Fish auction in progress
Courtesy of NOAA/NMFS/W.B.Folsom
There are a number of different ways in which a transaction of fish or fishery products can take place, ranging from sales through auctions or direct sales to barter where no money changes hands.
As a food produced in most countries of the world and certainly consumed in all, it is only natural that the form in which fish is marketed and sold, also reflects the society in which the transaction takes place.
At present, about 50 % of all fish exports originate in developing countries and three big import markets (Japan, United States and European Union) take the bulk of imports. This means that a product originating from artisanal fisheries in a developing country, passing through local middlemen and processors, can end up as a lot in an electronic auction in an import country, and as such pass through several very different transaction systems on its way to the consumer.
Markets in developing countries
In many markets, especially in developing countries, a large informal network of small economic operators performs important activities as traders, wholesalers and retailers. In addition to their function as marketers and providers of fish as food, they also have important positive repercussions on employment in many areas. In many economies in Africa and Asia this role is dominated by women, who find a livelihood for supporting their families.
As an example demonstrating that vertical integration not only takes place in developed countries, traders in developing countries are frequently involved in catch operations as boat owners. In addition, they often play an important role as providers of credit for the financing of fishing operations or of input factors to aquaculture.
Impact of information technology
Introduction of modern information technology has in most countries had an enormous impact on the way transactions take place and the speed with which they are executed. Especially the use of cellular phones permit rapid transmission of information about catches, prices and markets but also purchases though electronic auctions or Internet based systems is quickly becoming an alternative in many countries.
In agricultural commodity markets, operators have used contracts for future delivery and options for decades. In fisheries, economists have hypothesized the usefulness of similar instruments for quite some time, but the only product so far is the introduction of future contracts for some shrimp species in the United States. On the production side, in countries where fish quotas are privately held and transferable, processors have the possibility of leasing or buying fish quotas to ensure future supply of raw material. The quota price is linked to the price of the species, the time horizon and the general level of interest rates.
Wholesale markets play an important role in the distribution of fish and fishery products. They are generally divided into two categories; first hand wholesale markets that act as distribution centres for locally produced fish, and second hand wholesale markets that distribute products imported from other regions or from abroad. The latter play an important role particularly in urban areas.
Wholesale markets offer economic efficiency gains as the clients, usually retailers and caterers, but also smaller local wholesalers can confront a large variety of products from different sources all located in one area. The large number of wholesalers present in the market guarantees a high level of competition with prices that immediately reflect changes in supply and demand. In many cities, the fish wholesale market is also integrated in a larger structure of food wholesale markets. City governments or municipal authorities own most wholesale markets. In order to ensure the competitiveness of the market in local fish distribution, it is vital that the concerns and interests of the main stakeholders; i.e. wholesalers and their clients, are taken into account and their role recognised and not only seen as a source of revenue for the municipal finances.
Over time, fish is increasingly reaching the consumer through large supermarket and hypermarket chains. Thanks to improved logistics and reduced barriers to trade many of these retailers buy directly from abroad or from domestic producers. With the concomitant decrease in independent fish shops in most developed countries, this has reduced the number of natural clients of the wholesale markets and in some cases diminished the role of the urban wholesale market. However, they continue to play an important role in the distribution of fish and fishery products in most large cities as well as in coastal areas for the sale of locally produced fish.
The wholesale markets also play an important role in ensuring supplies of safe and good quality food as they are constantly monitored by the veterinary authorities. This function is especially useful in fast growing urban areas in developing countries where informal markets flourish with little or no sanitary control of food and food products.
In any market, the price formation mechanism is of fundamental importance. In order to guarantee economic efficiency and efficient allocation of scarce economic resources, available prices must reflect the actual costs of products and services but also the propensity of buyers to demand and of producers to produce and offer for sale. In order to achieve this, prices must be formed in a mechanism that gives voice to both the supply and the demand side.
In principle, a product can be sold in two ways: through private or direct sale or through public selling such as auctions. An auction is a regulated public sale in which goods are sold to the highest bidder. The seller will auction a product when he is expecting a higher price through public sale than through private sale.
A large number of countries use auctions for the sale of locally produced fish on the first hand. In recent years, the introduction of modern telecommunications and computer technology permit electronic auctions with remote participation from buyers and where the catch is delivered directly to the buyer's 's plant and does not go through a physical auction at all. In other cases, the auctions are operated electronically but the product is physically present and previously checked by the buyers.
The possibility for successful auction sales of agricultural commodities or product groups such as seafood is determined by market structure and product specifics. The more perishable the product, the stronger is the necessity to clear the market at the end of the day. Therefore, fresh produce such as fresh fish is well suited for auction sales especially if the suppliers are plentiful.
With the availability of new means of communications such as the Internet, electronic trading of seafood is becoming a reality. Although volumes at present are not significant, the potential of electronic trading is large, including that of electronic auctions. In particular, networks based on business to business trading are increasing its share of the total transaction volume.
The development of business-to-business sites can be explained by three main factors: lower transaction costs, improved efficiency, and greater market reach. Whereas some sites sell any type of fresh food: seafood, meat, dairy, fruit and vegetables, others specialise in seafood.
Many sites aim at creating an online platform for trading with daily auctions. Combined with improved logistics, the marketplace has effectively widened and reduced the importance of country of origin. This is especially the case for frozen products where global sourcing is becoming increasingly the norm. Whereas it is still to early to judge the economic viability of commercial trading platforms, anecdotal evidence show, that one of the most significant effects of the internet on fish trade so far is the increased access to information and the possibility of overcoming distances when establishing contacts with new customers or suppliers. This is especially the case for transactions between operators in developing and developed countries since the distances and communications costs here are significant. Importers and wholesalers with their own web sites receive a number of offers from potential suppliers, and may also themselves actively search for new international suppliers.
The business-to-business sites also provide vastly improved access to information and many of the sites operate as information platforms with market and price information linked to the on-line trading capabilities. In other instances, large companies such as supermarket chains set up intranet systems in which the individual outlets link up to the system and permit real-time updates on sales and inventory.