Seafood and Aquaculture Markets

Largely from Engle and Quagrainie (2006)

Major Country Markets

Per capita consumption of seafood ranges from 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, then you eat fish Problem lies with FAO classification system.

Major Seafood Markets

Total consumption is strongly related to both per capita consumption and total population. China wins hands down! 30 MMT Japan is next (8 MMT), but above the U.S. India is fourth, not because of per cap consumption (4.7 kg/yr), but because of population (close to 1 billion).

Trade in Seafood and Aquaculture

About 38% of world fish production is traded internationally Where it's caught where it's sold Small percentage increase per year Production increases are small due to increasing contribution from aquaculture Aquaculture is offsetting capture fisheries

Major Finfish Species Caught and Supplied

Largest volume = Peruvian anchovy(1012 MMT) fishmeal production pollock is #2 (fish sandwiches, fish sticks, etc.) Also used for surimi Rest are dominated by scombrids

Aquaculture Products
Most cultured species are similar to wild-caught (exception is Chinese carp) Aquafarmers remain in competition with fisheries producers Could change due to genetics Wild-caught still dominates the market and controls price (exception: catfish, carp)

Advantages
Aquaculture = control over the product Year-round supply Wild-caught = seasonal variation related to weather and fishing regulations Result is large price swings (high voltatility) Makes it difficult for aquaculture to compete in this type of market

Advantages (continued)
Controlled production = consistent production of high-quality product Consistency in supply wrt to size, quality and other production characteristics and volume Should lend stability to the market, especially with 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

Advantages (continued)
Market sectors dependent upon fresh product should prefer farmed supplies Supply chains of captured fisheries products are more fixed due to seasonality of supply Cannot respond quickly to changes in retail demand

Freshness Counts
In contrast to fish, you seldom hear consumers 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"

Traceability
Easier to trace farmed product than fisheries-caught Complexity of market channels for captured product obscure steps in supply chain Should be marked, tagged and logged separately, but often isn't due to cost COOL laws easier to comply with for aquaculture producers

Control of Attributes
Controlling product attributes allows farmers to 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 if you know what consumers want and can do it cheaply (1 lb of effort = 2 lb profit)

Reliable Delivery and Safety

Reliable delivery allows for compliance with contractual agreements Must deliver size and grade required Big difference between aquaculture and wildcaught 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

Resistance
Growing resistance to aquaculture products 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 and contaminant status are assured by aquaculture

Price Issues
Costs of production can be higher for aquacultured products vs. wild-caught Costs associated with capture fisheries have been steadily increasing Trawlers must travel farther to find wild fish stocks = increased fuel costs, fewer fishing days Aquaculture allows for reduction of costs via research and development, not so with fisheries Consistent production/quality afforded by aquaculture = stabilization of price Some buyers are accustomed to waiting for natural harvests to purchase at a lower price

Market Competition
Prices have dropped for aquacultured Atlantic 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 price effects from increased aquaculture production If farm production is much lower than capture for a species, increased production will not affect overall market price

Market Competition
When supply of farmed fish is high, price will largely 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

Market Competition
Catfish represents a good example of an aquacultured product having to be marketed by farmers Historically very inexpensive Farmers successfully moved their product into new markets Sustained price in face of increased volume Problem now: imports of basa

Market Competition
Seafood demand studies show that the seafood market is highly segmented Farmed species appear to compete with their wild counterparts, but not with different species In Europe, trout is a low-fat, healthy substitute for beef Aquaculture producers are capturing their share of the market, but what market is it?

Consumption Trends
In the past, most seafood was wildcaught, what could be caught locally Situation changed with refrigeration, advanced transportation Most consumers prefer local species In Europe, fish were consumed weekly as a low-cost protein source Now, reserved for more refined dishes

Region
Most preferred species Pacific Mountain West North Central salmon trout catfish

Consumers
Second-most preferred halibut halibut trout flounder catfish flounder haddock trout cod Third-most preferred species catfish salmon cod trout whitefish bass salmon red snapper swordfish

West South Central catfish East North Central East South Central Middle Atlantic South Atlantic Northeast perch catfish flounder flounder haddock

Most people are conservative and traditional when it comes to the seafood they eat What is caught in hometown areas

Consumption Trends
Preparation methods also vary by region, culinary traditions Northern Europe and southeast U.S. prefer fried fish, Central Europe French cuisine, Southern Europe fried, grilled, simmered or dried Fried catfish and hushpuppies! Along the Gulf Coast, most seafood is fried

Consumption Trends
Consumer preferences and tastes ultimately change over time In the U.S., beef consumption has declined and poultry increased Health issues, lower-fat protein, HUFAs Poultry increased largely due to lower production costs Pork and seafood have changed little

Consumption Trends
Major factors impacting consumption trends are quality and flavor preferences. Other variables: price, size of household, coupon value, income, geographic region, urbanization, race, seasonality Household size is more influential than income In the U.S., preference is not an income issue (except for lobster and catfish)

Consumption Trends
Most promising target for increasing seafood sales in restaurants is consumers with high income, 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, urbansuburban, children <10 years of age New England households more likely than in West North Central or West South Central

Consumption Trends
Frequent purchasers of seafood in restaurants were more likely to have annual incomes above $40K. Other factors: income, race, seasonality, few small children, and adherence to the Catholic faith. Main factor: recognition of fish as a nutritious, healthy product

Use of Aquaculture Technology

Supply of shrimp has expanded worldwide 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

U.S. Situation
We import more than 60% of fish and shellfish Fish and seafood imports into the U.S. are the largest agricultural and 2ndlargest natural resource component of U.S. trade deficit (approx. $12 B) $21.3 B imported in 2003 (64% increase since 1996)

U.S. Situation
Natural fisheries stocks are threatened by overfishing Many catches have leveled off or are declining Fish farming now accounts for 15% or more of U.S. fish and shellfish harvests Clear potential for future growth

U.S. Situation
U.S. aquaculture producers are highly varied, from very large corporations to small farms Products:
finfish (catfish, trout, salmon, striped bass, tilapia, red drum, baitfish, ornamentals) crustaceans (crawfish, shrimp) shellfish (oysters, clams, mussels) aquatic plants (seaweeds)

U.S. Aquaculture Production

291 106 MT
28.2 106 MT

11.4 106 MT
9.1 106 MT 8.6 106 MT 4.1 106 MT total = 391 106 MT/yr

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

Part 2. Intro to Agribusiness System

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

Agribusiness Background
Agriculture to most people means farming and ranching, accurate until 1960 Now, agribusiness is a complex system reaching beyond the farm includes everything required to bring food to the consumer aquaculture is no different from agriculture and must achieve this level to be taken seriously

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

Agribusiness: How did it Happen?

In the late 1800s, most farms were self-sufficient Wars caused prices of produce to increase, stimulating more production (rem: demand and supply?) Labor became hard to come by, resulting in increased mechanization Farmers focused on producing a crop and started purchasing 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)

The Agribusiness System

Aquaculture Input Sector

Production Sector

ProcessingManufacturing Sector

Agribusiness System

Note: the success of the production sector depends upon the proper functioning of the other two!

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!

The Input Subsector

Provides farmers with feed, fry, credit, equipment, fuel, chemicals, all needed for operation (i.e., production) Since WWII; nature of inputs has greatly changed As labor costs increase, you typically see a shift towards increased purchase of inputs (decrease of 50% in farm labor since 1960) This typically allows increased production

The Input Subsector

Other input change: use of energy Due to efficiency, energy usage has not changed much on farms, just the type of input Relatively few input businesses compared to production or processing (look at feed manufacturing vs. the number of farms!)

The Production Subsector

The average size of farms is increasing, both in agri- and aqua-culture Large corporations getting involved Increased specialization of production is the trend, taking advantage of new technologies genetically improved growth/survival specific pathogen-free stocks This creates some stability in that aquaculture production is becoming more diversified

The Production Subsector

Specialization also allows for increased production efficiency (telltale sign: increased production in face of decreased or constant levels of input) Another blast from the past: production economics
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 to produce inputs! when commodity prices drop, gross farm income falls, but amount spent on inputs doesnt (the great squeeze!)

The Production Subsector

Two sizes of farms: those who can gather economies of scale (typically large) and those who cant (typically small) Large farms can take advantage of expensive new technologies (e.g., aeration, telemetry, genetically-improved inputs) Small farms can also: How? Sell something that commands a high price!

The ProcessingManufacturing Subsector

Includes all businesses that turn raw materials into finished (or partially-finished) products In aquaculture, largely accomplished by processors/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 always make out great in whatever economy)

The Processing-Manufacturing Subsector

Firms in this sector are very large (again, gathering economies of scale) and very responsive to consumer tastes and preferences Examples: ADM (grain processing), Omega Protein (fish meal), Tyson Foods (feeds)

Packaging Transportation Before-tax profits Fuel and power Depreciation Advertising Rent Net interest Repairs Other Labor

The Marketing Bill

How the Big Companies Work

It should be obvious that agriculture and aquaculture as industries dont depend on isolated subsectors: flexibility, diversification are keys to success many large companies have divisions in other parts of the agribusiness system they do business in other areas Example: Cargill, Inc., one of the largest grain traders in the world, also largest soybean processor, flour miller, feed manufacturers, seed producers, etc.!!!