Re-thinking the Aotearoa Fisheries Value Chain Professor Hugh - PowerPoint PPT Presentation

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

Background  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). 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? Millions Total Finfish exports 2011 NZD 600 NZD 500 NZD 400 Live (0.6%) Fresh or Chilled (15.5%) NZD 300 Frozen Whole, H&G, Dressed (50.1%) Frozen fillets (32.6%) Dried, salted or smoked (1.2%) NZD 200 NZD 100 NZD 0 Source: Statistics New Zealand

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 Fillets (32% of fish weight) sold Heads (30% of fish weight) very little retained most mealed/oil Trimmings (5% of fish weight) extracted or dumped minced block, mealed or dumped Skin (6% of fish weight) mealed/oil extracted or dumped Liver and roe (7% of fish weight) roe retained by a few - mostly mealed/oil extracted or dumped Guts mealed/oil extracted or dumped, some swim bladders dried but mostly mealed or dumped (5% of fish weight) “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).

This is what dumping looks like

Putting a figure on missed opportunity 2011 Total Allowable Commercial Catch (TACC) = 631,787 tonnes Total marine landings = 435,000 tonnes 197,000 tonnes of TACC not caught Finfish landings = 394,000 tonnes* Finfish domestic sales = 39,000 tonnes Includes 59,900 tonnes of fish waste exported Finfish exports = 199,000 tonnes, $778.8m (600,000 tonnes during past 10 years) Finfish waste 156,000 tonnes 59,420 tonnes dumped at sea 95,700 tonnes = 21,000 tonnes ($44m) of fishmeal. 2011 average export price for fishmeal was Fish waste if dried could have earned $NZ 2.10kg or $NZ 0.38kg greenweight. $NZ173.7 million in 2011 (6 th largest export by volume; 8 th largest by value) 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 *Does not include illegally dumped fish, estimated at between 79,000 and 197,000 tonnes

An alternative, value adding, approach 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 Superchilling technology Super-Chilling introduced technology introduced

An Icelandic approach to fish waste

Iceland utilises 96% of the fish Backbones dried and Development of own technology sold to Nigeria (superchilling) increased fillet yields by 10-15% Heads dried and sold to Nigeria Trimmings are minced 100% utilisation of into fish Nuggets liver and roe Swim bladder dried Gelatin extracted from skin and swim bladder Guts dumped (4%) for use in a wide range of food products Nigeria buys dried heads for FOB US $5.50kg and frames/bones for US $2.50kg.

Advanced derivates: aim to use 100% of the fish Fish leather used by shoe & fashion industry Gelatin pharmaceutical Canned cod liver products capsules Pharmaceutical tissue and nerve-regeneration products Enzymes used for natural fish flavourings Caviar and spreads Hand & foot Enzymes from the creams for gut used for preventing and cosmetics, hygiene treating and pharmaceutical Beauty collagens diabetic ulchers Cod liver oil products (anti-aging products) Source: (Sigfusson, 2012)

Creating new industries from marine by-products By-products in 1992 were 1,667 tonnes, increasing to 47,782 tons by 2010

A business challenge for Aotearoa Increase real value from the resource by 20% per annum without increasing volume. “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 Fisheries industry research funding 2000-2011 Mixed, $38,893,970, 14% Aquaculture, Wild Capture, $113,962,920, $118,494,477, 42% 44% Total $271 million Note: Does not include wild fisheries stock assessment funding Source: Created from MBIE and MPI (2012) data Research primarily targeted at ‘enhancing value’, but only one commercial operation to date.

$271m of fisheries research funding Research almost entirely targeted at the production end (live end) of the value chain Fisheries industry research funding 2000-2011 Fisheries industry research funding 2000-2011 Millions Millions $90 $100 $80 $90 $70 $80 $60 $70 $50 $60 $40 $50 $30 $40 $20 $30 $10 $20 $0 $10 $0 Source: Created from MBIE and MPI (2012) data Note: Does not include stock assessment research funding.

Fisheries research funding 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 Source: Created from MBIE and MPI (2012) data

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!