Analysis of the bottlenecks of marine fish supply chain in Sri Lanka

Table of Contents

I.BACKGROUND

II. RESEARCH PROBLEM

III. OBJECTIVES
Specific Objectives

IV. RSEARCH QESTIONS

V. SCOPE OF RESEARCH
Supply Chain Management (SCM)
Logistics
Theory of Constraints (TOC)

VI. METHODOLOGY
Lack of Empowerment
Lack of Infrastructure
Lack of Marketing Orientation
Lack of Security
Nonexistence of Branding

VII. DATA PRESENTATION AND BOTTLENECK ANALYSIS
Fishbone Analysis of MFSC Bottlenecks
Average Net Share of the Consumers’ Price
Marketing Margin (MM)
Marketing Efficiency Index
Fishermen’s Share of One Consumer Rupee
Oligopolistic Buying Pattern at Landing Centres (Primary Market)
Lack of Empowerment of Fishermen
Fisherman Share in Consumer Rupee (LKR)
Marketing Margins (MM)
Lack of Security at Landing Centres and Insufficient Legal Protection
Involvement of Intermediaries/Middlemen
Oligopolistic Buying Pattern at Landing Centres (Primary Market)
High Risk for Supply Uncertainty, Lost Harvest, and Crew Safety
Low Level Quality Maintenance and Processing
Poor Usage of Information Technology
Inadequate Infrastructure Facilities
Poor Application of Marketing Strategies
Non-existence of Branding
Lack of Empowerment of Fishermen

VIII. DISCUSSION CONCLUSION AND RECOMMENDATION
Discussion and Conclusion
Recommendations
Overcoming Oligopolistic Buying Pattern at Landing Centres (Primary Market)
Involvement of Intermediates/Middlemen
Mitigation of High Risk for Supply Uncertainty, Lost Harvest, and Crew Safety
Branding

IX.PLANNING CHARACTERISTICS
Short-Term Development Plan
Medium-Term Development Plan
Long-Term Development Plan

X.RECOMMENADATIONS FOR FUTURE RESEARCH

References

Abstract

Supply Chain Management and Logistics are the most significant factors for the commercial marine fish supply chain; the study has considered only the Marine Fish Supply Chain (MFSC) for local markets in Sri Lanka. The Supply Chain helps to assess the efficiency of the marketing and distribution system while finding ways to improve well-performed and efficient supply chain management. Objectives were established to analyse marine fish supply chain, its main aspects, and actors and bottlenecks in the local market, understanding and analysing of preventive measurements of bottlenecks to give recommendations. Main bottlenecks are lack of marketing strategies, market structure constrains, lack of proper information flow, and inadequate infrastructure facilities. The study used two data types for the analysis as primary data and secondary data. Primary data was gathered from the responders, i.e. fishermen, consumers, and locations such as primary, wholesale, and retail markets. Secondary data were gathered from government institutions’ reports, text books, printed journals, e-journals, and web sites. Recommendations were made according to the findings, which can be used as the corrective and preventive measures. The study analysed data using most suitable analytical methods including fishbone analysis, marketing margin, marketing efficiency index, average net share of the consumer price, and fisherman share of one consumer rupee. Fishermen are assured of a fair price for harvest, best quality preferred species for affordable prices for consumers, consumer satisfaction, elimination of stagnant position of supply chain, and higher contribution for the Gross Domestic Product (GDP).

Keywords: Marine Fish Supply Chain, Marine Fish Markets, Supply Chain Bottlenecks, Logistics

I.BACKGROUND

According to the World Bank Report - R 83177- GLB (2013), world trade of fish and fish products have increased from $8 billion in 1976 to $128 billion in 2012. In real terms this translates into an average annual growth rate of 4 per cent. Developing Countries are well integrated into the global seafood trade, and more than 54 per cent of all fishery exports by value and over 60 per cent by quantity (in live weight equivalent) are supplied by developing countries. Locally and internationally, fish is highly demanding food item in the present-day consumer markets, and thus, there is a global trend where consumers’ per capita fish consumption have exceeded 20 kilograms a year (FAO, 2017).

Sri Lanka possesses every qualification to play a major role in the world fish supply chain by exploiting natural resources. Being an island and a coastal nation, the Country owes huge resources for the marine fisheries sector as presented in Table 01. However, the fishing industry achievements in Sri Lanka are not sufficient to compete with other Asian Nations and the Sri Lankan fishing industry need policy level decisions and proper development measures to enhance the industry and its supply chain.

Table 01: Background Information of Marine Fisheries Industry of Sri Lanka

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Source: Fisheries Statistics, Ministry of Fisheries and Aquatic Resource Development Sri Lanka (2016)

In 2014, fisheries sector in Sri Lanka accounted for 1.8 per cent of GDP at the current market prices and 1.3 per cent at constant (2002) prices. Fish is the main source of protein for people, which provides 71 per cent of protein from all proteins consumed. In 2015, the annual per capita edible fish consumption was 16.27kg. Total marine fish production amounted to 459,300 MT and 452,890 MT in 2014 and 2015 respectively. Its value addition was Rs.176, 239 million (US$ 1,350Mn.) in 2014. Growth rate of fisheries sector in 2014 was recorded as 4.5 per cent at constant prices and 12.7 per cent at current market prices against 2013. Approximately 272,140 active fishermen have engaged in both marine and inland fisheries and 1,023,780 members of their household depend on the income gained through fishing and related activities. Fisheries sector has generated Rs. 34,797 million (US$ 266.5 M) of export earnings in the year 2014, which accounted for 2.4 per cent of the total export earnings. A positive trade balance of Rs. 15,937 million (US$ 122 M) was indicated for external trading of fish and fishery products. Fisheries Statistics (2016) Ministry of Fisheries and Aquatic Resources Development Sri Lanka.

Approximately, Sri Lanka has 100 major marine fish types by commercial group. Infrastructure facilities are a significant part of the industry, and according to the information of year 2015, there are 21 major fishery harbours, 58 anchorages, 890 marine fish landing centres, 61 improved landing centres, and 104 active ice plants with the ice production capacity of 3781 MT/per day, 81 cool rooms with cool room capacity of 4264 MT/per day, and 927 active fisheries organisations. To achieve this growth, about 32,025 of motorised boats and 21,963 of non-motorised boats have operated in marine fishing in 2014. Out of the motorised boats, about 4,447 boats have operated in offshore fishing. Fisheries Statistics (2016) Ministry of Fisheries and Aquatic Resources Development.

In spite of these significant signs of progress, their impact remains limited, and still the fisheries sector of Sri Lanka has performed less than the satisfactorily level with domestic supply. Marine fish production is not adequate to meet the domestic demand, and consumers complain that they do not get their preferred fish species at affordable prices, and even the supply is unsatisfactory. The shortage of fish supply is the major hindrance to meet the nutritional needs of the country’s population. Likewise, the rapidly growing opportunities for fish exports have not been fully exploited. As a result, poverty and inequity among producers remain rampant in this sector. Performance (2015) Ministry of Fisheries and Aquatic Resources Development. As per the Sectors Updates Report of the Ceylon Chamber of Commerce (2016), since the lifting of the ban, the demand for Tuna fish in the EU market has shot up, and an industry expert commented that catering to demand is a challenge given the noticeable decrease in live fish in Sri Lankan deep waters. In this factual situation, Sri Lanka’s fishing industry depicts a continuous and slow-growing trend.

II. RESEARCH PROBLEM

Sri Lanka is an island with territorial sea and deep sea fishing rights. However, in real scenario, in 2016 the country imported 76,291 MT of Canned fish, food fish, and live fish valued at Rs. 29,602.00 million according to International Trade of Fish, Ministry of Fisheries and Aquatic Resources Development (2016). Consumers in Sri Lanka prefer to consume fish than other substitutes and the most available protein source are fish and fish products. Summary of Food Balance Sheet, Department of Census and Statistics, Sri Lanka (2013/2014) but their experience is different and they always make complaints about the unavailability of their preferred fish species, inaccessibility of quality fish at affordable prices, and the location to purchase. As Sri Lanka is a small country, an efficient supply chain network system would easily and quickly distribute fish, island wide. The situation is similar when considering other logistic functions and the facilities in the marine fish supply chain. Existing situation in the marine fish industry makes barriers for consumers to buy the product in the retail markets and also suppliers are not in the convenient position as major stake holders.

Marine fish or wild-caught seafood is highly varied due to weather and migratory pattern of certain commercial species. This situation generates a risk and thus the fish suppliers cannot predict their harvest of a trip. According to The Future of Fish (2015), a fisherman once said that “We never know what’s going to be at the end of our hooks.” This fisher’s quote encapsulates the highly variable nature of fisheries, which in turn creates uncertainty for the entire supply chain. Variability of fish supply is a risk for the weakest actors and also for the entire supply chain. The weakest actors are fishermen and consumers; for them, an oversupply would definitely reduce the fish price for fishermen, and a surplus in the high margin might be sucked by the strongest actors like middlemen, wholesalers, and retail fishermen; thus, the consumers gain less benefit. As discussed earlier, both supply shortages and over-supply severely affect fishermen and supply chain actors. This situation leads to tremendous inefficiencies in the supply chain. As a remedy and for effective and efficiency of supply chain, the barriers or bottlenecks should be eliminated.

Supply chain inefficiency creates frustration among the fishermen because they lose their income against dedicated hard work in extremely difficult working conditions, and that situation forces them to increase their harvest somehow or other. This makes them spend more and more time in the sea, go to deep sea to catch commercially viable high valued fish like yellow pin tuna and other edible big fish, and then they purposely poach other nations’ waters. This results in serious negative consequences in socio economic and Geo-political arena, at the end.

Running a supply chain on uncertain fish supply eliminates its smooth functions and it would pave the way to create manipulation of middlemen and ad hock business behaviour of each and every supply chain levels. In addition, demand management is ignored in fish supply chain in Sri Lanka. Existing marine fish supply chain is not in a position to meet the retail market demand. There are fish shortages, inadequate retail outlets, very poor quality fish, hygienic problems, and lack of consumer-preferred species, are the main problems in retail markets. This situation causes a vender-manipulated fish business rather than customer focused or consumer satisfaction.

In modern marketing strategies, customer is in the higher level of the market and customer satisfaction is the golden key to the success of a business. Yet, the marine fish market is lagging behind the modern marketing concepts and strategies. Customer bargaining power is almost zero and some consumer rights are invalid in fish retail markets. Consumers in retail market forced to buy what is in the market if they want, for an already fixed price regardless of its quality,

III. OBJECTIVES

Objectives were established to examine the research problem and mainly focused on understanding marine fish supply chain, all stages involved, main actors, and external and internal influential aspects.

The Main Objective

Analysis of Bottlenecks of Marine Fish Supply Chain in Sri Lanka.

Specific Objectives

Specific objectives define what is the main aim of study of MFSC in Sri Lanka mainly focuses on summarize the whole research in to 3 objectives with “what” “where” and “how” the research and its results or findings should be.

i. Comprehensive analysis on marine fish supply chain and its main aspects and actors in local fish market in Sri Lanka,
ii. To identify the preventive measurements related to bottlenecks in the supply chain.
iii. To understand on how to increase the marine fish supply chain performance, using Supply Chain and Logistics concepts and strategies.

IV. RSEARCH QESTIONS

Research questions fundamentally aimed to analyse the main research theme and the marine fish supply chain bottlenecks.

i. What are the main aspects of the Marine Fish Supply Chain? And why they create bottlenecks in the local marine fish market?
ii. What are the contributions of each supply chain actor and existing marine fish supply chain structure on making supply chain bottlenecks?
iii. How to eliminate Marine Fish Supply Chain Bottlenecks?

V. SCOPE OF RESEARCH

The aim of this study was to understand the marine fish supply chain from its existing position up to the recommended level. The bottlenecks were verified, supply chain actors were identified as responders, and each supply chain stages were studied from fish capture to consumer of domestic fish markets in Sri Lanka. Further, the supply chain actors and stages of the network including suppliers, intermediaries, whole sellers, retailers, consumers, infrastructures, institutional supports, market structure, internal and external factors, ICT development, applications and distribution system and facilities were analysed to investigate supply chain bottlenecks. Two samples were selected on convenient sample method and snowball sample method and these samples represented fish consumers and suppliers of marine fish supply chain in Sri Lanka. In addition to retail markets, wholesale market and primary market (landing centres) were observed. Peliyagoda fish whole sale market is a centralized market connected to major marine fish areas including Southern Province, Western Province (specially Negombo and Chilaw major landing centres), Northern Province, and a part of the Eastern province; therefore, Peliyagoda fish whole sale market was selected as the respond place, considering its connectivity as a distribution hub and its capacity.

FAO (2006) have reported around thousand edible fish species in the world, and the Sri Lanka marine fish market specifies about 100 fish species, though all edible marine fish types were not represented in the study. Eleven (11) species in capturing fisheries have been selected in terms of higher supply and demand frequency in retail market, and the popularity among consumers. The selected fish species are listed in Table 1.2.

Table 02: Selected edible marine fish species in marine fish supply chain

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Source: Major Marine Fish Types by Commercial Group List. Ministry of Fisheries and Aquatic Resources (2017).

In addition to these species, produced in table 02 prawns and fresh water fish, canned fish, and dry fish are the other popular edible fish but omitted from the study on the basis of complexity. The study was based on analysing MFSC bottlenecks in local markets, but it is a highly complicated structure with a significant variation from unitary supply chain handled by a single company for a certain product. In this context, it is required to examine each level of the Marine Fish Supply Chain, study the supply chain structure and its actors as respondents, supply chain constrains or bottlenecks, review literature, gathering data and information and also some important factors, in order to make some findings and give recommendations for the Marine Fish Supply Chain in Sri Lanka.

Supply Chain (SC)

Supply chain and supply chain management are broad concepts with proven theories. These concepts and theories are gradually developed according to the requirement of complicated global business environment, as an ultimate solution aiming at the absolute end result of customer satisfaction. At the origin, Logistics and Logistics Management is the fundamental of supply chain, which originated in military background and the Supply Chain (SC) is evolutional modern phase of logistics. There are many versions of the definitions and most professionals and researchers discuss about manufacturing a related supply chain. According to Zigiaris (2000) within the organisation, the supply chain refers to a wide range of functional areas. These include Supply Chain Management-related activities such as inbound and outbound transportation, warehousing, and inventory control. Sourcing, procurement, and supply management also belongs to the supply-chain, while forecasting, production planning and scheduling, order processing, and customer service are parts of the process.

Lummus and Vokurka (1999) made a definition parallel to Zigiaris, but they included information system to the supply chain: All activities involved in delivering a product from raw material through to the customer, including sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, delivery to the customer, and the information systems necessary to monitor all of these activities. Supply chain management coordinates and integrates all of these activities into a seamless process.

Supply Chain Management (SCM)

Long (2003) defines Supply Chain Management as, The integration of key business processes from end user through the original supplier that provides products, services, and information that add value for customers and other stakeholders. SCM has been subjected to evolve in many phases from its traditional functions. Later on business environment was complicated with new avenues and concepts, including increasing competitiveness, competitive advantage theory, and new marketing strategies and concepts, which added new concepts and sophisticated parameters to take more advantages. Under the new paradigm (adapted by leading US companies as Boeing, Black & Decker, Hewlett Packard, and 3M), supply chain management is redefined as a process for designing, developing, optimising, and managing the internal and external components of the supply system, including material supply, transforming materials and distributing finished products or services to customers, consistent with overall objectives and strategies.

Logistics

Logistics is a vital concept for supply chain functions. Initially, logistics derived as a concept, which can apply for the business as a highly-effective strategy, although the concept originated from military background. Later, business operations use logistics concept and theories to increase their margin while satisfying customers. As per the Charted Institute of Logistics and Transport (CILT) (2010), Logistics or Logistics Management of the supply chain management is an important concept because at the beginning, the concept of Logistics became to use before supply chain management, and later revolutionary boost in the business opened the way for supply chain management. Logistics Management is part of the supply chain management that plan, implement, and control the efficient and effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption to meet customer requirements. MFSC needs well-performed logistics operation because supply chain mainly focused on supply flow and high quality. Consumers prefer fresh fish at right place and at the reasonable price.

Theory of Constraints (TOC)

Theory of constraints a management philosophy developed for manufacturing chains. As a management theory, TOC concerns about chain or process development in MFSC; and in this context, this study analyse the bottlenecks of the supply chain, which are also constraints in the process. Strength of any chain, process, or system depends upon its weakest links. Goldrat (2010),characterized theory of Constraints (TOC) is a management paradigm that views any manageable system as being limited in achieving its goals due to the effects of a few, one or two, key constraints-bottlenecks in the system. Constraints are defined as restriction(s) that inhibit the desired outcome. Further, TOC explains what factors or actors should change if there is a need to change in the supply chain. The decision maker should have an understanding of what is/are weak point/s and changing for what; otherwise, it would be a wrong decision. As an example, MFSC needs outside intervention for supply chain professionalism and strategic management because actors and their behaviour in all levels used to follow conventional, less effective strategies and the development is stagnated in each level.

VI. METHODOLOGY

Conceptual Framework

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Figure: 01 Conceptual Framework

Source: Developed by the Author (2017)

Figure 3.1 explains that recognition of the complexness and interrelated constraints, and set of challenges in the MFSC provide the contextual foundation for this study. The study subjectively analyses bottlenecks of MFSC; in other words, these bottlenecks are challenges for the supply chain. Only few main bottlenecks are discussed in the study, but there are many constraints in the supply chain, which are interrelated elements. Thus, simplifying existing structure in to conceptual framework (CF) paved the way to form preventive measurements and give the recommendations to solve the existing problems.

In the marine fish supply chain bottlenecks, conceptual framework that critically defined variables were analysed in the study. Ten bottlenecks were recognised in the study, which were objectified as core requirements necessarily needed to analyse the study. Identified the marine fish industry and its status in the national economy and its supply chain and inherited problems/constraints as the supply chain bottlenecks, while the CF presents the result of the bottlenecks. Conceptual Framework helped to get the ultimate check of the expected state of the design of MFSC while applying theoretical and strategic components that resulted the original perceived need of the study. The research study primarily focused on the socioeconomic analytical component of the overall model. Spekman, Kamauff, and Myhr (1998) explained; since each level of the supply chain focuses on a compatible set of objectives, redundant activities and duplicated effort can be reduced. In addition, supply chain partners openly share information that facilitates their ability to jointly meet end-users’ needs. The framework designed to show a bird-view picture of bottlenecks of MFSC and research path of the subject shows supply chain actors, their roles, stages of the supply chain, and produce a clear and comprehensive understanding of the MFSC.

The structure of the study, which is based on the model developed during research period, is designed to be practical. The theoretical knowledge that constitutes research methodology is therefore organised around the operational steps that form this research process for both quantitative and qualitative research. All the information needed to take a particular step, during the actual research journey, is provided in one place. The needed information is organised in chapters and each chapter is devoted to a particular aspect of that step. Methodology is designed while keeping attention on the structure of the study. It is true that some disciplines place greater emphasis on quantitative research and some on qualitative research. The approach to research is a combination of both for some extent. The study constructed a research strategy, which is adapted to study rationale. The multi-data collection methods are deployed and the data collection methods focused on gaining more market environment and trend of the industry. For this purpose, a questionnaire was used for consumers, observing supply chain levels and actors’ behaviour, observed routine business functions, and interviewed selected supply chain actors at their own business places. As discussed earlier, the study aimed to collect accurate data with guaranteed reliability of the data. The secondary data were collected to strengthen the analysis and findings. The following four major groups of respondents were included in a survey for the study: fish suppliers (boat owners, fishermen, and artisanal fishers), commission agents and other middlemen, whole sellers, retailers, and consumers.

Retail market is comprised of fish mongers, small retail huts (popular name is Malu Lella), temporarily places at the road side (especially in coastal areas), and specialised fish shops in the permanent buildings with refrigerated showcases, including supermarkets. Consumers are recognised as the persons who buy fish from retail markets for consumption. There are two types of consumers as household consumers and institutional consumers(i.e. hotels & restaurants, hospitals, security establishments and institutes)Institutional consumers generally buy fish from whole sale market, most probably via an agent to supply fish for their kitchen, canteen, or mess halls.

Table 03: Number of supply chain actors (respondents) by respondent category

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Source: Developed by the Author (2017)

Table 03 consists of selected samples of MFSC including market structures and supply chain actors. In the socio-economic research field, observations play a crucial role and it would be an essential part of the entire field work. The study area was selected on the basis of capturing the centralised picture of the whole MFSC in Sri Lanka. These samples clearly indicate population, its characters, and market behaviour including all players in the inbound and out bound process.

The study is based on primary and secondary data and information. The primary data and information were collected from suppliers (share fishermen and boat owners), middlemen, wholesalers, retailers and household consumers by observation, interview and questionnaire and the secondary data and information were collected from Sri Lanka Government Institutions, United Nations Food and Agriculture Organization Reports, and International Labour Organization Reports. The markets were segmented into two geographic regions with Western Province and Southern Province. Data collection spread over three months from January 1st to March 31st in 2017. Eight interviews were conducted with selected responders and transcribed and further discussed with the interviewers to check and resolve discrepancies of marine fish prices. Price data of selected species were gathered from the pre-specified locations of the landing centres (primary markets, where commission agents purchased directly from the boat owners), Peliyagoda Wholesale Centre, and retail markets. This included the prices of selected marine fish types in 20 retail outlets of Colombo and Gampaha Districts.

VII. DATA PRESENTATION AND BOTTLENECK ANALYSIS

Fishbone Analysis of MFSC Bottlenecks

The study used a fishbone diagram(Ishikawa Diagram) as a tool used to analyse main objective of the study MFSC bottlenecks. This diagram helped to understand the reasons behind and the result explained in the problem statement of the diagram head. The fish bone diagram takes an unstructured list of factors that contributed to delay established objectives and organizes that list in two major ways. First, it gathers the factors in to logical groups. And then, within the groups it indicates how the various factors feed into one another in cause-and effect relationships.

Average Net Share of the Consumers’ Price

Received by each actor in the supply chain for selected fish basket.[Average net share for actors of the consumers’ price = Purchased price (PP) divided by Consumers’ price (CP)]

ANSCP = PP/CPx100...(i)

Marketing Margin (MM)

When it concerns wholesaler he buys the basket of fish from middleman to act as a distributor then he sell the fish basket at a higher price than that at which he purchased it. In such situations, the marketing margin of a fish basket is the difference between what a wholesaler pays for the product and what it charges for the fish basket.

Marketing margin = Sale price (SP) – Purchased price (PP)(ii)

Marketing Efficiency Index

Heakal (2013) described the possibility of market anomalies that result in generating superior profits. In fact, market efficiency does not require prices to be equal to fair value at all times. Prices may be over-or under-valued only in random occurrences, so they eventually revert back to their mean values.

The marketing efficiency index greater than one (1) and it indicates that efficiency of marketing channel (ME ≥1).

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Where

ME = Acharya’s Index of ME (Acharya & Agarwal, cited in Navadkar et al., 2012).

FP = Net Prices received by the farmer

MC = Total Marketing costs incurred by producer and all the intermediaries

MM = Total marketing margins

ME greater than one (ME≥1) indicates efficiency of marketing channel, whereas ME less than one (ME≤1) signifies that the marketing channel is inefficient.

Fishermen’s Share of One Consumer Rupee

Marketing helps the producer in disposal of products, ensuring legitimate returns for his hard work, and the production process is incomplete until the products reaches the hands of the final consumer. Marketing efficiency depends largely on the costs, margins, and producer’s share in consumer’s rupee. An efficient marketing system is a pre-requisite for ensuring remunerative price to the growers Jadhav et al. (2012)

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