Fishing faces tricky ascent

BY ROD ORAM

OPINION: BETTING ON becoming a billion-dollar sector is all the rage among our industries. Wine, for example, is almost there, medical technology says it will be within five years and aquaculture wants to be by 2025.

Of all aspirants, aquaculture is the most ambitious. Its current exports are less than $300 million a year and it faces the biggest test of the fundamental challenge confronting all growth-focused sectors in New Zealand.

Will it become a billion-dollar business by trebling the volume of its low-value commodities? Or will it create sophisticated products and capture a bigger share of that value in the market?

If the latter, it will have to shuck its history. Barely 35 years old as a commercial sector, it has suffered greatly. Green-lipped mussels, accounting for nearly 80% of our aquaculture exports and once unique to us, are now utter commodities worldwide. Already the cheapest source of seafood protein, their prices plumbed record lows during the global recession.

Achieving this unenviable goal was largely the NZ sector's own doing. For several decades, scads of small suppliers competed ruthlessly against each other in export markets. They failed to capitalise on innovations at home, or build market positions abroad.

Thankfully, sense began to prevail about five years ago, once the industry began to consolidate. Today, large companies such as Sanford and Sealord account for about half the exports. Small companies supply the other half, some via the big exporters and the rest on their own efforts. Some are also innovative, producing the likes of flat-shell oysters.

By 2006, the sector had come together enough to devise a "billion dollar by 2025" strategy. It established Aquaculture New Zealand in 2007 and has been working on implementation since.

In principle, the sector has a very bright future. Fish are a far more efficient source of protein for humans than animals. Globally, farmed seafood is expected to overtake the annual wild catch by 2030.

And, on paper, the NZ sector has lots going for it: long coastlines and clean water (in most but not all places), plus a country brand and a body of science.

Turning potential into profits looks easy: reaching $1b in exports would take only a one-third increase in the water volume farmed, Aquaculture NZ estimates conservatively. Breeding better mussels, mechanising processing and capturing a bit more value in the market would complement the increase in volume.

But challenges abound. For example, getting more water farmed defeated the previous government. Its 2004 rejig of council consent processes made the huge mistake of making private plan changes the main vehicle. Trouble was, an applicant had no guarantees it would then be awarded any of the water consented. Not a single application was made.

This government is promising to introduce amending legislation by mid-year and pass it by year's end. It's brave. The issues are very complicated, cutting across multiple environmental, regulatory, seabed, Maori and other matters.

There is also fierce opposition from some wild fish catchers. They argue their quotas are spatial rights entitling them to trawl widely. Thus more fish farms would devalue their property rights.

Yet areas of the seabed are already off limits. So, logically, a quota is permission to catch a given volume of fish, with the level set periodically by the government, depending on the stock of the species. The large fishing companies, which farm and trawl, subscribe to this view, but the vocal minority could still be disruptive.

Above all, the industry wants national guidelines about where it can farm, so applicants have some hope that they will get permission if they meet the requirements. It also wants flexibility to, for example, change the species it farms if there is minimal change in the environmental impact. It offers Australia's zoning system as a guide.

But, even if more water is opened up quickly to farming, it remains a limited resource. Only pockets of our exceptionally long coastline are suitable in water quality, seabed and other terms for in-shore farms. They could be fully allocated within a decade, Aquaculture NZ says.

So, creating more value from the resource becomes critical. Roughly speaking, each hectare of mussel farm produces $20,000 to $30,000 of revenue a year. The industry is aiming to create more value in four broad areas:

Breeding: Worldwide, mussel farming has relied on raising wild spat. But New Zealand is pioneering breeding them to produce certain attributes such as better texture, flavour or colour, or to produce more health-enhancing omega 3 oils.

This thrust alone, the industry believes, could double grower returns in five years. The work, still in its infancy, recently got a big boost. The Primary Growth Partnership, a government-industry funding body, approved a $20m research project financed 50/50 public/private.

Productivity: Mechanisation continues to help the sector overcome its labour intensity and poor pay, a particular problem given fish farming and processing tends to happen in sparsely populated places. The next big step comes soon, when a highly automated $30m mussel processing plant opens in Tauranga. Jointly owned by Sanford, Sealord and Greenshell NZ, an Auckland company, it will double labour productivity.

Market value: So far, the industry has come up with only conventional ideas about how to squeeze a bit of differentiation and a slight price premium out of the market. Trouble is, it is virtually impossible to decommodify a product once market power is entrenched in the hands of traders and retailers. Milk powder, lamb and strong wool are just three of the horror stories.

The only way is for producers to build a completely new value chain right to the end users, retaining control, or at least great influence, all the way up it. Icebreaker has done so in merino, Zespri has gone a long way towards it with kiwifruit and Fonterra can exercise some influence in some products at least, as far as the industrial users of its ingredients.

New species: Offering a unique product is the very best way to build and own a new value chain. Niwa reckons it can help the industry do so by showing it how to farm hapuka as a high premium fish. It has spent some $25m over the past six years pioneering how to do so at Bream Bay in Northland. It can now breed selected pairs of fish to get highly desirable traits that have won rave reviews from chefs and restaurateurs.

Commercialisation, though, is the real test. It has formed a partnership with Sealord to establish a commercial hatchery, but the industry remains very reluctant to make the big investment needed to farm hapuka. It worries about the cost of imported fishmeal and whether it can get a big enough premium to cover air-freighting chilled fish to market.

Hopefully, though, the industry will invest much more in research so it can offer much improved performance on feed, processing, freezing/thawing, transport and shelf-life, thereby improving the economics of fin fish farming.

Meanwhile, the industry has got its sights set on a more conventional species: it has renewed its efforts to lift the ban on farming trout. Sanford reckons each hectare of sea trout farming could generate $2m of revenue a year, 100 times the revenue of mussels.

Yes, but. Plunging into trout could be disastrous. Lots of other people farm trout and competing species around the world. How would ours be different?

If it's careless, the aquaculture sector, blinded by its billion-dollar ambition, could commodify the very solutions it's seeking to break its commodity poverty trap.

But if it commits to the really hard stuff – such as cracking the challenges with premium fin fish, extracting very valuable, health-giving extracts from mussels and pioneering deep water farming – it could create a multibillion-dollar, highly sustainable sector.

- © Fairfax NZ News