Arrival of the Mackerel
Greenland welcomes the Mackerel and says goodbye to the shrimp. What does the warming of the world’s oceans mean for a country where fishing accounts for 91% of exports?
Until just a few years ago, the mackerel had never visited the Greenland waters. In 2011, record-high temperatures were measured off the Greenland coast and the first mackerel was caught. Only three years later, in 2014, mackerel fishing had grown to 23% of national exports [1].
“The mackerel’s arrival in Greenland is the most extreme example of how climate change can impact the economy of an entire nation” – Senior Researcher Teunis Jansen, DTU Aqua and the Greenland Institute of Natural Resources [1]
As climate change warms up the oceans, the ideal water temperature for fish species shift and and the fish will either drop in numbers or move to different areas with more suitable temperatures. In the midst of this shift is state-owned Royal Greenland, the largest fishery in Greenland.
So … is climate change good for Greenland? Profits would say “yes!”
If we look at the financial statements of Royal Greenland, the answer might be a resounding … “yes!”: from 2010 to 2015, profit dollars increased by 40% [4]. This increase was driven in part by our new visitor, the mackerel, but also by sales of Royal Greenland’s core product, the cold water shrimp. Shrimp sales, however, have not surged because of more shrimp visiting the Greenland waters, but because of an 80% price hike since 2010 [5]. But … wait, why’s shrimp becoming so expensive?
While mackerel loves the warmer temperatures in Greenland, shrimp does not: it cause their food supply to decline, their number of predators to increase, and ocean acidification impacts their shell development. Hence, quotas dropped and we saw catches almost cut in half from 60,000 tonnes in 2011 to 34,000 tonnes in 2015 [5] and this limited supply pushed up prices more than covering from the volume drop.
For now, business has been good. However, there is no guarantee that consumers will continue to support high price levels or that a new temperature-friendly fish will come in and cover for the dwindling shrimp catch. In fact, the mackerel might not even be here to stay – catches plunged from 78,000 tonnes in 2014 to 31,000 tonnes in 2015 [5]. To stay in business, Royal Greenland will need to consider to adjust its operating model to deal with this new world in the face of climate change.
So what does this mean for Royal Greenland? Agile operating model
Royal Greenland has recognized these needs and has launched its “The North Atlantic Champion” strategy of which a centre-piece is to diversify its fishing grounds to alternative areas in northern Greenland, Svalbard, and the Barents Sea. However, Royal Green land still wholly owns its ocean-going trawler fleet and processing plants. In the new world impacted by climate change, these plants will either need to undergo dramatic change in agility to accommodate changing raw material types and quantities shipped or have to be licensed out altogether.
Royal Greenland will have several strategic challenges to consider in its next board meetings:
- Highly variable inputs: With huge swings in inputs caused by fish stock movements and quota restrictions, operations will need to be flexible enough that its operations can quickly turn to processing of other fish types and alternating quantities to keep utilization high
- Diversify fishing areas: As global warming moves fishing stock geographically, new fishing grounds will be needed
- Selective (shrimp) farming: Other fish stock like Cod and Salmon are often farmed – could Royal Greenland invest in research to farm shrimp?
- Increased importance of marine monitoring: To better plan for future fish stock movements, marine monitoring is likely to become an increasingly important function
- Agile supply chain: Large capital investments will become risky for a vertically integrated fishery – to the extent possible, the risk of holding on to shrimp trawlers in a shrimp downturn could be assumed by third parties and stock would be bought on auction
- Clear disaster risk management process: With large swings in inputs, fisheries need to prepare for a world where plan is often not actuals
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Sources:
[1] ScienceDaily June 2016: “Surprising new business opportunities for Greenland” (https://www.sciencedaily.com/releases/2016/06/160615102230.htm)
[2, picture rights] National Geographic “How Melting Ice Changes One Country’s Way of Life” http://ngm.nationalgeographic.com/2015/11/climate-change/greenland-melting-away-text
[3] CIA World Factbook “North America: Greenland” 2015 statistics (https://www.cia.gov/library/publications/the-world-factbook/geos/print_gl.html)
[4] Royal Greenland annual reports (http://www.royalgreenland.com/royal-greenland/about-royal-greenland/facts-and-figures)
[5] Statistics Greenland (http://www.stat.gl/?lang=en)
Very fascinating. I agree that the move to mackerel is a boon for Greenland fisheries and would go so far to argue that the coincidental moving to a new staple fish species actually diverts the Greenland economy from future disaster. At its core, relying on shrimp is a risky proposition. At a baseline, wild shrimp catches are decreasing due to ocean warming and shrimp life cycle impacts. However, shrimp consumption is growing globally at around 3% per year with human consumption of shrimp hitting ~1 mil tons in 2015 alone. The greatest impact to the shrimp supply from a competitive standpoint, however, is that of Southeast Asian shrimp farmers. According to the Sustainable Fisheries Partnership, Southeast Asia accounted for 85% of shrimp production and 74% of wild shrimp capture in 2013. The large-scale shrimp farms compete on a volume-basis and, while challenged, are adding capacity each year. To compete with such fast grown, large scale farmers, Royal Greenland would need to drastically change their wild capture techniques or develop their own farming operations. Both would require large upfront investment. Whether there would be more trawlers on the sea or breeding tanks on land, managing scaled operations in a short time frame would also pose many challenges.
Thank you for your elaborate comment! I indeed do find it interesting that while Greenland’s nature clearly does not benefit from global warming, there might be an economical gain to its people – I can only imagine the internal conflict that creates.
Interesting perspective you bring up re the shrimp farms. Royal Greenland prides itself on wildly caught shrimp, which could be a competitive advantage for them going into a more “premium” shrimp market. As you correctly point out, though, the movements in fish stock still requires a dramatic change in wild capture techniques … so, maybe they should just go all in and become farmers instead?
Very interesting example of how climate change is impacting a core business product.
1) I wonder how higher sea temperatures impacts the ocean ecosystem in general? Higher temperatures in this case meant more mackerel and less shrimp, does it lead to other types of fish / shellfish species proliferating? From a business perspective, may help to have a sense as to what new species will be fishable in the near future and be prepared with the correct tools to capture / market / sell them.
2) Have they considered “farming” instead of “fishing”? If they could develop shrimp farms and regulate the temperature of the water, etc. may be another way to generate consistent supply. It won’t be the same as fresh shrimp unfortunately.
Thank you Nicklas for writing on such an interesting topic. When we think about global warming and oceans the image that usually comes to mind is melting glaciers. We usually do not consider the effects of higher temperatures on the delicate balance of marine life. It is both interesting and scary to understand that we can already observe significant changes to different species’ habitats and population. I agree that due to these rapid changes different types of fish might appear and disappear from different areas, thus forcing companies like Royal Greenland to change their production facilities to accommodate different processes as a result of the different inputs. I expect these alterations to be both costly and time consuming. The question arises – whether it is even feasible to change production facilities when the expected duration of the new type of fish in a certain location is unknown (given that climate changes frequency will increase). Considering that, I wonder whether we’ll see a shift towards aquaculture (which already accounts for more than 50% of total global production – according to the US National Oceanic and Atmospheric Administration http://www.nmfs.noaa.gov/aquaculture/faqs/faq_aq_101.html – 1what is) and specifically to production in inland fish ponds where control of temperature and type of species will be easier.