Vertical coordination in the salmon supply chain

Abstract

The extent of vertical coordination in the supply chain for salmon was limited until the early 1990s. During the last ten years, however, there have been several developments that have lead to tighter vertical coordination from salmon aquaculture production to the supermarkets. Most obvious is the rise of large, horizontal and vertical integrated companies, with direct ownership of production activities from hatcheries to fish processing and exporting. But we have also seen the emergence of long-term contractual supplier-customer relationships between aquaculture producing companies and processors or retail chains. This paper analyses the underlying economic forces driving the development towards tighter vertical coordination in the salmon supply chain and its consequences. Potential incentives for vertical coordination are economies of scale, market or bargaining power, risk reduction, and standards set by governments or private agents in relation to food safety, food quality and environmental effects. First, we present some general findings from the theoretical and empirical literature on vertical coordination in agriculture that is the most relevant for salmon aquaculture. Second, we identify structural differences between agricultural sectors and aquaculture that may lead to different outcomes. Third, we present explanatory propositions on vertical coordination in the salmon supply chain. We provide both theoretical and empirical support for these propositions. Finally, we briefly discuss economic performance and future developments of the industry.