Criteria and methodology for the effects of international trade on food security in fish exporting...

Criteria and methodology for the effects of international trade on food security in fish exporting

and importing developing countries

-By

Torbjorn Trondsen

Norwegian College of Fishery Science

University of Tromso, Norway

INFOSAMEK/FAO

Expert Consultation on International Fish Trade and Food Security. Casablanca 27-30 January 2003

27-30 Jan 2003 FAO Casablanca

T. Trondsen. www.fishmarketing.com

2

Introduction

• Criteria and methodology for the effects of international trade on food security in fish exporting and importing developing countries

• Theoretical perspectives– International marketing – Strategic management

• Focus on value chains



3

Value chain behavioural modelStructure- Conduct- Performance

Industry structure and trade barriers:

• Number of buyer and sellers

• Market characteristics• Product homogeneity• Entry and exit barriers

Business conduct:• Product-market combinations• Product differentiating• Marketing mix• Organisational solutions

Performance

Rivalry

Competitive strength



4

Criteria for trade analysis• International trade= value adding transactions carried

out by entrepreneurs in value chains over national boarders – Where fish products and money are exchanged

• Value chains structure– Integrated chains of physical, economic and social

transactions between business’ transforming products from raw material to final consumption

• Value adding– The value added through the value chains– Depended of market power



5

Criteria for trade analysis• Market power

– Who’s controlling trade barriers and trade incentives?– Where is the power basis and interest for change?

• Is it a conflict between food security vs. profit?

• Resources for changing trade barriers– How does PEST or value chain barriers increase transaction costs?– PEST basis

• Political, economic, social and technological trade environment

– Transaction costs• What is the costs related to developing and maintaining transactions over

time through international value chain?



6

Criteria for trade analysis

• VRIO_ traders competitive capabilities– V= What is the supply value for customers? – R= How rare is the supply compared to

competitors?– I = Can the supply be imitated?– O = Is the supply covered by organizational

uniqueness?• Supply of product, place/distribution, promotion,

price, service and customer relations

CaseNorwegian-Russian Fish Trade



8

Norwegian Fish Import From Russia

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1996 1997 1998 1999 2000

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Import mill kg

Import NOK/kg



9

Norwegian import from Russia

• Cod fish from Barents sea trawlers– Fresh directly to Norwegian processing plants– Frozen directly to frozen stores

• Processed to frozen fillets for export

• Exported without further processed– E.g. China for further processing for fillets and re-

exported to the US and Europe



10

Norwegian fish export to Russia

0

50,000

100,000

150,000

200,000

250,000

1996 1997 1998 1999 2000

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Export mill kg

Export NOK/kg



11

Export species

• Low priced frozen small pelagic species herring to low income consumer groups– Round frozen Mackerel, Capelin and Blue

whiting

• High priced aqua cultured species to high income consumer groups– Salmon and trout



12

Drivers in the trade• Norway

– Lack of cod, surplus of pelagic fish for human consumption– Established network and capacity in export-oriented fish

processing plants– Access to pelagic quotas– Efficient pelagic catching and processing industry

• Russia– Interests for economic and business development– Codfish quotas of in the Barents sea– Inefficient fish processing industry– Russian regulation and tax policy for own caught catch– Demand for cheap food



13

Norwegian-Russian Fish Trade Balance 1996-2000

Mill kg Billion NOK NOK/kgExport 953 5.0 5.2Import 580 6.7 11.5Balance 373 -1.7

Russian gain from the Norwegian fish trade.

•Increased the fish for inland consumption 373 mill kg

•A profit of 1.7 billion NOK (about 200 mill USD)



14

Winners and losers

• Winners: – Russian consumers

• High-income and low-income

– The quota owners – The trading entrepreneurs– Processor industries in both countries

• Losers– Processing industry and workers in North-West Russia

• Who have lost traditional cod raw-material• Loss of income and welfare



15

Raw material

Local culture, skill, preferences

Products

Technological level

Capability

Raw material

Local culture, skill, preferences

Products

Technological level

Capability

Food trade barriers in value chainRegion A

PEST

Region B

PEST

VR

IO

Profits



16

PEST Trade Barriers High Vs. Low GNP Countries

High GNP Low GNP

•Governmental service system? - +•Property rights and legal system? - +•Taxation?

•Capital system? - +•Labour and raw material costs? + -•Entrepreneurial traditions and culture? - +•Research and educational system? - +•Level of technology development? - +•Logistical system? - +



17

Trade Development1. 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



18

Industrial trade strategies between Income Groups

Low-income groups

High-income groups

Low-value products

High-value products Diff

erenti

ation

adva

ntage

Market quality

production

High scale productionLow price advantage

Transaction barriers

MO

R&

D

Com

p etit

ion

i nt e

n si ty

+

+

+

+

1 2

3 4



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Increasing supply and competition: High-value becomes low value

(without catch/production limitation).

1993 2002 % change

Export mill kg 167 421 162%

Export value/kg 27,7 22,7 -18%

Example: Norwegian salmon export

From differentiation to high-scale low-cost production



20

Trade barrier changes over the product lifecycle?

Production

Consumption

New product Maturing Standardized product

Innovator country

Other advanced country

Less developed country



21

Trade and transaction barriers between countries and groups?

High GNP

countries

Low GNP

countries

High income

groups 1 2

Low income

groups 3 4

Trade



22

Transaction trade barriersbetween high vs. low income groups?VRIO values High income groups Low income groups

As suppliers

•Technology

•Capitalists

•Business network

•Work force

•Advanced

•Specialized

•Cosmopolitan

•Specialized

•Traditional ?

•Traditional ?

•Local ?

•Traditional

As buyers

•Foods income share

•Education level

•Products demanded

•Orientation

•Low

•High

•Higher quality and sophistication

•International

•High

•Low

•Traditional

•Local



23

Transaction costs to overcome trade barriers?

High value products

Low value products

Value chains

orientation

Market orientation Production orientation

Buyer-seller

relationships

Long-term relations Short term transactions

Business environment

More stability Less stability



24

International trade development -Investment to lower transaction

costs as trade barriers

Trade exchangeAll chain members

get advantages

R& D investmentStudies and trials

Country A: Suppliers with alternative buyers

Country B: Buyers with money and alternative suppliers

Informationexchange

Time and cost consuming

Investment in tradestructure



25

Summary hypothesises• International trade of fish improves economic development,

but not necessary for all• Trade might improve food security, but not necessary for all

low-income groups• Food security measures should be integrated in international

trade– encourage international trade for both economic development and

for food security

• Policy must rely on analysis of behaviour, power and interests for changes in – The PEST environment– The value chains



26

Food supply security

Economic development

International trade

Distribution of consumer income

PEST

•Economic policy

•Preferences

•Distribution

•Products

•Prices

•Fisheries management policy

•Supply policy

•VRIO



27

How to improve food security through trade?

• I will – present some ideas how Government can

improve both economic development and food security by introducing export quotas



28

Food security and trade

• National food security – Improving by exporting high-value food products and importing

low-value food products.

• BUT: In a liberalized market. – The traders choose the business which gives best profit. – Don’t necessary import food or fish products.

• Profits a function of both prices and costs– Transaction cost barriers drive trade focus in the short run toward

value chains with lowest transaction costs, less investment and risk relative to sales value

• Keeping food security and regional food balance – may force government to influence the traders choices



29

Food security strategies• WTO related arguments

1. Protect of domestic production to ensure food security?• Import has to be financed by export (less to the poor?)• Import may distort domestic production (less income to the poor?)

2. Increases in income a necessary long-term solution

• Ban of fish/food export in food unsecured areas?– Less foreign currency– Less income compared to exchange high value food

export in lower valued food import– Less economic development in the long-run– Decreases purchasing power for food security



30

Improving both trade for food security and development (FSD)

• Individual Export Quota (IEQ) – Improving food supply by selling individual fish export-

quotas paid by a required import food quantity – Licences issued when better food supply is needed

• Country licences issued by WTO/WHO?• Individual companies and contracts• Size of food export quota equivalent to documented food import

quantity

– No limitation of total quantity

• Export quotas – well known regulatory tool allocating import quotas in other

countries, but not as a food security tool



31

Impact of IEQ

• Gain economic development in underdeveloped regions by exporting higher value products

• Gain food security by improving import of lower value food products

• Balanced trade development



32

IEQs as incentives for trade development

• Exporters becomes trading firms– Exporters of high value products from FSD regions must

develop compensating food import – Exporters of low value products to FSD regions must develop

compensating food import from FSD regions

• Development of– More trade of new and improved products, species and

technology?– More trade network, market orientation and relational

marketing?– IEQ quotas trading?– Better local food supply?



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Other effects of IEQ

• More bureaucracy?– Control system can be run efficient– I.e. Auction of Vietnamese garment and textile

quotas to regulated markets (http://vietnamnews.vnagency.com/2002-10/29/stories/17.htm)

• Governmental/political control over trade?– Impact dependent of local political culture



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Concluding hypothesis

• Imposing of individual export food quotas where export quantities are balanced by a similar import quantity, may improve both economic development and food security



35

Thank you

• www.fishmarketing.com

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Criteria and methodology for the effects of international trade on food security in fish exporting...

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