University of IcelandInstitute of Economic Studies

Fish as a heterogeneous product.

By

Dadi Kristofersson

Decomposing the price of fish

IntroductionFishing is an economic activity aimed at

satisfying the whishes of consumers to consume fish.

Fish is heterogeneous with a number of attributes

Consumers have preferences for attributes and the value of fish is to a large extent determined by its attributes.

Freshness - a valuable attribute

The value of fish

What determines the value of fish?– consumer preferences

• species, freshness, size, color…– properties affecting processing

• size, firmness…Demands flow of information from

consumers and processors to fishermen

The value chainThe value chainIn theory the market pricing

mechanism should pass on information up the value chain from consumers, trough processors to primary producers.

Fishers

Processors

Consumers

Rawmaterial

Consumerproducts

Consumerpreferances

Modifiedconsumer

preferances

Problems associated with fish attributes

Market failure due to information asymmetry– used car syndrome => a market for

lemonsIncentives to affect catch attributes

– attempts to limit catch to most valuable individuals

– attempts to limit landings to most valuable individuals - highgrading

First problem - information asymmetry

Inaccurate description of attributes and costly confirmation of quality lead to an information asymmetry in the market. – The fisher knows more about the attributes of

the fish than the buyerInformation asymmetry increases the quantity of

low-quality goods sold at the expense of high quality goods. – Low quality producers are able to take

advantage of lower production cost

Types of attributes

Measurement cost

Con

trol

led

by

Low High

Nat

ure

Fish

erGutting/heading

Fresh-ness

Species

Size

Musclefirmness

Color offlesh

Second problem – supply of attributesEspecially concerns sizeTargeting by gear or location choice

Non-targeted individuals have increased probability of reaching sexual maturity=> breeding for a smaller fish– rents from the whole fishery reduce

Highgrading by discarding less valuable catch– mortality of discarded fish high so no effects

on mortality rate– rents lost in non landed catch + data fouling

Case study – Icelandic fish auctions

Auctions started in 1987Sell about 100.000 tons each yearValue about 14 billion ISKLocations around Iceland but one central

auction on the internet

Registered attributes

Size classGuttingStorage classGutting and/or storage methodVesselLocationLot size

Cod price in the auctions 1994-2005

Factors explaining cod price

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

R2

MonthAuction locationLot sizeVesselFishinggearStorage and gutting methodStorage gutting interactionStorageGuttingSize gutting interactionSize

Haddock price 1994-2005

Factors explaining haddock price

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

R2

MonthAuction locationLot sizeVesselFishinggearStorage and gutting methodStorage gutting interactionStorageGuttingSize gutting interactionSize

Saithe price 1994 - 2005

Factors explaining saithe price

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

R2

MonthAuction locationLot sizeVesselFishinggearStorage and gutting methodStorage gutting interactionStorageGuttingSize gutting interactionSize

Wolffish price 1994-2005

Factors explaining wolffish price

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

R2

MonthAuction locationLot sizeVesselFishinggearStorage and gutting methodStorage gutting interactionStorageGuttingSize gutting interactionSize

Valuable attributes

Very high degree of explained price variation– attributes affect price

Size, gutting and month of the year most important– varying degree of importance of attributes

compared to seasonal patterns cod>haddock>saithe>wolffish

Indications of information asymmetry

Easily measured attributes most important– size, gutting, time of year

Storage less important than vessel numberVessel number maybe a personal guarantee of

quality => some information asymmetry– improvements in quality registration may

reduce unexplained varianceStill a small proportion left of unexplained variation

Types of attributes

Measurement cost

Con

trol

led

by

Low High

Nat

ure

Fish

erGutting/heading

Fresh-ness

Species

Size

Musclefirmness

Color offlesh

Indications of highgrading

The incentives is most definitely there

Development of the importance of size indicates an increased incentive for cod and haddock

We need to look more closely at data

Development of marginal attribute prices

Look at the development for codEstimate the model

for each day of trading from 1993 through 2004 (3595 days)

Add the supply of attributes

0 1 2 3i i i i iprice size storage gutting eβ β β β= + + + +

Average price

0

50

100

150

200

250

300

350

J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

ISK

/kg

Supply

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

Ton

per m

onth

Marginal price for size

0

2

4

6

8

10

12

14

16

18

20

J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

ISK

/kg

Marginal price for size

0

2

4

6

8

10

12

14

16

18

20

J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

ISK

/kg

Average size

0

2

4

6

8

10

12

J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

Size

, kg

Marginal price for gutting

-30

-20

-10

0

10

20

30

40

50

J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

ISK

/kg

Marginal price for gutting

-30

-20

-10

0

10

20

30

40

50

J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

ISK

/kg

Average gutting

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

J-93 M-94 S-95 F-97 J-98 N-99 M-01 A-02 D-03

Month - year

Shar

e of

gut

ted

fish

Marginal price for storage

-20

-15

-10

-5

0

5

10

J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

ISK

/kg

Marginal price for storage

-20

-15

-10

-5

0

5

10

J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

ISK

/kg

Average storage

0

1

2

3

4

J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

Stor

age,

day

s

Average storage

0

1

2

3

4

J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

Stor

age,

day

s

Closer analysis – supply of attributes

Results from Kristofersson and Rickertsen (2007)Estimate the daily bid functions for cod in the

Icelandic fish auctionsThe effects of relative changes in supply on MAP

Supply effects marginal attribute prices in the short run

Quantity Average size Average storage Gut ratioSize 1.22 -19.25 -2.79 -21.96

(1.41) (-12.55) (-5.50) (-16.96)

Closer analysis - highgrading

Results from Kristofersson and Rickertsen (in review)

Estimate the upper limit of discards under the hypothesis that fishing technology is completely inflexible with respect to size

Test for price induces highgrading and simulate discard rates

Closer analysis - highgrading

NetLong-line

No highgrading 0.000 0.008No Quota induced Discarding 0.041 0.336

Small 1.00% 11.00%Medium 18.00% 67.00%Large 80.00% 22.00%Small 3.90% 2.44%Medium 0.79% 0.27%Large 0.00% 0.00%Total 4.70% 2.71%

3.00% 1.00%

Composition of landings

Predicted Discard Rates

P-values for the null hypothesis

Estimated Total Discards from IMRI

Supply gear type

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

12 m

onth

mov

ing

aver

age

supp

ly s

hare

Gillnet Handline Longline Other Danish seine

Gear type supply

0

1

2

3

4

5

6

7

8

J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04

Month - year

12 m

onth

mov

ing

aver

age

size

, kg

Gillnet Handline Longline Other Danish seine

Indications

Development of average storage indicates increased focus on freshness–not consistent with a market for

lemonsVessel and seasonal effect indicates

that information system can be improved

IndicationsSize effect clear

–seasonal supply–affected by supply

A clear incentive and some evidence of it having an effect on average sizes–some highgrading–some change in catch composition

Conclusions

Large variability in the price of fishMost of the variability can be explained by

information on fish and fishing season– Price mostly affected by easily

measurable attributes– Limited evidence for information

asymmetry

ConclusionsLarge incentives to highgrade or target large cod

and haddock– Some evidence that fishermen have

responded to these incentives• some highgrading• some targeting

The fish auctions are a well functioning market system for a very heterogeneous product

…but there is room for improvement

The End