38. Eyjólfur Gudmundsson, University of Akureyri, Iceland, chaired this session which considered the following presentations:
a) Dr Eyjólfur Gudmundsson gave a presentation titled "Revenue distribution through the seafood value chain".
b) Aurora Zugarramurdi, Instituto Nacional de Tecnología Industrial - Centro Regional Sur (INTI-CEMSUR), Mar del Plata, Argentina: "Competitiveness of value adding in developing countries". (Based on Latin America)
c) John Kilpatrick of NUTRECO: "Distribution of cost and benefits in the food chain, methodology and case studies".
d) Nguyen Huu Dzung of Viet Nam Association of Seafood Exporters and Producers (VASEP): "Value addition by utilizing comparative advantages of developing countries". (Case of Viet Nam)
e) Aurora Zugarramurdi, INTI-CEMSUR, Mar del Plata, Argentina: "Import requirements and quality costs".
Dr Eyjólfur Gudmundsson: "Revenue distribution through the seafood value chain"
39. The question on how retail value is distributed through the food value chain has been of interest to policy makers for many decades. In the current study, four products were examined; salted anchovy's from Morocco exported to the US, pickled herring marketed on the European seafood market, exports of Nile perch from Tanzania to the EU and exports of frozen cod fillets from Iceland to the US. These cases are chosen with a view to represent a variety of product forms, processing methods and market segments.
40. Results for the four seafood products varied greatly and profits within each segment varied greatly as well. Profit/margin data was available from the Danish, Icelandic and Moroccan industries. The Icelandic harvesting sector was the only sector where profits were earned both at the harvesting and processing segments. The Danish processing sector had low margins, and the harvesting sector was operating at a loss. The Moroccan processing sector seemed to have quite substantial operating margins, but information on after tax profits were not available. An interesting observation is that more processing in order to have higher value-added products do not necessarily result in higher profits for seafood processors. Given the fact that seafood products are increasingly exported as fresh products directly to the US or EU market it might give fishers and primary processors better income if they focused on efficient marketing channels, high quality and improved handling, and shorter marketing channels in order to obtain higher share of the retail value in the future.
Aurora Zugarramurdi: "Competitiveness of value adding in developing countries"
41. According to modern theory of competition, countries that create value through labour productivity, product differentiation and by adding local value will be able to create wealth and compete more successfully. To successfully compete with other sectors for labour and capital, the fishery sector must be profitable.
42. The price of a fish comprises cost and profits that can be analysed to estimate value added for the purpose of comparing economic contributions and productivities between sectors of each fishery and among fisheries. Each level from fishing through retailing adds value to the product. Due to declines in stocks, fish processors are reshaping their production, moving to value-added products. Value is added by reducing costs and careful selection and handling of raw materials, assurance of reliable supply, meticulous packaging and presentation, careful transportation, and prompt delivery. These usually require investments in market research and in building relationships throughout the marketing chain. There is also a need of financing for working capital and investment in human and physical capital.
43. The fishery sector profitability, and consequently country's wealth, can be increased if an effective evaluation of which type of value added products is more convenient for each country is conducted. Variables such as available technology, labour productivity, availability of resources, quality assurance level, financing, level of development of clusters and association through the value chain, should be analysed, since these combined define the advantages and weaknesses of each case. Developing these skills will require those living in existing cultures of commodity production and marketing to change their thinking and to associate among themselves or with other firms that already are in the market of value-added products. Results for different products are presented to analyze differences in value addition. Some examples clearly show that further processing does not always give a higher value added. The test is whether the added value is sufficient to cover the added costs and if there is a willingness to pay for it.
John Kilpatrick: "Distribution of cost and benefits in the food chain, methodology and case studies"
44. John Kilpatrick spoke on the subject of concentration of market power in the value chain from producers (big aquaculture companies - BigAqua) to supermarkets and brand marketing. Mr Kilpatrick emphasized that current marketing channels through the large marketing companies could be used to help smaller producers market their products, i.e. big companies were not a threat to the smaller operator in developing countries. He recommended that FAO should play a role in facilitating communications and cooperation between small producers and BigAqua.
Nguyen Huu Dzung: "Value addition by utilizing comparative advantages of developing countries"
45. Developing countries have a comparative disadvantage when it comes to technical and financing possibilities, customer relations and marketing but they have comparative advantage with regard to natural resources, cost of production and more flexibility within companies. To be competitive in the future, developing countries need to take an active role in meeting stricter requirements on hygiene, quality and safety. They also need to improve their value adding production and marketing. The focus of the value adding should be on the entire value chain, with emphasis on vertical integration through cooperation with other developing countries.
Aurora Zugarramurdi: "Import requirements and quality costs"
46. The cost of applying Hazard Analysis Critical Control Point (HACCP) based system in the seafood processing plants depend on a number of variables such as: type of product, market requirements, current and future legislation, existing facilities, plant size, initial operating conditions, present and future level of qualities. It is difficult to estimate these costs due to the diversity of the systems; there is no unique HACCP plan for processors.
47. As an example, freezing plant with a capacity of 20 tonnes/day was analysed in order to calculate quality costs. When improving quality from standard to very good, profitability increased from 3.3 percent to 9.9 percent, due to a better utilization of plant capacity, higher yields and productivity, a decrease in quality costs and production costs as well as higher prices that can be obtained for a better quality product. Relating the net benefit for both quality levels to the additional investment required, a profitability of 24.3 percent is achieved.
48. Industries that apply a HACCP program should consider adopting an integrated approach with a quality management system. Both systems are required to bring the benefits of ensuring food safety and improving the business itself. Integrating these systems can strengthen the focus on customer and food safety requirements, while at the same time reduce administration and increase overall profitability.
49. There is a need in designing appropriate administrative procedures, standards and rules, which increase transparency. More coordination and cooperation including monitoring at the national level would help to find internal solutions to institutional problems and new challenges on the international seafood market. It may also facilitate participation, thus contributing to increased ownership and more responsibility taken over by individuals. As a result, representatives can better express their views and describe their situation in international organizations thus leading to effective participation.
50. Improving quality standards especially in fish products should represent a high priority for developing countries, not only to protect the health of their own population but also to enable them to export products to countries with increasingly higher hygiene and quality requirements. Since Microbial Risk Assessment is a developing science, implementation of these guidelines may require a period of time and may also require specialized training in the countries that consider it necessary. This may be the case of developing countries, which also will need to be aware of the cost involved in this process.
a) FAO should work with the private sector and developed countries to transfer know how on production, management and marketing and facilitate joint ventures between companies in developed and developing countries.
b) The feasibility of value addition for seafood products in developing countries should be analysed. FAO objective advice to all operators concerned (consumers, producers, governments, traders and civil society representatives) was considered very valuable in this regard. Options should be explored to become more involved with distribution and marketing issues, promoting quality and on direct cooperation with the private sector.
c) Study the impact of aquaculture on international fish trade and develop technical guidelines for responsible aquaculture and Good Aquaculture Practices (GAP) and provide assistance for their implementation.
d) FAO technical assistance facilities should be used to help countries prepare for the next multilateral trade negotiations and developing countries should develop an advisory group of experts, scientific capability and capacities of human resources required to monitor and argue the SPS procedures.
52. This report was adopted on 5 December 2003.
