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Is fresh the future for fillet business

NORWAY - The Norwegian fillet industry has seen many businesses fail in recent decades. Researchers warn that the industry must be aware that competitive advantages are eroding, and find new ways to compete.

Researchers Geir Sogn-Grundvåg and Bjørn Inge Bendiksen of Fiskeriforskning have monitored the fillet industry for many years, and have seen how the number of fish filleting companies has been decimated from a round hundred to the twelve that have survived today.

- Many companies failed to see that the competitive advantage they had over their competitors was being whittled away, say researchers.

The researchers have created a picture of the history of the fillet industry on the basis of a large number of interviews with company directors and managers and a series of analyses.

"There is no single and simple answer to why things happened the way they did. There is however one important factor: that many companies failed to see that the competitive advantage they had over their competitors was being whittled away," say Sogn-Grundvåg and Bendiksen.

Low-cost countries and the rising price of raw materials

A number of events led the fillet industry into difficulties. The industry is dependent on regular supplies of fish, and when cod quotas were drastically reduced this resulted in an increase in competition for the raw materials. At the same time, frozen cod producers were facing increasing levels of competition from cheaper fish species.

In addition to the above, an increasing number of trawlers were freezing catches onboard, which naturally enough resulted in that the catches were now readily available to producers abroad. The result of this is that white fish produced in China now dominates many important frozen fish markets.

In an attempt to save themselves, many companies invested in new and expensive defrosting equipment to handle frozen fish so that they could gain access to raw materials. The problem was that the price of raw materials rocketed, and operating costs were too high for the majority of companies to bear.

Remaining in the frozen fish market proved to be poor economic strategy for the majority of companies.

Is fresh fish the solution?

The remaining fillet producers agree that the best strategy is to focus on fresh fillet products, but the bulk of production is still frozen fillets.

When the fillet producers realised they were in trouble, they reacted in a number of different ways. Many simply stopped producing fillets, some switched to other species, while yet others re-focussed on fresh fish.

"The remaining fillet producers appear to be in agreement that the best strategy is to focus on fresh fish fillet products. The unique access to fresh, high quality cod is their new - and perhaps sole - competitive advantage," says Bendiksen.

The average export price for fresh fillets in 2006 was almost twice that of frozen fillets, but despite this, the bulk of production is still frozen fillets.

"Why don't more producers concentrate on fresh fillets?"

"One of the main reasons is that the switchover from frozen to fresh fillet production requires major organisational changes and implementation, not least with regard to logistics and the handling of raw materials," says Sogn-Grundvåg.

"It's difficult to establish stable and reliable access to sufficient volumes of raw material that is suitable for fresh fish production, and given that shelf life is short, the logistics must function perfectly at all times," he continues.

In addition to the above, it is difficult to identify areas of use for the whole fillet. The back fillet, which commands the best price, represents only roughly 40 % of the whole fillet.

Recommend charting changes

A competitive advantage does not disappear overnight. As a general rule, the process takes some time and can be caused by a number of different factors. This can make it difficult to identify that a competitive advantage is being eaten away, and to decide on which strategy one should implement.

In the case of the fillet industry, some reacted by introducing short-term solutions, while others took a long-term view and attempted to exploit new competitive advantages.

"It's vital that management places emphasis on identifying the advantages they have over the competition and assesses the reasons why change happens. This can be a decisive factor both for the survival of the company and for continued success in the longer term," is the researchers' closing advice.