FFA Fisheries Trade Study 2007 Part 4A

8/6/2019 FFA Fisheries Trade Study 2007 Part 4A

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Principal Markets and Pacifc Island TunaExports

PART 4


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CHAPTER 15

The canned tuna

industry is global and

PICs only play a very

minor active part in it.

There are a large number

of tuna processors

in multiple countriesproducing for a relatively

small number of principal

markets.

INTRODUCTION PACIFIC ISLAND

COUNTRIES AND THE GLOBALCANNED TUNA INDUSTRY

15.1 Introduction

ThepurposeofthisintroductorychapteristobrieysituatePICsinthewidernetworksof

theproductionandtradeincannedtuna.Thereasonforfocusingoncannedtunarather

than,forexample,freshchilledisbecausetheformerindustryissocomplexandcanned

tunaisthemostimportantcannedshproductintheworld,bothintermsofthevalueand

volumeofworldproduction.TheprincipalmarketsforPICtunaexports(includingcanned,

freshchilled,frozenwhole,loinsandllets)areaddressedinthefollowingchapters.In-

stead,thisintroductiondrawsoutsomeoftheinterlinkingaspectsoftheindustrythatarenotaddressedinthemarket-specicchapters.Theemphasisisonthefactthattheindustry

isglobalandthat,incommercialreality,PICsonlyplayaveryminorpartinit.

Thischapter andthefollowingoneson principalmarketsdonot claimtoprovidemar-

ketanalysisinthesenseofmakingrecommendationstoindustryonwhichmarketsthey

shouldtarget.Instead,thissectiononmarketsaimstoprovideanoutlineofstructures,key

playersandtrendsinPICprincipalmarkets.Pricedataisusedforillustrativepurposes,

butwiththecaveatthattounderstandtheowanductuationoftunaprices,especially

sashimigrade,exportersneedacommercialdatasetbaseduponspecies,size,grade,area

caught,etc.

Inaneffort toemphasise theglobalnatureoftheindustry,Figure5.providesavisual

overviewoftheworldproductionofcannedtunaandtunaloins.Therearetwohighlightsof

particularnoteinrelationtothisgure:

Intermsofthegeographicaldistributionofproductionfacilities,thereisasignicant

distancebetweenPICsandtheirprincipalmarkets.Mostotherproducersareclustered

closeto the largemarkets(i.e. theEUandtheUS)with theimportantexception of

SoutheastAsia,whichhasthebenetoflowerlabourcosts,higherlabourproductivity

andmorecompetitivefreightrates.

Alongsimilarlines,thereareclearlyalargenumberofprocessorsinmultiplecountries

producingfor,ineffect,asmallnumberofprincipalmarkets(mainlytheEUandtheUS).

Insodoingtheyarealsoutilisinganitelyexploitablenaturalresource,thus,regardless

ofgrowthinmarketdemand,therewillalwaysbealimittotheabilityofprocessorsto

supplyit.Inaddition,manycountriesaresimultaneouslydumpingthesamegoodonto

theworldmarket, increasingexport volumes [is]not necessarilyaccompanied byincreasedexportvalues.Inotherwords,pricecompetitionbetweenexportersisonly

likelytointensify.

USITC998:35. Kiely007:7.Recentempiricaleconomicresearchonthisproblemforotherproductshaspointedouttheassociatedlimitstoexport-

ledgrowthalongmuchthesamelines(i.e.itisafallacyofcompositionresultingfromsimultaneousexportpromotionbyanumberofdevelopingcountries).RazmiandBlecker004:i.

PACIFICISLANDSCOUNTRIES,THEGLOBALTUNAINDUSTRYANDTHEINTERNATIONALTRADEREGIMEAGUIDEBOOK

CHAPTER 15 15

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INTRODUCTION PACIFIC ISLAND COUNTRIES AND THE GLOBAL CANNED TUNA INDUSTRY 15

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Figure 15.1: Geography of World Production of Canned Tuna and Tuna Loins

PACIFIC ISLANDS COUNTRIES, THE GLOBAL TUNA INDUSTRY AND THE INTERNATIONAL TRADE REGIME A GUIDEBOOK


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Supermarkets have a

large inuence over the

way that tuna is bought

and sold.

15.1.1 Key Terminology and Concepts

Thechaptersonprincipalmarketsusesomekeytermsasshorthandforcomplexproc-

esses.Whileallattempthasbeenmadetoavoidtechnicaljargonthroughoutthisreport,thefollowingtermsareeitherincommonusageorsuitablysummarisecomplicatedissues.

What is a Global Commodity Chain?

Aglobalcommoditychainillustratesthelinkagesbetweeneconomicsectorsfrompro-

ductionthroughtoconsumption3.Inotherwords,ratherthanfalselyseparatingshing,

manufacturingandretailing,theapproachseesthemasinextricablylinkedandattempts

toanalysetheminthisway.Aswillbecomeapparentfromthechaptersonprincipalmar-

kets,thisapproachhasbeenutilisedthroughout.

Chapters6(onJapan),7(ontheUS),8(ontheEU)and9(onThailand)allhighlightthe

importantroleofsupermarketsininuencingthewaythattunaisboughtandsold.Ineffect,

thesebigbuyersofnaltunaproducts(whethercanned,freshorfrozentunainitsvarious

forms)actaslead rmsinthechain.Thatis,theirbuyingpowerallowsthemtoinuencecertainfunctionsinthetunachainandplacedownwardpressuresonpricesothattheycan

bettercompeteintheirdomesticmarkets.Thisallowsthemtobothmaintaintheircustom-

erbaseandtoattractmoreconsumersthatpreviouslyshoppedatothersupermarkets.In

fact,supermarkets are even becoming of increasing importance in developing countries,

especiallyinAsiaandLatinAmerica,butalsoinpartsofsub-SaharanAfrica 4.Thusthe

trendtowardsincreasedsupermarketpowerisonlylikelytoincrease.

Acommonterminpolicyandcommercialcirclesinrelationtoanygivencommoditychainis

thepossibilityforupgrading.Thiscanbedenedasthepossibilityfor(developingcountry)

agentstogetbetterreturnsfromtheiractivityinagivenvaluechain,bychangingwhatthey

doand/orhowtheydoit 5.Forexample,itmightentailshiftingfromshingtoprocess-

ing,orthepurchaseordevelopmentofbrandsbyaprocessingrm.Largermsinretail

andcatering/foodserviceusetheframeworkoftotalsupplychainmanagementtobetterunderstandhowtoimproveproductowthroughouttheirprocurementsystems.Drawing

uponthis,itisarguedthatshers(i.e.vesselowners)shouldbecomemoremarketdriven

thanproductiondriven,andfocusonrelationswithcustomers6,presumablysoastobetter

understandandthusfullcustomerdemand.

What is a Production System?

Thefollowingchaptersonprincipalmarketsusethetermproductionsystem.Thisisbe-causeeachofthesemarketshasitsownshingeetandprocessingcapacity,andna-

tionaleetsgenerallytradethemajorityoftheircatchwithnationalprocessors.Clearly,

theseinterlocking industriesneedto beassessed in theirentirety.Thus forshorthand,

we use the term production system to denote these national shing-processing-

marketlinkages.

3 Geref994;GibbonandPonte005.4 Reardonetal003.5 BernsteinandCampling006a:45.6 Mller003:6.


224

INTRODUCTION PACIFIC ISLAND COUNTRIESAND THE GLOBAL CANNED TUNA INDUSTRY 15


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Industrial tuna eets

and national tuna

processing in the EU,

Japan and the US are

closely linked.

Aproductionsystemisnormallypartofatunacommoditychainbutitgenerallydoesnot

constitutetheentirechain.Asnoted,thetermisbeingusedtospecicallyhighlightonefun-

damentalpoint:thattunashingeetsandprocessingplantsareoftenverycloselylinked.

Theselinkagescaneitherbe:

Directviathesameownership(i.e.oneisasubsidiaryofanother.

Direct vianancial share (i.e. aprocessing rmpart nancinga vessel or eet, or

viceversa.

Directviacontractualarrangements(i.e.supplyagreements).

Indirectvialong-termrelationshipsand/orpersonalnetworks.

ThesystemthatproducescannedtunainFrance,ItalyandSpainusestariffsandcommer-

cialrelationssoastolock-inEUbasedprocessorstosourcesupplyfromtheEUDWF.Ina

similarway,cannedtunaandKatsuobusiprocessorsinJapanrelyextensivelyontunaand

skipjackcaughtbyJapanesevessels.And,untiltherecentdeclineoftheUSeet,alarge

percentageofsupplytothetunacanneriesinPagoPago(whichareownedbybrandsmar-

ketingtoUS)camefromtheUSeet.

Insum,thetermproductionsystemisusedtopointoutthatindustrialtunasheriesand

nationaltunaprocessingintheEU,JapanandtheUSareinextricablylinked(although

oftenwith several commercialtensions andcompetitivecontradictions).Theselinkages

areoftencementedcommerciallythroughnancial or contractualrelationships, andby

governmentpolicythroughprotectivetariffsonimportedcompetitionandstrictrulesof

originforpreferencereceivingcompetitors.Allofwhichhaveimportantimplicationsboth

forwhytariffsarestructuredliketheyareand,asaresult,forimprovedmarketaccessfor

PICexporters.


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The primary involvement

of Pacic island countries

in the global commodity

chain for canned tuna is as

a source of supply of raw

material from their EEZs.

15.2 PICS and Trading Companies in the Canned TunaCommodity Chain

Thissubsectionhighlightstwoimportantaspectsoftheglobalcommoditychainincanned

tunatheplaceofPICsandtheroleoftunatradingcompanies.Othermajorcross-cutting

issuessuchastheroleoftradetariffs,sheriessubsidies,andstandardsaredealtwith

elsewhereinthisreportinseparatechapters.Issues,trendsandprocessesspecictothe

principalmarketsofinteresttoPICexportersareaddressedindepthinthefollowingchap-

tersonJapan,theUS,theEU,ThailandandAmericanSamoa.

Transhippingtunain-port.LaeBay,PapuaNewGuinea.Photograph:LiamCampling

15.2.1 The Position of PICs in the Global Commodity Chain in Canned Tuna

TheWCPOtunasheryisthemostproductiveintheworld.Around50%ofthetotalglobal

tunasupplywascaughtthereannuallythroughouttheperiod994-004.Intermsofspecies

breakdownoverthesameperiod,WCPOcatchaccountedfor63%ofglobalskipjackcatch,

55%foralbacore,35%yellownand5%bigeye7.

Inrealeconomicterms,theprimaryinvolvementofPacicislandcountriesintheglobal

commoditychainforcannedtunaisasasourceofsupplyofrawmaterial,mainlyinthe

sensethattunaiscaughtbyDWFNsinandaroundtheirEEZs:Domesticindustriesstill

accountforlessthan30percentofthevalueoftunaharvestedintheregionsEEZs,anda

muchsmallerproportionofhighseascatches8.

7 Hamilton006:3-5.8 Hamilton006:7.


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Historically,thedominantDWFNpurseseineeetswereownedbycompaniesinJapan,

Taiwan,Korea,theUSandtheEU,butsincethe990sonwardsnewentrantshaveplayed

anincreasedrole,namelythePhilippinesand,toalesserextent,ChinaandNewZealand.

Inadditiontothis,PICaggedpurseseinevesselsareofrisingimportance,especiallydo-

mesticallybasedforeign-ownedvesselsaggedinPNGandSolomonIslands.Mostofwhich

areentitledtoshundertheFSMArrangement9.(SeeBox.foranoverviewoftheFSM

Arrangement.)

However,theincreasedroleofPICaggedvesselsusingtheFSMArrangementisprimarily

duetoarecentrise in second-generation access arrangements(i.e.ownershipremainsin

thehandsofnon-PICcountries,particularlyTaiwanandthePhilippines).Moreover,asig-

nicantproportionofthiscatchistranshippedatseaorinport,withaminorproportionof

supplyendingupinPICprocessingfacilities0.(Formoreonsecond-generationaccesssee

Section.3).

Apartfromexertingsomeactual(andpotential)inuenceovertheresourceitself,onshore

processinginvestmentinPICsareofvastsocio-economicimportance.Figure5.providesasketchofthepositionofPIC-basedprocessorsinthechain.Asisclearfromthesche-

maticthereare two general types or models of PIC-based rm.

Integrated shing-processing operations: includes RDTuna Canners andFrabelle

bothinPNG,whichareactiveparticipantsinthechain,fromshingthroughtoeventual

salestoimportingrmsinprincipalmarkets(mainlytheEU).

Contract processors:includesPafco(Fiji),Soltai(SolomonIslands)andSouthSeas

TunaCorporation(SSTC)(PNG),whichareprimarilycontractedprocessorsthatnever

actuallyowntheshitself.Instead,thetwotunatradingcompaniesFCFandTriMa-

rineplayacentralroleintermsofsupply,procurementand,inthecaseofloinspro-

ducedatSoltaiandSSTC,onwardsales.(Anoverviewofthesecompaniesisprovidedin

thefollowingSection.DetailedoverviewsofthePIC-basedrmsareprovidedinChapter

3andChapter.)

AfewotherpointsaboutFigure5.shouldbehighlighted:

Thegureonlyattemptstoshowtheowofthecommoditychainasitintersectswith

PICprocessingfacilities.Therealityis,ofcourse,farmorecomplex,especiallyinthe

Re-processing/BrandingandMarketsections.

Theownershiparrowsareincludedtodemonstratethatthreeoftheveplantsnever

actuallybuythetuna.Thisabsorbsthemfromrisk,butitalsocancelsoutopportunity

forprot.

BaseduponFigure5.andthefollowingchaptersonprincipalmarkets,itisclearthat

eachofthePICfacilitiesunderaprocessingagreementconstituteoneofmanysources

ofsupplyopentotheRe-processing/Brandingsection.Inotherwords,whilePICtunaprocessorsareofimportancetoPICeconomies,theyareofrelativelymarginalimpor-

tancetotheglobalcommoditychainasawhole.

Aprivatelabelproductisproducedforalargeretailer(i.e.supermarketown-brand)

andanationalbrandislabelledfor(orby)amanufacturewithawell-knownproduct

(i.e.JohnWestinAustraliaandtheUK,StarkistintheUS,etc).

AdditionalinformationonPICprocessors,theroleofdomestictradepolicyandtradingrela-

tionsareprovidedinChapter3andChapter.

9 Hamilton006:6-7.0 Multipleinterviews,PICgovernmentandindustryrepresentatives,internationalsheriesspecialists,anddirectobservation,005/6. Soltaiownstheshcaughtbyitsownpoleandlineeetusedforkatsuobushiproductionandcanningforthelocal/regionalmarket.

TunafromNationalFisheriesDevelopment(NFD)boatsarecontractprocessedintoloinsandcateringcansbySoltaiforTriMarineforonwardsaletoEUmarkets.


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Trading companies play a

pivotal role in the Pacics

canned tuna industry.

15.2.2 Tuna Trading Firms and the Coordination of the Canned Tuna Commodity Chain

Therearethreemajorrmsspecialisinginthetradeintunaforcanningoperatinginthe

WCPO.Theyplayapivotalroleinthecontemporaryglobalcommoditychainincannedtuna.Beforewedirectlyanalysetheroleofthesermsinthecannedtunachainanddraw-out

theimplicationsforPICs,thefollowingcompanyoverviewsprovidesomebackgroundtothe

specicsofeachoftheserms.

FCF Fishery Co, Ltd

FCFisthemostimportanttunatradingcompanyactiveinthePacic,andprobablythe

world.Itwasestablishedin97withstatesupportastheTaiwanesegovernmenthadan

interestinthedevelopmentofdomestictunashingcompanies,notleastastheyprovided

(andcontinuetoprovide)animportantinowofforeignexchange 3.FCFisaprivateTai-

wanesermthatemploysaround0people.IthasitsheadofcesinKaohsiunginthe

southofthecountrywhereabout70staffarebased,itisfromherethatbusinesscoordina-

tionandinstructionsonpricingareltereddownthroughtoregionaloperationalofces

(i.e.inLevuka,Suva,PagoPago,Bangkokandelsewhere).

Thecompanymakesmoneyfromcommissionsonthetrade,andinmanycasesitdoesnot

eventakeownershipofthesh.Accordingtooneveryexperiencedindustryinterviewee:They

havenothing,onlygoodbrains4.FCFisdividedintothreespecialisedbusinessdivisions:tuna

longline,tunapurseseine,andsquid.ThepurseseinedivisionpurchasesshfromTaiwanese,

Korean,Philippineand,veryoccasionally,USvessels.Thepurchasesareeithermadeatsea

wherethecargoistranshippedontoreefercarriersthathaveeitherbeenwhollychartered

orwhereanallocatedspacehasbeenchartered(FCFreportedlydoesnotownanyreefers),

orinport.

Tri Marine

TriMarineisaprivatecompanywithanannualturnoverofUS$700million.Havingbeen

foundedinSingaporein97bytheItaliangovernment,itwasprivatisedin986andis

nowownedbytwoItalianandtwoTaiwaneseinvestors.TriMarinehandlesmorethan

400,000mtoftunaperannum.Itownsorhasprocessingagreementswith5plantstopro-

ducetunaloinsand/orcannedtuna:3inLatinAmerica,inMombassa(Kenya)andSoltai

inthePacic5.ThemainbrandedprocessorsitsellstoareStarkistandChickenofthe

SeaintheUSandtheBoltonGroupintheEU.TheyalsoselltopackersinBangkok.(For

overviewofthesebrandedrmsandonThaiprocessorsseethefollowingchapters.)

TriMarineboughtStarKistspurseseineeetin00,apparentlyusingproceedsfrom

thesaleoftheirsharesintheChickenoftheSeacanneryinPagoPago6.Thishelpedto

improveTriMarinesassuranceofregularsupply.Butbymid-006itspurseseineeethad

beenreducedfrom4to7vessels(yingUS,Panama,andSolomonIslandsags).Fourof

thesewereactiveintheWCPOandtheother3intheEasternTropicPacic.Italsooper-

ated5reefercarriers.However,theamountofshproducedbyTriMarinesownboatsis

onlyasmallpercentageofitstotalbusiness.Moreimportantsourcesofsupplyoftunaare

thefollowing:

SupplycontractswithnumerousotherpurseseinevesselownerswithwhomTriMarine

alsoprovideslogisticalsupport.7

Transhipmentservicesusingcharteredcarrierstotunavesselsaroundtheworld.

Brokeringthroughspottransactionsorpurchasesfromvesselswithwhomtheyhave

nootherrelations.

ThefollowingcompanyoverviewsarebaseduponmultipleinterviewswithindustryandgovernmentrepresentativesandinternationalsheriesspecialistsinJapan,PICs,theUSandThailand,005-6.Unlessotherwisespeciedall informationistakenfromcross-referencingand(asmuchaspossible)triangulatinginterviews.

3 ThiswaspartofamuchwiderdevelopmentstrategywheretheTaiwanesestateplayedanimportantroleinpickingwinnersintheeconomy.4 Interview,Thaiindustryrepresentative,006.5 Anotherplant,TriMarineFishCo.(basedinSanPedro,California),processorssardine,mackerelandsquid.Directobservation,006;

Hedlund006:6;interviews,industryrepresentativesandinternationalsheriesspecialists,006.6 Gillett,McCoyandItano00:6.7 Interviews,industryrepresentatives,006;Hedlund006:6.


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Figure 15.2: Schematic of Pacic Island Tuna Companies in the Global Commodity Chain in Canned Tuna

PACIFIC ISLANDS COUNTRIES, THE GLOBAL TUNA INDUSTRY AND THE INTERNATIONAL TRADE REGIME A GUIDEBOOK

* = Relationship to chain is a processing agreement with the owner of the sh.


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TriMarinestraditionalbusinesswastradinginwholeroundtuna,butitshiftedtosupplying

tunaloinsand,evenmorerecently,tonishedcannedgoods,primarilybecauseofcus-

tomerdemand.Inshort,theynowproducenishedgoodstoorder.

Itochu

ItochuisahugeJapanesecompanythattradesinjustabouteverythingandhasitshead

ofceinTokyo8.Establishedin858,ithasacapitalvalueofUS$.67billionand4,33

employees.ItochusFoodCompanyhousestheMarineProductsDepartment,whichisits

tuna-tradingarm.ThisDepartmenthasfoursectionsofwhichthreedealexclusivelywith

tunaandtogethertotalanestimated70%oftheDepartmentssales.

SectionNo.:purseseinetunatrading.Onthesalessideithasbusinessrelationswith

canneriesinThailand,PhilippinesandIndonesia,andoccasionallytotheEU,American

Samoa,andEasternPacic.OnthepurchasingsideitdealswithTaiwan,Korea,Philip-

pinesandJapan,allshingintheWCPO.

SectionNo.:Tunarelatedwetpetfood.SalesaremainlytoJapan,buthaverecentlyshiftedtomarketingoverseas,especiallytheUS.PurchasingismainlybyThailand.

SectionNo.3:Longlinecaughtsashimiproductsand,morerecently,farmed/ranched

bluen.SalesaretoJapan.PurchasingfromlonglinersismainlyfromTaiwanandKo-

rea,andforfarmedtunafromAustralia,Spain,Malta,Greece,andMexico.

SectionNo.4:Othermarineproductitems(e.g.shrimp,octopus,etc)

LikeFCFandTriMarine,SectionNo.sometimeschartersreefers,butalsopurchases

spaceonreefersonthespotmarket.Itdoesnotownanyshingorreefervessels.

15.3 Roles and Impacts of the Big Three Trading Firms in the

Canned Tuna Commodity Chain19

Itochuheadofces.Tokyo,Japan.Photograph:LiamCampling

8 Itochu is splitinto thefollowingsix companies:Textiles;Machinery; Aerospace,Electronicsand Multimedia;Energy,MetalsandMinerals;Chemicals,ForestProductsandGeneralMerchandise;Food,and;Finance,Realty,Insurance,andLogisticsServices.Seehttp://www.itochu.co.jp).

9 ThefollowingisbaseduponmultipleinterviewswithindustryandgovernmentrepresentativesandinternationalsheriesspecialistsinJapan,PICs,theUSandThailand,005-6.Unlessotherwisespeciedallinformationisdrawnfromcross-referencingand(asmuchaspossible)triangulatinginterviews.


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1 Supply chain management

Themostimportantrolethatthebigthreecanning-gradetradingcompaniesplayisto

coordinatetranshipmentontoreefercarriersfrommultiplevesselsatsea(orinport)andoffervolumeandcontinuityofsupplytoprocessors.

Forvesselownersthisisofhugeimportance,asthecostsassociatedwithcharteringa

reeferrequireofoadingfromfourpurseseinesofaround700mtcapacitytomakethe

chartereconomic.Otherwisevesselswouldbecompelledtosteamtoporttoofoad,re-

sultinginthelossofshingdays(andrateofreturnoncapitalinvestmentforvesselown-

ers).Therefore, by simultaneously coordinatingwith several vessel owners, the trading

companies take advantage of economies of scaleandaresuccessfullyabletomanagethe

owofreeferstomultiplevessels,andifcarriersarenotfulltheyabsorbthecosts.Inad-

dition,thevesselownersbenetbecausetheyreceivepaymentassoonastheshistran-

shipped,therebyallowingthemtoensuretimelycashowforoperatingcosts(especiallyfor

fuel,butalsoforcrewsalaries,etc).Finally,becauseofthecommercialnetworksandsupply

contractsofthetradingrmstheyareabletoensurethattheshissuccessfullymarketed,therebytakingthisriskoutofthehandsofvesselowners.

Forprocessors,theserviceofferedbythetradingcompaniesallowsthemtooutsourcethe

complexanddifculttaskofensuringcontinuityofsupply.Regularbuyerswillgenerally

receivebettertreatment,notleast,asonerepresentativeofatradingrmputit,because

ourbusinessisbuiltongoodrelations.Whileprocessorsoftencomplainthatthetrading

rmscanmanipulateprice(seebelow),tradersdonotmakealotofmoneypershipment,

insteadthey achieve protability on volume.Theycanmakebiggerprotsiftheyspeculate,

butoneofthermsassessedhererecentlylostmillionsofdollarsdoingthis.

TriMarineandFCFarealso involved inonshore investment in processinginPICs0,al-

thoughtheseinvestmentshaveratherdifferentmotivations,withthelattermorefocused

onsecond-generationaccess(formoreonthisseeSection.3).TriMarinehasengaged,

inparticular,in vertical integration(i.e.fromvesselownershipthroughtoplantmanage-

ment).Importantly,TriMarinesrecentshifttocannedproductionisanadditionalserv-

icetotheircustomersandtoprocessingfacilities(i.e.ithelpsprocessorstondmarkets

fortheirproduct).Itisworthquotingoneseniorindustryrepresentativeonthistrendto

verticalintegration:

Thekeyisnottodeeplyintegrate.Wespreadourinterestsaroundtheoceans.Wespread

ourselvesouttoensuresupplyandtohedgerisk.Eachpartofourbusinessisdifferent,

forexample,evenwithourownshingvessels,eachpartnershiphasitsowndynamic.

Eachbusinesshastobetreatedasstandalone,but(despitethat)shingispartofour

largerstrategy.

2 Vessel fnancing and support

Inthe970sJapanesetradingrmsprovidedvarious types of nancing to Korean and

Taiwanese shing companies and theloanswouldbe repaid insh supplied to them.

This practice meant that trading rms were assured of regular supply. This prac-

ticedeclinedinsignicancewiththeboominglobalpurseseinecapacity(andtunasup-

ply) from the 980sonwards.However, sincetheearly000sonwardsand thetighten-

ingofsupply,onerm,TriMarine,startedinvestinginboats(althoughthissoondropped

from4 to7PSbecause ofthe difcultiesof running boat operations).Whileanother,

FCF,begantoengageinsecondgenerationaccessthroughonshoreinvestmentinSSTC

inWewak(PNG).Despitethis,reportedlyneitherFCFnorItochuareinterestedindirect

vessel nancing anymore, even though they were engaged in this practicein thepast.

0 ItochuisinvolvedinonshoreinvestmentinIndonesiaandunderitspriorcompanyname(C.Itoh)itownedandmanagedthePafcocanneryinFiji.

Comitini987:65.


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Tuna trading companies

achieve protability on

the high volume of their

sales.

Trading companies are

increasingly investing

in onshore processing

and becoming vertically

integrated.

FCFandTriMarinealsoprovidesignicantsupport services to vessels.Asnotedabove,

oneofthemostimportantoftheseisthecharteringandfullcoordinationofreefercarri-

erswithshingvessels.Bothalsocontributetotheorganisationofbunkeringatseaand

thesupplyofspareparts,aswellasqualityassurancewhenthevesselshitthedockorthe

transhippedshisofoadedfromthereefer.Finally,FCFarealsoinvolvedinthe negotia-

tion of access agreementsonbehalfofTaiwanesevessels,theythentakeacommissionon

theeventualallocationoflicenses.However,theTaiwanTunaAssociationremainsthemore

importantplayerintermsofrelationswithFFAanditsmembers.

3 Corporate concentration

Thereusedtobeupto0rmssupplyingBangkok-basedprocessors,butnowthereare

onlythreeandtheycontrolanestimated75-80%ofthemarketthere.Japanesecompanies

usedtobemajorplayersinthetradeinpurseseinecaughtsh,butonlyItochuremains

signicanttoday.Thereasonforthisdeclineisthehistoricalshiftinsourcesofsupplyof

cannedgradetuna(i.e.fromtheUStoMexicotoJapantoKoreatoTaiwan,andincreasingly,

toChina).Itochumanagedtofollowthesechanges,whereasotherJapanesermssuchasMitsubishididnot(althoughitremainsthemostimportanttraderinJapanforsashimi

gradetuna).Duetotheirgeographicalbases(SingaporeandTaiwan)andlinguistic(i.e.

Mandarin)andculturalties,TriMarineandFCFwerealsowellplacedtotakefulladvantage

oftheshiftingownershipofpurseseinecapacity.

Thereareseveralbarriers to entrytostartingupanewtunatradingrmnow.Thesein-

clude:existinglong-termsupplycontractstomajorprocessors,nancialandotherlinkages

withvesselowners,and(veryimportantly)theharnessingofsophisticatedcomputerised

databasesoncatch,tradeandotherdata.Thismeansthatitisunlikelythatnewentrants

willchallengethecurrentdominanceofthethreetradingrms.Forexample,oneofthe

worldslargestprocessorstriedtocharteracarriertosourceitsownsupplyofshfrom

vessels,butwereknowinglyorunknowinglyblockedbythethreetraders3.Nonetheless,

competitionforincreasedmarketsharebetweenthethreermswillremainand,moreworryinglyforthermsatleast,therehasbeenareportedincreaseinboatownersselling

directtoprocessorsinThailandandtheIndianOcean.

4 Price

Therearetwokeycharacteristicsassociatedwiththetradingrmsintermsofthepriceof

cannedgrade:attemptsatimprovedpricestabilisationandallegedpricemanipulation.

Thetradingcompaniestendtoestablishanegotiated price with processorsfora-to-.5

monthperiod,althoughthisisnormallywithinthecontextofalonger-termsupplycontract.

Whilea proportion ofthenegotiatedsupplywill alreadyhave been caughtat this stage

andwouldalreadyhavebeentranshippedontoareeferonitswaytothecustomer,the

trading rms still take on a signicant risk withthisset-up.Infact,theywilloccasionally

losemoneyinordertofulltheircontractualobligationseitherbecauseofashortageofsupplyorbecauseoftheimpactsofpricewarsbetweenthetraders.Butthiscanoftenbe

recuperatedthroughotherpartsoftheirbusiness(seeaboveonvesselnancingandsup-

port).However,becauseoftheir(necessary)highnancialbaseandthefactthattheyare

operatinginmultipleoceansandsub-regions(wherepriceandsupplyareoftensignicantly

differentiated),thetradingrmsaregenerallyabletoweathertheebbsandowsofcom-

mercialrisk.

Oneverycommonconcernamongprocessingrepresentativesandinternationalsheries

specialistswasthe possibility that because of intensied corporate concentration the

trading companies are able to manipulate the selling priceoffrozentunaforcanning.For

example,itisapparentlycommonknowledgethatThailandhasadailysupplyrequirement

of,800mt,andofcoursethetradingrmsknowthistoo.Therewereseveralclaimsby

processingrepresentatives(andothertypesofinterviewees)inJapan,PICs,ThailandandtheUSthatthetradingrmsutilisedtheirknowledgeoftunacatch,processingneedsand

Multipleinterviews,Japanese,USandThaiindustryrepresentatives,006.3 Interview,industryrepresentative,006.


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233

Only three companies

lead market share in the

WCPO tuna trade and

it is unlikely that new

rms will compete with

them in the foreseeable

future.

cannedtunasalesandnarroworwidensupplysoastoachieveabetterprice.Oneproces-

sornotedthateverytimeofbuyingisagame:whoevercanholdtheirbreathlongerisbet-

teroff,butpackershaveverysmalllungs.Thatis,processorshavealimitedabilitytowait

becausetheyneedtokeepproductionrunningtomeetoverheadcosts,maintainvolume

inproduction,etc.Accordingtoarepresentativeofadifferentprocessingrm:Itsgotten

toughersincethemarketconcentrationamongthebigthree,andtheyhavepushedthe

priceup

However,iflookedatfromadifferentperspective,thecaseforpricemanipulationmaywell

beoverstated.Forexample,themarketpriceforthenishedproducthasnotincreased

atthesamerateasharvestingcosts(especiallyforfuel)4,thusitcouldalsobethatthe

upwardpricetrendisareectionofrealcosts.Inaddition,asisclearfromFigure5.

above,thereissignicantfragmentation among the processing segment of the chain (even

thoughseveralplantsareownedorpartnancedbysimilarcompanies)butthereiscorpo-

rateconcentrationinthetradingsegment.Therefore,theapparentmanipulationofpricemightalsohavesomethingtodowiththefactthattherearefewsellersbutmultiplebuy-

ers,aneconomicrelationshipknownasoligopoly.Linkedtothis,anadditionalexplanatory

factorbehindtheriseinprice(andassociatedmarketpowerofthethreetradingrms)is

thedeclineinavailablesupplyontheworldmarketsincearound003.Perhapsthen,the

apparentincreaseindominanceofthetradershassimplycoincidedwithanaturaldecline

insupplyandthusautomaticallygiventhemmoreweight.

15.4 Implications for PICs of the Tuna Trading Companies

Beyondabetterappreciationoftheroleanddynamicsofthetradeintuna,therearesev-

eralkey issuesassociatedwith theserms thatare of importanceto PICgovernments

andrms.

Worker unloadingWCPO-caught skipjack intoa containervia a conveyerbelt system froma purse seinevessel.Yaizu Port,Japan.Photograph:LiamCampling

4 InfactthepriceforstandardcannedproductinoilorbrinehasdeclinedintheUSand(inaggregated)termsintheEU.SeeChapters8and9fordetails.


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Inpolicytermsthemostcentralaspectisthatthetunatradingrmsarereliablepartners

with indispensablemarketing links.While, of course, theirmotivations areprot-orien-

tated,theyalsohaveasignicantvestedinterestinmaintainingthesustainabilityofWCPO

stocks5:Withoutwhichtheirownbusinesswillrapidlydeterioratebecausetheydepend

uponvolumeforprotability.Inaddition,theyalsohaveaninterestinahighmarketprice

becausetheirbusinessisbaseduponapercentagecommissiononsales.Thisclearlyco-

incideswiththeinterestsofthosePICswithaccessagreementsthatarebasedupona

percentagerateofreturnonDWFNcatch6.

Asnoted,thesermshaveexcellentoutletsforwholeroundtunaaswellasloinsand(in-

creasingly)cansacrosstheglobe.Therefore,theyarepotent partners for joint ventures

and other commercial linkages.ThisisalreadydemonstrableinSoltaisrevivalinalliance

withTriMarine.Inotherwords,notonlydotradingcompaniesprovideaservicetotheir

customersintermsofensuringvolumeandcontinuityofsupply,theyarealsoproviding

aninvaluableservicetovesselowners,loiningplantsand(increasingly)canneriesbecause

theyndandsecuremarketssomethingthatisveryhardtodoaloneparticularlyifthe

loin/canningplantdoesnotalreadyown(oriscommerciallytiedto)anationalbrandin

aprincipalmarket.However,itmustalsobere-emphasisedthatthesermsareunder

substantialcompetitiveandcontractualpressurestoensuresupply,soapplicationsforon-

shoreinvestmentmustbeunderstoodintermsofthepotentialdownsidesofthenewwave

ofsecond-generationaccessarrangementsaswellastheupsides.(Formoreonthissee

Section.3.)

5 SeeforexampleRoberts004.6 Roberts005.

Documents

FFA Fisheries Trade Study 2007 Part 4A