Fisheries Supply Chain Analysis: Fish Products and Tiers

This report examines the fisheries industry. The product described in this report includes fish, shellfish and seafood.

The fisheries supply chain is a network that involves the harvesting of fish, shellfish and seafood from bodies of water, and distributing these items through distributors to the consumers in households and consumers who go to food service companies to dine.

The various locations where individuals can purchase the products represent some of the tiers of the supply chain. The fisheries supply chain tiers are as follows:

  1. Harvesters or harvesting tier
  2. Wholesale Tier
  3. Retail Tier
  4. Actual Consumption
  5. Disposal and Recycling

Tier 1: Harvesters, Harvesting of Fish, Shellfish & Seafood

The first tier involves the harvesting of the product from bodies of water, as well as fish farms. The product arrives in this tier as whole and live fish, shellfish and seafood, considering that they are harvested directly within this tier of the supply chain. The product leaves this market in two possible forms: whole live fish, shellfish and seafood, or whole frozen fish, shellfish and seafood. This means that there is little processing done in this tier.

The markets in this tier are located in near bodies of water where the product comes from. For instance, commercial fishing companies maintain markets at wharfs and other facilities near the shoreline. The purpose of maintaining such locations that are close to the shoreline is to ensure ease and convenience of transporting the fish, shellfish and seafood from the shipping vessels to the place where buyers from the next tier typically go. These buyers are wholesalers, as discussed in the next section. Fish farming companies have greater flexibility in terms of the location of their markets. Fish farming companies make use of ponds, tanks and other artificial means of containing fish, shellfish and seafood. These facilities can be placed in various locations, as long as the necessary equipment such as aeration pumps and water filters are used. The markets of fish farmers can have various locations, including suburbs or even the city center. Nonetheless, fish farms are typically located in rural areas, where land prices are not too high and pollution is quite low, or near the shorelines, where the buyers of the next tier usually flock.

The functions of these markets are (1) to sort products according to type of species and form, and (2) to provide a venue for the purchase of large amounts of fish, shellfish and seafood by the wholesalers or buyers from the next tier. These markets are concerned mainly with the sale of the product in large amounts per buyer. The aim of the harvesters in this market is to acquire to sell the fish, shellfish and seafood as soon as possible in order to prevent spoilage and wastage, and to sell the product at the highest price possible in order to ensure the highest profit possible. The aim of the buyers in these markets is to get the best quality fish, shellfish and seafood at the lowest price possible. The competition among the harvesters or sellers is the main factor that creates a system in which the sellers cannot readily increase their prices, and in which the buyers have more options to choose from.

The scope of operation of these markets can be national or local. National operations usually involve participants that are large fishing companies. Commercial fishing companies that have operations in two or more locations in the United States can have national operations. The fish, shellfish and seafood from these large companies are transported to various wholesale locations around the country, but mostly in areas near the shoreline. The scope of operations of smaller companies is mainly local, considering the small scale harvesting that these participants have.

Institutions, such as US Coast Guard, the regional fishery management councils, and the National Marine Fisheries Service (NMFS), regulate these markets. The regulations imposed in this market, such as the US Commercial Fishing Industry Vessel Safety Act or CFIVSA and the Magnuson-Stevens Fishery Conservation and Management Act, are the ones that impose limits on the activity of the harvesters. These regulations include standards that are imposed on fishing companies. The regulation in these markets includes those that are aimed at protecting wildlife and minimizing the ecological damage that can result from the activities of the industry.

The major players or institutions involved in this tier are the commercial fishing companies and the fish farming companies. The major function of the institutions in this tier is to collect the product from the actual source and package the product for delivery to the institutions in the next tier of the supply chain. Some of the major players in this tier are based on Alaska.

The major positive externalities in this tier include the provision of jobs to many communities along the shoreline. Large companies can hire and maintain large workforces in the industry, thereby contributing to the economic development of the country. Another positive externality is the benefits that that some of these institutions have to the environment and the advancement of quality of fish, shellfish and seafood, through research. The participants in this tier, especially the large fish farming companies, have research departments that are aimed at developing new ways of fishing and promoting the quality of the product. Some research departments are focused on how to increase the output of these companies through extensive breeding programs. The impact of these positive externalities on the economics side is the higher rate of employment, especially in communities near the areas of operations of large fishing companies. In turn, the higher rate of employment contributes to the growth of the country’s economy. The impact of these positive externalities on the ecological side is the potential improvement in the ecology of the areas from which the product is harvested. For instance, fish farming companies that conduct research on increasing the populations of a particular fish species can help increase the actual populations of such species.

The major negative externalities in this tier include the potential destruction of the environment, particularly the freshwater ecosystems and the marine ecosystems that are used as the source of fish, shellfish and seafood. Companies that are unscrupulous are non-compliant to regulations imposed by the government can be expected to maintain fishing practices that can damage these ecosystems.

Property rights affect the situation in terms of the rights of individuals and groups on real estate properties that are used as markets for fish, shellfish and seafood in this tier. For instance, the property rights of individuals on certain facilities and land along the shores can limit the markets of the participants in this tier.

Tier 2: Wholesale of Fish, Shellfish and Seafood

The product in this tier arrives in two forms: whole live fish, shellfish and seafood, or whole frozen fish, shellfish and seafood. Considering the wholesale nature of activity in this tier, the product arrives in this tier in very large quantities, usually contained in large boxes or container vans. The product leaves this tier in two forms: the same form as they arrived, i.e. whole live or whole frozen fish, shellfish and seafood, or in the form of smaller portions, such as tuna chopped down to smaller pieces weighing only a few kilograms. The change in the form of the product in this tier is based on the transactions made in the market. The transactions in this market are mainly the large-scale sale of the product to retailers – the main participants in the next tier.

The markets in this tier are located in areas near the source of fish, shellfish and seafood, as well as in areas nearer to the target consumers. Some wholesalers maintain facilities that are located near the shorelines, for the wholesalers’ convenience of acquiring the products from the fishing vessels of the commercial fishing companies and fish farming companies. Some wholesalers maintain facilities in urban centers, in order to be nearer to the buyers from the next tier, i.e. the retailers.

The functions of these markets are (1) to provide a venue for the transformation of the fish, shellfish and seafood into smaller quantities or smaller chunks, i.e. chopping down of very large fish into smaller pieces, and (2) to provide access for retailers to acquire the product for further sale in the next tier.

The scope of operation of these markets can be national or local, depending on the wholesalers involved. For instance, large wholesalers or distributors can have national operations, while smaller ones are limited to local operations.

The Food and Drug Administration through the Federal Food, Drug and Cosmetic Act, and the Public Health Service Act, along with other laws, regulate these markets. The regulation in these markets is aimed at ensuring that the product sold is safe for human consumption.

The major players in this tier are the wholesalers, who are the sellers in this tier. The buyers, i.e. the retailers, are also important in players in this tier because they determine the demand for the products that the wholesalers offer. The interest of the wholesalers in these markets is to sell the fish, shellfish and seafood as soon as possible in order to avoid spoilage and wastage. In addition, the wholesalers are also interested in selling the products for the highest price possible. The interest of the buyers, i.e. the retailers, is to acquire the fish, shellfish and seafood at the best quality and lowest price possible.

The major positive externalities in this tier are on the economics side. The sale of fish, shellfish and seafood in the markets leads contributes to the business tax collections of the localities in which these markets are located. In addition, the wholesalers also employ people. This means that this tier helps in positively contributing to the employment rate of the country.

The major negative externalities in this tier include the possible harmful disposal of spoiled fish products into the environment without proper treatment. The impact of this negative externality is relatively small, especially when considering that there are regulations in place to ensure proper disposal of waste materials in the markets of this tier.

Property rights affect the situation in terms of pricing. Owners of private properties that are used as venues for the markets in this tier can impose high fees, such as rent, that the sellers need to shoulder. Higher fees, especially in urban areas, can lead to higher prices of the products.

Tier 3: Retail Sale of Fish, Shellfish and Seafood

The product in this tier arrives in the form of whole live or whole frozen fish, shellfish and seafood, or in the form of smaller portions, such as tuna chopped down to smaller pieces weighing only a few kilograms. The product leaves this tier in the form of fish, shellfish and seafood in smaller sizes or quantities that are typically the size or quantity that are cooked in homes or in restaurants.

The markets in this tier are located in mainly in urban areas or town centers, especially when considering that the buyers are located mostly in the town centers or urban areas. Specifically, the markets include wet market sections of indoor supermarkets and grocery stores, small grocery stores, local outdoor fish markets, and other similar shops.

The functions of these markets are (1) to provide a venue of the resizing of the fish, shellfish and seafood into smaller pieces that are easier to purchase and cook by the buyers, i.e. the consumers, and (2) to provide a venue that displays products that can be easily identified, compared and selected by the target buyers.

The scope of operation of these markets can be national or local. Large retailers, such as OM Seafood Company, can operate in a number of markets nationwide. Smaller stores and outdoor fish markets usually operate at the local level.

These markets are also regulated through the Food and Drug Administration, through the Federal Food, Drug and Cosmetic Act, and the Public Health Service Act, and other relevant laws. The aim is to ensure that the product sold is safe for human consumption.

The major players in this tier are the retailers and the consumers. The retailers are the ones that provide the fish, shellfish and seafood in sizes and varieties that are attractive to the consumers. The consumers are the ones who create the demand for the products. The buying behavior of the consumers exerts a great force that determines the prices of the product. For instance, products that are sold at prices that are too high would typically be unattractive to consumers, such that the sellers, i.e. the retailers, are compelled to minimize the prices of the fish, shellfish and seafood for sale.

The major positive externalities in this tier include higher employment resulting from the hiring of workers in retail stores. The major negative externalities in this tier include the waste materials that are disposed into sewage systems, streams and rivers. The waste materials in this tier usually include small amounts of fish blood and discarded fish entrails. The small quantity of the waste products means that there is not comprehensive regulation that prevents these small quantities of waste to be disposed. This negative externality leads to potential harm to the environment.

Property rights affect the situation in terms of the prices at which the fish, shellfish and seafood are sold. For instance, the property rights of the facilities, such as supermarket buildings, malls and outdoor markets, can come with high values in the urban areas, such that higher rent is applied. Higher rent forces the retailers to offer the products at higher prices.

Tier 4: Actual Consumption of Fish, Shellfish & Seafood

The product in this tier arrives in the form of fish, shellfish and seafood in smaller sizes or quantities that are typically the size or quantity that are cooked in homes or in restaurants. The product leaves this tier in the form of waste materials, such as fish entrails and shells of shellfish. Such transformation of the fish, shellfish and seafood occurs because the consumers eat the meats and other edible portions. The leftovers are bones, shells and entrails.

There is no particular market in this tier of the supply chain. The major players in this tier are the consumers, who determine the kinds and amounts of waste that are disposed to the next tier.

Externalities in this tier are minimal except for the potential improper disposal of waste materials, especially when considering that waste disposal in homes are not monitored by government agencies. Property rights have minimal impact on this tier of the supply chain.

Tier 5: Disposal and Recycling

The product in this tier arrives in the form of waste materials, such as bones, fish entrails and shells of shellfish. This product comes from the homes and the restaurants in which fish, shellfish and seafood are prepared and eaten. The product leaves this tier in the form of organic fertilizers. The transformation of the product is done through the process of composting.

The markets in this tier are located in government facilities and private facilities that are hired by government agencies as part of waste management. The functions of these markets are top transform waste materials into usable forms, such as organic fertilizers. The scope of operation of these markets can be national or local, depending on the facilities and the jurisdiction of the government agencies involved in the markets. These markets are regulated by individual government agencies with their own specific rules and regulations, as well as by the Environmental Protection Agency.

The major players in this tier are the government agencies, and the private waste treatment/ recycling companies. The major positive externalities in this tier include the reduction of waste materials that can damage the environment, as well as the employment of people in their respective localities. The major negative externalities in this tier include the consumption of additional energy to transform the product into organic fertilizer. Property rights have minimal impact on this tier. In sum, the waste materials are transformed into organic fertilizers, and are sold into the fertilizer market by moving into the agriculture supply chain.

Corporate Responsibility in Fisheries

In terms of corporate responsibility, areas in the supply chain that present opportunities for improved social responsibility of the participants include the harvesting of fish, shellfish and seafood from the bodies of water, as well as the waste disposal and treatment. Participants in the harvesting of the product can exercise greater discipline in preventing the depletion of the natural resources, i.e. the populations of specific species of fish, shellfish and seafood.

Changes can impact the supply chain in terms of prices, fishing practices and waste disposal practices. For instance, the introduction of new markets can impact the supply chain by increasing the demand for fish, shellfish and seafood and driving the prices higher. Changes in regulations can motivate or compel supply chain participants to move towards a more socially optimal outcome, thereby limiting the kinds of activities that they can perform within the industry. Changes at the downstream tiers will ultimately move upstream through the supply chain and impact the ecosystem, especially when considering that the industry is demand-oriented.

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