Working paper 9.03.03
Criteria and Methodology to improve
the Effects of International Trade on Food Security in
Fish-Exporting and Fish-Importing Developing Countries
By
Torbjørn Trondsen *
Norwegian College of Fishery Science
University of Tromsø and Bodø College, Norway
INFOSAMEK/FAO
Expert Consultation on International Fish Trade and Food Security.
Casablanca 27-30 January 2003
*Address: Office: Breivika, 9037 Tromsø. Phone +4777645567, Fax +4777646020,
email torbjorn@nfh.uit.no, Internett: http://www.fishmarketing.com/
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Abstract
This paper shows how criteria and methodology to improve the effects of
international trade on food security in fish-exporting and fish-importing developing
countries can be generated from international fish marketing and strategic
management theoretical frameworks. Business behaviour in value chains is the unit of
analysis. Observed trade performance, driven by the traders’ competitive strength is a
function of trade structures and the value chain strategies. Trade structures rely on the
related market power from (i) the political, economic, social and technological
environment (PEST) and (ii) the competitive structure in the value chain; for example,
the degree of competitive rivalry and historic traditions regarding preferences and
supply. The competitive strength of the value chain can be measured by the products’
and marketing services’ transaction value to its customers, their rarity in the market
place, their possibilities for imitation or their dependency on specific organizational
structures and the difficulty of imitation (The VRIO concept). Competitive product
and marketing services are combinations of many things, including delivery of
products, services, prices and promotions at desired locations and times which satisfy
customers better than competitors. The paper also illustrates the importance of
transaction barriers for trade between regions of high and low-income levels.
Competitive value chain strategies for improving food security in underdeveloped
countries are oriented toward production and cost efficiency. Competitive valueadding export strategies from underdeveloped countries offer differentiation
advantages for high-income groups and regions, which may gain higher revenues than
are available through domestic trade.
Improving food security from international trade may rely upon a broader governance
of a range of policies including: fisheries management to secure sustainable
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harvesting, economic policy to secure distribution of the economic gain from trade
and a supply policy to secure products and marketing services preferred by the
consumers.
The paper proposes the concept of individual export quotas (IEQs) as a market
solution for improving both food security and economic development.
Countries with an insecure food supply situation in a WTO framework might be
permitted to issue individual export quotas. Such IEQs might be issued to individuals
on the condition that they are reciprocated by the import of at least the same quantity
of food for human consumption. It is argued that IEQs will generate net surplus from
the export of high value products but will also be accompanied by no lesser quantity
of cheaper products into the food-deficient exporting country. The idea of an IEQ to
protect food supply for low-income consumers has its parallel in individual fish
quotas (ITQs) which are intended to protect fish stocks at the same time as generate
economic gain.
Concluding hypothesis: International trade of fish improves economic development,
but not necessary for all. Trade might improve food security, but not necessarily for
all and especially low-income groups. Food security measures should be integrated
within international trade regulations to encourage both economic development and
food security. Policy must rely on the analysis of behaviour, market power and
interests for change in the PEST environment and in the value chains. Imposing of
individual IEQs where export quantities in each trading company are balanced by
similar import quantities, may improve both economic development and food
security.
.
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Introduction
This paper deals with the criteria and methodology to improve the effects of
international seafood trade on food security in fish-exporting and fish-importing
developing countries. The main question to be discussed is: what is the main
international fish trade barriers for food security between regions with different
regional economic development levels and how can government influence
international fish traders that improves food security. Individual fish export quotas
(IEQs) are discussed as a regulation strategy for improving food security in needed
regions. The discussion will embrace theories on international marketing and
strategic management and will be illustrated by a case of Norwegian-Russian fish
trade.
Theoretical criteria for trade analysis
From a marketing strategy perspective, international trade may be seen as value
adding transactions conducted over national boarders between businesses in value
chains where fish products and money are exchanged. Value chains (also called
marketing chains from the marketers perspective) are the integrated chains in which
products are transformed from being raw material through to manufacture products
(and services); information about these products is communicated and ultimately they
are delivered to targeted markets wherein consumers are willing and able to pay for
them. This chain integrates physical or technological processing, logistics, economic
and social transactions related to the product flows. Social transactions include a
variety of sociological, cultural and political interactions.
Figure 1 about here
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Value adding is the profit seeking activities that fuel the transactions. Both total value
adding and its distribution among the participants in the chain are of interest for the
analysis.
Performance, in terms of value adding as a margin between sales value and
production costs’ is dependent on the total market power of the value chain as a whole
compared to competing value chains and its distribution among the participants in the
chain (Porter 1980). The source of market power is the participants’ control of the
demanded and limited trade barriers, which form the industry’s value chain structure
(Barney 1996). Market power can be gained by business conduct based on
competitive combinations of market preferences, product attributes, the marketing
mix and organizational solutions (Figure 1).
Figure 2 about here
The value chains are embedded in a broader societal context, which is conceptualised
as PEST, meaning the political, economic, social and technological environment,
controlled by Government and the society which influences the international trading
patterns of seafood as well as all other products (Figure 2). Transaction costs are
related to developing and maintaining management of transactions and trade barriers
over time. The transaction costs are higher in the early stages of the development of
the value chain because of the need to establish routine in relationships and the
associated learning curve (Baker & Hart 1999). Transaction costs are both barriers for
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business and Government. Businesses manage the value chain transaction costs while
Governments manage the PEST transaction costs.
The relative market power in the chain e.g. between traders in developed and
underdeveloped countries, is dependent on the participants’ relative competitive
strengths and weaknesses, related to the firms’ control over heterogeneous and
immobile resources (physical and human). Thus, the value chain and the individual
company’s long-term competitiveness can be analysed through the VRIO framework
(Barney 1996), which characterizes four important competitive factors: (1) Product
value for customers, (2) Product rareness for customers, (3) Imitable resources and
(4) Unique organizational resources. The higher the VRIO value the stronger is the
competitive strength and market power for value adding in the transactions process
between the end customer and the raw material supplier.
The question of value stands for the products’ and services’ customer value. For
example the more the customers require specific technical supply specification such
as freshness or customer relations in order to satisfy their customers or needs, the
greater will be the value of these specific product attributes for the buyer. However,
the value is dependent on the rarity of the supply specifications offered in the markets:
the greater the supply, the lower value. And vice versa. The best supplier position is to
be able to provide the rarest specifications possible. Control over advanced
technology or limited quotas belong to this category and here the ideal supplier
position is to have control over products that cannot be imitated or copied. All
successful products and strategies are copied in the market place if they are not
protected. For example China’s expansion in the fish processing business is heavily
based on copying western technology. Patents, branding, exclusive quotas rights or
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control over limited fresh fish supply belong to this factor category. Control over a
unique organization to manage the internal and external value chain is also a
competitive strength. The best supplier position is to control rare demanded products,
which are embedded in unique business organizations developed through a long
history of being difficult to copy in the market place. Well-developed cost or market
oriented organizations, marketing networks, unique and competent staff and efficient
organizations all belong to this factor category.
Case: Norwegian-Russian Fish Trade
The following describes the development of Norwegian- Russian seafood trade in the
period 1996- 2001 in order to demonstrate the dynamics of international trade
development.
After the Soviet Union was dissolved, Russian vessels were attracted by higher prices
and so started landing cod in Norwegian ports. Over this time Norwegian imports
grew from almost nothing to 140.000 tons in 2000
The trawlers switched from their earlier supply of fish to processing plants in North
West Russia, mainly Murmansk, and began deliveries of fresh fish to Norwegian
processing plants. There was however a price premium for frozen-at-sea round fish,
which could be traded internationally via Norwegian cold storage capacity, and
consequently during the 1990s the Russian vessels invested heavily in onboard
freezing. This investment effectively reduced the impact of freezing equipment as a
trade barrier. Those in control of the cold chain trade barriers were able to increase
their value adding, while those fish processors who had earlier purchased fresh fish
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from the Russian vessels lost out. The cold store businesses were thus in a position
either to sell to Norwegian processing plants for a higher price, or to trade on the
international markets in its unprocessed round form. More recently a significant and
expanding component of this trade has been with China for further processing into
fillets, which are then re-exported to Europe and the USA.
In the same period, Russia started importing fish from Norway. The quantity
developed from a very low level in the Soviet period to 240 million kg/yr in the end
of the period. The average price of the Norwegian import from Russia was 12-14
NOK per kg in 1999/ 2000, while the similar figure for the fish exported to Russia
was 4-5 NOK per kg.
The fish species exported from Norway fell into two categories: cheap small pelagic
species including herring, mackerel, capelin and blue whiting for low income Russian
consumers and more expensive salmon and trout for high income consumer groups
within Russia.
The trade development started as a result of reduction of the governmental-managed
trade barriers between Norway and Russia. This reduction in control coupled with the
existing value chain structures fuelled realignment of trading partnerships. Initially
the Norwegian fish processing industry demanded more raw material to boost their
integrated export oriented value chains, while on the other hand the Russian value
chains were solely oriented to the domestic markets, a reflection of their earlier
planned Soviet economy. The change in the macro environment meant that the
Russian vessels in control of cod quotas in the Barents Sea were able to get much
higher prices in line with international market levels compared to the prices offered
by the old-fashioned Russian fishing industry. In addition, the new Russian
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Government demanded landings taxes in Murmansk, which further discouraged
Russian vessels to land at home.
However on the other side of the transaction, the reduced supply of domestic landings
into Russia at the time of an increased the demand for cheaper seafood products
created a new trade opportunity. During the 1980s and 90s Norway had developed
very cost efficient pelagic trawlers able to keep very high quality fish in RSW tanks
(keeping fish in ice tanks at zero degree Celsius) before freezing in onshore factories.
Whereas earlier most of these pelagic species had gone into the production of
fishmeal, the opening of the Russian market made it possible to satisfy the increasing
demand of its consumers for cheap pelagic round frozen fish.
In addition an emergent consumer group with increasing buying power grew in
Russia, especially in Moscow and St. Petersburg. These consumers were able to pay
premium prices for imported high quality products such as farmed salmon, which
found a ready supply available from the well-stocked Norwegian salmon industry.
In the period 1996-2000, Norway exported 953,000 tonnes and imported 580,000
tonnes of fish, a trade surplus in excess of 370,000 tonnes. However in terms of value
these volumes equated to a trade deficit of 1,7 billion NOK (about 200 mill US$).
Combining these balances shows that the Russians gained 1.7 million NOK and
370.000 tons of fish through the transactions with Norwegian traders over the 5 years
period by importing fish for 5,2 NOK/kg and exporting for 11,5 NOK/kg. In other
words for each kilo of Russian fish exported to Norway, Russia could import 2,2 kg
fish.
Leaving aside the, possibly important, issue of consumer preferences it would appear
that the winners in this case are the Russian consumers who have improved their
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seafood supply of about 75.000 tons seafood a year (NSEC annual reports) From a
welfare perspective it is important to note that the winners include low-income
consumers who have preferences for low priced pelagic fish; this is in some contrast
to the more general impact of trade which tends to result in reduced supply for poorer
groups. In this case other beneficiaries also include high-income consumers with
preferences for more high quality salmon. In addition, the Russian and Norwegian
quota owners also win. Russians quota owners gained through the increased rent from
the cod stock by exporting directly to Norwegian processing plants, while the
Norwegian pelagic quota owners gained by increasing the sales of round frozen fish
for human consumption instead of low priced sales for reduction to fishmeal.
However costs were incurred in the process and were borne by the processing
industries in North West Russia mainly in Murmansk. Upon losing raw material
supply for their traditional white fish processing plants, thousands of fish processing
workers became unemployed with adverse consequences for income and socioeconomic welfare in the region.
Despite this pattern over the 5 years period, the trading pattern is not necessarily
sustainable in the longer term viewed in a VRIO perspective, only the control of
quotas of the strategic business resources cannot be imitated. The Russian players in
this value chain are already investing in factory trawlers and in pelagic boats, further
helped by a Norwegian ship building industry. This technology is all available on the
market. The Russians have a short learning curve and are soon able to manage the
catching and processing operations in the same efficient way as Norway but with
lower labour costs.
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Trade barriers in value chain
Coordinating transactions and behaviours in the value chains is an important trading
barrier between different cultures. Products, as we observe them in markets, are
normally the result of a social, economic and technical process developed over a long
period of time. The Norwegian-Russian trade reflects an evolutionary process of
product development with both fresh cod and round frozen pelagic species being
established well-known products in the respective markets.
Over time fish product forms observed in most market places have expanded from
being fundamentally a function of locally available fish resources to incorporate many
more different types that are demanded in that area. Provision of the wider product
range has been enabled by available technologies for catching and processing specific
species. The technology is however under continuous development. The Norwegian
pelagic fishery is a high-tech operation developed to a very high level compared to
many other countries. However, the history of fish storage and preservation plots an
intricate path of product innovation and diffusion, of which the Russian development
of onboard freezing operations is yet another example where technology is adopted in
response of favourable market conditions. Technology can be defined as a
combination of hardware (the physical product) and software that is capable of
generating knowledge, skill, financial returns and entrepreneurial drive to utilize the
resources (Rogers 1995). This means that economic development and welfare for the
people in the value chain can be obtained by improving technologies and products
which satisfy market needs better than alternative technologies.
In order to develop international trade, value chains in one region or country have to
be compatible, to some extent at least, with value chains in other regions or countries
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with different development patterns for products, social traditions and technology
(Figure 3).
Figure 3 about here
Sustainability of the trade requires reciprocal VRIOs. Rather than taking -over each
other’s position in the chain, each partner has to value the other partner’s contribution
in the transactions. In the Norwegian- Russian case, several problems had to be
overcome in the early years of seafood trade, for example the business culture in
Russia was significantly underdeveloped after 80 years of communist rule.
A lack of reciprocal business cultures between countries and partners may be an
insurmountable barrier for trade development. Development of a mutual
understanding of the nature of supply and demand and the act of establishing and
developing trade relationships incurs high transaction costs. However, the net gain
received by the end consumer should cover the set-up and ongoing transaction costs,
including satisfactory profits to all the participants in the chain. Long-term sales
credit for the middlemen until the products are sold to the end consumer is an oftenused strategy to increase sales through the value chain. But such credit is risky. In the
Norwegian- Russian case, some companies incurred substantial financial losses
because of underdeveloped contractual arrangements between exporters and
importers.
PEST trade barriers
The trade barriers related to the political, economic, social and technological
environment (PEST) are most in focus in the general international trade debate (Porter
1990). Trade barriers might be different in high and in low GNP countries as
illustrated in Figure 4.
Figure 4 about here
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Differences can be observed in key resources needed for cross-boarder trade. These
resources are typically political systems such as Governments affording varying
permissions etc., property rights for investments and taxation regimes for profits and
allowances. Trade barriers in Governmental systems and property rights might be
higher in low GNP countries than in high GNP countries. For example, in the
Norwegian- Russian case, unclear property rights and Governmental interventions
were important barriers against Norwegian investment in the Russian part of the fish
value chain. Under this competitive environment, Russian firms were able to retain
the market power of their end of the value chain. Paradoxically, Russian
governmental policy of imposing high tax levels on fish landings simply encouraged
supplies into the Norwegian market. More commonly underdeveloped countries
apply much lower taxes than developed countries and so-called low tax economic
zones (e.g. in China) are prevalent.
Labour and raw material costs are also important trade barriers, which tend to be
highest in developed countries. For example, high labour cost is a main trade barrier
in the Norwegian fish processing Industry. Instead of processing and exporting cod
directly from Norway to the main consumer markets, the Norwegian catching firms
increasingly send round frozen cod to China for fillet processing where low-wages
provide a major comparative advantage. This is enhanced through the improved
yields available from hand filleting, compared to the automated machine lines of
Norwegian plants. The edible flesh recovery gain in itself pays for the transportation
costs of exporting the raw material from Norway to China and the subsequent reexport of consumer packs of cod fillets from China to Europe and the USA. Similar
patterns can also be observed in Japan.
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Entrepreneurship culture is the driving part of economic development (Schumpeter
1934). Development of entrepreneurship is highly dependent upon culture as observed
already by Weber who described the relationship between Protestantism culture,
entrepreneurship and economic development (Weber 1947). Some cultures are in
greater need and have to trade in order to survive and prosper, whilst cultures
developed from harvesting natural resources for their own consumption are more
inward looking and so tend to develop cultural barriers against trade. In Norway we
can observe these differences between the resource-rich coastal Northern regions and
the scarcer resources of the Western region. The Northern regions rely on coastal
small-scale fishing where the fish comes to their regions with regular seasonal
migrations. In the Western coast, there is only very limited access to local fish and so
an off shore fleet has been built to follow shoals into other regions. As some
consequence of this pattern of fishing the Western part of Norway is highly developed
as an industrial fishing and export oriented region compared to the more productionorientation found in Northern Norway. These differences in fishing structures have
also resulted in different value chains into the international markets. In more
advanced value chains, R&D activities and better-educated specialists are needed to
handle all the operations. In Norway such specialist resources have developed in the
West region as a side effect of the industrial fishing and export operations. It is this
technology and industrial fish business, which has laid the ground for the Norwegian
expansion into industrial fishing in the North Pacific, New Zealand, Australia and in
West Africa. Lack of local resources may therefore be a barrier for economic
development, but at the same time may also serve to stimulate trade entrepreneurship
and spur economic development of the human resources.
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On the technological side, logistical systems are most important for the development
of the value chain. For example the distribution of frozen fish is dependent upon a
cold chain and its associated costs. The absence of an adequate cold chain in many
developing countries can be viewed as a trade barrier, which favours alternative
product forms such as dried fish. A technology, which frees the product of any such
temperature constraints, may be an important advantage; and may be so significant
that it is still employed to advantage even in countries where cold chains are adequate.
Such is found in the case of Norwegian klipfish (dried salted cod), which can be
transported at ambient temperature and so access a wider market area wherein
temperature-controlled environments are absent.
Trade development
Entrepreneurs who identify and develop business opportunities drive development of
trade. Standard theory states that at least 5 criteria must be satisfied, as illustrated in
Figure 5 (Cateora 1987).
Figure 5 about here
In the Norwegian- Russian case these conditions were gradually developed. The
geographical proximity of the countries encouraged close contacts between
entrepreneurs in both countries on several levels of the value chains and government,
which together strengthened the underlying trading foundations.
Based on the Norwegian Russian case in may be assumed that Food Security among
low-income groups can be improved through the following steps illustrated in Figure
6.
Figure 6 about here
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(1) The low-income groups or regions gain income by exporting high- unit-value fish
products as salmon, cod, shrimp, crab etc. to high- income consumer groups in both
developed and underdeveloped countries.
(2) High unit-value products trade can be developed by investment in production and
marketing of products with a differential advantage for high-income groups willing to
pay premium prices.
(3) Low income groups have a cost advantage in supplying low value products to
other low-income groups in both poor and rich regions. The export income gained in
low-income regions gives resources to purchase a higher quantity of low-value fish
products.
(4) High-income groups can also improve food security among the low- income group
by investing in large-scale production of low value products such as small pelagic
species thereby gaining low price competitive advantage among the low-income
consumers.
(5) In a VRIO analysis products will gain differential advantage with unique quality
advantages perceived by consumers. This requires that the advantages match
consumer preferences and be unique with few other similar products. In this way,
differentiated products create market barriers, which reduce entry from competitors
with similar products and so alleviate price competition.
The tendency of High-value products to diminish
Over time, high-value products tend to reduce in value as they progress through the
product-life cycle in increasingly competitive markets. Norwegian salmon is an
example as shown in Figure 7.
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Figure 7 about here
This value chain developed from zero in the early 1980’s to 421.000 kg export in
2002. While export prices for boxed salmon the first years were 50-60 NOK/kg, the
prices in 2003 fell to about 22 NOK/kg in real prices since 1993 the export quantity
increased 162% and the average prices decreased 18%. Over the growth period, the
salmon was considered to be a high-class product for high-income people. Increasing
economies of scale in production and related chain activities encouraged an expansion
of output both in Norway and in several other countries that imitated this Norwegian
success industry. Subsequently the original high unit value product transmogrified
into a lower -unit-value product, which now also appeals to low-income market
segments. This has required that the value chains alter and diversify during the
product lifecycle and that technology, management and marketing methods develop
continuously according to the product position in lifecycle (Albaum et. al 1996).
Changes in Trade barriers over the product lifecycle
As the competition changes over the product lifecycle, so do the interactions between
developed and underdeveloped countries. Standard international marketing theory
shows the dynamic between production and consumption and between countries over
the product lifecycle as illustrated in Figure 8.
Figure 8 about here
New production often has its origin in developed innovative countries, where the
main consumption also often takes place, at least in the initial period. Norwegian
farmed salmon is one such example. Initially Norway developed this production
mainly for home markets and European targets. While the consumption of salmon
successfully penetrated new markets in the US, Canada, Japan etc., countries in which
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aquaculture was less developed such as the Faroe Islands, Canada, Scotland and Chile
developed their own production, and was significantly driven by Norwegian
entrepreneurs in the process. With this expansion of the production base Norway lost
its foothold in the US markets, although it still managed to expand into Asian
markets. Within Norway, total salmon production is now levelling off whilst
elsewhere, notably Chile it’s still expanding.
Production of frozen whitefish blocks followed a similar trade pattern. The production
started after the Second World War in Norway and moved to Iceland, Canada, US,
Chile, Argentina and now, more recently, China. At this point of time it is not
profitable to process the frozen cod block in Norway. This pattern can be observed for
most successful generic global products, where the underdeveloped countries
commonly take advantage of their low cost position in successfully copying
production.
Who benefits?
International Trade takes place between consumers and producers where both
perceive relative advantages to the transaction process. As shown in the Norwegian/
Russian case, both trading countries have low income and high-income groups and
trade between countries may benefit both countries but not necessarily both groups.
Trade tends to take place between high-income groups in both countries. Trade is
performed through communication networks, which consist of interconnected
individuals who share some common values linked together by information flows and
networks (Albaum et. al 1996). Trading networks can reinforce linkages and ties
especially where individuals belong to the same social groups, which communicate
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and interact with each other with common language and/ or understanding of social
values and practice (Grannovetter 1973). In trade this promotes transactions between
traders with common understanding, such as the high incomes groups in different
countries as illustrated in Figure 9.
Table 9 about here
The trade between high income and low-income groups tends to be carried out more
between groups inside the countries. Typical fish trade networks between Norway and
Russia are between Norwegian traders and Russian traders in Moscow and other big
cities and further between these Russian traders and local traders who are spread out
over the Russian continent. These high-income Russian traders control financial
resources to be used for fish importation and the distribution centres for frozen fish,
which strengthens their VRIO in the market place. Economic development might also
change the competitive rules. Trading networks might open up for new entrants and
widen the scope for new links to become established. But new traders soon penetrate
the high-income groups and the basic trade pattern between high-income and lowincome groups tends to continue.
Transaction trade barrier between countries
The tendency for trade transactions to flow through value chains with common
languages, understanding of social values and practice, means that the trade barriers
often are lower between neighbours at the same socio-economic and technological
level than more distant acquaintances, as illustrated in Figure 10.
Figure 10 about here
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Typically Norway’s most important trade partner is the neighbouring country
Sweden. Denmark, Norway’s other neighbour, is the most important seafood trading
partner in terms of quantity and second most important in term of value even if most
of the exported fish from Norway to Denmark are re-exported to other countries.
These three countries understand each other’s language and are at the same
technology and business levels which makes communication easy. Danish traders’
competitive advantage is their international trade-orientation, while Norway
traditionally has had its competitive advantages in catch and production orientation.
Market orientation vs. cost orientation
The main management difference between trading of high unit value and low unit
value products is the management orientation in the value chain. While management
of low value products has a main focus on cost factors in production to be
competitive, high value products require a much higher degree of market orientation
(Trondsen 2001). Market orientation means a management that identifies customer
preferences in market segments, which are profitable and may be satisfied by offering
the best differentiated supply attributes relative to costs. Marketing of value added
surimi products and Norwegian fish cake products would serve as examples. The
main competition in these product-market segments has for years been focusing on
the price at the expense of product quality. The outcome of this cost focus has been a
decline in the consumption of processed fish products as consumer incomes have
risen (Trondsen et al. in press).
Price management is comparatively easy and prices are a quick and efficient market
signal for consumers. Cost and price orientation focuses more on short-term market
relations and operations and relies more on spot market conditions. High unit value
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quality on the other hand is much more difficult to communicate. Markets have to be
segmented; suppliers must invest in collecting information and communicating with
customers with informed preferences, for which they are able and willing to pay. This
tends to demand long-term relations and trust must be built through branding and
consistent market behaviour. In short the transactions costs are much higher in
building-up a market-oriented trade of high value products (Grunert et al 2002).
However, the fish business environment varies. Market oriented strategies require
some stability in the business environment which make market oriented planning
possible. Continuous and assured access to raw fish of a homogeneous quality
standard is one such requirement. The greater the variation in raw fish supplies, the
higher the probability for a price oriented short-term trading behaviour rather than any
market orientation (Trondsen & Johnston 1998). Somewhat unfortunately from a
market-orientated perspective, this is very often the case in the fish trade because
natural seasonal variations in the abundance of fish stocks, their migration patterns
and subsequent catches tend to conspire to favour short-term expediency.
Trade development
International trade development might develop faster if the products and trading
partners are well known to the partners to the transaction. However, if the purpose is
to increase the market value of under utilized fish resources, the case is very often to
build new value chains between suppliers controlling raw material and customers who
have unsatisfied needs and wishes for products to be made from these resources.
Figure 11 about here
An example is the surimi products made from many under-utilised small pelagic
whitefish species in the Asian region (notably breams, croakers etc), which are turned
into surimi and crab sticks then exported to European markets. Another example is
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white fish fillets developed from Alaska Pollock. In the 1960s and 1970s all Alaska
pollock were turned into surimi by Japanese processors. In the 1980s Norwegian
entrepreneurs entered the pollock fishery in the US economic zone and brought in
filleting technology and market access to the European and US fillet markets. Frozen
fillets received higher prices in the market and the flesh yield recovery was better
compared to utilizing pollock for surimi. When the product was developed in a form
where it could be used as a substitute for cod in fillet blocks as raw material for fish
sticks at a price half of the cod fillet price, its success was assured. Nowadays, 50%
of the fish processed onboard factory trawlers in US North Pacific waters are fillets.
However, such development of product and value chain takes time and is costly as
illustrated in Figure 11. Investment in physical product development is only one of
many factors contributing to increasing market oriented value adding. The new
product and process must be a competitive alternative both for the supplier and the
buyer. The relations must be developed through intensive exchanges of information in
order to mutually understand customer preferences for different product attributes.
R&D strategies and investment must be carried out through studies, experimentation
and trial and error in order to find the optimal business product-market concepts for
the target markets. Development of the value chain for the product requires further
investment in the trade structure and marketing network (Cateora 1987). A sustainable
trade of new products relies on trade, which is, continuously changing and where all
participants receive greater advantages compared to alternative strategies and value
chain options. In summary, international trade developments require investment in
lowering transaction costs between supplier and buyer, which combine market
oriented product and value chain development, and which satisfy both supplier and
customer preferences.
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The Relationship between International Trade and Food Security
How can the export of high value food products gain income which is turned into
production and importation of low- unit value products capable of satisfying the
needs of low-income consumers and promoting food security?
Food security from international trade is dependent upon a broad range of synergetic
factors. Many observers have noted that there is not a direct relationship between
international trade, economic development and food security (Jansen 1999, Kurien
1999, Trondsen 1999). It is therefore important to identify the factors, which
contributes to economic development and food security. Figure 12 shows some of
these relationships
Figure 12 about here
Firstly, in fisheries there are no direct long-term relationships between international
trade and economic development. Increasing trade of fish might increase demand for
scarce fish resources causing further over-exploration of fish stocks, which over time
will tend to decrease catches and bring about a decline in economic gain from
international trade (Hannesson 1999). Gaining economic development from the
international trade of fish products is therefore conditioned by a fisheries management
system, which balances the total catch to a sustainable fish stock level. Gaining
economic development from international fish trade is also dependent on the local fish
resources having an economic value in the international fish market. The economic
value is influenced by the products’ VRIO competitive value. This means that the
local fish resources can be transformed into product and marketing services, which
offer superior values satisfying marked preferences in the international market
segments. Sustainable trade is also dependent upon the customer’s perceptions of the
23
rarity of the product and marketing services compared to competing offers.
Sustainable trade is also supported by product and marketing services, which are
difficult to imitate. Controlling a scare fish resource is one such example; controlling
unique and patented technology is another. Sustainable trade can also be performed in
industries with unique organisations, skills and working culture, which are difficult to
copy.
However, even if international trade might generate economic development, the gain
of such development might be restricted to those who are in control of the scarce
resources. In fisheries there are many examples whereby economic gains primarily
accrue to those in control of the fish quotas1. If economic development in a country is
to have a positive impact on food security and especially for low-income groups, it is
important that these needy people gain their part of the income generated to permit
them to buy food in their local market place. However the amount and type of food
that low-income people can buy is also dependent upon the preferences of other
consumers and available choices. Previous examples of ‘food aid’ projects where
fishmeal has been offered to hungry people only for them (understandably) to reject it
have highlighted the need for some consideration of consumers’ preferences at he
very least. Food products offered must have attributes suited to the preferences and
tastes of the target groups. Food and especially fresh fish has a limited shelf life and
has to be preserved by drying, smoking, freezing or some other means. An associated
implication for distribution and logistics has been discussed already.
Prices may also be a major barrier for food security. Especially in times of shortage,
food products usually find their way to the table supporting the fattest wallet. Yet
when low-income people are the most needy for food security, all factors, which
1
E.g. the Lake Victoria Nile eparch conflict between the export industry and local peoples need for fish
for their own consumption (Jansen et al 1999) and the quota conflicts between factory trawler owners
and coastal small boat fishermen (Trondsen 2001).
24
improve the supply of low cost food products, will contribute to food security.
Notwithstanding earlier comments about the need for appropriate qualities of foods to
be made available, clearly a price level affordable by the poorest groups is desirable.
A supply policy is therefore an important part of a food security policy.
This begs questions as to how food security might be improved through trade? Based
of the analysis presented in this paper, the following section will present some ideas
how Government can improve both economic development and food security by
introducing export quotas.
Improving food security through international trade
Exporting high-unit value food products and importing low unit-value food products
can improve national food security. But as has been shown, in a liberalized market,
the traders choose the particular food product sector, which will follow profit rather
than need. Exporters of high value food products don’t necessarily import food or
fish products with the money gained through their fish exporting. Profits are a
function of both prices and costs. Transaction cost barriers drive traders’ focus in the
short run towards value chains with lowest transaction costs, less investment and least
risk relative to value added. Therefore, the requirement to keep both food security and
a regional food balance amenable to all sections of the population, may force
government to influence traders’ choices.
Food security strategies
In the WTO discussions one option is to improve food security by protecting the
domestic production. One impact of such a strategy might be lower economic
25
development. All countries cannot make all kinds of products and not all have access
to every type of technology. Economic development is dependent on international
divisions of work specialisations and exchange. All countries have to finance import
by exports. Exports of some scarce food products needed by others, typically will be
at the expense of the poorest groups of consumers, as shown in the case of Lake
Victoria (Jansen et al. 1999). Imports may, on the other hand, distort domestic
production and lower incomes for the poor; increases in national income are an ideal
long-term solution for countries being able to solve food security. But they are also
idealistic because the gain of any one group is most likely to be at the expense of
some other.
Of course another option is simply to ban exports of fish and food from food
unsecured areas. Not only would such a strategy be difficult, if not impossible to
implement, it would in addition offer less foreign currency for the exporting country.
This will reduce the available income for imports, lessen economic development in
the long run and decrease the purchasing power which might otherwise ultimately
lower food security This suggests that some alternative mechanism, operating within
existing income distributions needs to be considered
The Case for an Individual Export Quota (IEQ)
An alternative strategy which warrants further consideration is the introduction of
Individual Export Quotas (IEQs), which might improve both trade for food security
and development (FSD) Export quotas are a well-known regulatory tool allocating
import quotas in other countries for example Vietnamese export quotas for garments
and textile, but it would appear that they have not been used as a food security tool.
26
Figure 13 about here
An IEQ would constitute a license issued to individual companies for export of a
specified quantity of food, which would require import of a similar quantity in return
as an integral condition of the award of the license. Such licenses would make it
possible for companies to export high value products and use these export values to
import no lesser quantity of foodstuffs back into the country. Typically such imports
would be of lower unit value product. There is no need to set a maximum quantity for
these licenses; market forces would curb any tendency to excess. The single trading
entrepreneur will look after the balance of trade, and this series of transactions should
improve food supply by providing a channel for lower unit value product to become
available to poorer consumer groups. The cost associated with such imports would be
offset against the sale of the IEQs and the market value realised for the imported
product.
Government might issue such IEQ licences when better food supply is needed in
designated regions and these instruments might be applicable for specified periods of
time. For example, national permissions to issue such licenses might be given by
WTO/WHO when population groups are in need of special measures for food
security.
The impact of such import quotas are threefold: Gain economic development in
underdeveloped regions by exporting higher value products, gain food security by
improving import of lower value food products and improve the balance of food
exports and imports.
27
The Impact of IEQs
The impact of IEQs might be that exporters will becomes trading firms. Exporters of
high unit value products from food unsecured regions would get incentives for
developing compensating food import. This would provide incentives for
development of more trade of new and improved products, species and technology
and enlargement of trading networks, promote market orientation and relational
marketing. Such a system might also open up for trading of IEQs in the same way as
trading of individual transferable fish quotas (ITQs) has occurred internationally. But
most important of all, such regulations should improve the composition and quantity
of local food supply.
An IEO is similar to Voluntary export restrains (VERs) and orderly marketing
agreements (OMAs), which is common in textiles, clothing, steel, agriculture, and
automobiles, the VER is an agreement between importing country and exporting
country for the restriction on the volume of exports. Japan has for example VER on
automobiles exported to the United States; that is, Japan has agreed to export a fixed
number of automobiles annually and Vietnam has a VER on textile and garments
exported to the EU.
A VER is called “voluntary” because the exporting country sets the limits; however, it
is generally imposed under the threat of stiffer quotas and tariffs being set by the
importing country (Cateora& Graham 2002).
It may well be argued that export quotas are an old idea, abandoned in the movement
to free trade development and because of its attendant implications for bureaucracy
28
and difficulty of implementation and enforcement. Export regulation is a trade
measure, which is traditional and related to the old-style thinking on market
regulation. However, IEQs might be implemented as an efficient market oriented
regulatory tool. Control system can be run efficiently, as is found in the case of the
auction of Vietnamese garment and textile quotas to regulated markets
(http://vietnamnews.vnagency.com/2002-10/29/stories/17.htm). Government might
trade IEQs through an auction market without interference
Conclusion
This paper has shown that income levels between groups can be real barriers for trade
and consequently for distribution of economic development and food security from
trade. This can be summarized in the following hypotheses:
•International trade of fish improves economic development, but not necessary for all
•Trade might improve food security, but not necessarily for all and especially lowincome groups
Food security measures should therefore be integrated in international trade to
encourage international trade for both economic development and for food security.
Policy must rely on analysis of behaviour, power and interests for change in the PEST
environment and in the value chains.
Imposing of individual IEQs where export quantities in each trading company are
balanced by similar import quantities, may improve both economic development and
food security.
29
Acknowledgement.
Thanks to professor Jimmy Young for his comments on an earlier draft of this paper,
which has been very helpful for the final English presentation.
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31
Figure 1: Value chain behavioural model
Structure- Conduct- Performance
Industry structure:
• Number of buyer and
sellers
• Market characteristics
• Product homogeneity
• Entry and exit barriers
Business conduct:
R • Product-market combinations
iv
al
ry • Product differentiating
• Marketing mix
• Organisational solutions
Performance
Competitive
strength
32
Figure 2: Criteria for trade analysis
• Market power: Controlling values of interests for others
• PEST: Political, economic, social and technological
environment
• Transaction costs: developing and maintaining costs for
international transactions
• VRIO: Traders competitive capabilities
–
–
–
–
What is the supply value for customers?
Hoe rare is the supply compared to competitors?
Can the supply be imitated?
Is the supply covered by organisational uniqueness?
33
Figure 3: Trade barriers in food value chain
Region A
Region B
PEST
Local culture, skill,
preferences
Products
Technological level
VRIO
Raw
material
PEST
Local culture, skill,
preferences
Capability
Raw
Products
material
Technological level
Capability
Profits
34
Figure 4. PEST Trade Barriers
High Vs. Low GNP Countries
High GNP
•Governmental service system?
•Property rights and legal system?
Low GNP
-
+
+
+
-
+
+
+
+
+
•Taxation?
•Capital system?
•Labour and raw material costs?
•Entrepreneurial traditions and culture?
•Research and educational system?
•Level of technology development?
•Logistical system?
35
Figure 5. 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
36
Figure 6: Industrial trade strategies between
income groups
+
Low-income
groups
e
Low-value + High
sc a
products
le p
3
Transaction barriers
Ma
p ro rk e t q 1
duc ual
tion ity
Competition intensity
p ric
ta g e
MO R&D
L ow
an
adv
High-value
+ products
4
ro d
uct
io n
High-income
groups
+
2
n
tio
ia
t
en e
er ag
iff a n t
D v
ad
37
Figure 7: High-value becomes low value
without catch/production limitation.
Example: Norwegian salmon export
1993 2002
% change
Export 1000 tonnes 167
421
162%
Export NOK/kg
22,7
-18%
27,7
38
Figure 8: Trade barrier changes over the
product lifecycle.
Innovator country
Production
Consumption
Other advanced
country
Less developed
country
New product
Maturing
Standardized product
39
Figure 9: Trade and transaction barriers
between countries and groups
High GNP
countries
High income
groups
1
Low income
groups
3
Low GNP
countries
Trade
2
4
40
Figure 10. Transaction trade barriers
between high vs. low income groups
VRIO values
High income groups
Low income groups
•Advanced
•Specialized
•Cosmopolitan
•Specialized
•Traditional ?
•Traditional ?
•Local ?
•Traditional
•Low
•High
•Higher quality and
sophistication
•International
•High
•Low
•Traditional
As suppliers
•Technology
•Capitalists
•Business network
•Work force
As buyers
•Foods income share
•Education level
•Products demanded
•Orientation
•Local
41
Figure 11: International trade development
-Investment to lower transaction costs as
trade barriers
Country A: Suppliers with alternative buyers
Information
exchange
R& D investment
Studies and trials
Investment
in trade
structure
Trade exchange
All chain members
get advantages
Country B: Buyers with money and alternative suppliers
Time and cost consuming
42
Figure 12: Food security diamond
Economic development
•Fisheries
management
policy
International
trade
•VRIO
PEST
•Supply
policy
Food supply security
•Economic
policy
Distribution of
consumer
income
•Preferences
& marketing
43
Figure 13: Individual Export Quota (IEQ)
– Licences issued when better food supply is needed
– Individual fish export-quotas for traders paid by import food
quantity without limitation of total quantity
– Country licences issued by WTO/WHO?
44