Seafood sector staying afloat
The ocean fishing and seafood farming industry has struggled in the past five years. The industry has battled against ocean depletion issues, increased competition from seafood imports, a high Australian dollar, increased regulation of catch quotas and increased costs.
Wild catches of fish, crustaceans and molluscs have decreased over the past five years. As catch volumes have decreased, fish and seafood prices have increased strongly, supporting revenue for this industry. Although depletion has played a significant role in reduced wild catches, attempts by the government to curb catches to sustainable levels have also affected catch volumes.
The ocean fishing segment of this industry has experienced growing pressure over the five years through 2011-12, with the government offering a package to assist fishing businesses to rationalise or leave the industry. In contrast, the seafood farming segment has grown because it offers a more sustainable approach to supplying growing demand. Moreover, technological advances have increased efficiency, production and quality in the seafood farming segment.
Industry revenue is forecast to contract by 2.0% to $2.2 billion in 2011-12. This follows more than a decade of falling revenue. Over the five years through 2011-12, industry revenue is expected to decrease by an average 3.6% per annum.
The industry is expected to improve marginally over the next five years, as high global demand and short supply keep fish and seafood prices high. The ocean fishing segment is expected to experience further rationalisation as ocean catches continue to fall and the government maintains policy measures to assist sustainability. The seafood farming segment is expected to continue to grow. In the next five years, increasing seafood consumption both domestically and abroad is expected to bolster the industry. In the five years through 2016-17, industry revenue is expected to grow by an average 0.3% per annum to reach $2.3 billion.
The ocean fishing and seafood farming industry's fortunes are expected to improve marginally over the next five years. Changes are set to continue, with contractions expected in the ocean fishing segment and greater expansion in the seafood farming segment. Prices for fish and seafood will continue to grow as demand outstrips global supply. Over the next five years, the industry will be affected by the exchange rate, fuel prices, domestic fish stocks and management, demand and prices for seafood, competition from other seafood markets and trade policy issues. Industry revenue is forecast to grow by an annualised 0.3%, to total $2.3 billion in 2016-17.
Structural adjustment policies and programs are expected to be implemented to allow natural stocks to rebuild and to increase the profitability of the industry. Over the past decade, many attempts have been made to increase the sustainability, in economic and environmental terms, of this industry. Structural adjustment programs have been implemented and input controls have been applied to limit the amount of fish and seafood caught each year to a sustainable level. Due to these programs, most fisheries in the industry are plagued with overcapacity. Structural adjustment programs in the future are therefore expected to be aimed at reducing overcapacity and raising the profitability of operators.
The industry will continue to not be profit maximising unless it moves to quota management. Quota management will reduce the race to fish by assigning property rights and setting clear limits on catch levels. It would increase the incentive to invest in infrastructure through property rights. The industry may move to quota management during the next five years as the Australian Fisheries Management Authority (AFMA) is moving in that direction.
Global and domestic supply
The global demand for seafood is expected to increase by about 2.0% per annum over the next five years, based on studies undertaken by the United Nations' Food and Agriculture Organisation and International Food Policy Research Institute. The increase will be due to population and economic growth, mainly in developing countries. Fish is considered a luxury good in many countries, so demand increases as incomes grow. Domestic demand for seafood is expected to increase due to population growth, income growth and the trend towards healthy eating. The global supply of fish will be limited by stagnating wild catches and a slow rate of growth in aquaculture production, resulting in price increases. Domestic production is forecast to decline due to the adoption of sustainable policies to allow fish stocks to rebuild. This will negatively affect the number of catches the ocean fishing segment.
Expansion within the domestic seafood farming segment is expected. Higher global demand will support seafood prices and encourage growth. Moreover, the segment is still in its infancy and developments in technology to support husbandry practices, such as the spawning of fish in captivity, will enable increased efficiency, production and quality. Clean Seas is hoping to establish Australia's first onshore southern blue fin tuna hatchery. The development of farms growing such highly prized fish will significantly add to industry revenue.
The industry will continue to face competition from downstream imports. The industry's ability to compete successfully against these imports will largely determine its profitability in the future. Seafood farming production is forecast to grow faster than wild caught production, increasing the relative dominance of farmed seafood in international markets.
However, the industry will benefit from a forecast depreciation in the Australian dollar over the five years through 2016-17, which will decrease some of the price competitiveness of fish and seafood imports. Fish and seafood imports are expected to increase in price, reflecting world supply and demand dynamics. In addition, a key import source for the industry, China, is expected to become a net importer of seafood, which may ease import competition.
The industry will face challenges from climate change, illegal fishing and the potential loss of fishing grounds to marine parks over the next five years. It is expected that the harvest of ocean fish and seafood will be negatively affected by climate change. Tidal wetlands will become smaller as salt water migrates upstream and there is generally no capacity for them to expand landward as the sea level rises. Fresh water flows are expected to decrease.
Profitability and participation
Industry profitability is expected to increase over the five years through 2016-17 as structural adjustment occurs, reducing fleet numbers. The price of fuel is expected to rise as the global economy continues to recover from the financial crisis. Fuel will remain the industry's largest expense and as such, higher fuel prices will limit profit growth.
The number of establishments in this industry is expected to decline by an annualised 0.3% over the five years through 2016-17, to 9,476. The number of establishments involved in ocean fishing is expected to contract as structural adjustment policies have an effect. In contrast, the seafood farming segment is expected to increase. The number of employees is forecast to grow from 14,686 in 2011-12 to 15,161 people in 2016-17 to service these new establishments.
Wage pressures are expected to grow as competition for labour increases due to the boom in the Mining division. Overall wages are forecast to grow by an average 0.3% per annum over the five years through 2016-17. Wages are expected to remain low relative to other industries due to the seasonal nature of the work available.
Key Success Factors
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
Must hold quota or licence: Regulations require operators to hold quotas or licenses to participate in this industry.
Access to a skilled workforce : Experienced operators are more productive since they have the necessary knowledge of tasks required and are accustomed to the environmental conditions.
Access to suitable environmental conditions: A suitable site with appropriate weather and water conditions is crucial for catching fish and seafood in the ocean. Appropriate environmental conditions are also required for seafood farming.
Financial management and debt management skills: Competent management of financial resources is imperative to financial success due to variable revenue and profitability and the high level of capital investment required to purchase trawlers and other equipment.
Access to the latest technology and techniques: Advanced technology is essential for navigation and for locating schools of fish accurately and quickly. In addition, access to production technology and an ability to adapt this to local conditions are necessary in the seafood farming segment.