International Comparative Analysisfor the Scottish Fish Industry

Final Report

7 November 2002

Submitted toScottish Enterpriseon behalf of theScottish Fish Industry Project Working Group

Submitted byICF Consulting

CONTENTS

1. INTRODUCTION AND APPROACH......................................................

2. SCOTLAND’S OVERSEAS COMPETITORS......................................................... 6

3. ISSUES FOR THE SCOTTISH FISH INDUSTRY TODAY................................... 10

4. DENMARK.............................................................................................................. 22

5. CANADIAN MARITIMES....................................................................................... 32

6. NORWAY................................................................................................................ 42

7. SCOTLAND IN PERSPECTIVE ............................................................................ 56

8. IMPLICATIONS...................................................................................................... 67

1. INTRODUCTION AND APPROACH

The Scottish fish industry is passing through turbulent times. Limited stocks,constraints on catching, varying supplies at volatile prices, and increasing globalcompetition challenge long-established business practices—as well as long-established ways of life in communities traditionally dependent on the industry.

But Scotland is not alone. The fish industries in many other countries are confrontedwith comparable challenges. Each country’s industry has been compelled to react,some have sought to respond proactively, and some have even been able to seenew opportunity in the turbulence. What can Scotland’s fish industry learn from fishindustries elsewhere in these times? Which responses taken elsewhere would beinstructive for Scotland’s industry, and which might even be transferable in someway? How is the Scottish fish industry truly faring, compared to its overseascounterparts?

These are the questions that motivated the international comparative analysis whoseproceedings and findings are summarized in this report. This first chapter describesthe context and objectives of this analysis, then explains the approach and activitiesundertaken.

THE SCOTTISH FISH INDUSTRY PROJECT

In December 2000, with a sense of urgency brought on by substantial cut-backs incatch quotas for key species, the SEERAD fisheries minister called for developing acomprehensive economic picture of the entire Scottish fish industry. The aim was tofill a perceived gap in the availability of coherent information on which to base sounddecisions about securing the industry’s long-term future. Scottish Enterprise wasassigned the leadership role.

The plan was for the Scottish Fish Industry Project to have two phases. In the first,multiple studies, analyses, and research and data-gathering activities were to beconducted to bring together information from many different sources, old and new.The second phase would use the information and analyses to develop strategicoptions for the industry. A working group was formed to orchestrate the project;included were representatives of SEERAD, Scottish Enterprise, Highlands & IslandsEnterprise, the Sea Fish Industry Authority, and the Clydesdale Bank. Extensiveconsultation with industry was to be included throughout the project.

The international comparative analysis is amongst the most important of theanalyses and research activities being conducted in the first phase. It was precededby, and takes advantage of, a preliminary review by the working group of industrystrengths, weaknesses, opportunities, and threats. The working group also looked atthe political, economic, social, and technical factors influencing the industry atpresent and most likely to exert influence in the future. Industry views were solicitedin writing in an initial public consultation.

Several analyses have been in progress concurrent with the internationalcomparative analysis, notably analyses of industry financing and the compilation ofdata on industry costs and earnings. Whilst the formulation of strategic options willawait the completion of all relevant analyses, the international comparative analysisis expected to be one of the more important sources for ideas about strategicoptions.

OBJECTIVES

The objectives of the international comparative analysis were two-fold:

(1) To better understand the Scottish industry, its structure and itsdynamics, by allowing for comparison with the fish industries of othercountries;

(2) To understand how the fish industries of other countries are dealing withchallenges comparable to those Scotland’s industry faces—so as to beable to institute analogous measures and practices in Scotland, adjustedas appropriate to the Scottish context.

Practices, measures, and strategies that were successful elsewhere, and that couldbe transferred to or replicated within Scotland, would be especially valuable toidentify. The wrong turns made in other countries could also be instructive.Government was to be given no less critical scrutiny than any other part of theindustry. Consistent with the objectives of the Scottish Fish Industry Project overall,the focus was on issues, practices, and measures critical to long-term economicviability.

Whatever might emerge, the findings of the international comparative analysis wereintended to be practical rather than academic—lessons that could be applied andturned into practice in Scotland, whether by government, trade associations,companies in any sector, or individuals employed in the industry. The Scottishindustry was to be compared in a quantitative or objective manner against overseasfish industries (“benchmarked”) not only to show how the Scottish industry is faring ingeneral, but also to reveal similarities and differences that highlight where theScottish industry might benefit most from adopting practices observed in othercountries.

Policy issues that are outside the direct control of Scottish industry or government(e.g., EU fisheries management policy and its implementation by the UKgovernment) are not addressed. Nor are natural resource constraints. The aim is tounderstand what might be done strategically given existing physical resourceconstraints and uncontrollable inter-governmental policies. The focus is on long-term, persistent issues and long-lasting solutions rather than the handling of anyparticular crisis (e.g., the threat of an EU moratorium on demersal fisheries in theNortheast Atlantic, the crisis facing the industry as this report is issued).

APPROACH

The core of the international comparative analysis was to be the detailed analysis ofthree overseas fish industries conducted mainly by means of study visits to eachcountry. The study visits were to be conducted by teams comprising working groupmembers and industry representatives.

Given the importance of the study visits to the overall analysis, as well as the factthat the industry representatives on the study visit teams would have to take a weekoff from their regular jobs to participate, much care was invested in selecting thethree overseas fish industries to analyse in detail. Two initial analyses wereconducted to provide a basis for the selection.

> First, all of the country fish industries that could realistically be consideredcandidates for the detailed study visits were arrayed against each other andscreened on the basis of some two dozen criteria. The initial “long-list” included20 candidates (the United States and Canada were each treated as having two“country” fish industries, one Atlantic, the other Pacific). The aim of the screeningwas to narrow the list to eight for more-thorough screening. Data for this analysiswere derived mostly from reference sources for the global fish industry (e.g., FAOreviews).

> The eight country fish industries in the “short-list” were then compared closely tocome up with a solid grounds for selecting three for study visit. At issue waswhich country fish industries might be (a) most instructive to visit and (b) mostlikely to provide insights or lessons that would be replicable, i.e., could beapplied, in Scotland. Data for this analysis were derived from in-country sourcesidentified through a fairly extensive literature search.

The working group used the results of the “short-list” analysis to select threecountries for detailed analysis and four- to five-day study visits. In planning the studyvisits, care was taken to capture a broad cross-section of the industry. Specialattention, however, was to be given to aspects of each industry identified in the“short-list” analysis as potentially most instructive, as well as to what industryrepresentatives on the study visit team believed would be of most value. Interviewsand meetings were arranged with people and organizations across all sectors of theindustry, including companies in a variety of locations, research and financinginstitutions, government agencies, and industry analysts. Personalrecommendations for the best people to see were often relied upon.

A good deal of additional information on the fish industry in each of the threecountries was identified through the study visits. This information was combined withthe findings of the study visit to produce this report.

KEY CONCEPTS

There are a number of terms used in this report that have special meanings. That isbecause a particular conceptual framework underlies the analyses. At the centre ofthis framework is the recognition that industry “clusters” are the drivers of strongregional economies. The industry cluster framework has been quite widely used inthe economic development world since articulated by Michael Porter in the early1990s, but the basic concepts had been worked out and were being applied decades

earlier by others, including the principals of what is now ICF Consulting’s economicdevelopment practice.

So a fish “industry,” as the term is used in this report, is to be understood really as a“cluster” that encompasses not only the companies that catch or farm or process orsell fish and seafood products, but also the suppliers to these companies (forexample, suppliers of fishing gear or fish feed). Further, the industry cluster includesinstitutions and resources relied upon by any company in the industry. Included arehuman resources and the institutions that generate them, such as training schoolsand universities. Also included are sources of financing, sources of knowledge andtechnology (e.g., research institutions), and physicalinfrastructure. The government institutions thatregulate the industry and can provide supportthrough any number of means, financing amongstthem, are also included in the cluster.

ICF envisages an industry cluster as having threelayers. The topmost layer consists of the primaryproducing companies, notably those that exportfrom the region (or metropolitan area or country, asthe case may be) and bring wealth back into the region. Beneath these companiesare supplier companies. The bottom-most layer are the institutions andresources—the economic input foundations—underlying any and every companyin the industry. Usually a regional economy will revolve around a few industryclusters, each in some concentration. A concentration of companies and supportinginstitutions in some geographic proximity makes for a pooling of resources, aconstant exchange of know-how and information amongst people, and a division ofspecialities that can make an industry in one location more productive andcompetitive than its counterparts elsewhere.

So this international comparative analysis looked for overseas fish industries thathad formed effective, functioning clusters, and that were reaping the benefits. Astrong cluster has depth and breadth. Depth comes from including companies andinstitutions that encompass the full “value chain.” The value chain is the verticalarray in which value is added to a product, starting with research and development,rising through manufacturing or production, and ending with marketing, distribution,and sales. A broad cluster has a diversity of industry specialities and sectors (e.g.,wild catch and aquaculture; pelagic products for human consumption as well as forindustrial uses).

Clusters can be strengthened by building their depth and breadth, by increasing theirrate of growth, and by trying to fill any gaps in the make-up of an effectivelyfunctioning cluster in the particular industry. They canalso be strengthened by tightening the connectionsbetween their existing components and by expandingnetworks. In ICF’s experience, the key to a strongcluster is to have strong economic foundations, meaningmuch of the strength of the companies in an industryderives from the shared resources and institutions theytap. Stronger clusters are more competitive, able to hold

The “fish industry,” properlyunderstood, includes not onlythe catchers and processors,but also the farmers, thesuppliers of equipment andservices—and the institutionsand resources on which anycompany in the industry relies.

This internationalcomparative analysislooked for overseas fishindustries that had formedeffective, functioningclusters, and werereaping the benefits.

their own against foreign competition. They are also able to evolve and adapt asmarket conditions, technology, and the external environment change over time.Whilst the strength of an industry cluster should show in its performance, usually thedetails that make for a strong cluster can be discerned only by speaking with thepeople in leading positions in the industry. That is why study visits were necessaryfor this to be a meaningful analysis.

ORGANIZATION OF THIS REPORT

The next chapter of this report summarizes the findings of the long-list and short-listanalysis. Thereafter, Chapter 3 reviews the main issues the Scottish fish industry isfacing today. On that basis, separate chapters are devoted to the fish industries inDenmark, the Canadian Maritimes, and Norway respectively. Chapter 7“benchmarks” the Scottish fish industry against these three overseas counterpartswith respect to the issues facing the Scottish industry. A final chapter discussed theimplications of the analyses for a strategy to sustain the economic viability of theScottish fish industry.

2. SCOTLAND’S OVERSEAS COMPETITORS

The main purpose of the two preliminary analyses was to provide a sound basis forselecting three country fish industries for detailed analysis including study visits.There was a second purpose, too, especially for the examinations of the eight “short-list” fish industries: to learn what could be learned fairly quickly about a goodnumber of other country fish industries. Summaries of the results of these twopreliminary analyses are presented in this chapter.

THE LONG-LIST ANALYSIS

The first step in this exercise was to compile a list of some two dozen candidate fishindustries to analyse with the criteria. The countries included were identified basedon discussions between ICF Consulting and members of the Scottish Fish IndustryProject working group, in particular from Scottish Enterprise and the Sea FishIndustry Authority, relying on background knowledge and professional judgment.Several countries initially selected were subsequently dropped from consideration.The Russian industry, for example, was regarded as in too much a state of flux tostand a realistic chance of making the short (or even long) list, despite its size andposition in global markets. The UK industry was included as a whole (to allow for thepossibility of comparison with the English, Welsh, and Northern Ireland fishindustries).

The 20 candidates that remained were then analysed against screening criteriaindicative of a fish industry facing challenges comparable to those the Scottishindustry faces, employing novel techniques or “best practices” for addressing suchchallenges, enjoying noteworthy success in recent years, or otherwise seeming to beespecially competitive in global markets. The criteria included landings and ex-vessel value; degree of secondary value-added processing; fisheries managementregime; domestic consumption; and other quantitative and qualitative criteria. Theresult was the identification of a “long-list” of eight fish industries meriting furtherconsideration as candidates for the study visits.

The following were the 20 countries analysed. Those on the left came through thescreening and were put on the long-list for further analysis.

JapanIcelandCanadian MaritimesNorwayChileNew ZealandDenmarkThailand

GreeceAlaskaNew EnglandSpainPeruUKIrelandKoreaFranceMexicoChinaSouth Africa

THE SHORT-LIST ANALYSIS

Profiles were developed for each of the eight country fish industries on the long-list,presenting information on a good number of indicators, to identify a “short-list” ofthree country industries for the study visits and detailed analysis. The first indicatorwas “success,” which in itself is indicative of potential instructiveness, but is alsowhat the other indicators were, in part, supposed to explain. The remainingindicators were in three groups. Some indicators related to aspects of the industrythat are under the control of the government or international agreements. Somerelated to aspects of the industry that are under the control of each individual firm. Inthe middle were those that relate to aspects of the industry that are under the controlof, or pertain to, only a number of firms jointly or even the industry as a whole(understanding the scope of “industry” in cluster-terms). There is plenty of overlap,of course: no aspect of a fish industry is ever entirely under the control of, orpertinent to, decision-making by an individual firm vs. the industry or the government,and so on. The intent was to make clear whether it is government, individual firms,or the fish industry as a whole that would be in a position to apply the insights andpractices to which an indicator might point. The profiles developed were extensive,ranging from eight to 20 pages each.

The eight overseas fish industries were then ranked very broadly on a 1-3 scale byindicator. Potential instructiveness was the main criterion for ranking one fishindustry higher than another, subject to the condition that the lessons acquired, andthe good practices observed, would be applicable and replicable in Scotland. Onthat basis, recommendations were offered to the working group, along with someoptions, acknowledging that considerations of time and cost would certainly play arole in choosing where the study visits should be conducted.

The four tables that follow summarize the results of the rankings, with explanatorycomments. Note that lower scores are better. The combined scoring distinguishestwo ranks of fish industry candidates: Denmark, Iceland, New Zealand, and Norwayon the one side, the Canadian Maritimes, Chile, Japan, and Thailand on the other.Because it did not make sense to include both Iceland and Norway in the studyvisits, and because New Zealand would be too time-consuming to visit, the workinggroup selected Denmark, Norway, and the Canadian Maritimes for the short list.

Success Scoring*

COUNTRY FISH INDUSTRY SCORE COMMENTS

Canadian Maritimes 2Profitable niches, but not global player.Success diversifying to replace cod.

Chile 2Rapid export growth, but undiversified; nowdeveloping abalone export business.

Denmark 2Norway’s principal export market for processing& re-export.

Iceland 1Export strength—mainly demersal species. fromwild catch—disproportionate to size.

Japan 3Largest fish importer.

New Zealand 1Far from export markets, yet continued growthin exports.

Norway 1No. 2 exporter worldwide. Besides salmon,major exporter of pelagics.

Thailand 1No. 1 exporter worldwide; controlling shares intiger prawns, canned tuna.

*Lower scores are better.

Government-Level Indicators Scoring

COUNTRY FISH INDUSTRY SCORE COMMENTS

Canadian Maritimes 3Welfare policies promote inefficient processingsector. Federal-province jurisdictional overlaps.

Chile 3Industry success may be attributable to alaissez-faire approach rather than policies orsupport.

Denmark 1Potentially most instructive for Scotlandbecause only other EU member.

Iceland 2Successful policies, but replicability in any othercountry questionable.

Japan 3An industry substantially subsidized bygovernment.

New Zealand 1Cost-recovery of financial support, otherinnovative policies, offer applicable lessons.

Norway 1Government promotes R&D and education.Government role in industry declining.

Thailand 3Company strategies seem to drive exportsuccess; government role may be limited.

Cluster-Level Indicators Scoring

COUNTRY FISH INDUSTRY SCORE COMMENTS

Canadian Maritimes 2Emerging cluster in Nova Scotia; little clusterdevelopment elsewhere.

Chile 3Technology, equipment imported; low skill levelin workforce.

Denmark 1Explicit cluster strategy; collaboration yieldednew technologies; international organizationsthere.

Iceland 1 Exports home-grown technologies & know-how.

Japan 2High degree of corporate vertical integration,local cooperatives; no export competitiveness.

New Zealand 2High degree of concentration; ample economicspin-off.

Norway 2Effective collaboration & planning; limitedvalue-added.

Thailand 3Individual companies drive industry; know-how& technology imported.

Firm-Level Indicators Scoring

COUNTRY FISH INDUSTRY SCORE COMMENTS

Canadian Maritimes 3 Economic rationalization still underway.

Chile 1 Adroit aquaculture companies drive industry.

Denmark 2Some processors strong; catching companieshampered by old fleet, EC rules.

Iceland 1Modern catching sector, strong companies;rectifying lack of aquaculture.

Japan 2Large integrated companies market product;catching sector diffuse and localized.

New Zealand 1Companies investing heavily, consolidating incontrolled way, building aquaculture.

Norway 1Very strong aquaculture sector; emphasis onquality.

Thailand 2Very strong in processing & distribution;catching & farming a cottage industry.

Combined Scoring

COUNTRY FISH INDUSTRY SCORE APPLICABILITY COMMENTS

Canadian Maritimes 10 Commonwealth member.

Chile 9 Emerging economy.

Denmark 6 EU member.

Iceland 5 Nordic.

Japan 10 Sales target.

New Zealand 5 Commonwealth member.

Norway 5 Nordic.

Thailand 9 Emerging economy.

3. ISSUES FOR THE SCOTTISH FISH INDUSTRY TODAY

Anyone familiar with the Scottish fish industry can recite a litany of issueschallenging the industry and raising questions about its long-term economic viability.Usually the issues first on the lips of anyone directly employed in the industry arethose that each and every day complicate the running of a financially rewarding andprofessionally fulfilling business. Usually, too, the issues are on the supply side,regardless of sector. For the fisherman, quota schemes colour every other aspect ofthe business. For many processors, the availability of sufficient quantities of rawmaterial (fish) is a daily challenge. Comparable examples could be cited all up anddown the industry value-chain. These daily issues lead to long-term financial woesdistinctive to each sector of the industry.

Other issues lie below the surface of day-to-day business. These issues are notroutinely highlighted in trade journals or featured explicitly in studies, but they areanalysed and acknowledged by most people immersed in the industry. Sometimesthey are very fundamental. There is not much dissent about what in general theyare, though opinions differ about their relative importance and how they should beaddressed. The best way to identify these issues is simply to talk with peopleworking in the industry. Ideally the discussions should include people from differentparts of the industry and having different perspectives on the issues.

The issues described in this chapter were identified partly by means of the analysesconducted by the Scottish Fish Industry Project working group. They were givenmore shape in the discussions with and amongst the participants in the study visits,notably the industry representatives. Often the questions raised by the Scottish sideduring interviews were very revealing of underlying concerns. The issues were thenaddressed squarely in interviews in Scotland with representatives of various aspectsof the fish industry, backed by analysis of documented data and information.

These issues confronting the Scottish fish industry provided shape and focus to thestudy visits to Denmark, Norway, and the Canadian Maritimes. They helped inidentifying the right people and organizations to interview, and they dictated many ofthe questions on which the interviews concentrated. They are described here, brieflyand in general terms, so as to make clear why the study visits focused on certainaspects rather than others of the overseas fish industries. The separate chapters oneach of the three study visits make reference to these issues throughout.Thereafter, Chapter 7 provides some measure of these issues in Scotland bybenchmarking relevant characteristics of the Scottish fish industry against the threeoverseas industries.

There are four main issues, each surrounded by a set of related issues or sub-issues:

> Stock depletion;

> Morale;

> Production orientation; and

> Fragmentation.

STOCK DEPLETION

Issue 1: Stock Depletion

Once valued for the freedom it afforded, the catching sector is today highlycontrolled. The root cause, of course, is that fish stocks are a finite resource whosesustainable levels of exploitation have already been reached for many species inmany waters. The consequences are felt most acutely in the catching sector, butextend one way or another to every sector of the industry. The consequences arenot all negative; depleted wild stocks combined with growing demand has madeaquaculture a viable industry.

The European Commission’s Green Paper on the future of the common fisheriespolicy assesses the current state of the world fishery resources very concisely:

• “almost all groundfish stocks have declined and the current harvest is in mostcases not sustainable;

• several flatfish stocks are harvested at excessively high levels but some areclose to sustainable levels;

• pelagic species and species subject to fishing for industrial purposes are in bettercondition but harvest rates need to be maintained at current levels or reduced tosecure sustainability;

• several deep-sea species show signs of overexploitation and some might havereached critical levels.”1

The finfish species and fishing grounds most important to the Scottish industry are inline with the norm. Cod stocks have declined in most areas, for example, and sohave whiting, but haddock stocks are in better shape despite heavy fishing. Herringstocks are stable or increasing, possibly because stocks of predators have declined.2

Issue 2: Quotas

Faced with ambiguous but irrefutable evidence of over-exploitation of fisheryresources, most countries with fish industries have sought to manage their catchingsectors. In northern hemisphere fisheries, total allowable catches (TACs) are themost common management technique. TACs are usually translated into national,group, or individual quotas. Other common management techniques are controls onfleet capacity, fishing effort, seasons for fishing, areas open for fishing, fishingaccess, and fishing gear.

1 European Commission, Green Paper – The future of the common fisheries policy, 2001. Vol. II, p. 86.2 Ibid., pp 80-82.

Scientific understanding of the growth and decline of fish stocks is presently verylimited, leading to widespread dissatisfaction with virtually every scheme instituted tomanage fisheries resources. In Scotland as elsewhere, many are frustrated by thevery idea of imposing controls on what is considered the inherent right of anyindividual to fish in open waters to whatever extent desired and accept the controlsonly grudgingly. Every management regime has been attacked from one side oranother as illogical or counterproductive; most are probably both in at least somerespects, having incorporated compromises somewhere out of necessity. Despitethe attacks on particular regimes, the necessity for controls is generally accepted;some in the catching and processing sector would welcome tighter controls andenforcement, in fact, as promoting improvements in quality and pricing.

The quota scheme introduced in the UK under the Common Fisheries Policy hasbeen particularly contentious. It is undeniably complicated. In the past severalyears, it has been transformed into a de facto regime of individual transferablequotas for some species, compounding the sense of infringement on individual rightsby compelling fishermen to, in effect, buy property rights to catch fish. ITQs may bethe darlings of economists, who think they provide the latitude (on market principles)to achieve maximum efficiency. But for individual fishermen, ITQs can become afinancial burden restricting both entry to and exit from the fishing business.

Issue 3: Control

Who controls Scotland’s fishery resources? The fisheries management regime towhich the Scottish industry is subject emanates from Brussels, firstly in the form ofthe EU’s Common Fisheries Policy, then annually in the form of the yearly TACs. Toreach the individual Scottish fishermen, decisions made in Brussels must then go toLondon for interpretation and application to the UK as a whole. Then (except for thenon-sector vessels) producers organizations make decisions within the latitude theyare allowed. The result is a sense of powerlessness at every level. The fish industryis not only highly controlled, but controlled many removes away from those whoderive their livelihood from it.

Whilst a daily irritant especially in the catching sector, other sectors of the industryare subject to controls through a similar chain of command. New EU labellingrequirements, once enforced, will affect retailing procedures and, probably, sales.EU traceability requirements, once implemented, will necessitate new procedures forfishers, processors, distributors, and retailers.

The control issue is complicated by the peculiar political visibility the fish industryattracts. On the one hand, the catching sector in most countries enjoys politicalvisibility far in excess of its share of the economy and of the population. That isbecause fishing has long been the mainstay of the economies of many rural andisolated communities, Scotland’s included. Most national governments have policiesof supporting rural communities, which can be important constituencies for nationalpoliticians.

The support may be more intention or appearance than reality. Internationalfisheries management agreements are invariably compromises; each party to theagreement may want to preserve natural resources, but each party will also be

looking out for its own economic and social interests. Because fish catching andprocessing is a small fraction of the national economy in most countries,governments may find it too easy to sacrifice the interests of the fish industry when abargaining chip is needed in international negotiations, e.g., in exchange for a tradeor subsidy concession for the products of some industry more important to theeconomy. The fish industry might have greater political weight if the industry wasmore widely analysed to encompass not just fishing, but all the other parts of thevalue-chain analysed by the Scottish Fish Industry Project, and to be an increasinglyglobal industry with potentially significant export potential.

Issue 4: Growth in Global Demand

At the same time as the limits to sustainable wild catch seem to have been reached,global demand for fish and seafood continues to grow. One reason is that risingnational incomes in developing countries put protein foods increasingly within thereach of more consumers. Another, especially in developed countries, is that thehealth benefits of eating seafood are becoming more widely analysed andpublicized. Developments in food technology, matched by social factors such asgrowing numbers of dual-income families, have made value-added items (e.g.,coated fish products) a fast-growing industry, especially in the EU and NorthAmerica.

According to the FAO,3 average apparent per capita consumption of food fishincreased globally from nine kg per year in the early 1960s to 16 kg in 1997. Inindustrialized countries, the apparent increase in consumption was from 19.7 to 27.7kg per year. About one-third by weight of all fish production enters internationaltrade.

MORALE

Issue 5: Morale

Morale in the Scottish fish industry is low overall. Challenges, complications, andset-backs in each sector have contributed. Fishers have to deal with quotas,equipment restrictions, aging boats, lower returns for crew, and new financialburdens for boat owners that seem to leave no escape route. Many processors arein poor financial health, faced with raw material shortages, new regulatoryrequirements, and increasing competition. The price of salmon, the mainstay ofScottish aquaculture, is at an all-time low. The retail sector has witnessed thegrowth in influence of the big UK supermarket chains and the disappearance ofindependent fishmongers.

Adding to these woes is the continuous temptation to violate catch limits and rules.Those who succumb, if otherwise law-abiding, do not feel very good aboutthemselves.

3 Food and Agriculture Organization of the United Nations, The State of World Fisheries and Aquaculture 2000,Part I, pp. 34-36.

These remarks are not entirely applicable to the pelagic industry these days. Havingpassed already through a painful restructuring, the pelagic fleet is relatively modernand processing capacity is better matched to supply. Stocks of herring, mackerel,and other key species are ample this year, and demand is strong. But those in theindustry know how variable the supply can be from one year to the next. They alsosee up to 80 percent of the fish caught by Scottish boats being landed in othercountries (Norway in particular), where prices are higher and off-loading facilities arebetter. (Landing fees may also be a factor.) The quality of the fish landed in Scottishports is inconsistent, some say. Port infrastructure and processing facilities areconsidered in many cases to be substandard.

At the same time, the public image of the fish industry has been suffering. Theaquaculture industry is under attack, accused of despoiling the environment.Fishermen are viewed as having depleted a natural resource for profit. Chemicals incrustacean imports and disease in domestic scallop stocks have raised concerns inthe public mind about seafood safety. A questionable public image can be dispiritingto anyone devoted to an industry.

Issue 6: Quality of Life

The rapid evolution of the global fish industry has threatened the traditional quality oflife of many in the Scottish fish industry. That in itself is usually very demoralizing.An industry that used to be very hospitable to a type of individualism—fishermen onsmall boats, processors convening daily at the local auction, fish mongers—iswitnessing consolidation, high capital demands for entry, control from afar, andincreased competition from abroad.

The consequence, with regard to the future economic viability of the Scottishindustry, is that many who have grown up in the industry look backwards, longing for“the good old days” and hoping to recreate those days even in changedcircumstances. The increasing demand for the industry’s main product is growingworldwide, which means that the opportunities in the industry are definitely still there,but they are different opportunities than in the past. Individualism may still be prized,too, but it is a different individualism, that of the entrepreneur. Only by lookingforward with positive expectations, however, can the opportunities be seen andseized.

Issue 7: “New Blood”

The Scottish fish industry will have no future if young people do not choose to enterthe industry and build careers within it. In recent years, fewer young people havemade this choice. The result is an aging workforce. Further, it is a workforce whoseeducation and training decades ago may be ill-suited for the demands of today’sworkplace.

The Scottish fish industry is far from unique in this respect, as noted in the chaptersthat follow and in the benchmarking in Chapter 7 below. But other countries,recognizing the serious implications of this situation for the future of the industry,have been quicker to take steps to reverse it.

The reasons why young people choose not to make a career of the fish industry arenot difficult to discern. Fishing is dangerous and physically strenuous; processing isunpleasant and increasingly automated anyway; profitability is uncertain; the publicimage is negative; and there are more attractive alternatives—oil in Scotland,windmills in Denmark, computers everywhere. The traditional career path—go tosea first as crew, work towards becoming a skipper and owning a boat so as to getthe biggest share of catch revenues—looks to be blocked by the high cost of entry,which requires eventually the purchase of a boat, license, and track record (i.e.,catch quota). There are few fishermen today who encourage their sons to go intofishing, telling them instead to do anything except become fishermen.

Issue 8: Professionalism

A modern, competitive fish industry demands levels of training and education thatwere dispensable in favour of “on-the-job training” in years past. Aquaculture is bothart and science, and for all species except perhaps salmon, the science is stillexperimental. The bridge of a modernfishing boat, especially the large pelagictrawlers, is laden with electroniccommunications and fish-locating gear.Because fish processing is increasinglyautomated, mechanical maintenance andrepair skills are increasingly in demand forline workers. Seafood productiontechnology has been advancing rapidly,making new products available toconsumers. Fish oils and by-products are generating interest for applications inbiotechnology. E-commerce has begun to appear in most aspects of the industryand can be expected to expand its reach.

Scotland can hardly be said to be a leader in producing a professional workforce forthe future fish industry. Training requirements for crew are negligible (limited tothree days of safety training), and there are only a couple of professional trainingschools (e.g., the North Atlantic Fishery College in the Shetlands). Efforts are newlyunderway (e.g., through the Group Training Associations) to strengthen trainingofferings and training requirements, evidence that the need is analysed within theindustry.

PRODUCTION ORIENTATION

Issue 9: Production Orientation

Business practice throughout the Scottish fish industry is oriented predominantly,though far from universally, towards considerations of supply and production.Business strategy and decision-making reflects this orientation; the fish industry issupply-led. Processors are focused on obtaining adequate supplies, and when theycan, they aim to process as much as they can. The job of the fisherman is to catchfish; once the fish are landed, the job is done, and what happens next to the fish isnot of their concern. What a company does is what it has always done; changes aredriven by opportunities to increase efficiency, lower costs, or add value.

The Scottish fish industry will have nofuture if young people do not chooseto enter and build careers within theindustry. . . . Yet a moderncompetitive fish industry demandslevels of training and education thatwere dispensable in favour of “on-the-job” training in years past.

These are gross generalizations, of course, but they are voiced by many who worryabout the future of the Scottish fish industry and think it could do better. Underlyingthe concern is the suspicion that a production orientation may not be in the bestinterests of the industry in the long term. The alternative is a customer or demandorientation, one in which business decisions are based on what the customer wantsor needs rather than what a company can do or what supply it can obtain. Thedistinction is most clearly seen by comparing how one company versus another inthe same sector makes decisions about business strategy. The study visits,especially to Norway, provided some good examples.

Issue 10: Domestic Demand

Companies that succeed in a highly discriminating home market are well-prepared tosucceed in international competition. If the domestic market does not expect much,a company with a domestic customer-base can succeed without having to meet highstandards. But that company will probably not do well when pitted against foreigncompetitors who have had to meet stiff competition or satisfy highly discriminatingcustomers at home to survive. This point is a commonplace of competitivenessstrategists; the example usually cited first is the American automobile industry afterthe war, which stumbled when foreign competitors appeared in the home market. Itis increasingly relevant to the Scottish fish industry as foreign competitors look to UKmarkets for growth opportunities and compete against Scottish suppliers of rawmaterials as well as fish products.

The concern is that the UK market does not have high standards for seafoodproducts, and the average UK seafood customer is far from discriminating. Mostsupermarket sales are of coated convenience products; fish mongers are now few innumber. In consequence, Scottish companies may be ill-prepared to face increasingforeign competition in a market where they should otherwise have a competitiveadvantage by virtue of proximity. To whatever extent UK demand grows andstandards rise, Scottish companies may not be as well-prepared as their foreigncompetitors to capture the opportunities created, or even to maintain their positionsin the market.

Issue 11: Quality

Product quality is a critical issue because the Scottish “brand” consists in good partof a reputation for quality. Consumers distinguish Scottish products from productssourced elsewhere on the basis of perceived quality, an especially importantconsideration when Scottish companies cannot match the low production costsobtainable in developing countries and so cannot compete on price.

The Scottish reputation for quality seems to be intact in end-markets, i.e., amongstretail consumers. Within the Scottish fish industry itself, however, there is concernthat product quality is not what it should be, or at least is not up to the samestandards as in other countries. Some claim that fish that would be turned awayfrom Norwegian or Danish ports on quality grounds may be landed in Scottish ports,and will always find a buyer, because standards are not enforced as aggressively inScotland, and because demand is less discriminating. Pelagic fish buyers for the

Japanese market, where demand may be the most discriminating, do not come firstto Scottish ports, and there are reports that the Scottish reputation for quality isquestionable amongst Japanese wholesale buyers. Health and hygiene inspectionsof processing plants are infrequent, and approval comes easily, so processors whoshould have exited the industry long ago remain in business, damaging the standingof the Scottish processing industry overall, in the opinion of some Scottish observers.

Issue 12: Supply Continuity

In the Scottish fish industry, as in any other fish industry, continuity of supply is thelynchpin of efficiency and profitability improvements at every step of the value chain.Sometimes continuity is not necessary so long as a supply is predictable andreliable. Retailers, for example, know from their experience with farmed salmon thatthe continuous availability of a product in their wet fish displays allows the market forthe product to be built far more easily. That experience has increased retailers’eagerness to see farmed white fish products becomecommercialized. In the interim, smart retailers turn todistributors who can guarantee a supply of differentspecies of wet white fish throughout the year(scheduled in line with fishing seasons). Thosedistributors must ensure their own supplies, in turn,which generally means having a variety of sources, including back-up options.Farther down the supply chain, processors benefit from advance notice of landings,which enables factories to be staffed and geared up for the right kind of production.Scottish white fish processors complain that Scottish fishermen are still highlyreluctant to provide advance notice of landings.

Issue 13: Aquaculture

The growing global demand for food fish, combined with the natural limits to the wildresource, results in growing demand for farmed product. China is the worldwideleader in aquaculture production, but its industry to date has been centred on low-value freshwater finfish species such as carp which have little export potential forEuropean and North American markets (Chinese tilapia, however, is now penetratingthese markets). More important in European and North American markets are high-value crustaceans such as tiger prawns (the production of which is dominated byThailand), and salmon, the leading finfish aquaculture product.

Scotland has developed a sizable salmon aquaculture industry whose products arewell-regarded on world markets. Trout are also farmed in quantity. Research is nowunderway on various marine finfish species, notably halibut, haddock, and cod. Butit is an industry whose growth potential may be limited. The Scottish coast has onlyso many suitable locations for saltwater finfish aquaculture, and there is concern thebest locations are already taken. Off-shore aquaculture is still not cost-effective, andthe potential of sea ranching is just being explored. Inland pond farming offreshwater species has been limited so far, whatever its potential might be.Meanwhile the environmental impacts of aquaculture, an issue that has received agreat deal of domestic media attention, mostly negative, is starting to dominatepublic perceptions of the industry. Mollusc mariculture, which does not have the

Continuity (or, at least,predictability) of supply is thelynchpin of efficiency andprofitability at every step ofthe fish industry value-chain.

same environmental impacts as saltwater finfish farming, has been developed withless fanfare but reasonable success.

Issue 14: Assets

The core assets of the fish industry are the fleet, port facilities, processing facilities,and the people employed in the industry. All are aging. All have been said to beover-capacity. Port facilities (e.g., Peterhead) presently have little space for growthand facilities that lag behind international state-of-the-art. For the industry to stayeconomically viable in the long-term, all must be rejuvenated, modernized, andbrought into line with both supply and demand. The parlous state of the Scottishfish industry’s assets is a particularly acute issue in the white fish sector, where itpervades daily operations and concerns. Fleet streamlining and modernization arebeing addressed by a number of initiatives, notably a UK decommissioning schemeinstituted too recently for its effectiveness to be gauged. A marked downturn in theprocessing sector created a sense of urgency that led in December 2000 to thecreation of a Scottish Fish Processing Action Group and a plan for initiatives toreduce capacity, increase efficiency, and relieve financial pressures. Here again, itis too soon to say what the results might be. The rejuvenation of the workforceacross all sectors (see Issue 7 above) appears not to have generated equal concernor been addressed as squarely. Whilst these assets are all tangible, responsibilitiesfor making improvements are intangible and diffuse, spread across the public sector,the industry as a whole, individual firms, and individuals.

Issue 15: Value-Added

Is the Scottish fish industry maximizing opportunities to add value to its products andthereby maximize the economic benefits of its fish resource, creating more jobs,keeping more of the return within Scottish borders? This is a question raised inmyriad contexts; a declining resource base makes it especially important.Secondary processing can add significant value to a seafood product, but it appearsthat a significant fraction of the fish landed in Scotland receives only limited primaryprocessing before being trucked south to Grimsby for secondary processing.Scottish processors look for ways to add further value to their products, anticipatingincreases not only in revenues but also in profitability: coated products and other

convenience foods fetch significantlyhigher prices than wet or frozen fishwith relatively little additionalproduction cost.

There are a variety of ways to increase value-added. Additional processing is onlyone. Quality improvements can result in higher prices for product. Changes inproduct lines to capture strong consumer demand can have the same result. Noneof these ways will work in all circumstances and can easily be counter-productive inthe wrong circumstances. In the broadest terms, the best way to increase value inany industry these days is through the input of knowledge. Knowledge inputs comefrom research and development (e.g., of new farmed species), from marketing anddistribution (e.g., advertising to open new markets), from technology (e.g., betterprocessing equipment), from workforce education and training, and from a variety ofother sources.

The best way to increase value in anyindustry these days is through the input ofknowledge.

FRAGMENTATION

Issue 16: Fragmentation

To many within the industry or observing from without, the Scottish fish industryseems curiously disjointed. The different parts of the industry appear sometimes tobe headed in different directions, or worse, just pushed passively and randomly inthese turbulent times. Rather than taking advantage of opportunities to support oneanother, whole sectors seem to be working at cross-purposes. Governmentagencies each have their own agendas and are far from synchronized with industry’sneeds and expectations. Communications between the various sectors are limited.Rarely is the industry understood as more than catching and processing, as reallyextending to retailing, and one component of the broader food industry.

These are not the complaints of advocates of central planning or industrial policy. Itseems that they are impressions generated partly by seeing from a distance whatsome overseas fish industries have been able to accomplish. When a Thai tigerprawn industry grows so quickly todominate global markets whilst stillmaintaining high prices, it appears theremust be some game-plan everyone in theindustry is clued into. The Chilean andNorwegian industries seem similarly tohave a shared sense of directionthroughout, stumbling at times butrecovering quickly. Even without looking at overseas counterparts, shaky financialperformance within the Scottish industry increases tension between firms andcreates suspicion that support is lacking from the institutions that should be providingit.

Amongst the more striking instances of fragmentation is the divide between theaquaculture and wild catch sectors. The scope of the Sea Fish Industry Authorityextends to aquaculture only if the species farmed are saltwater marine, salmonexcluded, which is to say, most of the Scottish aquaculture sector excluded.Responsibilities in SEERAD for marine fish and aquaculture are divided. Fewpeople in the aquaculture business have moved there out of the wild catch industry.Processing facilities tend to be tied to one sector or the other for supply. There is agood deal of foreign ownership interest of aquaculture businesses.

Issue 17: Insularity

The “insularity” of the Scottish fish industry consists in the limited understanding onesector along the value chain seems to have of the next. Processors allege thatfishermen do not understand or appreciate their needs, and vice-versa; questionsare raised about the relevancy to the industry of the research underway in publicinstitutions. The insularity also consists of limited understanding of the fish industryelsewhere than home. For all the reports in the widely read trade papers andjournals, and for all the ports the fleet may visit, people in the industry still speak ofeyes opening wide at seeing, for example, the quality of the fish in some foreign

The Scottish fish industry seemscuriously fragmented. . . wholesectors working at cross-purposes. . . . Amongst the morestriking instances is the dividebetween the aquaculture and wildcatch sectors.

auction halls or the variety of wet product in foreign market displays. It is eye-opening to learn that an issue described here may not be an issue in an overseasfish industry.

The causes of the insularity are some combination of limited communication, limitedopenness of mind, and limited exposure to people working in other parts of theindustry or in other countries.

Issue 18: Industry/Government Relations

A divide separates industry and government in the Scottish fish industry. Individualsin daily contact may get along well and respect one another, and the term“adversarial” is not often used to describe the relationship, but terms like “mutuallysupportive” or “closely intertwined” are never heard. At the operational level, theScottish government is the enforcer. Some in the industry are not cognizant of areturn from the taxes paid and levies collected. A commonly expressed sentiment isthat London ignores the industry, given license by devolution to redirect funding forScottish institutions to institutions south of the border. Brussels is viewed as theperpetrator of the Common Fisheries Policy, traceability and labelling regulations,and other perceived slights and inequities to which the UK government appears toconsent all too readily. Governments in other countries are thought to providemassive subsidies to their fish industries, to have more oil money to spend on theindustry (e.g., Norway), or to be lax in enforcing their industries (e.g., Spain).

The divide is not hard and fast, however. There is recognition that government couldbe very supportive of the industry, as it is thought to be in other countries. Somepeople in the industry call for stricter enforcement of, for example, hygiene andquality standards, so as to help maintain the reputation of the industry overall.

Issue 19: Information Flow

Information flow is frequently cited as a critical factor in fish industry efficiency andcompetitiveness. Amongst the types of information flow improvementsrecommended for the industry are advance notice of landings, advance notice ofproduct availability to wholesalers and retailers, real-time data collection bygovernment agencies, and a variety of e-commerce applications (e.g., e-auctions).Some of these measures have already been instituted to some extent in somesectors of the Scottish fish industry, but the constant encouragement to increaseinformation flows means that in the opinion of many, there is far more that could bedone, making information flow a key issue for the industry.

Technology improvements are not the only information flow improvements needed,however. Even within an agency like SEERAD, one unit may be unaware of whatthe other is doing, even though responsibilities overlap and the actions of oneimpinge on the other. The divide between wild catch and aquaculture results partlyfrom the limited flow of information between the two sectors. The same can be saidof much of the fragmentation elsewhere in the industry.

Issue 20: Research and Development

To the extent that knowledge is the principal source of value in today’s globaleconomy, and that applied research is the wellspring of knowledge for an industry,the amount and type of research underway in a country is a central issue for long-term economic viability. Not only must the research be underway, it must berelevant to industry needs—and accessible by industry—to be significant forcompetitiveness.

The research issue is very important in Scotland now because there are indicationsthat only a limited amount of research and development related to the fish industry isnow underway. The “development” side of R&D—including commercialization—getsespecially short shrift. Funding from UK government sources has been curtailed.The program for the FRS Marine Research Laboratory is oriented towardsSEERAD’s needs for compliance with EU requirements, meaning that research isfocused on fish stocks and on environmental impacts. That may be entirely fittingwith the mission of the laboratory as an agency serving SEERAD, but it limits therole of this agency in advancing the industry in Scotland. There is research anddevelopment work underway in other organizations that will have direct applicationwithin the industry, some in fact being done in partnership with fish and seafoodproduction and sales companies. The issue is whether this research anddevelopment work is sufficient in extent, scope, relevancy, and applicability to makemuch of a difference in the Scottish fish industry’s future competitiveness.

R&D work underway in other countries could compensate, if the results could beincorporated in Scottish R&D and diffused throughout the Scottish industry, but it isunclear how far exchange with other countries has been developed—and inparticular, whether the exchange that does take place is limited to pure scientificresearch or also extends to development and commercialization activities.

4. DENMARK

Denmark, alone amongst the three countries chosen for detailed analysis, is amember of the EU.4 Its fish industry is, in consequence, subject to the CommonFisheries Policy and the annual TACs emanating from Brussels, though without anintermediary analogous to the UK government. It is roughly the same size asScotland, both in physical extent and in population (about 5.3 million). Its fishindustry has long been the mainstay of small communities scattered around thecoastline. The Danish fish industry faces many of the same issues as does theScottish industry: scarce stocks, an aging demersal fleet and an aging workforce,competition from lower-wage countries, physical and environmental constraints onaquaculture development.

Outwardly, however, the Danish fish industry has been a global leader in certainrespects. Danish fish processors have developed a substantial value-adding re-export business; in 1999, the unit value of fish exported from Denmark was almosttwice that of fish imported to Denmark.5 On a value basis, Denmark is the thirdlargest seafood exporter in the world (after Thailand and Norway). Danishtechnologies and consulting services have global markets. Denmark also has theadvantages of proximity by road to major European markets and what appears to besignificant support from a government that analyses the value of fish and seafoodexports.

What accounts for the success the Danish industry has enjoyed? Is there somethingin the way the industry is structured that has increased its competitiveness andfuture prospects? Is the success illusory? These questions were explored by theScottish study visit team with diverse representatives of Danish companies, tradeorganizations, and public institutions. Upon analysis, three aspects of the Danishfish industry emerged as not only potentially significant influences on long-termindustry performance, but more important, as offering valuable lessons (positive andnegative) for the Scottish industry:

> Recruitment and training initiatives;

> Quality controls;

> Research on seafood technologies.

The first is most important and is the focal point of this chapter. There are manyother aspects of the Danish industry that offer interesting comparison with theScottish industry, but these, and the first especially, are most instructive, and the

4 Greenland and the Faeroe Islands, which are encompassed in the Kingdom of Denmark but are self-governing, are not members of the EU. The Faeroese and Greenland fish industries are generallyconsidered to be separate from the Danish fish industry and were not addressed directly in thisanalysis.5 Yearbook of Fishery Statistics 1999, as cited in the profile of Denmark in the short-list analysisreport.

lessons they offer are applicable and replicable in Scotland—meaning that they areunder the control of one segment of the Scottish industry or another.

There are many other factors affecting the performance of the Danish industry, ofcourse, but it was not the purpose of this analysis to account comprehensively forindustry performance, since many of the influencing factors are external and notunder industry control.

This chapter and the following chapters on the Canadian Maritimes and Norwaybegin with brief overviews of the structure of the industry and the regulatoryenvironment.

OVERVIEW

The discussion in this section outlines the structure of the Danish industry, i.e., thesectors comprising the industry and the extent of cluster formation, and theregulatory environment under which the industry operates. Additional data andinformation on relevant aspects of the industry are provided in the profile of Denmarkin the preceding report, Short-List of Overseas Fish Industries for ComparativeAnalysis, and are not repeated here, except where pertinent to a specific topic.Additional data on the Danish industry (and the Norwegian and Maritimes industries)are also presented in Chapter 7 of this report for purposes of benchmarking theScottish fish industry.

Industry Structure.6 The Danish fish industry employs over 11,000 people full-time,over 6,000 of which are on about 4,500 vessels (70 percent under 10 meters) (datafrom 1998). Industrial landings for fishmeal and oil (from Danish and foreign boats)account for 70 percent of total landings by volume and 30 percent by value. Sandeel is the main species used for industrial purposes; sprat and mackerel are alsoused. The main species landed for human consumption are cod, plaice, herring, andNephrops. Traditional fishing grounds are in the North Sea, Skaggerat/Kattegat, andthe Baltic Sea.

The processing sector includes four large fishmeal and oil factories (a significantreduction in number over the past few years). There are 193 processing factories intotal. Salmon processing for re-export has grown into an important segment of theindustry; in 1999, Denmark imported over 50,000 tonnes of raw salmon, mostly forexport, and mostly from Norway. Denmark is the largest market for Norwegiansalmon exports.

Denmark has had an aquaculture industry for over 100 years, mainly an inlandfreshwater industry centred on trout production for the German market. Freshwateraquaculture production has remained almost constant over the past decade, thoughthere has been growth recently in the grow-out of glass eels, which are processed inDenmark for export to Japan.

Concentrations in the catching and processing sector are in the West and NorthJutland towns of Esbjerg, Hanstholm, Hirtshals, Thyborøn, and Skagen. The first

6 Data in this section are drawn from Green Paper, vol. II, op. cit., pp. 59-61

three locations were included in the study visit. Processing facilities are found inthese towns and in several larger towns that are less important as fishing ports, e.g.,Vejle. Almost all government bodies are located in Copenhagen (the DanishDirectorate of Fisheries has several regional offices in fishing ports). Copenhagen isalso home to two important international membership organizations: ICES, the mainsource of scientific information for the EC bodies that recommend annual TACs, andEurofish (formerly named Eastfish), which promotes the growth of the fish industriesof Eastern European countries.

Cluster Formation. The Danish Ministry of Business and Industry has relied since1993 on an industry cluster framework in developing technology and industrypolicies. The fish industry is regarded, for policy purposes, as part of an agro-industry mega-cluster. A detailed assessment of the extent of cluster formation (e.g.,through firm-by-firm input/output analyses) was beyond the scope of this exercise(better left for academic studies), but evidence was sought for linkages betweenexport firms, suppliers, government, and other public institutions that werepurposeful, consistent, and resulted in competitiveness gains for the industry.Cluster formation was examined both at the national level, considering the countryas a whole, and at the local level, considering specific physical centres of activity(e.g., a fishing port). The returns were mixed. As discussed below, within theDanish fish industry, effective cluster functioning is in evidence with respect toindustry recruitment and training functions, perhaps also with respect to productquality. Government research initiatives that could be aimed at building industrycompetitiveness appear to not to be well-connected to industry in all cases, but tohave good indirect benefits. At a local level, Hirtshals, in northern Jutland, has manyof the components of a well-formed cluster, but at first glance, the components maynot be connecting to great effect. There is negligible vertical integration orconsolidation in the industry (a striking contrast to the Danish dairy industry, whichhas now been consolidated almost entirely into one company).

Regulatory Environment. In contrast to the UK, Denmark has chosen not toapportion its annual quotas regionally, but to retain national quotas. Further, thequotas are not apportioned amongst boats. A boat’s track record, consequently, hasno bearing on permissible catch. Any boat with a license may catch as much as it isable until the national quota is reached, similar to boats in the UK non-sector.

To spread the quota over time, however, the Ministry of Food, Agriculture andFisheries specifies catch limits bimonthly or monthly; the limits are issued morefrequently as the national quota is approached. Decisions on catch limits take intoconsideration the recommendations of an industry advisory committee that meetsmonthly. Danish government officials say that the industry input through thiscommittee helps to obtain industry assent to catch limits.

Total tonnage of the fishing fleet is held to a ceiling as part of an effort to reduce fleetcapacity through a rolling decommissioning program. Because new tonnage can notbe introduced to the fleet, a boat can obtain a license and enter the fleet only if anequal tonnage is taken out. There are reports that tonnage is now being traded.

Vessel capacity is calculated on the basis of tonnage alone, without consideringhorsepower, as does the UK “vessel capacity unit.” Decommissioning is said to

have reduced fleet capacity by 40 percent, but the amount of reduction calculated inVCUs is different: the Denmark Fisheries Directorate (in its 2000 Fishery Statisticspublication) says that since 1987, decommissioning has led to 1,189 vessels leavingthe industry, resulting in a total engine power reduction of 226,366 kilowatts.

ITQs (Individual Transferable Quotas) will be introduced in the pelagic (herring)fishery for a five-year trial run, starting in 2003. The rationale is that ITQs will make iteasier to obtain sizable loans for modernizing the large trawlers in the pelagic fleet,providing lenders some measure and assurance of a revenue stream. ITQs are ascontroversial in Denmark as they are anywhere else. Owners of small boatsopposed their introduction even to the pelagic fleet alone, concerned that the trialwould be the “edge of the wedge” that would result in a takeover of the industry by“big capital.” Only licensed vessels can hold ITQs, and the Danes require that two-thirds of the capital in a licensed boat come from active fishermen; but it is fearedthat “front men” will be used to disguise ownership by investors. Owners of pelagictrawlers and large processors supported the introduction of ITQs, as did the industryadvisory committee.

RECRUITMENT: BRINGING “NEW BLOOD”INTO THE INDUSTRY

The Danish fish industry has been facing the same morale issues as the Scottishindustry, and for the same reasons. Seeing EU-mandated quotas decline each year,and seeing new competitive pressures that are costly to withstand, Danish fishermenhave been discouraging their children from entering the industry. The lure of jobs ina boom industry—in this case, windmills, or furniture, or electronics—helps to drawyouth away. Skippers have had difficulty finding crew. The processing sector,despite a couple of bright spots (more on this below), is in questionable financialhealth, especially the white fish processors. Processors find it difficult to attract

workers. The result is an aging workforce:the average age of boat crew is 52, and theaverage age of skippers is 56.

But the Danes have undertaken a creativeresponse, one that draws upon the particulartalents and resources of a variety ofsegments of the industry cluster. No onesegment of the industry could have doneeverything independently. Whilst it is toosoon to know the results, the Danish

recruitment program shows what can be done when an industry functions effectivelyas a cluster, engaging different segments of the industry to work in collaboration,even if the primary target is only one segment—in this case, the catching sector.

Led by the Danish Fishermen’s Association, in 1997 several industry associations,including the Danish fish processing industry and exporters association, bandedtogether to set up “Fiskericirklen,” an organization whose mission is to recruit youngpeople into the fish industry. With the aid of the Danish education ministry,Fiskericirklen prepared and distributes a graded series of educational materials tointroduce schoolchildren to the fish industry, highlighting the attractive aspects of a

The Danish fish industry has beenfacing the same morale issues as theScottish fish industry, and for thesame reasons. But the Danes haveundertaken a creative response, onethat draws on the talents of differentsegments of the industry clusterworking in synchronization. No onesegment could have done everythingon its own.

career in the industry. Materials are available in print and CD-ROM versions. (Seethe cover illustrations for two volumes in the series.) The educational program startswith 10-year-old children on the theory that most children have made their careerchoices before they reach the age of 14, so the onlyrealistic way to attract youth to the industry is to reachthem well before that age. Outreach is extended toschoolchildren in cities, not just those in rural andcoastal areas; recent experience is that many youthsentering the fish industry, in fact, come from urbanareas, rather than from families with a tradition offishing. Fiskericirklen, which is funded by amandatory 0.3 percent production levy, providesfunding for the program.

Several other programs mounted by differentorganizations (some in Fiskericirklen, some not) pickup the recruitment baton at subsequent stages ofcareer development. Clearly the benefits of theFiskericirklen educational program would probably belost if the recruitment effort stopped there.

> Young fishermen are able to obtain financing forboat purchases on preferential terms fromFiskeribanken, the bank set up by the Danishgovernment in the 1930s to ensure the availabilityof financing to boat owners during difficult periodsfor the industry. Fiskeribanken provides loans tosmall boat owners at close-to-market rates butwith extended repayment periods. Youngfishermen can obtain loans covering 15 percentmore of their investment than the bank will offerolder fishermen. Then for seven years, thegovernment covers a good portion—75 percent inthe first year—of the interest and principalpayments on this additional 15 percent.

> Anyone who enters the training program forfishermen is paid a salary—in effect, hired by theDanish Fishermen’s Association—for the two-yearduration of the training. Danish students graduatefrom secondary schooling at age 16 but can notbe employed on a boat until age 18 per EUdirective. If they did not have a salary related to acareer in fishing during that two-year period, young people who might haveintended to enter the fish industry would find jobs in other industries aftergraduation and might gravitate into another career. The monthly salary is 9,000DKK, or about £740, quite a decent amount for a 16-year-old, and the fishermen-in-training are also entitled to a small share of catch revenue when they aretraining on board an operating boat. (This training program is described in thenext section.)

TRAINING: BUILDING PROFESSIONALISM

With government support, the Danish Fishermen’s Association developed and noworchestrates a compulsory training program for Danish fishermen. The catch sectoris the target, but the processing sector cooperates through the involvement ofFiskericirklen in the training program. The program has been in place only five years,so it is too soon to see results, but a recent issue of the EC’s Fishing in Europe callsthe training “an example for the European Union as a whole.”7 The objective of thetraining is to make sure there is a rising generation of Danish fishermen trained tosucceed in the industry’s future business environment—where fishermen will have tomaster new fishing technologies and techniques, handle product more carefully toincrease quality and value, administer businesses of ever-greater complexity, andreduce the dangers of the trade, which are unacceptable to most young people withcareer options. There is a second objective: according to the director of theFishermen’s Association, “We have to restore the prestige of a trade that is losing itslustre in public opinion. This training forfishermen is making an important contribution.”8

The curriculum is a blend of classroom andpractice. Students must first take a three-weeksafety course (the UK’s requirement is threedays). Then they go to sea for six months on aregular working fishing boat. That sorts outthose who will not find the trade to theirliking—about one-third of enrolees drop outafterwards—and does so before furtherinvestment is made in their training.

Thereafter students spend 22 weeks in theclassroom. Coursework includes business and economics, because most Danishskippers own their own boats and businesses, product handling and quality control,safety, motor repair and welding, and even cooking—basically everything a skipperat sea needs to know. Following the classroom session, students spend another sixmonths at sea on a working boat, then switch to another boat using differenttechniques (e.g., trawl vs. long-line) for a final six months. Graduates receive the“Blue Certificate,” the equivalent of level 4 skipper training. Advanced skippertraining is offered at two schools in Jutland as a continuation of the compulsorytraining.

All the while, as noted, students receive a salary. The Danish government covers thestudents’ salaries during the classroom period; whilst at sea, skippers pay 8,500 DKKtowards the salary, and the Fishermen’s Association covers the remaining 500 DKK.(About one-third of the monies collected through the 0.3% levy is used to support thetraining program.) Skippers are generally happy to take on students as crew. Thestudents work just like any regular crew member, and it is often difficult to findenough crew for a boat. Equally important, many skippers look to the students as

7 Fishing in Europe, No. 10 (December 2001), p. 9.8 Ibid, p. 12.

The objective of the training is tomake sure there is a risinggeneration of Danish fishermentrained to succeed in the industry’sfuture businessenvironment—where fishermen willhave to master new fishingtechnologies, handle product morecarefully to preserve quality andvalue, administer businesses ofever-greater complexity, andreduce the dangers of the trade.

possible inheritors of the boat and business. Because skippers receive pensionpayments from boat revenues, and most boats are owned by their skippers, there willbe a lesser pension for the skipper after retirement unless someone can be found tokeep the boat working.

To date about 120 young fishermen have graduated from the program and receivedtheir Blue Certificates; 110 students are now enrolled. The retention rate in theindustry has been 95 percent so far; about 30 percent of the graduates havecontinued with higher-level training.

QUALITY

When catch sizes decline, or when there is insufficient raw material supply to keep aprocessing factory operating at full capacity, the returns from a fish business can bemaintained by selling product for a higher price. Higher quality is the clearest routeto higher price—conditional on a market that puts a price premium on higher quality.Adding greater value is another clear route.

The Danish fish industry is inducing improvements in product quality by a number ofmeans, some direct, some indirect. Responsibility is spread across different sectorsof the industry. Whether intentional or not, the various means supplement andreinforce one another.

One direct means is to require the training just described, which exposes allprospective fishermen to on-board fish handling techniques that maintain productquality. Another is the sorting and grading of fish at dockside before being presentedin the market. Cooperatives organized by fishermen perform this task, which seemsto be the practice throughout the country. Sorters put fish of similar quality from anynumber of boats into one box. Fishermen are paid based on the average price theboxes fetch. But usually a higher price can be obtained for a larger quantity ofuniform grade than smaller quantities of mixed grade from a single boat. So thesorting and grading cooperatives help fishermen capture a price premium for quality.

Prices that reflect quality are the obvious way to incentivise quality improvements.Generally, the price of pelagic fish for industrial use is less influenced by quality thanfish for human consumption. But the industrial fishery in Denmark does base priceon quality, judging from pricing policies at “999,” the company that owns two of thefour remaining fish meal and oil factories in Denmark, which pays for industrial fishon the basis of three quality factors: freshness, dry content, and oil content.

Rigorous enforcement is an additional means of promoting better quality throughoutthe industry. Inspectors from the Danish Directorate of Fisheries make on-boardhygiene checks, mainly visual. Landed fish are checked for freshness. Danishinspectors have the authority to downgrade the sorted and graded fish. (They alsohave the authority to negotiate fines for violations of catch limits.) Ungutted white fishcan not be landed. There are reports of boats being turned away from Danish ports,in fact, when product quality is unsatisfactory. Processors do not report problemswith overfilled boxes but are aware of the problem in Scotland and elsewhere.

Additional inspections are performed in the markets, including by inspectors from theDanish Food Authority. Processors are subject to equally rigorous enforcement. Tobe registered, a Danish processor must agree to monthly inspections by the DanishState Veterinary Service.

What underlies the use of enforcement to promote quality is the cultivation of a non-adversarial relationship between the regulated community—fishermen and

processors—and government enforcementagents. Although undoubtedly not universallytrue, the study visit team heard repeatedly thatDanish fishermen and processors generallyregard enforcement officials as allies in acommon struggle (namely, against the EU’sCommon Fisheries Policy) and as necessaryfor survival in business.

The attitude of fishermen and processors towards government enforcement agents issaid to have been reversed only in the past half-dozen years. One factor seems tohave been the reorganization of the Directorate of Fisheries and its enforcementprogram. Inspectors now are rarely recruited from the industry, and they are nolonger based in the port towns in which they work. Two years of training is requiredof all inspectors, half classroom and half practical. All inspectors go through thesame training program, a way to maintain uniformity in inspection standards andpractices nationwide.

Considerable attention is given to reliable data collection for quota management.Catch data come from, and can be checked against, three sources: boat logs,landings, and the boat owners’ accountants. The last are most important: relying onthe accountants is said to be the key to catch data accuracy and reliability.Accountants need to have catch data anyway for purposes of tax filings. Electroniclogbooks are just starting to be explored, but their introduction is not expected to beproblematic for fishermen because e-logbooks can be based on communicationsequipment fishermen are already accustomed to using.

SEAFOOD RESEARCH

On the surface, Denmark appears to have built an advanced fish processing industry.Danish processing technologies are well-regarded and widely exported. As noted,Denmark re-exports almost all of what it imports after doubling the value. Thesalmon processing sector seems to have been especially successful, relying entirelyon imported raw material. White fish processors say there remains over-capacity intheir sector, but the pelagic side has been streamlined in the past few years.

Are government subsidies and support behind whatever success Danish processorshave enjoyed? That has to be a possibility. Direct government subsidies for the fishindustry are fairly limited, except for stock conservation programs (see Chapter 7 forcomparative data), and government officials are dismissive of their value, but theDanish government does seem to support research and development workgenerously.

Rigorous enforcement is anadditional means of promotingquality throughout the clustervalue-chain. Danish fishermenand processors commonly regardgovernment enforcement officialsas allies in a common struggle.

Denmark supports fisheries and seafood research through the Danish Institute forFisheries Research, which includes a Department of Seafood Research at theTechnical University of Denmark in Kongens Lyngby. This Department’s researchprogram focuses on raw material and products, hygiene, and “critical quality attributedetermination in muscle foods” with respect to seafood. Included is a researchprogram on fish processing technologies.

If the seafood research program has provided a competitive edge to Danishprocessors, it appears not to have been through the development of advancedprocessing technologies. Carnitech A/S is one of the leading suppliers of processingtechnology to the seafood industry, especially for tailor-made processing lines for on-board or factory installation; it is the largest processing equipment manufacturer inthe country, and 70 percent of its production is exported. Carnitech representativesclaim they have not obtained any technology or technological input from governmentR&D programs, instead designing all their technologies in-house. The claim iscredible; over one-third of a workforce of 300 consists of product designers. Theemphasis on tailor-made equipment necessitates a large in-house design staff.Further, the results of government-sponsored fish and seafood research aredisseminated only passively, by publication in scientific journals, which technical staffin industry reportedly do not read or consult.

Where a company like Carnitech may really benefit from government R&Dexpenditures is through the presence of the R&D programs at educationalinstitutions, which contributes to developing a workforce well-educated in foodtechnology and with the know-how to design processing equipment. Students at theTechnical University can work in the Department of Seafood Research, for example.It would take a detailed academic study to confirm that Danish government R&Dprograms build industry competitiveness indirectly by educating the workforce, butthe likelihood is high.

Danish processors might also have benefited from being concentrated around anumber of fishing ports. Probably the broadest and deepest local concentration inthe fishing industry is in Hirtshals in Northern Jutland. Besides being a leadingfishing port, Hirtshals is the terminus of the main ferry line to Norway; it is the hub ofthe salmon processing industry, which has caused its economy and population togrow rapidly in recent years. Hirtshals is also the home of the North Sea Centre, setup by the local government in conjunction withlocal trade associations in 1979 to house onone campus, with common facilities, anassemblage of public and private researchorganizations. Included are units of theDanish Institute for Fisheries Research, theNorwegian research company SINTEF, anaquaculture company, a large museum,various educational programs, and the onlylibrary in the country oriented specifically towards the needs of the fish industry. Thissort of institutional arrangement is thought by many to foment innovation in industryby furthering exchange of ideas and generating synergies. How great an effect theNorth Sea Centre has had on industry competitiveness in Hirtshals is difficult toassess without talking with many more people, but that this centre exists at least

The North Sea Centre in Hirtshalshouses on one campus—withcommon facilities—an assemblage ofR&D organizations, private fishcompanies, an industry-orientedlibrary, and a museum andeducational programs.

makes possible a constant flow of information, the exchange of knowledge, anddevelopment of a highly-educated workforce in a small and remote fishing port.

That said, it seems that the niche success of Danish salmon processors andexporters is primarily attributable to (a) business culture and (b) basic productioneconomics. Danes are proud of their reputation as traders and cite this heritage toexplain their success in international markets. Relevant or not, several Danishprocessors are said to have seen opportunity when the Norwegian salmonaquaculture industry emerged and captured the salmon processing business. Theprocessors took advantage of the fact that Denmark is in the EU, that tariffs onNorwegian processed fish are much higher than on raw fish and, moreover, thatDenmark is within trucking distance of most EU markets to capture the salmonprocessing business. Norwegian aquaculture companies have since takenownership stakes in a number of the larger salmon processors. But processors inEastern European countries, Poland in particular, are positioning to exploit thecombination of a lower wage scale, first-rate facilities, and imminent EU entry.Though one Hirtshals processor recently relocated to Poland, Hirtshals officials areconvinced that Norwegian salmon will continue to come their way for processing,citing the fact that the Norwegians have already invested in the Danish processingindustry. International competition affects the prospects for the economy of anycommunity tied to the fish industry.

5. CANADIAN MARITIMES

The Canadian Maritimes fish industry encompasses the fish industries of Canada’sfour Atlantic provinces: New Brunswick, Newfoundland (including Labrador andNewfoundland Island), Nova Scotia, and Prince Edward Island.9 Although theprovinces share the same federal regulatory structure for fisheries, in many respectsthese are four separate fish industries. The Scottish Fish Industry Project studyteam visited New Brunswick, Newfoundland, and Nova Scotia; the Prince EdwardIsland fish industry is comparatively small.

The Canadian Maritimes have been blessed with abundant marine resources and along and robust fishing heritage. The provinces have been successful in overcomingsome difficult setbacks to the industry, most famously the collapse of the cod stock inthe early 1990s. Destructive as it was to the industry, the cod collapse has been acatalyst to the restructuring of the industry, to innovation in the use and conservationof fish resources, and to a revitalized and stronger relationship between science andindustry. The result of these ongoingchanges is an industry that in many waysis more competitive and higher-value thanbefore.

OVERVIEW

The following discussion gives prominence to the findings of the study visit, backedby the analyses previously conducted for the “short-list” profile of the Maritimesindustry. The focus of the study visit was to understand alternative frameworks formanaging fish industries and to cull lessons for Scotland’s fish industry.Consequently, what follows is by no means an exhaustive analysis.

As will be illustrated, the Maritimes provinces in general have not pursued orwitnessed a clustering of the industry in the sense of an industry with three layers:

> A top layer of exporting firms, supported by

> A broad layer of suppliers, both of which are supported by

> Specialized inputs such as human resources, finance, and technology.

As such, the value-chain is not as robust as may be desirable, although many in theindustry do not believe that clustering in the Maritimes fish industry is desirable orfeasible. Nevertheless, there are two elements of the industry in the Maritimes thatrepresent competitive, leading practices typically associated with clustering: (1) thedeliberate and mutual nurturing of a strong relationship between science and

9 Canadian fishery statistics include data on ports in Québec on the Gulf of St. Lawrence in figures forthe “Canadian Maritimes,” although Quebec is not usually considered one of the Maritime provinces.The contribution of the Québécois ports to the overall Maritimes fish industry, however, is quitelimited.

The collapse of the cod industry in the early1990s catalyzed industry restructuring,innovation in fisheries conservationapproaches, and the formation of strongworking relations between science andindustry.

industry, and (2) the increasing exploration and adoption of co-management of thefish industry (the catching sector especially).

Industry Structure. The institutional and regulatory environments are the principalelements shaping the structure of the Canadian Maritimes fish industry. Under theCanadian constitution, the federal government has exclusive jurisdiction over allmatters concerning the seacoast and its fisheries, including the management ofvirtually all commercial fisheries. Consequently, the federal government, theDepartment of Fisheries and Oceans (DFO) in particular, has virtually exclusivejurisdiction over the catching sector, whilst the provincial governments have primaryjurisdiction over the processing sector and aquaculture.

Fisheries management varies across the provinces and across fisheries but sincethe 1980s has relied increasingly on historically-based allocation of quotas.Measures used include the allocation of quotas to fleet sectors and the allocation ofspecific percentages of the quota to individuals or businesses in the form ofIndividual Quotas (IQ), Individual Transferable Quotas (ITQs), or EnterpriseAllocations (EAs). Technical measures, e.g., controlling escapement, are also used.The Minister of the DFO determines TACs (Total Allowable Catch) based on theadvice of the independent Fisheries Resource Conservation Council (FRCC).

In response to the collapse of cod stocks in the nineties, over-capacity in theprocessing sector, and the impacts of globalization, the Canadian Maritimes fishindustry has undergone significant downsizing and consolidation over the past 10years. The numbers of vessels in operation, active fishermen, and landings have alldeclined by significant proportions. However, the value of fish landed has increasedand pressure on Atlantic Canada stocks has been significantly reduced. The fishindustry in general appears to be in better economic condition than it was a decadeago.

Cluster Formation Indicators. To generalize across the four provinces, theCanadian Maritimes fish industry cluster can best be described as a bi-level cluster:a cluster with a strong layer of exporting firms supported by a growing andcompetitive layer of specialized inputs and institutions including education andtraining, R&D, and technology. The four provinces span diverse industry sectors andshare broad markets. Yet in terms of the depth of the cluster in each of the fourprovinces—that is, the development of the value-chain—there is little evidence ofsubstantial “clustering” with the full range of exporters, suppliers, brokers, andintermediaries.

In particular, the middle layer of suppliers is largely absent locally (leaving aside thecatching and farming sectors that supply raw material). There are significant supplygaps, such as in vessel building and repair, net manufacturers, and maintenance ofequipment, management, and brokering firms. Most of the suppliers to the industryare elsewhere in Canada or in the United States or Europe. The reasons pointed outby stakeholders include the ongoing consolidation in the industry, a physicallandscape and weather that reduces opportunity for close proximity of related firms,proximity to strong, well-established, world class suppliers in the United States, needfor specialized equipment from European countries, and the nature of the fish

industry itself, all of these factors of course being interdependent with the forces ofglobalization.

Figure 1 depicts the structure of the Nova Scotia fish industry as an example. (Notethat vertically integrated exporters may extend into the supplier layer.)

In general, as will be illustrated below, the relationship between the exporting sector,the catching sector (wild and farmed), and the “foundations” is relatively strong,especially with respect to human resources and science. Federal and provincialgovernments have been key partners to the industry in fostering this relationship.Nevertheless, the relationship between the federal and provincial departmentsinvolved in fisheries has been far from ideal. The federal-provincial split inresponsibilities related to the industry has resulted in strained relationships, and lackof adequate coordination and consultation.

Both regional government and industry leaders generally acknowledge that theMaritimes fish industry has not lived up to its full potential and has not yet developedinto a competitive, well-coordinated and linked industry cluster. Aside from theconsequences of the federal-provincial split in responsibilities related to the industry,other underlying factors include the competition amongst the provinces, theinstitutional management system, the lack or slow rate of industry innovation, and

Nova Scotia Fish Industry Cluster

KEY FOUNDATIONS

SUPPLIER INDUSTRIES

FINAL EXPORTS

Industry Associations

Fisheries Assoc, Fish, Food, and Allied Workers Union, Seafood Alliance, Seafood Producers Assoc of NS, Fish Packers Assoc, Aquaculture Assoc of NS

Raw, Uncooked Fish (Wild, Farmed)

Prepared (Frozen) Processed Fish

Fish Harvesters ( groundfish , scallops, shrimp, lobsters)

Highliner Foods, Clearwater Fine Foods, Fishery Products International

Consulting, Quality Control, ( Tavel Lltd .)

Innovation DFO, Fisheries and Marine Institute (Memorial University), CCFI , NS Agricultural College

Vessel Construction/Sales

Fish Packers Equipment manufacturing, repair

Human Resources NS Agricultural College, NS Regional Industrial Training Committee

Finance Banks for Processors, Processors provide finance for catchers

Quality of Life DFO, Province, Unions Business Climate

Province, DFO, Ground Fish Enterprise Allocation Council

Aquaculture Suppliers (species, feed, vaccines)

Frozen Foods

Shipping, Trucking

KEY FOUNDATIONS

SUPPLIER INDUSTRIES

FINAL EXPORTS

Industry Associations

Fisheries Assoc, Fish, Food, and Allied Workers Union, Seafood Alliance, Seafood Producers Assoc of NS, Fish Packers Assoc, Aquaculture Assoc of NS

Industry Associations

Fisheries Assoc; Fish, Food, and Allied Workers Union; Seafood Alliance, Seafood Producers Assoc of NS; Fish Packers Assoc; Aquaculture Assoc of NS

Raw Chilled Fish (Wild, Farmed)

Frozen Primary Processed Fish

Fish Harvesters ( whitefish , scallops, shrimp, lobsters)

Ex: Highliner Foods, Clearwater Fine Foods, Fishery Products International

Consulting, Quality Control

Innovation DFO, Fisheries and Marine Institute (Memorial University), CCFI , NS Agricultural College

Innovation DFO, Fisheries and Marine Institute (Memorial University), CCFI , NS Agricultural College

Vessel Construction/Sales

Fish Packers Equipment Manufacturing, Repair

Human Resources NS Agricultural College, NS Regional Industrial Training Committee

Human Resources NS Agricultural College, NS Regional Industrial Training Committee

Finance Banks for Processors, Processors provide finance for catchers

Finance Banks for Processors Processors provide finance for catchers

Quality of Life DFO, Province, Unions

Quality of Life DFO, Province, Unions Business Climate

Province, DFO, Ground Fish Enterprise Allocation Council

Business Climate Province, DFO, Ground Fish Enterprise Allocation Council

Aquaculture Suppliers (species, feed, vaccines)

Frozen Secondary Processed Seafood

Shipping, Trucking

historical legacies including policies, legislation, international agreements, and thelike. Consequently, whilst the fish industry is largely export-based and is consideredglobally competitive, especially in certain market segments, its sustainablecompetitiveness as an industry cluster is relatively weak.

Professionalisation: Organization of the “Harvesting” Sector in Newfoundlandand Labrador. In an effort to organize the industry, improve quality control, andcreate accountability, Newfoundland leaders undertook the task of professionalisingthe harvesters. (The Canadian term “harvesters” includes both wild catch fishermenand fish farmers, purposely combined to overcome distinctions in the suppliers ofraw material to the industry.) A model or prototype of professionalisation waspresented to a group of fish harvesters by the Marine Institute in 1990. A survey of3100 fish harvesters indicated 90 percent approval of the further development of themodel. An extensive public outreach program was then conducted between 1992and 1994 with over 250 meetings and 5000 fish harvesters participating. In 1996,the Professional Fish Harvesters Act was passed and a year later, the DFOregistration system was discontinued and transferred to a Professional FishHarvesters Certification Board. The Board consists of industry, government, andnon-government representatives (eight fish harvester representatives, sevenrepresentatives of the federal and provincial governments and non-governmentalorganizations). The Board’s objectives:

§ To promote the interest of fish harvesters as a professional group;§ To operate and maintain a fish harvester registration and accreditation

system;§ To develop, evaluate, and recommend courses under the professionalisation

program;§ To provide an independent appeals procedure for fish harvesters;§ To provide an advisory role to the federal and provincial governments in the

formation of the fisheries policies; and§ To develop, maintain, and monitor compliance with a Code of Ethics

The Board, with extensive input from harvesters (2700 harvesters at 190 meetings)voted to introduce specific programs aimed at improving the competitiveness of theindustry. Three programs were introduced: (1) Education and TrainingRequirements, (2) Maintenance of Status Policy, and (3) Code of Ethics. Theoutcome thus far, according to those interviewed during the study visit, has been thegradual building of a professional cadre of fish harvesters who have a strongattachment to the industry, who are analysed as professionals, and who understandthe importance of and incorporate the lessons of training, conservation, andresponsible fishing practices.

Regulatory Environment. Under the Canadian Constitution, the federalgovernment has virtually exclusive jurisdiction over all matters concerning theseacoast and its fisheries, including the management of virtually all commercialfisheries (the provinces do, however, have responsibilities for allocation of somefreshwater fisheries). As noted above, the provincial governments have primary,though not exclusive, jurisdiction over the processing sector, particularly with respectto fish processing plants.

The complex relationship between the federal and provincial governments can beillustrated by the example of Newfoundland. The provincial government is in chargeof fish industry diversification; the licensing and administration of fish processingplants; the establishment and enforcement of quality standards; aquaculturestatistics; and aquaculture licensing, registry, inspections, and development. Thefederal government is responsible for resource management; the licensing ofharvesting; harvesting statistics; fish health protection and aquaculture siteinspections; national statistics for Canada; certification of plants exporting fish; andinternational relations.

The fact that the Canadian federal government controls the catching sector is anissue both for industry and for provincial governments. Provincial officials assertthat the federal government is too far removed from the local environment and thusunable to realistically assess information and data in order to develop appropriateand flexible fisheries management policies.

The Nova Scotia sea scallop fishery has been hugely successful and is pointed outby industry as a good example of how the cooperation between the private sectorand the DFO in fisheries management can be effective. The federal-provincialcooperation resulted in an ITQ program providing the framework for a highly efficient,sustainable fishery. This fishery today consumes less than two-thirds of resourcesthat were required during the open access fishery.

INDUSTRY-SCIENCE COLLABORATION

Today’s Canadian Maritimes fish industry is distinguished by the strength and extentof collaboration between industry and science. This collaboration begins with basicmarine science and extends through R&D, i.e., research aimed at commercialapplications. The collaboration takes place inall four provinces, and it extends throughoutthe value-chain, from the catching sector, wildand aquaculture, through seafood for retailsales. Those involved in the industry analyseclearly the strategic importance of the industry-science cooperation and collaboration.

Competitive clusters in any industry, as notedabove, usually have strong linkages amongst all their components: between andamongst firms, between firms and education and training institutions, between firmsand R&D organizations and amongst R&D organizations themselves, between firmsand suppliers, between suppliers and trainers, between financial institutions orintermediaries, and so on. Strong linkages lead to strategic partnerships, alliances,and initiatives, and ensure an alignment in policy and practice. Of course suchcollaboration does not and is not meant to displace inter-firm rivalry, which is also acritical component of a healthy, thriving cluster. Rather, what makes a clustercompetitive is the ability of its leadership and stakeholders to compete effectivelylocally and globally yet also to muster their resources and capabilities when mutuallybeneficial.

Today’s Canadian fish industryis distinguished by the strengthand extent of collaborationbetween industry and science.The collaboration begins withmarine science and extendsthroughout the value-chain toseafood for retail sales.

The impetus for extensive industry-science collaboration was the cod collapse of theearly 1990s. The motivation today, however, is the recognition by industry thatinvestments in collaboration yield returns.

From the perspective of scientists and government, cooperation is necessitated bythe need for better and more accurate methodologies for collecting anddisseminating information, the need for active buy-in from the industry in order toensure compliance with regulations and policies, the desire for adopting moreentrepreneurial business models in science and research, and the need to conduct

more applied, industry-responsive research.From the perspective of industry, however,involvement with and support of science iscritical to survival, especially within theframework of stock assessments andallocations. The larger producer companies,especially large exporters, make substantialinvestments based on scientific estimates and

advice. If these estimates turn out to be inaccurate, and there is no oversight oraccountability, company managers know their investments may be lost, with seriousbusiness consequences.

Furthermore, Industry-science collaboration helps maintain and enhancecompetitiveness. The impacts of globalization, the intensification of competitionamongst a handful of leading competitors, the increasingly low margins in manyindustry segments, and the application of advanced technology and science bydomestic and overseas competitors results in a premium on any means of gaining acompetitive edge. The crisis of the industry in the nineties may have given urgencyto building the linkages, but the imperatives of maintaining and enhancingcompetitiveness serve as continued motivation.

Thus, there has developed a well-articulated system of collaboration betweenindustry and science and, secondarily, between science and the education andtraining communities. Companies in the industry play a critical role in assistingresearchers in improving problem definition and opportunity definition, collectingdata, testing data, and validating findings, whilst researchers are working closely tobetter understand the industry, the value-chain, and specifically where better scienceis needed. As science leads to the development of better methods for collectingdata, for harvesting, for handling, for packing, and so on, private and public trainersstep in to disseminate information and practices. These close relationships aremanifested in different ways in the various Maritimes provinces, as discussed in thefollowing section.

The returns to industry from scientific collaboration are more easily analysed in theCanadian Maritimes than they might be in Scotland because of the limited entry andquota management systems in place in the catching sector, which have nowreplaced the previously open-access fisheries policy. Limited entry (throughlicensing) and quota entitlements essentially secure “rights” for the catchers andprocessors, thus providing a mechanism for “protecting” investments and,consequently, a powerful incentive to protect, rationalize, and leverage existing fishresources. (The same sense of “rights” is also widespread in the Norwegian fish

What makes a clustercompetitive is the ability of itsstakeholders to competeeffectively yet also to mustertheir resources collaborativelywhen mutually beneficial.

industry, where it is used to defend government policies on control over coastalwaters.)

Stock Assessment and the Role of the Wild Catch Fishing Community. InNewfoundland and Labrador, the federal and provincial governments collaboratequite closely on several fronts including conducting joint R&D, encouraging andguiding professionalisation of the industry, marketing fish products, monitoring andprotection of the environment, the provision of statistics and information services,and the provision of support infrastructure. The Groundfish Enterprise AllocationCouncil (GEAC) is a joint industry-science program that undertakes stratified randomsurveys of cod, greysole, American plaice and redfish, and other scientific initiatives.In tandem with DFO, industry conducts joint research activities including Joint At-SeaSurveys to contribute to research on the health of cod, redfish, and flatfish stocks.For these surveys, DFO technicians come aboard vessels and provide technicalsupport in data collection. For example, since 1996, DFO and industry have beenworking on a long-term project to establish and maintain commercial indices for theyellowtail flounder fishery. Scientists at New Brunswick’s St. Andrews BiologicalStation, as discussed below, say they often spend more time on fishing vessels thanin their offices. Close personal interaction strengthens the industry-science link bybreaking down distrust or disregard based on preconceptions.

The examples of collaboration between industry and science (and by extensionbetween industry and government) abound in the catching sector. In Nova Scotia,industry associations help fund the Dockside Monitoring Program (DMP), which paysfor dockside monitors who collect information on bluefin tuna length, weight, and sexfor use in setting quotas. The scientific research community has also put effort intodeveloping better technologies for stock monitoring and assessment, e.g., acousticsurveys. Two years ago, Newfoundland instituted the Index Fishermen Programwhereby private vessels basically “fish for science;” on-board scientists collect dataregarding salinity, temperature, etc. DFO employs private, independent observerswho monitor the project.

The seafood producers are especially keen to work and collaborate with science toensure more stable and consistent supplies of raw fish. The cod collapse, combinedwith the mid-1990s closure of scallop fisheries for several years, forced producers toquickly adapt and turn to new species in order to survive. The largest companieshave substantial R&D capacity in-house, but also collaborate with other firms andgovernment on specific research initiatives. One of the most recent and successfulexamples comes from Nova Scotia where every large scallops producer (exceptone) participates in an industry-government ocean floor mapping program usingmulti-beam sonar technology. The consortium of companies, which includesvertically integrated companies involved in catching, funded the development ofmapping technology; each company paid a proportion of the total cost based onquota percentage. This technology has provided a competitive edge for all involvedas it allows fishermen to “surgically” fish for scallops, avoiding dragging for scallopsin areas where there are no scallops or a high concentration of undersized scallops.This “surgical fishing” also allows more efficient deployment of boat and gear and thereduced wear and tear on gear as fishermen are able to avoid dragging where theocean floor is rocky. In some areas, e.g., southwest Nova Scotia, fishermen initiatedtheir own bottom floor mapping survey with the assistance of government.

Collaboration across borders is also increasing as Canadian science and industrywork more closely with American counterparts, focusing on stock assessment. Anexample is a state-of-the-art bluefin tagging project, initiated in 1998, that involvestagging bluefin tuna in the Bay of Nova Scotia and New England waters andcollecting data by satellite to track migration.

The demonstrable culture of collaboration between science and industry andbetween government and industry is a primary element of competitiveness for theMaritimes industry. One of the successful elements in this structure of collaborationis the consistent flow of specialized professionals from industry to science and R&Dinstitutions, and vice-versa. This flow undoubtedly fosters a stronger understandingof the common ground and shared needs of both industry and science and creates astronger collaborative environment. Although there is some concern over thereduction in federal funding of certain science programs and initiatives, industry-government collaboration is a primary objective and is being continuouslystrengthened by joint initiatives, on-site teamwork, and the emphasis on researchresponsiveness to industry.

Key Education, Science, and R&D Foundations

As the strong, collaborative science-industry working relationship is founded onworld-class, leading education, training, and R&D facilities located in the Maritimesprovinces, it is important to understand the core competencies of these institutionsand the role they play in industry’s competitiveness. Three key institutions aredescribed below.

Fisheries and Marine Institute at Memorial University of Newfoundland. TheMarine Institute is touted as North America’s most comprehensive institute dedicatedto education, training, research, and industrial support in ocean industries. Morespecifically, the School of Fisheries has the responsibility to develop and delivereducation and training, applied industrial research, and technology development andtransfer. The Centre for Aquaculture and Seafood Development focuses onenhancing the competitiveness of the aquaculture, seafood, and food processingsectors by working with industry in the areas of applied research, product andprocess development, technology transfer and advisory services, and support foreducation and training.

The Marine Institute is a central node in the human resources pipeline producing asizable number of graduates to fuel the local and regional fisheries industry. It isalso a vehicle for applied research by both government and industry and appears toserve a critical role as an intermediary able to balance the needs of bothconstituencies.

Competitiveness Lesson: The Centre for Aquaculture and Seafood Developmenthas been particularly successful as a provider of cost-effective technical andscientific services to industry. Its business model is to provide value-added technicalservices combined with research and development resources (including testkitchens, food engineering labs, taste panel rooms, an aquaculture research facility,microbiology and chemistry laboratories) that no individual private firm could

command and offer these services on a cost-recovery basis. Clients include seafoodand food processors, fish harvesters, aquaculture producers, aquaculture suppliers,government, and non-governmental organizations. Most of the clients are from the

province (85 percent); the rest are fromelsewhere in Canada (10 percent) or abroad(5 percent).

The Institute’s Centre for Sustainable AquaticResources conducts R&D on, for example,fishing gear model design and construction.

These services are made possible by such state-of-the-art facilities as the world’slargest flume tank.

Canadian Centre for Fisheries Innovation. This centre, established in 1989, has aprimary goal of creating new opportunities for the seafood industry through scienceand technology. The Centre serves as an intermediary between government andR&D facilities and industry, essentially matching clients with appropriate technicaland financial resources. The underlying premise is that industry players in generaland firms in particular do not understand the academic and R&D landscape and thusare unable to access the appropriate resources to leverage their capacity. TheCentre responds to industry inquiries by working with industry first to refine thedefinition of the problem or innovation, then to identify and to recruit the services ofspecialists and organizations to conduct research and develop prototypes, and finallyto assist in securing funds or investors for the initiatives.

The centre also disseminates information to an industry that is still said to be largelyweak in innovation. The centre gathers information and ideas from all over the worldand then takes these to industry to order to achieve buy-in for incorporating andcustomizing specific technologies. Examples of innovations facilitated by the Centrefor Innovation include the design, installation, and testing of a bulbous bow, and thedesign of a deepwater turbot trawl.

The St. Andrews Biological Station. The St. Andrews Station has forged anationally and internationally analysed research program that is perceived by bothgovernment and industry to be responsive to industry needs. Core researchcompetencies relate both to wild stocks (including crustaceans) and to aquaculture.The Station also carries our oceanographic research.

The Aquaculture Division has been a central research arm for the industry since theemergence of aquaculture in the Canadian Maritimes in the 1970s. Traditionally,research focused on improving production efficiency in salmon culture and onutilizing the quarantine facility to test and study the efficacy of vaccines for ISA(Infectious Salmon Anemia). More recently, research is expanding to new speciesincluding haddock, halibut, scallops, and sea urchins.

The St. Andrews component of Marine Fish Division undertakes stock assessmentsand associated research on marine finfish with an emphasis on fisheries of the Gulfof Maine area. This group has developed an impressive set of collaborativeprograms with the fishing industry. It is now common for industry members to collectsamples (according to strict biological protocols), to undertake surveys used as the

The Centre . . . provides value-added technical servicescombined with R&D resources thatno individual firm couldcommand—and provides theseservices on a cost-recovery basis.

basis for the stock assessments, to contribute extensively to research projects (suchas tagging), and to participate in the stock assessment peer review meetings. In thesouthwest Nova Scotia herring fishery, for example, much of the biological samplingis undertaken by processing plants, the stock assessment is based largely uponquantitative acoustic surveys undertaken by industry vessels, and the fishingindustry has formed a “Herring Science Council” to facilitate tagging and othercollaborative research initiatives.

PILOTING CO-MANAGEMENT

Although still being incorporated on a limited basis, there are increasing efforts toutilize this industry-science research collaboration as a basis for creating innovative,bottom-up, participatory wild fisheries management systems—in contrast to thetraditional government-dominated top-down fisheries management system. A pilotproject in the Nova Scotia herring fishery has been at the forefront of innovativefisheries management. Recently, an “in-season management approach” wasadopted which allows quicker decision-making in response to information throughoutthe season. Observations from the fishery are routinely discussed between industryand government on a regular basis, often weekly, so the management can bemodified quickly. A “survey, assess, then fish” protocol, in which acoustic surveysare undertaken of each spawning area, and only a portion of the stock is allocated tothe fishery, has been implemented to spread the total catch appropriately. In fact,scientists can be brought on board fishing vessels when herring schools are located;the scientists determine the size of the school and relay the information to shore, onwhich basis DFO officials set a quota. Quotas thus may be varied from hour to hourin season.

Co-management is also being used to control lobster stocks. Techniques includelicensed areas, limited entry, season delimitations, size limits on catch, berriedfemale protection, limits on traps, design of escape panels in traps, and 100 percentdockside monitoring at shore.

6. NORWAY

Norway’s fish industry, in recent history, has stumbled badly about once every tenyears, then recovered each time to become stronger than before. It is a natural pointof comparison for a Scottish fish industry experiencing turbulent times and lookingfor a sound footing for the long-term future. That is especially true now that the roleof the state in the Norwegian economy is rapidly being reduced through privatisation,enabling the fish industry to show what it can do more-or-less on its own in anincreasingly competitive global environment. If there is one overseas fish industryheld in a measure of awe by Scottish industry observers, it is the Norwegianindustry, whose success is not generally attributed to the foul play in which someother successful fish industries are thought to engage.

Norway is comparable to Scotland in population (4.5 million) and in the traditionaldependence of isolated coastal communities on the fish industry. The country hasthe advantage of a very extended coastline and close proximity to some of theworld’s richest fishing grounds, but the disadvantages of difficult internal road traveland distance from population concentrations that could become export markets. Thedomestic market is demanding, both in quantity (per capita seafood consumption isover twice that of the UK) and in quality. Norway has both the advantages anddisadvantages of not being a member of the EU.

The success of the Norwegian fish industry is best measured by position in exportmarkets. Norway is the world’s second largest exporter of fish and seafoodproducts, exceeded only by Thailand. Over one-third of the £2.3 billion in 1999 fishand seafood exports consisted of farmed salmon and trout, industries that reachedcommercial scale only in the past 20 years or so, and Norway is now positioning todevelop a comparable cod aquaculture industry. The fish industry occupies aprominent place in a national economy that is now dominated by oil and gas,representing 8.5 percent of exports (oil and gas jointly represent 47 percent ofexports).

As this chapter will explain, Norway’s fish industry seems to operate with a businessmodel that contrasts in important respects to the Scottish industry’s. The modelplays out differently in different companies, resulting in a variety of businessstrategies, structure, and interrelationships depending on context, products, andstarting-point. It is nothing so simple and tangible as, say, a reliance on verticalintegration or an emphasis on adding as much value as possible before export. Butit is more than just a common denominator, because it is analysed and appreciatedwidely in the Norwegian industry. Four core features characterize the model and willbe the focus of this chapter:

> Customer Orientation—looking to demand rather than supply to set strategy atthe business and industry-wide levels.

> Knowledge Base—creation and diffusion of a well-educated workforce withaccess to advanced technology and with practical know-how.

> High Expectations—a public image shaped by recognition of the economicpotential of the industry.

> Collaboration—despite factionalism, competition, and tension below the surface,a willingness on the part of companies and industry sectors to collaborate whencollaboration makes good business sense and is in mutual interest.

Together these and other features result in an industry cluster that is more mature,better functioning, and more effective than in the other overseas fish industriesincluded in this comparative analysis. In other words, the types of interactions andlinkages between different parts of the industry, and the completeness at either thenational or local level of the most-important ingredients for a competitive industry,are more evident in Norway than elsewhere.

OVERVIEW

This section first provides an outline of the main sectors of the Norwegian fishindustry, then discusses the regulatory environment. Further discussion of theextent of cluster formation, noted above, is best left to the end.

Industry Structure. The Norwegian fish industry employs about 15,000 people inthe catching sector full-time, 13,500 in the processing sector, and 6,000 in fishfarming (an estimated 16,000 others are employed in aquaculture supportbusinesses).10 The catching sector comprises 381 vessels longer than 28 meters,accounting for over 60 percent of the total catch value, and over 1,200 vesselsbetween 13 and 28 meters in length. Cod is the most important wild catch species,both in value and in national heritage, followed by mackerel and herring. Japan isthe principal market for mackerel, often after processing in China; Russia and theBaltic countries are the main markets for herring, 90 percent of which is exportedunprocessed.

Norway also conducts whaling (for minke whale) and sealing. These activities havegenerated international attention and (mostly) criticism outside of fish industrycircles. Official Norwegian documentation on the fish industry almost alwaysincludes defences of sealing and whaling, usually in the context of lauding theenvironmental practices of Norway’s fish industry. Sealing and whaling, rather thanpollution and stock depletion, are the major environmental issues facing the industry.

The aquaculture sector is centred on salmon (414,000 tonnes produced in 1999) andtrout (44,000 tonnes produced). Farmed salmon accounts for 40 percent of thevalue of Norwegian fish exports. The industry is now gearing up in a variety of waysto produce cod in commercial quantities. Norway had begun farming and selling coda decade ago, but cost and price considerations for cod and other species made codaquaculture commercially infeasible then, so the development of the industry was

10 These and other data in this section are derived from Facts about the Norwegian Fisheries Industry2000, issued jointly by the Norwegian Fishermen’s Association and the Ministry of Fisheries, and fromthe section of the Norwegian fishing and aquaculture industry on the Ministry of Foreign Affairs website.

suspended. The Norwegian government has already issued licenses for codoutgrowing farms capable of producing 250,000 tonnes annually. Hatcheriescapable of providing sufficient numbers of juveniles are already in development orearly start-up. Some wild catch is already kept in cages to enable harvesting whenquality is best. Feed supplies are a possible constraint on the development of cod(and salmon) aquaculture, hence attention in the R&D community to vegetable-based cod feed alternatives.

All first sales of fish landed in Norway are carried out through sales organizations setup by Norwegian fishermen. Sales of landings from foreign boats must also becarried out through these sales organizations, but aquaculture products currently donot (a policy now under deliberation). The purpose of this arrangement, mandatedby the Raw Fish Act of 1951, is to ensure stability in pricing and timeliness ofpayment to fishermen. The organizations set a minimum price for each product,usually based on negotiations with buyers’ associations.

The Norwegian processing sector is not particularly strong. Over-capacity continuesto be a problem throughout, even though the number of white fish processors hasbeen cut substantially over the past 20 years (from 860 to 500, mostly small- to mid-sized companies scattered along the coast). Only about a dozen fish meal and oilfactories remain after comparable streamlining. The facilities of the remainingprocessors, however, are in many cases state-of-the-art. Norwegian pelagicprocessors are able to pump fish directly from boats to factories, eliminating anyintermediate handling; freezing facilities are also advanced.

The processing sector suffers from a number of competitive disadvantages. Forone, labour costs in Norway are relatively high. It is commonly said that cod caughtby a Norwegian boat and shipped to China for processing can be sold in Norway at amuch higher margin than if the processing were done in Norway. The higher leviesassessed on exports of processed versus raw product discourage processing exportproduct in Norway. EU tariffs on smoked salmon, for example, are 13 percent,versus 2 percent on raw. Logistical considerations are also important. Processingaccelerates the deterioration of fish. Given Norway’s distance by road from themajor European export markets, Norwegian product is best shipped after minimalprocessing, leaving most of the processing to be done closer to the end-purchaser inEurope.

The supplier segment of the Norwegian fish industry is extensive and significant tothe economy. Norway’s shipbuilding industry is a leader in global markets.Norwegian shipbuilders are able to produce any size of vessel, including the largerpelagic trawlers (as well as cargo and cruise ships).

Government policy is to promote the dispersion of the population and thepreservation of communities along the full length of the coastline. The economies ofmost of the northern communities are largely dependent on the fish industry.Substantial public investment underlies the development of northern regional centressuch as Tromsø.

Regulatory Environment. Though not subject to the EU Common Fisheries Policy,the Norwegian catching sector is subject to TACs, quotas, and licenses reflecting

bilateral and multilateral fisheries agreements. The most important species are jointstocks managed in cooperation with the EU and Russia. Norway also participates ina variety of multilateral fisheries negotiations and international managementagencies, and ICES advice is relied upon in setting quotas. The overall effect of theNorwegian regulations on catch and on boat ownership, which are at least ascomplex and convoluted as the EU regime, is to restrict entry to Norwegian fisheryresources to active Norwegian fishermen.

The role of the government in the fish industry, as in most other sectors of theeconomy, has been lessening over the past decade through a combination ofderegulation and privatization. Prior to 1991, the export trade was largely controlledby the state, to the point of dictating which products would be sold in which markets.Now exporters are required only to register with the Norway Seafood Export Council,an export promotion agency funded by an industry levy and overseen by industryrepresentatives.

CUSTOMER ORIENTATION

Probably the most important feature of the Norwegian fish industry’s business model,“customer orientation” means that decisions about how to structure a company, whatlines of business to pursue, where to invest, what priorities to set, what to sell and atwhat price—indeed, what the business really is—are based on where the demandlies and what the customer (actual and potential) wants. The alternative is for acompany to define its business starting with what it can do, i.e., what it produces.Neither orientation is necessarily right orwrong in every industry, but in the fishindustry, given scarcity of supply and pricevolatility, the success of Norwegiancompanies suggests that a customerorientation is more effective. A customerorientation dictates not only the strategy ofindividual companies, but the definition andstrategy of the industry cluster.

The customer orientation of the Norwegian fish industry is best demonstratedthrough the strategic decisions made by specific companies. Whilst the companiescited in this section are only a very small sample of the Norwegian fish industry, priorresearch showed them to be industry leaders and representative of the mostsuccessful companies in global competition. Much of the information presented hereis derived from interviews in Tromsø, Ålesund, and Bergen, communities that werethemselves chosen because they seemed to provide nurturing-grounds for the bestNorwegian companies. To preserve confidentiality, nothing is disclosed here thatcan not also be found in company web sites or annual reports.

Customer orientation is recognised by the customers themselves and is definitely apositive factor in purchase decisions. Amongst the reasons for Norway’s large shareof the Japanese market for Atlantic mackerel, according to a range of Japaneseimporters, wholesale market personnel, etc., interviewed in July 2001, was

Customer orientation—probably themost important feature of theNorwegian fish industry’s businessmodel—means that business linesand priorities are set by the “pull” ofcustomer demand, not by what acompany has been producing.

“the willingness of many companies to commit to a long-termrelationship when doing business. It was stated, poignantly, by oneimporter that Norwegian companies, historically, have been muchmore flexible with pricing, when the conditions in Japan have not beenprofitable. This willingness to be flexible results in longer-term trust,and further commitment from Japanese buyers. The reward of thispolicy is stable business in one of the most lucrative export marketsfor mackerel.

Another factor . . . is the willingness of Norwegian exporters to acceptthe guidance of Japanese importers regarding productspecifications.”11

Vertical integration has been the subject of much debate in the fish industry. Oneimplication of a customer orientation is that vertical integration in itself is neither goodnor bad; it should not be the determining factor in strategic decision-making. Verticalintegration is good when and where it is conducive to meeting customer needs andmarket demand; it is undesirable when or where other ways of structuring acompany would better serve that end. Recent studies by Norwegian economists,looking just at corporate profitability, give vertical integration a mixed review. Butthere are many variants of vertical integration. The experience of leading Norwegianfish companies generally supports a tendency towards vertical integration, though ina number of different variants and in various degrees of completeness. In short,especially considering what corporate decision-makers themselves have to say, the

orientation of a company—whether itlooks first to supply or to demand, toproduction or to customers—is moreimportant than whether it is or is notvertically integrated.

Customer orientation results in, andis evidenced by, certain priorities in

decision-making: (1) control over the supply chain; (2) control over distribution orsales; (3) market generation; (4) predictability of supply; and (5) customer-definedbusiness. All overlap to some extent.

Control over Supply Chain. To yield a quality product on the dinner table, qualitymust be maintained and assured throughout the supply chain. Quality can best beassured by direct control. So if the customer demands quality, there is incentive totake control over every link in the supply chain. If a customer is less demanding,corporate priorities can be assigned elsewhere. New EU traceability requirementsprovide further incentive to control the supply chain. So does a desire to reducecosts at intermediate steps. Vertical integration is one way to take control of thesupply chain in whole or part.

French food consumers are widely known to be amongst the mostdemanding.. The high-end French grocery chain Picard, like other French

11 “The Potential of the UK in Supplying the Japanese Seafood Market,” prepared by Craig S. Morrisfor the Sea Fish Industry Authority, Seafood Scotland, and Trade Partners UK, pp 32-33.

One implication of customer orientation isthat vertical integration is neither good norback in itself. It is good when conducive tomeeting customer needs and marketdemand; it is undesirable when othercorporate structures would better servethat end.

retailers, has adopted the strategy of taking control over parts of its productsupply to assure quality. Picard procures white fish in Norway from NordicSea Holdings. Nordic Sea has been restructuring to concentrate itsbusiness on supplying high-value product to Picard and, to that end, hasbeen solidifying its control over its own supply chain. Actually Nordic wascompelled to restructure, having incurred a large loss in 2000. The route itchose was to cut its trawler fleet in half, centralize control of trawlers thatformerly operated largely independently, and reduce its processing factoriesfrom five to two, both of which are being modernized with the proceeds fromdisposing of excess assets, a large equity investment, and loans. Picardhas an ownership stake in the larger factory. Nordic trucks frozen fish to acentral Picard storage facility and freezer for subsequent processing,following Picard handling rules (e.g., Picard will not sell twice-frozen fish).

Both companies benefit. By controlling its own supply, Nordic can controlboth price and quality, thereby being able to retain a customer that canguarantee take-off of high-value product. Picard is assured of quality.Vertical integration—in this case, half provided through one company, halfthrough its customer, with customer financial interest in the integratedoperation—is the route chosen to control the supply chain.

Control over Distribution and Sales. Many of the leading Norwegian fishcompanies seem to have started as exporters and traders, not as producers. Thatno doubt played a part in absorbing a customer orientation. (Nordic Sea Holdings,for example, is a unit of Nordic Group, a sales organization.) There are other leadingNorwegian companies, however, that began as producers but whose growth strategyis tied to the development and aggressive expansion of their own distribution andsales organizations. Such companies illustrate the importance of controllingdistribution and sales in today’s fish industry.

The best example is Pan Fish, one of the largest and fastest growingNorwegian fish companies, having grown by 100 percent each year since1995 (a performance that some observers of Pan Fish think is precipitous),and a great proponent of consolidation and integration. Pan Fishoriginated as a salmon farming company in 1992. Following a 1995 publicoffering, Pan Fish began to build a global sales organization, concentratingin North America. Subsequently Pan Fish began expanding in processing,catching (pelagic), and the farming of marine species, as will be discussedbelow, building both depth and breadth. The rationale for the move intosales and distribution was to ensure direct contact with the customer. Thatcustomer, in North America, consists almost entirely of major supermarketchains and discount retailers. What Pan Fish saw was that it is in theinterest of the retailer to be able to vary the price of the fish on the displayshelves so as to offer discounts, which attracts new customers and helpsbuild a market (more on that point later). A fish producer can enableretailers to vary price, without forcing the retailer to sell below cost, only ifthe producer can control the price the retailer has to pay. If there is anintermediary distributor or wholesaler, that can be impossible for the fishproducer to do.

Pan Fish does not see a need to extend integration as far as retailing, believing theretailer and producer to have a shared interest in building a long-term market for aproduct. Intermediary distribution and sales companies, in contrast (according to thePan Fish strategy), have a greater interest in maximizing profit on each sale, so theyjust increase their margins when their costs decline.

Market Generation. Retailers know that markets for products can be created bypricing policy—by selectively offering discounts to attract a new customer base to aproduct and build demand. The Pan Fish example above also serves to illustratethat a fish producer’s corporate strategy can also be oriented towards building amarket for a product. If the producer’s customer base consists of retailers, marketscan be built expeditiously by facilitating price manipulation by the retailer, i.e.,helping the retailer do his job. The producer benefits by tying down a customer, theretailer benefits by being able to build demand, and both benefit from higher salesvolume. Absent a customer orientation, however, the alignment of interests, and thestrategic moves the producer has to take to benefit, would not be analysed.

An emphasis on market generation can also lead to other strategies. Whatexperience with farmed salmon taught retailers is that markets for fresh seafoodproducts can be built very effectively if a product is available for display continuouslyand with uniformly good quality. That lesson has intensified the interest of retailersin the farming of species other than salmon. In turn, it has led companies like PanFish, again for purposes of helping build markets, to intensify their interest indeveloping the farming of marine species. To this end, in 2000 Pan Fish organizedPan Marine as its marine species aquaculture subsidiary. Pan Marine isconcentrating on cod, halibut, and turbot.

New species mean new product lines that feed corporate growth, so this strategycould be recommended on that basis alone, of course. What is important here isthat the production strategy is shaped by the ways in which demand can beincreased, not just an interest in producing more.

It is noteworthy that Pan Marine is not undertaking developmental work itself in themain, avoiding (for now) vertical integration to the point of production. Instead,developmental work is being left to small independent fish farmers. The rationale isthat the science of raising these species is so little understood at present that theirfarming is best done in small scale operations with close personal attention.

On an industry-wide level, market creation is the core of the strategy of theNorwegian Seafood Export Council, the industry-managed and industry fundedexport promotion organization set up by the government when controls over exportswere relaxed. The Council advertises abroad. In countries where seafoodconsumption is low, the Council’s approach is to start with the basics and focus onbuilding demand for seafood in general; the pitch for Norway in particular issecondary. In countries where seafood consumption is high, the Council promotesNorwegian product in particular. It differentiates (i.e., brands) Norwegian productthrough qualities that could just as well apply to Scottish product: cold clean water,tradition, the Norwegian fisherman, a sustainable resource, etc. The Council’sbranding efforts have been successful. In Japan, for example, where the Council

spent £423,000 in 2000 alone, the name “Norwegian mackerel” is commonly used inplace of “Atlantic mackerel.”12

Predictability of Supply. Ensuring predictability of supply is the aspect of customerorientation which is most commonly analysed as important within the Scottish fishindustry, though usually in terms of “continuity” of supply. Actually predictability canbe enough; a continuous supply is not essential, as the example of Aalesundfisksuggests.

Though it has had its ups and downs with white fish, and is now primarilya salmon processor and exporter, Aalesundfisk is starting to rebuild itswhite fish business with a strategy pinned to supply predictability. Thebusiness potential is clear because the company’s existing customerbase, which consists of big supermarkets, is asking Aalesundfisk toprovide white fish, and with the same uniformity in supply—andquality—achieved for salmon by farming. What Aalesundfisk has done,as an alternative to investing in marine species aquaculture, is to strikemulti-year agreements with suppliers of various white fish species upand down the length of the Norwegian coast. This arrangement allowsAalesundfisk to obtain one white fish species or another throughout theyear, according to the fishing seasons for the species, and to tell itscustomers in advance which species will be available roughly when. Toassure high quality, Aalesundfisk has hired additional quality inspectorsfor white fish and acquired a white fish processor in the north.

With an eye towards supplypredictability, fish processorsthroughout Norway routinelypurchase from any number ofharvesters, and they take eitherwild catch or farmed fish. No exceptions were found in the course of thisexercise—even amongst those fish producers who have catching or farmingbusinesses themselves.

Customer-Defined Business. Maybe because such a large fraction started inbusiness as exporters selling directly to wholesalers or retailers or caterers, onedegree of separation from the dinner plate, the leaders in the Norwegian fish industrydefine the core of their business more in terms of their customer base than theiroperations, i.e., what they produce or what sector of the fish industry they inhabit.They move from processing into farming or catching, or they move from farming todistribution and sales, but seem wedded to a customer base of processors,wholesalers and distributors, big supermarket chains, or the food catering industry,not straying from one customer segment to another. All of the companies citedabove are examples; so is Norfra Eksport.

Norfra began business about 20 years ago as an exporter of whole freshheaded & gutted fish to processors and wholesalers. When the whitefish processors supplying the company failed in the early 1990s (due to

12 Ibid., p. 31.

Fish processors throughout Norwayroutinely purchase from any number ofharvesters, and they take either wild catchor farmed fish.

the severe cut in Norway’s cod quota), Norfra was obliged (withgovernment encouragement) to buy the liquidated facilities and becomea processing company itself in order to retain its customers.Subsequently, Norfra moved into aquaculture, first salmon, and nowcod. It then added interests in coastal vessels. Norfra moved intovertical integration downwards, from the customer; company executivestie their success to that strategy.

KNOWLEDGE BASE

Over-fishing of herring and mackerel virtually wiped out stocks by the early 1970s,throwing the Norwegian fish industry into crisis and provoking a thorough-goingexamination of the industry’s future potential. The conclusion drawn was that thelong-term economic viability of the industry was hampered by the lack of a solidknowledge base and, in consequence, deficiencies in competence. The agricultureand other industries had long had dedicated institutions for higher education and forR&D, but the fish industry had nothingcomparable. With the Norwegiangovernment as the driver and funder (at atime when the Norwegian economy waslargely controlled by the state), a collegeof fishery science was established (inTromsø), as was an R&D organization,and other strategic measures were taken to build a knowledge-base for the industry.Today the Norwegian College of Fishery Science, which merged with the Universityof Tromsø in 1988 and whose building is the most prominent on the campus, hasabout 650 students. The curriculum includes both the natural and the socialsciences. Next door is Fiskeriforskning (The Norwegian Institute of Fisheries andAquaculture), an R&D institution that collaborates with the college’s faculty onresearch projects. Fiskeriforskning is 49 percent owned by the Ministry of Fisheriesand 51 percent by Norut Group, an assemblage of five R&D organizations that itselfis partly owned by the University of Tromsø.

A similar relationship exists between SINTEF and the Norwegian University ofScience and Technology (NTNU). The largest independent research organization inScandinavia, SINTEF performs R&D projects under contract to industry andgovernment, deriving 90 percent of its income from contract work. Personnel fromNTNU work on SINTEF projects, whilst SINTEF staff teach at NTNU. Laboratoriesand equipment are used jointly. SINTEF is now developing a similar program withthe University of Oslo. SINTEF’s eight research institutes range from appliedchemistry to applied mathematics to industrial management. There are also fourresearch companies, amongst them SINTEF Fisheries and Aquaculture, in which theFishermen’s Association has a 4 percent equity interest (the remaining 96 percent isowned by the SINTEF Foundation). SINTEF Fisheries and Aquaculture’s 70employees carry out R&D projects that extend to food processing (e.g., productquality, feed technology). It is noteworthy that commercialization is a welcomeadjunct of research activities conducted both by Norwegian College of FisheriesScience and Norwegian University of Science and Technology faculty (in conjunctionwith Fiskeriforskning and SINTEF respectively).

The crisis of the early 1970s provokeda thorough-going examination of theindustry’s future. The conclusion wasthat the long-term economic viability ofthe industry was hampered by the lackof a solid knowledge base.

The largest fisheries research organization in the country is the Ministry of Fisheries’research arm, the Institute of Marine Research in Bergen. IMR’s research programcovers marine resources, marine environment, and aquaculture. Total funding in2000 for IMR was nearly £38 million, over half of which came directly from theNorwegian government. IMR appears not to engage in commercialization.Research on fisheries issues is also sponsored by the Research Council of Norway.

In January 2001, a new duty was imposed fish exports to set up an R&D fund. Thefund is administered by a board appointed by the fisheries ministry but with industryrepresentation on its board.

The Norwegian College of Fishery Science plays an invaluable role in technologytransfer and the diffusion of knowledge. Graduates of the college populate all partsof the fish industry in Norway. Many are said to remain in contact with collegefaculty, sometimes more so after they graduate than before. So a dedicatedinstitution such as this does more than create a capable, well-educated workforce.Because of its intertwined relationship with R&D institutions, it also serves todisseminate the results of the R&D work being undertaken within the country so thatthe R&D can be applied directly within industry and potentially serve to bolster thecompetitiveness of the industry. The Norwegian University of Science andTechnology, though not looked into directly in this exercise, seems organized tofunction similarly.

The College of Fishery Science solicits students from abroad and offers a substantialpercentage of its courses in English. Additionally, some of the faculty are regularvisitors from foreign institutions. Even if the foreign students return to their homecountries after graduation, the consequence of an international student body is thecreation of informal networks that can extend the influence of the Norwegianindustry, facilitate the creation of trade relationships, and help the Norwegianindustry stay connected to developments in other overseas fish industries.

HIGH EXPECTATIONS

A sense of optimism, an expectation that the future holds promise, pervades mostsegments of the Norwegian fish industry. The optimism is evident when businesspeople talk about their plans and strategies, when teachers comment on quality oftheir students, when journalists and academics characterize the industry, and whenfinancial and other support institutions assess the industry’s prospects. Observers ofthe Norwegian industry rarely overlook the difficulties the industry—and theythemselves—may have experienced in recent years (and still do experience), butthere is also recognition that the difficulties have always been surmounted one wayor another. Admittedly the study visit participants interacted with only a fewrepresentatives of the Norwegian industry, and with the more successful companies(rather than with, say, companies engaged solely in processing, a segment that hasbeen unprofitable by itself lately). But commenters on the industry from verydifferent perspectives, however, were united in looking forward with highexpectations for the future rather than dwelling on past difficulties.

The data-point invariably cited to justify the high expectations is the projection thatfish industry production could reach 240 billion NOK (about £21 billion) in value by

2030, becoming the country’s leading export.13 With the inevitable decline of the oiland gas industry, presently far and away the leading source of export earnings, thehopes for the Norwegian economy are now pinned on the fish industry. This 250billion NOK projection stems from a SINTEF report of a couple of years ago, and it iswidely regarded as realistic. One reason is that the industry has had strikingsuccesses in the past, e.g., in building a salmon aquaculture export industry.Another is the fact that steps to make the projection a reality are already beingundertaken by various parties. The projection presumes the growth of a marinespecies aquaculture industry centred on cod.

This projection, and the general optimism to which it contributes, has had a variety ofconsequences. The political profile of the fish industry is said to have risen; amongstpoliticians and the general public alike, the industry is viewed as a potential boon tothe economy rather than, as before, a subsidized drain. Recruitment in the catchingsector is not generally a problem. Young people still see romance in the life of afisherman, and the pay is good. (Recruitment is still a problem in isolated fishingcommunities, however, where wages are lower and young people are prone todepart for population centres. It is a serious problem in the processing sector, whichhas none of the romance of catching or the pecuniary potential of aquaculture.)

Whilst the contrast to the Scottish fish industry is evident, the practical implicationsmay be thought to be nil. The positive morale and public image the Norwegian fishindustry enjoys is a consequence of the industry’s growth potential, which in turnresults from natural advantages that the Norwegian industry possesses and theScottish industry does not, in particular, a coastline sufficiently lengthy toaccommodate enough grow-out farms to produce 250 billion NOK in export productannually. Further, the Norwegian industry is not subject to the Common FisheriesPolicy; Norwegian fishermen are still accorded an inherent right to fish. Certain fishstocks are at their prime in close-by Norwegian waters, too. So it is no wondermorale remains good in the catching sector. In short, the high expectations of theNorwegian industry result from factors that can not be controlled or replicated.

But the Norwegian fish industry also has natural disadvantages. Export markets inthe EU are too distant to allow rapid delivery of fresh product by truck, and internalland transport is very difficult. Norway has no market of 55 million people within aday’s trucking distance. Not being in the EU results in duties and price controls towhich Scottish product is not subject. The industry has experienced stock depletion,financial crisis, and restructuring and rationalization just as has every other country’sfish industry. Yet rather than becoming despondent over past failure, the Norwegianfish industry is oriented towards the potential of a fish industry with a newcentrepiece in the future.

Most important, whilst dependent on certain factor advantages that can not becontrolled, the economic potential of the Norwegian fish industry would never berealized if the industry, in its various segments, did not take proactive action tocapture the advantage. Licenses for grow-out farms capable of producing 250,000

13 Norges muligheter for verdiskaping innen havbruk. Det Kongelige Norske Vitenskabers Selskab ogNorges Tekniske Vitenskapsakademi, 1999. Fish exports in 2001 totaled 30.7 billion NOK in valuebased on 2 million tonnes of product, per the Norwegian Seafood Export Council.

tonnes of cod annually have already beenissued. Private consortia are alreadydeveloping cod hatcheries sufficient to producethe hatchlings these farms will require. TheSkill and Resource Centre for the NorwegianFish Industry (FiskerinæringensKompetansesenter) is formulating a 30-yearstrategy to produce the numbers of trainedpersonnel required to reach the productionlevels assumed by the projection of 250 billionNOK in exports. (That these actions are beingtaken lends further credibility to the projection.)So the practical implication of the high expectations of the Norwegian fish industry isthat absent the right supporting actions under the control of the industry, no naturalor factor advantage is of any consequence, whereas the right supporting actions cangenerate economic opportunity from whatever competitive advantages might be athand.

COLLABORATION

Below the surface, the Norwegian fish industry is rife with factionalism and clashinginterests. The coastal fleet and the distant water fleet are constantly at odds. Theprocessors and exporters resent what they say is the disproportionate politicalinfluence of the fishermen, who get new restrictions imposed on vessel ownershipwhenever the processors want to increase efficiency through consolidation orintegration. The fishermen distrust the processors. Business people gripe about thestate, believing their levy monies to be squandered on overly time-consumingresearch or misdirected marketing efforts. Older companies resent new “upstarts.”Yet through all this, there is widespread collaboration throughout theindustry—between individual firms, between public and private, between differentsectors of the industry. The extent of collaboration helps create the impression ofcohesiveness, as noted above, that the industry gives to outside observers.

Organizational divides between sectors impede collaboration. The recent merger ofthe employers’ association for fish farming with the associations for wild catch, fishmeal manufacturing, and fish feed manufacturing under one umbrella—theFederation of Norwegian Fishing and Aquaculture Industries (FHL)—is expected togo a long way towards overcoming one significant division.

One form collaboration takes is advance notice of landings by fishermen toprocessors, which is the rule in Norway. Norges Råfisklag, the white fish salesorganization for most of the northern coast, says that all fish are sold in advance oflanding, either by e-auction or by direct sales to buyers, eliminating the need forauction halls. What makes advance sales possible, especially for fresh white fish, iscomplete reliability in reports of the quality of the fish a boat has caught.

Of equal importance is collaboration between individual firms that have supplier-buyer relationships, are otherwise complementary, or have some mutual interestsdespite being competitors.

Whilst dependent on natural orfactor advantages, the economicpotential of the Norwegian fishindustry would never be realized ifthe industry, in its varioussegments, did not take proactiveaction to capture the advantage.The right supporting actions cangenerate economic opportunityfrom whatever competitiveadvantages may be at hand.

Pan Pelagic is the subsidiary under which all the pelagic sectoractivities of Pan Fish is subsumed; Global Fish, which Pan Fish hadacquired, is the core.14 Pan Pelagic is no stranger to the benefits ofcollaborating with its local competitors. Seeing that increasingcapacity amongst processors was driving fish prices upwards asprocessors bid against one another for limited supply, Pan Pelagicorganized joint purchasing with five other companies in the Ålesundarea. Joint purchasing with four other companies is limited tomackerel, but for a fifth company extends across all species.

An example of collaboration with greater significance for internationalcompetitiveness, however, is the joint effort of Pan Pelagic and two ofits equipment suppliers to develop a maximally-efficienttechnologically-advanced pelagic processing line. Pan Pelagicprocures much of its processing equipment from Optimar, anotherÅlesund company. (Optimar has the sales advantage ofunderstanding Pan Pelagic’s needs thoroughly; in fact, Optimar hiresex-Pan Pelagic employees to better understand its customer.) PanPelagic saw that international competition could not be fended off(especially given Norway’s high wage scales) without having themost efficient processing lines. Icelandic companies had taken thesame tack and had developed processing lines more-efficient thanPan Pelagic’s. So Pan Pelagic joined with Optimar and an Oslofreezing equipment manufacturing company to develop a processingline that eliminates forklifts, blast freezing, and other technologiesthat require human operators. Financing assistance was obtainedfrom the government development fund SND, which also brought inSINTEF to provide R&D support (the benefits of which Pan Pelagicquestions).

What this example also illustrates is how companies in physical proximity can derivecompetitive advantage from the interaction physical proximity helps create. PanPelagic and Optimar can analyse, and can act on, shared interests all the moreeasily because of the flow of people between the companies and the thoroughunderstanding that results of business needs and objectives. The benefits ofproximity are readily acknowledged here—and called “the strength of Ålesund.”

Networking, connections and, in turn,collaboration across different sectors ofthe industry in a locality can befacilitated by common facilities.Norway has several striking examples.In Bergen, the “fish centre” close to thecentre of the city, and within walkingdistance of the fish market, houses in one facility the headquarters and factory ofone of Norway’s leading fish and seafood companies, Lerøy Seafood Group, as wellas the headquarters of a number of other companies, plus the Norwegian Museum

14 In September 2002, the Pan Fish interest in Pan Pelagic (51 percent) was sold to Pan Pelagicmanagement and other investors.

Companies in physical proximity can derivecompetitive advantage from the interactionphysical proximity helps create. Networkingand, in turn, collaboration across differentindustry sectors can be promoted by sharedfacilities.

of Fisheries, plus a seafood promotion organization (with a fully equipped kitchen ina theatre setting for instruction in preparation). A shared cafeteria serves all theseorganizations. A comparable though smaller facility in Tromsø is the headquartersof Norfra Eksport, a number of additional companies, the Norwegian Seafood ExportCouncil, and the Council for Competence-Building. The North Sea Centre inHirtshals, Denmark, provides a similar setting for a wide range of companies. Thereappears not to be any equivalent in Scotland.

Strong linkages between companies, collaboration between sectors, a flow ofinformation across many parts of an industry, are all indications of clustering at boththe national level and at the local or regional level. Clustering seems to havedeveloped without government support or encouragement; Norwegian researchershave published studies of the fish (and other) industries as clusters,15 but there doesnot seem to be an explicit government policy of promoting cluster formationthroughout the economy, as there is in Denmark.

The examples above together show how clustering can function effectively. It isworth noting even within a tightly-knit fishing-oriented community like Ålesund, somecompanies do function as islands, in complete operational isolation from others. Buteven these companies share the same labour pool as any other company, and thereis a certain amount of transfer of people, or even whole business units, from onecompany to another. It is also worth noting that in Norway, clustering seems to takeplace either at the level of a community such as Tromsø or Ålesund, but no evidencewas found of extensive direct interaction between one such community and another;on the contrary, all indications were that such contacts were limited, not surprisinggiven the difficult internal travel. The clustering at the national level takes placethrough the intermediaries of the national employers or employees organizations,other institutions with national membership (e.g., universities with national studentbodies), or the national government.

15 The most widely-cited of these studies is Erik W. Jakobsen and Torger Reve, Et VerdiskapendeNorge (A Value-Creating Norway), 2000. This study is not available in English, although the authorshave summarized their findings in conference presentations.

7. SCOTLAND IN PERSPECTIVE

The previous chapters addressed the fish industries of Denmark, the CanadianMaritimes, and Norway in isolation. The purpose of this chapter is to show how theperformance of each country’s fish industry compares to the performance of theScottish fish industry by benchmarking performance using indicators that relate to,and serve to illustrate, the issues introduced in Chapter 3.

The information in this chapter is also intended to illustrate how the Scottish fishindustry is faring overall with respect to these issues. Some basic information istherefore provided in a non-comparative format.

Whenever possible the indicators cited in this chapter are addressed usingquantitative information. Where quantitative data availability is limited, qualitativeinformation may be cited instead.

The chapter is organized by the four main groups of issues: Stock Depletion, Morale,Production Orientation, and Fragmentation. Familiarity with the issues introduced inChapter 3 and further addressed in the discussions of Denmark, the Maritimes, andNorway is presumed in the text.

STOCK DEPLETION

The permissible landings afforded the UK (and hence Scottish) catching sector aretightly controlled from one year to the next. Even so, the value of Scottish landingshas generally been increasing over time. The figures below are in own-year poundssterling—i.e., unadjusted for inflation—but still indicate how industry growth early inthe 1990s began to temper by the end of the decade.

Exhibit 7-1: Scottish Fish Landings, 1990-1999

050

100150200250300350400450

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Year

Val

ue

(?'s

Mill

ion

)

Source: Scottish Executive, Scottish Fisheries Statistics 2000, p. 1.

The catching sector of the Scottish fish industry is normally categorized by catchcomposition. Specifically, the catching sector comprises demersal, pelagic, andshellfish landings as well as harvesting from aquaculture operations.

Whilst pelagic species may be high volume, they tend to be low value per tonne (lowunit value). The exhibit below highlights that the difference in unit value is especiallygreat relative to shellfish, even more so than relative to demersal finfish.

Source:ScottishExecutive,ScottishFisheriesStatistics2000,p. 7.

Usingyear2000

Scottish landings and value data, the most important demersal species werehaddock, cod, monkfish, and whiting; herring and mackerel were the most importantpelagic species. Scallops and nephrops were the most important shellfish species.These will be the species focused on throughout the remainder of this chapter.

Growth in Global Demand. As total seafood demand has grown, so too have bothtotal harvests (including aquaculture with wild catch) and international markets forseafood. Exhibit 7-3 highlights the relative contribution each of the three overseasfish industries and the Scottish fish industry makes towards total world landings.More specifically, it demonstrates just how dominant Norway’s landings are relativeto even Denmark’s.

Exhibit 7-2: Value Per Tonne of Scottish Landings By UK Vessels, 1996-2000

0

500

1,000

1,500

2,000

1996 1997 1998 1999 2000

Year

Val

ue

(?'s

)

Demersal

Pelagic

Shellfish

Total landings

Exhibit 7-3: Total Year 2000 Landings, By Country

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Atlantic Canada Denmark Norway Scotland

Country

To

nn

es (

'000

)

In Exhibit 7-4, landings data from each country are extended to look at respectivebalances of trade. The data show how important exports are to the Norwegian fishindustry. They also show that the UK import market is the largest of the countrieshighlighted in the report. The significance of the Scottish fleet to the UK market isdemonstrated by Scottish Executive data indicating that approximately 60 percent oftotal UK landings by value are from Scottish-based and Scottish-registered vessels.Moreover, 64 percent of total UK landings by value were landed in Scotland in2000.16

Note, however, that export figures can differ substantially from one year to anotherdue to natural stock fluctuations, exchange rate changes, and other factors. Forexample, Norway exported the equivalent value of 2.45 billion pounds of seafoodproducts in 2001, a 2.4 percent decline from year 2000 exports.17

Exhibit 7-4: Balance of Trade, 2000

-

500

1,000

1,500

2,000

2,500

3,000

AtlanticCanada

Denmark Norway UK

Val

ue

(£'s

Mill

ion

s)

Country

Import

Export

Source: Data from Statistics Norway, Statistics Denmark, Statistics Canada, and the SeaFish Industry Authority.

16 Scottish Executive, Scottish Fisheries Statistics 2000, Table 20, p. 7.17 Eurofish Magazine, February 2002, p. 6.

MORALE

Measures of morale are difficult to come by, short of carrying out a survey of thepeople who comprise the industry. A review of industry employment trends will notdirectly highlight low morale, but can highlight both voluntary and involuntary industrydepartures. Exhibit 7-5 (see below) uses data from Norway to illustrate a trendsimilar for Scotland and other countries. The exhibit shows that as full-timeemployment opportunities vanish, part-time employment increases for a time butultimately decreases. The overall trend is for fewer fishermen as well as fewerprocessors and other downstream personnel.

The total number of people employed in the catching sector of the Scottish fishindustry was 8,440 in 1990, but by the year 2000, this number had fallen to 6,902.Moreover, the total number of vessels has fallen from its peak in 1994 of 2,994vessels. Scottish Executive figures indicate that the total number of vessels hadfallen to 2,580, a number likely to become smaller with additional government effortsto reduce fishing effort in the UK.18

“New Blood”. Anecdotal evidence points to the difficulty in finding and thenretaining skilled employees in each country other than Norway’s wild catch sector.These are issues being faced by each of the three countries but their individualresponses have been quite different, as discussed earlier in the report. Exhibit 7-6highlights the trend towards an older industry with a simple comparison between thecatching sectors of the Scottish and Norwegian fish industry. (Directly comparabledata from the Canadian Maritimes and Denmark were unavailable.) As can be seen,relatively few “young” people are choosing to enter the catching sector, resulting inmost of the industry being aged between 25 and 39.

18 Scottish Executive, Scottish Fisheries Statistics 2000, Tables 2 and 6, pp. 1-2.

Exhibit 7-5: Norway Fisher Employment, 1985-2000

-5,000

10,00015,00020,00025,00030,00035,000

1985

1987

1989

1991

1993

1995

1997

1999

Year

Fis

her

men

Total Fishermen

Primary Occupation

SecondaryOccupation

PRODUCTION ORIENTATION

Consumption Trends. UK seafood consumption is tallied in two categories:household (about 60 percent of the total) and food service or catering sector (about40 percent of the total). Whilst analyzing both sectors provides a complete sense ofhow sophisticated consumers are with their purchases, the data below emphasizehousehold consumption because this is where the majority of the UK consumer foodbudget is allocated.

Taylor Nelson Sofres data on Great Britain (i.e., all UK except Northern Ireland)consumption trends divide household purchases of prepared seafood into threecategories: Fish in Sauce, Fish & Chips, and Pies/Bakes/Crumbles. These threecategories contributed almost half of the volume and slightly less than half of thevalue of seafood consumed by households in 2001 (Taylor Nelson Sofres monitorsmany other categories of household purchases as well).

Over time, the relative importance of Fish and Chips has fallen as that of the othertwo categories has increased. Specifically, the volume of seafood dedicated to Fishand Chips has fallen by 16 percent since 1997 whilst that dedicated to otherprepared foods, which are characteristically higher-value-added, has risen between17 and almost 100 percent since 1997. These trends are illustrated in Exhibit 7-8below.

Exhibit 7-6: Average Age of Industry Participants

0

10

20

30

40

50

60

Scotland Norway (Fishers)

Country

Per

cen

t Under 25

25 to 39

40 and Over

Source: Taylor Nelson Sofres, 2002.

The significance of these data are that despite a steady decrease over the past 30years in the percentage of British household income allocated to food purchases(see Exhibit 7-9 below), the volume of higher-value-added prepared seafoodconsumed in households has been increasing.

Source: OECD 1999, “Towards more sustainable household consumption patterns -Indicators to measure progress,” ENV/EPOC/SE(98)2/FINAL. Data extracted from“Household consumption expenditure,” p. 42.

Given current demographics, this pattern of increased seafood consumption can beexpected to continue. For Scottish processors, it would seem that there is increasingpotential to sell higher-value-added prepared seafood products in the major marketclosest to Scotland.

Exhibit 7-8: Household Consumption Trends, 1997-2001

0

1,000

2,000

3,000

4,000

5,000

6,000

1997 1998 1999 2000 2001

Year

Vo

lum

e (T

on

nes

) Fish In Sauce

Fish & Chips

Pies/Bakes/Crumbles

Prawn/SeafoodCocktail Toppers

Exhibit 7-9: Percentage of Household Budget Spent on Food, Beverage, and Tobacco

0

5

10

15

20

25

30

35

1970 1980 1996

Year

Per

cen

tag

e Canada

Denmark

Norway

United Kingdom

This opportunity is highlighted in Exhibit 7-10, which shows the relatively low level ofseafood consumption in the UK at present. These rates are based on data from theFAO and its country profiles. There is some question as to whether theseconsumption rates are accurate (e.g., Norwegian estimates vary from 10.4 to 20.7 kgper person as compared to FAO’s assumed 35.3 kg, which is 10 percent ofliveweight captures). Regardless of data issues, these consumption rates,compared to years past, are representative of a general trend towards “healthier” aswell as more “convenient” prepared foods and highlights the opportunity affordedScottish seafood.

Quality. Quality is a difficult concept to benchmark. One might consider price-paida suitable proxy for quality, but this would entangle supply, demand, and foreignexchange issues, amongst others, with the core issue of product quality.

That said, in 2001 Seafood Scotland tested the premise that improved handlingwould yield higher market prices with a sample of fishermen. The study’s focus wason eliminating over-filled boxes and providing consistent box-weights. Box weight isimportant because at-sea product handling is the first step in determining the productquality/seafood grade. Over-filling boxes result in more fish per box, damaged fish,and less ice to preserve the catch per box. By the year’s end, Seafood Scotlandconcluded that improved handling techniques evidently did yield higher ex-vesselvalues. Specifically, one fisherman grossed approximately _61,000 more thangrossed by comparable vessels utilizing current standard practices (e.g., notchecking for over-filled boxes).19 Of course this is just one case study, and itsconclusion presumes variables such as supply did not influence the price more thandid quality.

More important for benchmarking purposes, there is evidence that the Scottishproduct quality does not measure up to that of other countries, Norway in particular,amongst wholesale buyers in export markets, Japan in particular. In July 2001, to

19 Fishing News, 15 March 2002, p. 6.

Exhibit 7-10: Per Capita Seafood Consumption

05

1015202530

3540

Canada Denmark Norway UK

Country

Kg

/Yr

determine why the UK was being outperformed by other countries exporting seafoodproducts, the Sea Fish Industry Authority, Seafood Scotland, and Trade Partners UKcommissioned 16 interviews with a range of Japanese importers, wholesale marketpersonnel, government officials, and journalists. Atlantic mackerel was the UKproduct identified as having the greatest potential in the Japanese market. “Amongstthe companies interviewed in Japan,” the report states, “there was a real consensusthat the quality of Norwegian mackerel was far superior to anything supplied fromScotland.”20 The “extremely poor quality” of Scottish mackerel in someconsignments was cited by one interviewee.

Japanese standards for fish products are probably the highest in the world overall(even if idiosyncratic to some extent), and Japan, as the largest importer of fish,shops in global markets. A good indicator of relative quality is where Japanesebuyers go when they shop in export markets. As noted in Chapter 3, some in theScottish industry believe that Japanese buyers are going to Norway and Denmarkand perhaps elsewhere rather than to Scotland for top-quality fish.

Aquaculture. Scottish aquaculture has been growing over the past decade.Between 1990 and 2000, the number of direct employees increased by 20 percent to2,470. During this time, total aquaculture production almost tripled, reaching136,000 tonnes in 2000. At present the majority of this production is salmon(129,000 tonnes). Scottish aquaculture is dwarfed by that of Norway. In total,almost 20,000 people are involved either directly or indirectly (e.g., feed, equipment,transport) with the Norwegian aquaculture industry.21

Exhibit 7-11: Aquaculture Production, Year 2000

-

100,00

200,00

300,00

400,00

500,00

600,00

Atlantic Canada

Denmark Norway Scotland

Country

To

nn

es

('00

0)

Source: Scottish data from Fisheries Research Services, Information Leaflet “SalmonProduction in Scotland 2000.” Sources for other countries identified in preceding chapters.

20 “The Potential of the UK in Supplying the Japanese Seafood Market,” op. cit., p. 30.21 The Norwegian Fishermen´s Association and The Norwegian Ministry of Fisheries,Facts about the Norwegian Fisheries Industry – 2000, p. 8.

Assets. A comparison of Scottish vessel age with Norwegian and Danish vesselage showed that Scotland and Norway are comparable in this respect, whilst theDanish fleet is relatively aged. In both Scotland and Norway, the smallervessels—under 13 metres—tended to be slightly younger than the larger vessels.Specifically, the average age for the “small” vessels was 20 years in both countries.By comparison, these smaller vessels apparently averaged 30 years for Denmark.

The average age of the larger vessels in the Scottish and Norwegian fleets tended tobe between 20 and 25 years. The apparent average age of the larger Danishvessels (those exceeding 14 metres) tended to be approximately 30 years. Ingeneral, the larger vessels in the Danish fleet tended to be the younger.

Whilst the average age of the Scottish vessels tends to be amongst the youngest ofthe countries studied, there is still anecdotal evidence that Scottish fishermen aredeferring investing in their vessels because of financial difficulties.

Profitability. Caution needs to be exercised in assessing industry profitability. Inthe catching sector, for example, fishermen with equal assets from different countriescan have quite different financial returns because of government policy (e.g., effortlimits, fuel taxes/subsidies) as well as biological issues (e.g., seasonal variation infish stocks, fish migration patterns). Yet for all of these reasons, profitability remainsan interesting metric (see Exhibit 7-12 below)

The data used in this exhibit indicate great variability in returns across time. Butthese data are “snapshots in time” and, in the case of Scotland, are for the demersaltrawler fleet alone. Preliminary data from the Sea Fish Industry Authority highlightthat average returns have fallen, and fallen dramatically, in most UK harvestingsectors since 1998.

Exhibit 7-12: Average Financial Returns to National Fleets, 1997-2000

-10%

-5%

0%

5%

10%

15%

20%

1997 1998 1999 2000

Country

Net

Pro

ft t

o E

arn

ing

s

Denmark

Norway

Scotland

The returns associated with the processing sector also tend to be low. For example,the Norwegian industry returned three percent on investment in 1996.22 This issimilar to the 1999/2000 returns reported by the Sea Fish Industry Authority for UKmixed processors in their “2000 Survey of the UK Sea Fish Processing Industry.”

FRAGMENTATION

Research expenditures. The funding of research and development (R&D) activitieshas historically been dependent upon national governments. Over time, however,industry has become an increasingly important source of funding, either directly—byindependently funding research activities—or indirectly—e.g., by participating inresearch or by contributing data and in-kind support. Exhibit 7-13 highlights thatNorway has the highest level of R&D support for its fish industry.23 The dataprovided by the Canadian Department of Fisheries and Oceans, however, arebelieved to be incomplete (though are the best available); thus the estimate of about£4.7 million in 2000-2001 expenditures is very conservative.

The macro-level data suggest the R&D goals of the different countries are similar. Inreality, as the study visits disclose, specific R&D emphases can be quite different.All countries, however, provide substantial funding for the development of moreselective gear types, better production processes and equipment, and improved fishbreeding techniques.

Exhibit 7- 13: Annual R&D Expenditure Rates

-

10,000

20,000

30,000

40,000

50,000

60,000

Canad

a

Denm

ark

Norway

Scotla

nd

Country

?'s 0

00

22 Salmar, “Dynamics of the Seafood Industry in Norway,” January 2001, p. 179.23 Gathering completely accurate R&D expenditure data is challenging; the data can be politicallysensitive, and nationwide data for a particular industry are not always rolled-up into a single figure.The figures in Exhibit 7-13 are based on current information provided by each government.Independent confirmation would be necessary before concluding that these figures are completelyconsistent and accurate.

Contribution to GDP. No fish industry included in this comparative analysis wouldappear to have much importance in the national economy, as all contribute less thenone-percentage point to gross domestic product (GDP). But the contribution the fishindustry makes to the economy of a coastal community or even an entire provincecan be critically important. For example, in Newfoundland and Labrador, fisheriesand processing-related activities contribute almost 11 and 25 percent of localcontributions to GDP respectively. Hence the political importance of issuesassociated with the fish industry, especially when combined with a policy (such asNorway’s) of dispersing the population along the entire coastline.

Exhibit 7-14 illustrates the relative contribution the catching sector in particularmakes to national GDP (first showing Scotland independently, then the UK includingScotland).24 The catching sector, however, is only a fraction of the fish industry; theUK fish industry as a whole contributes an estimated 0.75 percent to UK GDP.25

24 Estimates based on landings data provided separately by each country. UK data are from DEFRA.25 CFER 2000 (cited in Fish Industry Forum report „Sustainable Seafood,“ 2 April 2002, Annex A:Economic Analysis and Evidence, p. 9.

Exhibit 7-14: Fisheries Contribution to National GDP

0.00%0.10%0.20%0.30%0.40%0.50%0.60%0.70%0.80%

All Canada Denmark Norway Scotland UK

Country

Per

cen

t o

f G

DP

Exhibit 7-14: Catching Sector Contribution to National GDP

0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80%

All Canada Denmark Norway Scotland UK

Country

Per

cen

t o

f G

DP

8. IMPLICATIONS

After taking a look at the Danish, Norwegian, and Canadian Maritimes fish industries,the issues challenging the Scottish fish industry may appear in a different light.Lessons applicable to Scotland can be drawn from the experience of these overseasfish industries with comparable issues. There are some “good practices” observablein these industries that could be replicated in Scotland, just as there are otherpractices that the Scottish fish industry might best avoid. Whilst this internationalcomparative analysis is only one of a good number of analyses to be conducted inthe Scottish Fish Industry Project, the findings nonetheless have importantimplications for strategies to maintain the long-term economic viability of the Scottishfish industry.

Three points should be emphasized:

(1) The strategic implications of the analysis are not reducible to anyrecommendation as universal as, say, to seek added-value wherever andwhenever. Nor are they reducible to recommendations as straightforward andconcrete as “institute ITQs” or “conduct independent monthly hygieneinspections of processing factories.”

(2) The replicability in Scotland of any practice observed in other fish industries willalways be conditioned by history, economic and social structure, politicalstructure, and resource availability. So no practice observed elsewhere can beprescribed for Scotland without adaptation.

(3) To be truly meaningful for the long-term, any strategy emanating from theScottish Fish Industry Project needs to be valid independent of the governmentaland inter-governmental policy context in which the industry operates. Thatcontext will never be certain: governments change, policies change, andcompromises have to be struck to satisfy the divergent interests within anevolving EU. The fish industry needs to be sustainable on sound businessprinciples alone.

Amongst the more important lessons to be drawn from the experience of fishindustries in other countries, however, is that there is much that can be done to putthe industry on a sound footing regardless of any decisions made by government,including government in Brussels and London, now or in the future. That isespecially important for Scotland, because decisions out of the hands of anyone inScotland will significantly influence the Scottish fish industry, namely, thosedecisions made in Brussels or London. This analysis suggests worthwhile measuresindividual firms, whole sectors of the industry, public institutions, or the Scottishgovernment can undertake either jointly or on their own.

Rather than outlining strategy recommendations, the implications may be betterexplained by answering some of the questions that an observer could raise at thispoint about the Scottish industry and the issues it faces.

Other countries seem to have so many advantages over Scotland: abetter public image, educational and training programs that arealready well-established, longer coastlines, fish close to shore, etc.Can the Scottish industry ever hope to hold its own againstinternational competition?

The best response to this sort of question is to call attention to the fact that Scotlandis not without its own advantages.

> First and foremost, there is a customer base of 55 million people within easytrucking distance of Scotland in England. The French and other Europeanmarkets are reachable in another 24 hours’ trucking time. Compare Scotland inthis regard to Norway or the Canadian Maritimes, whose industries have tosurmount major logistical hurdles to reach their closest major markets.

> The UK domestic market for seafood has ample room for growth, too, givencurrent consumption patterns and levels. As Chapter 7 noted, UK householdexpenditures on seafood continue to rise even as expenditures on food as apercentage of income decline.

> The Scottish brand on food products still has drawing power. A tartan on apackage of smoked fish, just as much as on a jar of preserves, retains positiveconnotations worldwide.

> Some parts of the Scottish fish industry are thriving, notably the pelagic catchingsector, which has already undergone a good deal of restructuring, putting it inposition to capitalize on favourable prices.

As for the government crutch, direct government subsidies for the fish industry arenegligible these days in most Western countries. There is a certain amount ofindirect government spending on the industry, e.g., for universities and R&D.Relative levels of indirect spending could not be isolated in this analysis, but themore important question is whether the government monies are being spenteffectively, or whether they might do more good if directed elsewhere.

Does the hue and cry over the environmental consequences of fishfarming, combined with Scotland’s limited supply of suitable coastlinelocations, put a lid on the growth potential of Scottish aquaculture?

That may well be, at least for saltwater finfish aquaculture as now practiced. But thelid might be pushed higher by greater efficiencies, the development of cost-effectiveoffshore cage farming, sea ranching, the further development of freshwateraquaculture in ponds, and by increases in quality and price. These are mattersbeyond the scope of this study.

More important is to note that the range of species farmed in Scotland could bebroadened. Shellfish, and speciality products like sea urchins, for example, can befarmed with very different environmental profiles from finfish farming. UK domesticconsumption of such products is limited at present, which may have impeded

Scottish entry into their farming, but there is already profitable global trade in theseproducts into which Scottish firms can tap even if the domestic market is small.Other fish industries, Alaska Pacific for example, have built substantial exportmarkets in species for which there is little demand in domestic (US continental andCanadian Pacific) markets.

Further, there is potential to increase the value-added of aquaculture products,including finfish. Scotland is in a favourable position compared to Norway inparticular in this regard, as tariff differentials limit the ability of Norwegianaquaculture producers to add value.

The ability of the Scottish fish industry to increase its production ofraw material will always be constrained; fish stocks will not supportmassive expansion of the wild catch, and niche businesses aside, thegrowth potential of the aquaculture sector will never be comparable tothat of, say, Norway. Should efforts to grow the industry thereforefocus on the processing sector? Scottish processors could alwaysget supplies from somewhere else (e.g., from freezer trawlers, by planefrom Iceland).

Scottish processors can do well for themselves; there are enough examples of thosethat have, and strategies for strengthening the weaker sides of the processing sectorhave already been thought through. The potential for major expansion of theprocessing sector, however, seems as constrained as that of the catching andfarming (harvesting) sectors. The market that might underpin growth in the Scottishprocessing sector is ultimately the English market. Investments in expansion ofprimary or secondary processing facilities serving that market are far more likely tobe made in England, close to the point of end sale, than in Scotland. There is nolocational advantage to being in Scotland if the raw material supply is not indigenousanyway.

Where then might the Scottish fish industry look to find a basis forsustaining its economic viability in the long-term? What might offergrowth potential even as the mainstays of the past contract? Wheremight the Scottish fish industry find some competitive advantage overits overseas counterparts?

The Scottish pelagic sector has been doing well lately, taking advantage ofincreased demand in Eastern Europe and higher fish prices. But even here, thereare indications that the business as it is now practiced is not sustainable. A sizablefraction of the Scottish pelagic catch is being landed in Norway, where prices arebetter. Mackerel stocks have shifted migration routes, and the fish are now withinNorwegian waters when at their prime quality. Japanese buyers say the quality ofNorwegian mackerel is far superior to Scottish (as noted in Chapter 7). Scottishpelagic processors say that the quality of the fish in Norwegian and Danish marketsis superior, one reason being that inspectors in these countries prevent inferior fishfrom being landed. Major Scottish ports such as Peterhead have limited space forfacilities to pipe fish from boats, which reduces the chance of mishandling.

Where the Scottish industry seems to have greater potential competitiveadvantage—and a promising basis for sustainability—is in supplying the niche UKmarket for quality. More accurately, the Scottish fish industry is in a favourableposition to capture (and, first, to help build) domestic UK demand for high-quality wetfish. The Scottish brand still connotes quality to UK (and foreign) consumers.

The catering sector, i.e., the foodservice industry, could be an important markettarget. Top-end catering sector establishments put a much higher price-premium onquality than supermarkets (as is obvious from the prices of fish dishes in upscalerestaurants). As it happens, too, the catering sector is far more important for fishthan for other protein foods: Seafood Scotland estimates that 45 percent of fishsales are in the catering sector, versus 25 percent for other protein foods. Thecatering sector at the top end is limited in total volume, however; fish-and-chip shopsaccount for one-third of catering sector sales. But there is also room to builddemand amongst supermarkets for high-quality wet fish.

What needs to be done to strengthen the Scottish brand and itsconnotations of quality? Better advertising and promotion? Are thefundamentals in order?

Many in the Scottish fish industry think, with some evidence, that quality standardsare below those in overseas fish industries, i.e., below those analysed within theglobal fish industry as top-rank. Many also think that quality is slipping. So thefundamentals are not entirely in order. If the Scottish fish industry is to achievegreater sales volume in the high-end quality market, and capture as much aspossible of a market with clear growth potential, the quality of the product itselfneeds to be addressed.

Product quality requires attention at every step of the value-chain, from on-board fishhandling, through processing and transport, to presentation at the point of end-sale.Quality upgrading throughout the industry can be achieved by many means, bestworked in combination. Education and training is used to improve handlingtechniques; technologies make a difference, too. More rigorous inspectionstandards and enforcement are frequently cited as essential. Some say the industrycould be self-policing, working through employer or employee associations, butothers (even those who are no fans of regulation) argue that only government-administered programs can be sufficiently comprehensive and uniform. Included areinspections for food safety and public health purposes, such as hygiene inspectionsin processing facilities. Another point of view is that promotion of a better recognitionof the potential profit implications of quality would be a far better way of inducinghigher quality standards than any form of external constraint.

Why is Norwegian mackerel perceived by Japanese buyers as far superior in qualityto Scottish product? The reasons cited in the study noted previously26 include thehigher fat content of migrating mackerel when in Norwegian waters, something theScottish industry can not control (though Scottish mackerel exports still havesufficient fat content for the Japanese market). Other reasons, however, arecontrollable by the industry; they include the exclusive use of seine netting, greater

26 “The Potential of the UK in Supplying the Japanese Seafood Market,” op. cit., p. 30.

freshness, and better processing, grading, and freezing methods (e.g., facilities topump fish directly from boat to processing factory). Consistency of quality is anotherreason; the Scottish reputation has been damaged by some poor-qualityconsignments. The result is the willingness of Japanese buyers to pay higher pricesfor Norwegian product, which in turn allows Norwegian processors to pay higherprices for fish, allowing top-quality fish to be bought (and leading Scottish boats toland their top-quality fish in Norway). The branding campaign mounted atconsiderable expense by the Norwegian Seafood Export Council is undoubtedly afactor, but that branding campaign would not work unless there was a superiorquality product to back up the advertising claims.

The Scottish industry has some disadvantages to overcome. One is that thedistance of the main stocks from the coast makes trip-lengths difficult to reduce.Another is that the UK consumer does not rank amongst the world’s mostdiscriminating, so domestic demand does not exert pressure on the industry to meetor exceed international standards. Infrastructure and facilities are not what theyshould be to maintain quality. Attention to quality standards in overseas fishindustries has been growing recently, too, partly because of a frequently-cited EUstudy showing that quality and freshness are the factors most influencing Europeanseafood buying decisions.

What might the Scottish government do to help put the national fishindustry on a sound footing?

Those units of the Scottish government that have a bearing on fisheriesmanagement, rural development, transport infrastructure, and seafood are all partsof the “fish industry,” properly understood, to greater or lesser extent. The “industry”is not limited to its primary production parts, since the production parts would notwork without the contribution of government. But there is no one single thing thegovernment can do to bolster the industry. Rather, there are multiple policies andactions that can be taken to strengthen the economic foundations of the industry,and multiple places for direct intervention. Enforcement of quality and hygienestandards (as well as catch restrictions) is one example. Setting up institutions thatmay thereafter be funded and even managed by industry is another; the Sea FishIndustry Authority is an example, and every overseas industry has similarly-structured institutions.

Support for R&D, however, emerges from the analyses of overseas fish industries tobe perhaps the most important role for the government with respect to preserving theeconomic viability of the industry for the long-term future. Certainly that was theconclusion drawn in Norway from a thorough re-examination of a fish industry incrisis some years back, and the results have been impressive. A similarconclusion—the collaboration of science and industry for commercial ends—wasdrawn in the Canadian Maritimes more recently in response to the cod industrycollapse, with equally positive results to date, if on a smaller scale. Meanwhile thecommitment to R&D in Scotland has deteriorated. The closing of the Torry ResearchStation was the biggest blow, one that still causes befuddlement amongst overseasresearchers who held Torry in high regard. It is beyond the scope of this analysis todetermine why the R&D commitment has lapsed, but the reason usually cited first bythose in the R&D community—lack of funding, especially since devolution—can only

be part of the story. Funding limitations do not fully explain why the mission of theR&D now supported by the Scottish Executive is so heavily weighted towardssubstantiating compliance with Common Fisheries Policy catch limitations ratherthan, say, advancing the scientific and technological base of Scotland’s fish industryand thereby enhancing the industry’s competitiveness in global markets.

Whilst the industry itself may be in the bestposition to organize worker training, the returnsfrom higher education and R&D are often toothinly spread across the industry, and often toofar in the future, to expect companies andindustry associations to take leadership roles.Even if levies on companies or individuals fundan education or R&D initiative and industryrepresentatives participate in management, the government may have to providesome combination of initial impulse and financial support.

Support for education is an indispensable supplement to support for R&D. Judgingfrom the overseas industries analysed here, linkage between educational programsand R&D seems to be the most effective way to disseminate the results of R&D,judging from the overseas industries analysed through study visits, because studentsexposed to the R&D carry what they have learned to their subsequent places ofemployment.

But other government measures also have their place. Besides regulations and theirenforcement, examples include decommissioning schemes, financial support formodernization, worker training and re-education, infrastructure development, and thelike. Many such measures have already been undertaken by the Scottishgovernment. The effectiveness of such government measures, however, can not begauged by whether they solve the industry’s problems or not. One reason why isthat no single government measure can be a cure for all ills; a combination ofmeasures (or “market interventions”) will always be required, if government is tohave a meaningful impact on industry performance. Further, whilst the governmentdoes have its role to play, the private sector also has roles to play, without whichgovernment measures can not be effective.

Can a fish industry benefit from the interrelationships, value-chaindepth, and diversity that characterize a robust industry cluster? If so,what might be done to make Scotland’s fish industry cluster morecohesive and effective?

Of the country fish industries examined, Norway’s shows cluster structure anddynamics most clearly, both at the national level and in specific localities (e.g.,Ålesund). The Norwegian industry is well-represented throughout the fish industryvalue-chain, from basic research through marketing and sales. In the aquaculturesector in particular, the industry is becoming more diversified. Most important,companies and industry sectors are often linked to one another in ways that struckthe study visit team both by their presence and by their business consequences.Information-flows and resource-sharing between different sectors—educationalinstitutions and commercial interests, government and industry, catchers and

Support for R&D emergesfrom the analyses as the mostimportant role for governmentin sustaining the economicviability of the industry for thelong-term future.

processors, etc.—are recognized to be key contributors to industry competitivenessand growth.

Scotland’s fish industry falls short of Norway’s with respect to cluster developmentand cohesiveness. As indicated in Chapter 3’s discussion of issues facing theScottish industry today, the norm appears to be for information flows to be held incheck (e.g., between catchers and processors), and for collaboration betweendifferent sectors to be limited, despite instances to the contrary. Some componentsof the fish industry cluster, R&D being the best example, have fallen behind theirforeign counterparts. The fish industries in the Canadian Maritimes and Denmarkalso fall short of the Norwegian industry in cluster development and cohesiveness,but there are examples of local-level clustering and collaboration between sectorsthat stand out when viewed from the Scottish perspective.

The cluster components that matter most for improving industry competitiveness andperformance are the economic input foundations. Chapter 1 of this report introduced“economic input foundations” as referring to the regional resources and institutionsupon which any company in an industry must draw: the labour pool, physicalinfrastructure, educational and R&D institutions, financial institutions, regulatoryenvironment, and overall quality of life. As a rule (in the experience of ICFConsulting), the surest way to improve overall industry competitiveness andperformance is to strengthen the industry’s economic input foundations and toreinforce the linkages between input foundations and the industry. Thus, theperformance of the Norwegian industry is attributable in good measure to Norwegianinput foundations, particularly the knowledge base and workforce competenciesresulting from investments in R&D and education. These were investmentsspecifically intended to increase the competitiveness of the industry overall and pullthe industry out of crisis. The processing sector, the weak link in the Norwegianindustry, suffers from deficiencies in foundations: unfavourable regulations (EUlevies on processed fish imports) and a transportation infrastructure insufficient toovercome the challenges of Norwegian terrain and geography. The recovery of theCanadian Maritimes fish industry from the collapse of its cod sector can be attributedin good measure to the building of a strong scientific base that is intertwined, throughcollaborative working relationships, in the daily operations of the industry.

There are examples throughout this report of measures that can be taken tostrengthen input foundations and increase linkages between foundations andindustry. Many require government funding, especially those involving public goods,public institutions, or substantial capital costs (e.g., R&D programmes, port and roadinfrastructure improvements).

Other measures, however, may be undertaken by different sectors of the industryworking collaboratively, i.e., by the industry cluster, at either the national or locallevel, without requiring an infusion of government money. Some are as simple asco-locating companies from different sectors, industry associations, and publicinstitutions in shared facilities. Two excellent models are the North Sea Centre inHirtshals, Denmark, and the fish centre in Bergen, Norway. The personal interactionpromoted by proximity and shared facilities is the most efficient way to diffuseknowledge and capture competitive advantage from knowledge that may already beat hand.

A more complex example is merging the institutions and associations serving thewild catch and aquaculture sectors respectively. The Canadian Maritimes andNorway have made concerted efforts to bridge the divide between wild catch andaquaculture in recent years (to the point where Canadians use the term “harvesters”to refer without distinction both to fishermen and fish farmers). Industry observers inboth countries believe the results have been positive, citing greater stability in rawmaterial supply for processors and distributors (by being able to switch between wildand farmed fish as needed), alternative income sources for coastal communities,and other advantages. Scottish institutions and associations, however, commonlyreinforce the divide.

Vertical integration seems to be the way to go, if Scottish companiesare to hold their own against global competition. Correct?

The best response is “not necessarily,” judging from this exercise. The analysis ofthe Norwegian industry in particular generally supports a tendency towards verticalintegration, though in varying forms and in varying degrees of completeness.Vertical integration is good when and where it is conducive to meeting customerneeds and market demand; it is undesirable when or where other ways of structuringa company or a segment of the value-chain would better serve that end. Smallindependent companies are considered in many industries to be especiallyconducive to entrepreneurship, innovation, flexibility, and risk-taking. In the fishindustry as well, vertical integration might be stopped at the point on the value-chainwhere such qualities are essential. Examples include the development of novelfarming techniques for marine species, or for processing facilities, the ability toaccommodate a variety of white fish species landed by local boats. The generalconclusion to draw from these analyses is that vertical integration should not be thedetermining factor in strategic decision-making.

So much seems to depend on frame of mind. How can the attitudesof so many people working in so many different parts of theindustry be changed? How, for example, can the industry beinduced to adopt more of customer than production orientation?How can morale in the industry be bolstered? Moreover, how canthe public image of the industry be enhanced?

Scotland does not have the advantage of the Danes’ self-image as global traders.Nor, with respect to public image, has the industry been widely proclaimed thelynchpin of the export economy when the oil runs out, as in Norway. The history ofthe industry, and its place in a country’s social and economic structure, are veryimportant to attitudes. But Scotland does start with some attitudinal advantages,starting with the historical importance of the fish industry and a rich tradition oftechnological innovation. There are other national or industry-wide competenciesand character strengths that people in the industry themselves analyse. TheScottish Fish Industry Project, which has already given some attention to this matter,might be advised to give more by conducting a “competency mapping” exercise withindustry representatives to better understand what the industry believes to be itsexisting competencies and what competencies it wants to be associated with in thefuture.

Attitudes can be fostered, and morale improved, by increasing training andeducation, subscribing to tougher standards, and otherwise trying to raise the overallprofessionalism of the industry. Public education campaigns and promotions canalso help. In most companies, morale is good when business is good, and it is hardto maintain morale when business is bad. So the indirect stimulus of businesssuccess is probably better for improving morale than any direct action.

Generation change can also be critical. Those in the industry who remember “thegood old days” and now have to operate in a very different businessenvironment—and are approaching retirement anyway—may be very hard-pressedto change frame of mind. Those who enter the industry from some background farremoved from fish production, and young people who can see a future forthemselves in a business environment they take for granted, never having knownanything different, can bring very different frames of mind. A restaurateur whoexpands top-down into the industry, for example, will be much more amenable to acustomer orientation than someone who expands from the production end of thevalue-chain. An exporter who similarly integrates top-down, as another example, willregard the industry from the start as far broader and deeper than the catching andprocessing sectors alone. Recruitment efforts take on added importance from thisperspective; not only do they provide for a continuing restocking of the industryworkforce, but they can also bring into the industry “new blood” with fresh ideas,novel frames of mind, and high morale.

CONCLUDING REMARKS

A comparative look at overseas fish industries can also, by itself, provide a boost tomorale. A feeling of powerlessness before London and Brussels can depress spiritsand stultify entrepreneurship, especially in an industry with a strong tradition(especially in the catching sector) of individualism. As noted at the start of thissection, however, the experience of fish industries in other countries shows howmuch can be done independently of government to put the industry on a soundfooting. Further, the private sector or public institutions can undertake initiatives thatwill be unaffected by what government policy may happen to be.

No industry can be economically viable without demand for its products. Robustdemand, on the other hand, spreads opportunity widely throughout an industry. Theprospects for the economic viability of the Scottish fish industry have to beconsidered inherently positive in light of the steady growth in global demand for fishand seafood products. The challenge is to capture the opportunities.

Restructuring of parts of the industry may be necessary to capture the opportunities,however. That is a commonplace observation, though usually the term “painful” isused to characterize the restructuring. It is beyond the scope of this analysis tospecify what restructuring will be necessary where to sustain the viability of theScottish fish industry. This analysis has nonetheless noted that every othercountry’s fish industry has had to undergo (or needs to undergo) a certain amount ofrestructuring, too, and that industry success elsewhere is usually preceded by the

failure of some businesses and the restructuring of the rest. This has been theexperience of the Scottish fish industry too (e.g., the pelagic sector).

This analysis has also noted that the “pain” of restructuring may not be as great asanticipated. Business failure is always painful for those who experience it, andeveryone expects that industry restructuring, if it works as hoped, will yield increasedprofitability for the businesses that remain. Over and above profit and loss concerns,however, a good deal of the pain of restructuring is rooted in the human resistance tochange. That is especially true when what has to change is lifestyle, a particularconcern in the catching sector and amongst policy-makers attentive to ruralconcerns. What a look at overseas fish industries has shown, however, is that thelifestyle changes may not be as great as feared, or may yield alternatives that areattractive themselves. Small coastal communities long tied to fishing can surviveeconomically even if their wild catch businesses decline, and without having to turninto tourist towns. The collapse of the cod industry in the Canadian Maritimesfostered the growth of lucrative alternatives such as snow crab harvesting in coastalcommunities. Aquaculture has provided a new source of wealth-generation forcommunities along the Norwegian coast. The example of Norway shows,additionally, that young people making career choices can find the life of a fishermanaboard a large pelagic vessel to be quite appealing, even if quite different from theexperience of a skipper on a small self-owned vessel.

The implication is that in defining strategies for maintaining an economically viableScottish fish industry, no aspect of the status quo should be regarded as requiringpreservation at all costs. By the same measure, however, no aspect of the industryshould be regarded as wholly dispensable. Fish industries elsewhere have beenable to find ways to preserve much that makes the industry attractive even when theindustry as a whole needs to adapt to evolving global markets.

These are important lessons to recall each time the Scottish fish industry ispresented with yet another seemingly insurmountable challenge to its continuedviability. The latest, still unresolved as this report is issued, is the recommendationof the International Council for the Exploration of the Sea (ICES) that there be a zeroTAC for cod, haddock, and whiting, as well as substantial reductions for plaice andnephrops—in effect, a moratorium on demersal fisheries—in the waters mostfrequented by Scottish boats. The ICES recommendation is based on the findingthat serious depletion of cod and other white fish stock has continued despite thecontrol measures instituted in recent years. The EU fisheries commissioner hasindicated that this recommendation could indeed be adopted if no better alternativepresents itself. While the outcome of the debate is uncertain, as indeed is the finalshape of the revisions to the Common Fisheries Policy, what is certain is that theScottish fish industry will continue to face challenges that arise similarly fromdevelopments outside the control of the industry. The experience of fish industrieselsewhere, however, suggests that the Scottish fish industry nonetheless can adaptto such challenges and remain viable over the long-term even if altered in form andfocus.