Last month I talked about quality, probably the biggest issue we face as an industry.
This month, I will discuss productivity, another big issue that must be addressed, if we are going to have a better future. And, as we will see, the two issues are related.
Productivity is measured as a ratio:
Productivity = Output / Input
In other words, it is simply a measure of how much of something we get out compared to what we put in. It is a way to measure effectiveness and efficiency in using inputs to produce outputs.
Another way to look at it is that output value minus the cost of the inputs used measures the value added through production. The higher the output value and the lower the cost of inputs, the greater the value added. If we produce more value with the same inputs or produce the same value with fewer inputs, we have increased productivity.
Although productivity is a simple concept, it is a very important one. As any economist can tell you, the standard of living we enjoy is mainly determined by our productivity — individually, provincially, and nationally. An industrialized country, like Canada, enjoys a much higher standard of living than less developed countries simply because it has higher productivity.
China’s economy has expanded rapidly over the past 20 years or so and the Chinese people enjoy a much better lifestyle today than they did, because of big improvements in productivity. The country has a huge population but its output value per person increased tremendously as the country industrialized. And that has given people much higher incomes and an overall better standard of living than they had before.
In the fishery, we can measure the productivity of different inputs — e.g. people, raw materials, equipment, fishing vessels, processing plants, energy. If we hope to improve our incomes and profitability, we have to work on increasing productivity of all those things.
The capture fishery in Atlantic Canada has long had a big problem with productivity. We have not used our people, fish resources, fishing vessels, processing facilities, or energy very productively. As is very well-known, the industry has too much capacity relative to the amount of raw material available.
That means we have too many boats, too many plants and too many people, all sharing in the output value the industry generates, requiring the value to be carved into small slices to be shared among the participants. The slices are even smaller because most of the people and assets are employed seasonally, requiring a full year’s costs to be paid out of income generated during only part of the year.
Because of our low productivity, only the very best opportunities are financially viable. If our productivity were higher, we could take advantage of more opportunities, generate more revenue and earn higher incomes.
Back in the late 1980s and early 1990s, when we were faced with rapid decreases in the abundance of our groundfish resources, we had a stark choice — continue catching at excessive rates to support the companies, fishing enterprises, people and communities dependent on the resources or slash quotas to protect the resources. We chose to support the industry and sacrifice the fish, ultimately leading to the moratorium that still exists today.
Our poor productivity was at the root of the problem, because most participants in the industry were not able to absorb the economic shock that would have resulted from quota cuts. In the end, they had to absorb that shock anyway. It was short-term gain for long-term pain.
But even after absorbing the pain, we did not deal with our productivity problem, so it has not gone away. Because we have too much capacity, do not maximize our output value and are inefficient in using our inputs, incomes in the industry have been low and returns on investment have been low to non-existent, as has been documented in many reports over the years. Without income support from Employment Insurance, much of our industry simply wouldn’t exist. People often complain about the low incomes and hope for better but there will be no improvement without an increase in productivity.
Other than in the lobster fishery, our catches have not been increasing and catches of some species — notably shrimp — have been decreasing. We produce commodity products and haven’t put much effort into turning out new products that might attract higher value.
Consequently, the only way we see an increase in output value is when market prices increase or our currency weakens and we can translate foreign currency into more Canadian dollars. That isn’t an increase in productivity.
Because output value has not been increasing, the only way to improve productivity is to reduce inputs. And that has been happening over time, largely due to the low incomes and poor returns on investment. We are seeing a gradual reduction in the numbers of boats, plants, and people participating in the industry. That allows the ones who remain to get larger shares of the output value.
The industry employs a lot of people. Those people may work hard, but they mostly work for only a short period of the year — often only the minimum number of weeks required to qualify for Employment Insurance — so their time and talent are not used productively.
Similarly, we use most of our fishing vessels and processing plants for only half a year or even less, sometimes much less. That is why incomes and profitability are low in the industry and why it is increasingly difficult to recruit people to work in the industry or attract investment of new money in it.
Our situation is in considerable contrast to what happens in fishing industries in other places. Fishing can certainly be a seasonal activity elsewhere but our competitors in other industrialized countries typically work for much longer periods, have higher levels of productivity, enjoy higher incomes, and earn better returns on investment.
It is also worth pointing out that productivity is very much related to quality. Higher quality products attract higher prices, thereby increasing output value. They can only be produced from higher quality raw materials. But processing higher quality raw materials is also much more efficient than processing poor quality raw materials, so we get a double benefit in improved productivity.
Our industry really has no choice but to become more productive in the future. Our crab and shrimp resources are decreasing in abundance, so our catches of those species will likely be less in the future than they are today. That means we will need to get more value out per unit of input than we do now.
The groundfish and pelagic species that are now increasing in abundance do not offer the prices or profit margins that crab and shrimp do, so we will have to be more efficient in our harvesting and processing operations to make ends meet. Because the industry’s workforce is aging and moving into retirement, there will be fewer people in the workforce in the future.
The people that continue to work in the industry will have to work for longer periods of the year and produce more output per person. There will be fewer boats and fewer plants, simply because there will be fewer people to work in them.
So how can we improve productivity?
One way is to continue to reduce the number of participants in the industry. Another is to extend the industry’s operating season, so the same numbers of people, vessels, and plants can produce more output. But there are several other possibilities, as well:
- Entrepreneurship — i.e. pursuing new opportunities and/or using more creative combinations of inputs that increase output value or improve production efficiency;
- Capital investment — e.g. adopting new technology to automate activities currently being done in a more labour-intensive way;
- Innovation – i.e. developing new products that are higher in value and/or new production methods that are more efficient;
- Skill development — i.e. training people to improve their work methods and increase their efficiency;
- Employee engagement — i.e. stimulating people to become more engaged and productive in their work; and
- Competition — e.g. understanding better what it takes to compete in global markets and adopting the best practices used by competitors.
As this list indicates, improving productivity is not ultimately about working harder; it is about working smarter.
The Canadian Centre for Fisheries Innovation has been involved in this effort for over 25 years now. We can certainly see benefits from work we have done. But the standard our industry must meet keeps rising, because of increasing market expectations and competition, and there is much more that needs to be done.
As I have said in this space many times before, the global seafood industry offers tremendous opportunity. Seafood consumption has been growing rapidly, driven by increasing population and increasing consumption per person.
On the other hand, our industry has struggled with competitiveness, financial viability, and low incomes for a long time. We struggle because our industry suffers from low productivity.
Until that issue is addressed, the struggle will continue. As an industry, we need to focus on improving productivity. Having a better future depends on it.