NIK HASHIM NIK MUSTAPHA and HIROSHI YAMAUCHI

Optimal Fish Shipments FromKuala Trengganu, Malaysia

Qi/= quantity of fish shipped by mid­dleman i, to market j (piculs).

Bi= shipping capacity of middlemani (piculs).

Rj= market requirement of marketj (piculs).

A standard unit of weight measure inMalaysia is the picul, which is equiva­lent to 60.48 kg. All money values areexpressed in terms of Malaysiandollars (M$) which, at the time ofthis study, had an exchange rate ofM$I=US$0.40.

All species of fish can be lumpedtogether for the purposes of this modelsince the same unit transportation costapplies to all species. In the solution ofthe problem, the optimal shippingpattern can be obtained by using(n+m-I) number of routes, i.e., oneless than the sum of supply anddestination points. In this case, thenumber of shippers is counted assupply points.

Existing Pattern of Shipments

Six out of nine market intermediar­ies shipping fresh fish out of the PulauKambing wholesale market to sevenmajor consumption centers aroundWest Malaysia were selected for thisstudy (Fig. J). The other marketintermediaries are essentially minorpart-time operators whose main func­tion is to help clear the market duringperiods of extraordinary supply anddemand conditions. Thus, underordinary conditions, the optimalnumber of routes would be expectedto be 12 (i.e .. 6+7-1).

Table I shows a typical dailyshipment pattern under the presentstructure of transfer costs for eachshipper to the different destinationpoints. The total costs of transferscorresponding to this pattern ofshipments amounts to M$2,887 perday.

Included in the transfer costs areexpense items for storage, wages, ice,and related packing materials, and thehiring of trucks (Malaysian lorries)­the largest expense item. None of theshippers owns trucks. Although thesetransfer costs vary with distance, thechange in costs is not necessarily in

(Capacityconstraints)

(Objectivefunction)

(Requirementconstraints)(Non-negativ­ity constraints

r=1

Minimize:n m

TC= ~ ~ CIJ QIJi=t j=1

Qij 2: 0, all i. j

where:Cy = unit transportation cost for

middle man i, to marketj(M$/picul).

m

~ QifBij=t

Subject to:

points to consumption centers. Sincethe economic functioning of thistransfer system spans wider time andspace horizons than the wholesalemarket center itself, there is reason tosuspect that efficiency gains may bepossible in this wider distributionnetwork. An analytical approachwhich can shed light on this prospect isthe transportation model.

The Transportation Model

The purpose of the transportationmodel is to compute the optimumshipment pattern of a product from itssources of supply to its consumptioncenters. Using the mathematical pro­gramming approach, the objective is tominimize the total costs of transporta­tion subject to sets of linear structuralconstraints that establish the boundaryconditions for solving the problem. Inthe case of fresh fish distribution, asimple adaptation of the model can bespecified as follows:

Nik Hashim 1\ik Mustapha is Lecturer.Department of Agricultural, and ResourceEconomics. ' ational University of MalaySia(Kebangsaan). Bangi. Sela ngor. Malaysia,Hiroshi Yamauchi is Associate Professor.Department of Agricultural and ResourceEconomics and Water Resource ResearchCenter. Uni\ersity of Hawaii at Manoa.Honolulu. HI 96822

Approximately 80 percent of all fishlanded in Malaysia is landed on thepeninsula or West Malaysia. In recentyears, government programs to bringabout higher and more equitable pricesto fishermen in West Malaysia haveincluded marketing regulatory schemesin major fish wholesale centers. InKuala Trengganu on the east coast ofthe peninsula, MAJUIKAN, the Fed­eral Fisheries Development Authority,has directed that all fish landed in thearea be marketed through the centralwholesale fish market at Pulau Kam­bing. About 5 percent of the totalpeninsular landings is channelledthrough this facility. A system ofbidding up prices for graded fish abovea predetermined minimum floor levelhas been advocated with limitedsuccess. Market intermediaries havenot responded to bidding up prices aslong as supply and demand conditionsdo not warrant such actions, and alsocompensatory adjustments to recouplosses are not possible. This would tendto indicate that if there are potentialgains in marketing efficiencies to becaptured, such potentials must besought elsewhere in the marketingchain from fishermen to consumers.

An important component in themarketing margin for fresh fish is thecost of transportation from supply

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Figure I.-Peninsular Malaysia and Singapore-major connectinghighways between Kuala Trengganu and its markets fOI fresh fish

strict relation to distance. Also, thereare some differences in costs amongdealers, but the volumes offish shippedthrough selected routes do not appearto be so much the result of relativeefficiencies in transfer as the simplelack of business contracts betweendifferent locations. A total of 18 routesare used rather than the theoreticallyefficient 12. The volumes shipped bythe various shippers vary widely (4.5­99 piculs, or 272-5,988 kg, per day) aswell as the demand requirements fromeach of the destination markets (5.5­123.8 piculs, or 333-7,487 kg, per day).

On the average, it costs M$4.24jpicul (M$0.070 I j kg) to transport fishfrom Kuala Trengganu to Kota Bharu,and M$5.28, M$7.44, M$9.25, andM$12.00jpicul (M$O 0873, M$0.1230,M$0.1529. and M$O.1984/kg) toKuantan, Kuala Lumpur, lohoreBharu, and Melaka, respectively. Theexport cost to Singapore is estimated atM$29.00jpicul (M$0.4795jkg) whichis relatively higher becausp. of the taxpaid at the port of entry. The nveragecost of exporting fish to Penang isM$15.00/picul (M$02480jkg) andmost of thl:' fish is utilized for canning.In general, the demand for canning ishigher than the requirement for freshconsumption. Whenever fish is notmarketed directly to the destination,additional cost is incurred by theexporters. Fish exported to Singaporecan only gc by truck transport toKuala Kemaman where it mllst bereloaded for further transport. Fishmarketed to Penang sometimeschanges transport at Bukit Mertajam,an intermediate point. In both cases,extra cost of transportation is incurredby the handlers.

Optimal Shipment Pattern

In the computation of the optimalshipment pattern (Table 2), the averagetransfer costs for each destination wereassump.d to apply to the corre<;ponciingroutes lhat are not utilized under theexisting pattern. The total tr•.ln~fercosts under this optimal patterncalculatf.'s to M$2,6Cl7 per day which,by comparison with the existing costs,amounts to a savings equivalent toabout M$5,700 per month.

Julr /979

There are no changes in the totalquantities shipped by each shipper andreceived by each destination market.These efficiency gains are possible bychanging the shipment pattern withonly )) selecl('d rOlltes in<;tr;ad of theexisting 18. In tf.'ImS of unit prices perfish, the possible savings could amountto about M$O.69!picul (M$OOll4/kg), which may be either reflected inhighr;r prices fOl fishermen or lowerpr ices to consumers Assuming tltnt

present consumer prices are held up inthe retail markets where the effectivedemands are not affected, part of thiscost savings can accrue to fishermen.Some implication of real world com­plexities that would, however, controlthe actual distribution of efficiencybenefits are discussed in the concludingsection.

ConclusionsThere is evidence that significant

economic gains in terms of transporta-

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tion cost savings may be possible frommore efficient shipment patterns offresh fish from supply points toconsumption centers around Penin-

sular Malaysia. This indication comesfrom our analytical results in the caseof the Kuala Trengganu fishery. Anoptimal shipment pattern can lead to

potential savings of M$5,700 permonth in total transportation cost forthis single fishery. If similar potentialsavings exist for other fisheries

Table 1.-Exlstlng pattern of shipments, costs, and quantities of fish marketed from Kuala Trengganu to various destinations.

Destinalion (j)

Kota Johore Total TotalMarkel Bharu Kuantan Kuala Lumpur Shar,; Melaka Penang Singapore eap.lday cost---- ------intermediary

pcl.' MS MS pel. (pel.) (MS)Ii) MS MS pel. MS pel. MS pel. MS pel. pel.

Chew Seng 833 12.00 3000 8649612.0 22.5 16.5 51.0

Mohd Embong 833 12495150 150

Ah Seng 8.00 10.00 15.00 2800 82800360 150 12.0 75 705

Aziz Abd. 4.24 500 600 900 3000 815.82Rahman 55 1.0 500 375 50 990

Ismail Ngah 556 600 900 21549165 825 825 33.0

Samsuddin 8.00 900 3800Su10ng 25 20 45

RI" Totalrequlrement/ 5.5 17.5 123 75 6275 225 12.0 290 2730day (pleuls)

----ITotal cost MS2332 96.74 88241 579.75 27000 18000 85500 MS2,887.22

'PiculsNote TYPical cell "Gil 011 Where CI/=M$ cost/plcul. and Ol/=Iolal plculsGII/60 48"MS cost/kgOW60,48 "total kg

Table 2.-0ptimal patterns of shipments, costs, and quantities of fish marketed to various destinations under the optimum shipping program.

Destination (j)

Markel Kola Johoreintermediary Bharu Kuantan Kuala Lumpur Sharu Melaka Penang Singapore Total Total----

eap.lday cosl(i) MS pel ' MS pel. MS pel. MS pel MS pel MS pel. MS pel. (pel) (MS)

Ghew Seng 424 5.28 833 9.25 1200 15.00 3000 44098775 4325 510

Mohd Embong 424 528 833 925 1200 1500 2900 1387515.0 15.0

Ah Seng 4.24 528 800 1000 1200 1500 2800 1,293.24

55 1 5 22.5 120 29.0 70.5

424 500 6.00 900 1200 1500 3000 58575AZlz Abd

990Rahman 825 9075

5.56 600 900 1200 1500 2933 19800Ismail Ngah 424

330330

Samsuddln 528 800 9.00 1200 1500 2933 40.50424Sulong 45 45

RI=Tolal12.0 29.0 273.0requirement! 55 175 12375 6275 225

day (pieuls)81200Total cost MS2332 9009 74250 57931 27000 18000 MS2,697.21

'PlculsNote TYPical cell,::CII 01/ where Clj-=M$ COStlplCUI, and Ow-total plculsGII/60 48"M$ cost/kgOw60 48"IOlal kg

/8 Marine Fisheries Re\'iew

throughout the peninsula, the econom"ic savings for the total fresh fishindustry may easily ra'1ge around M$Imillion per year.

Implied In the analytical results ofthe transportation model are idealmarket conditions which allow forinstantaneous adjustments. In fact, thedivergence hetween our ideal optimumand reality suggest the existence ofmarket imperfections which may art asconstraints toward improving theeconomic performa'1ce 0f the fresh fishtndustry in Malaysia.

The economic functioning andperformance of any industry dependheavily on the institutional systemsthat control decisions within thatindustry. Among these institutionalsystems are the various market struc­tures through which business transac­tions are carried Ollt

Time was inadequate during thisstudy to delve deeply into this Impor··tant area of economic research;however, as a follow-up to our initialfindings, this particular area is thefocus of a research project that hasrecently been initiated at the UniversityPertanian Malaysia. Since the resultsof this new follow-up project cannot beexpected for a while, some implicationsmay be drawn from our own studywhich may be useful in the formulationof testable hypotheses.

In the short run, as long as effectivedemands at the consumers' level holdup retail prices of fresh fish, the savingsin transportation costs can be reflectedin the overall value of the fishery. In thecase of the Trengganu fishery, thiscould amount to as much as M$345 re,­metric ton per month of fish harvestedand sold from the fishery. This, ofcourse, depencls on retail prices beingprimalily determined by the effectivedemands of consumers rather than by

.lu/r /979

the marginal ch;:trges In. supply ('ostsfrom Trengganu

The possibility uf offsetting ~rice

changes at the retail level clepends uponthe overall supply and demand clmdi,tions for fresh tish at each of thedestination markets. Our analysislimited its focus on the transportationcosts of the several shippers fromTrengganu. Nothing was said ahoutconsumer demands since there were noa priori reaSOllS to expect consumerpreferences and incomes in the \\'ldelyspaced destination markets to be in anyway related to changes in shippingpatterns from Trengganu alone. Freshfish are supplied to these variousmarkets from multiple sources and notonly from the Trengganu fishery.

Contractual arrangements are typic­ally found among the individualshippers and retailers. This mightimpose some institutional rigidities onprice-ql\antity relationships and possi­ble adjustments in shipping patternsover time. However, to the extenteconomic incentives can operate torealize any existing potential efficien­cies, thcse efficiency changes can beexpected to lead toward concentrationat the intermediary level. The implica­tions of this concentration tendencyare not limited to distributional effectsat the intermediary level itself but alsoextend to the bargailllng relationsforward to retailers and hackward tofishermen.

In their dealings with retailers at thevarious destination markets, a concen­tration of intermediaries at one fishery,e.g, Trengganu, would tend tostrengthen their own bargaining posi­tions relative to intermediaries fromother fisheries dealing with the sameretailers. The economic forces thatcontrol bargaining with retailers are,thus, partly external to the adjusting

fishery. Unless an overwhelmingbargaining advantage already existswith the retailers, the efficiency benefitscan be expe<::ted to accrue to theadjusting fishery rather than beingpassed on to consumers throughoffsetting retail price changes.

How these efficiency benefits wouldtenJ to be distributed among intermed­iaries and fishermen of the adjustingfishery is another matter. Here theeel'nomic fOlres that c0ntr01 decisionsare primarily internal ('J the fishery.Some initial gains and losses can heexpected at the intermediary level andamong the fishermen connected withthe gaining or losing intermediariesThe impact on fishermen may belessened to the extent they are free todeal among intermediaries. If thefishery is made more profitablethrough efficiency adi ustnwnts, thenwe might expect to see more invest­ments into expansion of the fishery.Some of the distributional losses maythen be eventually offset by organiza­tional changes within the fishery itself.

In the l0ng run, both fishermen andconsumers may also benefit as pricecompetition at the retail level begins toreflect cost savings through moreefficient transporti'ltion schemes 0n abroader peninsula-wide basis.

There are other important oppor­tunities to improve transfer schemes inMalaysia. These opportunities relate topossible changes in technology fortransporting fish in modern refrigera­tion units and also to changes ininstitutional rules which presentlyprevent lanclings uf fish caught incoastal waters to ports nearest themajor market centers of consumption.Analytical studies on the potentialimpacts of such c:hanges on a penin­sula-wide scale might indicate possibil­ities for substantial economic gains .

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