Price of fish is biggest manufacturing challenge, says RD Tuna GM

Managing volatility in the price of fish is R D Tuna Canners’ biggest manufacturing challenge, according to General Manager Erwin Ortiz. He tells Business Advantage PNG that the company intends to increase its storage capacity in Madang as part of its strategy to deal with price fluctuations.

R D Tuna operations. Source: R D Tuna

Ortiz says 2017 was ‘a decent year’ for the Madang-based fishing group. ‘We need to really catch the free–school fish (shoals of fish swimming freely in the same direction). That is why we have upgraded our fishing vessels. We were able to see the benefits.’

Ortiz says the company is now vertically integrated, from fishing through to canning, and does not need to buy fish from external players to meet its production requirements.

‘There are two elements to manage: the volume and the price of the fish.’

This has partially helped R D Tuna handle its foreign exchange challenges:

‘We have to pay in kina and the fishing companies want US dollars. But, now that our fleet is upgraded, we all get our fish from our own fishing group.’

Volume and price

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RD Tuna’s Erwin Ortiz. Source: R D Tuna

Ortiz says there are two elements to manage in : the volume and the price of the fish.

‘In 2017, we improved on the volume in the second half of the year because of the new vessels.

‘But, last year, the price of fish got very high. That is another challenge. It is the law of economics; the normal supply-and-demand balance.

‘There are fishing areas being advised to close and so the prices go up. The price is set internationally.’

Ortiz says the average fish price last year swung in a 25-30 per cent range against 2016.

‘The price of fish greatly affects the company’s profit margins. Everything else is manageable but the fish cost is not.

‘You buy more fish when the price is low but when the price is up you have to be very careful. When the price is down, we also expect the buyers from Europe to also ask for a lower price from us.’

The way to deal with the volatility, he says, is to use cold storage to increase inventory.

‘What we need to do is stock fish for three months. With that, we can plan well, do forward bookings effectively and be protected from any changes of price.

‘Seventy per cent of R D Tuna’s revenue comes from exports.’

‘In 2019, we will be building additional cold storage in the manufacturing compound.’

Margins

Seventy per cent of R D Tuna’s revenue comes from exports, with the remainder sold to the domestic market.

Ortiz says the company’s average profit margin for exports is about five per cent. On local sales, it is ’10 per cent, on average.’

The company’s operations are highly sensitive to wage levels. ‘A one kina increase per hour in wages will be a K5.3 million pressure on our bottom line over a year.

‘R D Tuna Canners is the pioneer in tuna processing in Papua New Guinea.’

‘That is around US$1.6 million drop in our bottom line.

‘That is a big amount of money. To deal with this, the challenge is to increase our volume of production and partly pass it on in the price.’

Ortiz says he is ‘very, very optimistic about the future’, noting that the upgrading of the fishing fleet is paying off.

‘The rebate given by the National Fishing Authority and the government to manufacturers is very good.

‘We have been in the business for 20 years. R D Tuna Canners is the pioneer in tuna processing in Papua New Guinea, and we believe, given the right support from the National Government, doing business here is still profitable.’

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