Governing aquaculture sustainability through global value chains

Simon R. Bush MARE People and the Sea Conference VIII, Amsterdam, 24-27th July 2015

Salmon farming in Hvannasund in the Faroe Islands. IMAGE: PATRICK DIEUDONNE/ROBERT HARDING/CORBIS

The blue ‘boom’

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14019

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%

Prod

uctio

n (m

illio

n t)

Aquaculture

Capture fisheries

Aquaculture's % contribution to globalfood fish supply

Year

24% 197% 78% 28% 13%

10 year % change

The blue ‘bust’?

Aquaculture hit list Disease Habitat Loss Biodiversity Effluent Feed Labour issues

PRIVATE GOVERNANCE

Limits to market-based regulation?

Bush et al. 2013

Limited market demand

Narrow take on sustainability Issues more relevant to commercial production, and strong farm level focus

Low capacity/Self-selection Danger of not focusing on those with larger (potential) sustainability gains

Dependencies of small-holders Reliance on public and private intermediaries to improve

Questions

1. What characteristics of value chains enable or constrain market-based improvements in aquaculture?

2. How do these characteristics, and opportunities for improvement, differ between species?

3. What alternative market-based approaches could strengthen improvement?

Global value chain analysis

Beyond supply and demand, cost and benefit

Focus on institutions, relations and norms that structure economic practices of firms

Includes questions of environmental and social performance

Can identify new arrangements for improving equity and performance

CABs

LABEL

PRODUCER

Product

CERTIFIED CHAIN

ACTORS

CONSUMER

Gibbon et al. 2008; Bush et al 2014

Governance as coordination

A. Complexity of transaction Information and knowledge transfer required to sustain transaction, particularly with

respect to product and process specifications.

B. Ability to codify transaction Extent information and knowledge codified and, transmitted between the parties to

structure product type.

C. Capabilities of suppliers Capacity of suppliers to meet requirements of the transaction, including public

support/

D. Risk profile Degree of vulnerability faced by a supplier to deliver product, and opportunities to

transfer risk.

E. Spatial configuration of production Location of suppliers in relation to each other, inputs and infrastructure.

Adapted from Gereffi et al. 2005

Price

Lead firm

Turn key supplier

Material and component

suppliers

Lead firm

Relational supplier

Material and component

suppliers

Lead firm

Captive suppliers

Integrated firm

MARKET MODULAR RELATIONAL CAPTIVE HIERARCHY

Gereffi et al. 2005, Review of International Political Economy

Degree of chain integration

0% 20% 40% 60% 80% 100%

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5

Salmon Shrimp (Penaeus monodon)

Num

ber o

f fun

ctio

ns in

va

lue

chai

n

Sample of 396 companies registered on Sea-Ex. Functions: Buyer, processor, wholesaler, exporter, agent.

87

n

366

441

276

135

Salmon

Large number of vertically integrated firms

No major species shifts, production is highly uniform

Subsidies and risk transfer in place

Professionalised production, seed and feed

Problems and capabilities internalised by companies

Social issues – minimal (labour union issues in Chile)

Area management driven by disease

Emergence of industrial coalitions

Shrimp

Low number of vertically integrated firms

Major species shifts, production is highly differentiated

(Implicit) subsidies and weak or no risk transfer

Mixed professionalization of production, seed and feed

Capabilities externalised by companies

Social issues – major issue (community standard, labour)

Integrated agro-ecologies – weak area based management

Emergence of national standards

Type of coordination

Factors Salmon Expected Shrimp Expected

1. Complexity of transactions

High High High Low/High

2. Codification High Low High High

3. Capabilities High Low Low High/Low

4. Risk Low High

5. Spatial connectivity

High Low

Coordination type

Modular Vertical integrated

Captive Market, modular, relational

So what does this tell us?

Shrimp Low producer capabilities should push to vertically integration, but high levels of risk constraining lead-firm investment. Salmon

High producer capabilities should push towards market coordination, but high capacity for codification leads to integrated industrial organisation

Certification paradox

MARKET HIERARCHY We assume certification

can strengthen capabilities of producers on market ...

... but individual farmers tend not to have capabilities and require support and/or integration

Certification is not market-based because producers engaging in sustainability require high levels of external

support

Area-based approaches

Standards and auditing practices being developed

From vertical horizontal capabilities between farmers

Beyond farm scale to include social and environmental improvement (?)

Open up opportunities for risk transfer and financing (?)

Integration with state regulation (?)

Firm-level certification

Lead firms should be seen as objects of regulation rather than drivers of coordination and sustainability

Strategies of firms – portfolio or dedicated firms?

Invest because of increased brand risk, or need to maintain stable supply?

More relational outcomes, such as aquaculture improvement projects.

Attention needed to ensure that these downstream firms enforce these AIPs

Sampson et al. 2015

Conclusions

Limitations of market-based approaches can be related to the structure and function of value chains

Innovations in market-based approaches are needed that strengthen capabilities of producers, manage risk, and regulate firm actors

Species differ – so value chain profiling is needed