Value Chain Analysis in the Fisheries Sector in Africa.doc

Value Chain Analysis in the Fisheries Sector in AfricaErik HempelNovember 2010The Present study was carried out by Mr. Erik Hempel from Hempel Consult, Norway in collaboration with INFOSA and funded by the Trade Working Group of the PARTNERSHIP FOR AFRICAN FISHERIES, an AU/NEPAD Programme.November 2010ContentsEXECUTIVE SUMMARY51.INTRODUCTION82.VALUE CHAIN ANALYSIS92.1.The general value chain concept92.2.The value chain concept applied to fisheries and aquaculture112.3.Conclusions about using the value chain analysis143.THE INTERNATIONAL SEAFOOD INDUSTRY AND AFRICAS PLACE IN IT163.1.African seafood exports and imports183.2.Main destinations203.3.Imports213.4.Value addition in Africa214.STUDIES WHERE VALUE CHAIN ANALYSIS HAS BEEN USED224.1.Revenue distribution through the seafood value chain234.2.Lake Victoria Nile perch fishery, Tanzania254.3.Pelagic fishery in Morocco324.4.Value addition opportunities in the Namibian seafood industry384.5.Ugandan Nile perch quality management and certification414.6.The Kenya capture fisheries value chain454.7.Nigerian domestic catfish production504.8.Gender analysis of aquaculture value chain in Nigeria and Vietnam544.9.Private sector applications of value chain analysis605.ON-GOING VALUE CHAIN ANALYSIS STUDIES685.1.Value chain analysis of international fish trade and food security685.2.Ghana: Value Chain and Cost Earnings Analysis696.EXAMPLE FROM ASIA: ANALYSIS OF THE FISHERY SECTOR IN SRI LANKA706.1.Value chain summary716.2.Production716.3.Ownership and collective action726.4.Fisheries value chain structure and dynamics746.5.Value chain participants766.6.Supporting markets776.7.Inter-firm linkages786.8.Value chain governance and power relations797.CONCLUSIONS81REFERENCES82Executive summaryExecutive summaryThe Trade Working Group of the Partnership for African Fisheries (a NEPAD programme) is undertaking a review of value chain analysis specifically in the fisheries sector in Africa in order to provide an overview of the countries where value chain analysis has been undertaken in the fisheries sector, and report on the main findings. The main purpose of this study is to provide a baseline analysis for informed discussions and future activities of the NEPAD Working Group of Trade and for other interested stakeholders of the industry. As such, the study is meant to provide a theoretical framework for future studies and development projects within fisheries and aquaculture in Africa.In the first part of this report, a brief introduction to the value chain concept is given. The value chain concept was introduced 25 years ago by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.In Michael Porters description of the value chain, he identifies the various steps, or links, in the generic value chain:· Inbound logistics: the receiving and warehousing of raw materials and their distribution to manufacturing as they are required;· Operations: the process of transforming inputs into finished products and services;· Outbound logistics: the warehousing and distribution of finished goods;· Marketing and sales: the identification of customer needs and the generation of sales;· Service: the support of customers after the products and services are sold to them.A value chain is thus a chain of activities. Products pass through all activities of the chain in sequence and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value of the product with the costs of producing it. The value chain does not, however, only include a straight line. There are external activities that influence activities within the value chain proper. If we include the surrounding environment in this model, we are expanding the value chain, in a way. In such an expanded model, we may distinguish between the core activities, which include the industrys own activities, and upstream and downstream activities. Upstream activities provide inputs into the industry, while downstream activities relate to the outputs from the industry.The fishing vessel catches the fish and brings it to the landing site or port, where there is some primary processing such as for example sorting and freezing or chilling taking place. From here the fish is transported to secondary processing, such as for example filleting and freezing. The product is then shipped to the wholesaler, who distributes it further to the retailer before it ends up with the consumer. The second part of the report includes a brief presentation of African fisheries in relation to the rest of the world. In spite of its great potential, African production of seafood is relatively small. In 2008, only 8.1 million tonnes was produced, which is very small when compared to the rest of the world. The largest fishing nation in Africa is Egypt, followed by Morocco, Nigeria, South Africa and Uganda. Together, these five countries account for almost half of the continents total fish production. Africas aquaculture production is even less impressive. In 2008, total farmed production was 955,000 tonnes, of which Egypt alone accounted for 73%. By far the largest part of this production was freshwater fish. Africa accounts for a very small part of the total trade in seafood. In 2007, African exports of seafood amounted to US$ 4.8 billion (or 4.7% of the world total), while African imports of seafood amounted to US$ 2.4 billion (2.2% of the world total). In other words, Africa as a continent showed a “surplus” in its international trade with fish and fish products. By far the largest seafood exporter in Africa is Morocco, followed by South Africa and Namibia. While Moroccos exports have been growing steadily over the past 10 years, the exports of South Africa and Namibia have been more stable. Value added production in Africa is lower than in the rest of the world. While African total production of fish (catches and landings plus aquaculture production) constitutes 5.7% of the global production, Africas share of fishery commodity production, i.e. processed products, amounts to only 4.3% of the world total. African production of dried, salted and smoked fish constitutes a higher percentage of the total (8.3%) than for the other products. In recent years, there has been a lot of focus on this, and many governments in Africa have tried to stimulate the production of value added seafood in their countries.The third part of the report includes reviews of studies where value chain analysis has been applied to the fisheries and aquaculture industries in Africa. Although value chain analysis may have been used in a number of studies related to fisheries in Africa, time and resources only allowed the study team to review a few cases. Eight cases were selected:· The Lake Victoria Nile perch fishery in Tanzania· The Moroccan anchovy fishery· The Ugandan Nile perch quality management and certification· The Kenya capture fisheries value chain· The Nigerian domestic catfish production· A gender analysis of the aquaculture value chain in Nigeria and Vietnam· A private sector case: investment analysis for tilapia farming in UgandaIn addition, a case from Asia was reviewed: An analysis of the fishery sector in Sri Lanka. This brief overview has shown that the value chain analysis approach is useful for analyzing the fisheries and aquaculture industries in Africa, and that through the application of this approach, new insights may be gained and valuable new strategies may be developed, both at the micro-economic (company) level and at the macro-economic (national) level. The value chain analysis can be applied to pure descriptive studies, where the purpose is to describe a process and for example allocate portions of the costs to the various elements. But it can also be used as a model in more analytical studies, where relationships and mechanisms are described. 1. Introduction The Working Group on Trade under the Partnership for African Fisheries (a NEPAD programme) is undertaking a review of value chain analysis specifically in the fisheries sector in Africa in order to provide an overview of the countries where value chain analysis has been undertaken in the fisheries sector, and report on the main findings. The main purpose of this study is to provide a baseline analysis for informed discussions and future activities of the NEPAD Working Group of Trade and for other interested stakeholders of the industry. As such, the study is meant to provide a theoretical framework for future studies and development projects within fisheries and aquaculture in Africa. In recent years there has been increasing focus on value creation in African fisheries, and a number of studies have been undertaken. Some of these studies have used the value chain analysis approach, but there still seems to be some differences in how the methodology is applied. Although widely referred to both in Academia and in business, the value chain concept at times seems to be somewhat vaguely known and understood. This is in spite of the fact that a great many books and articles have been written about the concept over the past 25 years. Most of the studies examined in this study had relatively short presentations of the value chain concept, and some did not refer to the concept at all. Therefore, it is felt that a brief introduction to the concept as it applies to the fisheries industry would be useful. In Chapter 2 we have included a short presentation of the value chain concept.This overview is based on a literature review of available material. We do not by any means claim to have access to all studies and analyses that have been done on African fisheries and aquaculture using this approach, but we believe that the few examples we have examined may provide a set of useful experiences that others may draw on and develop further. The report is divided into the following main parts:· A presentation of value chain analysis as applied to fisheries and aquaculture;· An overview of African fisheries, aquaculture and seafood trade; · Presentation of value chain analysis studies undertaken in African fisheries and aquaculture;· Presentation of a value chain analysis case from Asia;· Conclusions and recommendations for future activities using the value chain analysis approach in African fisheries and aquaculture. 2. Value chain analysisThe value chain concept was introduced 25 years ago by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.In Michael Porters description of the value chain, he identifies the various steps, or links, in the generic value chain:· Inbound logistics: the receiving and warehousing of raw materials and their distribution to manufacturing as they are required;· Operations: the process of transforming inputs into finished products and services;· Outbound logistics: the warehousing and distribution of finished goods;· Marketing and sales: the identification of customer needs and the generation of sales;· Service: the support of customers after the products and services are sold to them.A value chain is thus a chain of activities. Products pass through all activities of the chain in sequence and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value of the product with the costs of producing it. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds to much of the value of the end product, since a rough diamond is a lot less valuable than a cut diamond.2.1. The general value chain conceptThe concept of the value chain is really quite simple. It just means that we link all the steps in production, processing, and distribution together, and that we analyze each step in relation to the preceding steps and the steps that follow. The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use. Fig. 2.1: A simple value chainThere are also ranges of activities within each link of the chain. Although often depicted as a vertical chain, intra-chain linkages are most often of a two-way nature for example, specialised design agencies not only influence the nature of the production process and marketing, but are in turn influenced by the constraints in these downstream links in the chain.The most important implication of applying the value chain approach, however, is the fact that all decisions made at one step in the process have consequences for the following steps, and often such decisions may be irreversible. For example, if you kill and dress the fish when you catch it, this means you cannot sell it as a live fish later. The value chain does not only include a straight line. There are external activities that influence activities within the value chain proper. For the sake of simplicity, we may call these external parts of the value chain upstream activities and downstream activities. If we include the surrounding environment in this model, we are expanding the value chain, in a way. In such an expanded model, we may distinguish between the core activities, which include the industrys own activities, and upstream and downstream activities. Upstream activities provide inputs into the industry, while downstream activities relate to the outputs from the industry.Fig. 2.2: The extended value chainThe challenge is to define your companys place in the value chain, and to understand the opportunities represented by the surrounding environment. Obviously, there are business opportunities in the upstream and downstream activities. If a company has the resources, it may enter into some of these activities as a strategic initiative.Many large companies of corporations have adopted or co-opted some or all of such external activities into their business concept. For example, a large producer may take on the role of producer of supplies, such as packaging material, either because it is not readily available locally, or because it represents a substantial saving.Some of these external activities ma