1. The future of fishing and the seafood industry Ragnar Tveteras University of Stavanger, Norway International Fishmeal and Fish Oil Organisation Annual Conference 2006 Barcelona, Spain

2. Issues Global supply trends Global demand trends Development of prices at different stages of supply chain for selected species/products Emergence of large suppliers of seafood with focus on processing and distribution At what stages of seafood supply chains will profits be earned in the future? Strategic challenges for the aquaculture industry

3. The global supply from the oceans FAO 2005

4. Global exports of seafood products from developed and developing countries

5. Largest importers of seafood

6. Supply side trends in food fisheries Many food fisheries struggle with poor regulation –Both in developed and developing countries, for example, the European Union –Technology and capacity versus political will and resources –It will take a long time to improve regulation performance Some food fisheries sectors are improving their competitiveness through increased ability to supply modern distribution channels with e.g. fresh fish

7. Supply side trends in aquaculture Continuous innovation Declining production costs Consolidation in salmon aquaculture Winning the battle of distribution into retail outlets The species supply mix in the future will depend much on fish meal & oil substitution Increased penetration from developing countries to 1. world markets

8. Production costs in farming in the sea and on land

9. Production costs in salmon Norwegian farming Source: Norwegian Directorate of Fisheries

10. Global meat production 1961-2005

11. GDP growth rates

12. Global seafood demand trends Income growth in many countries –Middle class grows –Accompanied by development of modern food distribution systems and shift in distribution channels to consumers –Shift from cheap proteins to more luxury seafood –Industrialized aquaculture species benefits particularly from this Health trends in developed countries –Omega-3 is one of the winners when consumers search for healthy alternatives in their diets Fish meal & oil sector benefit from increased demand for fish in general and carnivorous fish and shrimp in particular

13. Some buyers and suppliers in the European food industry Food giants Meat product suppliers Large seafood companies Salmon companies Small-scale seafood suppliers

14. The salmon companies Salmon companies Often vertically integrated farming-processing- distribution Largest companies have yet not exploited coordination and scale economies fully High variability in profitability across companies But have set the standard for supply of seafood in several areas: –Volume, timing and prices

15. Retail prices on selected food products and retail price index in UK

18. The salmon companies Salmon companies Often vertically integrated farming-processing- distribution Largest companies have yet not exploited coordination and scale economies fully High variability in profitability across companies But have set the standard for supply of seafood in several areas: –Volume, timing and prices –Availability of fresh fish to consumers

19. Fresh & chilled products’ share of total frozen, fresh and chilled import quantity into European countries Source: FAO Aquaculture Fisheries

20. The salmon companies Salmon companies Is the ‘one-species’ strategy viable? When will they include significant volumes of other species? How will the salmon sector deal with increased scarcity of fish meal and oil?

21. The new players – large seafood companies Sales 500 mill. to 1.2 billion USD Expanding rapidly Moving downstream in value chains Supply a broad range of species and products Large seafood companies

22. The new players – large seafood companies Try to copy some of the strategies of leading food companies –Global sourcing of seafood –Adaptation to retailer requirements (product range, volumes, regularity, etc.) –Market intelligence –Economies of scope in purchasing, processing and distribution –Invest in brands Large seafood companies

23. Where are profits made today? Primary production (farmers and fishers) Processing and distribution Retailers Profitability Food giants’ brands Meat products from agriculture Seafood industry products Well-regulated fisheries!

24. Where are profits made in the future? Primary production (farmers and fishers) Processing and distribution Retailers Profitability Food giants’ brands Meat products from agriculture Seafood industry products

25. Where are profits made in the future? Primary production (farmers and fishers) Processing and distribution Retailers Profitability Food giants’ brands Meat products from agriculture Seafood industry products Requires structural changes here! Feed fisheries and processing?

26. Where are profits made in the future? Primary production (farmers and fishers) Processing and distribution Retailers Profitability Food giants’ brands Meat products from agriculture Seafood industry products The focus of expanding seafood companies!

27. The seafood industry has so far largely ignored The traditional seafood industry has so far largely ignored the importance of investments in downstream activities –Knowledge on consumers and buyers –Product development –Branding and promotion –Distribution systems –Relationships with buyers Most of these investments are in intangible assets

28. Assets in seafood value chains Resource capital Fixed capital vessels, farms & processing Intangible capital downstream in value chain Historical focus: Resource capital Fixed capital vessels, farms & processing Intangible capital downstream in value chain Future focus? Product flow

29. This is the focus of the expanding seafood companies They are betting that the highest returns on investment in seafood value chains are in downstream activities If they are correct the future seafood industry will be fundamentally different from what we see today Large seafood companies

30. But the growth of the seafood sector, particularly aquaculture, has not gone unnoticed...

31. Global seafood industry is subject to increased scrutiny Growth and success increase visibility Focus on sustainability and food safety Aquaculture products are being undermined by adverse criticism on sustainability

32. Concerns about sustainability...

33. Salmon consumption dropped 20% in Spain after the Science article ’Requiem for salmon’’Salmon creates fear’

34. The traffic light is red for several aquaculture species… Farmed salmon = Major environmental impact! ’Farmed salmon:…Water pollution…Damage to coastal habitats…threats to wild salmon stocks…chemical use…toxics in farmed fish’

35. Sustainability and food safety - major risks Sustainability and food safety are major strategic risks for industrialized aquaculture The aquaculture industry, both feed producers and fish farmers, have to manage these risks A more consolidated industry will together with other stakeholders (NGOs and final buyers) be able to exercise increased pressure on parts of the industry that do not perform according to their standards

36. Where is the fish meal and oil industry in this picture? The industry supplies feed inputs that will only become more scarce in the future How high prices will go depends on: –Rate of growth for species that use fish meal & oil intensively – depends on consumers’ willingness-to- pay –Omega-3 trends –Effect of innovations on substitution possibilities with vegetable alternatives –The perceived sustainability and food safety of seafood with high fish meal & oil inclusion rates

37. Concluding remarks Fish meal and oil are valuable assets, not only due to a limited global supply, but also because of the health benefits they bring to consumers But buyers of fishmeal and fish oil for the aquaculture sector, both in developed and developing countries, face challenges from markets in North America, EU and other rich countries By forming strategic alliances with buyers and other stakeholders in the aquaculture sector to deal with issues of concern, whether real or perceived, the fish meal & oil industry adds value and reduce risk for buyers...... and at the same time adds value and reduces risk for itself