Criteria and methodology for the effects of international trade on food security in fish exporting and importing developing countries - By Torbjorn Trondsen Norwegian College of Fishery Science University of Tromso, Norway INFOSAMEK/FAO Expert Consultation on International Fish Trade and Food Security. Casablanca January 2003

27-30 Jan 2003 FAO Casablanca T. Trondsen. Introduction Criteria and methodology for the effects of international trade on food security in fish exporting and importing developing countries Theoretical perspectives –International marketing –Strategic management Focus on value chains

27-30 Jan 2003 FAO Casablanca T. Trondsen. Value chain behavioural model Structure- Conduct- Performance Industry structure and trade barriers: Number of buyer and sellers Market characteristics Product homogeneity Entry and exit barriers Business conduct: Product-market combinations Product differentiating Marketing mix Organisational solutions Performance R iv al r y Competitive strength

27-30 Jan 2003 FAO Casablanca T. Trondsen. Criteria for trade analysis International trade= value adding transactions carried out by entrepreneurs in value chains over national boarders – Where fish products and money are exchanged Value chains structure –Integrated chains of physical, economic and social transactions between business’ transforming products from raw material to final consumption Value adding –The value added through the value chains –Depended of market power

27-30 Jan 2003 FAO Casablanca T. Trondsen. Criteria for trade analysis Market power –Who’s controlling trade barriers and trade incentives? –Where is the power basis and interest for change? Is it a conflict between food security vs. profit? Resources for changing trade barriers –How does PEST or value chain barriers increase transaction costs? –PEST basis Political, economic, social and technological trade environment –Transaction costs What is the costs related to developing and maintaining transactions over time through international value chain?

27-30 Jan 2003 FAO Casablanca T. Trondsen. Criteria for trade analysis VRIO_ traders competitive capabilities –V= What is the supply value for customers? –R= How rare is the supply compared to competitors? –I = Can the supply be imitated? –O = Is the supply covered by organizational uniqueness? Supply of product, place/distribution, promotion, price, service and customer relations

Case Norwegian-Russian Fish Trade

27-30 Jan 2003 FAO Casablanca T. Trondsen. Norwegian Fish Import From Russia

27-30 Jan 2003 FAO Casablanca T. Trondsen. Norwegian import from Russia Cod fish from Barents sea trawlers –Fresh directly to Norwegian processing plants –Frozen directly to frozen stores Processed to frozen fillets for export Exported without further processed –E.g. China for further processing for fillets and re- exported to the US and Europe

27-30 Jan 2003 FAO Casablanca T. Trondsen. Norwegian fish export to Russia

27-30 Jan 2003 FAO Casablanca T. Trondsen. Export species Low priced frozen small pelagic species herring to low income consumer groups –Round frozen Mackerel, Capelin and Blue whiting High priced aqua cultured species to high income consumer groups –Salmon and trout

27-30 Jan 2003 FAO Casablanca T. Trondsen. Drivers in the trade Norway –Lack of cod, surplus of pelagic fish for human consumption –Established network and capacity in export-oriented fish processing plants –Access to pelagic quotas –Efficient pelagic catching and processing industry Russia –Interests for economic and business development –Codfish quotas of in the Barents sea –Inefficient fish processing industry –Russian regulation and tax policy for own caught catch –Demand for cheap food

27-30 Jan 2003 FAO Casablanca T. Trondsen. Russian gain from the Norwegian fish trade. Increased the fish for inland consumption 373 mill kg A profit of 1.7 billion NOK (about 200 mill USD)

27-30 Jan 2003 FAO Casablanca T. Trondsen. Winners and losers Winners: –Russian consumers High-income and low-income –The quota owners –The trading entrepreneurs –Processor industries in both countries Losers –Processing industry and workers in North-West Russia Who have lost traditional cod raw-material Loss of income and welfare

27-30 Jan 2003 FAO Casablanca T. Trondsen. Raw material Local culture, skill, preferences Products Technological level Capability Raw material Local culture, skill, preferences Products Technological level Capability Food trade barriers in value chain Region A PEST Region B PEST VRIO Profits

27-30 Jan 2003 FAO Casablanca T. Trondsen. PEST Trade Barriers High Vs. Low GNP Countries High GNPLow GNP Governmental service system? -+ Property rights and legal system? -+ Taxation? Capital system? -+ Labour and raw material costs? +- Entrepreneurial traditions and culture? -+ Research and educational system? -+ Level of technology development? -+ Logistical system? -+

27-30 Jan 2003 FAO Casablanca T. Trondsen. Trade Development 1.Does trade gains greater than cost of development, trading, shipping and tariffs? 2.Are products equally acceptable in the mind of middlemen and consumers? 3.Market information network –Are traders aware of cost differences and product attributes? 4.Does the differential provides profit for trading entrepreneurs? 5.Are there other technical, financial or legal restrictions which inhibit the products and trading of those products

27-30 Jan 2003 FAO Casablanca T. Trondsen. Industrial trade strategies between Income Groups Low-income groups High-income groups Low-value products High-value products Differentiation advantage Market quality production High scale production Low price advantage Transaction barriers MO R&D Competition intensity

27-30 Jan 2003 FAO Casablanca T. Trondsen. Increasing supply and competition: High-value becomes low value (without catch/production limitation) % change Export mill kg % Export value/kg27,722,7-18% Example: Norwegian salmon export From differentiation to high-scale low-cost production

27-30 Jan 2003 FAO Casablanca T. Trondsen. Trade barrier changes over the product lifecycle? Production Consumption New product MaturingStandardized product Innovator country Other advanced country Less developed country

27-30 Jan 2003 FAO Casablanca T. Trondsen. Trade and transaction barriers between countries and groups? High GNP countries Low GNP countries High income groups12 Low income groups34 Trade

27-30 Jan 2003 FAO Casablanca T. Trondsen. Transaction trade barriers between high vs. low income groups? VRIO values High income groupsLow income groups As suppliers Technology Capitalists Business network Work force Advanced Specialized Cosmopolitan Specialized Traditional ? Local ? Traditional As buyers Foods income share Education level Products demanded Orientation Low High Higher quality and sophistication International High Low Traditional Local

27-30 Jan 2003 FAO Casablanca T. Trondsen. Transaction costs to overcome trade barriers? High value products Low value products Value chains orientation Market orientationProduction orientation Buyer-seller relationships Long-term relationsShort term transactions Business environment More stabilityLess stability

27-30 Jan 2003 FAO Casablanca T. Trondsen. International trade development -Investment to lower transaction costs as trade barriers Trade exchange All chain members get advantages R& D investment Studies and trials Country A: Suppliers with alternative buyers Country B: Buyers with money and alternative suppliers Information exchange Time and cost consuming Investment in trade structure

27-30 Jan 2003 FAO Casablanca T. Trondsen. Summary hypothesises International trade of fish improves economic development, but not necessary for all Trade might improve food security, but not necessary for all low-income groups Food security measures should be integrated in international trade –encourage international trade for both economic development and for food security Policy must rely on analysis of behaviour, power and interests for changes in –The PEST environment –The value chains

27-30 Jan 2003 FAO Casablanca T. Trondsen. Food supply security Economic development International trade Distribution of consumer income PEST Economic policy Preferences Distribution Products Prices Fisheries management policy Supply policy VRIO

27-30 Jan 2003 FAO Casablanca T. Trondsen. How to improve food security through trade? I will –present some ideas how Government can improve both economic development and food security by introducing export quotas

27-30 Jan 2003 FAO Casablanca T. Trondsen. Food security and trade National food security –Improving by exporting high-value food products and importing low-value food products. BUT: In a liberalized market. –The traders choose the business which gives best profit. –Don’t necessary import food or fish products. Profits a function of both prices and costs –Transaction cost barriers drive trade focus in the short run toward value chains with lowest transaction costs, less investment and risk relative to sales value Keeping food security and regional food balance –may force government to influence the traders choices

27-30 Jan 2003 FAO Casablanca T. Trondsen. Food security strategies WTO related arguments 1.Protect of domestic production to ensure food security? Import has to be financed by export (less to the poor?) Import may distort domestic production (less income to the poor?) 2.Increases in income a necessary long-term solution Ban of fish/food export in food unsecured areas? –Less foreign currency –Less income compared to exchange high value food export in lower valued food import –Less economic development in the long-run –Decreases purchasing power for food security

27-30 Jan 2003 FAO Casablanca T. Trondsen. Improving both trade for food security and development (FSD) Individual Export Quota (IEQ) –Improving food supply by selling individual fish export-quotas paid by a required import food quantity –Licences issued when better food supply is needed Country licences issued by WTO/WHO? Individual companies and contracts Size of food export quota equivalent to documented food import quantity –No limitation of total quantity Export quotas –well known regulatory tool allocating import quotas in other countries, but not as a food security tool

27-30 Jan 2003 FAO Casablanca T. Trondsen. Impact of IEQ Gain economic development in underdeveloped regions by exporting higher value products Gain food security by improving import of lower value food products Balanced trade development

27-30 Jan 2003 FAO Casablanca T. Trondsen. IEQs as incentives for trade development Exporters becomes trading firms –Exporters of high value products from FSD regions must develop compensating food import –Exporters of low value products to FSD regions must develop compensating food import from FSD regions Development of –More trade of new and improved products, species and technology? –More trade network, market orientation and relational marketing? –IEQ quotas trading? –Better local food supply?

27-30 Jan 2003 FAO Casablanca T. Trondsen. Other effects of IEQ More bureaucracy? –Control system can be run efficient –I.e. Auction of Vietnamese garment and textile quotas to regulated markets ( Governmental/political control over trade? –Impact dependent of local political culture

27-30 Jan 2003 FAO Casablanca T. Trondsen. Concluding hypothesis Imposing of individual export food quotas where export quantities are balanced by a similar import quantity, may improve both economic development and food security

27-30 Jan 2003 FAO Casablanca T. Trondsen. Thank you