Estimating the economic benefits of MSC certification for the South African hake trawl fishery

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Fisheries Research xxx (2016) xxx–xxx

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stimating the economic benefits of MSC certification for the Southfrican hake trawl fishery

hilippe Lallemand a,∗, Mike Bergh a, Margaret Hansen a, Martin Purves b

Olrac SPS, Steenberg Office Park, Silvermine House, Tokai, Cape Town, South AfricaInternational Pole and Line Foundation (IPNLF), Cape Town, South Africa

r t i c l e i n f o

rticle history:eceived 15 May 2015eceived in revised form 1 February 2016ccepted 3 February 2016vailable online xxx

eywords:eafood eco-labellingSC certification

outh African hake trawl industryconomic benefitxport market access

a b s t r a c t

Eco-labelling has become an essential component of the global sustainable seafood trade. The MarineStewardship Council (MSC) is the world leader in certification and eco-labelling programmes for wildcapture fisheries. While the environmental benefits of certification have been widely recognised, itseconomic benefits for specific fisheries are often anecdotal or unknown. The South African hake trawlfishery was first certified in 2004, re-certified in 2010 and most recently in 2015 for a further five years.This study was conducted to estimate the potential economic benefits of MSC certification to the Hakefishery. As a basis for this, an analysis of the global production and trade in whitefish, focussing onhake was conducted using the Food and Agricultural Organisation of the United Nations’ FishStat andthe United Nations’ UN Comtrade data. Additional information was collected from industry sources,non-governmental organisations (NGOs) and from MSC-specific data on export volumes and values. Asuccession of four scenarios was proposed to simulate possible economic outcomes resulting from shifting
to a non-certified fishery. The method then compared the current economic worth of the fishery to theprogressive loss of value following these scenarios; the difference representing the net worth of MSC-certification to the fishery. The analysis showed that the fishery’s Net Present Value (NPV) of combiningthese scenarios over a 5-year period corresponds to a 37.6% reduction vis-à-vis the status quo. This studyshowed that retaining MSC-certification is critical for the fishery to maintain its market position.
© 2016 Elsevier B.V. All rights reserved.

and lies just below cod and haddock.To date more than 320 fisheries are either already MSC-certified

(256 in 36 countries) or working towards MSC certification (72)2

. Introduction

The inshore and deep-sea trawling components of the Southfrican hake fishery first achieved Marine Stewardship Council

MSC) certification in 2004, via SADSTIA, the South African Deep-ea Trawling Industry Association and SECIFA, the South East Coastnshore Fishing Association. The fishery was successfully recerti-ed in 2010 (Powers et al., 2011) and more recently in May 2015

Andrews et al., 2015). Between 2011 and 2013, hake caught by thenshore and deep-sea trawl sectors accounted for more than 93% ofhe annual hake catch (Table 1). The handline and longline sectorshich catch the balance of total hake caught were not part of the

nit of certification.South African hake competes globally on the wild capture white-

Please cite this article in press as: Lallemand, P., et al., Estimating the etrawl fishery. Fish. Res. (2016), http://dx.doi.org/10.1016/j.fishres.201

sh market. The Groundfish Forum defines wild capture whitefishas distinct from farmed fish product) as comprising all groundfishpecies from the order Gadiformes covering species from the family

∗ Corresponding author.E-mail address: [email protected] (P. Lallemand).

ttp://dx.doi.org/10.1016/j.fishres.2016.02.003165-7836/© 2016 Elsevier B.V. All rights reserved.

Merlucciidae (hoki, Macruronus novaezelandiae; Merluccius para-doxus and Merluccius capensis, other global hakes) and Gadidae (cod,Gaudus morhua and Gaudus macrocephalus; haddock, Melanogram-mus aeglefinus; whiting, Merlangius merlangus and pollock, Theragrachalcogramma).1 According to the World Wildlife Fund (WWF), asof February 2015, 49.3% of global wild captured whitefish was MSC-certified (WWF, 2015).

The certification of a fish product generally gives the seller acompetitive advantage and a price premium since it is often asso-ciated with superior quality. Fig. 1 shows that MSC-certified hakeranks higher than uncertified hake on both quality and price axes,

conomic benefits of MSC certification for the South African hake6.02.003

1 From The Groundfish Forum (August 2012). Retrieved August 18, 2014, fromThe GroundFish Forum web site: http://groundfishforum.org/.

2 Since the 2014/15 MSC Annual Report was published a further 19 fisheries havebeen certified and there are now 103 fisheries under full assessment. RetrievedJanuary 29, 2016, from https://www.msc.org/business-support/key-facts-about-msc.

dx.doi.org/10.1016/j.fishres.2016.02.003


http://www.sciencedirect.com/science/journal/01657836

http://www.elsevier.com/locate/fishres

mailto:[email protected]

http://groundfishforum.org/




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Table 1South African hake catch in metric tonnes by region and method, and TAC between 2008 and 2013.

2008 2009 2010 2011 2012 2013

Offshore Trawl West Coast 99,375 80,499 79,894 92,249 94,509 116,059South Coast 17,507 15,700 19,512 21,990 20,955 25,734

Inshore Trawl South Coast 5,496 5,639 5,472 6,013 3,223 3,958

Longline West Coast 4,191 5,238 3,795 5,965 6,554 8,049South Coast 2,702 3,588 1,717 2,913 1,845 2,266

Handline South Coast 231 265 275 185 8 10

Total hake catch (mt) 129,502 110,929 110,665 129,315 127,094 156,075

Hake TAC (mt) 130,532 118,578 119,800 155,280 144,671 156,075

% of TAC caught 99.2% 93.5% 92.4% 83.3% 87.9% 100.0%

% of TAC caught by inshore + Offshore Trawl 93.8% 85.9% 87.5% 77.4% 82.0% 93.4%

% of hake catch caught by inshore + Offshore Trawl 94.5% 91.8% 94.8% 93.0% 93.4% 93.4%

Source: Rademeyer and Butterworth (2014) and DAFF (2002–2013).

Fig. 1. Perceived quality versus prices for the most common whitefish species; based on Geldenhuys (2013).

Table 2Perceived socio-economic, environmental and biological benefits of certification and eco-labelling for the producers, consumers and retailers.

Expected benefit/stakeholder Retailers/food service sector Consumers Producers

Price increases x xImproved client relationship x xImproved management resulting in longer-term sustainability x x xBetter knowledge of provenance/source x x xContinued/improved access to markets xImproved public image x x

x

N benefi

(uiSaAt

Product differentiation and market segmentation

ote: this list was compiled from various sources, and does not imply that all these

MSC, 2015a). The preferential procurement of eco-labelled prod-cts by retailers and informed consumers (Tindall et al., 2008)

s leading to a range of socio-economic benefits (Roheim and


eara, 2009) quite aside from the initial motivations which arend were primarily environmental (Martin et al., 2012; Heupel anduster, 2013). Such socio-economic benefits include the potential

o contribute to poverty alleviation and food security in developing

x

ts will be realised with every instance of certification.

countries, which contribute 70% of global fish supply, by provid-ing access to markets and underpinning the sustainable utilisationof fish stocks (ISU, 2012; Perez-Ramirez et al., 2012). The WTO


acknowledges that labelling environmentally-friendly products isimportant but should not be used as a trade barrier (WTO, 2005).Table 2 provides a summary of benefits (Standing, 2009; UNEP,2009; Mathew, 2011).


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ARTICLEISH-4353; No. of Pages 18

P. Lallemand et al. / Fisher

On the downside, fisheries in developing countries present theiggest management challenges given the complexity of small scaleperations (Mathew, 2011).

With the exception of South Africa, the status of most haketocks in developing countries is questionable and/or unknownue to inaccurate reporting or insufficient fisheries management—aource of concern in markets where consumers are sensitive to sus-ainability issues.3 This has fuelled the demand for eco-labelledake products. The global hake market includes all captured andraded species of the family Merluciidae and Phycidae, correspond-ng to a total production of just over 1 million metric tonnesreenweight (GWt) in 2012.4

In 2012, hake fisheries certified by the MSC comprised 34.5% oflobal hake production. South Africa was the fourth largest pro-ucer of hake between 2009 and 2012, and contributed just over2% of global hake production in 2012. The Namibian hake fishery,hich is based on the same two hake species as South Africa (Cape

ake’s Merluccius paradoxus and Merluccius capensis), is ranked ashe third largest producer globally (14%).

The top exporters of hake worldwide are Argentina (26%),amibia (12%), USA (11%), Spain (10%), South Africa (9%), Canada

8%), Chile (7%), Uruguay (3%), Peru (3%) and China (2%). The Restf the World accounts for 10% of total hake exports.5 Hake com-odities are mostly exported to the USA and Europe as both fillet

nd non-fillet products. Recently there has been increasing pres-ure on hake resources caused in part by a rise in demand fromremium markets in Northern Europe. Countries like Germany,ot traditionally known for their hake consumption, are seek-

ng value-added products such as hake fillets which are sold at aremium price. From anecdotal evidence and personal communi-ation with industry participants, the vast majority of importersf whitefish products into Northern Europe (e.g., France, Germanynd Netherlands) consider that eco-labelled products are neces-ary to access their markets for premium products based on hakellets. This is largely due to consumer and retailer preferences asell as country-specific legislation. In the United States, importers

f whitefish products consider the traceability component to behe most attractive characteristic of certification schemes. In these

arkets, MSC certification, which includes chain of custody certi-cation, allows access by South African hake exporters (Johnstont al., 2001).

MSC certification has had a considerable impact on the man-gement of the South African hake resource with respect toovernance; the promotion of sustainable fisheries managementractice; and the application of ecosystem-based managementpproaches. This new paradigm has resulted in considerablemprovements in the management process that were absent inhe decades preceding certification. Underlying all of this is thecknowledgment that MSC certification brings substantial eco-omic benefit to the hake trawling industry; to processors andraders; and consequently also generates employment opportu-ities. However little; if any; attempt has been made to formallyuantify the economic benefit attributable to certification of the


A hake trawl fishery. More than a decade ago, Hutton and Sumaila2002) conducted an economic assessment of the fishery but didot address the potential benefit of certification because their study

3 From IntraFish Media (2013). “South American whitefish in crisis”. Retrievedctober 31, 2013, from www.intrafish.com/news/article1378310.ece.4 FAO. 2014. FishStatJ, a tool for fishery statistics analysis Release: 2.11.4. (F. Sibeni, &

. Calderini, Eds.) Retrieved January 20, 2015, from Food and Agricultural Organisa-ion, Fisheries and Aquaculture Department: http://www.fao.org/fishery/statistics/oftware/fishstatj/en.

5 UN Comtrade. 2013. UN COMTRADE database. Retrieved April 10, 2013, fromnited Nations Statistics Division-Commodity Trade Statistics Database (COM-RADE): http://comtrade.un.org/db/dqBasicQuery.aspx.

PRESSearch xxx (2016) xxx–xxx 3

predated certification. Their aim was to quantify the natural cap-ital of the fish stock using a bio-economic assessment. Followingthe certification of the hake trawl fishery, Ponte (2008) publisheda controversial article in which, rather than considering the out-comes of certification, he analysed the possible motivations forMSC certification by South Africa. Ponte argues that in developingcountries such as South Africa, the decision to seek certification isgreatly influenced by competitive pressures, political economies,and specific interpretations of conservation. However, Ponte fellshort of addressing the actual social benefit and value generated bycertification. More recently, Cooper et al. (2014) present an anal-ysis of structural changes in the offshore sector of the hake trawlfishery and the role of recent economic and management forces;some partly motivated by MSC certification initiatives (e.g., effort-restrictions). Cooper et al. (2014) did not quantify the value ofcertification; and only presented anecdotal estimates of the eco-nomic value of the SA hake trawl industry. In fact, globally, the vastmajority of recent studies focused on the environmental benefits,as well as improvements in management of certified fisheries (MSC,2014; Agnew et al., 2014; Maree et al., 2014; Field et al., 2013) orin some instances consumers’ awareness (Gutiérrez et al., 2012).

The prime objective of this paper is to estimate the economicvalue engendered by the MSC certification of the South Africanhake trawl fishery. Although we acknowledge that considerationof the economic value of the fishery prior to MSC certificationcould have been of value for this analysis, a lack of sufficientlydisaggregated trade data prior to 2012 would have led to incom-plete results and was therefore not pursued. The method used herecompares a baseline, representing the current certified hake trawlfishery, to alternative scenarios where MSC certification is absent.The approach draws on cost-benefit analysis (CBA) and capital bud-geting theory and is also referred to as investment appraisal infinance, the latter generally being used to determine the merits oflong term investments by international organisations such as theWorld Bank and the Food and Agriculture Organization (FAO). In anFAO report by Macfadyen and Huntington (2007), they recommendto use a CBA approach to estimate the benefits of eco-labelling onfisheries in the Asia-Pacific region. For our valuation method, weuse the Net Present Value (NPV) technique. This, one of severalformal methods used in capital budgeting and CBA, captures totalbenefits and costs generated over time by discounting the futurevalue (cash flow) at each period.

The bulk of South African (SA) hake sold both locally and inter-nationally is certified by the MSC although only a portion is soldwith an on-pack MSC logo indicating so. With only 1.7% of the globalwhitefish catch (12% of world hake catches), South Africa is a “pricetaker” and relies on the differentiation of its products to maintain acompetitive advantage. Volumes, values and associated weightedaverage prices of South African hake products traded overseas andlocally were derived from UN Comtrade data5, FAO FishStats4 aboveand from the MSC’s own database used for regulating the 0.5%charge on consumer facing MSC-labelled products (Purves M., MSCSouthern Africa’s Program Manager, 2014, personal communica-tion). It is also necessary to quantify and typify the sale of hakeproducts exported from Namibia, which is South Africa’s directcompetitor. Although comprising the same two species as its south-ern African counterpart, Namibia’s hake does not carry an eco-label.Quantifying what occurs in the Namibian hake trade can thus beused to gain an appreciation of what might happen to South Africanhake should its MSC certification be revoked. Moreover, in order tosimulate the impact of a potential increase of SA hake supplieddomestically, we approximate consumer reaction to such a change


by looking at the demand own price flexibility for such products.Whitefish product’s price flexibilities are usually less than -1, andas such, their prices are considered inflexible.


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Based on worldwide experience, MSC-certification can provide price advantage or price premium. Roheim et al. (2011) exam-ned the price premium for eco-labelled fish products in the Unitedingdom (UK) and estimated a 14.2% price premium for MSC-ertified Alaska Pollock, a whitefish which often competes in theame market as South African hake. Sogn-Grundvåg et al. (2013)stimates that the MSC-certification of haddock has created a 10%rice premium. Although there is evidence for the existence of arice premium, MSC-certification also facilitates access to marketshich demand some kind of certification, particularly for high-

riced value-added products. Indeed many of the markets whichbsorb value-added products are almost certain to be inaccessibleithout certification. Not all SA hake certified product is sold with

he MSC logo displayed, nor do all export markets demand MSCertification. A rough estimate by SADSTIA is that MSC-certifiedroduct (with an MSC logo affixed to the product) amounts topproximately 30% of the volume of the SA trawl hake fishery (Bross., SADSTIA secretary, 2013, personal communication). Using theSC’s own database for 2012, the estimate from this paper is just

ver 26%.This study briefly discusses the benefits that MSC certification

as brought to employment in SADSTIA member companies andhe local value chain for SA hake overall. The hypothesis driving thisomponent of the study is that certification allows access to high-riced value-added products destined for Northern Europe, andhat this generates significant skilled and semi-skilled employmentn processing factories.

The economic benefits of MSC certification itself was estimatedrom price schedules and trends, trends in market diversificationnd access to new markets, using recent data relevant to the Southfrican hake fishery. The valuation process, which proceeds via

he converse mechanism suggested above, involves the descrip-ion of a number of scenarios which are likely to unfold for aeriod of five years following revocation of MSC certification. As aesult the valuations are time bound and sequential. Our final esti-

ate is simply an average NPV over the five year period in whichndustry’s reaction and market adaptation to the loss of MSC certifi-ation progresses. Some of the costs such as the cost of certificationad to be “guestimated” because these costs are confidential andariable depending on the complexity, availability of information,nd level of stakeholder involvement for particular fisheries. Theseosts were funded entirely by the industry.

By integrating all the information and analyses carried outerein, the main outcome of this study is an estimate of the eco-omic benefits of MSC certification expressed as a percentage ofhe NPV of the fishery.

. Methods

.1. Trade data sources

The method used here to estimate the current value of the Southfrican hake trawl fishery (circa 2012) is based on the following

nformation;

The weight of non-fillet products and fillet products exported toeach country globally.The weighted average price paid in US$ per kg for non-fillet prod-ucts and fillet products for each country that imports from South


Africa.The weight and product split (non-fillet vs fillet) of hake sold tothe domestic market.The weighted average price for hake products sold domestically.

PRESSearch xxx (2016) xxx–xxx

The same information is used later in this document to calculatethe value of the South African hake trawl industry under four dif-ferent scenarios about how markets and prices respond to the lossof MSC certification. Three data sources were used:

• FAO FishStats (capture production).• UN Comtrade data (import and export).• MSC: certified South African hake sales data reported to the MSC

by the industry.

The FAO is the only source of comprehensive global fisherystatistics publically available today. Most reviews of the state ofworld fisheries and past trends and future prospects rely on FAOstatistics. FAO FishStats and UN Comtrade databases were used toquantity the production of, and trade in, hake respectively.

UN Comtrade details imports and exports of commoditiesreported by local statistics authorities in about 292 countries orareas. Family codes on the Harmonised System (HS) and the Stan-dard International Trade Classification (SITC) system representcommodities that have been prepared for the market in a specificway, such as fillet, non-fillet, fresh or frozen. Under HS, commodi-ties are recorded under certain codes, each digit of the code containsmore information about the commodity traded. The first four dig-its of the HS code represents the family of commodities traded, e.g.,frozen fish non-fillet. The table of family codes contains the headingthat corresponds to the type of product recorded.

On three different occasions (2002, 2007 and most recentlyin 2012), the classifications of traded commodities in HS wereupdated to report trade information more accurately by disag-gregating some of them at a more precise commodity level. As aconsequence, we have been able to use the following commodityfamilies in this study:

• “Fish, fresh or chilled, excluding fish fillets and other fish meat”,codes 30254 (HS2012), 30259 (HS2012), 30269 (HS2007);

• “Fish, frozen, excluding fish fillets and other fish meat”, codes30366 (HS2012), 30369 (HS2012), 30378 (HS2001 and HS2007);and

• “Fish fillets and other fish meat (whether or not minced), fresh,chilled or frozen”, codes 30453 (HS2012), 30474 (HS2012), 30490(HS2002), 30495 (HS2012).

South African hake exports are reported as FOB (Free On Board).FOB-type values include the transaction value of the goods andthe value of services performed to deliver goods to the border ofthe exporting country. Trade values are reported in current dollarvalues and correspond to the wholesale value of hake sold.

UN Comtrade and FAO FishStats data were augmented by theMSC’s own database of consumer facing and non-consumer facingSA hake products exported and sold locally. Because UN Comtradedoes not record domestic product sales, we estimated the green(unprocessed) weight (GWt) equivalent volume of SA hake solddomestically by subtracting the total annual hake exports in GWtequivalent units from the total reported catch, as in GWt equivalentunits. Prices and market share for South African-caught hake sold inSouth Africa were estimated by means of a comparative analysis ofthe prices and market share of its main competitor, Namibia, whichsells comparable but uncertified hake product into South Africa.

Additional information relevant to the overall value calculationswas obtained from personal communications with South Africanexporters, international importers of hake, and NGO groups advis-ing importers or influencing policies on eco-labelling in different


markets. It is important to mention that the scope of our analysis islimited to hake caught by trawl methods, however because it is vir-tually impossible to distinguish the origin of hake traded based onthe method used to catch it, some of our estimates include, de facto,


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ake caught by other methods (handline and longline). Moreover,hile non-trawl caught hake represents less than 7% of the total

ake caught in 2012 in South Africa (Table 1), it is estimated thatnly 40% of this hake is exported corresponding to less than 2.8%f all hake exported in volume (greenweight equivalent). In turn,.8% in volume exported does not necessarily translate to the sameercentage in export value especially since it cannot benefit fromhe price advantage brought by MSC certification.

.2. Conversion factors applied to trade volumes

FAO FishStats records production data as greenweight, whilehe trade data from the MSC’s own database, FAO FishStats and UNomtrade are reported as netweight (also referred to here as NWt),ith associated economic values expressed in US dollars (US$).reenweight equivalent GWt measurements allow the percentagef the SA hake production (i.e., total catch) which is exported, toe estimated. “Greenweight” or “greenweight equivalent” meanshe weight of a fish prior to any processing or removal of any partf the fish, while “netweight” is the ‘processed weight’ or ‘producteight’ after processing.

For SA hake the conversion from GWt to non-fillet producteight or NWt was estimated to be 0.72 (see Table 3), based on theeighted average conversion factor for all non-fillet hake product

orms. This value is also the standard conversion factor currentlysed for GWt conversions in financial models used by the industrysee Table 3).

Another assumption is that the average conversion of non-filletroduct weight to fillet product weight is approximately 0.6, whichas obtained from industry through personal interviews. From this

nformation, we calculated the conversion factor from GWt equiva-ent to fillet to be 0.43 (i.e., 0.6 × 0.72), a value close to the weightedverage conversion factor of 0.45 given in Table 3.

The NWt and associated values in US dollars for each sub-roduct within each product type (fillets or non-fillets) in eacharket were used to calculate weighted average prices in US dol-

ars per kg or metric tonnes NWt (Eqs. (1) and (2)). Volumes andeighted average prices were disaggregated for either non-fillet orllet form hake products. We were thus able to estimate the prices

hat South African exporters were achieving in different marketsor fillet and non-fillet form hake products as follows:

fk

∑fi

vfik

qfik

(1)

and,

−fk

∑−f i

v−f ik

q

−f ik

(2)

here pfk

and p

−fk

are the weighted average prices of hake fillet and

on-fillet products respectively sold in market k. f i and−f i are the

ub-products categories of hake fillet and non-fillet respectivelyrom the following HS codes from UN Comtrade: 030453, 030474,30490, 030496 (fillet sub-products); 030254, 030259, 030269,

30366, 030369, 030378 (non-fillets sub-products). vfk

and v−fk

arehe values in US$ of all hake fillet and non-fillet products respec-


ively sold in the kth market. qfk

and q

−fk

are the quantities in metricons of all hake fillet and non-fillet products respectively sold in theth market.


The value of the hake trawl industry determined under the cur-rent situation is for 2012 only, as both of these data sources onlyhave data available up to this point.

2.3. Segmentation of export markets

For the purpose of reporting, and for internal calculations ofvalue, South Africa’s export destinations by country were split intodifferent regions. These regions were chosen to combine countrieswith similar buying profiles and/or economic characteristics withrespect to retailers/consumers and eco-labelling. This resulted in 5distinct markets, viz.:

• Australia,• Northern Europe (Austria, Belgium, Denmark, France, Germany,

Netherlands, Sweden, Switzerland, and the United Kingdom),• Southern Europe (Italy, Spain, and Portugal),• USA and• The ‘Rest of the World’. Countries included in the ‘Rest of the

World’ category make up a very small proportion of total SouthAfrican hake exports, no MSC-labelled products, and have there-fore very little impact on this analysis.

Namibian hake data from UN Comtrade played an importantrole in developing the different scenarios for calculating the value ofMSC certification for the South African hake fishery. Given the closegeographical proximity, the fact that the fishery targets the samespecies, and the fact that (unlike South Africa) they do not haveMSC certification, Namibia makes an ideal comparison and basisfor what could happen to the South African market in the event oflosing MSC certification. There are, however, certain complicationswith this Namibian comparison that are discussed later.

2.4. Net Present Value calculation

In general, Net Present Value (NPV) considers discounted netcash flow over a time period expressed in today’s terms. In theorythis puts income streams that are separated in time on an equalfooting. In this study, we contrast the baseline (i.e., the currentMSC certified) situation and a situation where we simulate theoccurrence of four successive probable scenarios following a lossof certification. We used the various data sources we had at ourdisposal to feed data into the different scenarios while we esti-mated missing data by extrapolation. For example, we use pricesand quantities by product type from Namibia’s hake exports toSouth Africa to estimate SA hake prices and quantities by producttypes supplied to the domestic market.

Here we first describe how we calculate the NPV for the base-line (Eq. (3)) and the NPV for the simulation, which encompass thefour different scenarios (Eqs. (4) and (5)). Section 2.5 describes thepossible scenarios and how we collected the necessary informationto generate the different values we used in the NPV calculation.

The NPV calculation expressed in US$ for the baseline is as fol-lows:

NPVbaseline

5∑t=1

{(1 − ˛�)

(1 + r)t

[2∑i=1

(pi,10 q

i,10 +

6∑k=2

vi,k0

)]− Mt

(1 + r)t

}− R5

(1+r)5−I0

(3)

where ̨ is the estimated percentage (20%) of hake value sold with


a consumer facing MSC label on the product based on the 2012MSC own data. � is the tiered royalty rate of 0.5% charged by theMSC on the value of consumer facing SA hake products that aresold/purchased. Two fees are levied by the MSC when using the




Table 3Hake conversion factors between green weight equivalent (GWt) and various non-fillet and fillet product forms and estimated weighted average conversion factors.

Species/productform

Conversion factor Weight (as % ofproduct formgroup)

Weighted average conversion factor

Product form toGWt

GWt to productform

Product form toGWt

GWt to productform

Non-fillet form Hake, whole 1.00 1.00 10% 1.39 0.72Hake, brokenand/or sour

1.94 0.52 2%

Hake, gutted (PQ) 1.10 0.91 10%Hake, gutted andgilled (PQ)

1.16 0.86 20%

Hake, headed andgutted

1.46 0.68 50%

Hake, mince 2.25 0.44 4%Hake, sausage 2.25 0.44 4%

Fillet form Hake, skinlessfillets (trimmed oruntrimmed)

2.25 0.44 90% 2.22 0.45

Hake, skin-onfillets (trimmed oruntrimmed)

1.94 0.52 10%

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nw

ource: conversion factors used by the South African Department of Agriculture, Fonputs assessments as well as the levies imposed on right holders (DAFF, 2010).

SC eco-label: the aforementioned royalty and an annual fee. Thennual fee is a fixed sum of US$2,000 for annual sales greater thanS$500,000, applicable to consumer facing annual sales for SA hake

MSC, 2015b). Although this is a small amount (we estimate thisnnual fee to be less than 0.004% of the total value of consumeracing SA hake sold annually), we included this annual fixed cost inhe costs of the annual surveillance audit Mt described below. r ishe discount rate and is equal to the widely accepted social discountate of 10%. t is the time period from 1 to 5 years used in the NPValculation, while t = 0 refers to the baseline. i is the product type

here i equals 1 for hake fillets (f) and 2 for non-fillets (−f ) hake.

0i,1 is the weighted average price of product type i in the domes-

ic market and for t = 0 in US$/kg based on the 2012’s Namibianake export price to South Africa as reported in UN Comtrade data.eighted average prices were calculated for each product type by

ividing the reported export value by the product’s NWt exportedrom Namibia to South Africa. Fillet products are then correctedo reflect the SA hake price premium. The exchange rate will haven impact on the extent to which the SA hake domestic marketontributes to the South African economy since it impacts on theS dollar amount of the Namibian prices used in our estimates. Aain case is reported here based on an average exchange rate ofS$1 = R10.4 estimated at the time of writing between 2013 and014.6 Alternative cases are presented where a different exchangeate is used for illustrative purposes. q0

i,1 is the NWt quantity ofroduct type i supplied to the domestic market for t = 0. The sup-ly of South African hake to the domestic market is calculated byubtracting SA hake exports from the 2012 catch of 127,974 tonnesall calculations and tonnages in GWt). The split fillet: non-filletor SA hake supplied domestically is set equal to the Namibianplit as reported in the 2012 UN Comtrade data. v0

i,k is the exportalue of product type i in market k for t = 0 in US$ - based on 2012N Comtrade data. k is the market destination: k = 2–6 for each of

he export market destinations, Australia, Northern Europe, South-


rn Europe, the USA and the Rest of the World respectively. Theomestic market is k = 1. Mt is the sum of the annual fee paid to theSC (US$2,000) and the annual surveillance audit cost which is

6 SARB. 2015. Monthly exchange rate of the rand against the US dollar. SARB - Eco-omic and Financial data for SA. (S. A. Bank, Ed.) Retrieved July 24, 2015, from http://wwrs.resbank.co.za/webindicators/SDDSDetail.aspx?DataItem=BOP5329M.

and Fisheries to convert landings data to nominal catches relevant both to the data

associated with maintaining MSC certification. Although the costsassociated with keeping up certification may vary depending onthe fishery and the situation, we assume here a value of 10% of I0or US$10,000 so that Mt = US$12,000 for each period t. R5 is the re-assessment costs after 5 years associated with MSC re-certification.Here again we “guesstimated” that cost to be 80% of the initial costI0, viz. US$80,000. I0 is the initial costs of MSC certification in timeperiod t = 0. Based on the type and scale of the SA hake trawl fish-ery, we assumed that the cost of the fishery’s initial certification wasapproximately US$100,000. Some of the additional costs borne byboth industry and government such as running scientific surveys,onboard observers and environmental mitigation measures werenot included in this estimate as these were considered to be “typicalcosts” for a well-managed fishery, even though a number of thesecosts stem from MSC certification. Moreover, although the SA haketrawl fishery achieved MSC certification in 2004 and therefore theinitial cost of certification occurred prior to 2012, we included thiscost in our NPV calculation. This makes the NPV’s reported herevery conservative.

The Net Present Value calculation for different scenarios is avariant of the baseline NPV over five years. The scenarios referredto below simulate a situation without MSC certification and aredefined below. They involve relaxing or changing prices and thequantities sold as fillets or non-fillets on domestic and exportmarkets. As a result, for the alternative scenarios many of thesequantities are no longer fixed over time. For these scenarios no costor benefit related to MSC certification is applicable.

The calculation of the Net Present Value, NPVsimulation, for thefive year period following loss of certification is as follows:

NPVsimulation =5∑t=1

[2∑i=1

6∑k=1

(pikt q

ikt

(1 + r)t

)](4)

where i, r and k are as previously defined in the calculation ofNPVbaseline. t is used to refer to years 1–5 in the five year periodfollowing loss of MSC certification. For time t = 1–4, Scenarios 1–4are applied. For t = 5 Scenario 4 is reapplied. pt i,k is the weighted


average price of product i in market k at time period t expressedin US$/kg NWt. qt i,k is the NWt of SA hake product i supplied tomarket k in time period t.

NPVsimulation can be alternatively expressed as,


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IN PRESSG ModelF

ies Research xxx (2016) xxx–xxx 7

)+(pf,NEt qf,NE

t + p

−f ,NEt q

−f ,NEt

)+(pf,SEt qf,SE

t + p

−f ,SEt q

−f ,SEt

)+(pf,USt qf,US

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−f ,USt q

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)

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NPVsimulation

5∑t=1

[1

(1 + r)t

{(pf,SAt qf,SA

t + p

−f ,SAt q

−f ,SAt

)+(pf,OZt qf,OZ

t + p

−f ,OZt q

−f ,OZt

+(pf,rWt qf,rW

t + p

−f ,rWt q

−f ,rWt

)}]

here r and t are as previously defined, and the subscript “f” refers

o the product type “hake fillet” while “−f ” refers to “hake non-fillets”

roducts. The subscript “SA” refers to the South African domesticarket, “OZ” to the Australian export market, “NE” to the North-

rn European export market, “SE” to the Southern European exportarket, “US” to the United States export market and “rW” to the

est of the World export market for SA hake. For example pf,NEt

efers to the price of SA hake fillets sold in period t to the North-

rn European export market while q

−f,SAt refers to the quantity of SA

ake non-fillets supplied to the South African domestic market ineriod t.

The difference between NPVsimulation and NPVbaseline corre-ponds to the estimate of the net economic benefit of MSCertification for the SA hake fishery reported here (see Section 3.3).

.5. Definition of scenarios

Based on anecdotal evidence, personal communication andndustry news articles reviewing the level of saturation of different

arkets, and the extent to which these markets demand MSC cer-ification, we developed four distinct scenarios which it is assumedould describe the evolution of hake markets over a five year

eriod following loss of MSC certification. The link between timend scenario is as follows:

First year after losing MSC certification: Scenario 1.Second year after losing MSC certification: Scenario 2.Third year after losing MSC certification: Scenario 3.Fourth and fifth years after losing MSC certification: Scenario 4.

In order to construct these scenarios, we exploited the facthat SA hake’s main competitor, Namibia, exports an uncertifiedut comparable hake species to similar export markets as Southfrica. Quantification of the four scenarios was based directly on theatabase compiled from the UN Comtrade data, i.e., non-fillet/filleteighted average prices and the export market shares by product

ype in different countries.

.5.1. Present value of the fishery (circa 2012) (baseline)The current export weight of non-fillet and fillet products, as

ell as associated prices were taken from UN Comtrade data. Theake exports reported by South Africa, and the mirror importseported by the corresponding countries from South Africa wereompared, and the larger of the two taken as the most likely value.he price per kg was however only taken from the export price ofake out of South Africa, and not the mirror import value of hakeeported by the receiving country. This avoids artificially inflatinghe price with import duty.

A further comparison was made using the MSC-declared exportet-weights of consumer facing and non-facing MSC products by

ndustry. In cases where a specific import weight of MSC hakes higher than that declared in the UN Comtrade data (MSC > UN


omtrade), the MSC-declared weight is used. Otherwise the UNomtrade weight is used. For the price, if UN Comtrade > MSC, theN Comtrade price is used. If MSC > UN Comtrade then a weightedverage price is used, applying the UN Comtrade price to the

(5)

UN Comtrade weight and the MSC price to the weight differencebetween MSC and UN Comtrade weights.

Several additional assumptions were made to estimate the base-line (note: the total catch of South African hake for 2012 = 127,094GWt was used):

• As described in Section 2.2, the conversion of GWt to non-filletproduct weight is estimated to be 0.72. This is a weighted aver-age conversion factor for all non-fillet hake product forms (seeTable 3).

• The average conversion of non-fillet to fillet product weight isapproximately 0.6, consistent with information obtained directlyfrom the industry.

• The US$/Rand exchange rate is R10.4 to the dollar, applicable to2012, for the simulated baseline.

Based on these assumptions, it is estimated that roughly 70% ofthe total catch GWt equivalent is exported, and that 26.3% of thetotal exports GWt equivalent is sold as explicit MSC-certified prod-ucts (consumer facing and non-facing products). Direct estimates ofhake sold on the South African domestic market are not recorded byUN Comtrade or any other publically available database. However,by inference, domestic supply % = 100%–70% = 30%.

UN Comtrade data does not record the proportion of non-filletand fillet products and their associated prices on the local mar-ket. There are however data available on the domestic sale of MSCproducts in the MSC-own data supplied for this study. To calculatethe value of the domestic market, yet additional assumptions weremade;

• The proportion of GWt hake sold domestically as non-fillet andfillet products is equal to the proportion in South African exportsreflected in the UN Comtrade database.

• The domestic price of non-fillet products was assumed equal tothe Namibian price of non-fillet product exported to South Africa.

• The price of fillet products not reported in the MSC databasewas estimated as the average of (a) the price for Namibian filletproducts and (b) MSC-labelled products in South Africa.

• For the portion of South African hake fillets sold on the domesticmarket and reported in the MSC-own database, we simply usedthe price as reported.

All export and domestic market assumptions for the baselineare applicable to the four scenarios described below, unless whereexplicit changes are defined below.

2.5.2. Scenarios under loss of MSC certification2.5.2.1. Scenario 1—“market and product status quo with loss of MSCprice premium”. Scenario 1 is based on the following three assump-tions:

• The percentage of fillets and non-fillets sold to different marketsremains the same as in the baseline.

• Prices in the export market: The basic premise for this scenario is


that South African hake will lose the MSC price premium of 16%.The basis for the latter is as follows. Roheim et al. (2011) esti-mated a 14.2% price premium for MSC-certified Alaska Pollock,a whitefish species which often competes in the same market




Table 4Comparison of weighted average prices (US$/ kg) by hake product type exported from South Africa vs. its competition over the main export markets and calculation of SAhake price differential (%).

Australia USA Northern Europe Southern Europe Rest of the World Overall

Hake Non-fillets(030254, 030259,030366, 030369)

SA hake 9.07 5.47 2.49 2.62 1.50 2.54All other hakes 4.45 2.57 3.47 3.66 1.74 2.29SA hake price differential (%) +103.6% +113.4% −28.3% −28.3% −13.9% +11.2%

1

2

0.0%

•

•

2mt

•

•

•

J

Hake Fillets (030453,030474, 030495)

SA hake 6.30 4.3All other hakes 3.10 3.9SA hake price differential (%) +103.0% +1

as South African hake. Our calculation of the SA hake price dif-ferential was a combination of Roheim et al.’s estimate and thedifferential evident for 2012 (see Table 4). The overall price dif-ferential for SA hake in UN Comtrade data was non-fillets +11.2%,fillets +25.6% (see Table 4). Averaging the two gives a combinedproduct price differential of (11.2% + 25.6%)/2 = +18.4%. The fig-ure of 16% is the rounded average of this value (+18.4%) and theRoheim et al. result of +14.2% which we used to “dampen” ourestimate.However the application of this rule results in prices that are insome cases less than Namibian prices. This is unrealistic. Whenthis occurred the Namibian price was used instead. The resultingprice needs to be further adjusted to account for Namibia’s importtariff advantage due to its Economic Partnership Agreement (EPA)with the European Union (EU).7 South Africa has not signed anEPA agreement with the EU. Although this tariff advantage variesbetween 3.44% and 11.5% ad valorem depending on the type of SAhake product imported, a value of 11.5% was used here. As a result,the South African hake export prices derived above for Scenario 1must be reduced further by 11.5% in order to be competitive andinsure parity with Namibian prices, since the import duties facedby SA hake products will ultimately be absorbed by the end-useror consumer on those markets.The price of SA hake sold domestically (i.e., on the South Africanmarket) is assumed to be the same as Namibian hake sold in SouthAfrica, for both fillet and non-fillet products. This reflects the lossof price premiums experienced by South African producers intheir local market following loss of MSC certification. The valuesof hake exported from Namibia to South Africa used in the calcu-lation were based on the UN Comtrade data and were duty freesince South Africa and Namibia have a trade agreement throughthe Southern African Development Community (SADC).

.5.2.2. Scenario 2—“shift from Northern to Southern European exportarket”. Scenario 2 explores the loss of MSC certification based on

he following four assumptions;

Based on discussions with the South African trawling industry,the proportion of hake exported to different regions is set equal tothe Namibian proportion of hake exported to those same regions.As a result, for example, sales to Northern Europe by South Africachanges from 21.2% of the total catch GWt equivalent (as for thebaseline and Scenario 1), to 12.1% for Scenario 2.The breakdown of fillet and non-fillet products exported toNorthern Europe remains the same as for the baseline and Sce-nario 1. The breakdown of fillet and non-fillet products sold to


Southern Europe is assumed to be equal to the Namibian break-down in Southern Europe.The export prices used for Scenario 2 are the same as those usedfor Scenario 1.

7 ITC. 2014. ITC - Market Analysis Tool. (International Trade Centre) Retrievedanuary 17, 2014, from Market Access Map: www.intracen.org/marketanalysis.

5.34 5.07 3.77 5.265.42 4.11 3.32 4.19−1.4% +23.4% +13.5% +25.6%

• The domestic market product profile (% fillets vs non-fillets) andprices are the same as those used for Scenario 1.

2.5.2.3. Scenario 3—“downgrading export product type to mostly non-fillet”. Scenario 3 makes the following assumptions;

• That there is a very significant shift from fillet product towardsnon-fillet products. The same export markets as described in Sce-nario 1 are maintained, but the product split between fillet andnon-fillet products is revised. The rationale is that a loss of MSCcertification will most likely result in a reduction in the quantityof fillet products being sold in these export markets. It is assumedthat only 18% of the current fillet product market will be main-tained if MSC certification is lost. The fillet product split by marketare pro-rated according to what was used for Scenario 1 and 2.The non-fillet product splits are also pro-rated in the same way.

• The export prices for fillet and non-fillet products are as describedfor Scenario 1.

• For the domestic market it is assumed that the breakdown offillets versus non-fillets is the same as for Scenario 1.

2.5.2.4. Scenario 4—“shifting most exports to the domestic market”.Scenario 4 assumes that a significant percentage of South Africanhake production can no longer be exported without incurring sub-stantial losses and as a consequence it will instead have to be soldon the domestic market. Specifically,

• In the export market, the breakdown of quantities by region andproduct is as for Scenario 3. However it is assumed that the per-centage of the catch GWt which is exported will decline from70% to 20%. This assumes that a loss of MSC certification willmost likely result in the loss of market share in the export mar-ket, where retailers and consumers are increasingly looking at“green” products.

• Prices for exported products are the same as those for Scenario 1.• For the % of the annual catch that is sold domestically in the base-

line (30%), the proportion of fillet and non-fillet product is setequal to the baseline. However, for the additional catch that nowreaches the domestic market it is assumed that the market willonly be able to absorb 17% (GMt) as fillet and the balance of 83%as non-fillet.

• Domestic prices are reduced due to price flexibility in response toan increase in supply. The following price flexibilities were used:fillets: −0.6, non-fillets: −0.4 (see rationale below).

Because South African hake exports represent only a small por-tion of the total supply of whitefish and hake supplied to thesemarkets, our scenarios assume that South African exporters areprice takers regardless of product mix and volume exported fromSouth Africa. Although in our model price fluctuations on the


domestic market do not influence export prices (it is implicit thatthe South African domestic market is not perfectly integrated withthe international market), we explicitly assume in Scenario 4 thatthe increase in the supply of hake on the domestic market will


http://www.intracen.org/marketanalysis




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•

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ave a substantial negative impact on the domestic price for Southfrican hake.

Price flexibility, or inverse demand models, relate price to fac-ors such as quantity produced, quantity of imports, and income.

odels such as this are often used when the supply of a products independent of price (Anderson, 2003), e.g., when a fishery isubject to a Total Allowable Catch (TAC), or when the harvest levels largely the result of uncontrolled environmental conditions. Inhese cases, prices are determined by a demand factor relative toupply. The equivalent of own-price demand elasticity analysis innverse demand models is known as price flexibility. Own-priceexibility is the percentage change in the price of a good in responseo a one percent increase/decrease in quantity sold, viz.:

Own − price fexibility

= percentage change in price of goodpercentage change in quantity of good demanded

The notion of own-price flexibility is essential to understandhat might happen if the supply of SA hake were to suddenly

ncrease dramatically on the domestic market. In such an event,onsumer behavior and purchasing habits would put downwardressure on the price of hake, accepting only the price they are will-

ng to pay to purchase the product to the very last unit and clearhe market. In the case of own-price flexibility greater than −1, therice is said to be inflexible. If the own-price flexibility is less than1, the price is flexible. Two types of price flexibilities exist:

Normal, uncompensated price flexibility containing both thedirect quantity induced price effect, and the indirect quantityinduced price effect, caused by changes in total expenditure.Compensated price flexibility containing only the quantityinduced price effect (Nielsen, 1999).

When own-price flexibilities are unknown, inverted price elas-icities estimated in ordinary demand models can be used as aubstitute, since in theory price flexibilities are the equivalent ofnverted price elasticities. Houck argues that this substitution tendso produce positively biased estimates and that the reciprocal ofhe own price flexibility is normally an absolute lower limit of thewn-price elasticity estimate (Houck, 1965). In the case of hake,he own-price flexibility ̌ of product i is defined as follows:

i =�pi/pit−1

�qi/qit−1

= �pi

�qi×qit−1

pit−1

=(pit − pit−1

)(pit − qit−1

) ×qit−1

pit−1

∼= 1

�i(6)

here i is the product type. t is the time period. ˇi is the own-priceexibility for hake product type i (fillets or non-fillets). εi is thewn-price elasticity for hake product type i (fillets or non-fillets). pithe weighted average price of hake product type i in time period t. qithe quantity of hake product i supplied in time period t. �pi = pit −it−1 the change in weighted average price consecutive to a change

n the quantity of hake product type i, �qi = qit − qit−1 between timeeriod t and t−1.

Methods to obtain estimates of own-price flexibility for Southfrican hake in the domestic market included looking at values of

ts inverse measure, the own-price elasticity reported in Agbolat al. (2002), Gordon et al. (2013) and Bopape and Myers (2007).

e consider SA hake products to be a “quasi luxury” goods in theomestic market. Thus a small change in the price of SA hake on theomestic market would have little if no effect on demand, particu-


arly for fillets which already sustain a premium price. The inversef this means that in order to absorb an increase in the supply ofomestic hake, the price would have to decrease dramatically. Such

response has the potential to put downward price pressure on


other less valuable fish products and other food substitutes in thelower price range such as chicken.

According to a literature review conducted by Nielsen, an own-price flexibility of −0.30 for wild capture whitefish is not unrealistic(Nielsen, 1999). Millán and Aldaz (1998) calculated the compen-sated own-price flexibility for fresh and frozen hake at the ex-vessellevel in Spain. They report an own price flexibility for fresh hake of−0.36, and −0.10 for frozen hake. Pérez used econometric meth-ods to estimate own-price flexibilities in the most significant hakemarkets in Europe (i.e., Spain, France and Italy). He produced esti-mates between −0.151 (Italy’s short run flexibility) and −0.396(France’s long run flexibility) (Pérez Agúndez, 2001). Guillén (2009)estimated the hake own-price flexibility in Spain’s main mar-ket. Depending on the model, estimates vary between -0.07 forimported hake to −0.99 for locally caught fresh hake. Thus theown-price flexibility values used for hake on the domestic mar-ket for Scenario 4, −0.6 and −0.4 for hake fillets and non-filletsrespectively, lies within the range published in the literature.

3. Results

3.1. Value of the South African hake fishery under MSCcertification

Access to certain markets for value-added South African hakefillet products has only been possible since 2004 when theSouth African hake trawl fishery was MSC-certified. These mar-kets are mostly in Northern Europe (Denmark, France, Germany,Netherlands, Sweden, Switzerland and the United Kingdom), NorthAmerica (USA) and Australia.

From the MSC’s own database we calculate that in 2012, 26.3%of all South African hake caught (GWt) relied on MSC certificationto access crucial markets overseas, a number corroborating Bross’sestimate (pers. comm.), although our calculation only includedsales of consumer and non-consumer facing MSC-labelled SA hakeproducts. Any failure to retain certification would result in theinability to sell in those markets.

However this number is quite conservative considering its nearfuture outlook. Indeed, if South Africa wants to stay competitive, itneeds to see an increase in the proporion of MSC hake exports. Thedemand for certified fish products is likely to rise due to increasingconsumer pressure and awareness, coupled with further certifica-tion of competing whitefish fisheries. According to Bross, the 30%of hake caught which relies on MSC certification overseas can bebroken down as follows:

• Consumer facing MSC-labelled SA Hake (i.e., products carryingthe MSC label) ∼16% (our calculation was 15.7%).

• Non-Consumer facing MSC-labelled SA Hake (i.e., products soldas MSC-certified but not carrying logo) ∼4% (our calculation was10.6%).

• Products sold to importers who demand that the hake they buybe MSC-certified but the information about certification is notused in selling the product to consumers ∼10% (not included inour calculation).

Loss of access to these premium markets means that the hakesold in value-added/fillet form will most likely have to be re-marketed in a “less processed state”. The markets which can absorbthis uncertified “hake”, are limited, and will most likely be buyersat a much lower price. Under current market conditions, the main


alternative market is likely to be the local South African market,although we are aware that significant quantities of uncertifiedNamibian hake are already being sold into Northern Europe incountries such as France, Germany and the Netherlands, which


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epresents another potential destination for South African hakexports (albeit also at a reduced price). Unlike Namibian hake,hich benefits from duty-free access to northern and southern

uropean markets, South African hake would still face tariffs rang-ng between 3.44% and 11.5% ad valorem, depending on the typef hake product exported, whether fresh, frozen, fillets or non-llets.7 We assume here that markets in Portugal, Spain and Italyre saturated, especially under current economic circumstances.

On the South African domestic market side we note that Southfrican retailers are leading the way in promoting sustainableeafood and have committed to only purchasing MSC-certified orASSI green rated species (WWF-SASSI, 2015a, 2015b).

WWF have stated that the SASSI rating for Merluccius paradoxuss green only because of its MSC certification and the high level ofrust they have in the credibility of this certification (WWF-SASSI,015a, 2015b). Loss of certification for South African hake wouldean an orange rating on the SASSI scale which would also chal-

enge the commitments made by South African retailers to carrygreen’ species only. This would in turn exacerbate any price depres-ion arising from flooding of the local market with less-processedake. Flooding the domestic market with South African-caughtake would also most likely depress the price for other locallyaught fish such as those taken in the line-fishery, threateningmployment and/or earnings in that sector.

Each of the scenarios reported on here uses the 2012 hake catchf 127,974 GWt. For the baseline, the breakdowns between filletsnd non-fillets, domestic and export markets was done by first con-erting the product netweight (NWt) recorded in UN Comtrade datanto GWt equivalent using the relevant conversion factors (Fig. 2).

For the purpose of simulating different scenarios, Fig. 2 showsow the total hake catch of 127,974 metric tons is split into hakellets and non-fillets and then into domestic and export markets

all expressed as a percentage of total catch 2012 GWt equivalent).Furthermore, we estimated the volume and value for the domes-

ic market as well as exports to the main markets identified earliern this report (i.e., Australia, Northern and Southern Europe, USAnd the Rest of the World). Aggregated volumes were expressed asWt equivalent to facilitate the comparison between product typeshile most calculations use NWt and weighted average price perWt.

UN Comtrade values are expressed in US dollars. An exchangeate of R10.4 per Dollar was used to convert estimates from USollars to South African Rands reflecting an average over the period013–2014 (the time of writing).

Separate estimates of the current value of the fishery were madeor the domestic and export markets. The estimates are as followssee also Table 6),

Baseline value estimates:

Domestic market—R915.3 million (US$88 million).Export market—R1.95 billion (US$188.11 million).Total fishery value (2012)—R2.871 billion (US$276.12 million).

.2. Value of the South African hake fishery under four scenariosollowing loss of MSC certification

For the first year after the loss of MSC certification, captured incenario 1, a loss of MSC certification is assumed to reduce exportrices received by SA exporters, as defined earlier, reflecting a lossf price premiums in both domestic and export markets, but main-


aining the same relative volumes of product in GWt terms in theomestic and export markets as in the current situation (Table 5).ishery value estimates under Scenario 1 are as follows:

Scenario 1 value estimates:


• Domestic market = R652 million (US$62.71 million).• Export market = R1.398 billion (US$134.5 million).• Total fishery value = R2.05 billion (US$197.2 million).

This is a loss of R820 million (US$78.92 million), which is 28.6%of the estimated value of the fishery at present (Table 6).

In the second year after the loss of MSC certification, Scenario 2is assumed to occur. This involves shifting exports from Australia,Northern Europe and the Rest of the World to Southern Europereflecting a loss of premium markets (Table 5). For this scenario,our value estimates are as follows:


• Domestic market = R652 million (US$62.71 million).• Export market = R1.407 billion (US$135.29 million).• Total fishery value = R2.06 billion (US$198 million).

The loss is R812 million (US$78.12 million), 28.3% of the currentvalue of the fishery (Table 6). Note that the export market valueestimate for Scenario 2 is slightly larger than for Scenario 1. Thereason for this is that the price of non-fillet products in SouthernEurope under Scenario 2 markets is higher than in South Africa’sfillet and non-fillet Scenario 1 markets. This progression is logicaland rational from a business point of view in the light of the loss ofMSC premium prices in Scenario 1.

In year 3, under Scenario 3, only the export market is affected.We assume a change in the product type distribution beingexported from South Africa, replacing some of the value-addedproducts by non-value-added product. The value estimates are:


• Domestic market = R652 million (US$62.71 million).• Export market = R1.359 billion (US$130.6 million).• Total fishery value = R2.011 billion (US$193.38 million).

The loss is R860.4 million (US$82.7 million) which is 30% of thebaseline (Table 6).

In years 4 and 5, under Scenario 4, both domestic and exportmarkets are affected. The assumption is that a large proportion ofSA exports are shifted to the domestic market. At the same time, wesimulate a change in the product type distribution for that portionof the domestic market not previously supplied.


• Domestic market = R922.3 million (US$88.68 million).• Export market = R390 million (US$37.5 million).• Total fishery value = R1.312 billion (US$126.189 million).

The loss is R1.559 billion (US$150 million) which is 54.3% of thepresent value of the baseline.

The model assumptions for the baseline and scenarios 1 to 4 aresummarised in Table 5. Table 5 shows the breakdown expressed inpercent of total catch GWt equivalent between fillet and non-fillet,exports and domestic markets for the baseline and each of the 4scenarios.

As mentioned in Section 2.5.2, the economic concept of own-price flexibility for SA Hake on the SA domestic market is crucial


to estimating the impact of a large increase of SA hake suppliedto the domestic market and the subsequent prices South Africanconsumers are willing to pay to clear the market for both hake fillets(see Fig. 3) and non-fillet hake (see Fig. 4).


Please cite this article in press as: Lallemand, P., et al., Estimating the economic benefits of MSC certification for the South African haketrawl fishery. Fish. Res. (2016), http://dx.doi.org/10.1016/j.fishres.2016.02.003


P. Lallemand et al. / Fisheries Research xxx (2016) xxx–xxx 11

Fig. 2. 2012 Catch baseline breakdown between hake fillets and non-fillets, domestic and export markets expressed in metric tons (Mt) GWt equivalent (GWte) convertedfrom netweight (NWt) using the relevant conversion factors from NWt to GWt.




Table 5Model assumptions used in baseline and Scenarios 1–4 and simulated markets prices and trades values.

Current(baseli ne)

Scenario 1 Scenario 2 Scenario 3 Scenario 4Sce nario descr iption

MSC and price premium

Loss of pricepremium

Marke t shift from Northern to

Southern Europe

Prod uct type shift from Fillet to non-

Fillet

Marke t shift from export to do mesti c

2012 catch (t greenweight) 127 ,974 t 127 ,974 t 127 ,974 t 127 ,974 t 127 ,974 t

% of catch exported 70% 70% 70% 70% 20%

% of catch sold dome stically 30 % 30 % 30 % 30 % 80 %Non-Fillet products greenweight equivalent sold as a % of catch

37% 37% 43% 73% 74%

On domestic market 11% 11% 11% 11% 56%

On export market 26% 26% 32% 62% 18%

Australi a 0.2% 0.2% 0.1% 1.4% 0.4%

Northern Europe 2.1% 2.1% 1.2% 9.9% 2.9%

Southern Europe 20.1% 20.1% 29.5% 48.7% 14.0%

USA 0.2% 0.2% 0.2% 0.9% 0.3%

Rest of the World 3.3% 3.3% 0.9% 1.1% 0.3%

Fillet products greenweight equ ivalent sold as a % of catch

63% 63 % 57 % 27 % 26 %

On dome stic market 19 % 19 % 19 % 19 % 24 %

On export market 44 % 44 % 38 % 8% 2%

Australi a 5.8% 5.8% 1.6% 0.3% 0.1%

Northern Europe 19 .1% 19 .1% 10 .9% 2.2% 0.6%

Southern Europe 16.3% 16.3% 24.0% 4.8% 1.4%

USA 1.1% 1.1% 0.9% 0.2% 0.1%

Rest of the World 1.4% 1.4% 0.4% 0.1% 0.0%

US$/ t product weigh t

US$/ t produ ct weigh t

% Chan ge from

baseline

US$/ t produ ct weigh t

% Chan ge from

baseline

US$/ t produ ct weight

% Chan ge from

baseline

US$/ t produ ct weight

% Chang e from

baseline

Dome stic weighted average price for non-fillet prod ucts

3137.9 2705 .1 (-14 %) 2705.1 (-14 %) 2705.1 (-14 %) 978.8 (-69 %)

Dome stic weighted average price for fillet prod ucts

5264.7 3289 .0 (-38 %) 3289.0 (-38 %) 3289.0 (-38 %) 2875.6 (-45 %)

Exp ort weighted average price for non-fillet prod ucts

2302.9 1918 .4 (-17 %) 2002.8 (-13 %) 2,015 .8 (-12 %) 2015.8 (-12 %)

Exp ort weighted average price for fillet products

5499.0 3664 .3 (-33 %) 3657.3 (-33 %) 3657.3 (-33 %) 3657.3 (-33 %)

Mill ionUS$

Mill ion US$

% Chan ge from

baseline

Mill ion US$

% Chan ge from

baseline

Mill ion US$

% Chan ge from

baseline

Mill ion US$

% Chang e from

baseline

Value of dome stic market 88 .0 62 .7 (-28 .8%) 62.7 (-28 .8%) 62.7 (-28 .8%) 88.7 (+0.8%)

(-28 .5%) (-28 .1%) (-30 .5%) (-80 .1%)

)

3N

erSae

otov

Value of the export market 188.1 134 .5

Over all hake market value 276.1 197 .2 (-28 .6%

.3. NPV of the South African hake fishery comparing the baselinePV to an integrated NPV over four scenarios

It could be argued that if Scenario 4 is inevitable, then the differ-nce between the 2012 baseline and the estimates for Scenario 4epresents the best estimate of the value of MSC certification. Sincecenario 4 represents the greatest loss of value for the fishery, anggregate result involving all four scenarios provides a conservativestimate.

Using a discount rate of 10%, the aggregate impact on the NPV


ver five years due to loss of MSC certification is 37.6% at a R10.4o the dollar exchange rate (Table 6). This provides best estimatesf the value of MSC certification expressed as a percentage of thealue of the hake fishery at present.

135.3 130.7 37.5

198.0 (-28 .3%) 193.4 (-30 .0%) 126.2 (-54 .3%)

It is proposed here that Scenario 4 is plausible given the limitedoptions for the export of non-MSC hake product. Under present eco-nomic realities we consider the market for non-fillet product typesin southern Europe to be fully subscribed. China is very protectiveof their whitefish aquaculture market and preferentially sourceslocal supplies. As can be seen from the trade figures in this docu-ment China is supplying large volumes of aquaculture whitefish totheir domestic market. For this reason we do not consider China tobe a viable export market for South African hake. Even if it werepossible to access Chinese markets, prices would have to compete


with locally produced (aquaculture) whitefish and are likely to bevery low.

Table 6 summarises the results of the hake fishery NPV calcula-tions for the baseline and for the 4 alternative scenarios described



P. Lallemand et al. / Fisheries Research xxx (2016) xxx–xxx 13

Fig. 3. Price effects of hake, fillets products (US$/netweight) following a loss of MSC certification and a subsequent impact of an increase in SA hake, fillets supply in metrictons netweight on the South African domestic market.Notes: The red circled No. 1 represents the change in price premium as described in Scenarios 1–3 and the red circled No. 2 represents the demand response to an increasein domestic supply as described in Scenario 4 and assuming a price flexibility for hake fillets products of −0.60.

Fig. 4. Price effects of hake, non-fillets products (US$/netweight) following a loss of MSC certification and a subsequent impact of an increase in SA hake, non-fillets supplyiN Sceni ke no

hs

t

n metric tons netweight on the South African domestic market.otes: The red circled No. 1 represents the change in price premium as described in

n domestic supply as described in Scenario 4 and assuming a price flexibility for ha

ere, where results for alternative Rand-US$ exchange rates are


hown as well.In order to estimate the overall impact of loss of MSC certifica-

ion we combined the short and medium term impacts following

arios 1–3 and the red circled No. 2 represents the demand response to an increasen-fillets products of −0.40.

loss of certification. The following impacts were simulated under


the 4 successive scenarios over a period of 5 years:

• First year: the loss of price premium.• Second year: the loss of access to premium markets.



ARTICLE ING ModelFISH-4353; No. of Pages 18

14 P. Lallemand et al. / Fisheries ResTa

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• Third year: substitution in the product mix from added-value tobasic product types.

• Fourth and fifth years: a dramatic shift of export volume into thedomestic market.

By comparing the hake fishery’s estimated value under each sce-nario and using a Net Present Value (NPV) approach with a discountrate of 10% over a five year period and assuming an exchange rateof R10.4/US$, we estimate the medium-term economic benefits ofMSC certification to be R4.08 billion (US$392.7 million), which is37.6% of the current estimated medium-term value of the fish-ery of R10.87 billion (US$1.04 billion) i.e., under MSC certificationsustained for the next five years.

Assuming an exchange rate of R8/US$, the total value of MSCcertification is 35.9% of the five year NPV of the fishery, and at anexchange rate of R14/US$ the total value of MSC certification is39.3% of the five year NPV of the fishery.

4. Discussion

4.1. Conservative estimate of MSC’s contribution

Despite being a relatively small contributor to the nation’s grossdomestic product, commercial fishing makes a significant contri-bution to South Africa’s Western Cape Province Gross DomesticProduct (GDP). We estimate that approximately 70% of the annualhake catch is exported and we estimate the turnover of the hakefishery in 2012 to be around R2.871 billion (US$392.7 million). Thislast figure is a conservative estimate of the average value of thehake fishery because in 2012 only 87.9% of the TAC was caught. The2012 under-catch is due to a shortage of fleet capacity availableat the time for the TAC which increased by almost 30% between2011 and 2012 (Table 1). A management lag due to the TAC for yeary + 1 being based on catch per unit effort data up to year y−1 alsocontributed to the problem. It took the industry in the order of 18months to adjust to the new TAC, searching for new vessels andconverting them. In contrast, as is illustrated in Table 1, in 2013when the fleet capacity had had time to adjust, the entire TAC wascaught. Estimating the value of the fishery as if 100% of the 2012TAC was caught produces a baseline figure in agreement with theDepartment of Agriculture, Fisheries and Forestry’s value estimateof R3.2 billion (US$307.7 million). The latter used 2011 wholesalevalues (de Swardt J. DAFF chief economist, 2013, personal commu-nication). We estimate that the bulk of the value estimate of R2.871billion, R2.6 billion (US$250.7) or 90.8%, comes from the deep-seatrawl sector, R71.4 million (US$6.9 million) or 2.5% from the inshoretrawl sector, and R192.4 million (US$18.5 million) or 6.7% from thelongline and handline sectors combined.

4.2. Employment considerations

The workforce in the deep-sea trawling industry makes upapproximately 35% of the workforce employed in the South Africanfishing industry. A number of important recent trends in the fish-ery are relevant to any discussion of employment in the hake trawlfishery. The first is that there has been an increasing tendency tooutsource non-processing shore based employment involved in thetechnical support for vessel operations. Although this reflects areduction in employment figures by rights holders, it is compen-sated for by employment by other parties not registered as fishingrights holders. Inshore fishing and associated processing has con-


tracted very substantially in 2012 and 2013 as quotas previouslycaught inshore are increasingly caught offshore.

Workers in the South African hake trawl industry are well-rewarded compared to other fishing sectors in the domestic fishing


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2014), Argentina,10 Uruguay11 and Chile12 have regularly ignoredscientific advice and have set TACs above recommended levels. Dueto economic pressures, resource sustainability principles are being

9 From IntraFish Media (2012), “South African hake MSC certification under threat”.Retrieved October 31, 2013, from www.intrafish.com/global/news/article1277819.ece.

10 SFP. 2015. Sustainable Fisheries Partnership. FishSource Profile for Argentine hake -



ndustry. Although most fishing crews in South Africa do not enjoyhe provisions of the Basic Conditions of Employment Act of 1997, anique labour relations framework has been established for seago-

ng workers in the deep-sea and inshore trawl fisheries. A Collectivegreement, which sets out basic conditions of employment fororkers in these two fisheries has been in effect since 2 May 2003.

he basic conditions include set daily wages for each category oforker, set hours of work and regulated rest and leave periods.orkers who are permanently employed are also provided with

ension/provident funds; group life assurance; medical assistance;egular paid shore leave and annual holidays.

In 2012, according to the South African Deep Sea Trawlingndustry Association website (SADSTIA, 2013a), an estimated 6653

orkers were employed in the deep-sea trawling industry account-ng for up to 37% of the wider fishing workforce. The Bureau ofconomic Research reports8 that 8355 are directly employed in theider hake industry.

From a combination of data from DAFF (2012a), DAFF (2012b),ADSTIA (2013a) and BER,8 we estimated that direct employmentn the hake inshore trawl industry was 722 persons in 2012.

The deep-sea trawling sector employs people in a wide rangef jobs from administration, management and marketing person-el to sea going and shore-based processing and non-processingorkers. Based on Sauer et al. (2003) and interviews conductedith industry representatives, it is estimated that 65 jobs are cre-

ted for every 1,000 metric tonnes GWt of TAC landed. This can beroken down further; roughly 1 processing job is created for every5 metric tonnes of quota processed; roughly 3 shore based jobs arereated for every 1 sea-based job; marketing, administration andanagement comprises roughly 6% of employment numbers; pro-

essing employment in 2003 comprised about 50% of employmentumbers; non-processing, shore-based employment in 2003 com-rised about 20% of employment numbers; overall, employmentomprises about 8% white employees and about 92% previously-isadvantaged persons; processing employment comprises 75%

emale employees; 97% of jobs are permanent full time jobs; alltaff in the deep-sea sector are on fixed salaries and benefits, andeagoing staff are paid commission on top of their salaries.

In 2012, employment comprised 8838 previously disadvantagedersons (92% of total employment), 3530 females (40% of totalmployment) predominantly from the previously disadvantagedroup. Since 75% of processing jobs comprise females, about 4707ersons were estimated to be employed in processing in 2012.bout 40% of processing jobs are performed by woman who are

he single breadwinner for their families. The total labour contentf whole fish processed is 1/5 or 20% per unit volume (Bross R., SAD-TIA secretary, 2013, personal communication). Although the MSCoes not address the role of women in any specific way, it assumeshat the situation of women will improve as a result of the generalenefits that certification brings to the fishing industry.

Since at the time of writing, the only comprehensive fisheriesmployment data is that reported by Sauer et al. (2003), whichre-dates the MSC certification of South African hake, it is dif-cult to estimate the positive impact that MSC certification hasad on employment, and hence the implication of loss of certi-cation. The most likely and substantial negative impact wouldome from the important role played by eco-labelling in the global


hitefish market over more than a decade, particularly consideringhose products competing with South African hake. These products

8 From BER (2013), “A high level economic impact assessment of the benefits to theomestic economy resulting from the Marine Stewardship Council’s (MSC) continuedertification of the South African Hake trawl fishery”, unpublished report. Universityf Stellenbosch. Stellenbosch.


would use their certification to differentiate themselves, shouldSouth African hake lose its certification.

It is quite likely that under a scenario of dramatic increase inthe domestic supply, the much lower processing requirements forthe South African hake market would put at risk a significant per-centage of the 4707 persons employed in the processing of trawlcaught hake, of which 75% are females, often the sole breadwin-ner in a single-parent family. Estimates of potential job losses inthe absence of MSC certification ranged from around 5000–12000,9

which included jobs in the industry and broader economy.8

4.3. SA hake export and domestic markets

The structure of the southern hemisphere hake producers out-side South Africa depends principally on Chile’s South Pacific hakeand Southern Hake (M. gayi gayi and M. australis), Argentina’sArgentine Hake and Southern Hake (Merluccius hubbsi and Mer-luccius australis), Namibia’s Shallow water Cape hake and Deepwater Cape Hake (Merluccius capensis and Merluccius paradoxus)and Uruguay’s Southern Hake and Argentine Hake (Merluccius aus-tralis and Merluccius hubbsi). There is a strong Spanish influence inthe development of these hake fisheries. In general, there is strongSpanish ownership of the relevant fishing companies. Pescanova,the largest Spanish fishing is/was an important role player in allthese countries. There is also a very strong link to the Spanish mar-ket facilitated by a somewhat vertically integrated industry, i.e.,these countries tend to rely on a single channel market, primarilyinto Spain, with access to this market frequently at the behest ofSpanish interests in local countries where the supply chains andprices are often controlled by Spanish companies. The financialproblems in southern Europe and the collapse of Pescanova and itssubsidiaries and other Spanish companies has had a major influenceon those markets.

Southern hemisphere countries other than South Africa benefitfrom preferential tariffs in the Spanish market, and Namibia doesnot pay any duty for exports of hake to Germany. Thus South Africafaces an unfair competitive advantage from those countries in itsexport market.

Southern Hemisphere hake producers other than Namibia andSouth Africa make very limited exports to Northern Europe. In themarkets that they do access they tend to export non-fillet headed &gutted (H&G) type product lines, and very little if any fillet or valueadded products (VAP). As a result of their strong links to southernEurope and lack of diversification, hake fisheries in these countriesare under pressure.

Latterly, resistance to MSC certification (Namibia for example),is a feature of these producers. In recent history, managementauthorities in countries such as Namibia (Kirchner and Leiman,


South of 41◦S [FIP: Argentine hake, CeDePesca]. World Wide Web Electronic Publication.Retrieved January 17, 2005, from http://www.fishsource.com/site/goto profile byuuid/644e4760-2687-11dd-a4e9-daf105bfb8c2.

11 SFP. 2015. Sustainable Fisheries Partnership. FishSource Profile for Argentine hake -North of 41◦S [FIP: Argentine-Uruguayan Hake, CeDePesca]. World Wide Web ElectronicPublication. Retrieved January 17, 2015, from http://www.fishsource.com/site/gotoprofile by uuid/64504a56-2687-11dd-a4e9-daf105bfb8c2.

12 SFP. 2015. Sustainable Fisheries Partnership. FishSource Profile for Southern hake -Pacific Patagonian [FIP: Chilean Southern Hake, Industry]. World Wide Web ElectronicPublication. Retrieved January 17, 2015, from http://www.fishsource.com/site/gotoprofile by uuid/1c7005d4-957d-11df-8bde-40406781a598.


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eglected and there is often a lack of a precautionary approach. Byontrast South African hake has an unblemished record of agree-ent between the final TAC and the scientifically-recommended

AC.In South Africa, three NGO and fishing industry initiatives

ave played a key role in driving the necessary changes towardscosystem-based management and more sustainable and respon-ible fisheries, viz.:

The MSC via its certification of the South African hake trawl fish-ery,The Southern African Sustainable Seafood Initiative (SASSI), andThe Responsible Fisheries Alliance (RFA).

These three initiatives have increased consumer awareness,acilitated new co-operative research, and resulted in a sharedesponsibility between the industry, other stakeholders, and gov-rnment.

Up to the time of the financial crisis in 2008, South Africa alsonjoyed the benefits of access to the lucrative Spanish market. Theituation since the financial crisis of 2008 has changed dramatically.rices to Spain are significantly down, as are volumes. This has leftouthern hemisphere hake fisheries, with the exception of Southfrica, short of trading partners. For these fisheries their historically

ow level of export market diversification makes them particularlyulnerable. It is thus not surprising that some of these fisheriesre in an extremely precarious economic situation. For example,escanova, which is heavily invested in the “southern Hemisphereake model”, is unbundling or closing down.13,14

The South African hake trawl fishery, which is the only MSC-ertified hake fishery in Southern Africa and South America, hasdopted a very different strategy since 2008.15 In effect, MSC cer-ification has been the South African hake trawl fishery’s “get outf jail free” card.15 They have leant heavily on the MSC ticket toain access to valuable northern European markets for fillet prod-ct lines, and there is still considerable potential to develop thesearkets. This has boosted shore-side employment in the Western

ape Province of South Africa, and has enhanced the value of theshery. South Africa is now in an enviable position. The prospectf loss of MSC certification, relegating the South African hake fish-ry to the situation that other southern Hemisphere fisheries findhemselves in, is bleak.13

On the South African domestic market, locally trawled hakeompetes with other sources of hake. Local longlined hake is soldrincipally as HOGO (head on, guts out) or H&G to local distrib-tors. Namibian hake supplements local markets, mainly withon-processed product types, i.e., HOGO, H&G and other non-fillet

orms. According to UN Comtrade, 84% (processed weight) or 76.2%GWt equivalent) of South African imports of Namibian hake isold in a non-fillet form.5 This hake is sold without MSC certifica-ion. Locally trawled hake is either sold as MSC-certified or not. Forhese products, the domestic prices can be obtained from the MSCatabase, while other prices have to be inferred by a combination


f data sources.South African hake is mostly exported to Southern European

ountries, including Spain, Portugal and Italy. Up to 2011, these

13 From IntraFish Media (2012), “Spanish fishing company put into administration”.etrieved October 31, 2013, from www.intrafish.com/global/news/article1349887.ce.14 From IntraFish Media. (2013), “Spain’s seafood industry woes go well beyondescanova”. Retrieved October 31, 2013, from www.intrafish.com/global/news/rticle1377835.ece.15 From IntraFish Media. (2013), “MSC audit recognizes SA hake fishery is

¨ ell managed̈’’. Retrieved April 24, 2013, from www.intrafish.com/global/news/rticle1368522.ece.


countries imported 87.6% of South Africa’s total exports. In 2012these southern European countries imported only 65.4% of SouthAfrica’s total exports. New markets in the USA (2.2%), Australia(7.5%), northern Europe (15.7%) and the Rest of the World (9.1%)made up the balance.

This was not due to a shift of export volumes between countries,but largely due to an increase of 14,378 NWt in the total export fromSouth Africa. Exports to Spain: 14,007 t (2012) vs. 14,029 t (2011),Portugal: 4,506 t (2012) vs. 4407 t (2011) were maintained through-out while exports to Italy saw a slight increase: 5702 t (2012) vs1,376 t (2011). This clearly points to South Africa expanding intonew niche markets, where hake is generally sold in the form ofvalue-added products at higher prices, while maintaining histori-cal markets. In 2012, South African obtained a global export priceof $4,315/NWt MT. This is higher than the average global exportprice achieved by any country, and therefore also higher than theglobal average price of $3,026/NWt MT.

Namibia, Argentina, Chile and Spain are South Africa’s maincompetitors in Southern Europe. Along with South Africa, theyare the main exporters into southern Europe, contributing 20.5%,19.4%, 11.8%, 9% and 17.3% respectively to the total amount ofhake imported into Southern Europe. This suggests that Spain andNamibia are South Africa’s main competitors in the Southern Euro-pean market, but the figure for Spain is problematic because it mostlikely contains a high degree of re-export.

From a global perspective, Chile and Spain are the biggestexporters. It is most likely that Spain and Chile obtain and/or sig-nificantly augment their hake from producing countries such asNamibia and Argentina. Spain and Chile’s ability to supply theirmarkets are therefore linked to the stock status of other countries.Furthermore, as previously discussed, Namibia, Argentina and Chilehave strong historical links to Spain. The vertical integrated tradebetween these four countries makes them a very strong competitorfor South Africa.

In both Northern Europe and Australia, South Africa is the mainhake exporter contributing 13.5% and 70.1% respectively. In thesetwo markets, Namibia is the main competitor, albeit at a lower level.When we look at the price of hake as a proxy for product typei.e., value-added products versus less valuable ones, only Namibiaappears to be competing with South African hake.

We found that under each scenario considered, the value ofthe South African hake trawl industry would contribute to SouthAfrica’s GDP at a much lower level than it does at the moment,declining by between 28.3% and 54.3% of the current estimatedvalue of R2.871 billion (US$276.12 million), depending on the sce-nario (Table 5). This translates to a direct contribution due to MSCcertification of between R812.5 million (US$781 million) and R1.56billion (US$150 million). For example, under Scenario 1, we esti-mated a direct contribution of MSC certification through access topremium markets and price premiums of 28.6% of the current valueof the fishery.

These estimates are likely to be relatively conservative. Forexample the worst-case scenario considered here (Scenario 4)assumes that a large quantity of current exports would be shiftedonto the domestic market, increasing the local supply of hake by112.9% (Bross R., SADSTIA secretary, 2013, personal communica-tion). SADSTIA (2013b) have suggested that the shift would be moresubstantial, up to 130%.

It is hard to say what the overall impact of loss of MSC certi-fication might be without combining the short and medium termimpacts following loss of certification. We have therefore combinedthe impacts of successive scenarios over a period of 5 years.


By comparing the hake fishery’s estimated value under each sce-nario and using a Net Present Value (NPV) approach with a discountrate of 10% over a five year period and assuming an exchange rateof R10.4/US$, we estimate the medium-term economic benefits of























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SC certification to be R4.08 billion (US$392.7 million), which is7.6% of the current estimated medium-term value of the fish-ry of R10.87 billion (US$1.04 billion) i.e., under MSC certificationustained for the next five years.

Assuming an exchange rate of R8/US$, the total value of MSCertification is 35.9% of the five year NPV of the fishery, and at anxchange rate of R14/US$ the total value of MSC certification is9.3% of the five year NPV of the fishery.

We think that without MSC certification, South African hakeroduction would not necessarily experience a slowdown in theedium term. Thus seagoing employment might be relatively

ecure. However, South African hake prices, commodities and mar-et structures would be greatly affected, with a negative impact onhore-based employment.

According to Intrafish,9 without MSC certification, the Southfrican hake fishing industry stands to lose 5000 jobs. We assume

hat this estimate refers to jobs within the industry itself, includ-ng processing establishments, and does not extend to employmentn secondary industries supplying goods and services to the hakendustry. The Bureau for Economic Research estimates that the lossf employment would be in the region of 10,000 jobs in the fishing

ndustry as a whole,8 we understand that this estimate includesmployment in secondary industries supplying goods and serviceso the hake industry, as well as tertiary industries, i.e., the full feedhrough effects via best estimates of economic multipliers. SADSTIAstimates that loss of access to premium European markets wouldave its greatest employment impact on skilled workers (SADSTIA,013b). Our crude estimates shows a labour force of 4378 workers

nvolved in the hake processing sector in 2012. We estimate thatnder the current situation, 63% of the production (GWt equiva-

ent) can be attributed to fillet products. We then simulated that,nder our Scenario 4, following the loss of premium markets, filletroducts would only account for 30.4% of production. This couldranslate to a loss of as many as 1421 skilled workers, or 32.5% ofhose employed in the hake processing sector.

.4. Other possible collateral damage

Other possible collateral damage following the hypothetical lossf MSC certification includes the disinvestment in productive capi-al, especially in the processing sector, and a negative impact on themage of the South African seafood export sector in export markets.his impact will be most keenly felt by traditional fishers (espe-ially from poverty stricken communities) who will see price andemand reductions caused by an oversupply of hake, leading to

urther job losses. In our view the economic turmoil experiencedy businesses involved in hake production and processing wouldpread to other sectors of the South African fishing industry. Anmportant example would be a sharp decline in the price fetchedor non-whitefish longline products, and/or a decline in the demandor line fish. Here again, the most vulnerable will feel the brunt ofhe impact, in this case coastal communities reliant on line-fishingf one sort or another.

. Conclusions

The recent history of hake markets around the world and theole played by MSC certification in creating new opportunities inxport markets has helped to sustain the value of the South Africanake fishery at current levels. Traditionally, the Spanish demand for


non-fillet” type hake products accounted for a large proportion ofouth African hake exports. However, over the last few years, theidely-documented financial and employment crisis in Southern

urope has led to a sharp decline in Spanish demand for hake.


The loss of traditional export markets in Southern Europe hasforced the industry to seek far more competitive avenues in North-ern Europe where hake commodities tend to be sold at a premiumprice. The South African industry successfully managed to takeadvantage of some of the crucial features of these new markets.Increasingly, these higher-priced European markets prefer value-added fillet type whitefish products in small portion sizes that canbe traced to sustainable sources. This coincides perfectly with theexisting South African hake business model. Without MSC certifi-cation, these markets would be virtually inaccessible.

We estimate the 2012 value of the South African hake fishery tobe just over R2.871 billion (US$ 276.12 million) assuming a US$ –Rand exchange rate of 10.4 and a production at the 2012 catch levelof 127,094 GWt. However, this estimate includes a small portionthat should be attributed to non-certified hake (less than 2.8%).

The loss of MSC Certification will lead directly to exclusionfrom vital, sorely-won overseas outlets on which the present dayindustry is heavily dependent. The loss of valuable primary exportmarkets will lead to an oversupply of hake on the domestic market.

What are the quantified economic and social benefits of MSCcertification for the Hake trawl industry? This is difficult to estimatebecause we cannot be certain about how exactly the industry willperform and settle into a new equilibrium in the absence of MSCcertification. We have attempted to address this query using a sce-nario approach in which four successive scenarios are postulatedand then quantified as best as possible with available data.

We found that under each scenario considered, the value ofthe South African hake trawl industry would contribute to SouthAfrica’s GDP at a much lower level than it does at the moment,declining by somewhere between 28.3% and 54.3%. These estimatesare likely to be relatively conservative since in 2012 only 82% ofthe TAC was caught by trawl gears compared to 93.4% the nextyear most of which was exported. Moreover, under our worst-casescenario (Scenario 4), we assume that a large quantity of currentexports would be shifted onto the domestic market, increasing thelocal supply of hake by 112.9% (Bross, personal communication,2013). SADSTIA (2013b) have suggested that the shift would bemore substantial, up to 130%.

It is difficult to evaluate what the overall impact of loss of MSCcertification might be without combining the short and mediumterm impacts following loss of certification. We think that withoutMSC certification, South African hake production would not neces-sarily experience a slowdown in the medium term. Thus seagoingemployment might be relatively secure. However, South Africanhake prices, commodities and market structures would be greatlyaffected, with a negative impact on shore-based employment.

Acknowledgments

The late Roy Bross (for valuable comments and insights in theoriginal report), Ernst Thompson (for his support in compiling theoriginal report), Konrad Geldenhuys (for useful insight), Cobus Ven-ter (for providing valuable analysis and other shared material),Sandra Lallemand (for help in editing this document). Many thanksto Deon Durholtz and another anonymous reviewer for their helpfulcomments.

Funding for the work leading to this publication and for thepreparation of this publication was made available by the MarineStewardship Council, Southern Africa.

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Documents

Estimating the economic benefits of MSC certification for the South African hake trawl fishery