16
them to offer high prices, farmers should increase the production level so as to help lower the unit cost of marketing seaweed Msuya, 2013. Lack of economies of scale
in seaweed farming was also a problem in Solomon Islands, where exporters offered monetary awards to motivate farmers to increase their deliveries Kronen, 2013.
Volatility in seaweed prices is another problem, which reflects periodic disequilibrium in supply and demand under an oligopsonistic market structure. The volatility appears
to have increased recently with the loss of cohesion in the value chain. In addition to Figure 6, evidence of more volatile seaweed prices is also documented in the six case
studies:
• In the Philippines, the export price of dry cottonii f.o.b. Cebu City averaged about USD800 a tonne between 2003 and 2007 with relatively little fluctuation,
whereas in 2007 the price was driven enormously high by strong demand from China and reached USD2 750 a tonne in 2008. When the supply reacted swiftly to
the price hike, the price was dampened and dropped to USD1 300 a tonne in 2009 and then rebounded to USD1 600 in 2010 Hurtado, 2013.
• In Solomon Islands, the farmgate price of cottonii declined from about USD300 in the early 2000s to about USD200 in the mid-2000s because of an increase in fuel
prices; the price then increased to about USD400 in 2008 because of the strong demand in the international market Kronen, 2013.
Price volatility is a common phenomenon for economic activities dictated by market mechanisms that may not function properly because of imperfect institutions
andor information. A seaweed industry that contains many small-scale price- takers is especially prone to boom–bust cycles. When strong demand drives up the
market price, seaweed farmers tend to increase their production; farmers may even harvest immature crops in order to grasp the opportunity of a good price Hurtado,
2013, especially when they are afraid that the price hike may be transitory. On the other hand, processors would tend to reduce demand as prices rise by substituting
cheaper alternatives McHugh, 2006. A likely result would then be supply exceeding demand and consequently a collapse in price. At the trough, seaweed farmers become
discouraged and abandon their farms. This has happened in the Philippines, Solomon Islands and the United Republic of Tanzania.
Price volatility is also compounded by the absence of relevant, reliable and timely production statistics and market intelligence. Unlike for some agricultural commodities
such as coffee or tea, there are no organized markets to provide benchmarking international prices for seaweed Tinne, Preston and Tiroba, 2006. Under the situation
where seaweed farmers, traders and processors make decisions based on speculations or misinformation, market fluctuations tend to be inevitable. Unavailability of reliable
information is especially detrimental to uninformed seaweed farmers who are at the lowest end of the seaweed value chain and often forced to accept whatever price is
offered.
2.4 Value chain
A seaweed-carrageenan value chain begins with seaweed farmers and ends with the users of carrageenan products. Typically, the value chain involves four stages:
cultivation, post-harvest treatment, trading and processing. The cultivation stage produces fresh seaweeds through planting, daily management and harvesting. The
post-harvest treatment stage purifies and dries fresh seaweeds into raw dry seaweeds RDS. The trading stage consolidates and delivers RDS to processors. Then, the
processing stage turns RDS into carrageenan andor other products. Key players in the value chain include farmers, trading agents collectors, consolidators, traders and
exporting companies and processors.
The value chains vary in the case-study countries. The Philippines has the most complete and sophisticated value chain – containing every stage from seaweed
cultivation to carrageenan blending Panlibuton, Porse and Nadela, 2007; Hurtado, 2013. Indonesia still exports most of its RDS to overseas markets primarily China,
yet it has developed substantial carrageenan especially semi-refined carrageenan processing capacity Neish, 2013. The United Republic of Tanzania has little
carrageenan processing capacity and exports most of its RDS Msuya, 2013; so does Solomon Islands Kronen, 2013. The value chain in India is the shortest with most
contracted farmers selling their seaweed directly to the processor Krishnan and Narayanakumar, 2013.
Cultivation Cultivation of fresh seaweed is usually conducted by a number of small-scale,
independent seaweed growers. As compared with the wage worker system, such an industrial structure allows more flexible and efficient labour participation in seasonal,
labour-intensive seaweed farming activities. However, it also means that decision- making on seaweed production is decentralized to numerous independent growers.
Contract farming has been used to coordinate the production of independent seaweed farmers in some countries such as India Krishnan and Narayanakumar, 2013 and the
United Republic of Tanzania Msuya, 2013.
In addition to the performance constraints highlighted above, other issues at the farming stage indentified by the case studies include:
• Premature harvest because of cash flow problems or rashness to seize the opportunities of high price Hurtado, 2013.
• Difficulties encountered by small-scale farmers in harvesting and transporting large crops to the drying site Msuya, 2013.
• Lack of proper shoes to protect farmers from being stung by organisms e.g. sea urchins and box fish at the farming site Msuya, 2013.
Post-harvest treatment Typically, harvested fresh seaweeds need to go through post-harvest treatment to
remove impurities and reduce the moisture content in order to become RDS suitable for storage, transport and processing.
Impurities that ought to be removed from harvested fresh seaweeds may come from the farming environment e.g. junk weeds, shells, sands, stones, mud and dirt or from
the farming system e.g. raffiatie-ties and ropes. Salt is also considered an impurity, but its removal may not be necessary because natural potassium chloride may facilitate
the processing of cottonii Neish, 2013.
Fresh seaweeds are usually sun-dried on a variety of drying apparatus e.g. concrete slabs, woodenbamboo platforms or racks, coconut branches, mats and fishing nets
or directly on grass or sandy beaches. The drying process may take 2–3 days in sunny weather but could take up to 7 days in rainy seasons Msuya, 2013.
Generally speaking, the drier the RDS is, the higher the quality is. The industry standard for the maximum moisture content of dry cottonii is 38 percent in Indonesia
Neish, 2013 and 40 percent in the Philippines Hurtado, 2013. More-detailed quality standards on dried seaweeds in the Philippines can be found in Hurtado 2013.
Fresh seaweeds decompose quickly after harvest; whereas sun-drying is subject to weather uncertainties. Thus, finding more controllable and cost-effective drying
methods has been a key technical issue persistently preoccupying the industry Neish, 2013. However, to date, sun-drying remains the main if not the only option in
practice.
Drying may not be necessary under special situations. For example, in India, seaweed farmers under contract farming can ship their fresh seaweed harvests directly
to processing facilities for production of biofertilizer Krishnan and Narayanakumar, 2013.
18
Post-harvest treatment is usually done by seaweed growers. However, additional drying and quality control may be conducted by trading agents to achieve the quality
desired by processors Kronen, 2013; Neish, 2013. In the Philippines, seaweed growers who find the sun-drying process laborious and time-consuming may pass the
task to traders or farmers associations by selling them fresh or semi-dried seaweeds Hurtado, 2013.
Issues at the post-harvest stage identified by the case studies include: • seaweed not dried enough andor impurities not removed sufficiently Hurtado,
2013; Neish, 2013; • added impurities through drying directly on sandy beach Krishnan and
Narayanakumar, 2013; • added impurities by trading games such as sand–salt adulteration Hurtado, 2013.
Trading Seaweed farmers usually sell their harvests to local collectors or consolidators who
accumulate seaweed collections to a substantial amount and then sell them to large traders who eventually deliver the products to processors. In Indonesia, a large farmer
may bypass collectors and sell RDS directly to a central trading centre Neish, 2013. In the Philippines, there may be a small trader between local consolidators and a large
trader who owns a warehouse Hurtado, 2013. In the United Republic of Tanzania and Solomon Islands, traders usually hire local agents to help them collect seaweeds
from farmers Msuya, 2013; Kronen, 2013.
In Indonesia, collectors and traders usually charge price-based brokerage fees that normally do not exceed 5 percent of the seaweed price Neish, 2013. In the Philippines,
collectors and traders may charge brokerage fees at weight-based rates Hurtado, 2013. In addition to the main function of being the broker between farmers and processors,
trading agents may play other roles in seaweed value chains. For example, collectors and large traders in the Philippines often take on the task of drying Hurtado, 2013. A
central trading centre in Indonesia offered cash advances to farms and collectors who would pay back the advances with their seaweed deliveries Neish, 2013. Under the
price-based charging scheme, as the brokerage fee varies with the seaweed price, traders essentially shoulder part of the risk of price variations.
In Indonesia and the Philippines, commercial collectors are usually ex-farmers and come from the same ethnic background and villages as the farmers from whom they
collect seaweeds. According to the farm survey in Neish 2013, trust and integrity are two key elements facilitating and sustaining good business relationship between
Indonesian seaweed farmers and collectors. The farm survey also indicates a relatively high degree of trust and commitment between farmers and collectors in Indonesia.
Besides commercial collectors and traders, farmers associations may also serve as brokers between farmers and processors. In Indonesia, many farmers sold their
harvests to farmers groups, cooperatives or credit unions Neish, 2013. In the Philippines, farmers associations helped reduce the layers of intermediaries by
collecting seaweeds from member farmers, drying the seaweeds and then selling them directly to processors with the assistance of government agencies or non-governmental
organizations NGOs Hurtado, 2013.
Generally speaking, a more direct trading scheme could increase the profits of seaweed farmers by reducing the layers of intermediaries. However, while farmers
associations could play an active role in improving the efficiency of seaweed trading, the vital roles of commercial trading agents may be irreplaceable in seaweed value
chains where a large number of smallholder farmers try to satisfy the demand of processors that may locate overseas. Therefore, the key is to establish an enabling yet
competitive environment to improve the efficiency of commercial trading agents rather than trying to bypass them completely.
In special situations, traders may not be necessary. For example, seaweed farmers in India may follow predetermined arrangements under a contract farming scheme to
deliver their harvests directly to the processor Krishnan and Narayanakumar, 2013. Issues at the trading stage include:
• high transportation costs especially regarding domestic freight and for small- scale operations caused by inadequate infrastructure andor high fuel prices
Neish, 2013; Kronen, 2013; Msuya, 2013; • high trading costs due to multiple layers of collecting or trading Neish, 2013;
• cost of RDS export affected by exchange rate fluctuations McHugh, 2006.
Processing Carrageenan seaweeds can be processed into refined carrageenan RC or semi-refined
carrageenan SRC. The former is a traditional product with a high carrageenan content, fit for human consumption, but difficult and expensive to produce. The latter, SRC,
as the name suggests, is a product with a lower carrageenan content. It was initially unfit for human consumption and used primarily for pet food or as raw materials to
produce RC. The production of pet-grade SRC declined in the 2000s because of the pet food industry’s increased use of dry pellets and substitution of low-cost gelling agents
Bixler and Porse, 2011. However, food-grade SRC, which is called Philippine Natural Grade PNG or Processed Eucheuma Seaweed PES, was developed in the 1970s and
it has become a popular substitute for RC since the 1990s. It is almost equivalent to RC in many applications but much cheaper Panlibuton, Porse and Nadela, 2007; Bixler
and Porse, 2011.
It is estimated that, at the end of the 2000s, RC accounted for about half of the world carrageenan production; food grade SRC PES for 40 percent; and non-food grade
SRC for 10 percent Bixler and Porse, 2011; Neish, 2013. The processing capacity for RC is located primarily in Europe, the Americas, China and the Philippines, while that
for SRC is primarily located in the Philippines, Indonesia and China Bixler and Porse, 2011; Neish, 2013.
Being capital-intensive and technically demanding, RC production used to be highly consolidated and controlled primarily by a few large companies, which were
usually subsidiaries of large transnational food andor agriculture corporations in Europe and Northern America Bixler and Porse, 2011. Because of cost-saving and
other considerations, there has been a trend for large RC producers to shift their processing facilities to areas such as the Philippines and China Panlibuton, Porse
and Nadela, 2007. The SRC industry has lower capital and technical requirements and allows the participation of many small companies. This has caused a significant
change in the structure of the carrageenan business, which is discussed in greater detail below.
As the main ingredient, RC or SRC usually needs to be blended with other hydrocolloids and ingredients based on custom-made formulations to serve the special
needs of different end users. Carrageenan blending is usually conducted by large carrageenan producers or “blending houses” that specialize in the formulation and
marketing of carrageenan-blended products Panlibuton, Porse and Nadela, 2007.
Generally speaking, food-grade SRC and gel-press RC are often used for relatively low-end applications such as improving the texture and tenderness of pre-cooked
poultry products, suspending cocoa particles in chocolate milk, and making water-gel products. Alcohol-precipitation RC is often used for relatively high-end applications
such as toothpaste, cold soluble dairy products, and pharmaceutical products McHugh, 2003; Bixler and Porse, 2011.
Table 3 provides a summary of different types of carrageenan products. More detailed discussion on carrageenan processing and products can be found in McHugh
2003, Panlibuton, Porse and Nadela 2007 and Bixler and Porse 2010.
20
TABLE 3
A summary of carrageenan products
Carrageenan products
Alkali-treated cottonii
ATC chips Semi-refined carrageenan SRC
Refined carrageenan RC
Non-food-grade SRC
Food-grade SRC PES
RC gel-press
RC alcohol
Major raw materials used
Panlibuton, Porse and
Nadela, 2007 Cottonii
Cottonii or Gigartina
Any kind of carrageenan
seaweed: cottonii, spinosum, Gigartina
or Chondrus Processing
method McHugh, 2003
Seaweed treated in hot alkaline solution of potassium hydroxide to remove water-soluble contents; dried; then:
Carrageenan first extracted into an aqueous solution; then recovered by:
chopped into pieces
milled bleached, milled,
and sterilized gel-press
method alcohol-precipitation
method Main contents
McHugh, 2003 Kappa + cellulose
Kappa Any type of
carrageenan: kappa iotalambda
Main uses McHugh, 2003;
Panlibuton, Porse and Nadela,
2007; Bixler and Porse, 2011.
Further processed into
SRC or RC Pet food
Low-end product: meat ham, pre- cooked poultry, fat replacement,
dairy cheese, chocolate milk, etc., water-based food water-
gel, salad dressing, etc. High-end product:
toothpaste, cold-soluble
dairy products, pharmaceutical
products capsules, etc.
Major producing regionscountries
Neish, 2008a; Bixler and Porse,
2011. China, Indonesia and the Philippines
Europe, Americas, China and the Philippines
Share of total carrageenan production worldwide in 2009 ,
based on the estimation in Bixler and Porse 2011
10 41
26 23
Source: Based on information provided by McHugh 2003; Panlibuton, Porse and Nadela 2007; Neish 2008a; Bixler and Porse 2011.
Depending on the quality of the RDS as well as the processing method, the gum yield of carrageenan seaweed processing ranges from about 8 to 30 percent. Although
the other 70–92 percent contains useful nutrients proteins, minerals, etc., it is usually not recovered but treated as waste Neish, 2013. An exception is the case
in India where carrageenan seaweeds were processed to produce organic fertilizer with carrageenan extracted as a by-product Krishnan and Narayanakumar, 2013.
Carrageenan seaweeds have also been used to make other value-added products such as cosmetic products e.g. soap and body cream and confectionery products e.g. candies
and crackers Msuya, 2011.
Major issues at the processing stage identified by the case studies include: • Lack of value addition in the carrageenan seaweed business, which mainly exports
RDS as raw materials for overseas processors Neish, 2013, especially for small countries such as the United Republic of Tanzania Msuya, 2013 and Solomon
Islands Kronen, 2013. Lowered capital and technical requirements allow small- scale processors to enter the carrageenan business Pickering, 2006, yet access to
the markets for carrageenan products remains a major barrier to overcome.
• Useful nutrients not recovered during the production of carrageenan, which is not only wasteful but also could increase the cost of effluent treatment or inflict
environmental costs to the surrounding environment Neish, 2013.
Value chain structure Generally speaking, carrageenan seaweed cultivation and post-harvest treatment
are labour-intensive activities entailing relatively small amounts of initial capital
TABLE 4
An example of the cost of RDS exported by Indonesia to Southern China
Item No.
Cost items for one tonne of RDS Low farmgate price
High farmgate price Value
of the cost of RDS
Value of the
cost of RDS
1 Farmgate price of semi-dry seaweed USDtonne
500 -
1 000 -
2 Semi-dry seaweed needed tonne
1.111 -
1.111 -
3 Farmgate value of semi-dry seaweed USD
556 82.4
1 111 88.4
4 Total cost of trading USD
118 17.6
146 11.6
5 - Cost of sorting and sacking USD
13 2.0
13 1.1
6 - Cost of transport to market USD
22 3.3
22 1.8
7 - Cost of baling USD
25 3.7
25 2.0
8 - Collector and trader fees USD
28 4.1
56 4.4
9 - Cost of transport to overseas processors USD
30 4.5
30 2.4
10 Cost of dry seaweed for overseas processors
USDtonne
674 100.0
1 257 100.0
Notes: 1: Price paid to seaweed farmers. 2: 10 percent of shrinkage i.e. one tonne of seaweed delivered at farmgate would become 0.9 tonnes of RDS after further drying by traders; 3 = 1 × 2. 4 = 5 + 6 + 7 + 8 + 9. 5:
Cost of consolidating seaweed USD12tonne of semi-dry seaweed. 6 Cost of transportation to the trading centre USD20tonne of semi-dry seaweed. 7 Collector and trader fees equal to 5 percent of the farmgate value of semi-dry
seaweed. 8 Cost of baling dry seaweed for export USD25tonne of RDS. 9: Transportation cost for exporting to southern China USD30tonne. 10 = 3 + 4.
Source: Based on information and assumptions in Neish 2013.
investments and material inputs. The use of farming areas in the ocean is usually free of charge except for some licensing or registration fees in some countries.
The price paid to farmers is determined in part by the complexity of the supply chain and partly by the quality of the seaweed. The existence of large and persistent price
gaps between cottonii and spinosum whose production costs are similar indicates that seaweed farmgate prices have been primarily demand-driven. However, this situation
could change in the future as the costs of labour and natural resources in carrageenan seaweed farming countries increase because of economic growth.
Typical costs incurred at the trading stage include the cost of collecting, consolidating and packing primarily labour cost, cost of transportation, and brokerage fees charged
by collectors and traders. Based on information and assumptions in Neish 2013, an example of the cost of RDS exported by Indonesia under different seaweed farmgate
prices is presented in Table 4.
7
The results indicate that seaweed is the main component of the cost of RDS exported from Indonesia to processors in southern China; the
total mark-up at the trading stage is generally less than 20 percent of the cost.
8
Some implications of this value chain structure are summarized as follows:
• Given that other factors remain the same, if the farmgate price of semi-dry seaweed doubled from USD500tonne to USD1 000tonne, the cost of RDS for processors in
southern China would rise by about 87 percent from USD674tonne to USD1 257 tonne. The 87 percent reflects not only the share of the farmgate value of semi-dry
seaweed in the cost of RDS 82.4 percent but also the share of collector and trader fees 4.1 percent, which is assumed to be 5 percent of the farmgate value.
7
The analysis in Table 4 is slightly different from Neish 2013, Table 3 in some aspects. First, instead of treating the “shrinkage” due to further drying as a separate cost item, the analysis here includes it as part
of the cost of semi-dry seaweed paid to farmers. Second, the analysis here also includes the cost for export shipment. Third, the analysis considers only two scenarios low and high prices; the high farmgate price
is assumed to be twice as much as the low price in order to facilitate discussion.
8
As indicated in Table 4, the share is 17.6 and 11.6 percent for the case of low and high farmgate prices, respectively. As some trade costs e.g. insurance are not accounted for, these numbers should be treated
as indicative only.
22
• Conversely, given that other factors remain the same, if the overseas processors wanted to reduce the cost of RDS from USD1 257tonne to USD674tonne a
46 percent decline, the farmgate price of semi-dry seaweed would need to drop by half from USD1 000 to USD500.
• Suppose an increase in fuel price doubles the cost of transportation including the cost of transport to market [USD13] and that of export shipment [USD30];
and the shock be shouldered entirely by seaweed farmers, who tend to be price- takers, then the farmgate price would need to go down from USD500 to USD461
a decline by 7.7 percent.
The production cost of carrageenan includes the cost of RDS and the processing cost. An example of the cost of SRC produced in Indonesia is presented in Table 5. The
results indicate that, generally speaking, RDS is the main component of the production cost of SRC in Indonesia;
9
the share of processing cost is only 36 percent in the case of a low seaweed price and 23 percent in the case of a high price.
• Given that other factors remain the same, if the price of farmgate seaweed doubled from USD500tonne to USD1 000tonne, the cost of SRC produced in Indonesia
would rise by 56 percent from USD4 196tonne to USD6 529tonne. The 56 percent reflects the shares of farmgate seaweed and collector and trader fees in
the cost of SRC 53 and 2.6 percent, respectively, which are under the influence of the farmgate price.
In addition to the production cost, the value of carrageenan products when reaching end users may also reflect the expenses on research and development RD,
formulation, marketing, etc. Specific information on these aspects is lacking, but industrial experts have pointed out that tailor-making carrageenan products to suit
the needs of end users tends to be a high-value-added business Panlibuton, Porse and Nadela, 2007; Bixler and Porse, 2011.
Generally speaking, the global seaweed-carrageenan value chains have changed from a highly integrated structure in the 1970s to a much more diverse, market-oriented
structure in the 2000s Bixler and Porse, 2011; Neish, 2013. The advent of SRC in the mid-1980s and its increasing popularity especially after food-grade SRC was
accepted by western markets are deemed a key factor driving the transformation. The less demanding in terms of capital and technical aspects SRC processing technology
9
The indicative numbers in Table 5 may underestimate the share of RDS in the cost of SRC, which could be increased because of costly local shipping, quantity andor quality losses during trading, local
taxation, and rent-seeking activities Neish, 2013. TABLE 5
An example of the estimated cost of SRC exported by Indonesia
Item No.
Cost items for one tonne of SRC Low farmgate price
for semi-dry seaweed USD500tonne
High farmgate price for semi-dry seaweed
USD1 000tonne Value
of the cost of SRC
Value of the
cost of SRC 1
Cost of RDS USD 2 696
64.2 5 029
