3.1 Ex-vessel price

Based on the above theoretical model, we now focus on to what extent a final market price change is transmitted to the ex-vessel market. In this transmission, the effects of market power of the middlemen are highlighted.

Proposition 1. 1.1 An increase in the final market price implies an increase in the ex-vessel price, but the more market power the middlemen have, the less the increase will be; that is:

\[\frac{{\partial P}}{{\partial {P_n}}} = \frac{1}{{1 + \mu /\varepsilon}} \gt 0\; \;\quad {\rm and}\quad \frac{{\partial (\partial P/\partial {P_n})}}{{\partial \mu}} = - \frac{1}{{\varepsilon {{( {1 + \mu /\varepsilon} ) }^2}}} \lt 0.\]

1.2 The price transmission between the final market and the ex-vessel market is perfect (∂P/∂P _n = 1) under perfect competition, μ = 0, and it is imperfect (∂P/∂P _n < 1) if competition is imperfect, 0 < μ ≤ 1.

1.3 Middlemen with market power will keep the ex-vessel price below the level that produces MSY (P < P _MSY).

Proposition 1.1 specifies the effect of the final market price and market power on the ex-vessel price. It is clear that as the final market price increases, the ex-vessel price increases as well. However, this increase is hampered by the middlemen's market power, and if the degree of market power is strong, a higher final market price will have less impact on the ex-vessel price.

Proposition 1.2 indicates that the proportionality of the ex-vessel price to the final market price depends on market power. When the middlemen remain competitive, i.e., when the middlemen have no market power, the final market price is transmitted perfectly to the ex-vessel price. In other words, a shift in the final market price is entirely reflected in the ex-vessel price. When the middlemen have market power, they are able to keep the price paid to the fishermen down, and thus the price transmission occurs imperfectly.

Proposition 1.3 is based on the rule that no middlemen will lose from selling fish if market power prevails. They tend to offer a smaller ex-vessel price P than the maximum affordable price, P _n − c. This keeps the ex-vessel price below the level that induces MSY.

3.2 Fish stocks

We next consider the effects of the final market price on the fish stock.

Proposition 2. 2.1 An increase in the final market price implies a higher exploitation pressure, but the existence of middlemen with market power dampens the pressure on the stock; that is:

\begin{align*}\frac{{\partial X}}{{\partial {P_n}}} &= - \frac{{{q^2}{X^2}}}{{\gamma r\,(\ln\,K/X + 1)}} \cdot \frac{1}{{1 + \mu /\varepsilon}} \lt 0\quad {\rm and}\\ \frac{{\partial (\partial X/\partial {P_n})}}{{\partial \mu}} &= \frac{{{q^2}{X^2}}}{{\gamma r(\ln\, K/X + 1)\varepsilon {{(1 + \mu /\varepsilon )}^2}}} \gt 0.\end{align*}

2.2 The negative fish stock effect is greater when the middlemen are competitive than when they are non-competitive: ∂X/∂P|_μ=0 < ∂X/∂P _n|_0<μ≤1 < 0.

2.3 Middlemen with market power will keep fish stocks above the level that produces MSY, while competing middlemen can deplete fish stocks below that of the MSY level:

\[X \gt {X_{{\rm MSY}}}\; {\rm for}\ 0 \lt \mu \le 1\; ;\; X \lt {X_{{\rm MSY}}}\; {\rm for}\ \mu = 0.\]

Proposition 2.1 yields the impact of the final market price and the degree of market power among the middlemen on the equilibrium fish stock in the open-access fishery. When the final market price goes up, the middlemen offer a higher ex-vessel price to the fishermen. This motivates the fishermen to increase fishing efforts to obtain higher profit, again leading to a reduced fish stock. However, the market power has an offsetting influence. If imperfect competition exists, the reduction in fish abundance is smaller. As the degree of market power rises and the ex-vessel price falls, fishing is discouraged and the fish stock is preserved to a greater extent. This statement is also supported by Halsema and Withagen (Reference Halsema and Withagen2008).

Proposition 2.2 compares changes in the fish stock from a shift in the final market price under competitive market conditions and non-competitive market conditions at the intermediary level. It is clear that the pressure on the fish stock will be greater under perfect than under imperfect competition. A middleman with market power is able to reduce fish extraction. This is because, within certain limits, middlemen can decide how much to pay for raw fish. They tend to prefer a low ex-vessel price to save costs. From the fishermen's perspective, a low price discourages them from fishing, and some might stop fishing or even exit the fishery. Consequently, at equilibrium, a smaller fishing effort relieves pressure on the fish stocks.

Proposition 2.3 indicates how middlemen with and without market power encourage or discourage fishermen from preserving resources. When perfect competition prevails, there is a race for fish among the middlemen and they are willing to pay a higher price to the fishermen to obtain more raw fish. A higher ex-vessel price encourages fishermen to intensify the harvesting pressure, ultimately leading to overexploitation of the fish stock. When the ex-vessel price rises above the level that yields MSY, a further price increase no longer provides the middlemen a larger supply of fish. Under imperfect competition, few middlemen are in the market and determine the ex-vessel price. They will set the price such that P _n − c > P, indicating that the offered price is always below the price that keeps the stock above that of X _MSY.

3.3 Economic rent

Generally, economic rent is any payment to a factor of production in excess of the cost needed to bring that factor into production. In classical economics, economic rent is any payment made (including imputed value) or benefit received for non-produced inputs. In neoclassical economics, it also includes income gained by beneficiaries of other contrived exclusivity, such as labor guilds and corruption. When considering natural resources, the current economic rent equals the value of capital service flows rendered by the natural resources or their share in the gross operating surplus; its value is given by the value of extraction. In other words, it consists of two components: resource rent and intra-marginal rent. Under open-access fisheries, the resource rent is normally dissipated through excessive levels of fishing effort (Gordon, Reference Gordon1954; Hardin, Reference Hardin1968; Munro and Scott, Reference Munro, Scott, Knesse and Sweeney1985; Homans and Wilen, Reference Homans and Wilen1997, Reference Homans and Wilen2005). However, intra-marginal rent still accrues to vessels that are more cost efficient than marginal ones. In other words, intra-marginal rent exists whenever vessels are heterogeneous in terms of capital and labor (Copes, Reference Copes1972; Coglan and Pascoe, Reference Coglan and Pascoe1999; Duy et al., Reference Duy, Flaaten, Kim Anh and Ngoc2012b; Flaaten, Reference Flaaten2018).

3.4 Fishermen's rent

The rent gained by fishermen in the open-access fishery model, the intra-marginal rent, is defined by the revenue in excess of costs, and yields π_f = PH − γ/2(H/qX)² when using the cost function equation (4) and the harvest function equation (2). Substituting H from equation (3) and P from equation (5), and rearranging somewhat, gives

(10)\begin{equation} {\pi _f} = 0.5{^\ast}\textrm{PH} = 0.5\frac{{\gamma {r^2}}}{{{q^2}}}{\left( {\textrm{ln}\frac{K}{X}} \right)^2}.\end{equation}

Therefore, to what extent the harvesting sector obtains rent depends not only on the cost parameter γ, but also on catchability q and the stock size X, which in turn is influenced by fishermen's price P, and the carrying capacity K and the intrinsic growth rate r.

3.5 Middlemen's rent

Following equations (6) and (8), the maximized rent flow of a representative middleman can be expressed as $\pi _m^i = {\mu ^i}/\varepsilon \,\,\,P{h^i}$. Noting that $H = \sum\nolimits_{i = 1}^n {{h^i}}$, the total rent of the intermediary sector is accordingly:

(11)\begin{equation} {\pi _m} = \mathop \sum \limits_{i = 1}^n \frac{{{\mu ^i}}}{\varepsilon} P{h^i} = \frac{\mu} {\varepsilon} \textrm{PH} = \frac{\mu} {\varepsilon} \frac{{\gamma {r^2}}}{{{q^2}}}{\left( {\textrm{ln}\frac{K}{X}} \right)^2}.\end{equation}

3.6 Total rent

The total industry rent is found by summarizing equations (10) and (11), which yields:

(12)\begin{equation} \pi = {\pi _f} + {\pi _m} = \left( {0.5 + \frac{\mu} {\varepsilon}} \right)\textrm{PH} = \left( {0.5 + \frac{\mu} {\varepsilon}} \right)\frac{{\gamma {r^2}}}{{{q^2}}}{\left( {\textrm{ln}\frac{K}{X}} \right)^2}.\end{equation}

Proposition 3. 3.1 Although there is no economic rent for the competitive middlemen, the fishermen still gain a rent increase from a final market price increase; that is: $\partial {\pi _m}/\partial {P_n} = 0\ \textrm{and}\ \partial {\pi _f}/\partial {P_n} \gt 0$.

3.2 The existence of middlemen with market power generates higher rents for both fishermen and middlemen from a final market price increase; that is:

\begin{align*}\frac{{\partial {\pi _f}}}{{\partial {P_n}}} &= \frac{1}{{1 + \mu /\varepsilon}} \frac{{rX\,\ln K/X}}{{( {\ln K/X + 1} ) }} \gt 0\quad {\rm and}\\ \frac{{\partial {\pi _m}}}{{\partial {P_n}}} &= 2\frac{\mu} {{\varepsilon + \mu}} \frac{{rX\ln K/X}}{{(\ln K/X + 1)}} \gt 0\; \quad {\rm with}\quad \forall \varepsilon \gt 0.\end{align*}

3.3 Middlemen with market power can partly transfer some rent from the fishermen to themselves; that is, when the degree of market power is higher, the fishermen will receive less rent and the middlemen will gain more rent:

\begin{align*}\frac{{\partial (\partial {\pi _f}/\partial {P_n})}}{{\partial \mu}} &= - \frac{1}{{\varepsilon {{( {1 + \mu /\varepsilon} ) }^2}}}\frac{{rX\ln K/X}}{{\ln K/X + 1)}} \lt 0\quad {\rm and}\\ \frac{{\partial (\partial {\pi _m}/\partial {P_n})}}{{\partial \mu}} &= \frac{2}{{\varepsilon {{(1 + \mu /\varepsilon )}^2}}}\frac{{rX\ln K/X}}{{( {\ln K/X + 1} ) }} \gt 0.\end{align*}

Total rent will also increase more than in a perfect market:

\[\frac{{\partial (\partial \pi /\partial {P_n})}}{{\partial \mu}} = \frac{1}{{\varepsilon {{(1 + \mu /\varepsilon )}^2}}}\frac{{rX\ln K/X}}{{(\ln K/X + 1)}} \gt 0;\quad \textrm{and}\quad 0 \lt {\left. {\frac{{\partial \pi}} {{\partial {P_n}}}} \right \vert _{\mu = 0}} \lt {\left. {\frac{{\partial \pi}} {{\partial {P_n}}}} \right \vert _{0 \lt \mu \le 1}}.\]

Proposition 3.1 shows that, in an overexploited fishery, the fishermen still gain more rent from a final market price increase, but the middlemen receive zero profit. High competition among the middlemen induces them to pay fishermen a higher price in order to purchase more fish. However, if the ex-vessel price becomes too high, some middlemen will sustain a loss and therefore leave the market. The same scenario holds for the fishermen. In the early stage of overfishing, they stay in the market and continue fishing because they observe a relatively high price. Nevertheless, after a while, less fish are available and the harvest will eventually be reduced. Those fishermen who face a loss will stop fishing. However, the stock is not recovered to above that of the MSY level. The reason is that some cost efficient fishermen can stay and make a profit even in the overexploited fishery.

Proposition 3.2 captures the importance of imperfect competition among the middlemen. When this is the case, increased final market prices will be translated into higher rent for both the fishermen and the middlemen. With imperfect competition, the middlemen can control the ex-vessel price below and the stock above the levels that provide MSY. Thus, the effect of the final market price on the total economic rent of the fishermen and the middlemen is always greater than zero.

While the presence of market power always promotes rent for the middlemen, it dissipates rent for the fishermen. Part of the fishermen's rent will be transferred to the middlemen, as pointed out in proposition 3.3. If there is no market power among the middlemen, the rent of the fishermen will be determined entirely by the shift in the ex-vessel price which in turn is equal to the shift in the final market price. If market power exists, increasing market power implies that the importance of the final market price is tempered; the rent of the fishermen drops and more accrues to the middlemen. The middlemen can collect the rents for themselves by keeping the price paid to the fishermen below the level that provides MSY. The total rents of the industry will be increased and can even become higher than those in the perfect market. However, most of the profits are captured by the middlemen.

4.1 The anchovy supply chain

The anchovy supply chain is presented in figure 2. Typically, all harvest is sold to middlemen before being transferred to final consumers. Middlemen here are defined as processing companies and/or traders. The first type of traders are those purchasing the harvest from several small fishing vessels at sea and selling the fish to the second type of traders operating on land. The latter provide fish for the processing companies and the domestic consumer market. The existence of the first type allows fishing vessels to stay at sea continuously for longer periods, thus reducing fuel consumption and operating costs. The second type of traders normally have better equity financing than the first type, and can implement and negotiate larger transactions. These traders are usually better educated and qualified than fishermen and the first type of traders to deal with the many documents required when selling to the processing sector.

Note: The percentages express percentage of anchovy quantity transmitted along the chain in 2012.Source: Own data.

Figure 2. The anchovy supply chain in Vietnam.

With varying domestic market price during the period 2005–2017, this example aims at illustrating what the estimated ex-vessel price, anchovy stock, and rent of the supply chain would be. Data includes actual ex-vessel prices and actual domestic market prices. These prices are all adjusted to the price level of 2017, using the consumer price index. Some parameter values are from three previous studies on anchovy fisheries in Vietnam: Thi et al. (Reference Thi, Bat, Nguyen, Anh, Nghia, Ha and Thanh2007), Tan (Reference Tan2015) and Thuy and Flaaten (Reference Thuy and Flaaten2013) (see table 1).

Table 1. Parameters for illustration of the anchovy supply chain case, 2005–2017

^a The average cost of the years 2005, 2008, and 2011.

^b The average cost for the period 2010–2015.

The estimation is achieved using numerical approaches. Particularly, we estimate the anchovy stock from equation (5), ex-vessel price from equation (8), the rent from equations (10)–(12) and their marginal changes according to the propositions (see detailed results in table A1 in the appendix). The comparison between the actual prices and the estimated ones allows examination of the purchasing and market power of middlemen in the supply chain.

The linkages between the domestic price and the ex-vessel price, the stock and the rent for the anchovy case are presented in figure 3. Figures 3 (a), (c) and (d) show that with increasing domestic price, the ex-vessel price and the rent increase and the stock is reduced (as in propositions 1.1, 2.1, and 3.1). Note that in the anchovy case, it is the domestic market price that represents the exogenous final market price. The elasticity of supply is found to be negative for all the observed positive ex-vessel prices, implying that μ must be equal to zero (based on equation (8)). Thus, there is neither oligopsonistic nor monopsonistic power for the middlemen and the anchovy stock is being overexploited (based on proposition 2.3). Overfishing in the anchovy fishery has also been established by Thi et al. (Reference Thi, Bat, Nguyen, Anh, Nghia, Ha and Thanh2007) and Thuy and Flaaten (Reference Thuy and Flaaten2013). Thus, middlemen gain no rent in this chain (based on proposition 3). Furthermore, as the estimated prices are rather close to the actual ones, this indicates that the results derived from the model fit with reality (figures 3 (a) and (b)). Figure 4 shows that marginal changes of the estimated ex-vessel prices and rent over the actual domestic prices are always positive, whereas those of stock are always negative.

Figure 3. Anchovy supply chain: (a) Time path of domestic actual and estimated final prices; (b) Time path of actual and estimated ex-vessel prices; (c) Time path of estimated stock; (d) Time path of estimated rent.

Note: The percentages are of the skipjack tuna products transmitted along the chain in 2012.Source: Duy et al. (Reference Duy, Kim Anh and Tram Anh2012a).

Figure 4. The skipjack tuna supply chain in Vietnam.

4.2 The skipjack tuna supply chain

Like the anchovy supply chain, the skipjack tuna enters the final market through the contribution of two types of middlemen: processors and traders. However, traders in the offshore skipjack tuna fisheries are supplementary in linking the fishermen to the processing companies, to whom they sell almost all their fish. The supply chain of skipjack tuna is depicted in figure 4.

There are several products included in the skipjack tuna supply chain. However, only the fresh fillet tunaFootnote ¹ is included in this analysis. We explore the effects of its export price on the ex-vessel price and the stock. The market structure is also tested to identify if middlemen have any power to adjust prices in the chain. However, due to lack of data, the harvest data is used to discuss possible effects only on the stock, and the effects on the rent are not considered. The quarterly data for the period 2009–2017 were used in the analysis.

Figure 5 reveals that the ex-vessel price and the export price move quite closely up to 2011. However, later, the export price moved upward, then fluctuated from 2014, whereas the ex-vessel price stayed more or less constant. This indicates an asymmetric price transmission from the export price to the ex-vessel price. Indeed, an imperfect market structure is expected in the skipjack tuna supply chain, since the number of middlemen is relatively small compared to the number of fishermen. The quality of the skipjack tuna deteriorates soon after harvest. Therefore, middlemen may gain market power over fishermen when the fishing ground to shore distance and time often force fishermen to sell their catch quickly. Furthermore, many fishermen are bound by credit arrangements and reciprocal agreements with the middlemen, adding to the oligopsonistic power of the middlemen.

Source: Own data.

Figure 5. Fresh fillet tuna supply chain: Quarterly export price and ex-vessel price, 2009–2017.

Different techniques can be applied to examine price transmission in seafood commodity markets (Asche et al., Reference Asche, Flaaten, Isaksen and Vassdal2002, Reference Asche, Jaffry and Hartmann2007; Sapkota et al., Reference Sapkota, Dey, Alam and Singh2015). The researcher's choice may depend on the questions asked, the data available and the assumptions to be made. The error correction model (ECM) is considered an appropriate specification for testing asymmetric price transmission. The ECM model employed is as follows:

(13)\begin{equation} d(\textrm{ln}\,{P_t}) = {a_0} + \mathop \sum \limits_{i = 1}^n {a_{1i\;}} d(\textrm{ln}\,{P_{t - i}}) + \mathop \sum \limits_{j = 1}^n {a_{2j}}d(\textrm{ln}\,{P_{w,t - j}}) + \delta {u_{t - 1}} + \; {\varepsilon _t},\end{equation}

where P _t−i and P _w,t−j are the ex-vessel price and the export price of fresh fillet tuna at quarter t-i and t-j, respectively, and n is the lag order of P _w and P _t. Furthermore, d(ln P _t) and d(ln P _w,t−j) represent their changes, measured on a quarterly basis, and a ₀ is a constant term that captures transportation costs and quality differences. The estimated coefficient a _1i examines whether the ex-vessel prices from the past quarter(s) can have any impacts on that of the current period. The short-term price transmissions from P _w,t−j to P _t are measured by a _2j. The transmission is either perfect or imperfect, depending on a _2j = 1 or 0 < a _2j < 1. u _t−1 is an error term, which implies speed of adjustment to long-term equilibrium while ε _t is the residual (white noise).

The results of the ECM model are given in table 2.Footnote ² The variable d(lnP _w,t−1) is insignificant at the 5 per cent level, meaning that there was no short-term causality between the export price of fresh fillet and ex-vessel price of skipjack tuna. The coefficient of u _t−1 is negative (−0.12) and significant. This shows that 12 per cent of disequilibrium is corrected within one quarter for reaching a long-term equilibrium state. In other words, only 12 per cent of the difference between long-term and short-term ex-vessel prices is adjusted within 3 months. More importantly, the estimated cointegration vector confirms that, given a 1 per cent increase in the export price of the fresh fillet tuna, the ex-vessel price will increase by 0.07 per cent in the long run; this implies that the export price leads the ex-vessel price, which is consistent with the fact that middlemen have a stronger position in negotiating prices. In short, market power prevails in the intermediary sector of the chain and middlemen may abuse their market power to slow down an increase in ex-vessel price to reap their profit margin.

Table 2. OLS parameter estimates of ECM

* Significant at the 5% level.

An interesting question then is if the stock is above the level that produces the MSY, as claimed in proposition 2.3. In fact, this seems to be true for the skipjack tuna case. The total catch of tuna has been recorded to increase substantially during the period 2010–2017 (table 3). The catch is also evaluated as far below MSY (MARD, 2018). This indicates that tuna fishing is currently not overexploited and the stock is above that of the level that produces MSY.

Table 3. Total tuna catch in Vietnam's Exclusive Economic Zone, 2010–2017 (in metric tons)

^a Includes skipjack tuna, yellowfin tuna and bigeye tuna.

Source: MARD (2018).

To summarize, the empirical results indicate that there is perfect competition among middlemen in the anchovy supply chain, where the anchovy stock is overexploited. In contrast, in the skipjack tuna supply chain, middlemen with their market power have contributed to keeping the stock above the MSY level.