Despite the fact that farmed fish currently bring in more than $1 billion in annual revenue to Australia’s economy, the Aquaculture industry continues to grow at a relatively tepid rate, with annual growth of 0.8% since 2011, including negative growth of 7% in 2014. Although growth has slightly recovered in recent times (1.9% in 2015 and 1.2% in 2016 the local industry faces a number of challenges, including import competition increasing from low-cost Asian producers, if it is to capitalise on the region’s growing demand for seafood.
First, the good news: Australian aquaculture has a reputation for quality and safety. This perception leaves the industry poised to tap into the newly acquired disposable income of South East Asia’s rapidly growing affluent and middle classes.
This increase in regional demand is driving IBIS World forecasts for improved average annual growth in the Australian aquaculture industry of 1.7 per cent per year until 2021, a significant uplift on the 0.8 per cent achieved by Australia’s fisheries since 2011.
However, this will be overshadowed by increased competition from lower cost Asian producers.
Deloitte’s Agribusiness Bulletin has described Australia as being at a significant cost disadvantage to other major producers, due to a number of issues including higher labour and transport costs. This will hamper their ability to compete with Asian producers, which are predicted by the World Bank to account for 90 per cent of production growth until 2030. In fact the uptick in regional demand is already being superseded by the growth in Asian supply, with Australian exports falling 10 per cent per annum over the last five years.
Keeping Aquaculture Competitive
Low oil prices combined with Asia’s labour costs and substantially increased scales of production, have made it exceptionally difficult for Australian producers to compete on price. The perceived health benefits and luxury status of seafood, means local consumers are willing to pay higher prices relative to other proteins. However, IBISWorld suggests that price sensitivity still exists, which has forced producers to slash their profit margins or accept a diminished share of the market.
Combatting this price sensitivity is further complicated by the current regulatory system. Due to its interaction with Australia’s prized coastal waters and native sea life, aquaculture regulation in Australia is complex and costly relative to other regional competitors.
While the federal government’s National Aquaculture Statement in June 2014 displayed an intent to assist the aquaculture sector, promote its growth and boost its profitability, the industry believes changes are needed to enable a competitive cost structure in Australia.
Yet waiting for change isn’t an option if Australian producers want to remain competitive or drive growth. Since the superior reputation and quality of Australian produce can only justify a marginally higher price, domestic producers need to find another way.
Keeping Aquaculture Efficient
The Australian aquaculture industry prides itself on innovation and efficiency, and technological advances in these areas may hold the key to competitiveness and growth, both domestically and internationally.
Feed, particularly fishmeal, is the largest outlay in the industry’s cost structure, and with prices rising due to increased global fish farming, advancements in the efficiency of its use would provide significant cost relief. Similar technological advances in husbandry practices, disease control, cleaning, processing, operations, capacity and stock management would further aid the industry’s ability to increase production while improving cost efficiencies.
The industry’s falling profit margins and need to invest in large, technologically superior capital equipment, which depreciates quickly, creates another hurdle for the industry’s growth and competitiveness.
However, evidence shows that these hurdles can be overcome. In one example, a large listed Australian aquaculture company was able to increase income via a new pen infrastructure that improved fish yields. Importantly, they were able to utilise a capital solution to access the technology, which left their debt and equity in tact – a critical outcome for a listed entity.
For the Australian aquaculture industry, benefiting from Asia’s food boom will require increased investment in new technologies that will drive growth and efficiency. With Australian produce already benefiting from a reputation for safety and quality, a focus on technologies that improve production could set up aquaculture as a boom industry for the future.