Analysis of zanzibar's seaweed industry competitiveness and strategy implication for its improved performance

Abstract

The United Republic of Tanzania (URT) is the leading producer and exporter of red seaweeds under genera Eucheuma Denticulatum (commercially known as spinosum) and Kappaphycus Alvezerii (commercially known as cottonii) in Africa and fourth in the global red seaweed industry. The contribution of the URT to the global seaweed industry remains minute (0.30%) despite bringing in considerable foreign currency reserves for the Revolutionary Government of Zanzibar (RGoZ).Zanzibar island produces ninety per cent of total seaweeds from the URT, and the Zanzibar seaweed Industry (ZSI) is the third revenue earner for RGoZ. The industry has brought in significant socio-economic contributions, including; creating employment for rural Zanzibarians and uplifting the rural coastal livelihoods, especially those of women. However, despite its noteworthy contributions, recent times have witnessed ZSIfailing to tap into the growing demand for red seaweed globally. A review of existing literature on the industry revealed several factors inhibiting ZSI from expanding, summarised by two significant factors: its production system and competition from Asian producers. As a result, ZSI has been attracting low-price offers which have led to substantial farm abandonment and a decline in production. Therefore, the present study titled “Analysis of Zanzibar’s seaweed industry competitiveness and strategy implication for its improved performance” was conducted with four main objectives, namely; to perform a structural analysis of the Zanzibar seaweed industry, to assess its trade performance from 2009-2019, to evaluate the export marketing strategies used by the industry and lastly, to identify current constraints faced by the seaweed farmers and exporting companies in Zanzibar. The study adopted a cross-sectional research approach and followed a mixed-method survey design. The study utilised three sample designs, i.e. seaweed farmers, exporters, and representatives of government institutions linked to ZSI. Farmers’ sample (592) was selected through multistage, quota and convenience sampling techniques. Exporters (4) and representatives of government institutions samples (9) were selected through purposive sampling. Primary data was collected through group interviews, focus group discussions, pre-tested survey schedules and direct observation. Secondary data was collected through the official websites of FAO, UNICTAD Stat, Zanzibar Revenue Board, Tanzania Revenues Authority, Office of Chief Government 3 Statcian Zanzibar, International Trade Centre map and World Bank data. The seaweed section, Department of Fisheries Development, Zanzibar, provided data regarding ZSI farmers, exporters and industry’s production. Primary data were analysed using appropriate descriptive and inferential statistical tools in SPSS version 22. Similarly, theoretical models for competitiveness analysis (Porter’s five forces and Porter’s Diamond Model) and business environment scanning tools (SWOC and PESTEL frameworks) were adopted. Secondary data was analysed using appropriate trade indices. Trend analysis and forecasting were done through the least squares method (exports) and the Holt-Winters smoothing exponential method (production). Preliminary findings from primary data analysis revealed that most farmers were smallholder female farmers (91%). The majority had attained primary education (42%) as the highest qualification. Most of the farmers (42%) were found to be aged between 48-50 years and lived in extended families (94%).The seaweed production system in Zanzibar was found to be off-bottom/peg and line. Production costs were found to be Rs. 10,251 for a 100 m2 ocean area. The number of seaweed plots owned by farmers differed between Unguja and Pemba, with a maximum of eight plots in Unguja and three in Pemba. Most farmers (32%) were found to earn between Rs. 26,240 – 32,819per production cycle (45-60 days) from seaweed farming.Further, most farmers (65%) made between Rs. 1,607 and 3,290from other sources, including land-based agriculture and small-scale entrepreneurial activities. The average household expenditure for the farmers ranged between Rs. 19,661 and 26,240per month. Farmers in Unguja receive between Rs. 21.42 per kg of dry spinosum, while those in Pemba receive Rs. 16.83for the same. The price differences are mainly due to the buying company and seaweed supply per production cycle. However, farmers get paid Rs. 32.90for cottonii as it is a highly desired variety by foreign buyers and attracts higher export per unit price than spinosum. It was found that a seaweed farmer’s margin is 40% in spinosum export unit value and 34% in cottonii export unit value. Furthermore, it was found that the number of exporters has significantly reduced from 15 companies in 2013 to seven in 2021. The reduction is mainly due to the seaweed business’s unpredicted nature, mainly at the global level. Most of the exporters were found exporters to be foreign-owned/subsidiaries of multinational companies in the Philippines and USA. The exporters were found to have reduced offering farm input subsidies to farmers due 4 to perceived disloyalty from farmers during selling and failure of the RGoZ to recognise farming inputs subsidies as operating expenses hence not factored in during tax calculations. C-WEED and ZANEA companies were found to be the dominant collectors and exporters from Pemba and Unguja, respectively. No exporter was found to perform seaweed valueaddition activities. Analysis of the ZSI’s structure revealed that the industry attracts low profit and has a high degree of rivalry due to high buyer power, high supplier power, lack of industry barriers, presence of substitutes and an increased number of similar producers. Similarly, ZSI was foundto lack sources of competitive advantages due to having basic factor conditions, the absence of a domestic market, industry policy, strategy, vision and goals. In addition, the industry was found to have no linkages to other supporting or related industries. The role of the RGoZ in regulating the activities of ZSI was found to be limited. Similarly, analysis of the ZSI business environment revealed several vital findings; a SWOC analysis of ZSI revealedthat ZSI faces challenges such as; fluctuations in global demand and supply of red seaweeds and increased oceanic tidal winds and temperatures. Similary, PESTEL analysis revealed that the industry faces political-legal challenges, such as a lack of industry policy and conflicting investment priorities by the RGoZ. The economic environment revealed that the industry faces global supply and demand fluctuations of red seaweeds, high unemployment and poverty rates in rural Zanzibar, highinterest rates and inaccessibility of finance and credit sources. Socio-cultural environment revealed negative local attitudes towards seaweeds, and low literacy levels were the industry’s key challenges. Analysis of the technological climate environment revealed that ZSI has limited technology integration into its activities. Ecological environment analysis revealed that ZSI faces ecological challenges such as increased temperatures and oceanic tidal waves leading to plant breakage and high die-offs. Secondary data analysis revealed several key findings. First, between 2010 and 2017, seaweed production in Zanzibar fluctuated significantly. Causes include boom and bust conditions, production challenges and the anticipatory price behaviour of the farmers. Between 2017 and 2020, production further declined mainly due to production challenges and farm abandonments driven by low prices from previous trading years. On the other hand, between 2010 and 2014, exports increased significantly, mainly due to increase in global demand for red seaweed driven by the global hydrocolloid market. Between 2015 and 2017, 5 there was a significant decline in exports mainly due to a reduction in production, specifically of cottonii, and a decrease in demand for carrageenan at the global level. From 2018 towards 2020, export trends revealed an increasing trend despite a fall in production. This observation is explained by exporting previous unabsorbed logs during the preceding trading years and increased cottonii production. Instability analysis of production trends revealed that ZSI had a low instability index (18%) between 2010 and 2020, while export volume and value had medium (30%) and high instability (47%), respectively. Further, trade performance analysis revealed that the URT was found to have a low export propensity, trade dependence and RCA values compared to major competitors. The URT was not competitive (competitive index = 0%) in the export of red seaweeds. Comparing export unit prices revealed that URT received the lowest price margins compared to competitors between 2000 and 2013, but from 2014 to 2019, the prices increased significantly. The export unit price increased due to the production of high-priced cottonii during the same period. Analysis of market share performance revealed that between 2000s and 2013, the URT was the third largest producer and exporter of red seaweeds globally. However, the country dropped position to 5th in 2015, surpassed by Madagascar and has remained in the same position till present The global seaweed industry was found to be an oligopoly and had a consistently high market concentration index of above 4000 (HHI). Export marketing strategies utilised by the seaweed exporters in Zanzibar were as follows; exporters select foreign markets based on historical relationships, past sales records and analysis of business potential in the foreign market. Exporters were found to apply product adaptation strategies and used personal selling as a promotion strategy. The pricing strategies used by exporters were identified as cost and market-based. Place strategies identified were direct and indirect exporting. On the evaluation of the perceived effectiveness of the export marketing strategies, there was a high degree of agreement among exporters (W=0.807) that internal implementation strategies, specifically concerning monitoring/control systems in the company, are well aligned with the needs of the company’s export marketing plan. Similarly, there was a high degree of agreement among exporters that the marketplace has not responded to the company’s current export marketing strategy as intended. Analysis of constraints revealed that the highest-rated constraints for the farmers differ in Unguja and Pemba concerning government-related production, physical 6 infrastructure and value addition. No differences were observed regarding post-harvest, financial, marketing and environmental constraints. Overall, leading challenges for farmers were the limited provision of farming implements, lack of knowledge about the latest seaweed farming methods, limited farming land, lack of capital for value addition, low price offers, lack of processing facilities and seaweed-related diseases. Exporters ranked lack of seaweed policy, limited demand and taxes as the highest faced constraints. Therefore, ZSI was found to be not competitive mainly due to a lack of sources of competitive advantages and facing several challenges from its business environment. Notwithstanding, this study concludes that ZSI is still a valuable tool for enhancing the welfare of rural Zanzibarians as well as being a contributory source of Zanzibar and URT’s national prosperity. Thus, several approaches are suggested to improve the industry’s performance. First, creatinga seaweed-integrated industry policy for the sustenance of ZSI is crucial. The policy, among other things, should focus on efficiently utilising the water resources in Zanzibar, establishing special zones for seaweed farming, establishinggovernment-based procurement and trading, and expanding of marketing channels of ZSI. The policy interventions should also include introducing mechanisms for seaweed disease control and improving extension services to seaweed farmers. At the government level, the interventions should create an enabling environment for foreign direct investment flows into the ZSI to improve its production and value-addition, enhancing exporters’ product variety and various risks associated with the oligopsonistic nature of the seaweed industry. Processing and valueaddition will create opportunities for ZSI to be linked to its domestic and regional markets. Further, researching ways to improve the quality of exported seaweed variety to enable differentiation in quality at the global level. In addition, there is an urgent need to increase the pool of marine scientists in Zanzibar by promoting and funding marine education in the URT. Further, farmers’ skills should also be upgraded through appropriate training to cope with environmental challenges associated with seaweed production. Development of a marketing plan to tap into new markets for red seaweeds at the global level, for example, the United Kingdom, Germany, Canada and the Netherlands, is crucial. Similarly, remarketing URT seaweed exports in the human food category apart from industrial raw material can be an innovative market strategy to circumvent the oligopsony nature of the global seaweed trade.Revival of seaweed farmers’ associations through capacity building (leadership training, revising the existing structure, financial assistance) and establishment of seaweed-related cooperative societies is vital to aid 7 ZSI’s efficiency and productivity. Lastly, there is a need for active participation and collaboration of marketing and aquaculture academia in the URT with ZSI’s exporters with regard to global seaweed industry trends and market conditions.