Investing just 1% of sales in traceability could increase the seafood industry’s profitability by 60% to a total US$122 billion, according to a new report compiled by non-profit financial think tank firm Planet Tracker.
The analysis, entitled ‘How to trace $600 billion’, determines that untraceable seafood, i.e., where in-depth details of a product’s history across the supply chain are not known, is costing the industry billions in food recalls, waste and also staffing to deal with problems.
Calculating that only 29% of global production is currently “traceability-ready”, the report explores whether 100% sea-to-plate traceable seafood is viable and what it would take to achieve. It defines traceability-ready as fish that is harvested in a way that makes it at least acceptable for those enterprises responsible to be associated with its production, as well as being caught or farmed in an area where the challenges of implementing a traceability solution can be overcome.
It finds that traceability-readiness varies by region and is lowest in Asia, where the majority of seafood production occurs.
Delivering the study, François Mosnier, Head of Oceans Programme at Planet Tracker, stated that a low average profit margin exists across the seafood supply chain, and that this means the main driver of end-prices is the cost of production.
Cutting down on even a few areas of unnecessary expenditure, which can be identified through improved traceability, can thus result in significant profit boosts, Mosnier said.
“Just a 1% investment could unlock a $600 billion boost in global seafood enterprise valuations. What’s more, our methodology for calculating potential savings was incredibly conservative – the true potential boost to global profits could in reality be much bigger.”
As such, it’s not just the companies, but the financial institutions backing them that should be demanding change, he said.
Revenue building
Planet Tracker estimates the global seafood supply chain revenue to be worth $1.8 trillion annually. This figure, which is equivalent to 2% of global GDP, incorporates everything from fishing and aquaculture to restaurants and retail via wholesale and processing.
Explaining the numbers and why Planet Tracker’s value is much higher than others conveyed for the seafood industry, such as Rabobank’s recently reported $164 billion estimate for the total global seafood trade, Mosnier told WF that a key difference is that it doesn’t derive sales numbers by adding revenue from each corporate, but by starting from total volume numbers (including illegal, unreported and unregulated fishing – IUU) in order to include every fish. It even includes informal transactions such as the sale made by a local fisher to a local market.
He acknowledges that some “double-counting” is therefore included in the analysis, because the same fish changes hands several times, such as from a fisher to a restaurant, and that every time that fish is sold, a revenue is generated.
In this regard, it assumes 80% of wild catch and farmed volumes are processed in some way. It then uses average prices at each stage, using implied prices realised at different companies to derive revenue. For example, Thai Union realises a price of circa $4 per kg on its ambient seafood business.
Mosnier also highlighted that out of the $1.8 trillion, fishing’s total revenue is only $185 billion, and aquaculture’s is $273 billion.
The estimate of global supply chain profitability, meanwhile, averages 3.6%. Planet Tracker calculated this by using a basket of representative companies at each stage of the supply chain and the taking the average of their margins. It puts current total profit at $76 billion.
With regards to achieving an additional $600 billion in revenues from traceability, he explained that this number was derived based on the increase in profit coming from traceability implementation, assuming that valuation multiples would stay constant.
Using the example of 5kg farmed salmon, Mosnier said that from the perspective of the processor and under the report’s assumptions, traceability would add about 1% in price premium to each fish and would also allow the company to sell 0.5% more of them as a result of increased customer confidence, quality and company reputation.
“But most of the value lies in the reduction in costs linked to the sale of that salmon, not an increase in revenue: lower product recalls, spoilage, waste, loss rate, packaging waste, staff overtime, audits, etc,” he said.
Incentivising change
With regards to increasing traceability levels, Planet Tracker has identified that traceability-readiness is correlated to income levels. As such, it believes efforts dedicated to improving income levels could be effective ways to reduce some of the obstacles to traceability readiness in many parts of the world, including incentives to fish illegally or high corruption levels.
However, the report acknowledges that the “elephant in the traceability room” is that a very significant proportion of the current seafood production cannot realistically be traceable without a change in the conditions in which it is produced, due to an absence of incentives to become traceable. This, it states, is mainly the case for IUU fish, with harvesters of IUU fish and the supply chains that depend on them having no incentives for this fish to be traceable. This is estimated to represent around 20% of the world’s seafood production.
Another pattern is that traceability-ready is around seven times greater in high income countries than in low-income countries. There are exceptions, though, and this is where the sustainability of the fish produced particularly matters, it states, giving the example that more non-traceability-ready fish is produced in the UK than traceability-ready.
This is because the average environmental sustainability score of Atlantic salmon aquaculture in Scotland was just below the level that Planet Tracker defined as constituting an incentive to be traceable.
It deems the top 10 producing countries with the highest proportion of traceability-ready fish to be Argentina, Cook Islands, Cyprus, Finland, Grenada, Kiribati, Lithuania, Micronesia, Nauru and Tuvalu, while the leading traceability-ready species are Nile tilapia, anchoveta and Alaska pollock.
According to the model, 280 species of seafood are 100% traceability-ready. Out of these, 15 have global production volumes of 100,000 tonnes or more.
Increasing engagement
Planet Tracker also calculates that to ensure all of the traceability-ready seafood production that’s not yet traceable becomes so would require a total investment of $21 billion. This, it reckons, would generate a net earnings uplift of $46 billion.
It also advises that most of the investment necessary would be needed at the end of the supply chain, namely the retail and foodservice sectors. This is due to the very high number of companies operating in these segments.
The report further identifies that seafood companies are at varying degrees of traceability-readiness, and with regards to their willingness to implement traceability. To unlock the 60% increase in profits, it urges companies to ask six key questions:
- What traceability systems are currently in place at the company?
- What is their scope, precision, breadth and depth?
- How interoperable are the company’s traceability systems with those of suppliers and clients? And do they use Global Dialogue on Seafood Traceability (GDST) standards?
- What prevents the company from implementing robust traceability solutions on 100% of its products?
- What would be the investment, costs and benefits to become 100% traceable?
- How can investors and lenders support the transition towards being 100% traceable?
It explains that the sixth question builds on the ever-increasing interest for sustainability-linked loans and bonds in the financial markets.
Planet Tracker therefore suggests that companies make time-bound commitments to achieve a certain level of traceability – e.g., “by 2025, 95% of the seafood we sell in volume terms will be traceable from farm/fishing vessel to plate” – and use this as a KPI on which to issue a linked loan or bond.
Furthermore, it adds that governments can help by relocating harmful subsidies towards traceability investments and by introducing comprehensive traceability-related regulations.
