A recent article in the Economist depicts the current market structure of the fishing industry. As the costs of production – i.e. high oil prices – increase, the sale prices increase at a parallel rate in order to maintain profit. Another facet of the current industry’s condition is increasing demand.
Increasing demand has been perpetuated unevenly between two types of fish production: “capture” which consists of catching wild fish and “aquaculture” which is fish farming. Increased demand has been placated largely by aquaculture, as there is a global limit of 90 million tonnes a year for wild fish captured. There is vertical product differentiation between the two types of fishing, as “captured” fish are universally perceived to have superior quality.
Since captured fish are more scarce and have superior quality, the increased demand has incurred higher prices (prices have nearly doubled between 1990 and 2012). On the other hand, aquaculture has only seen minimal price increase – prices increased one-fifth in the same time period.
Market demand is projected to grow rapidly: in 2020 output is likely to be six times larger than 1990 levels. The article points to very different strategies for firms in each mode of production will need to implement to stay in business. Firms in aquaculture will need to rely on technological improvement. Lowering input costs will behoove firms in order to have an edge over competitors (i.e. – reducing quantities of fish feed, reducing energy costs, more efficient medicines to prevent sickness, automation to reduce labor, etc.).
On the other hand, technological improvements are less relevant to fish capture – the highest quality is yielded when more traditional approaches are taken. Wild fish producers will likely thrive after serving a niche market (the article cites one firm that has stopped producing medium-quality fish and focuses solely on “catching tuna for sushi and sashimi for the top end of the market”). This does not mean that aquaculture firms wouldn’t benefit from niche markets; the aquaculture industry has recently benefited from a newly found a market for collagen in beauty products (Turning Fish Scales into Gold).
Projected growth in the coming years will most likely shake up the markets for fish. Declines in expected aquaculture production will result in weaker firms leaving the market. Do you think that the fishing industry will follow the US brewing industry’s trajectory (will aquaculture firms act as parallels to macro brewers while “capture” firms will play the role of imports and domestic craft brewers)? Or are the circumstances surrounding each industry too unique from one another to follow the same path?