Re-thinking the Aotearoa Fisheries Value Chain

Professor Hugh Whittaker, Associate Professor Manuka Henare,

Dr Christina Stringer, and Glenn Simmons.

Department of Management and International Business The New Zealand Asia Institute

Mira Szászy Research Centre for Māori and Pacific Economic Development

The University of Auckland Business School

Presentation to Dean of Science, Dean of Business, and Ministry for Primary Industries

10 October 2012

During the last 17 years outsourcing of fish processing has gained unprecedented momentum – mainly head & gutted fish exported to China for further processing.

China has a competitive advantage in recovery and throughput rates.

Processed value added products are then re-exported to key markets e.g. E.U., Japan, USA.

“Outsourcing can be destructive to an economy because the collective R&D, engineering, and manufacturing capabilities that sustain innovation are lost” (Pisano and Shih, 2009, p. 116).

Background

Stringer, C., Simmons, G. and Rees, E. (2011) Shifting post production patterns: exploring changes in New Zealand’s offshore processing, New Zealand Geographer, 67, 161–173.

Where is the ‘value add‘ in exports?

NZD 0

NZD 100

NZD 200

NZD 300

NZD 400

NZD 500

NZD 600

Millions Total Finfish exports 2011

Live (0.6%)

Fresh or Chilled (15.5%)

Frozen Whole, H&G, Dressed (50.1%)

Frozen fillets (32.6%)

Dried, salted or smoked (1.2%)

Source: Statistics New Zealand

Liver and roe (7% of fish weight) roe retained by a few - mostly mealed/oil extracted or dumped

Fillets (32% of fish weight) sold

“There is industry awarenesss of the potential to use the whole fish, some boutique players playing with some byproducts, but no proper commercialisation of the opportunities“ (pers. comm. 2012).

Heads (30% of fish weight) very little retained most mealed/oil

extracted or dumped

Up to 70% of the fish is turned into low value fishmeal, some oil or wasted

Backbones (15% of fish weight) mealed/oil extracted or dumped

Skin (6% of fish weight) mealed/oil extracted or dumped

Guts mealed/oil extracted or dumped, some swim bladders dried but mostly mealed or dumped (5% of fish weight)

Trimmings (5% of fish weight) minced block, mealed or dumped

This is what dumping looks like

Putting a figure on missed opportunity

*Does not include illegally dumped fish, estimated at between 79,000 and 197,000 tonnes

2011 Total Allowable Commercial Catch (TACC) = 631,787 tonnes

Total marine landings = 435,000 tonnes

Finfish landings = 394,000 tonnes*

Finfish domestic sales = 39,000 tonnes

Finfish waste 156,000 tonnes

Finfish exports = 199,000 tonnes, $778.8m

197,000 tonnes of TACC not caught

Includes 59,900 tonnes of fish waste exported (600,000 tonnes during past 10 years)

95,700 tonnes = 21,000 tonnes ($44m) of fishmeal. 2011 average export price for fishmeal was

$NZ 2.10kg or $NZ 0.38kg greenweight.

(6th largest export by volume; 8th largest by value)

59,420 tonnes dumped at sea

Fish waste if dried could have earned $NZ173.7 million in 2011

Over last 10 years 1.67 million tonnes of fish waste could have earned $NZ1.87 billion instead

of $370 million from fishmeal (if dried and marketed as by Iceland)

Sources: Compiled and calculated from Ministry for Primary Industries and Statistics New Zealand data

Super-Chilling technology introduced

New Zealand industry average EBITDA less than 10% whereas the Icelandic Industry average EBITDA is more than 30%.

Iceland has been able to achieve a high average EBITDA through, for example:

Complete transparency Independent auction system A collective commitment to market led innovation

An alternative, value adding, approach

Superchilling technology introduced

An Icelandic approach to fish waste

Iceland utilises 96% of the fish

100% utilisation of liver and roe

Development of own technology (superchilling) increased fillet yields by 10-15%

Heads dried and sold to Nigeria

Nigeria buys dried heads for FOB US $5.50kg and frames/bones for US $2.50kg.

Gelatin extracted from skin and swim bladder for use in a wide range of food products

Backbones dried and sold to Nigeria

Guts dumped (4%)

Trimmings are minced into fish Nuggets

Swim bladder dried

Enzymes from the gut used for

cosmetics, hygiene and pharmaceutical

products

Canned cod liver products

Pharmaceutical tissue and nerve-regeneration products

Hand & foot creams for

preventing and treating

diabetic ulchers

Enzymes used for natural fish flavourings

Caviar and spreads

Beauty collagens (anti-aging products)

Advanced derivates: aim to use 100% of the fish

Gelatin pharmaceutical capsules

Cod liver oil

Fish leather used by shoe & fashion industry

Source: (Sigfusson, 2012)

By-products in 1992 were 1,667 tonnes, increasing to 47,782 tons by 2010

Creating new industries from marine by-products

Increase real value from the resource by 20% per annum without increasing volume.

A business challenge for Aotearoa

“The real value of a limited resource is not intrinsic to the product itself, nor is it the current price. It is the latent demand of narrow segments populated by rare products” (Prof. Ken Simmonds, 2006).

Fisheries research funding

Source: Created from MBIE and MPI (2012) data

Research primarily targeted at ‘enhancing value’, but only one commercial operation to date.

Aquaculture, $113,962,920,

42%

Wild Capture, $118,494,477,

44%

Mixed, $38,893,970,

14%

Fisheries industry research funding 2000-2011

Total $271 million Note: Does not include wild fisheries stock assessment funding

$271m of fisheries research funding

Source: Created from MBIE and MPI (2012) data

Research almost entirely targeted at the production end (live end) of the value chain

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Millions Fisheries industry research funding 2000-2011

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Millions Fisheries industry research funding 2000-2011

Note: Does not include stock assessment research funding.

Fisheries research funding

Source: Created from MBIE and MPI (2012) data

Value Chain Sector Aquaculture Mixed Wild Capture Totals

Wild Capture Resource $3,353,593 $62,333,578 $65,687,171

Wild Catching $560,000 $276,500 $836,500

Aquaculture Farming $82,383,270 $1,366,175 $83,749,445

Harvesting $12,751,515 $271,981 $30,212,603 $43,236,099

Primary Processing $18,030,103 $29,306,847 $25,373,692 $72,710,642

Final Product Processing $782,274 $4,023,610 $75,844 $4,881,728

Processing of Waste - By-products $34,425 $136,623 $171,048

Markets $12,000 $11,764 $54,970 $78,734

Totals $113,993,587 $38,893,970 $118,463,810 $271,351,367

Impact of R&D on firm performance

Large firms

Experienced a -10.6% drop in labour productivity after three years And a -5.7% drop in multi factor productivity during approval year Small firms

Experienced a 5-12.5% growth in employment A 20% increase in labour productivity after four years And a 22.5% increase in multi factor productivity after four years

Source: MED, 2011

“There is no doubt that a significant part of the recent evidence on the effectiveness of innovation polices is disappointing. The fact that other countries are uncovering similar problems, particularly in regard to

programmes involving a “science-push” approach to commercialisation of innovation, is little consolation” (MED, 2011. Innovation Policies and Funding in New Zealand: How Effective Are They?).

The University of Auckland Business School, the New Zealand Asia Institute and the Mira Szászy Research Centre for Māori

and Pacific Island Development are committed to ongoing research and collaboration aimed at transforming our

seafood industry along a ‘high road’ innovative and sustainable trajectory.

Thank you!