Championing Sustainable Fishing
The founder of Bali Seafood International discusses how altering the marine supply chain can make life better for small-vessel fishermen
By Gilang Ardana
Wednesday, December 14, 2016
When it comes to promoting the sustainability of Indonesia’s natural resources, energy most often grabs the headlines. But just as vital – and a major priority for the current government – is the fisheries industry and the importance of sustainability for natural resources living under water.
For this reason, Bali Seafood International (BSI) is putting its commitment to sustainable fishing into practice with a series of initiatives to provide fresh high-quality fish while providing Indonesia’s fishermen, particularly small-vessel fishermen, and their communities with a way of life that empowers rather than impoverishes.
The guiding light behind BSI is Gerald “Jerry” Knecht, who set up the company to create a breakthrough fishery management model in Indonesia. He successfully gathered funding to build its first production facility in Sumbawa in early 2016, and plans to build three more in the next four years. The facilities themselves will combine an ecosystem and social impact approach to operations, emphasizing sustainability practices through technology to increase traceability and capacity for the small-vessel fishing community within the areas it operates.
A veteran of the US fishing industry, Knecht founded North Atlantic Inc (NAI), a frozen seafood supplier to the North American market, in 1981. A pioneer of cold chain technology and sustainability work in wild-capture fisheries, he witnessed first-hand the collapse of the fishing industry in the North Atlantic in the 1990s, and decided to migrate to the Pacific Rim, where there are better resources. In 2009 he founded BSI, a subsidiary of NAI, and continues to promote sustainable fisheries here.
Before sustainability became a major issue, fishing would take place in one area and when that was depleted, the fishermen would move to a new area. But as technology advanced and more fish were caught, fishing areas globally were being depleted at rapidly increasing rates.
“There was an assessment done that there has been around 90 million tons of wild caught fish harvested every year since 1984, and that number remains the same until now; while the demand for marine protein has increased over 200 percent,” Knecht told AmCham Indonesia.
Even though there is more and more pressure from the marketplace to harvest more fish, Jerry says this is the wrong approach as it will lead to depleting fish stock to the point where it cannot be replenished. This is what Knecht calls “stock collapse,” or, to put it another way, where there are basically not enough fish left to replenish themselves.
This danger has stirred up a heated global debate on better fisheries management so that fishing areas are given time to replenish themselves. “We decided to focus on sustainable products and start to produce sea food products with sustainable credentials. Fortunately from a business stand point, we are right,” he said.
Knecht promoted sustainable practices by using technology to increase the traceability of fish products. The company provides real-time catch data so fishermen can utilize it to catch fewer small fish that are discarded for not being suitable and maintain breeding stocks. From the customer side, they can also access information on where and when the fish was caught. To achieve this, Knecht works with five supply partners in Indonesia, whom he describes as “having a similar vision” to himself. Together they continue to educate fishermen on sustainable practices.
The tracking technology is designed specifically for small vessels, where previously it only targeted big vessels. Knecht said one of his social contracts with fishermen is they will only be allowed to sell fish to him if they put these tracking devices on their boats. This is to improve the traceability of small vessel products, which so far is largely ignored. The analytics data of these small vessels is now included in “Global Fish Watch”, which is part of Google Oceans and tracks fishing vessels worldwide.
“These small devices on their vessels will update us of their location every 30 seconds. We have already thousands of hours of fishing activity we can track from the vessels to maximize product output and quality as well as provide other analytics,” he said.
But Knecht decided he needed to do more. So, in 2015, he secured funding from Aavishkaar Venture Management Services, an impact investor from India, to develop four fishery management centers in Indonesia to further promote sustainable fishing practices in the country.
He kicked off the first project in Sumbawa in early 2016, with the expectation that it would be ready by 2017. When complete, the fisheries center will include basic facilities such as a mini-plant for processing, a fisheries governance office, an ice plant and cold storage, and also support facilities such as an education center, a technology center, a micro bank and a gear shop.
Knecht strongly believes that sustainable practices make good business sense, as his company can provide products with sustainable credentials in a very demanding market. Of equal importance is the social impact.
“Aavishkaar gives us capital with some interesting conditions – they don’t require a market financial return, but we need to fulfill both agreed financial returns and social indicator matrixes. Our investors will send a team and then measure how our operations impact the social aspects of the community such as level of income, level of education and access to healthcare. We report to them every year through these baseline indicators,” he said.
Every factory Bali Seafood builds will employ 120-200 locals, with a knock-on community impact on many more people. This has empowered people by creating jobs, helping to lift them out of poverty.
Troubled supply chain
The more Knecht became involved in small-vessel fisheries, the more he realized that existing supply chain practices have fishermen struggling to survive. “The supply chain of small vessels has been ignored and it’s very, very broken and inefficient, despite its significance,” he said.
He explained that Indonesia has around 3,500 large vessels (with a capacity of more than 30 gross tons), and around 800,000 small vessels that can land 200-300 kilograms a day, which, if you do the math, means that the total capacity of large and small boats is roughly equal.
“However, all of the investment has gone to larger vessels, leaving the supply chain for the small ones to develop in an extremely inefficient way,” he said.
Knecht’s solution was to streamline the supply chain by bringing the processing facilities closer to the fishermen. Previously all small-vessel fishermen deposited their catches at one collection point until there was enough to be transported to infrastructure centers in Jakarta, Surabaya or Bali. On average it took five to 10 days from the time the fish were caught to the time they were processed. It should also be noted that during the waiting time, there is minimal sanitation and temperature control, resulting in the catch losing value.
“We've done two studies to shows that 40-60 percent of the value of the fish caught by the small vessels is lost between the time the fish are caught and the time they are processed for distribution. That’s why we’re building our small factories out in the archipelago where the fishermen are. So instead of having 10 days to process the fish, we can process it within hours,” he said.
Through this, Knecht says, the catch retains more value, which in turn helps the fishermen as they earn more money, and get it quicker. Other savings, he added, are invested in educating fisherman on sustainable fishing practices. A percentage of the profits go into a profit-sharing pool for the fishermen and also provide retirement plans. And for the consumer, it results in premium quality fishery products. At the end of the day the value captured in the supply chain will benefit approximately 400 small boats/800 fishers and families or 2,000 people per plant site.
However, the poor quality of the supply chain is not the only problem. The existence of middlemen, syphoning off profits, can also affect the overall process.
Knecht explained that typically there are two types of middlemen. The first is the aggregator, who lives in larger towns and cities such as Kupang, or Maumere, basically anywhere where there are cold storage facilities. The aggregator gets the fish from the village collector – the second type of middleman – who deals directly with the fishermen. Often times there are additional collectors in the supply chain as well.
The aggregator collects fish from many different collectors and then ships the fish to the infrastructure center. The significant thing is that the processor at the end of the supply chain makes the quality assessments to decide the price. As the process takes a long time to reach the end of the supply chain the price is low because the quality is also low. All of those losses are then passed all the way back down the chain, with everybody taking their commission; the fishermen get what’s left over.
To make it worse, Jerry explained that it is common for the fishermen to receive their money within one to three weeks.
“All of these middlemen are pretty good at calculating how much money the fisherman need to continue fishing, and that's it. In some cases, the aggregator will actually return so little that the fishermen need to go to the aggregator for loans for rice and fuel,” he said.
That is what Bali Seafood hopes to change. Knecht created his facility so the fishermen can cut through the layers of the supply chain. With the help of the tracking devices and a fisheries governance center, he can provide a more efficient supply chain and the fishermen can get paid within 24 hours.
Helping to address the financial problems of the fishermen, Knecht contracted a micro-bank within the facility. He notes that micro finance is important as loans between fishermen and middlemen are often non-transparent. Fisherman do not know what the interest rate is, they don’t know what the repayment schedule is. The micro-bank helps make the process more transparent.
However, creating change is not without resistance.
“We still have a few people in Sumbawa that don’t like us, primarily the aggregators. That is why we have a strict criteria for choosing our sites, especially to measure the current competition in the area, because we do not want create a disruption that disadvantages everyone within the chain,” he said.
Knecht says he is trying to be inclusive, working with the collectors and including them in his factory operations. He employs the village-level collectors and gives them a salary plus incentives to work with him in managing his facilities.
“They are happy to have that,” he said.
Knecht hopes his efforts can create a win-win situation for both his company and the community. He also expects everyone to start promoting sustainable fishing by caring more about fishermen.
“There is a recognition that if the industry keeps extracting value from those who create the value, then eventually there won’t be anybody to create value. There will be no more value to extract as fishers will be out of business,” he said.
By that, he means that the public should support the people who are providing us with fish, then it is a win-win. But if we don’t, eventually these suppliers will disappear.
The Sumbawa plant currently nearing completion is crucial to Bali Seafood, as it will provide many lessons for the company when it seeks to create more facilities. Knecht hopes he can cover more of the archipelago, even though that will be more challenging.
“The lessons learned from Sumbawa will be very important because after that, the further we go, the more challenging it will be as we will have less infrastructure,” Knecht said.