Total commercial fish landings in Atlantic Canada were under 700,000 metric tonnes every year from 2012 to 2016.
They were the lowest levels recorded since 1994 through 1996, just after the various moratoriums on fishing groundfish species were declared, starting with the Northern cod stock in 1992. Lobster landings have been at record levels in recent years, but landings of practically every other species have been in steady decline.
Because of recent announcements, landings are likely to be even lower in 2017 and over the next few years. Groundfish resources seem to be returning to abundance, but it will take a while longer before they can support a substantial commercial fishery.
Even when we are able to fish them again, we will only have small quantities compared to others who harvest the same species and it will be difficult to break into markets that are already well supplied.
So what can we do?
First, we should acknowledge that this is not a new problem. To a greater or lesser extent, all resources are limited, so economists have been studying how best to make use of them for centuries. In general, when resources are limited, the objective should be to maximize the value obtained from them, by putting them into their highest and best uses. The logic is pretty clear.
The challenge lies in how to do it. Fortunately, we can get some valuable clues from both markets and what others are already doing.
As I have said in this space before, we wouldn’t harvest anything if there was no market made up of people wanting to buy and consume our products. And the market offers some pointers for why they buy fish products and how to maximize value, because we know what products are currently sold and what buyers and consumers are paying for them.
Market research and sales data consistently show that people prefer their fish to be fresh — rather than frozen, salted, dried or canned — and are willing to pay substantially more to get it. That means fresh products maximize value.
The minute fish are frozen, salted, dried or canned, they go down in value. We preserve fish in these ways to achieve other goals but not because that is what consumers really want. Those products sell for less — often far less — than maximum value. The low prices certainly appeal to some consumers, so the products sell, but the fact is we get less for them.
In this context, “fresh” does not mean only that fish are not frozen, salted, dried or canned. It means they are high enough in quality to be transported to market, spend time in inventory in a supermarket or restaurant, and still provide a safe, enjoyable eating experience. So, product safety and product quality are both important factors in considering “freshness.”
If there are doubts about product safety, no one wants to buy the product.
A good example was the so-called “tainted tuna scandal” or “tunagate” in 1985.
To make a long story short, Starkist, a subsidiary of Heinz Foods and the largest tuna canner in the world at the time, with a 39 per cent share of the Canadian market for canned tuna, was forced by the Department of Fisheries and Oceans to recall tuna produced at a plant the company owned in St. Andrews, N.B., because it was “unfit for human consumption.”
The reasons for the problem were identified and corrected, but when newly-produced safe products went back on retailers’ shelves, no one would buy them. The plant closed permanently and to this day, there are no Starkist tuna products sold in Canada, even though they continue to be sold in other parts of the world.
Similarly, if there are doubts about “freshness” or “quality” people are reluctant to buy and will most likely move on to another product that appeals more to them. In most consumers’ minds, freshness means high quality. Unless they feel certain about the quality, they will not pay the higher prices demanded for fresh products and may not even buy the products at all.
Product quality cannot be better than the quality of the raw material that goes into it. Therefore, the quality of fish delivered to a processing facility determines both the products that can be produced from them and the markets we can sell them to. Lower quality products may sell but at a lower price, to consumers who have lower expectations.
Another lesson from this is the importance of time.
Because fresh products attract the highest prices, the time when fish are caught is a major factor determining output value. Put simply, the more time that elapses between harvest and consumption, the lower the value of the product.
Sale of fresh products allows only a few days after harvest to get the fish to market and have them consumed. But, if that can be mastered, the higher price usually more than compensates for the extra cost. On the other hand, frozen, salted, dried or canned products can all be sold and consumed over much longer time periods — but at lower prices.
And that leads to another observation — basic economics tells us that when supply is larger than the market can consume, the price drops to entice more consumers to buy.
If fish cannot be sold fresh, the only way to avoid total loss of value is to preserve the product in some way, through freezing, salting, drying or canning. As was discussed above, that means a lower price, due to competition from the many others who can also preserve fish the same way.
Those preserved products must then be held in inventory by someone, incurring extra transportation and storage costs and taking a risk that the product might go down even further in value. Anyone who remembers the early 1980s, when practically every fish processing company in Atlantic Canada was bankrupt or close to it, knows the risk of loss from oversupply and excessive inventories can be substantial.
Supermarket chains, restaurants and other sellers of food are the main buyers of fish products, offering them to consumers at higher prices than they pay themselves.
Display space in a retail store and menus at restaurants can make only a limited number of products available. Operators of those businesses want to use their limited capacity for maximum benefit (does that sound familiar), so they want only the products most likely to appeal strongly to consumers and move quickly through their systems.
They are not much interested in dealing with new suppliers every day, so they want ongoing relationships with suppliers who can provide what they need, when they need it, at competitive prices.
Because of the product volumes they require, there is very heavy competition among different suppliers to be selected.
Price is important in creating those relationships, but it is not the most important consideration. Much more important is value for money — which is different from price. Strong appeal to consumers so products sell quickly, reliability of supply, and consistently good product quality (think “freshness”) are all much more important than having the lowest price, indicating they are critical to maximizing value.
Overall, this indicates that relationship-based collaboration between a customer and a supplier is not just about products or short-term buying and selling transactions. It’s also about the service that goes with the products and the collaboration and trust that leads to large volumes of sales over years. That means the incentives and rewards for good performance are very high but so are the penalties for poor performance.
Supermarkets and restaurants are the distribution channels through which consumers are offered products. But even when they make products available, the final choice is up to the consumer and consumers apply their own value-for-money criteria in deciding which products to buy, as I have discussed in previous columns.
Different buyers and consumers typically have different requirements for the products they buy — different cuts, package sizes, presentation styles, price points, quantities at different times of the year, etc. The more closely a supplier can meet those requirements, the more likely it is to sell its products and earn premium prices for them. But the requirements can be met only with an intimate understanding of buyers, consumers and their needs. Such an understanding comes from close working relationships.
As the foregoing illustrates, there is much more work to maximizing value than simply catching fish.
What I have outlined above is a market-led approach — taking cues from the market to determine what to offer and how to organize the effort. And that is what marketing (as opposed to selling) is all about.
Unfortunately, a longstanding — and valid — criticism of our industry in Atlantic Canada is that it is harvesting-driven, rather than market-driven. That means there is a substantial gap between what buyers and consumers want and are willing to pay for and what we provide. Consequently, we give up a lot of opportunities to obtain more value from our resources. Harvesters may have a lot of valuable skills but marketing is not one of them.
So what do others do?
We can learn some valuable lessons not just from fisheries elsewhere but from other industries, as well.
Competition in all industries has intensified in recent decades, because of free trade and improvements in transportation and communications.
According to McKinsey and Company, a well-respected, large business consulting firm, leading global companies have responded by increasing their focus on meeting customers’ needs, wants and expectations, giving them an advantage over others who don’t. That often means significant changes in their business models.
There are plenty of examples of companies that have disrupted stagnant industries by introducing new, customer-focused business models. They include Apple, Amazon, Netflix, Airbnb and Uber, among others. Ali Baba has created a whole new way of distributing fish products — including fresh Canadian lobster — in China.
Aquaculture has become a major supplier of fish products to markets both globally and locally, mainly over the past 30 years.
Like the others referred to above, it is a new business model and it has had a major disruptive influence on capture fishing, the customary means of supplying markets with fish for thousands of years. Currently, it supplies approximately half the fish for human consumption and expectations are it will increase market share even more going forward.
It has achieved that level of success very quickly because it filled gaps left by capture fisheries — providing a reliable, year-round supply of fresh fish that are consistent in quality, size and price. Aquaculture companies don’t harvest fish unless they know who the buyers will be, how much they want, when they want delivery and the price they will get. That minimizes the time gap between harvesting and consumption, the loss in value that comes from preserving the products, and the risk that products will go down in price once they are produced. It has also created expectations among buyers and consumers for products and service that capture fisheries are struggling to meet.
Aquaculture’s superior business model has been so profitable that aquaculture companies are now buying capture fishing companies, because they know they can apply similar principles to increase the value of captured products.
Cooke, the largest aquaculture company in Atlantic Canada, has already bought capture fishing companies in the United States and South America — but notably not in Atlantic Canada.
Canada’s dairy and poultry industries have long used supply management to keep prices high. That means they limit quantities supplied to the quantities markets want, because they understand prices drop when markets are oversupplied.
Supply management is controversial, because consumers pay higher prices than they would otherwise and other countries that want to sell their dairy and poultry products in Canada complain about it during free trade negotiations. But there is no denying it works to the benefit of farmers in keeping prices high and ensuring their operations are viable.
As is well known and has been discussed in this column before, Iceland has set a national goal of maximizing value obtained from the country’s fish catches. To do that, it harvests fish year-round, but adjusts harvest quantities and product deliveries to coordinate with market requirements.
Iceland has put a concerted effort into improving raw material quality, improving transportation and steadily increasing the proportion of the output it sells fresh.
It has built direct marketing relationships with customers, so a lot of its output is customized to the specifications of particular customers. Iceland utilizes what used to be considered waste, to turn out valuable by-products.
In contrast, we fish seasonally, with large peaks in landings over a short period, followed by long periods when we can’t supply. Because of the high landings, we produce much more than the market can absorb during the operating season and handling of the catches is often poor, leading to inconsistent quality.
We continue to treat by-products as waste, because the economics of processing large quantities for short seasons simply don’t work. And we have to preserve our products, but we don’t have the working capital financing to carry the large inventories built up in a short season, so we have to sell them quickly to others at prices they find attractive.
That means we can’t build relationships with supermarkets or restaurants, so we are not close to what is happening in the market. Because we struggle to cope with high volumes during a short season and have little understanding of consumer needs or wants, our products are mostly undifferentiated commodities, often unprocessed or semi-processed for others to convert into more customer-friendly products.
All these things dramatically lower the prices we get for our products and reduce the overall value we get from our limited resources.
The irony is everyone would be better off, if we did things differently. Because the way the industry operates prevents maximizing value, there is less money to pay harvesters for their catches, plant workers for their labour and investors for their use of capital. It is not in anyone’s best interest.
Can we do better? Absolutely. But not with our current business model.
A frequent topic of discussion about our industry is the need to improve marketing. However, we cannot improve marketing without changing the way our industry operates. Others have shown us the way. Do we have the will to make the changes needed? What are the consequences likely to be if we don’t?