Pentland Firth Orkney Waters Marine Spatial Plan: Value Added in the Fish Supply Chain in Orkney and Northern Highlands

This report is the one of a suite of evidence documents that will support Stage 2 of the development of a pilot Pentland Firth and Orkney Waters Marine Spatial Plan. . This report estimates the value of marine species caught in the Pentland Firth and Orkn

Section 4: Understanding what the Spatial and Economic Data means to PFOW

To contextualise and enrich the spatial and economic analysis presented above, interviews were conducted with four process mangers operating in PFOW region and three other key informants associated with fishing and/or regional development. A summary of this interviews is presented below.

Background to Processing in Orkney: Pre 1970 whitefish dominated landings throughout the region as infrastructure was poorly developed to benefit from inshore crustaceans. A subsequent decline in whitefish vessels coming into Orkney, resulted in the islands shifting its focus to crustaceans whilst the Northern Highlands ports continued to service the remaining whitefish vessels, with Scrabster becoming the key northern port. Whilst initially small, crustacean fishing started to expand in the late 1950s after successful exports of lobster to northern France. To develop this market, Orkney fishermen decided to set up a cooperative that supported the catching capacity of local fishermen and the mission behind the cooperative was, and remains so today, - "every Orkney fishermen can land anything caught, every day of the year and there would be the capacity to process and get the product to market". To deliver on this mission, an innovative scheme was designed to raise money to get a number of processing facilities established throughout Orkney.

Business Model: Orkney Fishermen Society ( OFS) and Westray Processors Ltd are two of the only remaining companies that started at this time (Stronsay and Ronaldsay closed mid 1970s), and still operate under a cooperative model, which buys raw material landed by Orkney fishermen. Currently the cooperatives offer bonuses to contracted fishermen and dividends on company profits to shareholders on an annual basis. In this cooperative model the shares were a £1, they do not change in value and fishermen are the majority shareholders. Due to the amount of time the scheme has been running shares are now held by non-fishermen also (handed down to family etc.), which are no-vote accumulative shares, which realise a 5% return but do not allow the shareholder a vote in the general meetings. Only active or retired fishermen are allowed to vote. Of these fishermen, those who land more than £25,000 of shellfish to the society each year has two votes in the general meeting and fishermen who land less than this amount, or retired fishermen, have one vote. Because of the inevitable shift of shares to non- fishermen, the voting system is such that it allows the control of the company's future and direction to rest with active fishermen.

OFS is an unusual company and due to the unique business model has successfully linked the Orkney crab fishing fleet with UK supermarkets and UK household consumers. OFS has an annual turnover of around £8 million of which about 80% of the sales is from brown crab. Of this, 65% goes to the UK retail market, 10% to the other UK markets (food services, catering) and the remaining 25% is exported to Europe, China and South-East Asia. OFS is the principle supplier of crab products to UK supermarkets. OFS trades under a number of brand names, the most prestigious is 'Orkney Crab' which has assurances that only material sourced from Orkney owned and Orkney landed boats is used. Other produce is sold under other brand names such as 'Scottish Crab' or 'Shetland Crab' depending on where it was sourced. As shown in Table 1, a large quantity of the raw material coming into the processing facilities is from outside of the PFOW-SA, however it is argued that a significantly higher proportion of the value added to the processing output is heavily associated with the business model above which depends on inshore fishing.

Background to Processing in Scrabster: Scrabster is home to a number of smaller to medium size businesses which handle and conduct primary processing of fish, crustaceans and molluscs. Scrabster has traditionally functioned as a landing port and fish market but processing has taken place since the late 1960s. However, the decommissioning of white fish vessels has impacted on the area and processors have diversified into other markets.

Businesses: One white fish processor remains who conducts primary processing but also acts as a merchant. Some merchants in the area have developed small scale processing facilities as well as local outlets in Thurso and seafood vans which travel throughout the area. Unlike Orkney most businesses rely on exports which are transported through Glasgow airport to Scandinavia or Asia or on vivier trucks to the continent. One of these businesses stated that they were more dependent on larger vessels as they offer a wider selection of product ( e.g. crab with no appendages missing, which is critical for the Asian market ) throughout the year. This is different to the Orkney model who can take any broken or damaged crab. Having a range of demands in the region was felt to add resilience, as boats have a range of processors who are willing to buy different quality catch.

Location and Remoteness of PFOW: Geographically, facilities in this region are perfectly situated because of the proximity to raw material. The regional fishing grounds are highly productive and perfectly suited for crustaceans, therefore high quality, fresh, local produce can be delivered with relative ease to factories. The fundamental weakness and long term business challenge has been the remoteness of the Orkney Islands and Northern Highlands. Whereas other crab processing areas in the UK have stronger local markets e.g. Newlyn in Cornwall and Cromer in Norfolk, who sell locally and to the tourist sector, these markets in PFOW are too small in comparison to the available product. Therefore OFS is focused specifically on the UK food retailers which requires volume and a steady supply, which they get from the full range of vessels in the area. Westray Processors Ltd is a sister company which supplies Orkney based businesses with crab products for the local and tourist markets and the remaining is sold to the OFS. OFS has deliberately left this section of the local market to the Westray facility.

In the Northern Highlands transportation over land is easier but still expensive, so businesses have to counter this to remain competitive and profitable which they say is achievable because of the quality of produce in the regional fishing grounds. It was stated that business viability would be severely undermined if raw product needed to be imported into the PFOW region.

Crab has a short shelf life and generally low profit margins, which means the processing and transportation of the product needs to be as short as possible and direct delivery of the raw produce to the factory facilitates this. What has made the Orkney facilities so successful is the quality branding of 'Orkney Crab' which has been developed with, and is intimately linked to, an Orkney fishing fleet. Currently this fleet consists of 30-40 under 15m vessels who regularly land their catch (over £25,000) through this organisation and 5 vessels in Westray. There are also 2 large crabbing vessels which supply the OFS factory, which are Orkney owned and fish in distant fishing grounds. These vessels supply the bulk of the crabs, through all weathers which are required to guarantee landings to supply the volume for the retail market. However it has been stated that, should the volume of landings be affected, which included the inshore fleet, for anything but the very short term, this business model would fail and what would replace it e.g. small primary processing, would be forced to service different markets, as the supermarkets have bought into the local aspect of the business.

Shifting inshore capture to offshore capture: When asked if larger vessels could supply the short fall from lost opportunity in inshore grounds, it was stated that not only is this against the business model in Orkney but there is an issue with capital investment. Small scale creeling vessels are an investment of about £50,000 each whereas large scale crabbing vessels are in the realms of £1 million. It was felt the capital would not be available to upgrade the fleet to exploit distant crabbing grounds, assuming such grounds exist. OFS stated that in the short term it could be possible to source material from elsewhere, however the business model and established markets is completely dependent on inshore fisheries and remaining competitive would be severely challenged.

Onshore processing in the Northern Highlands are less dependent on local small-scale vessels, due to the dominance of large vessels in the region for decades and the particular model of shellfish export which requires large volumes to select primary product.

Skilled employment: Whilst it has been stated in the IO analysis that people working in processing in Ornkey and the Highlands are earning less than the national average, OFS is the largest private sector employer in Orkney and is a modern BRC Global Standards A accredited food processing facility - BRC Global Standards being global leaders in food safety and supply chain management. Within this facility there are a high diversity of workers where low skilled workers can access full time permanent employment and develop with the company as well as graduates and post graduate workers due to the technical requirements of the UK retail contracts that the OFS supply. This skilled work force also support the Westray facility who benefits from this investment which allows the company to supply local markets with high quality seafood at a competitive price.

Due to the demands (long hours, physical work) in the OFS facility a large proposition of the workforce is now recruited from overseas. In Westray this is not the case as almost all employees are islanders and it is reported that whilst primary income comes from family farms, this facility offers employment for young people and secondary income into family households. This is also an important facility for supplying women with their own income and independence from the family business. In the Northern Highlands local people make up the majority of the work force because of the remoteness of the region. One company did express problems with finding a good reliable workforce when they expanded, but felt this was to do with the shift in management approach and staff morale. They now have a very low staff turnover as the management system has been greatly improved.

Island Life: Island life requires flexibility. Many people have a number of jobs and all contribute to maintaining the flow of island life. Managing business in these environments also requires flexibility. One facility discussed staffing and the need to be understanding and adaptable. For example staff holidays were discussed as getting to and from the island can take 2 days off people's holiday before they even get to international airports, which maybe increased if poor weather and delays are experienced. Training of staff is also challenging as 2 to 3 days are required if people need to go to the mainland, which is a large amount of time out of the processing facility which requires careful management to balance the business and remain profitable. It was also felt that these businesses in remote regions have important social roles in people's lives, as in some cases this is an opportunity for young people to socialise outside of the family business.

Transportation: OFS have internal Orkney wide transport to pick up landings on the islands and a 3 rd party haulage company which transports produce from Orkney. Orkney is a net importer and OFS products are one of the few exported products (a small amount of salmon, whisky and beer also contribute) being exported and is therefore an important contractor for Orkney haulage companies, of what would otherwise be one way haulage. OFS has trucks going 5 days a week with between 30-80 pallets a week. Westray also stress the importance of having businesses exporting from the island, as this not only services the businesses but also supports wider transport infrastructure, such as ferries, which benefits all islanders. Further this process facility supports the local fishing fleet by buying in and storing supplies (protective clothing, fishing equipment etc.) which improves the viability and efficiency of the Westray fleet. Imports of these products are expensive in remote islands, therefore having the facilities transporting infrastructure is important for supporting island life.

Business Expansion: All companies felt that they could expand their businesses. On the islands it was felt that suitable markets were not a limitation, but the availability of crab was, as it was felt stocks are near to full exploitation. This was also stated as the case in the Northern Highlands, as lucrative markets are increasingly available and demand increasing for Scottish products. There was however contradiction around this, as it was felt the high supply of crab was depressing the market and impacted on the price that the fishing fleet are receiving, which they stated has been static for many years.


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