Poor governance and malfunctioning institutions tend to result in business disruption, environmental destruction, social mistrust and little development of the sector, in spite
of positive demand and supply conditions.
5.1 The private sector
Market governance vs relationship governance The market has become the main governance mechanism in the carrageenan seaweed
industry Neish, 2008a, 2013. Under market governance, the profit-seeking activities of self-interested stakeholders farmers, trading agents and processors are coordinated
by the price mechanism.
As discussed above, major carrageenan seaweed farming countries especially Indonesia and the Philippines have recently experienced volatile market conditions.
Fluctuating prices have disrupted proper functioning of the market mechanism and caused destabilizing behaviours such as harvesting crops prematurely, adding
impurities to seaweed, and speculating on prices. This may be a short-term disturbance experienced by a rapidly expanding industry that could be corrected gradually through
market-driven consolidation and integration. However, it seems that the disorders have induced an anti-market sentiment that favours the replacement of market governance
with “relationship governance” by consolidating farmers into farm enterprises e.g. cooperatives, promoting strategic alliances among them, and establishing direct links
between farm enterprises and processors Neish, 2008a, 2008c.
It is true that the supply chain from farmers to collectors to consolidators to traders to exporters then to processors means a mark-up at each stage and less traceability,
but it remains unclear whether the intermediary and other functions of trading agents discussed in Section 2.4 could be more efficiently internalized by farm enterprises
andor processors. Related issues include the boundaries of seaweed enterprises, the benefits, costs and sustainability of their ownership and governance structure,
the governance structure, flexibility and resilience of business alliances among farm enterprises and direct business relationship between farm enterprises and processors.
Further study is needed. The development of industrial organization and value chain governance in other aquaculture activities and terrestrial farming could shed light on
this subject.
Contract farming Contract farming has been widely used in carrageenan seaweed farming. In India,
seaweed farming started with contract farming offered by a multinational corporation Krishnan and Narayanakumar, 2013. In Indonesia, 45 percent of the surveyed
farmers in Neish 2013 reported that they had contracts with buyers. In the United Republic of Tanzania, many seaweed farmers relied on formal or informal contractual
relationships with exporters to sell their seaweed produce Msuya, 2013.
In a typical contract farming scheme, the contractor usually provides materials e.g. cultivars and extension services to growers and commits to purchasing the harvest at
predetermined prices. Contracted seaweed farmers are liable to deliver their produce at a satisfactory quality and avoid selling to other buyers.
In the United Republic of Tanzania, seaweed farmers often complained that exporters did not properly compensate their efforts; whereas the exporters argued that
the low prices they offered were justified because they provided farming materials and extension services to farmers. The farmers often had to stick to unappealing contracts
because they needed the aids provided by exporters, lacked other channels to sell their produce andor had no alternative livelihood sources. However, they were prone to
side-selling to other exporters that could offer higher prices. This caused conflicts between exporters and disruption of farming activities. On the other hand, exporters
might also not honour their promises when the market was weak. In sum, it appeared
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that contract farming did not perform very efficiently in the United Republic of Tanzania; many farmers especially those on the mainland were gradually moving
away the system Msuya, 2013. In India, the contractor Aquagri was concerned about farmer satisfaction and
set the basic seaweed price based on their efforts. The contractor also used price incentive schemes to keep loyal and high-volume producers from being enticed
away by competing companies. In addition, the contractor used other non-price arrangements e.g. assisting farmers to meet their family andor social obligations to
strengthen farmers’ trust and loyalty. Although the temptation to breach contracts always exists when higher prices are offered, contract farming has become a generally
effective mechanism that has facilitated the rapid expansion of seaweed farming in India Krishnan and Narayanakumar, 2013.
While it is difficult to generalize, there are several factors that may help explain India’s more positive experience in contract farming as compared with the United
Republic of Tanzania. First, compared with seaweed exporters in the United Republic of Tanzania, the processor contractor in India may have more incentives to maintain
stable seaweed supplies in order to avoid disruption of its seaweed processing business. Second, the successful SHG model in India makes contract farming easier to establish
and manage. Third, the participation of financial institutions as a credit provider and contract facilitator Krishnan and Narayanakumar, 2013 provides incentives for
farmers to adopt contract farming and an assurance mechanism for the contract to be sustained.
Community-based seaweed farming The experience in India indicates that the daily-wage corporate model is difficult to
maintain for carrageenan seaweed farming because of its special characteristics such as seasonality and uneven distribution of labour requirements within a production cycle
Krishnan and Narayanakumar, 2013. In addition, in most countries, policy-makers are often reluctant to promote “big business” because of concerns over social equity.
As a result, carrageenan seaweed farming has been dominated by small-scale family farmers.
Small-scale seaweed farming usually lacks economies of scale in both production and marketing see the analysis in Section 3 for some evidence. Farmers groups or
producer associations are a way of overcoming this disadvantage. Farmers groups allow members to share labour, materials and assets. This has been a common practice among
nuclear family farms in Indonesia Neish, 2013. In Solomon Islands, farmers hope to reduce transportation cost through community-based motorized boats Kronen, 2013.
Farmers groups could also perform the tasks of post-harvest treatments and play the roles of trading agents. In the Philippines, many famers associations have attempted
to purchase fresh seaweed from member farmers, dry it and then sell it directly to a processor Hurtado, 2013. In the Indonesia case study Neish, 2013, 32 percent of
the surveyed farmers in Nusa Tenggara Timur NTT sold their seaweed produce to cooperatives; all the surveyed farmers in South Central Sulawesi sold theirs to a
farmer credit union. In India, one of the main advantages of the SHG model is to foster entrepreneurialism in seaweed farming as an activity with great growth potential
Krishnan and Narayanakumar, 2013.
The experiences of producer associations have not always been successful. In the United Republic of Tanzania, particularly Zanzibar, most farmers were members
of cooperatives or other producer associations. Most of these associations were not formed at the initiative of farmers but rather at the behest of donor-funded
programmes in order to facilitate training and implementation of aids. Interviews with farmers indicated that cooperatives were more successful in helping farmers receive
aids than in enabling them to address various farming or marketing issues e.g. die-
offs from disease, and finding more reliable buyers. A lack of competent leadership was deemed a factor behind the shortcoming Msuya, 2013. In the Philippines, direct
sales arrangements through producer associations were supposed to increase farmers’ profits. However, few associations have been able to accomplish their stated objectives,
which raises the question of whether community-based seaweed farming is more efficient than individual farmers Hurtado, 2013.
5.2 The public sector
