The cornerstone of the market development strategy is the successful involvement of dynamic and well-managed private sector firms and hence, the maximization of returns on capital invested.
Within this broad strategy there are a number of component parts:
At the earliest stage it is necessary to prepare prototype business profiles on each of the sectors - live and fresh finfish export, live and fresh finfish domestic, dried seaweed export and on the various feasible processing stages, green mussel processing and domestic marketing of other shellfish. The business profiles are designed to promote the possibilities for growth and profit opportunities in this area to the private sector. It is important that the profiles clearly address the question of start-up costs as these will need to be carried until maximum production is achieved as envisaged in the development plan. Stress is given on the need to propose realistic production targets. This is of critical importance in assessing the viability of the more remote production centres with limited volume. Some of these will not be considered attractive to private concerns and the worth of proceeding with them may need to be reconsidered, e.g., finfish production in East and West Kalimantan and South Sumatra.
The business profiles should be used to selectively canvass private companies, some of whom are already aware of the project and who are referred to in this report. A limited public relations exercise, using a press release and project presentation should be sufficient to attract a satisfactory number of inquiries from private companies.
Subject to receiving positive interest from companies, it will be necessary to develop the business profiles on a case-by-case basis, by matching the capabilities and resources of the company to specific production sectors and markets. It is not yet possible, or practicable, to recommend the best structure for this business as not enough is known about the level of private sector interest. It is useful to reflect on one possible scenario, whereby the business is structured as follows:
Three companies in the fresh finfish export business, each handling about 700 t/year, valued at over $US 1 million fob at current prices.
One company in the live export business handling 250 t valued at $US 1 million fob.
One company in the domestic marketing of fresh fish accounting for 650 t valued at $US 0.5 million wholesale.
One company handling the live domestic trade of 50 t valued at $US 0.1 million wholesale.
One new enterprise purchasing and processing seaweed, 12 000 t valued at $US 4.2 million, based on current FOB prices for dried product. The finished product would far exceed this value.
One company processing green mussels for domestic markets and possible export, with a raw material value of around $US 2.0 million.
Implicit in the adoption of this strategy is the acceptance of an almost completely export-oriented programme with all that this entails concerning product handling, quality control, adherence to schedules and general management expertise.
It will be necessary to establish an information resource on various target markets which should be kept up to date at all times and be accessible to all parties.
The question of how production is to be organized is crucial to the development of the marketing. It is understood that a number of private sector interests have inquired into the possibility of going into production. This should be encouraged, though it is doubtful that many companies of any scale will wish to divert capital into actual production. Few, if any companies will have hands-on experience in mariculture, though the role of the Dinas Perikanan extension services is designed to overcome this.
It is more likely that the private sector would be keen in investing in the marketing of products, employing a system of medium-to long-term producer contracts, negotiated either with individual producers or cooperative groups. The object of vertical integration is to more closely relate overall production to the conditions of the market by strictly controlling the many variables of production. In the case of finfish, controls would be directed toward the species being grown, the feedstuffs used, the weights at harvest and the time of harvest. When contrasted with the capture fishery, it can be appreciated that seafarming is ideally suited to the concept of vertical integration which effectively capitalizes on its major advantage over the capture fishery, that of predictability.
Much of the strategy refers specifically to the finfish sector. The object should be to attract private companies to invest in a series of vertically integrated production/marketing ventures through the use of producer contracts. It will be the responsibility of the companies themselves to organize product collection and distribution, with technical assistance provided by the project. Similar assistance should be provided for the development of the export markets and whatever domestic markets are targeted, such as the Jakarta catering trade and the growing supermarket trade.
Companies should be involved at the earliest stage, in order to ensure that the organization of production is managed in the most efficient and effective way. This will mean consideration of company financing being made available to producers, where companies themselves choose not to run their own production units.
This production probably faces the greatest problems of all those under consideration. The reasons for this are strong consumer resistance to the product in the Jabotabek area and the large production foreseen coupled with reported low prices obtainable in international markets due to the heavy supply from other countries, notably Thailand and South Korea.
It is difficult to see how the strategy of involving private sectors can be implemented successfully, as there are few incentives to counter the disincentives. The volume of production may become an incentive insofar as it offers the possibility of economics of scale in any processing operation that may be feasible.
The product image may be changed through a promotional/educational campaign. The product lends itself reasonably well to such a promotion due to its natural advantages of being highly nutritious, economical and versatile. The cost of such a campaign would however, be high and its success would be largely dependent on the wide availability of the product. The promotion would need to include trials in institutional and commercial catering establishments, recipe development, price promotion, media advertising, public relations and consumer research to test response. As mentioned already, this would be a costly exercise and no private sector company would take it on without some financial assistance. There is little point in the Government, either national or provincial, undertaking the exercise unless it is assured that the product will be in distribution. Although a low key, low cost PR plan might stimulate demand to the extent that the trade would be prepared to stock the product, this is an inefficient way to gain consumer trial.
One of the companies consulted expressed interest in test marketing frozen meat in Australia and this should be followed up with some desk research. It is relatively easy to establish whether or not the product would be acceptable in the market, as it is highly likely that a similar product either has been or still is marketed there. Any positive interest should be followed up with a trial shipment.
Another possibility would be to can the product; it is understood that there is a significant amount of surplus canning capacity available in the country. It is recommended that the costs of canning be estimated, the product packed in brine or smoked with a vegetable oil and then compared with major market prices internationally. However, the major producers are already facing difficulties in moving product at profitable prices.
Consideration should be given to the production of a vacuum-packed meat product with a suitable sauce, for the domestic market. Vacuum-packing has the advantage of being much lower in cost than canning, though the shelf life is reduced. Care should be taken to ensure that the method of vacuum-packing investigated is the most economical as there are many variations on the market. Reference should be made to a project implemented by FAO in Sri Lanka in the early 1980s when a low-cost vacuum pack was employed with some success.
It may be possible to enlist development agency support for a pilot project to develop a product and test market it. While there is a risk of consumer resistance, it is felt that this could be overcome with an attractive product at a competitive price. The prospects for attracting private company interest at this stage are very good, and it may be possible to achieve this at an earlier stage if the initial costs look promising.
It was reported that green mussels have been used as a feedstuff for poultry and fish farming. Unfortunately, it was not possible to research this in the time available, but it should be investigated further.
The proposed strategy for the seaweed sector is described in section 2.4 of this report.
The proposed volume of production and wide range of the centres makes it unlikely that any formal commercial venture could be considered for this sector. The annual production of cockles in North Sumatra alone is estimated at over 15 000 t, while the project envisages some 250 t in that province and just over 1 000 t nationally.
A small-scale cannery, one having operated in Medan for a brief period in recent years, would require a throughput of around 10 t/day to be viable.
It is not considered worthwhile to expend effort on this sector under the circumstances. Product will be marketed through the existing channels without any significant results with the possible exceptions of South and East Nusatenggara. In the case of these two areas, extra production may depress the local markets and it is suggested that shipments to Surabaya be encouraged, either in fresh form if possible, or salted and dried, if not. Reference is made earlier in this report to the export of salted/dried product to Japan. This should be investigated to establish what the prospects are for developing a market there.
Regrettably little information was available on this subject, either locally or in the INFOFISH centre. Further research is needed to establish the feasibility of exporting the product and supplying the Jakarta hotel and restaurant trade. A wide range of export markets are available for oysters, though there is no information on the specific species and this must be clarified initially.
The foregoing proposal is made with consideration given to the ability of the project to manage it. The work proposed lies outside of the responsibilities of the existing establishment and it is therefore suggested that the following steps be taken:
The Directorate for Enterprise, within the DGF, has broad responsibility for business development. Since the work proposed can be described as investment/business/marketing development, it would be logical to assign the implementation of the strategy to this Directorate.
An officer of the Directorate should be given the task of preparing and promoting the business profiles and, enlisting the support of private companies. The businesses proposed would be handling product worth in excess of $US 10 million and a potential export earning capacity far greater than this. It is therefore suggested that the officer designated be given the authority to enlist the support of a task force comprising persons with skills in the areas of investment proposal formulation, economic appraisal, export market development, foreign company/joint venture negotiation, public relations, experience in obtaining development agency financial and technical assistance and other skills as appropriate.
Where this process involves any aspects of production, particularly in the matter of producer relations, contracts, etc., the work should involve the closest liaison with the project and the Dinas Perikanan at the local level, during the early stages.
FAO should provide technical assistance in the form of appropriate consultancy for the process of bringing the private sector into the business and assisting the company in beginning operations. Such technical assistance may include practical business guidance in the drawing up of agreements and production contracts, guidance on product handling and packaging, as well as market research and development. This should also include technical assistance in the area of product development and test marketing, specifically with regard to green mussels.
Priority markets for further research are discussed in section 4.4.
