seafood and aquaculture markets

8/3/2019 Seafood and Aquaculture Markets

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Seafood and Aquaculture

Markets

Largely from Engle andQuagrainie (2006)


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Major Country Markets

Per capita consumption of seafood rangesfrom 10-40 kg/capita, depending upon region

North America has highest consumption 48

kg/cap, but due to inclusion of Greenland Highest per cap consumption in the world

found in the Maldives at 203 kg/cap

If you have a fisheries-based economy, thenyou eat fish

Problem lies with FAO classification system.


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Major Seafood Markets

Total consumption is strongly relatedto both per capita consumption andtotal population.

China wins hands down! 30 MMT

Japan is next (8 MMT), but above theU.S.

India is fourth, not because of per capconsumption (4.7 kg/yr), but because ofpopulation (close to 1 billion).


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Trade in Seafood andAquaculture

About 38% of world fish production istraded internationally

Where it's caught where it's sold

Small percentage increase per year

Production increases are small due to

increasing contribution fromaquaculture

Aquaculture is offsetting capturefisheries


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Major Finfish Species Caughtand Supplied

Largest volume = Peruvian anchovy(10-12 MMT)

fishmeal production

pollock is #2 (fish sandwiches, fishsticks, etc.)

Also used for surimi Rest are dominated by scombrids


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Aquaculture Products

Most cultured species are similar towild-caught (exception is Chinese carp)

Aquafarmers remain in competitionwith fisheries producers

Could change due to genetics

Wild-caught still dominates the marketand controls price (exception: catfish,carp)


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Advantages

Aquaculture = control over the product

Year-round supply

Wild-caught = seasonal variationrelated to weather and fishingregulations

Result is large price swings (high

voltatility) Makes it difficult for aquaculture to

compete in this type of market


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Advantages (continued)

Controlled production = consistent productionof high-quality product

Consistency in supply wrt to size, quality andother production characteristics and volume

Should lend stability to the market, especiallywith continued growth of aqua production

Ultimately, this should allow for negotiation of

higher prices Buyers should pay more for reduced financial

risk associated with supply problems


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Advantages (continued)

Market sectors dependent upon freshproduct should prefer farmed supplies

Supply chains of captured fisheriesproducts are more fixed due toseasonality of supply

Cannot respond quickly to changes inretail demand


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Freshness Counts

In contrast to fish, you seldom hearconsumers praise freshness of beef,poultry or swine products

Issue regards perishability of seafood Tremendous ability with respect to

product presentations due to

processing technology Downside: many retail grocers thaw

out frozen seafood and sell it as "fresh"


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Traceability

Easier to trace farmed product thanfisheries-caught

Complexity of market channels for

captured product obscure steps insupply chain

Should be marked, tagged and logged

separately, but often isn't due to cost COOL laws easier to comply with for

aquaculture producers


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Control of Attributes

Controlling product attributes allows farmersto target specific consumer segments

Example: fat content can be controlled by

diet and impart different tissue flavors Added value products: presentation,

breading, microwaveable products, peeled,deveined, fillets, etc.

Added value = increased profit, especially ifyou know what consumers want and can doit cheaply (1 lb of effort = 2 lb profit)


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Reliable Delivery and Safety

Reliable delivery allows for compliance withcontractual agreements

Must deliver size and grade required Big difference between aquaculture and wild-

caught seafood Aquaculture management practices help

insure safety of products: free of chemicals,pesticides, undesirable additives, GMO

issues Dioxin, mercury, status in fish used for fish

meal production


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Resistance

Growing resistance to aquacultureproducts by some activist groups

Aquaculture considered unnatural and

detrimental to the environment Example: farmed vs. wild-caught

salmon, same for catfish

Consistency of flavor, quality andcontaminant status are assured byaquaculture


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Price Issues

Costs of production can be higher for aquaculturedproducts vs. wild-caught

Costs associated with capture fisheries have beensteadily increasing

Trawlers must travel farther to find wild fish stocks =increased fuel costs, fewer fishing days

Aquaculture allows for reduction of costs viaresearch and development, not so with fisheries

Consistent production/quality afforded byaquaculture = stabilization of price

Some buyers are accustomed to waiting for naturalharvests to purchase at a lower price


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Market Competition

Prices have dropped for aquaculturedAtlantic salmon, rainbow trout, sea bass,shrimp and sea bream

As the price has dropped, their margins in

the marketplace have increased. Farmed product that competes in a large

market (e.g., shrimp) will face limited priceeffects from increased aquaculture

production If farm production is much lower than

capture for a species, increased productionwill not affect overall market price


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Market Competition

When supply of farmed fish is high, price willlargely determine market price

In this case, farmers have greater control

over the production process Salmon and catfish are examples of markets

dominated by aquaculture

With few or no substitutes, industry

expansion is difficult Farmers, themselves, must create their

markets and become its promoters


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Market Competition

Catfish represents a good example ofan aquacultured product having to bemarketed by farmers

Historically very inexpensive Farmers successfully moved their

product into new markets

Sustained price in face of increasedvolume

Problem now: imports of basa


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Market Competition

Seafood demand studies show that theseafood market is highly segmented

Farmed species appear to compete with their

wild counterparts, but not with differentspecies

In Europe, trout is a low-fat, healthysubstitute for beef

Aquaculture producers are capturing theirshare of the market, but what market is it?


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Consumption Trends

In the past, most seafood was wild-caught, what could be caught locally

Situation changed with refrigeration,advanced transportation

Most consumers prefer local species

In Europe, fish were consumed weeklyas a low-cost protein source

Now, reserved for more refined dishes


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Most people are conservative and traditional when itcomes to the seafood they eat

What is caught in hometown areas

Region Consumers

Most preferredspecies

Second-mostpreferred

Third-mostpreferred species

Pacific salmon halibut catfish

Mountain trout halibut salmon

West North Central catfish trout cod

West South Central catfish flounder trout

East North Central perch catfish whitefish

East South Central catfish flounder bass

Middle Atlantic flounder haddock salmon

South Atlantic flounder trout red snapper

Northeast haddock cod swordfish


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Consumption Trends

Preparation methods also vary byregion, culinary traditions

Northern Europe and southeast U.S.prefer fried fish, Central Europe Frenchcuisine, Southern Europe fried, grilled,simmered or dried

Fried catfish and hushpuppies! Alongthe Gulf Coast, most seafood is fried


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Consumption Trends

Consumer preferences and tastesultimately change over time

In the U.S., beef consumption hasdeclined and poultry increased

Health issues, lower-fat protein, HUFAs

Poultry increased largely due to lowerproduction costs

Pork and seafood have changed little


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Consumption Trends

Major factors impacting consumption trendsare quality and flavor preferences.

Other variables: price, size of household,

coupon value, income, geographic region,urbanization, race, seasonality

Household size is more influential thanincome

In the U.S., preference is not an income issue(except for lobster and catfish)


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Consumption Trends

Most promising target for increasing seafoodsales in restaurants is consumers with highincome, who are caucasian, well-educated,and live in families with no children

More aware of health benefits

For at-home sales: older, well-educated,higher income, non-caucasian, urban-

suburban, children


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Consumption Trends

Frequent purchasers of seafood inrestaurants were more likely to haveannual incomes above $40K.

Other factors: income, race,seasonality, few small children, andadherence to the Catholic faith.

Main factor: recognition of fish as anutritious, healthy product


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Use of Aquaculture Technology

Supply of shrimp has expandedworldwide due to aquaculture success

Currently exceeds 30% of worldwide

capture, $10 billion supply Technological breakthroughs in 1980s:

hatchery seed (SPF, GMO)

feed manufacturing (nutritional research) All has changed due to competition

over diminishing natural resources


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U.S. Situation

We import more than 60% of fish andshellfish

Fish and seafood imports into the U.S.are the largest agricultural and 2nd-largest natural resource component ofU.S. trade deficit (approx. $12 B)

$21.3 B imported in 2003 (64% increasesince 1996)


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U.S. Situation

Natural fisheries stocks are threatenedby overfishing

Many catches have leveled off or aredeclining

Fish farming now accounts for 15% ormore of U.S. fish and shellfish harvests

Clear potential for future growth


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U.S. Situation

U.S. aquaculture producers are highlyvaried, from very large corporations tosmall farms

Products: finfish (catfish, trout, salmon, striped bass,

tilapia, red drum, baitfish, ornamentals)

crustaceans (crawfish, shrimp)

shellfish (oysters, clams, mussels)

aquatic plants (seaweeds)


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U.S. Aquaculture Production

total = 391 106 MT/yr

291 106 MT

11.4 106 MT

9.1 106MT

28.2 106MT

8.6 106

MT

4.1 106 MT

Sources: Mississippi State Sea Grant, NOAA Office of Science and Technology


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Part 2. Intro to

Agribusiness System


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Objectives

What is the agribusiness system?

size and scope of agribusiness

various sectors role of marketing in the economy

various functions of marketing

role of marketing in agribusiness firms


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Agribusiness Background

Agriculture to most people means farmingand ranching, accurate until 1960

Now, agribusiness is a complex systemreaching beyond the farm

includes everything required to bring food tothe consumer

aquaculture is no different from agricultureand must achieve this level to be takenseriously


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Agribusiness Background

System includes not only those who produce(e.g., farmers, hatchery managers), but alsothose who

provide inputs (e.g., fry, chemicals, feed)

process the output (e.g., processing plants)

manufacture (e.g., shrimp microwavable

products) transport/sell the products (e.g., retail

grocery stores, seafood wholesalers, etc.)


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Agribusiness: How did itHappen?

In the late 1800s, most farms were self-sufficient

Wars caused prices of produce to increase, stimulatingmore production (rem: demand and supply?)

Labor became hard to come by, resulting in increased

mechanization

Farmers focused on producing a crop and startedpurchasing inputs (this is where aquaculture is today!)

Processing and food manufacturing then moved off the

farm Raw products converted to a form more convenient to

consumers (improved preservation)


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The Agribusiness System

Aquaculture

Input Sector

Production

Sector

Processing-Manufacturing

Sector

Agribusiness System

Note: the success of the production sector depends upon the proper

functioning of the other two!


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Size and Scope

Agribusiness is largest sector in the U.S.economy: 11% of all goods, 16% employment

Production systems occupy 1/2 of all land,

products valued at $1 trillion Apart from food, why important? Allows us to

do our thing (science, government, education;separates developed from developing

economies Interesting point: processing is the largest

sub-sector!


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The Input Subsector

Provides farmers with feed, fry, credit,equipment, fuel, chemicals, all needed foroperation (i.e., production)

Since WWII; nature of inputs has greatlychanged

As labor costs increase, you typically seea shift towards increased purchase ofinputs (decrease of 50% in farm laborsince 1960)

This typically allows increased production


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The Input Subsector

Other input change: use of energy

Due to efficiency, energy usage has not

changed much on farms, just the typeof input

Relatively few input businesses

compared to production or processing(look at feed manufacturing vs. thenumber of farms!)


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The Production Subsector

The average size of farms is increasing, bothin agri- and aqua-culture

Large corporations getting involved

Increased specialization of production is thetrend, taking advantage of new technologies

genetically improved growth/survival

specific pathogen-free stocks

This creates some stability in thataquaculture production is becoming morediversified


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Specialization also allows for increasedproduction efficiency (telltale sign: increasedproduction in face of decreased or constantlevels of input)

Another blast from the past: productioneconomics production costs increase every year due to

increase input cost

but cost of inputs is not related to commodity

prices (e.g., shrimp), related to cost of inputs toproduce inputs!

when commodity prices drop, gross farm incomefalls, but amount spent on inputs doesnt (the greatsqueeze!)


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Two sizes of farms: those who can gathereconomies of scale (typically large) andthose who cant (typically small)

Large farms can take advantage ofexpensive new technologies (e.g.,aeration, telemetry, genetically-improved

inputs) Small farms can also: How? Sell

something that commands a high price!

Th P i


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The Processing-Manufacturing Subsector

Includes all businesses that turn rawmaterials into finished (or partially-finished)products

In aquaculture, largely accomplished byprocessors/processing plants

Also includes those who package, distribute,and sell at times, places and in forms desired

by consumers (the marketing bill) Marketing bill represents 70% of total amount

spent by consumers on food!!! (they alwaysmake out great in whatever economy)

Th P i M f t i


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The Processing-ManufacturingSubsector

Firms in this sector arevery large (again,gathering economies of

scale) and veryresponsive toconsumer tastes andpreferences

Examples: ADM (grainprocessing), OmegaProtein (fish meal),Tyson Foods (feeds)

Packaging

Transportation

Before-tax profits

Fuel and power

Depreciation

Advertising

Rent

Net interest

Repairs

Other

Labor

The Marketing Bill

H th Bi C i


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How the Big CompaniesWork

It should be obvious that agriculture andaquaculture as industries dont depend onisolated subsectors: flexibility,diversification are keys to success

many large companies have divisions inother parts of the agribusiness system

they do business in other areas

Example: Cargill, Inc., one of the largestgrain traders in the world, also largestsoybean processor, flour miller, feedmanufacturers, seed producers, etc.!!!

seafood and aquaculture markets

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