Institute for Social and Economic Change
Working Paper: 445
Should they Avoid the Middleman? An Analysis of
Fish Processing Firms in India
The supply chain of fish and seafood products in India involves a vast network of intermediaries (primarily distributors) who retain a large share of the price spread between what is paid to fishermen and what is paid by consumers. This results in high fish prices and losses due to spoilage (MOFPI Report 2017). It is deemed beneficial both for producer and consumer to have fish processing firms internalise some of the intermediaries’ activities. These firms will undertake such activities only if they get adequate incentive. By considering Indian fish processing firms over three consecutive years, we examine the viability of internalising distribution and other activities using a 2SLS regression. We show that firms, which undertake the responsibility of distribution themselves, raise better returns to the factors of production (within the firm), and enjoy higher profit. These results indicate that policy support aimed at reducing the length of supply chain, for example, by forming fishermen cooperatives and linking them to the processing firms that undertake the responsibility for distribution activity, can be beneficial for both firms as well as consumers.