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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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?
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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)
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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? - +
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
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Trade barrier changes over the product lifecycle?
Production
Consumption
New product Maturing Standardized product
Innovator country
Other advanced country
Less developed country
27-30 Jan 2003 FAO Casablanca
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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
27-30 Jan 2003 FAO Casablanca
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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Food supply security
Economic development
International trade
Distribution of consumer income
PEST
•Economic policy
•Preferences
•Distribution
•Products
•Prices
•Fisheries management policy
•Supply policy
•VRIO
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
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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
27-30 Jan 2003 FAO Casablanca
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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
27-30 Jan 2003 FAO Casablanca
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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?
27-30 Jan 2003 FAO Casablanca
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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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
27-30 Jan 2003 FAO Casablanca
T. Trondsen. www.fishmarketing.com
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Thank you
• www.fishmarketing.com
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