Star Kist Tuna Case large group discussion

1
Star Kist TunaCase large group discussion

• Professor Doug Cerf
• Donald Bren Graduate School of Environmental
  Science and Management
• Environmental Risk Management (ESM 286)
• Winter 2008

2
Analysis

• Economics of the tuna business
• Stakeholders
• Environmental differentiation
• Public relations considerations
• Ecological considerations
• Political and international trade questions

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Producer economics of tuna business

• Canners divested their fishing fleets and began
  purchasing tuna on the open market. Why?
• Canners exited Continental US for Puerto Rico and
  American Samoa.
• Consolidation of canneries
• 1980 20 canneries 1990 7 canneries
• Competitors are parts of Asian conglomerates
• Future behavior of competitors is unknown
• Profitability
• Price and margins are volatile (Exhibit 7,8)
• Star Kist accounted for 10 of Heinz sales and 5
  of pretax profit

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Producer economics of tuna business

• Capacity utilization is low
• Capacity at two plants is 220,000 tons
• Demand by consumers is 157,000 tons
• How costly is the dolphin safe decision?
• Impact of not making the dolphin safe decision on
  Heinzs other products.
• What about the ketchup?
• Why did competitors follow so quickly?
• Did this confirm the validity of the decision?

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Consumer Economics of tuna business

• Price is an extremely important factor for
  consumers
• Fierce competition, consumers have limited
  discretionary income
• Brand names in tuna do not necessarily command a
  premium
• Brand name commanded a price premium prior to the
  tuna safe decision, but not afterwards.
• Innovative product development and product
  diversification had limited success
• Dolphin safe tuna did not command a consumer
  price premium
• Can you separate out the value (if any) placed on
  the dolphin safe issue from the impact of
  competition?
• Is environmental differentiation possible for
  basic product?

6
Suppliers

• When Star Kist left Eastern Tropical Fishery
  (ETF) many suppliers were abandoned.
• Does Star Kist have responsibility to these
  suppliers?

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Environmental Groups

• Star Kist was very accommodating? Why?
• Earth Island Institute had high standards
• Other species are impacted by the dolphin safe
  decision.
• Is dolphin safe environmental?
• Why did Star Kist primarily focus on one
  environmental group?
• Was this the correct approach?
• Star Kist paid Earth Island Institute (EII) to
  monitor compliance
• Risks of this relationship.
• Is Star Kist buying legitimacy?
• Will perception dominate reality?

8
Environmental differentiation

• Under what circumstances is it possible for a
  firm to recapture cost increases from customers
  if the cost increase is related to more
  environmentally friendly production methods?
• If it is related to personal health--the case of
  organic foods.
• Public good (dolphin safety)
• What is the downside of not pursuing dolphin safe
  approach?
• Boycott Star Kist or other Heinz products
• Should Star Kist expect to recoup these costs?

9
Public Relations Considerations

• They had to do it so they might as well capture
  the maximum PR benefit
• Avoid the cost of managing a PR problem
• Avoid lost revenue on Star Kist and other Heinz
  products

10
Ecological and Ethical Considerations

• Dolphin mortality was well below 10 the level
  needed for sustainability
• Should dolphins be considered as a species or
  individually?
• Are dolphins being traded for a lot of other
  species?

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International Trade Issues

• 1988 Ban of imports from countries whose fleets
  have higher (than US fleet) mortality rates.
• April 1990 Dolphin safe policy adopted by
  industry
• October 1990 US commerce department required to
  enforce ban on Mexican imports
• November 1990 Mexico requests General Agreement
  on Tariffs and Trade (GATT) review
• April 1991 Commerce department is forced by an
  American court to enforce the ban
• August 1991 GATT panel rules in favor of Mexico,
  however the US chose to continue the embargo
  despite GATT objections
• Can import policies be set based on environmental
  grounds?

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Case Questions

• Do you think the Star-Kist managers made the
  right decision? Why or why not? On what
  criteria are you basing your decision?
• What other actions would you like to see
  Star-Kist executives take? Why?

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• Did Star Kist management have a choice to support
  dolphin safe tuna fishing?
• Was the decision inevitable with the only
  remaining question of the timing and method?
• What if they had dragged their feet?
• What were the consequences of the choice to
  commit to dolphin safe tuna?
• Procurement cost?
• Marketing cost?
• With competitors?
• With customers?
• Would Star Kist be better served to have a co-op
  arrangement with fisherman (similar to Ocean
  Spray)?
• Does Star Kist have an environmental risk issue
  or a PR risk issue?

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Lessons Learned

• Economic risk is greater for a given
  environmental risk if the media makes it so the
  public can see the risk (the public was able to
  see the dolphins).
• Relative impact of science, societal trends (e.g.
  interest in organic foods) and media/celebrity
  impact
• The timing and interaction of each is interesting
• The consumer may not pay for the environmental
  benefit
• However, they or other stakeholders may hammer
  you for not making the correct environmental
  decision
• Consumers unwillingness to pay does not carry
  much weight as an excuse

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Lessons Learned

• Risk for the same environmental risk may be
  higher for high profile companies
• Is the first mover advantage avoidance of the
  drawbacks of being the second mover (especially
  with a time delay)?
• Strength of stakeholder is a big issue, example
  consumers/general public vs. fisherman
• Abrupt changes to manage environmental risk may
  be more costly than early proactive adaptation
• Would the cost have differed if StarKist made a
  move a few years earlier?

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Epilogue

• See dolphin statistics on the next page
• Knowing what I know today, I would still make
  the same decision Connolly

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(No Transcript)
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Epilogue

• The Bush administration has decided that a
  controversial fishing method involving encircling
  pods of dolphins with mile long nets to catch
  tuna has "no significant adverse impact" on the
  dolphins. Conservation groups say the
  determination, which will allow tuna from Mexico
  to be sold in the U.S. under a "dolphin safe"
  label, could spell disaster for imperiled dolphin
  populations. On December 31, the National Marine
  Fisheries Service (NMFS) announced that after new
  research, it had concluded that the tuna purse
  seine industry practice of encircling dolphins to
  catch tuna has "no significant adverse impact on
  dolphin populations in the Eastern Tropical
  Pacific Ocean." The announcement came less than a
  month after a conservation group released an
  unpublished NMFS report indicating that thousands
  of dolphins, particularly baby dolphins, are
  still dying in tuna nets in the eastern tropical
  Pacific.
• By Cat Lazaroff WASHINGTON, DC, January 6, 2003
  (ENS) -

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Epilogue

• Source http//www.organicconsumers.org/Toxic/0122
  03_tuna_dolphins.cfm
• More information National Oceanic and
  Atmospheric Administration
• http//www.nmfs.noaa.gov/prot_res/PR2/Tuna_Dolphin
  /tunadolphin.html