Similar value creation is observed in all the countries
 +
*The value creation within Newfoundland seems to be increasing in the last few years, possibly because of their focus on final consumer goods
  
''Table 4. Top buyers (based on value) each year for Newfoundland herring products (as share of herring export value, excluding meal and oil)''
+
===== Processing =====
  
{| class="wikitable" style="width: 100%;"
+
 
|-
+
====== Profitability and performance ======
! Country
+
 
! 2011
+
Profitability figures for the processing sector are just available for Norway and Iceland. The figure for Norway is for the pelagic processing mainly herring and mackerel. The only separation in Iceland is the meal production of pelagic species as whole. The production of frozen herring is included in the profitability figure for the whole freezing sector, both demersal and pelagic. Hence, the profitability comparison is limited. Below is comparison of profitability in the processing industry in Iceland and Norway based on EBIT (Earnings Before Interest and Taxes) as share of revenue.
! 2012
+
 
! 2013
+
[[File:D34 fig 29.png|center|Figure 29]] ''Figure 29. EBIT as share of revenue in Iceland and Norway 1997 to 2015''
! 2014
+
 
! 2015
+
*The profitability in processing is higher in Iceland than Norway in most cases.
! 2016
+
*The profitability as EBIT in Norwegian processing is very low or below 5% in most years while the EBIT in Iceland has been over 15% from about 2008.
 +
*Profitability for meal and oil production yield an EBIT of around 10&nbsp;% in Norway. This industry bases its production on capelin, blue whiting and rest raw material from herring. The amount of whole herring used for meal and oil is negligible.
 +
 
 +
===== Summary of main influencing factors regarding markets- and production development =====
 +
 
 +
{| class="wikitable" style="width: 100%;"
 
|-
 
|-
| United States
+
! Factor
| 83%
+
! Iceland
| 53%
+
! Norway
| 82%
+
! Denmark
| 53%
+
! Newfoundland
| 64%
 
| 64%
 
 
|-
 
|-
| Poland
+
| Strategy
| 2%
+
| Vertical integrated companies focusing on value creation and control of raw material
| &nbsp;
+
flow (inside the seasons)
| &nbsp;
+
 
| 16%
+
| Auction markets limits vertical integration.
| 15%
+
Strong focus on large-scale efficient production.
| 15%
+
 
 +
| Auction markets limits vertical integration.
 +
Strong focus on large-scale efficient production.
 +
 
 +
| Small degree of vertical integration;
 +
recent year increasing focus on secondary processing and higher valued product forms instead of bait or zoo feed
 +
 
 
|-
 
|-
| Lithuania
+
| Marketing
| &nbsp;
+
| Main countries that buy herring from Iceland vary a lot between years.
| &nbsp;
+
Indicating spot markets and always going for highest price?
| &nbsp;
+
 
| &nbsp;
+
| Stable markets. Mostly intermediate products for further processing in market countries
| 5%
+
| Mixture of B2B raw material commodity and consumers packing
| 2%
+
| Stable markets as US is largest buyer; marketing done directly by processing companies/retailers; main
 +
countries relatively consistent over time
 +
 
 
|-
 
|-
| C´ote d´Ivory
+
| Risk in
| &nbsp;
+
marketing
| &nbsp;
+
 
| &nbsp;
+
| Medium and in many cases, could be improved
| &nbsp;
+
| Relatively short catch seasons, with sales over a longer period, makes the
| 3%
+
industry vulnerable for exchange-rate risk
| &nbsp;
+
 
 +
| Relatively well distributed by selecting numbers of buyers to spread the risk
 +
| Relatively short season; annual quotas decisions unpredictable; focused primarily on existing markets
 
|-
 
|-
| Germany
+
| Degree of processing
| &nbsp;
+
| High degree of automation
| &nbsp;
+
*Capital intensive
| &nbsp;
+
*Consolidation of processing Fillets and butterflied fillets has been increasing and is currently around 50%.
| &nbsp;
+
 
| 6%
+
| High degree of automation
| &nbsp;
+
*Capital intensive
 +
*Consolidation of processing Fillets and butterflied fillets have been relatively stable at around 40&nbsp;%
 +
 
 +
for the last five years.
 +
 
 +
| The production seems to in two main sections that is Whole unprocessed herring and the end markets with
 +
prepared or preserved products. The biggest share or around 70% of the volume is whole frozen. Fillets counts for around 9% of the volume
 +
 
 +
*Around 20% of the volume goes to prepared or preserved markets (around 40% of the value)
 +
 
 +
| Low level of automation;  
 +
Value of the product is increasing as Canadian quotas decrease Fish are processed more in Canada instead of exporting fish for further processing abroad Minimum processing requirement makes processing on sea impossible
 +
 
 
|-
 
|-
| Ukraine
+
| Flow of raw material
| &nbsp;
+
| Fishing and processing done in harmony by VICs based on
| &nbsp;
+
*Quota status
| &nbsp;
+
*Coordination of landings with processing capacity within each season
| &nbsp;
+
 
| &nbsp;
+
| Raw material flow governed through first-hand auction. Vessels may have to travel
| 6%
+
2 days extra to reach the highest bidder
 +
 
 +
| Through the auction markets and some degree of coordination with buyers
 +
| Depending on size of boats and fishing grounds. Off shore vessels
 +
are not as bound to location Landing obligation and minimum processing requirements make location of production important to be close to landing stations
 +
 
 
|-
 
|-
| Japan
+
| Structure of the industry
| 2%
+
| Almost completely vertical integrated industry.
| 13%
+
Small share of catch done by independent small boats Limited competition within the pelagic (herring) sector due to consolidation
| 2%
+
 
| &nbsp;
+
*Raises questions about how this affects product mix and development?
| &nbsp;
+
 
| 3%
+
| No vertical integration.
 +
High capacity in processing and strong competition between processors.
 +
 
 +
| No vertical integration.
 +
High capacity in processing and strong competition between processors.
 +
 
 +
| The industry is split into two main sector inshore fleet and offshore fleet.
 +
Approximately 50-60% of landed volume and value is by the inshore fleet <19.8m
 +
 
 
|-
 
|-
| South Africa
+
| Location
| &nbsp;
+
| Economics of scale and scope
| &nbsp;
+
*Need to have one location highly focussed on processing of fillets, freezingand meal production
| &nbsp;
+
 
| 4%
+
| Economics of scale and scope
| &nbsp;
+
*An advantage to have one location with both freezing and meal and oil production
| 2%
+
 
 +
| Economics of scale and scope
 +
*An advantage to have one location with both freezing and meal and oil production
 +
 
 +
| Inshore fleet has limits of fishing ground depending on boat size
 
|-
 
|-
| China
+
| Employment
| 3%
+
| Seasonality and fluctuation in catches between years affects required employees
| &nbsp;
+
- emphasis on automation
| &nbsp;
+
 
| &nbsp;
+
| Highly seasonal production Highly automated production with fewer employees Mainly
| &nbsp;
+
seasonal, foreign labour
| &nbsp;
+
 
 +
| Highly seasonal fishing
 +
| Rather low degree of automation production
 +
For the majority of labour force in the NL fishery the industry is regarded as highly seasonal and is augmented by secondary income. Labour for the harvesting vessels and processing facilities are required for short periods of time with individuals either relying on employment assistance programs or having to find alternative employment when the fishing season is closed
 +
 
 +
|}
 +
 
 +
 
 +
==== Price settling mechanism ====
 +
 
 +
*Price of herring in Iceland is decided by the Official Bureau of Ex-Vessel Fish Prices (Verðlagstofu Skiptaverðs).
 +
**The price is decided monthly, where the set-price is changed according to changes in the market price, sometimes with a considerable delay.
 +
**This price is not used in any transactions other than calculating the vessel crews ́ wages (based on a share system).
 +
**Historically the price was determined by the market price for fish oil and meal.
 +
**As the importance of herring to human consumptions has grown, this has changed and the Bureau of Ex Vessel Fish Price now also decides the price for whole herring for freezing.
 +
**The quantity behind the price is however very limited so the price for fish meal and oil is still the price that is used by the industry 
 +
*Norwegian herring is sold through the Norwegian pelagic auction, Europe’s largest pelagic fish auction, with an annual turnover of approximately 1.5 million tonnes at a value of almost NOK 9 billion (€ 966 million).
 +
**The auction is an electronic auction without physical inspections of products and is based on the first-price sealed-bid method
 +
**There is a minimum price in the auction, set at 80&nbsp;% of the average for all sales of the species for the last two weeks
 +
**The first-hand sale of fish in Norway is legally protected through the raw fish act and organized through sales organizations with exclusive rights for co-ordinating the first-hand sale of fish
 +
**The Norwegian pelagic auction was established in the 1970s and is owned and operated by Norges Sildesalgslag (NSS), the current sales organization for pelagic fishermen in Norway.
 +
**There are some firms owning both fleet and processing capacity in the herring sector, but the auction limits any real vertical integration
 +
**There are two main prices in Norway for consumption, and for meal and oil as shown in Figure 30. The quantity in meal and oil is very limited so the consumption price will be used in the comparison. 
 +
 
 +
[[File:D34 fig 30.png|center|Figure 30]] ''Figure 30. Herring price and volume in Norway 2001 to 2017''
 +
 
 +
*Danish herring is also offered at the auction of “Norges Sildesalgslag.” The Norwegian processors as well as Danish processors buy directly via this auction.
 +
**Around 90% of the herring goes through the auction of “Norges Sildesalgslag.”
 +
**The rest or 10% is sold through the Danish fish auctions (Ministry of Environment and Food.
 +
**In many cases there are some agreement or coordination between the vessel and a processer about deliverance of a certain amount at a certain time.
 +
**Even when coordination takes place, the current price at the auction of Norges Sildesalgslag is the basis for negotiations about possible bonus for deliverance.
 +
**The market is not fully reflecting the highest quality of herring. In general, the quality of purse seine caught herring is higher than trawl caught herring, as the quality of herring caught by trawl depends of trawl time, and there are pressure risks. 
 +
*In Newfoundland first hand price is negotiated annually between the harvesters and the processors with an average price per kilogram determined in advance of the season; the negotiated price is subjected to change throughout the season. Unlike other fisheries, the FFAW (the union representing the harvesters and processors) are not actively engaged in the price negotiations for herring.
 +
 
 +
Price development in the comparisons countries is expressed in Fig 12. Price was just available from Canada from 2006 to 2008 and from 2014 to 2017.
 +
 
 +
[[File:D34 fig 31.png|center|Figure 31]] ''Figure 31. Price development in Norway, Iceland and Denmark 2001 to 2017; Canada 2006-2008 and 2014-2017.''
 +
 
 +
*There is a huge difference between the price paid in Iceland and the consumption price in Norway and Denmark.
 +
*The price in Canada is always the lowest (for the comparison years).
 +
**Price varies between region in Canada and the herring receive the lowest price of the region in Newfoundland. 
 +
*There is not much evidence of the role of the auction markets to pay for quality, or according to the fishing gear as all herring in Norway is caught in purse seine
 +
**According to unconfirmed personal communication the auction market is not fully reflecting the highest quality of herring. 
 +
 
 +
===== Summary of main influencing factors regarding the price settling mechanism =====
 +
 
 +
{| class="wikitable" style="width: 100%"
 
|-
 
|-
| Nigeria
+
! Factor
| 3%
+
! Iceland
| 13%
+
! Norway
| 3%
+
! Denmark
| &nbsp;
+
! Newfoundland
| &nbsp;
+
|-
| &nbsp;
+
| Price settling
 +
| Price settling committee deciding price.
 +
Less than 1% goes through auction markets
 +
 
 +
| Auction market
 +
| Auction market
 +
| Negotiated annually and subject to change within a season
 
|-
 
|-
| Georgia
+
| Market activities
| &nbsp;
+
| Limited
| 5%
+
| High
| 3%
+
| High
| &nbsp;
+
| Limited
| &nbsp;
 
| &nbsp;
 
 
|-
 
|-
| Russian Federation
+
| Transparency in price settling
| &nbsp;
+
| Limited
| 6%
+
| High (Auction market)
| &nbsp;
+
| Auction market
| 18%
+
| Limited
| &nbsp;
 
| &nbsp;
 
 
|-
 
|-
| Egypt
+
| Dynamic of the
| &nbsp;
+
price settling mechanism
| &nbsp;
+
 
| 3%
+
| Limited
| &nbsp;
+
| High
| &nbsp;
+
| High
| &nbsp;
+
| Low
 +
|-
 +
| Different price according to fishing gear
 +
| None
 +
| Yes (but almost everything is caught by purse seine)
 +
| Undetermined
 +
| Undetermined
 +
|-
 +
| Quality
 +
| Good, and has improved with time due to higher RSW-capacity of vessels
 +
| Very good, minimal variation.
 +
Quality has increased with time by better catch handling and higher RSW-capacity
 +
 
 +
| Good, and have improved with time by higher RSW-capacity
 +
| Dependent on the quality of the flesh and the fat content; seasonal variance
 +
|-
 +
| Timing
 +
| Strong seasonal variation
 +
| Strong seasonal variation
 +
| Strong seasonal variation
 +
| Strong seasonal variation
 
|}
 
|}
  
*USA purchases almost 80% of the products. Easy access routes favour
+
==== Fishing ====
  
products from Canada
 
  
*Most of the remainder of the products are exported to East Europe.
+
===== Fishing gear =====
  
====== Value creation ======
+
Norwegian catch all the herring in purse seine that is believed to deliver better quality of raw material than the pelagic trawl.
  
The below figure shows the value creation within each country based on the total export value for all the herring food products. As it was difficult to obtain accurate information on the total quantity and value of herring meal and oil produced within each country, feed products (meal and oil) are excluded in this comparison and the focus is on exported goods for food purposes.
+
*Icelandic pelagic vessel are increasingly using pelagic trawl in catching the herring as can be seen from below figure where the trawl used for 90% of the catch during the last 3 years.
 +
*The NL/Canadian herring fishery are using a combination of fixed and mobile gear (purse seine) to capture herring; regulations governing the use of each gear type and the region where they can be used.  
  
[[File:D34 fig 28.png|center|Figure 28]] ''Figure 28. Value creation in euro/kg of export value of herring products from Iceland, Norway, Denmark and Newfoundland''
+
[[File:D34 fig 32.png|center|Figure 32]] ''Figure 32. Use of purse seine and pelagic trawl in Fishing herring in Iceland 2005 to 2016''
  
*Value creation has increased with time mainly due to price increases of  
+
*The biggest change in the fishing of herring is the improved cooling system in the vessel by the introduction of fresh chilled (RSW) on board the vessel.
 +
**In Iceland this changed the industry in the sense that more of the herring is processed on land instead of frozen at sea as can been seen in Figure 33. 
  
herring products as herring quotas have been in steep decline from 2009 until 2017.
+
[[File:D34 fig 33.png|center|Figure 33]] ''Figure 33. Herring landings 1982 to 2016 – frozen at sea or domestic processing''
  
*Similar value creation is observed in all the countries
+
===== Performance and profitability =====
*The value creation within Newfoundland seems to be increasing in the last
 
  
few years, possibly because of their focus on final consumer goods
+
In Figure 34 the profit before interest rates and tax (EBIT) is shown for pelagic fishing in Iceland and two vessel groups from Norway, deep sea and costal fishing of pelagic species
  
===== Processing =====
+
[[File:D34 fig 34.png|center|Figure 34]] ''Figure 34. EBIT as share of revenue for pelagic fishing in Norway and Iceland 1998 to 2015.''
  
====== Profitability and performance ======
+
*The profit is similar between the fishing methods but slightly higher in
  
Profitability figures for the processing sector are just available for Norway and Iceland. The figure for Norway is for the pelagic processing mainly herring and mackerel. The only separation in Iceland is the meal production of pelagic species as whole. The production of frozen herring is included in the profitability figure for the whole freezing sector, both demersal and pelagic. Hence, the profitability comparison is limited. Below is comparison of profitability in the processing industry in Iceland and Norway based on EBIT (Earnings Before Interest and Taxes) as share of revenue.
+
Norway. The trend line show that the profit has been increasing faster in Iceland in recent years than Norway.
  
[[File:D34 fig 29.png|center|Figure 29]] ''Figure 29. EBIT as share of revenue in Iceland and Norway 1997 to 2015''
+
*The highest profit is in deep sea fishing in Norway, which varies between
  
*The profitability in processing is higher in Iceland than Norway in most
+
10 to 20% of revenue.
  
cases.
+
*There is no available information about profitability in the industry in
  
*The profitability as EBIT in Norwegian processing is very low or below 5% in
+
Newfoundland.
  
most years while the EBIT in Iceland has been over 15% from about 2008.
+
*In Denmark information about profitability is at company level and not
  
*Profitability for meal and oil production yield an EBIT of around 10&nbsp;% in
+
comparable with the sectoral analysis in Iceland and Norway
  
Norway. This industry bases its production on capelin, blue whiting and rest raw material from herring. The amount of whole herring used for meal and oil is negligible.
+
===== Summary of main influencing factors regarding fishing =====
 
 
===== Summary of main influencing factors regarding markets- and production development =====
 
  
 
{| class="wikitable" style="width: 100%;"
 
{| class="wikitable" style="width: 100%;"
Line 2,062: Line 2,062:
 
! Newfoundland
 
! Newfoundland
 
|-
 
|-
| Strategy
+
| Profitability
| Vertical integrated companies focusing on value creation and control of raw material
+
| Medium
flow (inside the seasons)
+
| High
 +
| &nbsp;?
 +
| &nbsp;?
 +
|-
 +
| Productivity
 +
| Productivity has increased because of more automation,
 +
both in fishing and especially on-land processing of seafood
  
| Auction markets limits vertical integration.
+
| Productivity has increased because of more automation, both in
Strong focus on large-scale efficient production.
+
fishing and especially on-land processing of seafood
  
| Auction markets limits vertical integration.
+
| Productivity has increasedbecause of more automation, both in
Strong focus on large-scale efficient production.
+
fishing and especially on-land processing of seafood
  
| Small degree of vertical integration;
+
| Rather low degree of automation production
recent year increasing focus on secondary processing and higher valued product forms instead of bait or zoo feed
+
For the majority of labour force in the NL fishery the industry is regarded as highly seasonal and is augmented by secondary income.
  
 
|-
 
|-
| Marketing
+
| Processing
| Main countries that buy herring from Iceland vary a lot between years.
+
| Changes from processing on sea to processing on land, where utilization is
Indicating spot markets and always going for highest price?
+
better (better filleting yield) and promotes better use of by-products creating more value from each fish. Cooling - Longer fishing trips – you can catch good fish further out at sea; seasonality
  
| Stable markets. Mostly intermediate products for further processing in market countries
+
| Increased share to human consumption (reached 100&nbsp;% around 2000) Share of processing now stable at around 40&nbsp;%
| Mixture of B2B raw material commodity and consumers packing
+
| Mixture of whole export for further processing abroad or as prepared and preserved
| Stable markets as US is largest buyer; marketing done directly by processing companies/retailers; main
+
that is more in consumer packing.
countries relatively consistent over time
 
  
|-
+
| All landed processedMajority of Atlantic herring is exported Small volume is sold or used
| Risk in  
+
within Canada as bait or for fishmeal. Food exports are typically in the form of primary or secondary processed products (e.g. whole fresh/chilled/frozen, frozen fillets, smoked, salted or in brine [not dried or smoked], prepared or preserved whole or in pieces). Some of these products (e.g. first stage marinades) are further processed in the United States and then re-imported back into Canada
marketing
 
  
| Medium and in many cases, could be improved
+
|}
| Relatively short catch seasons, with sales over a longer period, makes the
 
industry vulnerable for exchange-rate risk
 
  
| Relatively well distributed by selecting numbers of buyers to spread the risk
 
| Relatively short season; annual quotas decisions unpredictable; focused primarily on existing markets
 
|-
 
| Degree of processing
 
| High degree of automation
 
*Capital intensive
 
*Consolidation of processing Fillets and butterflied fillets has been increasing and is currently around 50%.
 
  
| High degree of automation
+
==== Consolidation ====
*Capital intensive
 
*Consolidation of processing Fillets and butterflied fillets have been relatively stable at around 40&nbsp;%
 
  
for the last five years.
+
One way of expressing consolidation in the seafood sector in different countries is to calculate HHI or Herfindahl, Hirschman index which for the seafood sector can be calculated by summing up the squared quota shares of the firms in question. The index value is found by the sum of the squared market shares of all firms (N): and can be expressed as a normalized figure (0 ≤ HHI ≤ 1), or taking numbers between 5 and 10,000, for whether market shares are expressed in percentages or rates.
  
| The production seems to in two main sections that is Whole unprocessed herring and the end markets with
+
For a company with 100 per cent market share the value will be 10,000 (or corresponding 1), while for a market with 10 firms and 10 per cent market share each the value will be 1,000 or 0.1.
prepared or preserved products. The biggest share or around 70% of the volume is whole frozen. Fillets counts for around 9% of the volume
 
  
*Around 20% of the volume goes to prepared or preserved markets (around 40% of the value)  
+
*An H below 0.01 (or 100) indicates a highly competitive industry.
 +
*An H below 0.15 (or 1,500) indicates a concentrated industry.
 +
*An H above an H between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration.
 +
*0.25 (above 2,500) indicates high concentration.
  
| Low level of automation;
+
Other way to express this consolidation is to calculate the concentration ratio for the biggest companies. For Iceland this is done for the biggest (CR1), the five biggest (CR5) and the ten biggest (CR10).
Value of the product is increasing as Canadian quotas decrease Fish are processed more in Canada instead of exporting fish for further processing abroad Minimum processing requirement makes processing on sea impossible
 
  
|-
+
===== Iceland =====
| Flow of raw material
 
| Fishing and processing done in harmony by VICs based on
 
*Quota status
 
*Coordination of landings with processing capacity within each season
 
  
| Raw material flow governed through first-hand auction. Vessels may have to travel
+
''Table 5. Concentration calculation for Iceland the years 2000 and 2017''
2 days extra to reach the highest bidder
 
 
 
| Through the auction markets and some degree of coordination with buyers
 
| Depending on size of boats and fishing grounds. Off shore vessels
 
are not as bound to location Landing obligation and minimum processing requirements make location of production important to be close to landing stations
 
  
 +
{| class="wikitable" style="width: 100%"
 
|-
 
|-
| Structure of the industry
+
! &nbsp;
| Almost completely vertical integrated industry.
+
! colspan="3" | 2000
Small share of catch done by independent small boats Limited competition within the pelagic (herring) sector due to consolidation
+
! colspan="4" | 2000
 
 
*Raises questions about how this affects product mix and development?
 
 
 
| No vertical integration.
 
High capacity in processing and strong competition between processors.
 
 
 
| No vertical integration.
 
High capacity in processing and strong competition between processors.
 
 
 
| The industry is split into two main sector inshore fleet and offshore fleet.
 
Approximately 50-60% of landed volume and value is by the inshore fleet <19.8m
 
 
 
 
|-
 
|-
| Location
+
! &nbsp;
| Economics of scale and scope
+
! Herring
*Need to have one location highly focussed on processing of fillets, freezingand meal production
+
! Capelin
 
+
! Blue Whiting
| Economics of scale and scope
+
! Herring
*An advantage to have one location with both freezing and meal and oil production
+
! Capelin
 
+
! Blue Whiting
| Economics of scale and scope
+
! Mackerel
*An advantage to have one location with both freezing and meal and oil production
+
|-
 
+
| Number of vessels
| Inshore fleet has limits of fishing ground depending on boat size
+
| 36
 +
| 41
 +
| 19
 +
| 14
 +
| 12
 +
| 15
 +
| 67
 +
|-
 +
| Concentration Ratios
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 +
| &nbsp;
 
|-
 
|-
| Employment
+
| CR1
| Seasonality and fluctuation in catches between years affects required employees
+
| 9.2%
- emphasis on automation
+
| 9.6%
 
+
| 21.7%
| Highly seasonal production Highly automated production with fewer employees Mainly
+
| 19.3%
seasonal, foreign labour
+
| 19.7%
 
+
| 18.6%
| Highly seasonal fishing
+
| 14.0%
| Rather low degree of automation production
+
|-
For the majority of labour force in the NL fishery the industry is regarded as highly seasonal and is augmented by secondary income. Labour for the harvesting vessels and processing facilities are required for short periods of time with individuals either relying on employment assistance programs or having to find alternative employment when the fishing season is closed
+
| CR4
 
+
| 28.9%
|}
+
| 32.6%
 
+
| 56.7%
==== Price settling mechanism ====
+
| 62.3%
 
+
| 58.3%
*Price of herring in Iceland is decided by the Official Bureau of Ex-Vessel Fish Prices (Verðlagstofu Skiptaverðs).  
+
| 60.7%
**The price is decided monthly, where the set-price is changed 
+
| 47.5%
 
+
|-
according to changes in the market price, sometimes with a considerable delay.
+
| CR5
 
+
| 34.1%
*
+
| 38.3%
**This price is not used in any transactions other than calculating the 
+
| 63.7%
 
+
| 70.1%
vessel crews ́ wages (based on a share system).
+
| 68.6%
 
+
| 69.0%
*
+
| 26.9%
**Historically the price was determined by the market price for fish oil 
+
|-
 
+
| CR10
and meal.
+
| 54.1%
 
+
| 55.2%
*
+
| 92.6%
**As the importance of herring to human consumptions has grown, 
+
| 97.3%
 
+
| 97.2%
this has changed and the Bureau of Ex Vessel Fish Price now also decides the price for whole herring for freezing.
+
| 96.5%
 
+
| 89.1%
*
+
|-
**The quantity behind the price is however very limited so the 
+
| HHI
 
+
| 0.0421
price for fish meal and oil is still the price that is used by the industry
+
| 0.0459
 
+
| 0.1205
*Norwegian herring is sold through the Norwegian pelagic auction, Europe’s
+
| 0.1232
 
+
| 0.1190
largest pelagic fish auction, with an annual turnover of approximately 1.5 million tonnes at a value of almost NOK 9 billion (€ 966 million).
+
| 0.1221
 
+
| 0.0902
*
+
|}
**The auction is an electronic auction without physical inspections of 
 
 
 
products and is based on the first-price sealed-bid method
 
 
 
*
 
**There is a minimum price in the auction, set at 80&nbsp;% of the average 
 
 
 
for all sales of the species for the last two weeks
 
 
 
*
 
**The first-hand sale of fish in Norway is legally protected through the 
 
  
raw fish act and organized through sales organizations with exclusive rights for co-ordinating the first-hand sale of fish
+
Data for the calculation is from the Directorate of Fisheries in Iceland. Calculations based on catches by all vessels reporting pelagic catches in 2000 and 2017. Concentration calculated by vessel operators; if an operator has many vessels catches of them all are combined.
  
*
+
*It is clear that consolidation has been taking place in Iceland looking at the CR index and biggest company CR1 is close to the quota celling of 20%
**The Norwegian pelagic auction was established in the 1970s and is 
+
*The CR10 points toward great consolidation where the 10 biggest have well over 95&nbsp;% share of most pelagic species.
 +
*The HHI index express that the industry has moved from being a competitive industry to being an almost totally concentrated industry in 2017.
  
owned and operated by Norges Sildesalgslag (NSS), the current sales organization for pelagic fishermen in Norway.
+
===== Norway =====
  
*
+
Concentration in the pelagic fisheries is very low, with 78 large purse seiner taking part in the fisheries, and with no quota owner owning more than 2&nbsp;% of the quota.
**There are some firms owning both fleet and processing capacity in 
 
  
the herring sector, but the auction limits any real vertical integration
+
Concentration in processing is much higher, as shown below. There was a decrease in concentration from the mid 90ies till around 2005, where more companies established processing plants for pelagic species.
  
*
+
[[File:D34 fig 35.png|center|Figure 35]] ''Figure 35. Concentration in the Norwegian pelagic industry.''
**There are two main prices in Norway for consumption, and for meal 
 
  
and oil as shown in Figure 30. The quantity in meal and oil is very limited so the consumption price will be used in the comparison.
+
The steepest increases in concentration was seen from 2006 to 2008, with the merger that shaped Norway Pelagic, with 16 processing facilities included. The last steep increase is the result of the merger into Pelagia, also resulting in a strong concentration of herring for both human consumption and oil and meal.
  
[[File:D34 fig 30.png|center|Figure 30]] ''Figure 30. Herring price and volume in Norway 2001 to 2017''
+
There is a certain tendency of an increased importance of this sector to the economy, as demonstrated in Fig 17 below. The increased contribution to the economy coincides with an increased concentration (without any causal relation).
  
*Danish herring is also offered at the auction of “Norges Sildesalgslag.” The
+
[[File:D34 fig 36.png|center|Figure 36]] ''Figure 36. Change in concentration and importance of the sector.''
  
Norwegian processors as well as Danish processors buy directly via this auction.
+
The pelagic industry does not seem to be occupying a larger share of the seafood sector.
  
*
+
===== Denmark =====
**Around 90% of the herring goes through the auction of “Norges 
 
  
Sildesalgslag.
+
''Table 1 Atlanto-Scandic herring – Danish ITQ quotas. No vessels, no of vessels with different owners/owner company* and HHI index.''
  
*
+
{| class="wikitable" style="width: 100%"
**The rest or 10% is sold through the Danish fish auctions (Ministry of 
+
|-
 +
! &nbsp;
 +
! 2008
 +
! 2016
 +
|-
 +
| Danish TAC (tons)
 +
| 44.535
 +
| 20.919
 +
|-
 +
| No vessels with quota (ITQ)
 +
| 23
 +
| 13
 +
|-
 +
| No individual owners*
 +
| 22
 +
| 12
 +
|-
 +
| HHI-index
 +
| 0,065
 +
| 0,113
 +
|}
  
Environment and Food.
+
''*The specific ownership is not clear. The quotas are allocated to vessels, which can have different owner structure. Reduction only if same company owns two vessels.''
  
*
+
*The concentration rate for Danish Atlanto Scandic herring fisheries has increased – almost doubled. But it is still below a HHI-index of 0,15 and istherefore regarded as un-concentrated.
**In many cases there are some agreement or coordination between 
 
  
the vessel and a processer about deliverance of a certain amount at a certain time.
+
''Table 2. North Sea herring– Danish ITQ quotas. No vessels, no of vessels with different owners/owner company* and HHI index.''
  
*
+
{| class="wikitable" style="width: 100%"
**Even when coordination takes place, the current price at the 
+
|-
 
+
! &nbsp;
auction of Norges Sildesalgslag is the basis for negotiations about possible bonus for deliverance.
+
! 2008
 
+
! 2016
*
+
|-
**The market is not fully reflecting the highest quality of herring. In 
+
| Danish TAC (tons)
 
+
| 31.243
general, the quality of purse seine caught herring is higher than trawl caught herring, as the quality of herring caught by trawl depends of trawl time, and there are pressure risks.
+
| 98.830
 
+
|-
*In Newfoundland first hand price is negotiated annually between the
+
| No vessels with quota (ITQ)
 
+
| 8
harvesters and the processors with an average price per kilogram determined in advance of the season; the negotiated price is subjected to change throughout the season. Unlike other fisheries, the FFAW (the union representing the harvesters and processors) are not actively engaged in the price negotiations for herring.
+
| 7
 
+
|-
Price development in the comparisons countries is expressed in Fig 12. Price was just available from Canada from 2006 to 2008 and from 2014 to 2017.
+
| No individual owners*
 +
| 7
 +
| 7
 +
|-
 +
| HHI-index
 +
| 0,146
 +
| 0,182
 +
|}
  
[[File:D34 fig 31.png|center|Figure 31]] ''Figure 31. Price development in Norway, Iceland and Denmark 2001 to 2017; Canada 2006-2008 and 2014-2017.''
+
''*The specific ownership is not clear. The quotas are allocated to vessels, which can have different owner structure. Reduction only if same company owns two vessels.''
  
*There is a huge difference between the price paid in Iceland and the  
+
*The concentration of the Danish fisheries of North Sea herring has increased. It had the top level to be characterised as an un- concentrated market in 2008, but will be regarded as moderately concentrated by 2017.
 +
*A strong consolidation has taken place in the primary processing of herring over the last 10-15 years. Unfortunately, there is no data available on volumes of purchasing of herring by the Danish fish processors to document this process in HHI-terms. At present (2017) we have assessments from industry informants and managers that the documented structure of high concentration of primary processor in the herring with two large processors and a few minor processors probably would give a score at the HHI-index around 0,40, which document a high concentration of production in the Danish processing. As will be argued later, this is not problematic from a competition point of view, as the regional (Norway, Germany) competition is high.
  
consumption price in Norway and Denmark.
+
===== Newfoundland =====
  
*The price in Canada is always the lowest (for the comparison years).  
+
The current fisheries management structure in NL, caps the number of licenses an enterprise can acquire. Similarly, the fleet separation policy is also having an impact on the level of concentration, the competitiveness and consolidation by harvesters and processing companies. It is clear that there is no danger that consolidation is high in Newfoundland and therefore the HHI index was not calculated for Newfoundland
**Price varies between region in Canada and the herring receive the 
 
  
lowest price of the region in Newfoundland.
+
===== Summary of main influencing factors regarding concentration =====
 
 
*There is not much evidence of the role of the auction markets to pay for
 
 
 
quality, or according to the fishing gear as all herring in Norway is caught in purse seine
 
 
 
*
 
**According to unconfirmed personal communication the auction 
 
  
market is not fully reflecting the highest quality of herring.
+
*According to CR4 it is clear that Norway had more concentration sector than Iceland in the year 2000 where the Norwegian pelagic sector had CR4 49,1% while the Icelandic herring sector 28,9%.  
 
+
*In 2017 the CR4 is up to 62,3% in herring for Iceland while it is 67,6% in the pelagic sector in Norway. The difference is getting smaller and it is clear that concentration within the sector in Iceland has been increasing fast
===== Summary of main influencing factors regarding the price settling mechanism =====
+
*Although concentration has been increasing a lot in all the countries it is argued that this is not problematic from a competition point of view, as the pelagic products are mainly B2B commodity and the global/Nordic competition is high as well as regional.
  
{| class="wikitable" style="width: 100%;"
+
{| class="wikitable" style="width: 100%"
 
|-
 
|-
 
! Factor
 
! Factor
Line 2,298: Line 2,293:
 
! Newfoundland
 
! Newfoundland
 
|-
 
|-
| Price settling
+
| Restriction on consolidation
| Price settling committee deciding price.  
+
| 20% quota celling. The largest company is almost up to that limit.
Less than 1% goes through auction markets
+
| Very low consolidation in the fishing fleet (largest vessel owner at 2&nbsp;%)
 +
Increasing concentration in processing and exports
  
| Auction market
+
| &nbsp;
| Auction market
+
| Limits of stacking of licences
| Negotiated annually and subject to change within a season
 
 
|-
 
|-
| Market activities
+
| HHI index
| Limited
+
| 0,1232
| High
+
| &nbsp;
| High
+
| Quota
| Limited
+
0,113 Fishing 0,182
 +
 
 +
| Not calculated but very low consolidation
 
|-
 
|-
| Transparency in price settling
+
| CR4
| Limited
+
| 28.9% (2000)
| High (Auction market)
+
62.3% (2017)
| Auction market
 
| Limited
 
|-
 
| Dynamic of the
 
price settling mechanism
 
  
| Limited
+
| 49.1% (2000)  
| High
+
67.6% (2015)
| High
 
| Low
 
|-
 
| Different price according to fishing gear
 
| None
 
| Yes (but almost everything is caught by purse seine)
 
| Undetermined
 
| Undetermined
 
|-
 
| Quality
 
| Good, and has improved with time due to higher RSW-capacity of vessels
 
| Very good, minimal variation.  
 
Quality has increased with time by better catch handling and higher RSW-capacity
 
  
| Good, and have improved with time by higher RSW-capacity
+
| &nbsp;
| Dependent on the quality of the flesh and the fat content; seasonal variance
+
| &nbsp;
|-
 
| Timing
 
| Strong seasonal variation
 
| Strong seasonal variation
 
| Strong seasonal variation
 
| Strong seasonal variation
 
 
|}
 
|}
  
==== Fishing ====
+
==== Overall economic performance and competitiveness of the fisheries value chain ====
  
===== Fishing gear =====
+
Value chain dynamics depend heavily on the governmental form of the value chain and the relationship within the value chain and the governance form. Gereffi claims that many chains are characterised by a dominant party/parties who determines the overall character of the chain. In the same way the lead firm(s) becomes then responsible for upgrading activities within individual links and coordinating interaction between links in the value chain. Hence, the role of governance in the value chain is important and Gereffi (1994) makes a distinction between two types of governance in value chain. In the first buyers undertake coordination in the value chain (buyer driven commodity chains) and the second are those in which producers play the key role of coordination (producer-driven commodity chains). In fisheries that builds on using natural resource it is interesting to analyse the different drive forces in the value chains and the ways of coordinating activities in the value and how this is impacting the results of the value chain.
  
Norwegian catch all the herring in purse seine that is believed to deliver better quality of raw material than the pelagic trawl.
+
===== Iceland =====
  
*Icelandic pelagic vessel are increasingly using pelagic trawl in catching the
 
  
herring as can be seen from below figure where the trawl used for 90% of the catch during the last 3 years.
+
====== Governmental form of the value chain ======
  
*The NL/Canadian herring fishery are using a combination of fixed and  
+
*The herring sector was until 1991 based on many individual boat owners that had the licences to catch herring. During that time the governmental form was based on individual contracts and where the herring was caught.
 +
*The period during 1991 to 2000 a lot of consolidation occurred as other pelagic boats, mainly capelin boats were allowed to buy herring quota.
 +
**In 2016 the real number of companies that hold herring quota is only 11.
 +
**One of them is not vertically integrated and operates only one pelagic vessel.
 +
**Value chain is governed through high power asymmetry as hierarchy. 
 +
*The export part of the value chain has as well changed a lot during the last 30 years.
 +
**The dependency in the value chain varies a lot depending degree of long term contract in their business instead of ad hoc sale.
 +
**Frequent changes in export from Iceland suggest market relationship based on price. Closing of markets in Russia affect this in the last years. 
 +
*The degree of coordination in the value chain of herring is not as great as the supplies can be stored for a long time as well being global b2b commodities.
 +
*The vertical integration has maintained a certain power balance in the industry preventing the fishing sector from becoming too powerful.
  
mobile gear (purse seine) to capture herring; regulations governing the use of each gear type and the region where they can be used.
 
  
[[File:D34 fig 32.png|center|Figure 32]] ''Figure 32. Use of purse seine and pelagic trawl in Fishing herring in Iceland 2005 to 2016''
+
====== Drive force in the value chain ======
  
*The biggest change in the fishing of herring is the improved cooling system
+
*It is clear that the VICs companies holding majority of the quota are the leading firm in the value chain of herring in Iceland.
 +
*The driving force is economics of scale in fishing and production
 +
*Synchronising fishing and production through the VICs.
 +
*Consolidation brings in the danger of lack of internal competition in the value chain.
 +
**More or less all companies are focusing on the same strategy of automation in production and focus on frozen fillets and butterflied herring.
 +
**Only one company focuses on salted herring 
 +
*Market price
  
in the vessel by the introduction of fresh chilled (RSW) on board the vessel.
+
===== Norway =====
  
*
 
**In Iceland this changed the industry in the sense that more of the 
 
  
herring is processed on land instead of frozen at sea as can been seen in Figure 33.
+
====== Governmental Form ======
  
[[File:D34 fig 33.png|center|Figure 33]] ''Figure 33. Herring landings 1982 to 2016 – frozen at sea or domestic processing''
+
The value chain for pelagic fish from Norway
  
===== Performance and profitability =====
+
[[File:D34 fig 37.png|center|Figure 37]] ''Figure 37. The value chain for Norwegian herring, with three intermediate markets''
  
In Figure 34 the profit before interest rates and tax (EBIT) is shown for pelagic fishing in Iceland and two vessel groups from Norway, deep sea and costal fishing of pelagic species
+
Herring from Norway is sold in three intermediate markets, with quite different characteristics:
  
[[File:D34 fig 34.png|center|Figure 34]] ''Figure 34. EBIT as share of revenue for pelagic fishing in Norway and Iceland 1998 to 2015.''
+
#The Auction Market. Market relationship mainly based on price on the auction
  
*The profit is similar between the fishing methods but slightly higher in  
+
*Many sellers (more than hundred), but one sales point
 +
*Around 25 buyers, huge landing and processing capacity
 +
*First-price, sealed-bid auction
 +
*Strong seasonal peaks
 +
*Quality is variable and hard to control, but generally good
 +
*Efficient auction and high capacity in processing: leads to high profitability in the fleet, low profitability in processing
  
Norway. The trend line show that the profit has been increasing faster in Iceland in recent years than Norway.
+
#Export of whole frozen or fillets. Relational form of governance, but still strong competition.  
  
*The highest profit is in deep sea fishing in Norway, which varies between
+
*Few buyers in each market, fish resold to many small producers in some markets
 +
*Contract or spot sales
  
10 to 20% of revenue.
+
#Relations are important, necessary for obtaining a sale, but not sufficient to gain a contract. Relations are not unique relations. All buyers will have relations with several exporters, leaving price to determine the contract.
 +
#Processed products. Relational form of governance.  
  
*There is no available information about profitability in the industry in  
+
*Supermarket chains: Strong buyers in consolidated retail markets
 +
*Huge diversity of products
  
Newfoundland.
+
====== Driving force in the value chain ======
  
*In Denmark information about profitability is at company level and not
+
*Main traits/implications:
 +
**Efficient auction leads to highest possible sustainable (sustainable 
  
comparable with the sectoral analysis in Iceland and Norway
+
price: the price that brings down profitability to just above zero in processing) prices: high profitability in the fleet, low in processing
  
===== Summary of main influencing factors regarding fishing =====
+
*
 +
**Very efficient primary processing in Norway, highly automated, with 
  
{| class="wikitable" style="width: 100%;"
+
large quantities produced at high, even and predictable quality
|-
 
! Factor
 
! Iceland
 
! Norway
 
! Denmark
 
! Newfoundland
 
|-
 
| Profitability
 
| Medium
 
| High
 
| &nbsp;?
 
| &nbsp;?
 
|-
 
| Productivity
 
| Productivity has increased because of more automation,  
 
both in fishing and especially on-land processing of seafood
 
  
| Productivity has increased because of more automation, both in
+
*
fishing and especially on-land processing of seafood
+
**This is an industry not very well suited to differentiated products, as 
  
| Productivity has increasedbecause of more automation, both in
+
production is based on scale and standardisation, therefore unlikely to move into highly diversified and small-scale retail markets
fishing and especially on-land processing of seafood
 
  
| Rather low degree of automation production
+
*The power in the value chain seems to be at both extremes in the value
For the majority of labour force in the NL fishery the industry is regarded as highly seasonal and is augmented by secondary income.
 
  
|-
+
chain. The fleet has a very strong position, as it holds a raw material in high demand, and has an auction system able to command the highest possible price for the herring.
| Processing
 
| Changes from processing on sea to processing on land, where utilization is
 
better (better filleting yield) and promotes better use of by-products creating more value from each fish. Cooling - Longer fishing trips – you can catch good fish further out at sea; seasonality
 
  
| Increased share to human consumption (reached 100&nbsp;% around 2000) Share of processing now stable at around 40&nbsp;%
+
*
| Mixture of whole export for further processing abroad or as prepared and preserved
+
**On the other extreme, supermarket chains act as very strong buyers 
that is more in consumer packing.
+
 
 +
from processing firms, leaving processors and traders in the value chain in a weak intermediate position.
 +
 
 +
*In Norway we have seen several mergers in an attempt to weaken the
  
| All landed processedMajority of Atlantic herring is exported Small volume is sold or used
+
competitive pressure, and thus to gain a higher margin, only to find that other producers strengthen their position in the wake of the dominant firm.
within Canada as bait or for fishmeal. Food exports are typically in the form of primary or secondary processed products (e.g. whole fresh/chilled/frozen, frozen fillets, smoked, salted or in brine [not dried or smoked], prepared or preserved whole or in pieces). Some of these products (e.g. first stage marinades) are further processed in the United States and then re-imported back into Canada
 
  
|}
+
*With almost all of the herring sales going through the first-hand auction,
  
==== Consolidation ====
+
the degree of vertical coordination is very low, even though some boat- owners are major stakeholders in processing firms.
  
One way of expressing consolidation in the seafood sector in different countries is to calculate HHI or Herfindahl, Hirschman index which for the seafood sector can be calculated by summing up the squared quota shares of the firms in question. The index value is found by the sum of the squared market shares of all firms (N): and can be expressed as a normalized figure (0 ≤ HHI ≤ 1), or taking numbers between 5 and 10,000, for whether market shares are expressed in percentages or rates.
+
===== Denmark =====
  
For a company with 100 per cent market share the value will be 10,000 (or corresponding 1), while for a market with 10 firms and 10 per cent market share each the value will be 1,000 or 0.1.
+
====== Governmental Form ======
  
*An H below 0.01 (or 100) indicates a highly competitive industry.  
+
*Herring industry has been consolidated over the last 15 years.  
*An H below 0.15 (or 1,500) indicates a concentrated industry.  
+
**Implementation of ITQ in 2003.  
*An H above an H between 0.15 to 0.25 (or 1,500 to 2,500) indicates
+
**Processing followed some year later but has reached a high level of 
  
moderate concentration.
+
concentration today, which the assessed HHI-index around 0,4 illustrates.
  
*0.25 (above 2,500) indicates high concentration.
+
*In general, the relation between the fleet and the primary processors has
  
Other way to express this consolidation is to calculate the concentration ratio for the biggest companies. For Iceland this is done for the biggest (CR1), the five biggest (CR5) and the ten biggest (CR10).
+
been characterized by a market relation,
  
===== Iceland =====
+
*
 +
**with some degree of negotiation and coordination. 
 +
*Today the relation is formally market based – the vessels sell and land
  
''Table 5. Concentration calculation for Iceland the years 2000 and 2017''
+
where the price and income is best
  
{| class="wikitable" style="width: 100%;"
+
*
|-
+
**there is some coordination between the vessel and the processor.
! &nbsp;
+
**the relation thus can be characterized as modular, or in some cases 
! colspan="3" | 2000
+
 
! colspan="4" | 2000
+
even relational, in the cases of strong coordination between the processor and one or a few vessels.
|-
+
 
! &nbsp;
+
*Regarding the processing and export market, the consolidation the last 15  
! Herring
+
 
! Capelin
+
and especially 10 years has influenced the governance structure as well.
! Blue Whiting
+
 
! Herring
+
*Earlier, the Danish herring-processing sector was characterised by a
! Capelin
+
 
! Blue Whiting
+
relative few high number of primary processors.
! Mackerel
+
 
|-
+
*
| Number of vessels
+
**The relation was highly competitive at a market basis, while also 
| 36
+
 
| 41
+
personal relations and personal knowledge of quality were of importance.
| 19
+
 
| 14
+
*The relation between primary and secondary processor apparently has
| 12
+
 
| 15
+
characteristics from a modular or even relational coordination. Still the relation is highly competitive and market based.
| 67
+
 
|-
+
*Apparently, every link in the value chain are aware the risk of being
| Concentration Ratios
+
 
| &nbsp;
+
dependent of a supplier or customer.
| &nbsp;
+
 
| &nbsp;
+
*
| &nbsp;
+
**limit input or sales of products to 20-25&nbsp;% for each customer.  
| &nbsp;
+
**customers have a range of suppliers and can maintain the price 
| &nbsp;
+
 
| &nbsp;
+
competition between these.
|-
+
 
| CR1
+
*
| 9.2%
+
**This is also a market based limit for consolidation in the Danish 
| 9.6%
+
 
| 21.7%
+
industry.
| 19.3%
+
 
| 19.7%
+
====== Driving force in the value chain ======
| 18.6%
+
 
| 14.0%
+
*Driving force is economics of scale in fishing and production
|-
+
*Market price in the relationship of fishing and production
| CR4
+
**Certain level of synchronising fishing and production through 
| 28.9%
 
| 32.6%
 
| 56.7%
 
| 62.3%
 
| 58.3%
 
| 60.7%
 
| 47.5%
 
|-
 
| CR5
 
| 34.1%
 
| 38.3%
 
| 63.7%
 
| 70.1%
 
| 68.6%
 
| 69.0%
 
| 26.9%
 
|-
 
| CR10
 
| 54.1%
 
| 55.2%
 
| 92.6%
 
| 97.3%
 
| 97.2%
 
| 96.5%
 
| 89.1%
 
|-
 
| HHI
 
| 0.0421
 
| 0.0459
 
| 0.1205
 
| 0.1232
 
| 0.1190
 
| 0.1221
 
| 0.0902
 
|}
 
  
Data for the calculation is from the Directorate of Fisheries in Iceland. Calculations based on catches by all vessels reporting pelagic catches in 2000 and 2017. Concentration calculated by vessel operators; if an operator has many vessels catches of them all are combined.
+
relationship between the two sectors.
  
*It is clear that consolidation has been taking place in Iceland looking at the
+
*Towards less emphasis on prepared and preserved products towards lower
  
CR index and biggest company CR1 is close to the quota celling of 20%
+
processing stage as whole herring
  
*The CR10 points toward great consolidation where the 10 biggest have
+
*
 +
**Lack of competition?
 +
**Too much consolidation?
 +
**Lack of synchronisation of fishing and production? 
  
well over 95&nbsp;% share of most pelagic species.
+
===== Newfoundland =====
  
*The HHI index express that the industry has moved from being a
+
====== Governmental Form ======
  
competitive industry to being an almost totally concentrated industry in 2017.
+
*In Newfoundland it is possible to separate the fishing industry into two
  
===== Norway =====
+
sectors. First is the offshore sector that is vertical integrated in fishing, processing and marketing and then inshore fleet, which is based up on individual boat owners where vertical integration is banned.
  
Concentration in the pelagic fisheries is very low, with 78 large purse seiner taking part in the fisheries, and with no quota owner owning more than 2&nbsp;% of the quota.
+
*The boat owners and producers negotiate a price at the beginning of the  
 +
 
 +
season which is subjected to change; unlike other fisheries the price is not negotiated by the FFAW (The Fish, Food and Allied Workers Union) and associations of producers. There are no auction markets and more or less the negotiated price is used in the transaction.
 +
 
 +
*The relationship is in some way captive due to lack of active markets in
 +
 
 +
the relationship but in some cases, it could be regarded relational where boat owner and producers have some contract about landing of cod and other spices.
  
Concentration in processing is much higher, as shown below. There was a decrease in concentration from the mid 90ies till around 2005, where more companies established processing plants for pelagic species.
+
'''Power balance/structure'''
  
[[File:D34 fig 35.png|center|Figure 35]] ''Figure 35. Concentration in the Norwegian pelagic industry.''
+
*Due to the structure of the fisheries management system that is individual
  
The steepest increases in concentration was seen from 2006 to 2008, with the merger that shaped Norway Pelagic, with 16 processing facilities included. The last steep increase is the result of the merger into Pelagia, also resulting in a strong concentration of herring for both human consumption and oil and meal.
+
vessel has a TAC but has limited possibility of transferring fishing licenses (stacking up) the power in the value chain lies in the hands of the stakeholders that decides on the system.
  
There is a certain tendency of an increased importance of this sector to the economy, as demonstrated in Fig 17 below. The increased contribution to the economy coincides with an increased concentration (without any causal relation).
+
*The stakeholders are the policymakers that is the politicians and the  
  
[[File:D34 fig 36.png|center|Figure 36]] ''Figure 36. Change in concentration and importance of the sector.''
+
parliament that decide on the system.
  
The pelagic industry does not seem to be occupying a larger share of the seafood sector.
+
*Due to low quota in Newfoundland and more important species as lobster
  
===== Denmark =====
+
and crab, cod have been looked up as filling and not major species in fishing. With foreseeable increase in quota this can become problematic.
  
''Table 1 Atlanto-Scandic herring – Danish ITQ quotas. No vessels, no of vessels with different owners/owner company* and HHI index.''
+
===== Summary of main influencing factors regarding concentration =====
  
 
{| class="wikitable" style="width: 100%;"
 
{| class="wikitable" style="width: 100%;"
 
|-
 
|-
! &nbsp;
+
! Factor
! 2008
+
! Iceland
! 2016
+
! Norway
 +
! Denmark
 +
! Newfoundland
 
|-
 
|-
| Danish TAC (tons)
+
| Structure of the industry
| 44.535
+
| Vertical integrated rather large companies
| 20.919
+
| Two sectors: inshore smaller boats, but majority larger companies but not vertically integrated
 +
| &nbsp;
 +
| Two sectors Inshore with ban on vertical integration Offshore sector which is more or less verticalintegrated
 
|-
 
|-
| No vessels with quota (ITQ)
+
| Vertical integrations
| 23
+
| High
| 13
+
| None
 +
| None
 +
| Low
 
|-
 
|-
| No individual owners*
+
| Flow of raw material
| 22
+
| Through VICs
| 12
+
| Auction markets
 +
| Auction markets and some degree of coordination
 +
| &nbsp;
 
|-
 
|-
| HHI-index
+
| Governance
| 0,065
+
| Hierarchy
| 0,113
+
| Market based
|}
+
| Market based
 
+
| Captive or relationship in inshore sector Hierarchy in the off-shore sector
''*The specific ownership is not clear. The quotas are allocated to vessels, which can have different owner structure. Reduction only if same company owns two vessels.''
 
 
 
*The concentration rate for Danish Atlanto Scandic herring fisheries has increased – almost doubled. But it is still below a HHI-index of 0,15 and istherefore regarded as un-concentrated.
 
 
 
''Table 2. North Sea herring– Danish ITQ quotas. No vessels, no of vessels with different owners/owner company* and HHI index.''
 
 
 
{| class="wikitable" style="width: 100%;"
 
 
|-
 
|-
! &nbsp;
+
| Coordination
! 2008
+
| High in the VICs and based on buyers need in some sense
! 2016
+
| Market based
 +
| Market based and some direct coordination
 +
| Low in inshore fleet; some in the offshore sector
 
|-
 
|-
| Danish TAC (tons)
+
| Dependency
| 31.243
+
| High in the hierarchy
| 98.830
+
| Low
 +
| Low
 +
| Low but minimum processing requirements can create dependency between fishing and production
 +
|-
 +
| Power structure/balance
 +
| Hierarchy with high dependency by sectors and power balance
 +
| The auction system leaves the fishing fleet with most of the profitability in the industry
 +
| &nbsp;
 +
| &nbsp;
 +
|-
 +
| Driving force
 +
| Product and seasonal driven value chain based on coordination of fishing and production through VICs
 +
| Scale and productivity increase
 +
| &nbsp;
 +
| Harvesting (product) driven value chain, Based on minimising cost strategy of fisherman
 
|-
 
|-
| No vessels with quota (ITQ)
+
| Lead firm
| 8
+
| VICs
| 7
+
| Pelagia in processing, no identifiable lead firms in fishing
 +
| &nbsp;
 +
| None
 
|-
 
|-
| No individual owners*
+
| Core competitiveness
| 7
+
| Economic of scale and synchronising of activities through the VICs
| 7
+
| Economics of scale
 +
| Economic of scale
 +
| &nbsp;
 
|-
 
|-
| HHI-index
+
| Specialisation
| 0,146
+
| Rather high Vessels mainly in pelagic spices Producers have special pelagic processing facilities
| 0,182
+
| Large purse seiners are specialised in pelagic species (but less specialisation within the
|}
+
pelagic species, all vessels catch herring and mackerel, some also catch capelin, blue whiting etc.)
  
''*The specific ownership is not clear. The quotas are allocated to vessels, which can have different owner structure. Reduction only if same company owns two vessels.''
+
| &nbsp;
 +
| Very low seasonal industry
 +
|}
  
*The concentration of the Danish fisheries of North Sea herring has
+
==== Strategic Position Briefing ====
  
increased. It had the top level to be characterised as an un- concentrated market in 2008, but will be regarded as moderately concentrated by 2017.
+
*The pelagic/herring industry in Norway, Iceland and Denmark build their
  
*A strong consolidation has taken place in the primary processing of
+
competitive strength on economics of scale both in fishing and processing.
  
herring over the last 10-15 years. Unfortunately, there is no data available on volumes of purchasing of herring by the Danish fish processors to document this process in HHI-terms. At present (2017) we have assessments from industry informants and managers that the documented structure of high concentration of primary processor in the herring with two large processors and a few minor processors probably would give a score at the HHI-index around 0,40, which document a high concentration of production in the Danish processing. As will be argued later, this is not problematic from a competition point of view, as the regional (Norway, Germany) competition is high.
+
*
 +
**consolidation and automatization of their production.  
 +
**the production is mainly B2B commodities for further processing 
  
===== Newfoundland =====
+
abroad
 +
 
 +
*
 +
**Danish herring has though bigger part of their production in 
 +
 
 +
prepared and preserved packing due to access to the common market (without tariffs)
 +
 
 +
*The Canadian industry focus more on prepared herring and is more labour
  
The current fisheries management structure in NL, caps the number of licenses an enterprise can acquire. Similarly, the fleet separation policy is also having an impact on the level of concentration, the competitiveness and consolidation by harvesters and processing companies. It is clear that there is no danger that consolidation is high in Newfoundland and therefore the HHI index was not calculated for Newfoundland
+
intensive maybe due to limited quantity.
  
===== Summary of main influencing factors regarding concentration =====
+
*Due to the economics of scale it is not easy to enter the industry
 +
*In all countries herring fishing is seasonal so competitiveness of the
  
*According to CR4 it is clear that Norway had more concentration sector
+
industry is based on other pelagic species and quantity.
  
than Iceland in the year 2000 where the Norwegian pelagic sector had CR4 49,1% while the Icelandic herring sector 28,9%.
+
*Upgrading in the value chain can be difficult and will in the case of Norway
  
*In 2017 the CR4 is up to 62,3% in herring for Iceland while it is 67,6% in  
+
and Iceland be based on increasing the production stage of the herring, at least part of it, in more consumer’s product instead of B2B commodities.
  
the pelagic sector in Norway. The difference is getting smaller and it is clear that concentration within the sector in Iceland has been increasing fast
+
*
 +
**Tariffs in the main markets like EU can in many cases be difficult 
  
*Although concentration has been increasing a lot in all the countries it is
+
barriers to overcome. This could be an advantage for Denmark being part of EU and is making countries like Poland and other EU countries more competitive and attractive for further processing.
  
argued that this is not problematic from a competition point of view, as the pelagic products are mainly B2B commodity and the global/Nordic competition is high as well as regional.
+
===== Iceland =====
  
 
{| class="wikitable" style="width: 100%;"
 
{| class="wikitable" style="width: 100%;"
 
|-
 
|-
! Factor
+
! &nbsp;
! Iceland
+
! Description
! Norway
+
! Share of Herring fishing
! Denmark
+
! Access barriers
! Newfoundland
+
! Opportunities and upgrade possibilities
|-
+
! Threats
| Restriction on consolidation
+
! Value chain relationship
| 20% quota celling. The largest company is almost up to that limit.
+
! Dynamic in the value chain
| Very low consolidation in the fishing fleet (largest vessel owner at 2&nbsp;%)
+
|-
Increasing concentration in processing and exports
+
| Independent small boat owners
 +
| <30 tons, number of fishing days limitation and TAC
 +
| 0.2-.4%
 +
| Low
 +
| Limited
 +
| Low valued fish; profitability low or non-existent due to low volume. Uncertainty
 +
regarding fisheries management system, uncertainty regarding resource rent that could affect profitability
  
| &nbsp;
+
| Part in direct sales and part through auction markets.
| Limits of stacking of licences
+
| Lack of dynamic
 
|-
 
|-
| HHI index
+
| Independent big boat owners
| 0,1232
+
| >30 tons with TAC
| &nbsp;
+
| 12% of Icelandic herring
| Quota
+
| High - capital intensive quota price
0,113 Fishing 0,182
+
| Sell to highest bidding land processing
 +
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty regarding resource rent
 +
that could affect profitability. Reduction in number of independent big boat owners.
  
| Not calculated but very low consolidation
+
| Mixture of auction market and contract relationship.
 +
| Maximize first sale price.
 
|-
 
|-
| CR4
+
| Individual producer, ORA, Egilssíl, Marhólmar
| 28.9% (2000)
+
| Supplies fish by contracts and from auction markets. Medium
62.3% (2017)
+
and small size producers with often low degree of automatization, mainly focusing on niece markets.
  
| 49.1% (2000)  
+
| 0
67.6% (2015)
+
| Medium - depends on markets needs and level of automatization required
 +
| Market relationships, product mix, long time source and sales contracts,
 +
| Unstable currency, Access to supply do to quota system and high degree of VICs. Lack of branding,
 +
| Sourcing form auction market and by contracts with boat owners and other producers.
 +
| Maximize value from bycatches and serving niece markets
 +
|-
 +
| Vertical integrated company in fishing, production and marketing (VICs)
 +
| Companies with own boats, processing facilities and marketing office. High degree of atomisation in
 +
processing and fishing. Producing fresh, frozen and salted products.
  
| &nbsp;
+
| 86,4% of Icelandic herring
| &nbsp;
+
| Very high - quota price, capital intensive fishing and production.
|}
+
| Branding, product mix, market relationships, usage of by-products, increase quota share up to limit.
 +
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty regarding resource rent
 +
that could affect profitability. Reduction in number of independent big boat owners. Refresh fish. Lack of branding.
  
==== Overall economic performance and competitiveness of the fisheries value chain ====
+
| Internal sourcing and auction market when there is shortage of own catches.
 +
| Coordination of fishing and processing according to market needs, current sales and quota limitations.
 +
|-
 +
| Export and marketing companies with no own production
 +
| One big sales company and number of small companies selling fish products from VICs and smaller
 +
producers by long term contracts and ad-hoc trade. Sourcing fish from Iceland and other countries.
  
Value chain dynamics depend heavily on the governmental form of the value chain and the relationship within the value chain and the governance form. Gereffi claims that many chains are characterised by a dominant party/parties who determines the overall character of the chain. In the same way the lead firm(s) becomes then responsible for upgrading activities within individual links and coordinating interaction between links in the value chain. Hence, the role of governance in the value chain is important and Gereffi (1994) makes a distinction between two types of governance in value chain. In the first buyers undertake coordination in the value chain (buyer driven commodity chains) and the second are those in which producers play the key role of coordination (producer-driven commodity chains). In fisheries that builds on using natural resource it is interesting to analyse the different drive forces in the value chains and the ways of coordinating activities in the value and how this is impacting the results of the value chain.
+
| 0
 +
| Low - depends of market and supply relationships
 +
| Branding, market relationship, long time contracts
 +
| Unstable currency, Lack of branding, unstable supply.
 +
| Mixture contract relationship ad hoc trade
 +
| Monitor markets needs and preferences and share market signals to producers.  
 +
Risk reduction through network of suppliers.
  
===== Iceland =====
+
|}
  
====== Governmental form of the value chain ======
+
===== Norway =====
  
*The herring sector was until 1991 based on many individual boat owners
+
{| class="wikitable" style="width: 100%;"
 
+
|-
that had the licences to catch herring. During that time the governmental form was based on individual contracts and where the herring was caught.
+
! &nbsp;
 
+
! Description
*The period during 1991 to 2000 a lot of consolidation occurred as other
+
! Share of Herring fishing
 
+
! Access barriers
pelagic boats, mainly capelin boats were allowed to buy herring quota.
+
! Opportunities and upgrade possibilities
 +
! Threats
 +
! Value chain relationship
 +
! Dynamic in the value chain
 +
|-
 +
| Coastal seiners 11 – 21m
 +
| Close to shore, small-scale fisheries, often off-season
 +
| 9%
 +
| Medium - capital intensive quota price
 +
| Better handling, buy quota.
 +
| Quota reduction, price reduction
 +
| Almost all goes through auction markets.
 +
| Lack of dynamic
 +
|-
 +
| Coastal seiners > 21m
 +
| Seasonal fisheries of herring and mackerel (and demersal fisheries in other seasons)
 +
| 18&nbsp;%
 +
| Medium - capital intensive quota price
 +
| Better handling. Sale contracts with producers.
 +
| Quota reduction, price reduction
 +
| Auction markets
 +
| Maximize first sale price.
 +
|-
 +
| Purse seiners
 +
| Large, modern fleet, RSW and good handling > both high efficiency and high quality. Catching in short seasons
 +
for herring (and in particular mackerel)
  
*
+
| 55%
**In 2016 the real number of companies that hold herring quota is 
+
| High - capital intensive quota price
 +
| Sale contracts with producers. Buy quota.
 +
| Quota reduction, price reduction
 +
| Auction market
 +
| Maximize first sale price.
 +
|-
 +
| Large company in production and marketing
 +
| Companies with processing facilities and sales office. High degree of marketing automation in processing.
 +
Producing frozen whole and filleted products.
  
only 11.
+
| &nbsp;
 
+
| Low/medium/high. Low investment for small/medium- scale simple operations (existing, idle plants), high
*
+
investment for large, automated factory
**One of them is not vertically integrated and operates only one 
 
  
pelagic vessel.
+
| Branding, more processed products, market relationships, usage of by-products.
 +
| Unstable currency
 +
| Auction towards the fleet, highly competitive markets for products,
 +
| hard to increase value creation.
 +
|-
 +
| Small company in production and marketing, specialising in semi-processed products
 +
| Companies with processing facilities and sales office. High degree of automation in
 +
primary processing, smaller scale secondary processing. Producing frozen whole and filleted products, as well as marinated smaller pieces.
  
*
+
| &nbsp;
**Value chain is governed through high power asymmetry as 
+
| Medium - depends of market relationships
 +
| Branding, market relationship, long time contracts
 +
| &nbsp;
 +
| Auction towards the fleet, highly competitive markets for products
 +
| &nbsp;
 +
|-
 +
| Export and marketing companies with no own production
 +
| Sales company selling fish products from VICs and smaller producers by long term contracts and
 +
adhoc trade. Sourcing fish from Iceland and other countries.
  
hierarchy.
+
| 0
 +
| Low, requires capital to finance ownership of a few hundred tons. Based on market knowledge and relationships
 +
| Branding, market relationship, long term contracts
 +
| Unstable currency, Lack of branding, unstable supply
 +
| Relationships are a pre-requisite, but not sufficient, actual trade based on spot price
 +
| Monitor markets needs and preferences and share market signals to producers.
 +
Risk reduction through network of suppliers.
  
*The export part of the value chain has as well changed a lot during the last
+
|}
  
30 years.
+
*Independent Small boats owners
 +
**Small boat owners operate a bit differently than the larger purse seiners. They mostly fish close to the coast, 
  
*
+
often inshore, and through a larger portion of the year than the larger fleet
**The dependency in the value chain varies a lot depending degree of  
 
 
 
long term contract in their business instead of ad hoc sale.
 
  
 
*
 
*
**Frequent changes in export from Iceland suggest market relationship    
+
**They often sell outside of the auction, to smaller firms, and often to much higher prices than in the high season
 +
**The larger coastal fleet has much of the same pattern as the purse seiners. A share of their catch is sold on    
  
based on price. Closing of markets in Russia affect this in the last years.
+
contract, sometimes at a lower price than purse seiners. The lower price might stem from both the inability to travel long distances with the herring and the fact that some struggle to achieve the high quality delivered by the most modern purse seiners
  
*The degree of coordination in the value chain of herring is not as great as
+
*Independent big boat owners
 +
**All boat owners might be characterised as independent. The sector is dominated by a large and homogeneous 
  
the supplies can be stored for a long time as well being global b2b commodities.
+
fleet of purse seiners (78 boats), where a few boat owners own 2-3 boats, but where no firm catch more than 2&nbsp;% of the catch value.
  
*The vertical integration has maintained a certain power balance in the
+
*Individual producer
 +
**Most major processors have a very high degree of automation
 +
**A few producers producing more processed products, but still only semi-processed, have a slightly higher 
  
industry preventing the fishing sector from becoming too powerful.
+
proportion of manual operations
  
====== Drive force in the value chain ======
+
*Vertical integrated company in fishing, production and marketing.
 +
**With almost all of the herring sales going through the first-hand auction, the degree of vertical coordination is 
  
*It is clear that the VICs companies holding majority of the quota are the
+
very low, even though some boat-owners are major stakeholders in processing firms.
  
leading firm in the value chain of herring in Iceland.
+
*
 +
**Even though some of the boat owners also have ownership in processing companies, all of the fish is sold on 
  
*The driving force is economics of scale in fishing and production
+
auction, leaving very little room for vertical coordination.
*Synchronising fishing and production through the VICs.  
 
*Consolidation brings in the danger of lack of internal competition in the
 
  
value chain.
 
  
*
+
===== Denmark =====
**More or less all companies are focusing on the same strategy of 
 
  
automation in production and focus on frozen fillets and butterflied herring.
+
*Independent Small boats owners
 +
**The nature of the herring/pelagic stocks and the industrial processing are that the catches is best done by large modern vessels which can catch large schools and store them under high quality conditions. Therefore I don’t see any upgrading strategies for the small or minor boat owners. Catches of herring here is more like bycatch or for limited local markets, which seems to be quite limited.
 +
**There are no forceable “alternative” markets or distribution for herring, which could be upgrading strategy for small vessels. 
 +
*Independent big boat owners
 +
**The fleet seems to be close to the limit of consolidation, also given the recent political debate of “quota-kings”. The dominant process has been construction of larger vessels with top-class handling equipment for deliverance of top quality. This process of modernisation will probably continue, as long as the economy in the sector is as profitable as at present. 
 +
*Individual producer
 +
**The consolidation process has increased the automation among the primary processors. The turnover is up to 580.000 €/employee. A driver for the consolidation has been the necessity of volume in the processing industry, following the still larger pelagic vessels. It turned out to be impossible/expensive not to be able to take a full load from a vessel. Therefore, the minor primary processors could choose to increase capacity with the larger vessels or sell to the larger processors with sufficient capacity to take and handle full loads.
 +
**The dominant upgrading process for the producers has been consolidation in larger entities and higher value adding of the product for secondary processing.
 +
**There seems to be barriers for upgrading to be secondary producer of consumer products. This will lead to a double position with direct competition against the customers. 
 +
*Vertical integrated company in fishing and production  
 +
**Vertical integration of primary processing and the fleet was given up 6-7 years ago. The situation was opportune for getting a good price for vessels and especially quota, which was invested in consolidation in the processing industry. An argument used today is that maybe the dis- integration allowed the company to focus better.
 +
**Clearly integration would secure the supply of resources, but the company also in the period of integration bought from other vessels. It can be considered if the dis-integrated situation with informal relationsto a larger group of vessels/suppliers allow the company to plan to a higher degree than by being fully integrated. 
 +
*Vertical integrated company in fishing, production and marketing.  
 +
**No such companies have been identified in the sector
  
*
+
===== Newfoundland =====
**Only one company focuses on salted herring 
 
*Market price
 
  
===== Norway =====
+
*In general, the main strengths of the Newfoundland and Labrador system is the proximity of the resource to the landing sites and the proximity to the North American markets.
 +
*The industry is putting more emphasis on the quality of the product and efforts are being made to expand into the fresh fillet markets. Labour costs when compared to European costs are cheaper however the industry is currently very labour dependent as most of processing sector is manually driven with limited automation.
 +
*The export market to the US continues to remain strong as the market has shifted to higher value product forms. The resource (harvestable biomass) has remained.
 +
*From an economic or value chain perspective, the NL fishing industry is a social resource where market conditions have limited consideration in terms of the structure or management of the industry.
 +
*Compared to the European market the challenges for the NL market are based on economies of scale as the NL biomass or landed volume is a fraction of that produced by Norway and Iceland. The current industry structure limits the transferability of quota between vessels thus impacting the self-rationalization within the industry. The current fishery has a seasonality that is not linked to market demand or prices.
 +
*Strict regulation on enterprise combining and owner operator fleet separation has influenced vertical integration within the industry. The lack of exit barriers has resulted in licenses being sold at extremely high value which is negatively impacting new entrants into the industry as the costs are prohibitive.
 +
*Demographics are challenging both the harvesting and processing sectors as the average age of participants is >50 years+ and recruitment of people <30 years has been declining. To combat pending labour losses, the fishery (harvesting/processing) will have to move towards more automated systems. For the limited harvestable resource, the number of landing ports (>400) and potentially processing facilities adds a level of complexity to the logistics component of the value chain. Many processing facilities have aging and outdated equipment based on current markets.
  
====== Governmental Form ======
+
===== Summary of strategic positioning =====
  
The value chain for pelagic fish from Norway
+
It is very interesting to see the difference in structure and functionality of the value chains between Norway, Iceland, Denmark and Newfoundland. The structure of the industries is different as seen in the degree of vertical integration and the limits that government’s put on the industries. It is though surprising how homogeneous the industry is between those nations. The nature of pelagic species that is, seasonality and high catch volumes in short periods, makes the product global commodity for further processing from one season to the next. The main markets are Business to Business (B2B)
  
[[File:D34 fig 37.png|center|Figure 37]] ''Figure 37. The value chain for Norwegian herring, with three intermediate markets''
+
The first noticeable difference observed, apart from the structure, is the price settling mechanism. On one hand it is the Norwegian system that builds on minimum price and auction market which is the same that is used to determine the Danish price. In Iceland the price is decided by the Official Bureau of Ex- Vessel Fish Prices. The Norwegian price is in many cases double that of the price in Iceland. The price obviously affects the profitability of the industry as the Norwegian fishing is benefiting from high price but the processing sector is suffering from low profitability. On the other hand, the processing sector in Iceland is doing well as well as the profitability of the fishing is healthy. It can be claimed that the overall profitability is higher in Iceland due to the freedom of strategically positioning yourself in the value chain and being vertical integrated or not, without external limitation as those that can been seen in Norway, Denmark and Newfoundland. There are certain signs that the price settling mechanism in Iceland could be more efficient like, paying for quality of the raw material. Herring is caught almost completely in pelagic trawl compared with purse seining of virtually all the catch in Norway, that is believed to return better quality than the trawl.
  
Herring from Norway is sold in three intermediate markets, with quite different characteristics:
+
The vertically integrated system where one company owns its own fishing vessels and production has the opportunity to control the flow of the raw material to its production like in Iceland. Instead, in Norway and Denmark this coordination has to been done through auction markets and informal coordination between the owner of fishing vessels and producers. Due to the short fishing season this seems to have less influence on the value chain e.g. compared with cod where the push system is clearly returning less value creation and profitability.
  
#The Auction Market. Market relationship mainly based on price on the auction
+
In such seasonal value chain as seen in the herring fishing is it is difficult to enter the industry due to high capital cost and the competitiveness builds on economics of scale. The competitiveness of the value chains also depends heavily on other pelagic spices as capelin, mackerel and blue whitin g in most of the countries.
  
*Many sellers (more than hundred), but one sales point
+
All this makes upgrading in the value chain difficult. Opportunities to upgrade the value chains in the case of Norway and Iceland are in increasing the production stage of the herring at least part of it into consumers value added products instead of B2B commodity. Evidence from Newfoundland and partly Denmark show that more value can be created by focusing more on consumer’s markets. Tariffs, distances from consumer markets and limited seasons can limit this option. The option to increase the processing stage has as well to be economically sustainable in competition with countries with lower salary cost and better access to the main markets as for example Poland and other former eastern European countries have, being part of EU.
*Around 25 buyers, huge landing and processing capacity
 
*First-price, sealed-bid auction
 
*Strong seasonal peaks
 
*Quality is variable and hard to control, but generally good
 
*Efficient auction and high capacity in processing: leads to high
 
  
profitability in the fleet, low profitability in processing
+
&nbsp;
  
#Export of whole frozen or fillets. Relational form of governance, but still
+
== Salmon ==
  
strong competition.
+
=== Summary ===
  
*Few buyers in each market, fish resold to many small producers in
+
Aquaculture is the primary source of salmonid supply globally. The different salmonid species available on the market are substitutable to a considerable extent due to their pink flesh colour and similar properties. However, different dynamics in the broader competitive environment, and in the particular circumstances of national sectors, in which the businesses comprising these industries are embedded, have determined different developmental trajectories for the very same industries. These dynamics include the changing nature of consumer demand characteristics, production technology, national regulatory regimes, international trade, industry structure, availability of natural resources. Discussed in this chapter are the cases of farmed Atlantic salmon and rainbow trout in major producer countries and the role key external influences have played in shaping different developmental outcomes. The interaction of selected salmonid producer firms with their distinct competitive environments is illustrated through firm-level case studies of strategic positioning. The output of most salmonid aquaculture, and Atlantic salmon in particular, is highly commoditised i.e. there is little differentiation between farms and competition is based purely on price. These products, mostly head-on gutted fresh fish, serve as raw material for further processing. In that situation, large enterprises which can reduce costs of production economies of scale and offer the lowest price, would have competitive advantage.
  
some markets
+
Several of the cases focus on the struggle of smaller-scale companies for market and the competitive strategies they employ to enhance their strategic position in an industry lead by large-scale multinational vertically integrated enterprises. The case of a small-scale independent family-owned salmon farmer in the UK – Wester Ross Salmon - underlines the importance of differentiation from commodities in order to survive in the long run. It has managed to achieve that through branding around unique attributes such as small-scale, rural, natural, hand-reared and by strongly emphasis on Scottish origin. Further, the selection of suitable distribution channels, in line with the resources and capabilities of the firm has helped strengthen the company’s strategic position and avoid cut-throat competition with larger rivals. It has shifted its customer base from low-end retail stores to high-end boutique retailers and restaurants, where it enjoys higher bargaining power.
  
*Contract or spot sales
+
The case for strategic differentiation is further illustrated by a small Atlantic salmon producer in France – Saumon de France. The French salmon market is the largest in the EU and almost completely supplied by imports from Norway, Scotland and Chile, where the farms are able to achieve much lower costs of production. Competition on price with commodities from these countries would be unsustainable in the long term, and the company differentiates itself through marketing messages around high quality, freshness, local origin and heath attributes. It also vertically integrated and processes its fish into high value smoked products. Similar to the UK salmon case, it chooses to distribute to high- end restaurants and boutique shops where consumers value its unique features and are ready to pay a premium.
  
#Relations are important, necessary for obtaining a sale, but not sufficient
+
The Norwegian salmon case illustrates a considerably larger independent company than the two previously discussed. Nevertheless, it is still considered a medium scale enterprise in comparison to the main players in Norway. With its volume of output, this producer can for the most part operates in the commodity market, where prices are based on spot markets. The firm does not claim any unique advantages compared to the rest of the industry. Products are of uniform quality and appearance, leaving the firm’s “way of doing business” as the only differentiator. Honesty, accountability, reliability, and a straightforward way of doing business, is the main sources of competitive advantage for the firm.
  
to gain a contract. Relations are not unique relations. All buyers will have relations with several exporters, leaving price to determine the contract.
+
Owners are aware that buyers value the origin and independent nature of their company, but are not explicitly branding around it. A primary focus of the company’s long-term competitive strategy, however, is its vertically integrated structure incorporating farming and limited amount of value-added processing, which stands in contrast with the vast majority of the industry which only supplies raw material for further processing close to the market in importing countries. The firm realises that moving further down the value chain, producing more value-added products, requires the build-up of both a larger and a more advanced marketing competence, combined with a sales force closer knit to or located in the market countries. They are considering this as a long-term development, in adaption to an increasing consumer demand for value added products.
  
#Processed products. Relational form of governance.  
+
Differentiation as a strategy is not only pertinent to the smallest companies in an industry but can also be applied to entire national sectors. Broad differentiation is also the strategy followed by one of the largest Atlantic salmon producers in the world – Bakkafrost – which however operates in one of the smallest salmon aquaculture sectors – the Faroe Islands. Utilizing its unique geographical position and growing fish to a larger size, the company differentiates from the commodity market, on the basis of Faroese origin, quality, and size of fish, and is this able to supply a niche market with considerably higher prices achieved. By being by far the largest company in the sector it also influences the position of the entire national sector on the global market, namely as a source of boutique products. The company’s highly integrated value chain from fish meal and oil to value added products allow it to exert strict control over all activities to its best advantage, for example maintaining stable profitability even when prices fluctuate, through its ability to shift sales between whole fish and value-added products.
  
*Supermarket chains: Strong buyers in consolidated retail markets
+
Although seen as a substitute to salmon, the overall competitive position of rainbow trout has not been nearly as successful in Europe as that of Atlantic salmon. The traditional ‘portion-size’ trout market is in long-term decline across Europe. This can be attributed to changing consumer preferences away from whole fish. The consumer today has access to a large variety of seafood products and chooses those which provide the most utility. Increasingly, these are the value-added products which save time and effort in preparation and cooking, and better complement a modern lifestyle. One of the primary reasons why small- size fish lose popularity is, thus, the limited amount of value that can be added to a plate-size fish. This is further complicated by the fragmented value chain that plate-size trout producers comprise and the limited ability of such enterprises to process fish into value added products.
*Huge diversity of products  
 
  
====== Driving force in the value chain ======
+
The case of Aqualande (a vertically integrated trout farming cooperative in France) illustrates how an increase in scale and improved coordination along the value chain can improve the competitive position of an enterprise, even within an overall declining industry. The cooperative, which represents the leading trout farming operation in France, grows the majority of its trout to around 3 kg, which is considerably larger than portion-size. This allows larger fillets to be extracted which are more suitable for further value addition, predominantly into sliced smoked fillets. The larger resources available in the cooperative can be directed to processing, marketing and innovative activity. The company has developed several popular brands under which it produces various products of premium quality. It holds around 70% of the French smoked trout market. The majority of products are distributed through the retail network. The success of the products has increased the demand for otherwise declining trout. The company’s profit margin is considerably higher than the average for the portion-size trout industry. The success of this business has had a positive impact on the entire sector.
  
*Main traits/implications:
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The rainbow trout case from the UK paints a similar picture. The business model of the currently leading trout producer in the country – Dawnfresh – underlines the idea that much more value can be derived from a large size fish by undergoing different levels of processing, ultimately resulting in an overall more competitive product of higher demand. Starting out as a seafood processor the company enters the trout industry through an acquisition of a bankrupt trout farmers’ cooperative. The strategy of the company borrows significantly from the much more successful nowadays salmon industry. The fish are grown in marine cages to large sizes of more than 4 kg, the majority of which then serve as raw material for value addition within its own processing factories, into mostly chilled products, closely resembling those based on salmon. As such, it gains access to a much larger and well-established market, but also enters a competitive environment in which its rivals become the much larger companies in the consolidated and integrated UK salmon sector. Unlike Aqualande most of its products, however do not carry the company’s brand, but the retailers’ own brands instead and thus rely on the retailer for most of the marketing effort.
**Efficient auction leads to highest possible sustainable (sustainable 
 
  
price: the price that brings down profitability to just above zero in processing) prices: high profitability in the fleet, low in processing
+
Although the company strives to be a premium-product supplier, the general consumer’s perception of trout in the UK is that of inferior quality compared to salmon, thus potentially putting the product at a disadvantage within the salmon segment, with prices tending to be slightly lower than those of comparable salmon products. Considerably more marketing effort is needed to uplift the image of trout to set it as a premium product to salmon. Potential attributes include the fish’s better gustatory properties. Competing on the same basis as salmon, the company suffers from its smaller scale and much lower bargaining power than retailers.
  
*
+
One of the Danish rainbow trout cases – Aquapri has followed an approach similar to that of Dawnfresh in growing fish to a large size in marine cages, however, instead of focusing on the flesh of the fish, it has chosen to supply the niche market of trout eggs for human consumption. The company regard sale of small trout as unattractive due to low prices, with competition on cost reduction, while Aquapri has chosen to focus on Therefore, they focus on large trout roe where quality and marketing are the key determinants of success. The roe gives a more stable profitability, while the market for fish flesh follows the (apparently) more fluctuating salmon prices. Within the relatively more stable market for roe and caviar, prices mainly depend on product quality, which is within the area of control for Aquapri. The flesh of the trout is also sold, as filets or whole, but this product is highly dependent of the market for (especially) Norwegian salmon and thereby hard to control for the company.
**Very efficient primary processing in Norway, highly automated, with  
 
  
large quantities produced at high, even and predictable quality
+
In the case of the second Danish rainbow trout case – Danforel - who grow portion-size trout, the focus of value creation is on smoking whole filets and supplying the mass-market of retails and wholesalers, which is possible due to the large scale of the enterprise and thus its considerable bargaining power in this segment. Much like present-day Aqualande, Danforel was originally organized as a co-operative. However, it went bankrupt in the 1970s the co- operative concept eroded. After several re-organization and different owners, the present owner took over Danforel in 1998. During the crisis 2008 several of the supplying independent aquaculture producers went bankrupt and were acquired by Danforel. This movement of acquisition of bankrupt enterprises was seen also in the case of Dawnfresh and illuminates a strategy to improving competitiveness through consolidation in a stagnating low-profit sectors such as the portion-size trout industry. The current strategic position of the company also benefits from its vertical integration.
  
*
+
While most of the companies examined so far are vertically integrated enterprises, which is increasingly becoming a necessity in a quickly maturing salmonid sector, the case of ESCo reveals the competitive position of a company involved in a single activity in the salmonid value chain – processing – and the challenges associated with that. Compared to its suppliers – the large salmon farms in Scotland, and its buyers – major multiple retail chains in the UK, ESCo is a small enterprise with limited bargaining power which can at times result in unfavourable price terms from both sides and erosion of profitability. This vulnerable position, however, is ameliorated by the fact that that the company is currently part of a large multi-national corporation which can support it in times of difficulties.
**This is an industry not very well suited to differentiated products, as 
 
  
production is based on scale and standardisation, therefore unlikely to move into highly diversified and small-scale retail markets
 
  
*The power in the value chain seems to be at both extremes in the value
+
=== Introduction ===
  
chain. The fleet has a very strong position, as it holds a raw material in high demand, and has an auction system able to command the highest possible price for the herring.
+
This section discusses the most important dynamics affecting the competitiveness of major salmonid aquaculture national sectors. It focuses primarily on Atlantic salmon (Salmo salar) and Rainbow trout (Oncorhynchus mykiss) which are the main species of the salmonid family, mass-produced in aquaculture, Figure 38. Rainbow trout has long presence in the history of European commercial aquaculture – it is one of the first species whose reproduction cycle was entirely replicated under farm condition. Salmon aquaculture was mastered only later, because of the more complex biological cycle spanning both marine and freshwater environments. Moreover, due to their pink flesh* and similar texture, rainbow trout and Atlantic salmon are commonly considered substitutes by consumers (Asche et al., 2005; Virtanen et al., 2014), particularly so when it comes to large-size sea water grown trout. Nevertheless, the performance of the rainbow trout aquaculture sector at the European level has not been nearly as impressive as that of Atlantic salmon. While salmon aquaculture has shown phenomenal growth rate since its emergence in the 1980s and is currently regarded as the most advanced form of large scale aquaculture, and represents a globally traded commodity (Asche et al., 2013), rainbow trout aquaculture has quickly reached a plateau and is currently in decline across all EU countries,
  
*
+
*The colour of flesh is dependent on the addition of pigments to the fish feed. Portion-size rainbow trout is also available in white-flesh form, particularly on the Eastern European market, parts of Germany and Italy. As such, it competes with other white-flesh species, such as those supplied from capture fisheries, rather than with other salmonids (Nielsen et al., 2007).
**On the other extreme, supermarket chains act as very strong buyers 
 
  
from processing firms, leaving processors and traders in the value chain in a weak intermediate position.
+
[[File:D34 fig 38.png|center|Figure 38]] ''Figure 38. In contrast, its production in Turkey has „exploded“ over the last decade and the country now serves as a major supplier of rainbow trout for the EU as well as a main competitor for domestic producers (Lasner et al., 2017).''
  
*In Norway we have seen several mergers in an attempt to weaken the
+
[[File:D34 fig 39.png|center|Figure 39]] ''Figure 39. Total harvest weight of farmed salmonids in 2014 (000’s tonnes LWE - Source:Kontali Analyse AS)''
  
competitive pressure, and thus to gain a higher margin, only to find that other producers strengthen their position in the wake of the dominant firm.
+
The following sections will uncover the mechanisms behind these contrasting developments of seemingly substitute products, by examining the key determinants of competitiveness on the global and national industry level. Firm- level case studies of trout and salmon aquaculture enterprises in major producing countries illustrate different competitive strategies specific to the context in which the firms operate.
  
*With almost all of the herring sales going through the first-hand auction,
+
[[File:D34 fig 40.png|center|Figure 40]] ''Figure 40. Production of rainbow trout in the EU. Source: FAOSTAT 1193''
  
the degree of vertical coordination is very low, even though some boat- owners are major stakeholders in processing firms.
+
=== Key influencing factors ===
  
===== Denmark =====
+
==== Consumer preferences ====
  
====== Governmental Form ======
+
Generally, the drivers for fish and seafood consumption in developed countries, where incomes are high and basic dietary needs have long been more than satisfied, are mainly the need for dietary diversity and convenience and increasing health awareness (Birch et al., 2012; Carlucci et al., 2015) as well as increasing availability of products, marketing campaigns and declining prices. Due to factors such as time pressure, there is a strong rise in the demand for products that are ready to eat or require little preparation before serving (Brunner et al., 2010). And while whole fish has been widely considered inconvenient because of the time and skills required for preparation (Olsen et al., 2007), the current wide availability and expanding market of convenience seafood products acts as a driver for a shift away from whole fish.
  
*Herring industry has been consolidated over the last 15 years.  
+
However, in addition to increased availability of convenience products and improved presentation, promotional campaigns can stimulate consumption, too. Branding requires sufficient differentiation of products from competing products and is difficult when the products are fresh or have few added ingredients and low level of processing. Protection of patents and recipes is also difficult for this category of products. Differentiation at the consumer level can be also achieved through various labelling schemes (including sustainability certification), which is only possible when products are packaged, and the increasing number of processed and packages seafood as well as growing sales from retailers rather than traditional fish monger shops, provides a good opportunity for that. Products that are advertised most heavily are typically the most shelf-stable products e.g. frozen, smoked, canned. Importantly, branding however, is not likely to occur to a significant extent in an industry dominated by small scale companies, because of limited internal resources available for promotion directed at consumers. Large companies on the other hand, have advantage in brand promotion, because of better resources and higher product volumes, which are sufficiently visible to be recognised by consumers (Tveterås, 2007). For example, in Europe Youngs has focused on final consumers and has invested considerably in branding. A successful promotional campaign necessitates a consequent establishment of a reliable supply able to cater for the expected increased demand. Availability of fresh products is more difficult to be guaranteed, particularly in terms of fisheries. However, the transition of the salmon industry, for example, from numerous small-scale farms to several large- scale vertically integrated multinational enterprises, has enhanced the opportunities for branding and better control over the production process, logistics and requirements of retailers.
**Implementation of ITQ in 2003.  
 
**Processing followed some year later but has reached a high level of  
 
  
concentration today, which the assessed HHI-index around 0,4 illustrates.
+
While the decline of whole fish is a clear trend, the dominance of other forms of processing exhibit regional variations. As noted by Carlucci et al (2015), over- processing and transformation can also result in reduced preference for fish products and in southern European countries such as Greece and Portugal, traditions in the consumption of fresh fish still play an important role as determinants for the preference of products (C. et al., 2013; I.S. et al., 2004). In fact, FAO (2008) mentions a trend of increasing importance of fresh fish in developed countries due to the favourable consumer attitude for this form of fish over highly processed forms. This is further reinforced by improvements in packaging, reduced air-freight priced, and more efficient and reliable transport, have helped overcome some of the long-standing barriers to international trade with fresh fish such as perishability and limited shelf-life (Asche et al., 2015). More stringent demands for assurance concerning safety is another high-profile issue that has emerged in recent years and shaping consumption patterns.
  
*In general, the relation between the fleet and the primary processors has
+
Consumers, largely mediated through retailers, are increasingly requesting product attributes that depend on the production process such as not being hazardous to their health, safeguarding the environment and addressing various other ethical and social concerns (FAO, 2008). As a result a variety of safety certifications have been developed which have become requirements by supermarket chains. European retailers for example increasingly expect supplies to comply with quality standards such as BRC and IFS, as well as traceability (CBI, 2014).
  
been characterized by a market relation,
+
In addition, seafood buyers are increasingly concerned about the sustainability and risk of depletion of marine stocks (FAO, 2008). While the range of fish and seafood products labelled as sustainably sourced is expanding and the demand for sustainable seafood products is rising, there is debate whether this is due to genuine consumer demand or it is due to pressure by lobby groups and a strategy of retailers to gain market share (Gutierrez and Thornton, 2014).
  
*
+
Gulbrandsen (2006) and Bush et al (2013) argue that most markets for eco- labelled forestry and fisheries products have been created as a result of pressure by environmental groups on consumer-facing corporations, who are requesting various certification schemes as a form of reputation management, rather than resulting from consumer demand. In any case, consumers have as a result an increasing abundance and diversity of certified seafood product to choose from, which can serve as a stimulus for driving seafood production into a more sustainable course. Similarly, sustainable seafood guides such as Monterey Bay Aquarium’s Seafood Watch and MCS Good fish guide are acting as steering mechanism for a more sustainable choice of seafood. However, the availability of too much information from different sources, with sometimes conflicting advice can lead to consumer confusion and even negatively impact consumption (Oken et al., 2012; Roheim, 2009).
**with some degree of negotiation and coordination.  
 
*Today the relation is formally market based – the vessels sell and land
 
  
where the price and income is best
+
Another key factor influencing consumption decisions is awareness of health and well-being (Carlucci et al., 2015). The populations of many industrialized countries are becoming older, richer, more educated and more health conscious leading to an increased demand for food that promotes health and well-being (FAO, 2008). And, while fish is often cited as a having a variety of health promoting properties (such as being rich in essential fatty acids) which are believed to be able to drive increased fish consumption (Mitchell, 2011), risks of eating fish linked to contamination with carcinogens has also been communicated to the public (Sidhu, 2003). As a result there is a general confusion over the right choice of seafood (Oken et al., 2012), the individual choice whether to consume fish or not being eventually dependent on the type and accuracy of information consumers are exposed to (Burger and Gochfeld, 2009).
  
*
+
==== International trade ====
**there is some coordination between the vessel and the processor.
 
**the relation thus can be characterized as modular, or in some cases 
 
  
even relational, in the cases of strong coordination between the processor and one or a few vessels.
+
Expansion of seafood markets had been aided significantly by the international trade in the sector. The increase in the global supply of seafood over the last few decades, combined with technological innovations, has facilitated the international orientation of the seafood industry. In particular, improved transportation and logistics leading to lower costs have allowed international trade to grow (Asche et al., 2015). Furthermore, progress in storage and preservation has continued, allowing a wider range of seafood products to be traded. For example, freezing technology has improved to such an extent in recent years that many product forms can be frozen twice, allowing products to be processed in locations with competitive advantages in processing fish rather than in locations close to where the fish is caught/farmed.
  
*Regarding the processing and export market, the consolidation the last 15
+
The extent to which an industry is exposed to global forces depends on the level of international trade with the inputs and outputs of the industry. In the case of salmon, production has become highly commoditised, with farming concentrated in only a few countries and exports covering almost all continents, Figure 41. This makes the sector highly dependent on global demand trends and supply trends in competing producer countries. For example, as one of the largest global markets, with negligible domestic production, demand in the USA has a major influence on global prices.
  
and especially 10 years has influenced the governance structure as well.
+
[[File:D34 fig 41.png|center|Figure 41]] ''Figure 41. Global trade in farmed salmonids (tonnes WFE Atlantic salmon, large trout coho and chinook) in 2016''
  
*Earlier, the Danish herring-processing sector was characterised by a
+
The European production of rainbow trout has decreased the last ten years (EUMOFA monthly report 5/2014 p 10 and FEAP Production Report 2016 covering European fish farming from 2007-2015 *). The increased production of large rainbow trout do not compensate for the decreased production of small portion- sized rainbow trout. The production has stagnated the two last reported years 2014 and 2015, with continued decrease of portion-sized trout and increased production of large trout (FEAP).
  
relative few high number of primary processors.
+
Despite of decreasing production, the European marked for trout is mainly covered by EU internal production. The import from Turkey though increase (doubled) over a few years until 2014, where an anti-dumping process against Turkish producers lead to imposition of provisional countervailing duty on import of certain rainbow trout products from Turkey (OJEU 6.11.2014 L319/1). The EU country with the largest import of rainbow trout is Germany, both from other EU countries (22.737 tons in 2013) and from third countries (7.275 tons in 2013), reflecting decreasing trout production and aquaculture production in general (FEAP 2016). The main import country for EU is Turkey, which in 2013 sold 17.284 tons rainbow trout to EU – 70&nbsp;% of total EU import of trout (EUMOFA 5/2014)**.
  
 
*
 
*
**The relation was highly competitive at a market basis, while also 
+
**[http://www.feap.info/Default.asp?SHORTCUT=582 http://www.feap.info/Default.asp?SHORTCUT=582]
 +
***The main trout import product to EU is frozen where Turkey is the main supplier. Fresh products were 25&nbsp;% which Norway was the main supplier.   
  
personal relations and personal knowledge of quality were of importance.
+
==== Industry structure ====
  
*The relation between primary and secondary processor apparently has
+
The production of salmonid fishes requires specific environmental conditions, such as temperature and availability of water resources, which limits the global production to only a few countries. The two largest producing nations; Norway and Chile together accounted for 80% (2,142,500t) of global supply in 2014. In a distant third-place, the UK (Scotland) accounted for 7.1% of global supply. The same figure also shows the dominance of Atlantic salmon in the salmonid market segment; accounting for 73% of a total global salmonid production of 3,047,000t in 2014. The closest substitutes; large trout and coho accounted for only 14.8% of supply in the same year.
  
characteristics from a modular or even relational coordination. Still the relation is highly competitive and market based.
+
Stricter environmental regulation and associated licensing has contributed to relatively stable supply conditions in most producing regions over the last decade; a trend further enabled by on-going industry consolidation and maturation. Chile is the major exception to this trend, over the last decade, having experienced wide supply fluctuations due to disease outbreaks amplified by natural disasters.
  
*Apparently, every link in the value chain are aware the risk of being
+
Moreover, the Atlantic salmon farming industry is highly consolidated. Initially composed of mostly small-scale family-owned enterprises, it is currently concentrated in the hands of several large multi-national publicly traded companies (Asche et al., 2013). The factors which affect the evolution of industry structure include formal regulation (through for example, laws limiting the amount or resources a company can control), the level of commoditisation in the industry’s outputs, and the structure of the industries upstream and downstream. Figure 42 represents the rate with which consolidation has occurred over the last couple of decades and the number of companies currently accounting for 80% of the national output. A different way of expressing market structure is the concentration ratio – the share of the top n-number of companies in the output of a given industry. The Figure below shows the concentration ratio for the four largest companies in major producing countries. Both figures show an overall positive trend in consolidation for the first half of the period, followed by stabilisation, and in cases such as Chile and Canada slight decline.
  
dependent of a supplier or customer.
+
[[File:D34 fig 42.png|center|Figure 42]] ''Figure 42. Number of salmonid farming companies by country. Source: Source: Kontali Analyse AS''
  
*
+
[[File:D34 fig 43.png|center|Figure 43]] ''Figure 43. Consolidation trends in salmonid producing countries. Concentration ratio (CR4) represents the share of the production (volume) of the four largest companies in a country in the total production (volume) of the country. Values are 3 year rolling averages. Data source: Kontali Analyse AS''
**limit input or sales of products to 20-25&nbsp;% for each customer.
 
**customers have a range of suppliers and can maintain the price 
 
  
competition between these.
+
The structure of the industry plays a critical role in determining the overall profitability potential in the industry as it affects the barrier to entry, the rivalry within the sector and the bargaining power of members against buyers and suppliers (Porter, 1980). The strategic position of companies within the industry, influenced to a great extent by its resources and competencies, is the other major determinant of competitiveness (Rumelt, 1991). For example, following recurrent bust and boom cycles, these factors have contributed to an extended period of profitability for many companies; particularly those able to exploit scale-economies in better-regulated jurisdictions.
  
*
+
===== Norway =====
**This is also a market based limit for consolidation in the Danish 
 
  
industry.
+
Salmon aquaculture in Norway started through pioneers in the late 50s and ‘60s with small-scale farmers obtaining smolts from research stations and experimenting with different tank designs. In the late 60s simple sea cage designs became relatively reliable at the same time as costs could be lowered.
  
====== Driving force in the value chain ======
+
This technology spread along the coast rapidly, and regulations from the authorities were introduced in 1973. This included a licensing regime with small- scale, owner-operated firms and geographical limitation where farming was an element in the rural development policy. One person could only have one license and the activity could only take place in a defined municipality. Salmon was sold through a producer organisation, Fish Farmers Sales Organisation. After an overproduction occurrence in 1990, the PO went bankrupt along with a large share of the farmers. As a result, the ownership restrictions were lifted and this started a consolidation process that is still ongoing and has resulted in some large producers, but still relatively many smaller scale operators.
  
*Driving force is economics of scale in fishing and production
+
Currently, government regulations regarding the ownership of licences are still the main reason behind the more fragmented production sector in Norway compared to other countries e.g. Scotland and Faroe. Since 2015 the rules stipulate that no one company in the industry can control more than 50% of the total biomass in any of the regions of the Directorate of Fisheries. Before 2015 an industry player had to apply for approval from the Government if they got control of more than 15% and approval was based on the special circumstances of the company e.g. regarding economic impact (Marine Harvest, 2017). Since lifting the restrictions on ownership, the number of firms have fallen from around 700 (when one firm could have one license) to around 150 firms now. The 10 largest companies contribute about 70% of output.
*Market price in the relationship of fishing and production
 
**Certain level of synchronising fishing and production through 
 
  
relationship between the two sectors.
+
As seen in figure 44, the output of the industry has grown rapidly over time with brief slowdowns and reductions. In the early phase, rising productivity was the major cause of growth – production costs fell rapidly as production was scaled up. In the later period, costs have levelled off and since 2005 risen more than 60&nbsp;% in real terms. During this period, demand growth has been the major explanation for growth. Variations have been due to market conditions, disease issues and regulatory issues. Lately, several companies have been restricted by the maximum allowed biomass level in addition to particularly problems with salmon lice.
  
*Towards less emphasis on prepared and preserved products towards lower
+
[[File:D34 fig 44.png|center|Figure 44]] ''Figure 44.''
  
processing stage as whole herring
+
[[File:D34 fig 45.png|center|Figure 45]] ''Figure 45. Number of salmon farming companies in Norway and 10 largest companies share of total production. Source: Directorate of Fisheries''
  
*
+
[[File:D34 fig 46.png|center|Figure 46]] ''Figure 46. Sales of salmon and rainbow trout. Source: Statistics Norway''
**Lack of competition?
 
**Too much consolidation?
 
**Lack of synchronisation of fishing and production? 
 
  
===== Newfoundland =====
+
Currently the salmon aquaculture production sector consists of around 150 companies, some being subsidiaries of the same mother company. As shown in figure 47, there is considerable variation in company size. There is one standing out as very large, two at about half this size and a number of companies with decreasing harvest quantity. There is a number of companies not shown with smaller production. Calculation of the Herfindahl-Hischmann Index (HHI) for this sector shows that the industry is considered moderately consolidated (0,11), leaving out the companies not shown in figure 48.
  
====== Governmental Form ======
+
[[File:D34 fig 47.png|center|Figure 47]] ''Figure 47.''
  
*In Newfoundland it is possible to separate the fishing industry into two
+
[[File:D34 fig 48.png|center|Figure 48]] ''Figure 48.''
  
sectors. First is the offshore sector that is vertical integrated in fishing, processing and marketing and then inshore fleet, which is based up on individual boat owners where vertical integration is banned.
+
===== United Kingdom =====
  
*The boat owners and producers negotiate a price at the beginning of the  
+
In 2016, salmon farming contributed 94.8% of revenue generated by aquaculture industries within the UK (trout contributing 3.1% and shellfish 2.1%: IBIS 2016). Rainbow trout farming for the table the UK emerged as an industry earlier than the salmon aquaculture, in the 1950’s. The main production system used from the beginning has been earthen ponds and raceways. There have been attempts in both the UK and Norway to grow rainbow trout in marine net pens, however, 129these were quickly replaced by Atlantic salmon when the technology for transferring smolts was established, due to the higher market price for salmon. This was followed by rapid growth of Atlantic salmon farming in Scotland in the late 1970s and early ‘80s. Trout farming quickly plateaued however, and since then has been in a long-term decline,
 +
 
 +
[[File:D34 fig 49.png|center|Figure 49]] ''Figure 49.''
 +
 
 +
This contrasted with the growth in salmon farming in Scotland, and the very rapid growth of aquaculture throughout the world (Seafish, 2016). The production of Atlantic salmon in the UK has shown an overall positive trend, although interrupted by several “bust” cycles due to problems with overproduction and profitability. Over the last decade prices have been buoyed by supply bottlenecks (discussed below) and rising demand from a growing global middle-class receptive to the positive health and aspirational attributes of salmon consumption.
 +
 
 +
[[File:D34 fig 50.png|center|Figure 50]] ''Figure 50. Volume and value of farmed Scottish salmon (Source: Marine Scotland, Scottish Fish Farms Annual production Surveys 1981-2015)''
 +
 
 +
[[File:D34 fig 51.png|center|Figure 51]] ''Figure 51.''
 +
 
 +
Figure 51 illustrates the number of companies in operation in the salmon farming industry in Scotland. A strong decline in the number of enterprises can be observed since the late 80s, at the background of growing production trend. In the UK, only 7 companies operate currently, four of which are foreign owned subsidiaries of large MNEs. Only two independent locally owned companies have survived to date: Wester Ross Fisheries and Loch Duart, which are also the two smallest companies in the sector in terms of turnover, holding 0.8% and 3.1% of the Scottish turnover respectively, [[File:D34 fig 52.png|center|Figure 52]] ''Figure 52.''
  
season which is subjected to change; unlike other fisheries the price is not negotiated by the FFAW (The Fish, Food and Allied Workers Union) and associations of producers. There are no auction markets and more or less the negotiated price is used in the transaction.
+
[[File:D34 fig 53.png|center|Figure 53]] ''Figure 53. Number of salmon farming companies in the Scotland. Source: Marine Scotland''
  
*The relationship is in some way captive due to lack of active markets in  
+
[[File:D34 fig 54.png|center|Figure 54]] ''Figure 54. Turnover of salmon producing companies in Scotland for 2014. Source: FAME''
  
the relationship but in some cases, it could be regarded relational where boat owner and producers have some contract about landing of cod and other spices.
+
The trout business in the UK is has followed a similar trend, although not to the same extent. It is still a fragmented industry with more than 300 companies across the country, many of which in the restocking and recreational business, however. The table trout business is more concentrated and controlled by several production and processing companies.
  
'''Power balance/structure'''
+
[[File:D34 fig 55.png|center|Figure 55]] ''Figure 55.'' Figure 55 illustrates the trend in Scotland. Over 75% of production ends up in major supermarkets (Seafish, 2016).
  
*Due to the structure of the fisheries management system that is individual
+
[[File:D34 fig 56.png|center|Figure 56]] ''Figure 56. Number of trout farming companies in Scotland. Source: Marine Scotland''
  
vessel has a TAC but has limited possibility of transferring fishing licenses (stacking up) the power in the value chain lies in the hands of the stakeholders that decides on the system.
+
The primary reasons for the poorer performance in the rainbow trout industry in the UK can be found in the limitations imposed by the production system. The availability of freshwater and the regulations around its abstraction and release of nutrients in the outflow usually limit the capacity of the production site to small volumes of annual harvest. The largest land-based trout company in the UK produces around 1000 tonnes of fish annually. This is smaller compared to the average marine salmon production site nowadays. Due to the technology itself and regulation, marine sites are much larger which allows achieving economies of scale and consolidation of ownership. This sets the basis for a fragmented industry. The fragmented small-scale ownership in the land-based trout sector also serves as a limitation for investment and upgrading of the systems to improve productivity, since family-owned businesses are usually constrained in terms of financial resources and are risk-averse.
  
*The stakeholders are the policymakers that is the politicians and the
+
The land-based production system also imposes limits on the size of trout – growing fish to larger sizes is less practical due to the constraints on water resource use. Therefore, fish are harvested at the size of around 300 g and typically sold whole chilled.
  
parliament that decide on the system.
+
Continuing downward pressure on market price is the main risk, with margins having been squeezed to a minimum in the table trade. Few wholesalers remain, and supermarkets have near monopolistic power and very demanding product requirements. There also appears to be a lack of interest by large retailers in trout product promotion and innovation.
  
*Due to low quota in Newfoundland and more important species as lobster
+
Adaptation to a changing market requires increased innovation and marketing effort. Potential for improving the performance in the UK rainbow trout industry lies in the development of value-added products such as the increasingly popular smoked trout products, as well as in restructuring the industry (Seafish, 2016).
  
and crab, cod have been looked up as filling and not major species in fishing. With foreseeable increase in quota this can become problematic.
+
===== Denmark =====
  
===== Summary of main influencing factors regarding concentration =====
+
Denmark was in 30s – 40s the metropole for breeding of trout in Europe. This was built on good production conditions and organization of a cooperative company owned by the farmers; Dansk ørredeksport (Danish trout export). The living and iced trout was exported by train to Germany for further export. The Danish farmers were very competitive by producing high quality. In the 40s the farmers created a co-operative owned company name Danforel - a supplier driven company which slaughtered, cleaned and processed the trout. The cooperation eroded in the 70s, when several farmers started own export of fresh trout. The transportation had moved from train to trucks, which was easier to handle at an individual basis.
  
{| class="wikitable" style="width: 100%;"
+
Front 1980ties the political pressure on the land-based industry focussed on the environmental impact. The answer was public support to industry development of different models of recirculated technology, implemented on a limited number of model farms. In the last 10 years this has been developed in direction of roofed ponds, and a few examples of fully recirculated plants in house. In the following years the number of farms decreased partly because of increasing environmental requirements, and in 2005 so called “model farms” were developed, based on a high degree of re-circulation of water. The sea-based sector is relative new and still small in Denmark. As seen in table 1, in 2014 there were almost 150 farms in the traditional aquaculture farms using stream water. 32 so-called “model farms” and 21 sea-based farms, which in 2016 were owned by 4 companies only.
|-
+
 
! Factor
+
The reduction of number of farms and consolidation in the traditional sector of portin sized trout has the last years mainly been driven by low market prices in 2009 (following the international crisis), which lead to rationalisation. A new price reduction in 2012 (in average 13&nbsp;% for all trout products) lead to bankruptcy among almost all farms in the traditional sector – according to interviews because all banks wanted refinancing of the capital, which was impossible for most farms. After liquidation of the old capital and refinancing, the numbers of farms were reduced, while the production level have been relative stable (and lately slightly increasing). This is due to technological development with a higher degree of recirculation and partly coverage of the open ponds in the land-based segment (interviews). The number of sea-based farms has been stable, while the production has slightly increased (Dansk aquakultur).
! Iceland
+
 
! Norway
+
The main company in portion sized production is Danforel, which is mainly producer of smoked trout fillets. During the process of bankruptcies in 2009-2012 Danforel felt forced to take over production at the farms of the main supplier, which has led to take over in total 9 farms (of which 2 are rented) in the company Danaqua.
! Denmark
+
 
! Newfoundland
+
The sea-based production mainly takes place in four large companies, which holds land based as well as sea based farms, but all produce large sized trout; Musholm A/S (67&nbsp;% owned from Japan), and three other companies: Aquapri Holding A/S, Snaptun Holding A/S, Hjarnø Havbrug Holding A/S (all owned by Danish private persons).
|-
+
 
| Structure of the industry
+
The production of trout were 2014 41.200 tons. The decrease in number of aquaculture farms is mainly due to a significant decline in the number of traditional land-based farms (Table 3). In this process, the number of employees has decreased from 700 full- and part-time employees in 2004 to only 421 in 2013.
| Vertical integrated rather large companies
+
 
| Two sectors: inshore smaller boats, but majority larger companies but not vertically integrated
+
''Table 3 Number of aquaculture farms in Denmark. Source: Statistics Denmark. AKREGN''
| &nbsp;
+
 
| Two sectors Inshore with ban on vertical integration Offshore sector which is more or less verticalintegrated
+
{| class="wikitable" style="width: 100%;"
 
|-
 
|-
| Vertical integrations
+
! &nbsp;
| High
+
! 2009
| None
+
! 2010
| None
+
! 2011
| Low
+
! 2012
 +
! 2013
 +
! 2014
 +
! 2015
 
|-
 
|-
| Flow of raw material
+
| Land based: Traditional
| Through VICs
+
| 189
| Auction markets
+
| 177
| Auction markets and some degree of coordination
+
| 162
| &nbsp;
+
| 157
|-
+
| 157
| Governance
+
| 145
| Hierarchy
+
| 138
| Market based
 
| Market based
 
| Captive or relationship in inshore sector Hierarchy in the off-shore sector
 
 
|-
 
|-
| Coordination
+
| Land based: Model farms
| High in the VICs and based on buyers need in some sense
+
| 25
| Market based
+
| 32
| Market based and some direct coordination
+
| 30
| Low in inshore fleet; some in the offshore sector
+
| 29
 +
| 33
 +
| 32
 +
| 33
 
|-
 
|-
| Dependency
+
| Sea based
| High in the hierarchy
+
| 20
| Low
+
| 17
| Low
+
| 17
| Low but minimum processing requirements can create dependency between fishing and production
+
| 17
 +
| 18
 +
| 21
 +
| 20
 
|-
 
|-
| Power structure/balance
+
| Eel farms
| Hierarchy with high dependency by sectors and power balance
+
| 9
| The auction system leaves the fishing fleet with most of the profitability in the industry
+
| 8
| &nbsp;
+
| 8
| &nbsp;
+
| 8
 +
| 7
 +
| 5
 +
| 5
 
|-
 
|-
| Driving force
+
| Mussel
| Product and seasonal driven value chain based on coordination of fishing and production through VICs
+
| 21
| Scale and productivity increase
+
| 17
| &nbsp;
+
| 11
| Harvesting (product) driven value chain, Based on minimising cost strategy of fisherman
+
| 11
 +
| 11
 +
| 11
 +
| 12
 
|-
 
|-
| Lead firm
+
| Other
| VICs
+
| 8
| Pelagia in processing, no identifiable lead firms in fishing
+
| 6
| &nbsp;
+
| 6
| None
+
| 7
 +
| 8
 +
| 7
 +
| 10
 
|-
 
|-
| Core competitiveness
 
| Economic of scale and synchronising of activities through the VICs
 
| Economics of scale
 
| Economic of scale
 
 
| &nbsp;
 
| &nbsp;
|-
+
! scope="row" | 272
| Specialisation
+
! scope="row" | 257
| Rather high Vessels mainly in pelagic spices Producers have special pelagic processing facilities
+
! scope="row" | 234
| Large purse seiners are specialised in pelagic species (but less specialisation within the
+
! scope="row" | 229
pelagic species, all vessels catch herring and mackerel, some also catch capelin, blue whiting etc.)
+
! scope="row" | 234
 
+
! scope="row" | 221
| &nbsp;
+
! scope="row" | 218
| Very low seasonal industry
 
 
|}
 
|}
  
==== Strategic Position Briefing ====
+
When the production volumes are addressed the level has maintained stable, while a change from the traditional aquaculture to recirculation and sea-based production is obvious as the production per firm is much higher in the recirculated and sea based farms, as seen in Table 4.
  
*The pelagic/herring industry in Norway, Iceland and Denmark build their
+
''Table 4. Production of aquaculture in Denmark, tons of all species''
  
competitive strength on economics of scale both in fishing and processing.
+
{| class="wikitable" style="width: 100%;"
 
+
|-
*
+
! &nbsp;
**consolidation and automatization of their production.
+
! 2009
**the production is mainly B2B commodities for further processing 
+
! 2010
 
+
! 2011
abroad
+
! 2012
 
+
! 2013
*
+
! 2014
**Danish herring has though bigger part of their production in 
+
! 2015
 
+
|-
prepared and preserved packing due to access to the common market (without tariffs)
+
| Land based: Traditional
 
+
| 23.101
*The Canadian industry focus more on prepared herring and is more labour
+
| 17.098
 
+
| 15.545
intensive maybe due to limited quantity.
+
| 17.867
 
+
| 17.568
*Due to the economics of scale it is not easy to enter the industry
+
| 17.230
*In all countries herring fishing is seasonal so competitiveness of the
+
| 17.124
 
 
industry is based on other pelagic species and quantity.
 
 
 
*Upgrading in the value chain can be difficult and will in the case of Norway
 
 
 
and Iceland be based on increasing the production stage of the herring, at least part of it, in more consumer’s product instead of B2B commodities.
 
 
 
*
 
**Tariffs in the main markets like EU can in many cases be difficult 
 
 
 
barriers to overcome. This could be an advantage for Denmark being part of EU and is making countries like Poland and other EU countries more competitive and attractive for further processing.
 
 
 
===== Iceland =====
 
 
 
{| class="wikitable" style="width: 100%;"
 
 
|-
 
|-
! &nbsp;
+
| Land based: Model farms
! Description
+
| 8.211
! Share of Herring fishing
+
| 11.728
! Access barriers
+
| 12.020
! Opportunities and upgrade possibilities
+
| 10.092
! Threats
+
| 14.030
! Value chain relationship
+
| 13.222
! Dynamic in the value chain
+
| 15.949
 
|-
 
|-
| Independent small boat owners
+
| Sea based
| <30 tons, number of fishing days limitation and TAC
+
| 11.316
| 0.2-.4%
+
| 10.908
| Low
+
| 11.428
| Limited
+
| 14.024
| Low valued fish; profitability low or non-existent due to low volume. Uncertainty
+
| 15.064
regarding fisheries management system, uncertainty regarding resource rent that could affect profitability
+
| 14.329
 
+
| 15.591
| Part in direct sales and part through auction markets.
 
| Lack of dynamic
 
 
|-
 
|-
| Independent big boat owners
+
| Eel farms
| >30 tons with TAC
+
| 1.376
| 12% of Icelandic herring
+
| 1.629
| High - capital intensive quota price
+
| 1.194
| Sell to highest bidding land processing
+
| 1.382
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty regarding resource rent
+
| 971
that could affect profitability. Reduction in number of independent big boat owners.
+
| 802
 
+
| 1.158
| Mixture of auction market and contract relationship.
 
| Maximize first sale price.
 
 
|-
 
|-
| Individual producer, ORA, Egilssíl, Marhólmar
+
| Mussel
| Supplies fish by contracts and from auction markets. Medium
+
| 2.534
and small size producers with often low degree of automatization, mainly focusing on niece markets.
+
| 1.325
 
+
| 1.031
| 0
+
| 1.076
| Medium - depends on markets needs and level of automatization required
+
| 851
| Market relationships, product mix, long time source and sales contracts,
+
| 1.566
| Unstable currency, Access to supply do to quota system and high degree of VICs. Lack of branding,
+
| 1.758
| Sourcing form auction market and by contracts with boat owners and other producers.
+
|-
| Maximize value from bycatches and serving niece markets
+
| Other
 +
| 495
 +
| 370
 +
| 206
 +
| 410
 +
| 679
 +
| 973
 +
| 1.728
 
|-
 
|-
| Vertical integrated company in fishing, production and marketing (VICs)
+
| &nbsp;
| Companies with own boats, processing facilities and marketing office. High degree of atomisation in
+
! scope="row" | 47.033
processing and fishing. Producing fresh, frozen and salted products.
+
! scope="row" | 43.058
 +
! scope="row" | 41.424
 +
! scope="row" | 44.851
 +
! scope="row" | 49.163
 +
! scope="row" | 48.122
 +
! scope="row" | 53.308
 +
|}
  
| 86,4% of Icelandic herring
+
''Table 5. Table 5. Number of employees at aquaculture plants in Denmark, Full-time and part-time employees and total involved.''
| Very high - quota price, capital intensive fishing and production.
 
| Branding, product mix, market relationships, usage of by-products, increase quota share up to limit.
 
| Unstable currency, Uncertainty regarding fisheries management system, uncertainty regarding resource rent
 
that could affect profitability. Reduction in number of independent big boat owners. Refresh fish. Lack of branding.
 
  
| Internal sourcing and auction market when there is shortage of own catches.
+
{| class="wikitable" style="width: 100%;"
| Coordination of fishing and processing according to market needs, current sales and quota limitations.
 
 
|-
 
|-
| Export and marketing companies with no own production
+
! Year
| One big sales company and number of small companies selling fish products from VICs and smaller
+
! 2004
producers by long term contracts and ad-hoc trade. Sourcing fish from Iceland and other countries.
+
! 2009
 
+
! 2010
| 0
+
! 2011
| Low - depends of market and supply relationships
+
! 2012
| Branding, market relationship, long time contracts
+
! 2013
| Unstable currency, Lack of branding, unstable supply.
+
! 2014
| Mixture contract relationship ad hoc trade
+
! 2015
| Monitor markets needs and preferences and share market signals to producers.
 
Risk reduction through network of suppliers.
 
 
 
|}
 
 
 
===== Norway =====
 
 
 
{| class="wikitable" style="width: 100%;"
 
 
|-
 
|-
! &nbsp;
+
| Full-time
! Description
+
| 620
! Share of Herring fishing
+
| 427
! Access barriers
+
| 381
! Opportunities and upgrade possibilities
+
| 373
! Threats
+
| 375
! Value chain relationship
+
| 380
! Dynamic in the value chain
+
| 381
 +
| 427
 
|-
 
|-
| Coastal seiners 11 – 21m
+
| Part-time*
| Close to shore, small-scale fisheries, often off-season
+
| 80
| 9%
+
| 71
| Medium - capital intensive quota price
+
| 64
| Better handling, buy quota.
+
| 57
| Quota reduction, price reduction
+
| 50
| Almost all goes through auction markets.
+
| 41
| Lack of dynamic
+
| 124
 +
| 115
 
|-
 
|-
| Coastal seiners > 21m
+
| No employees,total
| Seasonal fisheries of herring and mackerel (and demersal fisheries in other seasons)
+
| 700
| 18&nbsp;%
+
| 498
| Medium - capital intensive quota price
+
| 445
| Better handling. Sale contracts with producers.
+
| 430
| Quota reduction, price reduction
+
| 425
| Auction markets
+
| 421
| Maximize first sale price.
+
| 505
|-
+
| 642
| Purse seiners
+
|}
| Large, modern fleet, RSW and good handling > both high efficiency and high quality. Catching in short seasons
+
 
for herring (and in particular mackerel)
+
Source: Ministry of Food, from Statistics Denmark, the register-based employment statistics (RAS) and 2014 and 2015: NaturErhvervstyrelsens Akvakulturregister. ([http://lbst.dk/fiskeri/fiskeristatistik/akvakulturstatistik/#c51343 http://lbst.dk/fiskeri/fiskeristatistik/akvakulturstatistik/#c51343])
 +
 
 +
No exact data for number of employees per company is available. In the account statistics, the registered companies are though obliged to register number of employees within groups. Based on registrations October 2017, a proxy for consolidation, based on number of employees can be made (table 4). Note that number of companies and number of employees seems reasonable based on the data from Table 4 and 5.
  
| 55%
+
''Table 6. Number of companies after size (employees group registration) and assessed total number of employees in the size group. Source: Bisnote – company accounts''
| High - capital intensive quota price
+
 
| Sale contracts with producers. Buy quota.
+
{| class="wikitable" style="width: 100%;"
| Quota reduction, price reduction
 
| Auction market
 
| Maximize first sale price.
 
 
|-
 
|-
| Large company in production and marketing
+
! no of employees (groups)
| Companies with processing facilities and sales office. High degree of marketing automation in processing.
+
! no companies
Producing frozen whole and filleted products.
+
! total no of employees*
 
 
| &nbsp;
 
| Low/medium/high. Low investment for small/medium- scale simple operations (existing, idle plants), high
 
investment for large, automated factory
 
 
 
| Branding, more processed products, market relationships, usage of by-products.
 
| Unstable currency
 
| Auction towards the fleet, highly competitive markets for products,
 
| hard to increase value creation.
 
 
|-
 
|-
| Small company in production and marketing, specialising in semi-processed products
+
| 75
| Companies with processing facilities and sales office. High degree of automation in
+
| 1
primary processing, smaller scale secondary processing. Producing frozen whole and filleted products, as well as marinated smaller pieces.
+
| 75
 
 
| &nbsp;
 
| Medium - depends of market relationships
 
| Branding, market relationship, long time contracts
 
| &nbsp;
 
| Auction towards the fleet, highly competitive markets for products
 
| &nbsp;
 
 
|-
 
|-
| Export and marketing companies with no own production
+
| 35
| Sales company selling fish products from VICs and smaller producers by long term contracts and
+
| 1
adhoc trade. Sourcing fish from Iceland and other countries.
+
| 35
 
+
|-
| 0
+
| 10-19
| Low, requires capital to finance ownership of a few hundred tons. Based on market knowledge and relationships
+
| 5
| Branding, market relationship, long term contracts
+
| 75
| Unstable currency, Lack of branding, unstable supply
+
|-
| Relationships are a pre-requisite, but not sufficient, actual trade based on spot price
+
| 5-9
| Monitor markets needs and preferences and share market signals to producers.
+
| 18
Risk reduction through network of suppliers.
+
| 126
 
+
|-
 +
| 3-4
 +
| 36
 +
| 126
 +
|-
 +
| 2-1
 +
| 22
 +
| 33
 +
|-
 +
| 0
 +
| 7
 +
| 0
 +
|-
 +
| no employees registered
 +
| 123
 +
| 0
 +
|-
 +
| total registered companies
 +
| 213
 +
| 470
 +
|-
 +
! colspan="2" | only owner
 +
| 130
 
|}
 
|}
  
*Independent Small boats owners
+
*Number of employees: Number of companies * average number in the sizegroup
**Small boat owners operate a bit differently than the larger purse seiners. They mostly fish close to the coast, 
 
  
often inshore, and through a larger portion of the year than the larger fleet
+
If concentration in the aquaculture sector is based on the number of employees as a proxy for market share, the four largest companies employ 140 persons, which is 30&nbsp;% of the total number of employees (not including the farms driven by the owner alone). The 8 largest companies employ 192 or 41&nbsp;% of all employees in the sector, Table 7.
  
*
+
''Table 7. The company concentration (CR4 and CR8) based on number of employees.''
**They often sell outside of the auction, to smaller firms, and often to much higher prices than in the high season
 
**The larger coastal fleet has much of the same pattern as the purse seiners. A share of their catch is sold on