With consumers’ appetites for fish shrinking along with their wallets, fishing industry costs on the up and export prices on the down, this is not the season to be jolly for commercial fishing in New Zealand.
“Consolidation” and “collaboration” aren’t words that come easily in this burly, fiercely competitive industry, but since the pandemic they’ve entered the vocabulary of some sector leaders confronting unpleasant global economic realities.
Watchers of the $2 billion export industry (in total, seafood production and processing generates $5b for the national economy annually) will have noted the new language in two developments this year.
Last month, the Commerce Commission gave clearance for Sealord to acquire Independent Fisheries, a major family-owned, deep-water fishing business and a rarity for its size these days.
It was the industry’s largest financial transaction in 30 years, and made Sealord - 50:50 owned by Japan’s Nissui Corporation and iwi-owned Moana New Zealand - the country’s biggest seafood business by revenue and catch volume. The purchase price has not been revealed, but it was apparently well-contested.
Sealord is on track to make a loss this year in its fishing business, says chief executive Doug Paulin, but gems like Independent Fisheries are rarely offered, so Sealord’s shareholders made the deal happen.
“We will take on a significant amount of debt but obviously we get their revenue and the profit performance they’ve achieved over the past few years. It’s a much simpler business than Sealord, with a very low cost base. They catch and process all the fish at sea and then it’s sold as soon as it’s landed.”
While Sealord was at the negotiating table, two other industry heavyweights were also doing a deal.
In May, NZX-listed Sanford announced it had agreed to sell the annual catch entitlement for much of its quota of North Island inshore species to Moana New Zealand.
The Commerce Commission approved the deal, which went unconditional in October. Moana will take over the catching, processing and selling of fish using the entitlement. Inshore fisheries are those out to 12 nautical miles (about 22km) from the New Zealand coast. The deal is for a minimum term of about 10 years. As a result Sanford, whose single biggest shareholder at nearly 20 per cent is South Island iwi Ngāi Tahu, said it would wind down its Auckland factory operations.
In another consolidation move this year, industry advocate Seafood NZ, Fisheries Inshore NZ and Deep Water Group merged to give the sector one voice and, according to Seafood NZ, “help continue the industry’s transformation”.
In the background of all this activity has been the launch of the Fisheries Industry Transformation Plan, developed by a group of leaders with backgrounds in fishing, Māori interests, environmental groups, workers, food innovation and government.
The plan, according to its publicity, aims to build on the strengths of New Zealand’s wild capture fishing industry, seize opportunities, including in premium international markets, and navigate the challenges as fishing transforms into a low-emission, high-productivity industry.
Sealord’s Paulin believes consolidation in deep-water fishing is “the only way in future that’s going to make money”.
He says that after Sealord, Talleys and Sanford come very small players who make up 1 per cent or less of the industry. Many of these family operations will fall away in the next decade, he believes, particularly inshore fishing businesses. They’ll be driven out by rising compliance costs and the tough succession outlook for a family fishing company.
“Children may not be interested [in taking over]. Because quota value is very high, your ability to get a capital return is limited. The bigger quota owners, which are more corporate in nature, will be in a position to buy when they come up for sale.
“There’s definitely much more collaboration than there’s ever been and there’s opportunity for that to be expanded,” Paulin says.
Sanford acting chief executive Craig Ellison says that “of necessity” the industry is becoming more collaborative.
“We are certainly looking to do things smarter. A key recommendation of the Fishing Industry Transformation Plan is that it’s so much easier to work together.
“It’s easy to say that but harder to do. It’s a bit of finding our feet and how we operate with competitors, an example being [with] Moana.”
The quota lease deal means Sanford has changed from being an Auckland processor of inshore species to a landlord, he says.
He rejects the suggestion of a duopoly situation. “The deal with Moana was about working smarter and tackling risks and challenges as an industry,” he says. “It’s very clear it’s going to be competitive.”
Ellison doesn’t think companies will meet challenges such as climate change by getting bigger through mergers and acquisitions, because opportunities like the Independent Fisheries sale are rare.
“It will be by collaboration. It’s about how we use our capital most efficiently.”
He says he’d love to say the spirit of collaboration “shows the growing maturity of the industry”, but thinks it’s more a case of pulling together in adversity. “Not to belabour the point, but [Covid] provided the catalyst for discussion.”
Major player Talleys declined to be interviewed.
At first blush, it seems collaboration might prove to be more about a united voice in messaging the Beehive and the public about the sector’s economic importance, than actually working together.
For example, while Sanford’s Ellison can imagine more openness in sharing market opportunities and challenges, such as discussion over how to satisfy a market if a player is struggling to fill a particular product line, Sealord’s Paulin believes that wouldn’t fly, in the wetfish market at least. But he acknowledges it might be different for products like mussels.
“We’re not really competitors in reality because some of us have exactly the same customers and we can’t supply the volume they need. Because we are a small part of the wetfish market, we can all do our thing and working together doesn’t really offer you a lot more upside [in that market].”
Herald inquiries suggest collaboration may not come easily for flinty-eyed corporate mariners.
While some insiders say the industry still has a way to go in recovering from Covid’s damage to markets, sales and operations, one believes it has recovered very well.
Opinion is also divided on prices in the global economic downturn. Some see prices as generally strong and demand solid, but according to others, demand is falling because of household incomes being stretched, and so are prices. The cost base is “incredibly high” for one, but “stabilising” for another. Fuel prices are a killer for one, and “manageable” for another. One says the market situation is not as dire as some would have it, another says the market for low- to mid-value products is “particularly difficult”.
But all agree consumers are strongly resistant to higher prices due to inflation, though high-end specialist products such as lobster, scampi, mussels and toothfish are selling well. There is also agreement that the crippling labour shortage is over - both at sea and onshore.
Seafood NZ figures show how Covid knocked the export industry - and that the pain is ongoing from the global economic fallout.
Export volume and value fell in 2020 to $1.8b from $2b-plus in 2019 as Covid took hold globally and lockdowns and restrictions were enforced. In 2021, volume and value bumped up slightly, but in 2022 trade volume fell by 16 per cent. Export value initially fell by more than $200m, but trade has since rebounded to close to pre-Covid levels at $1.98b. The total seafood industry generates $5.2b in economic output a year.
Seafood NZ is predicting 2023 export volumes will be very similar to last year at 236,790 tonnes, with a small increase in value. The organisation said the 2022 and likely 2023 results were probably due to customers taking longer to reorder or ordering less as global sales slowed and freight and storage costs rose.
The New Zealand seafood export industry mainly supplies the food-service market - for meals outside the home, in other words. About 100 species are exported to 100 markets but this country is a very small player, estimated to contribute less than 2 per cent of global trade. The sector employs more than 16,000 people.
Sanford’s Ellison and Paulin from Sealord attended a recent “groundfish” forum in Athens. Groundfish live on or near the seafloor and include cod, haddock, halibut, flounder and pollock.
It sounded like a grim event.
Paulin: “The messaging for fishing companies was pretty much negative”.
“But go further up in the value chain and look at companies not buying fish but buying cheap, raw fish and putting it into fish sticks, fingers or retail and they’re doing very well. But their volumes are under pressure. They’ve been able to do that because the raw material price has dropped so much and unfortunately we are in there. We do some added-value but we’re predominantly a fishing company.”
Sanford’s Ellison says his conclusion from the forum was that “Europe was depressed on groundfish prices, the US was neutral to depressed and China was quite positive”.
He travelled on to the US to meet customers and found strong prices for shellfish and salmon, both Sanford exports.
“In Europe, if you get your product right there’s good interest there. If you just sell block, which is fish for further processing, that will be challenging. At the high-quality product end - scampi, mussels and salmon - demand is strong. The experience for others for lobster in China was good.
“To date we haven’t seen a fall off of interest or pricing in China,” Ellison says.
For Sealord, the New Zealand seafood market has been a brighter spot.
“It’s pretty flat in terms of retail which is not bad because price increases have gone through,” says Paulin.
Ellison says the New Zealand market delivers 30 per cent of Sanford’s annual revenue, and high-quality fish such as toothfish, salmon, blue cod and hāpuku are fetching strong prices.
“But we also know we have to provide a range of prices. Yes, we have a wonderful salmon fillet but we also have offcuts like heads, cheeks and gills which are a really good value product. If you can meet the range of customer value propositions you do well.”
Sealord’s Paulin predicts a “difficult” two to three years ahead. But fishermen are by nature optimists.
“I have a very upbeat belief in the industry in the long run, scale helps as well. We’ve just got to get through the short-term pain. Technology will help. As that improves, it will help sustainability and in taking costs down.”
For Sanford, the recovery journey is not over after “a cascade” of challenges, but “we’re confident we’re on the right path”, says Ellison.
Costs are still climbing but the company turned in a solid 2023 financial-year result and can now turn to addressing the “invisible” costs of Covid - such as neglected capital spending.
“We’re catching up this year and have decided to spend capital, particularly on some of the vessels. We’ve wanted to but we simply haven’t been able to do that.”
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.
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