Competing Despite Increasing Wages, Is It Possible?

With the location of tuna processing facilities determining labor costs, which in turn affects the overall cost of production, trans-national tuna producing companies are, after considering tax regimes and duties, in a position to pick the most profitable production site for their business. With a lot of manual work involved in the butchering, cleaning and packaging process of tuna, conversion costs can vary from as low as 10% to as high as 25% depending on the country, with most of the process taking place in low-cost labor countries.

Besides proximity to tuna catching grounds, and duties, labor availability and its price are the most critical cost factors, even before considering local scales of economies. Needing to be competitive, and provide jobs, but also under pressure to protect labor rights, governments, especially those of developing nations, find themselves facing a constant challenge to find the balance between these factors; the enactment of a minimum wage is one solution to deal with this situation.

Ecuador

Located in South America, the supply of affordable tuna to Ecuadorian facilities is reliant on the success of its fleet in the Eastern Pacific Ocean (EPO). According to the IATTC vessel register, Ecuador has 181 vessels, which are mostly purse seiners and longliners.

With a position of the third largest processor and exporter of tuna in the world, Ecuador’s minimum wage was increased at the beginning and also at the end of 2015, finally being raised to USD 366 per month. Ecuador has attempted to remain an attractive prospect to businesses by offering tax rebates for exporters and allowing flexibility in labor contracts, as well as taking refinancing of tax and social security debts.

Ecuador exported 174,696 tons of precooked loins and canned tuna in 2015, of which the majority found its way to the EU as part of the Generalised Scheme of Preferences (GSP+) arrangement, permitting tariff-free trade between the two parties. There are around 17 processing firms in the nation, with major companies including Nirsa, Eurofish and Grupo Jadran; it is estimated that combined, Ecuador’s tuna workforce handles around 2,200 tons of raw material daily.

Due to its attractive conversion costs, and a combination of a highly productive workforce with lower wages, Ecuadorian processors have become the key supplier of pre-cooked loins to European canners, who operate highly automated packaging plants in their high-cost labor market.

Philippines

Minimum wage in the Philippines varies by occupation and from region to region. General Santos, a city described as a ‘global tuna hub’ on account of the number of processors it holds, is in a region where non-agriculture workers are entitled to a monthly minimum wage of PHP 5,900 (USD 117)*. In 2015, Philippine tuna workers prepared around 80,000 tons of canned tuna and precooked loins for export, with the US and Germany receiving almost half of that between them.

Processors such as Century Pacific, Alliance Select, Philbest and Citra Mina, with plants in General Santos City, have taken advantage of trade with the EU through GSP+, which combined with low labor costs, has made it the fourth largest exporter of tuna in the world.

There has been political unrest in the country, and 2016 witnessed protests over the disparity in regional minimum wage. Among others, Citra Mina has been accused by the leader of a prominent trade union of treating its workers inhumanely, stating that there are a number of tuna processors flouting the terms of the trade deal with the EU, yet exporting with zero duty.

With labor abuse in the EU’s focus, and with the Philippines recently taking the decision to reject financial aid from the EU, the Duterte government could be risking frayed diplomatic relations, at a stage when the zero-tariff tuna trade between the two parties under GSP+ is not certain to last indefinitely.

Ivory Coast

In 2014, Ivory Coast began a USD 2.5 billion project to update the facilities of its Abidjan port, with the aim of cementing its position as West Africa’s tuna hub, ahead of nearby Ghana. The port being key to attracting raw material supply to secure jobs of tuna cleaners who live near the capital.

For the first time since 1994, Ivory Coast increased its minimum wage in 2013. It was by 60 percent, and although it now sits at CFA 60,000 (USD 96.46) per month, there are reports that it isn’t implemented across the board. In terms of labor costs, a source close to the Ivory Coast tuna processing industry told Atuna that “labor is not a problem at all”, adding that sourcing labor in the Ivory Coast is easy, “qualified or not”, with improvements in education made over the last 50 years. The source also explained that its geographic location is “a real positive asset for its competitiveness”.

Worth a reported CFA 90 billion (USD 170 million), the tuna processing industry in Ivory Coast is one of the country’s main employers, benefiting from a 2016 FTA agreement with the EU, to which it sent around 27,000 M/T of canned tuna in 2016. The agreement was signed on a bilaterally, rather than in collaboration with other African nations, to maintain Ivory Coast’s competitiveness. Ghana, which sent roughly the same amount of canned tuna to the EU, extended its individual FTA with the bloc in August 2016.

Notable companies that have canning facilities in Ivory Coast are Thunnus Overseas Group (TOG), its subsidiary Conserveries des Cinq Océans, and Airone, formerly known as Castelli.

Thailand

The largest processor of tuna in the world, Thailand has repeatedly faced questions that have been raised over its record on labor practices, which jeopardize its trading relationship with the EU.

Like the Philippines, the minimum wage in Thailand depends on the region. It is reported that workers in all but eight of the nation’s provinces were entitled to an increase in the minimum wage, as of January 1, 2017. However, a large proportion of Thai labor is imported from neighboring countries, such as Myanmar. In practice, this has meant that the foreign workforce is not aware of its labor rights, and has been open to exploitation, including underpayment. There have been efforts to fix this, with Thai Union, for example, distributing booklets to its migrant workers, to educate them on their rights.

Bangkok, where a high proportion of canneries are, had the highest rise, to THB 6,200* (USD 180) per month, which is substantially higher than in neighboring nations, indicating that the success of a nation’s tuna industry isn’t only dependent on labor costs, but that the local infrastructure and scale of economies on tinplate, packaging material, and freight costs also play a crucial role.

Dominated by Thai Union, Thailand exported almost 560,000 tons of tuna in loins and cans 2016. Almost 85,000 tons of this was shipped to the US in total, with around 30,000 tons in loins.

China

China has made waves in the tuna industry, after an expansion in its fleet and processing facilities; some of which are subsidized by the government. Demand for whole round tuna has grown, with 2015 seeing a total of 86,336 tons imported and destined for domestic processors.

After a contentious history on employee rights, workers won concessions, with 17 of the 34 provincial administrations raising the minimum wage in 2014. This number increased to 27 in 2015 but saw a reduction to nine in 2016. There is concern at a governmental level that China needs to curb further rises in minimum wage and labor costs to retain a competitive edge in manufacturing and producing; will this policy be successful?

A number of companies, including Ningbo Fengsheng Food Co., Zhoushan RIMPAC Marine Food Limited, and Shanghai Kaichuang (SK), have invested heavily in processing facilities in the Chinese province of Zhejiang. Coastally located and with a deep-water harbor ideal for shipping, the city Zhoushan, located in Zhejiang, was chosen as an Economic Development Zone in 2011. Migrants were encouraged to move to the area to ensure that labor met demand, and the minimum monthly salary is CNY 1,530 (USD 221).

Chinese processors managed to export a sizable amount of tuna in 2016. Including both pre-cooked loins and canned tuna, a total of over 89,000 tons left the country.

Vietnam

Maintaining a constant flow of raw material to its tuna industry has been a major challenge for the Vietnam government. In order to keep plants filled and avoid labor unrest, local fleets have extended their voyages beyond the country’s waters. Small blue boats from Vietnam have been found to be engaged in IUU fishing in the Pacific, blemishing the country’s reputation, with reports that this could hinder its progress to becoming a full member of the WCPFC.

A minimum wage increase of 7.3 percent was announced in October 2016, coming into force January 2017, though Vietnamese workers are still among the lowest paid in Southeast Asia. This does not necessarily translate to more exports, with the Vietnam Association of Seafood Exporters and Producers (VASEP), explaining earlier this year that the nation’s industry has suffered from a need to import whole rounds, due to poor catch.

Wages are again dependent on region, with the Long An Province, which is home to Foodtech JSC, and Yueh Chyang Canned Food Co., having a monthly minimum wage of VND 3.32 million* (USD 145). The nation managed to ship out a total of almost 41,000 tons of loins and canned tuna in 2015 and the biggest importer of Vietnamese product was the US, which took around 15,600 tons.

Vietnam imported around USD 214.9 million of tuna to satisfy its plants in 2015, according to VASEP, and its trade deal with the EU has seen a boost in exports to the bloc. This comes despite concerns over labor practices and workers’ rights.

Mauritius

While eight tuna vessels are Mauritian-flagged (five longliners, two purse seiners, and one supply vessel) according to the IOTC register, its location within the Indian Ocean and its processing facilities contribute more to its status as a tuna nation.

Of the African nations that export canned tuna to the EU, Mauritius sent the largest portion in 2015, accounting for 31 percent of the total, with UK brand, Princes, having a presence on the island. In the same year, Mauritius exported over 46,000 tons of canned tuna, almost all of it going to the EU and a total of 11,332 tons of precooked loins were sent to the EU and US combined. In order to get these production volumes, a good labor supply has been a crucial factor for the island nation’s plants, migrant workers being an important part of the labor force.

Within the Export Processing Zone (EPZ), the minimum wage increases per year employed. Skilled factory workers are entitled to MUR 4,904* (USD 138) per month, whereas unskilled workers are entitled to MUR 4,556* (USD 128) per month. According to the National Remuneration Board (NRB), which is the body that monitors the minimum wage in Mauritius, there are various minimum levels of payment that those working in tuna processing receive.

As with other developing nations, there is an EPZ that is designed to bring in foreign investment by having lower costs and fewer regulations for business.

American Samoa

The 2007 decision to increase the territory’s minimum wage is seen by some as the beginning of the problems that the processing industry in American Samoa has been facing over recent times. A 2014 government report found that the increased earnings for tuna workers had been canceled out by inflation and job losses, as a result of the wage hike. The monthly wage for an employee in the fish-processing sector is USD 825.60*, which is low by Western standards but is considerably higher than competitors in lesser developed countries, and is almost five-times higher than in Bangkok.

The viability of the StarKist plant in the territory has been called into question, and the brand new Tri Marine plant was shut in 2016 “indefinitely”. Both plants experience supply shortages and have limited cold storage, and have heavily relied on migrant labor from the Republic of Samoa. The zero duty status of the territory with the US market has so far helped the StarKist cannery survive, but its isolated position along with the high conversion costs, saw it lose most of its business from the US market to Thailand’s lower cost labor force.

Indonesia

Indonesian officials have made a big effort to attract investment in processing and infrastructure. This has involved gaining control of its EEZ from IUU fishing and more effectively exploiting the country’s tuna resource, in the hope of creating more local jobs.

As well as in the Philippines, Alliance Select also has a cannery in Indonesia. Additionally, Sinar Pure Seafoods, has an operation in Bitung, Sulawesi, which is the area most commonly associated with tuna canning in Indonesia. There are two other notable canneries that are located in the East Java province and belong to PT. Maya Muncar and PT Aneka respectively.

Indonesia’s minimum wage is also dependent on region. Of the Sulawesi provinces, North Sulawesi, where Bitung is located, has the highest minimum monthly salary of IDR 2.59 million (USD 193.95). Central Sulawesi has the lowest salary of IDR 1.8 million (USD 134.71) per month.

Labor costs in Indonesia have recently increased, with the government enacting a hike in the minimum wage at the end of 2016. Reporting the world’s highest tuna catch, Indonesia loosened regulations on Foreign Direct Investment (FDI), hoping that allowing 100 percent foreign ownership of processing companies will convert catch into finished product.

There are ongoing negotiations between Indonesia and the EU for an FTA. Though there is no scheduled completion date, tariff-free trade on tuna would surely see the 2015 amount of almost 18,000 tons that was sent to the bloc increase. Including this amount, Indonesia managed to export around 55,500 tons of loins and canned tuna in that year.

Spain

Behind Thailand, Spain is the second largest processor of tuna in the world, which, considering it is a developed nation with stricter labor laws, is a sizeable achievement. For example, the minimum wage is over five times higher than that in Vietnam. This imbalance is compensated through the high level of automation of Spain’s tuna industry, and often outsourcing the labor of high-cost tuna cleaning and pre-cooking to countries with cheaper labor outside of the EU. Lobbying for high duties for Asian producers formed part of the local industry’s protection policy. Notable members of the Spanish processing industry include companies such as Jealsa, Calvo, Frinsa and Atunlo.

The Spanish monthly minimum wage was increased by 8 percent at the end of 2016, to EUR 825.50 (USD 868.93) on the back of political tensions. The previous year, around 87,000 tons of tuna products left the country, with almost 80,000 destined for the member nations of the EU. The processing industry in Spain is the largest beneficiary of the EU’s Autonomous Tariff Quota (ATQ), whereby the first 25,000 tons of precooked loins imported from third countries with no existing FTA (such as Thailand or China) are done so tariff-free.

Papa New Guinea

Despite having some of the world’s most tuna-rich waters, PNA nation, PNG, has so far been unable to build a processing industry of a similar scale, and realize the level of local employment envisioned. It was recently found that just 25 percent of the tuna caught within its EEZ went on to be processed domestically, draining up to PGK 850 million (USD 267 million) from the economy annually.

Problems with productivity of the labor force and a lack of infrastructure have been cited, particularly by major firms from the Philippines, which have long fished in its EEZ, as a reason for landing tuna outside of PNG. Aware of the problem, at the end of last year, Minister for Trade, Commerce and Industry, Richard Maru, indicated that once the long-awaited processing hub, named the Pacific Marine Industrial Zone (PMIZ), was established, there would be a change in policy, stating “As soon as we start the Marine Park we are now going to change the policy so no one will be allowed to take our fish out of the country.”

In terms of labor, in July 2016, PNG raised its minimum wage to PGK 560 (USD 176)* per month.

There is clear room to increase the total exports of precooked loins and canned tuna, which reached almost 30,000 tons in 2015, and hopes of this are pinned on the success of the PMIZ.

As can be seen, the availability of cheap labor goes a long way to securing a nation’s competitiveness in the tuna processing industry. However, it must also be noted that simply paying a workforce less to do the same job, does not guarantee a healthier bottom-line. Labor productivity and efficiency was cited as the number one factor behind global competitiveness in manufacturing, in a recent study involving nations that included Spain, China, and the US, commissioned by US workforce management specialist firm, Kronos.

The strength of countries’ diplomatic ties also plays a significant part in creating a hospitable environment for tuna processors. Through the removal of trade tariffs via FTAs, and securing access to affordable raw material, it is possible for key nations to allow the natural advantage of cheaper labor to flourish.

*When provided as a different measurement of time, this was calculated as a month based on four weeks of five eight-hour days.

The National or Regional Wage of Top Tuna Processors

Ecuador: USD 336: 174,696 tons
Philippines: USD 117: 79,495 tons
Ivory Coast: USD 96.46: 33,461 tons
Thailand: USD 180: 561,365 tons
China: USD 221: 82,263 tons
Vietnam: USD 145: 40,867 tons
Mauritius: USD 138: 57,542 tons
US: USD 825.60: 1,762 tons
Indonesia: USD 193.95: 55,551 tons
Spain: USD 868.93: 86,864 tons
PNG: USD 176: 29,513 tons

(Export Tonnage from 2015)