4 Canned Tuna Processors

4 CANNED TUNA PROCESSORS 4.1 General Overview This chapter presents an overview of the current status of the major global canned tuna processors and in doing so, highlights some the key issues shaping the future of the global canning industry, as well as potential implications for Pacific Island countries and their tuna industries. The contemporary global canned tuna processing industry developed in the mid 1950s, in conjunction with the development of industrial-scale tropical tuna fisheries.319 A large increase in the demand for canned tuna in the late 1970s-early 1980s fuelled significant growth of purse seine fishing fleets, as well as canned tuna production facilities required to process the rapidly expanding supply of raw canning materials. Originally, canned tuna production was dominated by the US mainland, EU and Japan, who collectively accounted for more than two thirds of total global production until the mid-1980s. With the development of tuna canning industries in the Philippines and Thailand in the early 1980s, and later, canning industries in other lower-cost sites of production in South East Asia, Central/Latin America and the Indian Ocean, the dominance of the former three major producers diminished. Today, global canned tuna production exceeds 1.7 million metric tonnes annually.320 Like the canned tuna fishing industry, the canned tuna processing industry is both complex and dynamic. Global processing operations are currently influenced by factors such as increasing cost of raw materials and other production inputs, tuna resource sustainability issues, overcapacity, complex tariff regimes, increasingly stricter standards (i.e. labour, quality, food safety and environment) and changing consumer preferences, to name a few. Recent estimates indicate that globally, there are at least 144 tuna processing facilities currently in operation producing canned tuna products and/or frozen cooked loins. In 2008, global maximum processing capacity was around 14,220 mt/day of raw material and estimated annual production was 3.05 million mt (Table 4.1). Table 4.1 Global Processing Capacity (Whole Round) - Canned Tuna and Loins, 2008 No. Of Maximum Annual % Total global Ocean region Processors Capacity Production Production (Mt/day) (mt) Western & Central 55 6,565 1,453,700 48% Pacific Eastern Pacific 36 3,285 788,400 25% Indian 5a 1,400 272,000 9% Atlantic 48 2,970 537,000 18% Total 144 14,220 3,051,100 100% a Estimate excludes a number of small Iranian processors. Source: McGowan & McClain 2010 319 Canned tuna production originally dates back as far as the 1860s in Europe and the early 1900s in the US. Miyake et. al. 2010: 85-87. 320 In net weight (finished product) terms. Miyake et. al. 2010: 85-95. 154 155 Processing facilities in the Western and Central Pacific Ocean region (including Asia-based tuna processors) account for almost half of the world’s annual canned tuna production (1.45 million mt). Eastern Pacific-based processors account for 25% of global production (788,400 mt), which means that almost three-quarters of global canned tuna is produced by processors based in the Pacific Ocean. Total global capital investment in canned tuna processing facilities is estimated to be around $1.3 billion, which accounts for less than 10% of total capital investment in the global tuna industry. Investment in processing facilities in the developing world has been central to the production strategy of some of the major European and US players, which has been largely driven by trade preferences.321 In 2009, it was estimated that new capital investment in processing facilities over the three years prior was around $0.5 billion, around 40% of which went into onshore investments in the WCPO region ($186 million).322 The ranking of major canned tuna producing countries (in production volume terms) has changed markedly over the past 20-30 years. As mentioned, the US, EU (Spain, Italy) and Japan used to be the dominant producers. However, in the 1980s, Thailand became the world’s canned tuna processing powerhouse. Currently, Thailand processes almost one-quarter of the world’s canned tuna (736,000 mt/year). The second largest processing site is Ecuador which accounts for almost 12% of global annual production (362,400 mt) (Table 4.2). While the US was historically the world’s largest processing site, due to plant closures on the mainland, Puerto Rico and more recently, American Samoa, it has dropped to sixth place (132,000 mt). Table 4.2 Top Ten Canned Tuna Processing Countries, 2008 % Global annual Rank Production site Annual production (mt) a production 1 Thailand 736,000 24.1 2 Ecuador 362,400 11.9 3 Philippines 225,000 7.4 4 Spain 220,000 7.2 5 Mexico 186,000 6.1 6 American Samoa (US) 132,000 4.3 7 Korea 110,000 3.6 8 Italy 108,000 3.5 9 Mauritius 90,000 2.9 10 Columbia 85,200 2.8 a Whole round fish equivalent Source: McGowan & McClain 2010. 321 US investment has been in processing facilities in Central/Latin America and American Samoa; EU investment has largely been in former colonies (i.e. French investment in West Africa, Indian Ocean) and Latin America (i.e. Spain). 322 Total new investment (2006-2009) in canned tuna processing facilities (including loining plants) by region was: WCPO – US$186 m, Atlantic – US$ 101 m, Eastern Pacific – US$ 90 m, Indian Ocean - $81 m. New WCPO capital investment was channelled into plants in the Pacific Islands (Marshall Islands, PNG), Thailand, China, Indonesia, Philippines, Korea and Vietnam. Hamby 2009. 154 155 A major contributing factor in the rise in dominance of developing world players in the past 20-30 years has been these countries’ abilities to achieve economies of scale (i.e. a number of firms establishing facilities in close proximity to form a processing cluster, synergies forged with other canned food production industries, tandem development of supporting industries (can making, oil, labelling/packaging, logistics etc.). In addition, some of these sites have also been located close to major fishing grounds, had access to productive and lower-cost labour sources, and in some cases, had preferential access through tariff exemptions to the major canned tuna markets (EU, US). Table 4.3 presents comparative labour costs in selected canned tuna processing sites. Labour is a major cost component in the production of canned tuna (around 20%) and substantially influences the profitability of processing operations (and, in the case, of developed country processing sites such as Spain and US, has been a major factor in the contraction of their domestic processing industries). However, access to low-cost labour has generally not been the sole driving force behind a particular processing site’s competitiveness. Rather, as mentioned above (and discussed further in this chapter in each section detailing individual processing sites), a combination of factors has influenced both the development of processing industries and their ongoing competitiveness. For example, while China and Vietnam’s labour cost per metric tonne of processed tuna is significantly lower than that of Thailand and Ecuador, Thailand and Ecuador remain the global tuna processing powerhouses for now, due to a range of other influencing factors (e.g. economies of scale; in the case of Ecuador, preferential access to the EU and US markets). In the case of Pacific Island country (PIC) processing sites, while the daily labour cost per worker is significantly cheaper than Thailand and Ecuador, labour productivity is considerably less (i.e. in the case of PNG, labour is at least 2.5 times less productive than Ecuador and other South East Asian processing sites). Hence, overall labour costs are more expensive (i.e. $100/mt for PNG vs. around $80/mt for Thailand). Table 4.3 Comparative Labour Costs for Canned Tuna Processing, 2010 $ USa Thailand Ecuador China Vietnam PNG Solomon Is. Cost/day – cleaners 9.29 10.38 8.09 5.00 3.27 5.90 Cost/day – 8.71 11.57 8.09 4.80 4.51 6.80 non-cleaners Ratio - 127% 100% 87% 87% 140% 140% non-cleaners: cleaners Labour cost/mt 81.51 87.80 54.49 36.64 100.87 102.80 Cleaning productivity 250 250 250 250 95 150 (kg/8 hour shift) a $ US, unless otherwise specified Source: Data collected from various processing sites by global tuna industry representative, 2011. 156 157 The level of corporate concentration in the global canned tuna processing sector has deepened significantly, often through mergers and acquisitions, with a limited number of large multi- national companies now dominating the industry. These companies typically sell multiple shelf-stable tuna products, as well as other non-tuna products (e.g. other shelf-stable food products, frozen seafood), own a number of brands and supply a range of markets. Some are vertically integrated with fishing operations and some also have non-tuna related investments in other sectors. Ownership patterns are also changing, with some of the former large food conglomerate companies (e.g. Heinz, Unilever) selling their processing interests to financial holding companies (e.g. Lion Capital LLP, Connor Bros.). Financial holding companies are likely interested in seafood-related investments because they are profitable ventures which deliver an income stream, the brands are valuable, interest in the natural resources sector is currently high and, in the scheme of things, the value of investments represent a small proportion of total investment portfolios, which limits risk. Canned tuna processors’ raw material sourcing strategies have also changed over time to become more globalised. The larger companies have adopted production strategies that enable them to source fish supplies from several, if not all four oceans, to ensure consistency of supply when sourcing limitations arise in a particular region through low catches, political/regulatory constraints, or other problems.

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