Seafood industry was bruised by Covid disruption but achieving record prices

Sunday, 8 October 2023

New Zealand’s seafood industry, bruised by disruption to trading during Covid-19, is achieving record prices and eyeing growth in the “almost untapped” aquaculture industry that could deliver billions in export revenue. But getting projects over the line is proving difficult.

Seafood exports pulled in a record $2.08 billion of revenue in the year to the end of June. That’s up 8% on 2022 and comes after a 4% drop in 2021 and a 5% drop in 2020 as Covid-19 lockdowns shuttered the restaurants and cafes where most seafood is sold, and social distancing requirements made it difficult to operate fishing vessels.

Ministry for Primary Industries (MPI) director-general Ray Smith says the seafood industry was “really bruised” through Covid by the closure of foodservice businesses but it’s good to see it now coming away again.

Seafood and forestry were the two primary industries most impacted by Covid-19, which caused unprecedented disruption to trade and production systems across the world.

But while forestry is still suffering from weak demand, the seafood sector has bounced back, achieving record revenue thanks to higher prices, with volumes down almost 8%. Rock lobster fetched a record $139/kg and salmon hit a record $26/kg.

MPI says the long-term outlook for the seafood industry is positive, with revenue forecast to be driven by increasing demand and prices.

It expects future growth to be driven by key investments in aquaculture, with revenue forecast to increase 37% to $700 million over the next four years. Wildcatch revenue is seen growing at a slower 5% pace to $1.65b.

The Government’s 2019 aquaculture strategy says the industry’s strong record of growth and opportunities for transformational development could see it reach $3b of annual sales by 2035 as land-based hatcheries grow and fish farms move from their traditional sheltered bays and harbours out into the cooler, deeper waters of the open ocean.

New Zealand has one of the world’s largest exclusive economic zones, with a marine area more than 15 times larger than its land area, offering significant potential for marine farming of key products like greenshell mussels, king salmon and pacific oysters.

“Aquaculture is a huge opportunity that we haven't maximised,” Smith says. “We're surrounded by sea and we use very little of it for mussels, oysters, salmon, and other fish species that could be fish farmed.

“Aquaculture is almost untapped. We think there's billions of dollars in growth there.”

Still, he notes obtaining consents for operating in the open ocean is quite hard.

In August, Ngāi Tahu Seafood was declined resource consent to construct and operate an open ocean salmon farm off the north-eastern coast of Rakiura Stewart Island, known as the Hananui Aquaculture project.

The independent panel which made the decision said it was declined “with a heavy heart”, acknowledging the proposal would have enormous benefit for Ngāi Tahu whānui, Rakiura and the wider Southland community.

But it said the benefits of the proposed salmon farms did not outweigh the environmental costs to an area that was home to threatened species and largely unmodified by human activities.

The project proposed establishing an open ocean marine salmon farm, occupying about 460 hectares of coastal space north-east of Rakiura, within Te Ara a Kiwa Foveaux Strait. The refusal came after Ngāi Tahu Seafood spent more than two years working with mana whenua and independent experts to find the right location.

Ngāi Tahu Seafood and Te Rūnanga o Ngāi Tahu (Te Rūnanga) lodged an appeal against the decision in August.

“We believe the decision raises a range of questions, including questions about the impact on aquaculture and fisheries settlement rights for Ngāi Tahu and whether the role of Ngāi Tahu as mana whenua has been properly considered in the decision,” says Te Rūnanga o Ngāi Tahu Deputy Kaiwhakahaere, Matapura Ellison.

Environment Southland, MPI , Department of Conservation, Environmental Defence Society, Forest & Bird and the expert panel have joined in the appeal.

The Attorney General has also sought leave to join the judicial review “for limited purposes” being a stated interest in the New Space aquaculture regional agreement for Southland (under the Māori Commercial Aquaculture Claims Settlement Act) and the relevance of the New Zealand Coastal Policy Statement 2010.

NZX-listed company New Zealand King Salmon Investments is also at the forefront of plans for open ocean fish farming.

Based in the blue economy heartland at the top of the South Island, the Nelson-based company farms the premium Ōra King Salmon, lauded by chefs as the Wagyu beef of the seafood world.

But warmer water due to climate change has threatened production, killing significant numbers of fish, which has prompted it to move out of warmer Pelorus Sound waters and minimise its summer use of Queen Charlotte Sound in favour of the cooler Tory Channel.

It’s forging ahead with plans to expand its operations out into the colder waters of Cook Strait.

After six years, the company received approval last November from the Marlborough District Council to expand into Cook Strait and in June this year resolved appeals against the consent from the Department of Conservation and the McGuinness Institute.

The project, which the company calls ‘Blue Endeavour’, would be New Zealand’s first open ocean finfish site, 7km north of Cape Lambert in Cook Strait.

The Environment Court granted a consent for the project last month, a day before NZ King Salmon reported its first-half earnings, and the company is now waiting on Ministry for Primary Industries confirmation that it won’t have an undue adverse effect on fishing, which it expects to receive in November.

NZ King Salmon chief executive Carl Carrington says the consent requires an 18-month monitoring period before farming could be undertaken, after which the company intends to build a pilot farm to test the infrastructure and to prove up its business case.

“We would look to do at least one harvest from a pilot farm before committing to a progressive scaling up in order to best manage the risk and the risk profile of that investment,” he told analysts and investors on a conference call following its result.

It takes about 31 months to grow a salmon and the open ocean farm wouldn’t be operating at full scale until the early 2030s.

“Aquaculture is one of those businesses that rewards caution and patience,” he told investors.

Forsyth Barr analyst Margaret Bei expects the earliest possible harvest from the pilot would come in the 2028 financial year, building to full scale operations in 2033.

The full cost of the project is unclear given the scope and infrastructure requirements weren’t yet finalised but she estimates it may cost about $160m to $220m.

In the meantime, NZ King Salmon is benefiting from strong demand for salmon even after implementing widespread price increases across all its markets.

Asked if the company could continue to ratchet up its prices in the future, or if they would hit a ceiling, the company acknowledged recent increases had been “pretty significant” and there was a limit to what it could do, with future hikes likely to be more subdued and not of the magnitude of the last six months.

“At some point we have to anticipate that our ability to continue to take price at the rate we have will slow down,” Carrington says. “That's just a reality. Once you start hitting high price points, there's more risk of substitution from alternative proteins.”

The salmon industry had one of the best profitability periods ever recorded in the first half of this year, driven by record prices, according to a Rabobank aquaculture report published in July.

It noted salmon prices had largely corrected to more normal levels but remained high compared to historical levels, and forecast salmon supply would rebound in the second half of the year after nearly two years of weak supply.

The bank expects the salmon industry to remain highly profitable in the second half of the year despite more normalised prices, and it doesn’t expect further price weakness, noting salmon is now competitively priced relative to alternatives.

The high prices available in overseas markets has seen NZ King Salmon importing increased volumes of North Atlantic salmon for the local market, for consumers seeking “value options”.

Agriculture Minister Damien O’Connor says he doesn’t have a problem with the company bringing in overseas fish for Kiwis, and selling its local production overseas.

“That's trade,” he says, noting New Zealand is an open trading nation that doesn’t impose restrictions and tariffs on commerce.

O’Connor says he supports the company’s plan to move its farming operations into the open ocean, so long as there are reassurances around environmental issues and the technology is viable.

“It's done elsewhere in the world. I'm sure it can be done here,” he says.

The incredible premiums available for salmon made such high-cost operations viable, he says.

Otago University associate professor Lincoln Wood says supply chains run so efficiently and at such low cost that it makes business sense for the company to export higher-value products overseas at a greater margin.

“There are insufficient numbers of consumers here that would be prepared to pay for the value-added product, so export is the only option here for them,” he says. “Then to meet domestic demand, they can import a lower-cost product that can be sold at a price point this market will meet.”

Incorporating carbon miles into the pricing would make it less profitable to send value-add products overseas rather than sell the commodity in New Zealand, he notes.

MPI’s Smith says aquaculture could exceed the $3b target by 2035, with some believing it could be as high as $8b depending on what we are prepared to do.

“We use very little of the coast for aquaculture and so New Zealand has still got room for more volume of primary production in areas that are less impactful on the environment,” he says.

“We can look after the environment at the same time and produce more food and diversify a bit more so we're pushing hard on those spaces.”