This paper is an analysis of a case study entitled “Mote Aquaculture Park – Sturgeon Project” (Ritchy & Michaels, 2005). The case study gave a detailed overview of the creation of an aquaculture fish farm for the production of sturgeon meat and caviar. It describes the setup of the plant and its administrative facilities, a history of domestic and international seafood production and a short description of the level of demand and supply of seafood in the US. This analysis will address economic, political-legal, technological and socio-cultural challenges and opportunities. Using Porter’s trade theory of National Competitive Advantage, the salient issues associated with cultivated seafood production are identified. Finally an advice on follow up actions based on this analysis will be given.
Caviar is to dining what a sable coat is to a girl in evening dress.
~ Ludwig Bemelmans
Economic opportunities of cultivated sturgeon production.
Few types of food bring up images of affluence and decadence like the roe of the sturgeon, otherwise known as caviar. The word caviar originates from the Turkish khavyar, first appearing in English print in 1591. Once only served to royalty it was degraded to canteen food for construction workers during the early nineteenth century. As recently as the 1870s, a half-ton white sturgeon was selling for twenty-five cents at wholesale fish markets At that time the American rivers were so abundant with sturgeons that prices for domestic caviar dropped to near zero until the German immigrant Henry Schacht decided to export the eggs to Europe where it was sold as coveted “Russian caviar” which was considered a premium, fetching prices of more than a dollar per pound.
Serving and eating caviar has always been seen as a sign of affluence. To celebrate the birth of her son to the Grand Duke Paul, Catherine the Great of Russia gave a banquet of such magnificent proportions that the English Ambassador to the Russian Court made up a detailed report of the affair, saying that there were “… jewels and caviar…” on the banquet table to the amount of more than two million sterling. With supply dwindling and demand growing, the price of caviar has grown so high that cultivation of sturgeons becomes economically viable. It stands to reason that with a carefully maintained image the demand for caviar isn’t anywhere near its peak. At this moment most caviar is consumed in Russia and surrounding countries, Europe and Japan.
The economic rise of countries like India and traditionally fish loving China has resulted in an equal increase of the number of affluent and super-affluent individuals. These “new rich” like to show their wealth by driving expensive cars, wearing expensive clothes and eating expensive food. For instance, the consumption of abalone during Chinese New Year is ever increasing even though this shellfish is considered one of the most expensive. With careful marketing, caviar could be considered as an even larger display of wealth especially since it lends itself perfectly to Chinese versions of dishes like the Russian blini. Though less glamorous, sturgeon meat is considered a good source of amino acids and cultivation efforts for that purpose are well underway in China.
The status sensitive Chinese are well on their way to become the largest market for designer brands like Louis Vuitton while India’s largest conglomerate Tata has recently bought the Jaguar car brand from Ford, confirming India’s rise in the world economic ranks. Indian chefs are now serving caviar to their customers. “Earlier, mostly expats and hotels bought caviar; now people order it even for birthday parties. Demand has skyrocketed.” Sripal Khanna of `All Things Nice,’ an up market south Delhi grocery admits. With the continuing increase in economic wealth, the demand for luxury goods like caviar will keep rising as well.
The overfishing of sturgeons to the point of extinction has caused concern, not only in the environmental protection community but with governments and regulators as well. The precarious position of the sturgeon was recognized in 1997 by the Standing Committee of CITES – the Convention on International Trade in Endangered Species of Wild Fauna and Flora – at their annual meeting. They decided to regulate the international trade in sturgeon, and included all 23 species of the Acipenseriformes (sturgeon and its cousin, the paddlefish) in Appendix II, the list of species “not necessarily threatened with extinction, but in which trade must be controlled in order to avoid utilization incompatible with their survival.” In 2000, the Committee recommended “the introduction of a universal system for caviar labeling to help identify legal caviar in trade” and curb poaching and illegal caviar trafficking. although until 1966, any fish roe that could be colored black could be called caviar. This ended when the Food and Drug Administration defined the product, and established rules for its labeling.
“The name ‘caviar’ unqualified may be applied only to the eggs of the sturgeon prepared by a special process. Fish roe prepared from the eggs of other varieties of fish and prepared by the special process for caviar must be labeled to show the name of the fish from which they are prepared, for example ‘whitefish caviar.’ All words in the name should be in type of substantially the same size and prominence. If the product contains an artificial color, it must be an approved color and its presence must be stated on the label conspicuously. No artificial color should be used which makes the product appear to be better or of greater value than it is. The label should bear a statement of ingredients listed by their common or usual names in descending order of predominance because no standard of identity has been established for any form of caviar.”
Curiously, caviar has always played a marked role on the international political stage. During the Cold War it was considered “unpatriotic” to serve Russian caviar at US state dinners. After the fall of the Iron Curtain, a new enemy was found in Iran, which plans to produce 50 tons per year by 2012. As tensions between the US and Iran rise, the export in Iranian caviar to the US, or other countries when paid in dollars, is banned even though “Cavear Emptor” an organization that creates awareness of the plight of the wild sturgeon, considers Iranian cultivated caviar production an example of sustainable farming.
For domestic aquaculture companies, the political and legal issues could be an advantage. Sustainable cultivation of sturgeons will change the image of caviar production being the cause of the extinction of sturgeons. Political tensions may cause domestic and foreign consumers to switch to US produced caviar. Finally trade restrictions can severely hinder the export of caviar from countries like Iran causing demand to switch to caviar produced in non restricted countries.
Technological opportunities .
The near extinction of wild sturgeons has led to an ever dwindling supply of its roe. Sturgeons are not the easiest kind of fish to cultivate and the quality of American cultivated caviar has never reached the level of Iranian Osetra or Russian Beluga. Technological breakthroughs in the use of sustainable aquaculture methods will give Mote’s sturgeon project an advantage. Traditional aquaculture as used by Iranian companies in the Caspian Sea use a combination of natural and planned production. Mote will use a completely controlled self contained system that allows for less water consumption and more importantly better quality control. Global warming is causing weather patterns to behave unpredictably and fish farms out at sea are much more vulnerable then aquaculture production plants on dry land. Cross breeding can produce sturdier sturgeons with higher egg production and better meat.
Socio cultural opportunities.
The new target markets India and China are steeped in tradition when it comes to food. Certain kinds of food are only eaten at certain occasions, other are eaten because of their wealth bringing qualities (like the abalone (bao yu, 鮑魚)). The medicinal qualities of caviar are not scientifically proven but there are hand creams containing the protein rich eggs and the beneficial properties of fish eggs in general have been studied by practitioners of Traditional Chinese Medicine (TCM). Care must be taken not to market caviar as a decadent Western food but as a traditional sign of wealth.
Economic threats of cultivated sturgeon production.
One of the biggest issues of producing cultivated caviar is that of image damage. The consumption of caviar is always linked to its price and its (perceived) rarity. Like diamonds and fur, caviar is seen as something refined and sophisticated. Both diamonds and fur have sustained damage to their image. Fur production will always have the stigma of dead and mistreated animals even when these animals are bred in sustainable ways. Diamond producers are heavily campaigning to retain the glamorous image of their product after it became known that civil wars in Africa are financed by so called “blood diamonds”. Diamond prices are strictly controlled by a system of site holders, diamond wholesalers who get their cue from one of three major mine holders, the largest of which is De Beers. Overproduction of caviar will influence the price which will in turn affect the exclusive image of the product.
The state of the US economy increases the risk of a worldwide economic depression. When this happens the demand for luxury items like caviar will be hit first. Decrease in demand will cause prices to drop with again an added risk of loosing the exclusive image of caviar.
As described earlier, caviar production and -sales have become the subject of regulation. Although domestic production will guarantee a stable political environment, regulatory and liability risks are higher. Export may expose the company to trade barriers as countries move to protect their own domestic production. Caviar, once packed is a relatively simple product with few additives (although some countries use borax which is frowned upon by the FDA). Political threats could come from countries taking a reciprocative stance towards US trade barriers or boycotts.
The use of advanced technology to cultivate sturgeons brings a dependence on that same technology. Patents ensure that this technology will not be used by competitors. In fact the cross breeding of sturgeons might result in a sub-species that can be patented itself, creating a competitive advantage. Sustainability and protection of the sturgeon as a species is one of the main concerns. Because the sturgeon’s habitat is self contained any contamination can have severe effects on the population. Contamination or a breakdown of the circulation system are also risks that have to be addressed.
The image of caviar as a decadent product can work against it from a cultural point of view. Even common products like Pepsi Cola are seen as an attempt to dominate or even supplant native culture. If domestically produced caviar is seen as an exclusive American product there might be resistance in Middle Eastern and other Muslim dominated countries.
According to the theory of National Competitive Advantage, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process.
In the case of caviar production, the first attribute of Porters “Diamond” comprises the availability of land to build the production facility, the availability of skilled workers to operate the facility and the availability of infrastructure to transport the product. The US has these factors in abundance. As an industry, aquaculture farms need to be innovative because of environmental concerns. Porter’s stand is that lack of resources forces a firm to become innovative. In the case of Mote, the lack of resources can result in more efficient ways to grow, maintain and harvest the fish, create fish that have higher roe production and/or are more resistant to disease.
The second attribute in the “diamond” is demand. Caviar has always been a niche product and needs to keep the image of exclusivity and luxury. This may cause a slow market growth but since demand is still outpacing supply, it shouldn’t be an issue. Quality should be a primary concern since the target group for caviar tends to be sophisticated and well informed. Competition with Iranian- and other high quality caviar producers will force Mote to sell a consistently high quality product.
The third attribute, related and supporting industries doesn’t play a large role in caviar production. Apart from suppliers of fish food and the initial setup of the plant there are no supplies needed, the fish do most of the work.
Firm strategy, structure and rivalry, the fourth attribute defines the position that Mote as a US caviar producing company has on the international market. There are few competitors in the industry but the some of them are owned or heavily backed by governments. Kazakhstan sees the production of caviar as a matter of national pride and would do anything to back its wild- and cultivated caviar industry. A ban on Kazakh caviar has left the market with one main competitor, Iran which already faces sanctions on its own.
The trade barriers for Iranian and Kazakh caviar has left the US domestic market open for domestic product. Left without the large US market however, both producers can concentrate on exporting to the markets that Mote is aiming for. Establishing a high quality brand name should be the first thing Mote should do. The cultivated fish eggs should be able to compete with the finest the competition can offer. Because of its luxurious image, the target market group should be high net-worth individuals and the group just below. Because Mote is a production company, it should hire a marketing company to successfully position its product in China and India. Connection with local food culture is crucial in these countries. In China this can be achieved by emphasizing the wealth and health bringing qualities of caviar. In India it should be seen as a rare luxury to be given to business associates and family as a sign of affluence.
Mote should take care to protect its intellectual property rights and patent breeding methods, technology and production. Especially when entering the Chinese market, the risk of “copycats” producing an inferior product is large.