Seafood Processing in Australia: C2173

IBISWorld Industry Report 21 August 2007

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Contents Industry Definition ...... 3 ACTIVITIES (PRODUCTS AND SERVICES) ...... 3 SIMILAR INDUSTRIES...... 3 DEMAND & SUPPLY INDUSTRIES ...... 3 Key Statistics...... 5 CONSTANT PRICES ...... 5 CURRENT PRICES ...... 5 REAL GROWTH...... 5 RATIO TABLE...... 6 GRAPHS ...... 6 Segmentation ...... 7 PRODUCTS AND SERVICE SEGMENTATION...... 7 MAJOR MARKET SEGMENTS...... 8 INDUSTRY CONCENTRATION...... 8 GEOGRAPHIC SPREAD...... 9 Market Characteristics...... 11 MARKET SIZE...... 11 LINKAGES ...... 11 DEMAND DETERMINANTS...... 12 DOMESTIC AND INTERNATIONAL MARKETS ...... 12 BASIS OF COMPETITION ...... 14 LIFE CYCLE ...... 15 Industry Conditions...... 16 BARRIERS TO ENTRY...... 16 TAXATION ...... 16 INDUSTRY ASSISTANCE...... 16 REGULATION AND DEREGULATION ...... 17 COST STRUCTURE ...... 17 CAPITAL AND LABOUR INTENSITY...... 18 TECHNOLOGY AND SYSTEMS ...... 18 INDUSTRY VOLATILITY ...... 19 GLOBALISATION...... 19 Key Factors ...... 20 KEY SENSITIVITIES...... 20 KEY SUCCESS FACTORS...... 20 Key Competitors...... 22 MAJOR PLAYERS ...... 22 PLAYER PERFORMANCE...... 22 OTHER PLAYERS ...... 26 Industry Performance ...... 31 CURRENT PERFORMANCE ...... 31 HISTORICAL PERFORMANCE...... 33 Outlook ...... 38 News...... 42

Industry Definition

This class consists of units mainly engaged in processing and manufacturing (mfg) fish or other seafoods. This class also includes units mainly engaged in operating vessels which process but do not catch fish or other seafoods.

ACTIVITIES (PRODUCTS AND SERVICES) The primary activities of this industry are: • Crustaceans, processed, mfg (incl. cooked and or frozen) n.e.c. • Fish, canned, mfg • Fish cleaning or filleting Fish, dried or smoked, mfg • Fish fillet mfg • Fish loaf or cake mfg • Fish paste mfg • Fish pate mfg • Molluscs, processed, mfg (incl. shelled; except oysters). • Oysters, canned or frozen, mfg • Scallops, preserved, mfg • Seafoods, canned, mfg • Seafoods, preserved, mfg • Seafoods canned mfg. • Seafoods preserved mfg.

The major products and services in this industry are: • Fresh, chilled or frozen seafood • Canned fish • Smoked, dried or salted fish • Fish meal or oil

SIMILAR INDUSTRIES Industry: A0411 - Rock Lobster Fishing in Australia Description: Units mainly engaged in catching rock lobsters from ocean or coastal waters.

Industry: A0412 - Prawn Fishing in Australia Description: Units mainly engaged in catching prawns from ocean or coastal waters.

Industry: A0413 - Finfish Trawling in Australia Description: Units mainly engaged in trawling for finfish in ocean or coastal waters.

Industry: A0419 - Marine Fishing n.e.c. in Australia Description: Units mainly engaged in ocean or coastal water (including estuarine) fishing not elsewhere classified or other types of marine life gathering.

Industry: A0420 - Aquaculture in Australia Description: Units mainly engaged in farming of fish, crustaceans or molluscs.

Industry: F4714 - Fish Wholesaling in Australia Description: Units mainly engaged in wholesaling fresh or frozen fish or other seafoods (except canned).

DEMAND & SUPPLY INDUSTRIES

For further market analysis, refer to the following upstream and downstream reports: A0411 - Rock Lobster Fishing in Australia A0412 - Prawn Fishing in Australia A0413 - Finfish Trawling in Australia A0414 - Squid Jigging in Australia A0415 - Line Fishing in Australia A0419 - Marine Fishing n.e.c. in Australia A0420 - Aquaculture in Australia C2173 - Seafood Processing in Australia F4714 - Fish Wholesaling in Australia G5121 - Fresh Meat, Fish and Poultry Retailing in Australia H5731 - Cafes and Restaurants in Australia H5732 - Caterers and Food Service Contractors in Australia

Key Statistics

CONSTANT PRICES 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Industry Revenue 1,844.8 1,671.2 1,539.3 1,426.0 *1,450.7 $Mill Industry Gross Product 252.2 250.0 256.0 205.2 *248.8 $Mill Number of Establishments *195 *196 *195 *192 *182 Units Number of Enterprises *113 *115 *114 *112 *107 Units Employment 4,700 4,565 4,354 4,472 *4,425 Units Exports 914.6 796.5 698.0 680.3 578.3 $Mill Imports 950.4 990.6 911.8 933.8 961.3 $Mill Total Wages 140.1 147.1 143.9 126.7 119.8 $Mill Domestic Demand 1,880.5 1,865.3 1,753.2 1,679.4 *1,833.7 $Mill Production Volume *243,579.0 *251,245.0 *258,432.0 *270,546.0 *271,456.0 Tonne

CURRENT PRICES 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Industry Revenue 1,594.8 1,491.0 1,413.0 1,362.0 *1,450.7 $Mill Industry Gross Product 218.0 223.0 235.0 196.0 *248.8 $Mill Number of Establishments *195 *196 *195 *192 *182 Units Number of Enterprises *113 *115 *114 *112 *107 Units Employment 4,700 4,565 4,354 4,472 *4,425 Units Exports 790.7 710.6 640.7 649.8 578.3 $Mill Imports 821.6 883.8 837.0 891.9 961.3 $Mill Total Wages 121.1 131.2 132.1 121.0 119.8 $Mill Domestic Demand 1,625.7 1,664.2 1,609.3 1,604.1 *1,833.7 $Mill Production Volume *243,579.0 *251,245.0 *258,432.0 *270,546.0 *271,456.0 Tonne

REAL GROWTH 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Industry Revenue 15.4 -9.4 -7.9 -7.4 *1.7 % Industry Gross Product -26.7 -0.9 2.4 -19.8 *21.2 % Number of Establishments *2.6 *0.5 *-0.5 *-1.5 *-5.2 % Number of Enterprises *2.7 *1.8 *-0.9 *-1.8 *-4.5 % Employment 4.2 -2.9 -4.6 2.7 *-1.1 % Exports -18.1 -12.9 -12.4 -2.5 -15.0 % Imports -1.1 4.2 -8.0 2.4 2.9 % Total Wages 29.3 5.0 -2.1 -12.0 -5.4 % Domestic Demand NC -0.8 -6.0 -4.2 *9.2 %

RATIO TABLE 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Imports share of domestic demand 50.54 53.11 52.01 55.60 52.42 % Exports Share of Revenue 49.58 47.66 45.34 47.71 39.86 % Average Revenue per Employee 0.39 0.37 0.35 0.32 *0.33 $Mill Wages and Salaries Share of Revenue 7.59 8.80 9.35 8.88 8.26 %

GRAPHS Revenue Revenue Growth Rate

Employment Imports and Exports

Note: Unless specified, an asterisk (*) associated with a number in a table indicates an IBISWorld estimate and references to dollars are to Australian dollars.

Segmentation

PRODUCTS AND SERVICE SEGMENTATION

Product/Services Share Fresh, chilled or frozen seafood 81.5%

Canned fish 12.0%

Smoked, dried or salted fish 3.5%

Fish meal or oil 3.0%

• This industry can be segmented according to the type of processing undertaken. • Thus, industry segments include filleting, gutting, smoking, chilling, freezing and cooking, packaging and canning. However, there is a certain amount of double counting, as almost all products are gutted and filleted. • Revenue derived from the various segments is not proportional to the output sold by it, due to differences in value adding. • Around 81.5% of the commercial fish caught is sold either fresh or frozen, either as whole fish or often filleted. Species such as prawns (and sometimes lobster) are sold whole or headless, with tails sold separately. This is by far the largest source of revenue for producers. This category is thought to have fallen by just 0.5% points in recent times as a result of higher demand for smoked fish products. • Around 12% of the industry's processing is canned. Canning is of declining importance as a share of industry revenues because of the changing tastes of the consumer market for fresh and frozen fish and seafood. This is reflected in greater demand for such products in restaurants. Therefore, this product segment is thought to have declined as a share of industry revenue in the past five years, down by about 1%. However, the fall has been partially offset by product innovation (such as the addition of flavours to canned tuna and sardine products), which has increased the demand for these canned fish. • Smoking, drying and salting is a method of processing which is generally a small contributor to the industry's sales revenue annually, but such products are increasing their share of such sales. Hence, smoked fish are thought to have increased from 3% to 3.5% of industry sales in the past five years. • A further 3% of the industry's product is converted into fish meal or oil for sale to aquaculture enterprises but even allowing for the higher value adding associated with these activities, they are still relatively small sources of revenue. This is, however, likely to be a growth segment due to the rising production of fish farms in Australia - a trend that will continue at least into the medium term.

MAJOR MARKET SEGMENTS

Market Segment Share Grocery Wholesalers 39.8%

Export 35.2%

Foodservice sector 25.0%

• Exports are the most important market for Australian processed seafood, representing an estimated 35.2% of revenue during 2006-07. Exports have decreased as a share of industry revenue from 47.7% during 2002-03, impacted by poor economic conditions in key overseas markets since that time while domestic demand has remained strong. Additionally, the recent surge of the Australian dollar has resulted in Australian fish and seafood products becoming less competitive with producers in other countries with weaker currencies. • Most fresh and frozen fish products sold in Australia are sold to grocery wholesalers who then distribute to supermarkets and specialist fish and seafood retail outlets (including cafes and restaurants, hotels, motels etc). However, some fresh and frozen fish is sold direct to the foodservice industry, including some catering companies, hotels and restaurants. Both of these domestic sources of sales have improved since 1999-00 as a result of strong demand for seafood in Australia compared to major export markets.

INDUSTRY CONCENTRATION The level of industry concentration is low

• IBISWorld estimates indicate the top four players had a collective market share, based on sales revenue, of approximately 22.7% during 2005-06, with only a small number of large companies that operate in the Seafood Processing industry. • Given that the technology used is relatively simple, capital requirements have played less of a role in causing concentration than in some other industries. • The level of concentration decreased slightly in July 1999, when Heinz Watties announced the closure of the Eden/Greenseas tuna cannery in New South Wales. This signalled Heinz Watties' departure from tuna manufacturing in Australia. • Nevertheless, market conditions have caused some increase in concentration in recent years, particularly due to acquisitions of assets by Bidvest and organic sales growth by some major industry players.

GEOGRAPHIC SPREAD Year: 2006 Geographic spread of industry employment

Region Percentage QLD 21.9

NSW 19.4

SA 17.8

VIC 16.2

WA 14.3

TAS 9.4

NT 1.0

ACT 0.0

Geographic spread of industry establishments

Region Percentage QLD 20.9

NSW 21.0

SA 16.0 VIC 16.6

WA 14.9

TAS 9.4

NT 1.2

ACT 0.0

• Seafood processing establishments are evenly spread between states. The number of establishments has risen in NSW and Queensland since 1998, but has fallen in Tasmania and Victoria. Victoria is known more for its high value species such as abalone and rock lobster, rather than its tonnage. • Likewise, industry employment covers most states, with Queensland and NSW accounting for the most. Queensland makes up 21.9% of the number of employees, with NSW making up 19.4%. • Processing mainly takes place in plants located in coastal centres close to the fisheries which are their main domestic suppliers. • Of those employed in this industry, over 80% work in either metropolitan or other coastal areas. • Some Australian companies operate off-shore to reduce costs and to gain greater access to raw materials.

• In 2006-07, there is thought to be an estimated 4,555 employees. This shows that the average firm is small, and employs around less than 20 people on average per business. There are also a small number of medium size firms.

Market Characteristics

MARKET SIZE IBISWorld estimates that during 2006-07 (in constant 2006 prices), the Australian Seafood Processing industry recorded:

• Revenue valued at $1.49 billion, a 3.1% increase from the previous year. The industry accounts for around 10.2% of revenue within the Other Food Manufacturing industry. • Industry Value Added (IVA) totalled $255.4 million, an increase of 2.7% from the previous year. • The industry comprised around 180 establishments that employed a combined workforce numbering approximately 4,555 persons. • Domestic demand totalled $1.99 billion, a 8.8% increase from the previous year. • The production of processed seafood totalled 275,453 tonnes, an increase of 1.5% from the previous year.

IBISWorld forecasts that in 2007-08 in 2006 constant prices, the Seafood Processing industry will achieve revenue of $1,534.5 million, which will represent industry revenue growth of 2.6%. IBISWorld also expect this industry to contribute $253 million to the Australian economy, which will represent a decrease of 1% from the previous year.

LINKAGES Demand Linkages C2173 - Seafood Processing in Australia Some output is sold to other seafood processors for further processing.

F4714 - Fish Wholesaling in Australia Output is generally sold to wholesalers who then distribute the processed fish and seafood to restaurants, cafes, accommodation establishments, pubs, bars and taverns etc.

G5121 - Fresh Meat, Fish and Poultry Retailing in Australia While retailers will typically have to buy from a wholesaler, large chains of specialist retail stores may possess the buying power to purchase direct from the seafood processor.

H5731 - Cafes and Restaurants in Australia Some cafes and restaurants may be sufficiently large to be able to purchase processed fish and seafood direct from the manufacturer, but most will have to buy their supply from a wholesaler.

H5732 - Caterers and Food Service Contractors in Australia Food caterers are a significant source of immediate demand for the industry's products since they cook meals for consumers in hotels and at major public events.

Supply Linkages A0411 - Rock Lobster Fishing in Australia This is a key industry which supplies rock lobster to this industry for processing prior to sale to wholesalers.

A0412 - Prawn Fishing in Australia This is a key industry which supplies prawns to this industry for processing prior to sale to wholesalers.

A0413 - Finfish Trawling in Australia This is also an important supplier of finfish to this industry for processing prior to sale to wholesalers.

A0419 - Marine Fishing n.e.c. in Australia This is a significant supplier of abalone, oysters, pearls, scallops and seaweed to this industry for processing prior to sale to wholesalers.

A0420 - Aquaculture in Australia Aquaculture is fast becoming the most important and reliable supplier to this industry and competes directly with the marine fishing nec industry in particular.

DEMAND DETERMINANTS Demand for Australian processed seafood is determined by:

Price: The cost of fish products relative to substitutes (e.g. chicken) affects demand. Prices have fallen due to an increase in production, increase in competition, falling tariffs and lower transport costs.

Household income: Higher real disposable income has enabled consumers to purchase higher quality products, including fish. In addition, higher incomes have facilitated increased consumption expenditure on more expensive seafood, including crustaceans and molluscs.

Changes in lifestyle and tastes: This has encouraged increased fish consumption, resulting in much greater emphasis being placed on convenience in food preparation. Fish products are extremely appropriate for this purpose. Fish is generally featured on the menu of restaurants and take-away food outlets and is a favoured item for children as well as adults when eating away from home.

Health: Increasing concern about the relationship between food and diseases, such as cancer and heart complaints, has also encouraged the consumption of fish. Fish is relatively low in fat and cholesterol and is therefore regarded as a healthier source of protein than red meats and poultry.

Selling: The selling of fish products into supermarkets and other outlets has made it more readily available to consumers.

Exchange rate: Imports and exports comprise a high proportion of domestic demand and revenue, respectively. Consequently, fluctuations in the value of the Australian dollar has the potential to influence demand for Australian processed seafood.

DOMESTIC AND INTERNATIONAL MARKETS Domestic and International Markets Exports The level of trade export is high The trend of trade export is decreasing

Domestic and International Markets Imports The level of trade import is high The trend of trade import is steady

Domestic and International Markets Analysis

Domestic Market

• Domestic demand for the Seafood Processing industry in Australia increased by 6.6% on average each year between 2001-02 and 2005-06.

• Imports totalled $961.3 million in 2005-06, an increase of 2.9% over the previous fiscal year. This represented around 48.5% of the total domestic demand, down from 50.5% in 2000-01. Over the five-year period, imports grew by 0% per annum on average. It is estimated that imports increased by 6.6% to $1,024.8 million in 2006-07.

The top five import markets in 2005-06 are displayed in the following table:

Australia Seafood Import Markets, 2005-06 Percentage Million Dollars Import Market Share of import market Import value Thailand 42.2 268.3 Vietnam 20.6 131.3 New Zealand 17.2 109.0 China 15.5 98.4 South Africa 4.5 28.8 Source: ABS

Thailand continues to be the largest import market for Australia, accounting for 42.2% of imports, up from 40.5% in the previous year. Vietnam's share of imports remained unchanged from the previous year, accounting for 20.6% of imports.

In 2001-02, imports decreased by 1.1% to $950.4 million, declining as a share of domestic demand to 50.5%. Strong demand and cheaper prices of imports compared to local seafood saw imports rise by 4.2% to $990.6 million during 2002-03, equalling around 53.1% of domestic demand. Imports were down in 2003-04 by 8% and 52% of domestic demand, because of strong competition from Australian seafood processors. In 2004-05, industry imports increased to 55.6% of domestic demand. However, in May 2006, it was reported that at least three deadly prawn import diseases were present in aquaculture regions of the world, putting the Seafood Processing industry at risk, possibly resulting in loss of productivity and employment. As a result, imports share of domestic demand continued to weaken, falling to 52.4%.

Export Market

• Exports totalled $578.3 million during 2005-06, a decrease of 15% from the previous year, accounting for approximately 36.2% of total industry turnover during the year, down from 49.6% in 2000-01. Over the five-year period, exports declined by 12.3% per annum on average. It is estimated that exports decreased by 9.1% to $525.6 million in 2006-07.

The top five export markets in 2005-06 are displayed in the following table:

Australian Seafood Export Markets, 2005-06 Percentage Million Dollars Export Market Share of export market Export value Japan 30.9 140.9 Hong Kong 28.0 127.7 US 22.3 101.5 China 11.6 52.9 Singapore 7.2 32.8 Source: ABS

In 2005-06, Japan accounted for the largest share of exports, at 30.9%, up from 29.4% from the previous year. Hong Kong followed, accounting for 28% of exports, down from 30.7% in the previous year.

Generally, exported products involve minimal processing, partly due to the requirements of the importers, especially Japan. Moreover, there are products that were traditionally entirely consumed on the domestic market that are now being exported on an increasingly large scale for the first time. One example is oysters.

During 2001-02, an appreciating Australian dollar combined with deteriorating economic conditions in the Northern Hemisphere caused industry exports to fall by 18.1%, down to $914.6 million (50.5% of seafood processing revenue). Modest demand conditions in Asia caused processed seafood exports to decrease by a further 12.9% to $796.5 million during 2002-03, down to 53.1% of revenue. The next two years experienced continued declines in exports of 12.4% and 2.5%, respectively. This is symptomatic of falling demand in Asia since the economic downturn in the early 2000s (especially in Japan) and this industry's refocus on the Australian market for sales of high value added packaged fish and seafood products. This also reflects the Asian preference for live and fresh (i.e. unprocessed) products, along with a stronger Australian dollar, making exports more expensive. To date in 2005-06, industry exports decreased to 39.9% of sales revenue.

BASIS OF COMPETITION Competition in this industry is high Competition in this industry is increasing

Entry barriers into the Australian Seafood Processing industry are low, which allows many industry players to be involved within the manufacture and sales of fish and seafood products. This combines with a low concentration of industry ownership of assets to force incumbents to compete fiercely for such sales. Access to raw materials is also strong because the industry relies on a diminishing resource in the wild, while product quality has improved with time. These are all factors leading to the conclusion that this industry is highly competitive. Seafood processors compete with respect to the following factors:

Product quality: Australian consumers are fairly poor at distinguishing fish and fish products according to quality. This is not, however, the case in overseas markets, where exports increasingly compete on taste and quality.

Product differentiation and innovation: The innovation of new flavours (e.g. storing canned tuna and sardines in soya oil, spring water, tomato sauce, basil, sweet chilli etc) of products has been the result of the intensification of competition between players. Therefore, some producers have responded by attempting to capture a larger market with fish and seafood which tastes different.

Export access: as export markets become increasingly important, especially to those companies seeking out Asian markets for the first time, the ability to market one's product to foreign shores is a significant basis of competition.

Brand development and advertising: the industry generally has embarked upon little brand-based advertising. The exceptions are the major canners, such as John West and Sealord. However, competition has come from imported brands, like Brunswick from Canada, in recent years.

Price: as a consequence of the limited size of the Australian market for processed seafood and fish products, competition is based mainly on price. This is, however, less of an issue in key foreign markets like Japan and Korea.

LIFE CYCLE Life Cycle Stage The life cycle stage is mature

Life Cycle Reasons • Technology has improved but changes have been incremental rather than radical. • Export demand has stagnated but domestic demand is strong. • New products have been introduced at a steady rate over the past five years.

Life Cycle Analysis Seafood processing in Australia is a relatively stable industry. While there are some indicators of growth and decline, the industry as a whole is mature since:

• Industry value added increased by an estimated average rate of 0.3% annually during the five years to 2006-07. In comparison, real GDP increased by an average of 3.5% per year. IBISWorld does not anticipate rapid growth in coming years. • The number of firms has been steadily declining, as a result of a number of acquisitions, with the number of firms down from an estimated 115 in 2002-03 to 105 in 2006-07. • Many new products have been introduced during the current analysis period. Heinz Watties introduced tuna in brine and spring water while tuna and sardines are available in a range of other flavours, along with 98% fat free flavoured tuna for the increasing health conscious. Heinz also recently introduced sandwich spreads, as consumers are constantly seeking more convenient foods. In response to the move by Heinz and now Port Lincoln Tuna Processors, Trident expanded its Tasty Temptations range with the introduction of Trident Gourmet Quality Tuna. An example of an innovative product is carp bacon which won the Innovative Seafood Product Competition. Carp bacon and the related carp ham and carp salami arose out of the recognition that there is only limited value added potential for many traditional varieties of fish, like salmon and barramundi. This product creates export potential to Muslim countries, in particular Indonesia and Malaysia. Finally, imported sardines from Canada have provided innovative competition by packaging the product in soya oil, hot sauce, water and other preserves. • Technology has improved but changes have been incremental rather than radical. Processing by hand is still required for many of the species packaged and sold by this industry. • While new markets have not been exploited in Australia, the share of sales within the local market has increased in the five years to 2006-07, although this is partly due to falling demand in sluggish overseas economies. • Geographically, the industry became more concentrated in NSW and Queensland since 1998 until 2001, falling in Tasmania and Victoria. Since then, it is thought that the geographic segmentation has remained relatively steady. • The structure of industry ownership is stable, with private enterprise accounting for the majority of industry players. • Not all segments within the industry are in the same phase of the life cycle. The processing of fish derived from aquaculture is in a growth phase while fish canning seems to be declining, partly due to consumer preferences but mostly due to competition from cheap imports, especially from Thailand.

Industry Conditions

BARRIERS TO ENTRY Barriers to entry in this industry are low These barriers are steady

• Processing is relatively simple. • Technology is readily accessible. • Capital requirements are not excessive in most segments. • Incumbents are not so large as to deter entry. • However, vertically integrated owners of wild fishing quota represent a barrier.

• Given the fairly simple nature of the processing undertaken in Australia, neither technology nor capital requirements constitute significant barriers to entry into the Seafood Processing industry. • However, there are barriers where vertically integrated firms also own a wild fishing quota so they can ensure supply of raw materials into their processing plant. Therefore, it can be difficult for new entrants to gain access to enough fresh fish and seafood to be economically viable. • Exit or partial exit has occurred - e.g. the closure of the Heinz cannery at Eden. Following the closure of the Heinz cannery at Eden, a new mackerel processing plant and boat freezer was established at Eden. • Regulations relating to food safety and environmental impacts of a processing plant are stringent and so these may deter some from entering the industry since compliance costs are high.

TAXATION There are no specific taxation issues for this industry

• No special taxation provisions are applicable to this industry. • The GST came into effect on 1 July 2000. Application of the GST will be mainly to non-food items. • However, it is levied on take-away food and on food eaten in restaurants and the like. Consequently, it is likely to impact on a significant proportion of the product of this industry.

INDUSTRY ASSISTANCE The level of Industry Assistance is medium The trend of Industry Assistance is increasing

There are no specific tariffs for this industry

• The only tariff applying to imports of seafood in Australia is a 5% tariff on imports of canned tuna. • As with other tariffs, those impacting on this industry fell significantly from the late 1980's. • However, those in the industry using imported raw materials have also benefited from a general reduction in tariffs in Australia. • Canadian issued a complaint to the World Trade Organisation (WTO) that Australia's quarantine restrictions are protectionist. This claim was accepted by the WTO. • Tariffs in other countries for imported seafood can be high, adversely affecting the volume and price of exports. The Commonwealth Government can assist the local industry by negotiating multilateral and bilateral trade agreements that reduce tariffs in other countries. • As part of the Federal Government's $3.6 million Eden Regional Adjustment Package, the government awarded assistance to establish a new mackerel processing plant and boat freezer at Eden. This followed Heinz-Wattie's decision to close the fish cannery at Eden.

• The Commonwealth and State Governments provide funding to the Fish Research and Development Corporation (FRDC). For example, the FRDC undertook a three year study to detail the impact of recreational fishing on fish numbers. To the extent that this could lead to a reduction in recreational fishing, this could benefit the fishing industries. This will increase the supply for processors, which will either constrain prices or help processors meet demand. Either way, processors stand to benefit. • Similarly, the Australian Fisheries Management Authority (AFMA) and Bureau of Rural Science (BRS) indirectly aid this industry by providing research and management of fisheries in Australian waters, which helps to ensure the supply of raw materials to seafood processors. • In 2007, it was announced that a new seafood research centre will be set up to increase the value of the industry. The centre, which will operate from July 2007, will aim to increase production levels, while reducing waste and looking at how to make use of discarded fish.

REGULATION AND DEREGULATION The level of Regulation is heavy The trend of Regulation is increasing

• Like other food processing industries, the Seafood Processing industry is subject to health regulations. • Processors are also subject to labelling laws. • Stringent rules relating to food safety are being introduced for all levels of the seafood industry, including processing. These are based on the Hazard Analysis Critical Control Points system (HACCP). The main effect is to introduce monitoring of the main points in the processing chain where contamination could occur. HACCP systems are required for exports to the US and European Union. • Food Standards Australia New Zealand (FSANZ) has the role of protecting the health and safety of people in Australia and New Zealand through the maintenance of a safe food supply. In Australia, FSANZ also develops seafood standards for food safety, maximum residue limits, primary production and processing and a range of other functions including the coordination of national food surveillance and recall systems, conducting research and assessing policies about imported food. • Australian quarantine restrictions on imported fish and fish products has been severely criticised by the US and Canada as a protectionist device. • Following an industry report which expressed concern at suggestions that the ban on imports of salmon from the US and Canada may be lifted, claiming that the risk of disease is still too great, in September 1996 the Federal Government requested the Productivity Commission to inquire into the economic impact of salmon imports from North America on the Australian industry. The Australian Quarantine Inspection Service was also asked to study the environmental impact of the import of raw Canadian salmon. This was completed in 1999 and the Australian government has accepted its recommendations that the import of raw Canadian salmon posed minimal risk. By early May 2000, the Australian and Canadian governments reached agreement on the import of raw Canadian salmon into the Australian market. Nonetheless, in mid-May 2000, the Tasmanian government declared Tasmania a "protected area" and as such decided that Tasmania would not comply with WTO requirements and that Canadian salmon would continue to be banned. • The SeaQual project, a joint initiative of the Australian Seafood Industry Council, the Department of Primary Industries and Energy and the Fisheries Research and Development Corporation, aims to increase the rate and spread of adoption of quality management systems throughout the seafood production and distribution chain. The agreed objectives for SeaQual are to identify, implement and expand on existing quality management strategies to achieve agreed seafood quality goals and to encourage governments and industry to develop policies and programs which build on existing systems and create an industry-wide quality management ethos.

COST STRUCTURE Year: 2007

Item Cost % Purchases 85.3%*

Wages 8.3%*

Depreciation 1.6%*

Utilities 0.9%*

Rent 0.1%* Other 2.0%*

Profit 1.8%*

• Purchases of fish and other seafood from the commercial fishing industry are the most significant cost to seafood processors, accounting for an estimated 85.3% of industry revenue during 2006-07. This has risen from 79.4% since 2002-03, mostly as lobster costs increased rapidly during fiscal 2002 and again in 2006. Australia is heavily dependent on imported fish, especially finfish, for the production of fish products. Meanwhile, aquaculture is becoming an increasingly important source of purchases due to its reliability of supply compared to wild fisheries. • Labour costs are the next most prominent at an estimated 8.3% of revenue during 2006-07. This has fallen from 8.8% since 2002-03, mainly impacted by falling average wages/salaries and declining revenue throughout much of the past five years. • Depreciation of the industry's assets is thought to be down to 1.6% of annual sales revenue, compared to 1.8% in fiscal 2003. This is lower than most food processing industry's because the process of filleting fish requires the experienced hands of a human. • Other costs include compliance with government regulations, utilities, rents and leases on premises, administration and marketing. Brand marketing is important for canned fish and seafood products, although industry operators seldom spend large budgets on widespread advertising. Rather, they tend to use in-store promotions in supermarkets. • The cost structure is indicative of an activity with relatively low to moderate value adding. Therefore, net profit returns are very low, which is why many operators have struggled to meet financial commitments during the recent past. This cost structure could only be significantly improved by reducing purchasing costs, requiring investment in aquaculture and/or wild fishery operations or by adding more value to products by continuing to innovate and promote processed products more aggressively.

CAPITAL AND LABOUR INTENSITY The level of Capital Intensity is medium

• Prevalence of rudimentary processing for most industry segments. • Little use of large machinery, with some exceptions (e.g. canning).

• IBISWorld estimates that the ratio of capital to labour for the Australian Seafood Processing industry was 1:5.2 during 2006-07. This means that for every dollar invested in plant and equipment, approximately $5.20 is spent on labour, thereby making this industry reasonably dependent on both capital and labour in order to produce. • By comparison with all food processing industries, seafood processing has only moderate capital intensity. This arises partly because of the rudimentary processing undertaken by many of the participants. • However, it is not true of all industry segments because canning operations are relatively capital intensive.

TECHNOLOGY AND SYSTEMS

The level of Technology Change is low

• Processing establishments vary greatly in size, scope of operations and in the degree of technology applied. • Seafood processing includes filleting, freezing and packing fish, canning, processing crustaceans or molluscs and smoking. Thus, operations range from the most basic cleaning, filleting, packing and freezing to a small number of firms equipped with the latest technology and with capacity for considerable product diversification. • Compared with the overseas industry, there is very little use of automated processing and handling in the Australian Seafood Processing industry. • There is apparently little knowledge of the technology available overseas. The reasons for this are the consumer preference for fresh, whole fish (which means that prices paid for relatively unprocessed product are favourable). • Australian fisheries do not yield the volume of fish to justify large investment in processing technologies (except in the case of very large operators who have certainty of supply). • The more advanced technologies which are used have been imported from Scandinavia, northern Europe, the United States, Japan and New Zealand. • Processors regard most of the technology available from overseas as inappropriate to their needs. They claim that manual operations with skilled labour give better recovery rates. • In the area of food safety, HACCP (Hazard Analysis Critical Control Points) requirements were introduced in 1997 for exports to the USA and European Union. • Seafood processors are benefiting from new technologies adopted by aquaculturalists. Such technologies are enabling the production of fish to a certain size, quality, quantity and flesh colour. This is facilitating higher quality inputs for processors and increasing the ability of processors to meet customer demands.

INDUSTRY VOLATILITY The level of volatility is high

• Prices can be volatile, especially for export markets, because exchange rates and competition fluctuate regularly. • Weather and other environmental conditions affect the availability of supply from fish stocks. • Demand from Australian households have changed industry revenue levels in some years as demand for fresh, unprocessed fish and seafood has increased. • Likewise, less expensive imported brands force local processors to lower their prices in order to compete.

GLOBALISATION The level of Globalisation is medium The trend of Globalisation is increasing

• The level of foreign ownership in this industry is medium, with some major participants being subsidiaries of overseas companies. For example, Simplot Australia (Holdings) Pty Ltd is 100% owned by US company JR Simplot Co, Safcol Australia Pty Ltd is fully owned by Safcol Holdings (Singapore) while Bidvest Australia Ltd is owned by Bidvest Belgium SA. Consequently, foreign operators have a significant share of domestic demand. • However, the share of sales generated by investment in offshore establishments is still relatively low.

Key Factors

KEY SENSITIVITIES The key sensitivities affecting the performance of the Seafood Processing industry include:

Domestic Goods Prices - Seafood - Fish & Other Seafood Price Index Description: The cost of raw material inputs such as fish and other seafood products

Demand for seafood is influenced by its price, relative to substitutes, and per unit prices received from customers directly impact on seafood processing sales revenue and profitability.

Downstream Demand - Fish Wholesaling

Wholesalers are the most important immediate source of demand for processed fish and seafood, so the industry is highly dependent upon it.

Exchange Rates - Trade Weighted Index Description: This report analyses value of Australia's Trade Weighted Index (TWI); base month = May 1970.

Imports and exports are significant in this industry. Exchange rates affect the price in local currencies of products.

Nutrition - Seafood Consumption Description: The number of kilograms of fish consumed by Australians.

The positive health impacts of eating fish is prompted by the industry as well as by other groups (e.g. dieticians and doctors), and positively influences demand.

KEY SUCCESS FACTORS The key success factors in the Seafood Processing industry are:

• Marketing of differentiated products A greater level of processing will enable producers to develop and sell more products, thereby potentially opening new markets.

• Attractive product presentation Better product presentation and greater development of brand image will better enable producers to raise unit prices.

• Optimum capacity utilisation Increased production, enabling higher capacity utilisation and economies of scale will improve margins.

• Economies of scope Scope economies through the use of by-products or less popular fish for processed fish products will generate additional revenue.

• Use of production techniques that add value to base product(s) The development of new, high value added products can be combined with high volumes to increase prices, and hence, profitability.

• Market research and understanding The development of new, high value added products will only come from an adequate understanding of consumer tastes.

• Ability to quickly adopt new technology Use of technology to allow better use of raw materials and increased efficiency as well as fresher products with a longer post-processing life will ensure that product quality is maximised.

Key Competitors

MAJOR PLAYERS Market Share Market Share Major Player Range Bidvest Australia Limited 9.20% (2006) Simplot Australia (Holdings) Pty Limited 6.80% (2006) Geraldton Fishermen's Co-operative Ltd 4.40% (2006) M G Kailis Holdings Pty Ltd 2.60% (2006) Other 77.00% (2006)

PLAYER PERFORMANCE Bidvest Australia Limited Brand/Trading Name(s): Manettas Market Share: 9.20%

The Bidvest Group Ltd is a South African company trading in a diverse range of activities. These activities are consolidated into three divisions - services, foodservice and commercial product supply. In 1995, the Bidvest Group moved into the international foodservice market with Bidvest plc which has grown into the leading foodservice products distributor in the United Kingdom, Australia and New Zealand. During that year, Bidvest bought a 50.1% share of Manettas Ltd by injecting $42 million into it to buy 47.4 million shares. The deal valued Manettas at $57 million, which had been seeking a substantial capital injection used to finance further expansion into food distribution - especially into distributing to the food service industries and expansion of the fresh fish business in Queensland and then into Victoria, South Australia and Western Australia. By February 1997, the shareholding by Bidvest increased to 55%. In late 1997, Bidvest acquired the Sydney firm N. Stephenson Pty Ltd, which services the eastern part of Sydney. The acquisition complements the Peter's and Felan's outlets in Glebe, which company already owed. In late 1998, the company purchased Cold Seas, one of the ACT's largest food service distributors, for $6.7 million. Today, Bidvest Australasia's Corporate Office is located at Pyrmont in Sydney, New South Wales, and has 20 business units across Australia.

Bidvest's recent financial position is outlined in the following table:

Financial Performance for Bidvest Australia Ltd, year ended 30 June Million Dollars Million Dollars Units Total Sales Percent Growth NPAT Percentage Employees Percent Growth 2001-02 701.6 N/C -.4 N/A 1245 N/C 2002-03 725.1 3.3% 4.0 N/A 1397 12.2% 2003-04 922.1 27.2% 5.4 35.0% 1522 8.9% 2004-05 1035.1 12.3% 12.4 129.6% 1616 6.2% 2005-06 1137.7 9.9% 16.4 32.3% 1715 6.1% Source: IBISWorld Enterprise Data Base

Over the five-year period, company sales have increased by 12.8% per annum on average.

Sales revenue increased dramatically for Bidvest during 2001-02, continuing the previous years' trend, as a result of asset acquisition as well as organic growth. Thus, sales totalled $701.6 million, an increase of 77.3% from the previous year. However, NPAT continued to decline as a result of an increase in spending, down to -$.4 million for the year.

Company sales increased by 3.3% during fiscal year ended 30 June 2003, up to $725.1 million, with an estimated $111.7 million coming from domestic seafood processing activities. NPAT totalled $4 million, a strong increase from the previous year due to significant cost controls achieved by Bidvest. By 2003-04, sales had increased by 27.2%, amounting to $922.1 million, with a 35% growth occurring in NPAT. Employee numbers totalled 1,522 people.

Bidvest's sales continued increasing in 2004-05, up by 12.3% to $1,035.1 million, with an estimated $143.4 million coming from domestic seafood processing during the year. NPAT increased by over 100%.

In 2005-06, revenue increased a further 9.9% to $1,137.7 million as a result of strong organic growth, while NPAT increased by 32.3% to $16.4 million. Total employees increased to 1,715 people.

Simplot Australia (Holdings) Pty Limited Brand/Trading Name(s): Birds Eye Market Share: 6.80%

Simplot Australia, owned by JR Simplot company in the USA, manufactures and sells frozen, canned and baked products. Distribution is through an extensive network of major supermarkets, convenience stores and food service outlets - such as restaurants, cafes and caterers. Simplot Australia employs over 2,000 people, operates 9 processing facilities and six sales offices and has total sales of over $700 million per year. The company is one of the top ten food and beverage companies in Australia.

In August 1995, the Edgell-Birdseye operations were sold by Pacific Dunlop to J.R. Simplot, the second largest producer of french fries in the world and the largest vegetable processor in the US. Apart from its acquisition in the vegetable processing business, it also acquired the baked goods business, Herbert Adams, Four'n'Twenty pies and Nanna's pastry products, Big Sister, as well as Harvest, Plumrose, Chiko and Leggos. While Birdseye is the brand name of the company's frozen vegetable products, it is also the brand name for its fish products. Since its entry, Simplot has restructured to put greater emphasis on margin growth rather than simply growth in volume, and has reduced its product lines from 2,000 to 1,600. Activities included in seafood processing are estimated to account for between 8-16% of Simplot's annual revenue.

In June 1997, it was announced that the seafood, snack and meals division of Birdseye would merge with I and J Foods. Pacific Dunlop sold its Edgell-Birdseye operations to Simplot because they were not performing satisfactorily. During the three years to the end of 1999, the company indicated that performance was unsatisfactory. Therefore, Simplot invested in upgrading facilities and investing in marketing and export growth to improve profitability.

In June 2003, the Australian Financial Review reported that Simplot had purchased John West from rival Unilever for an estimated price of $130-140 million. The purchase was part of plans to expand its seafood operations in order to tap increasing consumer awareness of the health benefits of fish. Simplot acquired the remaining 50% of John West in 2005.

In March 2003, Simplot set up a cold storage facility in Tasmania. The new facility, valued at $2.4 million, is located at the Port of Devonport. In 2005, the company announced plans to upgrade its Kelso food processing plant. It will spend around $10 million on new equipment that will bring improvements in processing.

Simplot's recent financial position is outlined in the following table:

Financial performance for Simplot Australia (Holdings) Pty Ltd, year ended 31 August Million Dollars Million Dollars Units Total Revenue Percent Growth NPAT Percent Growth Employees Percent Growth 2001-02 687.9 N/C -26.3 N/C 2016 N/C 2002-03 774.9 12.6% 16.6 -163.1% 2121 5.2% 2003-04 687.9 -11.2% 10.0 -39.8% 1763 -16.9% 2004-05 733.4 6.6% 2.7 -73.0% 1880 6.6% 2005-06 849.8 15.9% 13.2 388.9% 2056 9.4% Source: IBISWorld Enterprise Data Base

Total revenue has been decreasing by an average rate of 5.4% per annum since 2001-02.

Tougher trading conditions in 2001-02 saw sales dip a little to $687.9 million and NPAT decline to -$26.3 million. Company sales increased by 12.6% to $774.9 million in 2002-03 and it also had a strong increase in net profit totalling $16.6 million during the year, as a result of strong sales and a number of new products that were introduced which proved successful.

In fiscal 2004, total revenue for Simplot decreased by 11.2%, amounting to $687.9 million, while the company reported a net loss of $10 million, caused by a large number of investments. An increase of 6.6% was experienced for the company in 2005, with revenue totalling $733.4 million. Despite this, net profit decreased to $2.7 million.

The company began to see improved revenue levels in 2006 after the number of investments and acquisitions that have occurred over the last 2 years. As a result, revenue increased by 15.9% to $849.8 million, while NPAT increased to $13.2 million.

Geraldton Fishermen's Co-operative Ltd Market Share: 4.40%

The Geraldton Fishermen's Co-operative Ltd was established in 1950 by a small group of Geraldton fishermen with a vision to market their lobsters worldwide. The Co-op is a significant processor and exporter of Western Rock Lobsters throughout the world. Its products include frozen raw whole lobster, frozen whole boiled lobster, frozen lobster tails, fresh cooked chilled lobster and live lobster.

While its core business is receiving, processing and marketing of Western Rock Lobster, Geraldton Fishermen's Co- operative is also engaged in ancillary services to its fishers and the industry in general including:

• Marine Store • Boat and Licensing Broking • Marine Travel Lift • Comprehensive Radio Linkage • Air service • Financial and Business advice • Provision of bait • Transport System

Geraldton Fishermen's Co-operative recent financial position is outlined in the following table:

Financial Performance - Geraldton Fishermen's Co-operative Ltd, year ending June 30

Million Dollars Million Dollars Units Total Sales Percent Growth NPAT Percent Growth Employees Percent Growth 2001-02 97.5 N/C 0.8 N/C 200 N/C 2002-03 86.4 -11.4% 0.5 -37.5% 110 -45.0% 2003-04 98.4 13.9% 0.3 -40.0% 200 81.8% 2004-05 92.1 -6.4% 0.6 100.0% 200 0.0% 2005-06 112.6 22.3% 0.3 -50.0% 200 0.0% Source: IBISWorld Enterprise Data Base

Since 2001-02, total revenue has increased by an average of 3.7% per annum. Sales were almost unchanged during the 12 months to 30 June 2002, at $97.5 million. Greater cost controls allowed NPAT to more than double to a little under $0.8 million.

The co-operative's sales are estimated to have declined by 11.4% to $86.4 million during fiscal year ended 30 June 2003, with an estimated $59.1 million coming from domestic seafood processing activities. NPAT fell to just $0.5 million. Therefore, the co-op experienced significant financial difficulties during the year.

Geraldton Fishermen's Co-operative recorded a sales increase of about 13.9% to $98.4 million during fiscal 2004 as fisheries industries increased their catch values and volumes throughout this year. Sales from seafood processing are estimated at approximately $59.1 million for the year. NPAT was down to $0.3 million, as operating and raw material costs increased throughout the year. A decrease of 6.4% for total revenue followed in the next year, as volumes were down from the previous year. However, NPAT increased to $0.6 million.

For the current fiscal year 2006, the company recorded a decrease in sales of 22.3%, amounting to $112.6 million. Employee numbers remained stable at 200 people.

M G Kailis Holdings Pty Ltd Market Share: 2.60%

M.G. Kailis is a proprietary Australian company based in Fremantle, Western Australia but operating in all states except Victoria, NSW and Tasmania. It has operations in Broome, Exmouth Gulf, Learmonth, Dongara, Fremantle, the Gulf of Carpentaria in the Northern Territory, Port Lincoln and Cairns. Its pearling activities are based in Broome, Western Australia. Its main activities are fishing, fish farming and seafood processing. In addition to pearling and tuna farming, the company is involved in lobster and prawn fishing and processing. It has an established international trading operation with export markets in Asia, Europe and the US. Kailis also provides marine engineering services including building K class trawlers, and marine management and finance services.

M.G. Kailis recent financial position is outlined in the following table:

Sales performance of M.G. Kailis Holdings Pty Ltd, year ended 30 June Million Dollars Percent Growth Units Total Sales % Change Employees Percent Growth 2001-02 163.0 N/C 373 N/C 2002-03 154.2 -5.4% 400 7.2% 2003-04 148.2 -3.9% 409 2.2% 2004-05 169.5 14.4% 443 8.3% 2005-06 138.0 -18.6% 438 -1.1% Source: IBISWorld Enterprise Data Base

Since 2001-02, total revenue has been declining on average by 4.1% per annum. After total revenue reached $163 million in 2001-02, a fall of 5.4% in revenues occurred in fiscal 2003 as marine conditions were poor while production was stagnant as a result of modest demand in international markets. Company sales were reported to have fallen by around 3.9% to $148.2 million in fiscal 2004 as fish processing levels are thought to have increased but lower prices force down sales values during the year. IBISWorld estimates that Kailis generated approximately $53.4 million in domestic seafood processing industry sales during fiscal year ended 30 June 2004. In fiscal 2005, sales increased for the first time in three year by 14.4% to $169.5 million, as prices picked up from the previous year.

Sales fell in 2005-06, down by 18.6% to $138 million, due to the divestment of its crayfishing, tuna farming and pearl culture business. The company has now reduced its operations to prawn fishing, pearl wholesaling and marine services. During that year, employees totalled 438.

OTHER PLAYERS The majority of operators involved in processing fish products have traditionally been family businesses. However, in the past 10-15 years, there has been significant foreign investment in some of the largest firms. In addition, the largest participants tend to be part of a conglomerate operating both in other food areas and outside the food industry. In many cases, especially for smaller operators, there is some vertical integration, at least from fishing into processing and often distribution.

Foreign investment in the industry has increased and takes various forms. These include direct investment or takeover, acquisition of catch licences, provision of tied loans and establishment of joint ventures. In many cases, products obtained under such arrangements are processed elsewhere.

Unlike New Zealand, Australia has few large companies involved in fishing and fish processing industries. Globally, Safcol, Unilever and Heinz are large participants, but their local operations in seafood processing are not large by world standards. As well as the larger operators, there are a number of smaller firms. Australian operators tend not to achieve significant scale economies, owing to the small size of their businesses. Smaller operators include Australian Seafood, Dover Fisheries (which specialises in canned abalone) and Yamasa Seafoods.

Stolt-Nielsen S.A. (Est. 2006-07 market share: 2.4%)

European company, Stolt-Nielsen S.A., is primarily in the global transportation services business but it owns Stolt Sea Farms Holdings BV (SSF), a global aquaculture business which acquired Australian Bluefin Pty Ltd in 2000, which is its only aquaculture enterprise in Australia which farms Southern Bluefin Tuna. Stolt Sea Farm produces and markets Atlantic salmon, salmon trout, turbot, halibut, sturgeon, caviar, tuna and tilapia. It has 2,300 employees and 23 offices around the world and markets the following products to Smokers, processors, distributors, retailers, foodservice industries and consumers annually:

• 60,100 tons of Atlantic Salmon and Salmon Trout

• 231 tons of Halibut • 2,486 tons of Turbot • 182 tons of Sturgeon • 1,800 kilos of Caviar

In May 2005, the company merged its salmon, trout, halibut, tilapia, cod, sturgeon and caviar operations into Marine Harvest, making it the world's largest aquaculture company.

During fiscal 2002, SSF recorded a sales rise of 7.3% to $775.5 million but a loss of $35.6 million was incurred, compared to a loss of $1.9 million a year earlier. The company described 2002 as a disaster, although this was due mostly to overproduction and falling prices in the global salmon farming industry and so the Australian tuna operations are thought to have been a smaller affect on these results, although tuna sales revenues did fall for Australian producers from fiscal 2002 until fiscal 2004.

For its year ended 30 November 2003, the Stolt Sea Farm division reported an Australian dollar sales decline of 17.8% to $637.3 million and a loss from operations of $87.8 million, compared with a loss of $35.6 million reported in fiscal 2002 but this result was primarily due to overseas operations. SSF took provisions in the fourth quarter of 2003 to reflect the impairment of certain tangible and intangible assets.

Financial results for 2004 onwards are unknown; however IBISWorld estimates that by 2006 revenue is likely to have increased to total $761.9 million, positively impacted by the 2005 merger.

Safcol Australia Pty Ltd (Est. 2006-07 market share: 2%)

Safcol is a privately owned South Australian company which began in 1945, when a group of South Australian Fishermen formed a Co-operative - the first of its kind in Australia. Its activities include fishing and sea food processing, prepared animal and bird food manufacturing, fish wholesaling and grocery wholesaling. It has a modern manufacturing plant at Elizabeth, South Australia, which has up-to-date technology for canning, Individual Quick Frozen (IQF) and Retort Pouch packing. Its production facilities cater for both the local and international markets.

Safcol operates the local fish auction in Adelaide, specialising in selling:

• King George Whiting • Mullet • Garfish • Salmon • Snook Snapper • All other locally caught fish and crustaceans

In supplying generic products, Safcol states that with the resources of subsidiary and associated companies, it has access to eight manufacturing plants producing a wide range of canned seafood products, canned pet food products, canned vegetables, plastic bags and toilet paper. Safcol states that it is currently a major supplier of these private brand products to major supermarkets in Australia. During 2005 and into 2006, Safcol increased its marketing approaches, from Television to in-store promotions, which helped in a 35% increased in canned tuna sales.

Safcol's recent financial position is outlined in the following table:

Financial performance for Safcol Australia Pty Ltd, year ended 31 December Million Dollars Million Dollars Units Total Sales Percent Growth NPAT Percent Growth Employees Percent Growth 2001 107.8 N/C -2.4 N/C 46 N/C 2002 120.9 12.2% 0.5 -120.8% 53 15.2% 2003 126.6 4.7% 5.7 1040.0% 68 28.3% 2004 115.4 -8.8% 6.0 5.3% 58 -14.7% 2005 124.2 7.6% 2.5 -58.3% 70 20.7% Source: IBISWorld Enterprise Data Base

Since 2001, total revenue has been increasing by an average of 3.6% per annum. In 2001, company sales totalled $107.8 million, up from $98.2 million during the previous year. However, a net loss of $2.4 million was made, eroding most gains achieved in 2000.

Sales for 2002 increased by 12.2%, totalling $120.9 million, while a net loss was turned into a net profit before tax of $0.5 million.

A marginal increase of 4.7% followed in the next year, pushing sales up to $126.6 million, with approximately $32.1 million in sales is estimated to have been made from Australian fish processing. Meanwhile, NPAT increased significantly to $5.7 million.

In 2004, the company recorded a decline in revenue of around 8.8%, totalling $115.4 million in total revenue, with approximately $31.2 million coming from seafood processing operations. NPAT continued to increase, amounting to $6 million, while employees totalled 58. Total revenue improved during 2005, increasing by 7.6% to $124.2 million, while NPAT totalled $2.5 million.

Tassal Ltd (Est. 2006-07 market share: 1.8%)

Tassal is a publicly listed company based in Tasmania and is involved in aquaculture, seafood processing and fish wholesaling. It is Australia's largest producer and exporter of Atlantic Salmon, marketed under the Royal Tasmanian Salmon brand. The company's salmon is sold to restaurants, supermarkets and fish markets in Australia, Japan and elsewhere.

It was announced in November 2003 that Tassal Group Limited completed the acquisition of the business and assets of Tassal Limited. All Tassal staff current at the time were offered and accepted jobs with the new company. Tassal Group raised $31 million from a fully underwritten issue, which along with facilities from the ANZ Bank was used to complete this acquisition.

In March 2005, Tassal Group Limited announced that the merger with Webster's Aquatas division was completed.

For the year ended 30 June 2004, Tassal recorded sales revenue of $102.8 million and a before tax profit of $10.6 million, which was a positive result considering that the year was a period of transition from Receivership back to full trading activities. During the year, the company improved the operations of two underperforming Salmon operations (Tassal Limited and Nortas Pty Ltd), through integrating them under a consolidated structure and introducing a plan to maximise value - which came from improved fish management practices (e.g. salmon biomass for FY2005 is up by about 30% on the previous year class of fish), growing and processing efficiencies and cost savings from economies of scale, plus improved utilisation of processing capacity.

Additionally, the seafood market saw significant recent competition from lower priced crustaceans and white fish. Tassal, along with the rest of the industry has experienced temporary consumer reaction to some negative media

© Copyright 2008, IBISWorld Pty Ltd 28 KEY COMPETITORS Seafood Processing in Australia 21 August 2007 reports in respect of chemicals in fish, furthermore impacting on Tassal's gross revenue and operating margins on a non-SGARA* basis. For the year ended 30 June 2005, the company recorded sales revenue of $157.4 million, a significant increase of 53.1% as a result of the Aquatas acquisition, as well as further cost reductions. Profit after tax decreased by almost 50%, totalling $5.8 million.

With a continued substantial increase in the salmon harvested in the 2006 financial year, Tassal successfully worked on new initiatives in both the domestic and export markets to ensure this extra fish is sold at good margins. As a result, there was a rise in the demand for its products in Asia as well as an increase in the size of its fish, causing revenue to increase significantly by 28.8% to $202.7 million, while net profit increased by 81% to $10.5 million. Tassal also continued to implement programs to lower production costs - e.g. all value added activities associated with the Mornington operation (acquired as part of the Nortas business) have been recently transferred to the Huonville facility.

* SGARA stands for Self Generating and Regenerating Assets. It is a mandatory accounting standard for industries with such assets (like fish which are farmed).

A Raptis & Sons Pty Ltd (Est. 2006-07 market share: 1.3%)

A Raptis and Sons Pty Ltd is a proprietary Australian company that has been operating in the seafood industry for over 30 years. Its key activities include fishing, seafood processing, fish wholesaling, and more recently, aquaculture. Raptis handles a large proportion of the seafood caught in the Gulf of Carpentaria, Northern Territory, Queensland's East Coast and South Australian waters.

Raptis has been at the forefront of research and development of fisheries. It has invested significant time and effort into researching the North West Shelf deep water prawn. In December 1996, Raptis acquired Gladstone Fisheries in Queensland adding another important opportunity for product acquisition, especially in scallop fishing.

A Raptis and Sons recent financial position is outlined in the following table:

Financial Performance for A Raptis and Sons Pty Ltd, year ended 30 June Million Dollars Million Dollars Units Total Sales Percent Growth NPAT Percent Growth Employees Percent Growth 2001-02 120.2 N/C 2.6 N/C 289 N/C 2002-03 122.1 1.6% 12.9 396.2% 300 3.8% 2003-04 117.6 -3.7% -.2 -101.6% 247 -17.7% 2004-05 109.1 -7.2% -.3 50.0% 238 -3.6% 2005-06 107.7 -1.3% -.9 200.0% 258 8.4% Source: IBISWorld Enterprise Data Base

Over the last five years, total revenue has been decreasing by an average of 2.7% per annum.

For the year ended 30 June 2004, Raptis recorded an estimated 3.7% decrease in total sales revenues to $117.6 million, which is thought to have been slower growth than experienced by the fish and seafood processing industry as a whole during the year. This can be seen in net profits, which decreased significantly to total -$0.2 million. Therefore, Raptis' share of this market is estimated to have fallen slightly by about 1.3%.

There was a 7.2% decrease recorded for the year ended 30 June 2005, with sales amounting to $109.1 million. NPAT continued to decline, totalling -$0.3 million. A further decline of 1.3% occurred in 2006, with revenue totalling $107.7

© Copyright 2008, IBISWorld Pty Ltd 29 KEY COMPETITORS Seafood Processing in Australia 21 August 2007 million, while NPAT declined to $0.9 million. These declines are thought to have come about through increased costs and increased competition.

Industry Performance

CURRENT PERFORMANCE In the last five years the Australian Seafood Processing industry has experienced high volatility, as it has enjoyed continued increases in product innovation, along with growing consumption levels. This has been helped by positive media attention on the benefits of seafood and increasing consumer health awareness. One area that has changed significantly and which the industry is heavily reliant on has been the level of exports, which has continued to decline; caused by increasing competition abroad and lower cost imports. Along with this the value of production has been declining, despite production volumes increasing. Overall, Australia's Seafood Processing industry is estimated to decrease by an average rate of 4.1% per annum in the five years ending June 2007. The following discussion provides a brief summary of the industry's performance over this period. Please note that all growth figures are real (constant) rates and all values are expressed in 2006 Australian dollars.

Revenue/Value added

After experiencing strong growth in 2001-02, revenue fell by 9.4% to $1,671.2 million during 2002-03, impacted by negative export sales due to slow demand in Asian countries and a stronger Australian dollar against most Asian currencies. This was a major factor in driving down seafood processing revenues for the industry during the year while domestic demand was much weaker in comparison to the previous year. Despite production volumes increasing, the value of production decreased for the first time in as many years.

IVA, which is determined by deducting purchases and non-labour expenses from revenue and adjusting for stock changes grew at an average annual rate of 0.3% to $255.4 million. In 2002-03, value added for Australian seafood processors declined marginally by 0.9% to $250 million, its share of sales revenue was back up to 20.9% as prices received were higher relative to per unit cost of goods sold throughout the year. The effect of SARS and the higher Australian dollar also caused a slide in prices of seafood.

Results were relatively the same in 2003-04, with revenue declining by 7.9% to $1,539.3 million. Export sales repeated the performance of last year, declining rapidly, because of an appreciating Australian dollar. This was further impacted by a decline in domestic demand of 6%, along with this, the falling unit values for many different sea foods fell by around 5%. Value added increased by around 2.4% to $256 million, falling to 16.6% of sales revenue because of falling purchase costs.

Revenue for the Australian Seafood Processing industry declined by approximately 7.4% to $1.43 billion during 2004- 05 with domestic demand decreasing by around 4.2%, despite consumers became increasingly health conscious. Falling revenue was mainly contributed to the decline in the value of fisheries production by almost 6% and a continued decline in exports. Value added decreased rapidly by approximately 19.8% to $205.2 million in 2004-05, falling to 14.4% of sales as a result of the increased price of purchasing costs with the exception of aquaculture, along with declining revenue.

It is thought that conditions improved during 2005-06, with revenue increasing by an estimated 1.7% to $1,450.7 million. This was positively impacted by strong domestic demand, as a large proportion of consumers added larger proportions of seafood to their diet. However once again, this was partially offset by a rapid decline in exports as global demand softened, and the Australian dollar strengthened, which encouraged imports. Seafood prices are thought to have risen from this year onwards, as well as fish imports, as the Australian Federal Government revealed a $220 million package in an attempt to buy out licences and pay off onshore businesses that are affected by commercial fishing cutbacks, in order to increase the number of fish. The main reasons behind this include the rising cost of fuel, and the decline in fishing stocks due to drought, making rivers less fertile. Value added is estimated to have increased rapidly by 21.2% to $248.8 million, helped by revenue levels and the raw material purchase costs for a large majority of fresh fish and seafood are thought to have decreased in comparison to prices received.

Continued marginal growth in seafood processing revenue is forecast for 2006-07, increasing by around 3.1% to $1.5 billion throughout 2006-07. While it is expected that domestic per capita consumption of processed fish and seafood will most likely be increasing, it is expected that there will be continued declining international demand for Australian seafood products, along with an anticipated increase in prices that are expected as a result of the drought. It is estimated that value added will increase by 2.7% to $255.4 million, with seafood purchases anticipated to fall slightly.

Production

The production of processed seafood has increased by an estimated average of 2.5% per annum over the past five years, totalling 275,453 tonnes. Continued consumer demand has been the main driving factor behind satisfactory production levels, along with the increasing growth of aquaculture farming. For example, through aquaculture farming, the production of salmon is believed to have increased the most since 2004, as a result of improved technology and cost efficiencies. This has been partially offset by a decline in the production of processed wild caught fisheries which have been slowly declining because of overfishing and adverse seasonal conditions which have reduced breeding.

Employment, wages and salaries

This industry employed 4,565 workers at the start of the current analysis period. This was followed with a decline in the next year, down to around 4,354 by June 2003, initially because of falling sales, then caused by productivity gains through industry restructuring combined with reduced average wages paid. Since then, employment has increased, totalling an estimated 4,555 employees by 2006-07 as the industry's output is thought to have experienced increasing pronounced growth as well as growth in fish processing.

The wages/salaries' share of industry revenue increased to 8.8% by 2002-03 as average wages and salaries paid by Australian seafood processors to workers and management increased significantly (to $30,552). After increasing in 2003-04, industry sales revenue dipped over the next two years as average salaries declined. Since that drop, the wages/salaries' share of revenue is believed to have remained relatively stable to reach 8.3% by 2006-07, with only marginal declines as labour productivity began to rise.

International trade

The value of processed fish and seafood exports from Australia decreased by an average annual rate of 10.5% to $525.6 million during the five years to 2006-07. Modest demand conditions caused processed seafood exports to decrease by a further 12.9% and 12.4%, respectively to reach $698 million by 2003-04, down to 45.3% of revenue. This is symptomatic of falling demand in Asia since the economic downturn in the early 2000s (especially in Japan) and this industry's refocus on the Australian market for sales of high value added packaged fish and seafood products. This also reflects the Asian preference for live and fresh (i.e. unprocessed) products. In 2004-05, industry exports fell by 2.5%, down to 43.1% of revenue, because of a stronger Australian dollar, making exports more expensive. By 2005-06, exports decreased by a further 15% to $578.3 million, or 36.2% of revenue; again impacted by weakened demand conditions and a strong Australian dollar. It is estimated that exports will decrease by around 9.1% to $525.6 million by 2006-07, as similar conditions are likely to continue.

Imports of processed seafood into Australia increased by 1.5% per annum during the same five-year period to 2006- 07, up to $1,024.8 million. Imports were $990.6 million, or 53.1% of domestic demand at the start of the current analysis period. Strong demand and cheaper prices of imports compared to local seafood saw imports rise by 4.2% to $990.6 million during 2002-03, equalling around 53.1% of domestic demand. Imports were down by 8% in 2003-04, to about 52% of domestic demand, because of strong competition from Australian seafood processors. Imports increased by 2.4% and 2.9% respectively in the next two years, reaching 50.9% of domestic demand as imports

© Copyright 2008, IBISWorld Pty Ltd 32 INDUSTRY PERFORMANCE Seafood Processing in Australia 21 August 2007 became cheaper, and a large proportion of these imports came from Asia. It is estimated that imports will increase by around 6.6% to $1,024.8 million by 2006-07.

Profitability

The profit ratio, which is the ratio of the difference between value added and wages to revenue, remained steady at 6.2% in 2002-03 after no recovery in industry value added and a substantial increase in labour costs. These factors contributed to bankruptcies that were to soon follow, including that of Tassal. Profitability increased after that time and by 2003-04, the industry profit ratio was an estimated 7.3%. After a strong decline in 2004-05 to 5.5% because of falling revenue and wage, it has since increased to around 8.9% in 2005-06 with sales rising and input costs constrained. It is estimated that it will remain stable at 8.9% in 2006-07.

Profitability for the Australian processed seafood industry Percentage Profit Ratio 2002-03 6.2 2003-04 7.3 2004-05 5.5 2005-06 8.9 2006-07 8.8 Source: IBISWorld Estimates Note: This is the difference between value added and labour cost relative to revenue.

HISTORICAL PERFORMANCE Revenue

During the 1980's, sales revenue from seafood processing increased by just 0.7% per annum. However, it fluctuated considerably, increasing strongly initially to peak in 1987-88, 31% above its 1980-81 level. It then fell by 18% in 1988- 89. The primary reason for this was the reduction in domestic supplies following the introduction of fisheries management policies for the main fisheries. This is supported by constant price estimates of the production of processed seafood, which are available for the period to 1987-88. These indicate a fairly steady increase in the volume of production until 1984-85, then a reduction.

Revenue increased strongly in 1990-91 due to higher world prices. With the rapid deterioration of economic conditions in Australia in 1990-91 and 1991-92, the fishing industry suffered a serious reduction in demand for its products. This was exacerbated by the high proportion of production used within the restaurant trade, which suffered particularly badly. Further, relatively low red meat prices over the two years encouraged consumers who were looking for value for money to switch from fish products. Revenue recovered strongly in 1992-93, reflecting improved market conditions and increased production. By this time, it equalled $1.44 billion (in constant 2006 prices). Sales of frozen fish fillet, a major segment of the industry, declined sharply during the early 1990's. This was due to unfavourable economic conditions depressing demand; relatively low meat prices (a possible substitute for fish and vice versa) and higher import prices due to exchange rate movements. Revenue increased to $1.48 billion in 1993-94 but declined a little each year thereafter for the next three years. This resulted in revenue of $1.34 billion during 1996-97. Revenue increased to $1.43 billion in 1997-98. This was aided by a modest rise in prices and increased output volumes for fish products, which increased from 128.5 kilotonnes (kt) to 134.3 kt throughout the year. Prawn production also increased a little, as too did output of oysters and rock lobsters. Sales continued to fluctuate from one year to the next after that time and totalled $1.41 billion by the end of 1998-99. Industry revenue grew by a significant 12.2% to $1.58 billion in 1999-00, as a result of a 25% increase in the value of export sales. Increased prices and greater sales of higher value added oysters were behind the increased exports, while prawn export prices also improved significantly.

Industry performance was mixed during 2000-01, as production levels were disparate between different products. For example, prawn, tuna and other fish production both increased significantly while rock lobster, scallop and oyster output declined. Prices are believed to have increased throughout the year and the end result was estimated to have been a modest 1% rise in revenue, up to $1.6 billion. During 2001-02, the Australian Seafood Processing industry's revenue increased for the third year running, up by 15.4% to $1.84 billion. While the value of production of some fish and seafood products fell during the year, finfish and lobster values increased, mainly on the domestic market.

Value added

Purchases are a relatively high proportion of revenue compared with other manufacturing industries, which implies relatively little value adding. However, purchases as a percentage of revenue declined from 83.6% in 1981-82 to 77.3% in 1984-85. This decline indicates that material cost increases were being more than compensated for by increased prices paid for the products of the seafood-processing industry, and by increased efficiency within the production processes. However, in 1986-87, industry purchases and selected expenses increased to 79% of revenue, reflecting the strong increase in fish prices. Nonetheless, by 1989-90, it had fallen to just over 70% of revenue.

Value added fluctuated more from year to year than revenue, but increased at approximately the same speed as revenue. This suggests that improved productivity only just outweighed the additional costs arising in part from fisheries management policies. In 1992-93, value added totalled $279.7 million (in constant 2006 prices), or 19.5% of revenue. It declined a little during 1993-94, down to $256.2 million despite an increase in revenue. Therefore, its share of revenue was reduced to just 17.4%. As purchase costs began to ease during the mid 1990's, value added recovered, increasing to $281.5 million by 1995-96, or 20.7% of revenue. The gains were short-lived; however, as raw material costs rose again, and by 1998-99, value added was down to $248 million, or 17.5% of revenue. Raw material purchase costs for all fresh fish and seafood decreased significantly in comparison to prices received from downstream distributors during 1999-00, and as a result, value added increased by a rapid 35.7% to $336.5 million, or up 3.8 percentage points to 21.3% of revenue, as it was assisted by falling purchase costs for some finfish (especially tuna). In 2000-01, value added was estimated to have increased by 2.3% to $344.2 million, or 21.5% of revenue, as a result of continued downward pressure on the cost of seafood purchases. Australian seafood processing added value then fell by 26.7% to $252.2 million by the end of 2001-02, or to just 13.7% of revenue because the purchasing cost per unit increase rapidly for rock lobster and some finfish.

Employment, wages and salaries

The total number of people employed in the Australian Seafood Processing industry was 4,306 during 1992-93. Its trend generally followed that of revenue, except during 1994-95, when employment increased to 4,560 despite revenue falling. It fluctuated after that time, declining over the next two years (down to 3,658 in 1996-97) but then increasing up to 4,052 by 1997-98. After a slight fall in 1998-99 because of weaker sales, employment increased steadily to reach 4,700 people by 2001-02.

The industry has traditionally been dependent on labour for a significant contribution to the production process with wages/salaries representing 8.2% of revenue during 1992-93. This increased up to 9% by 1994-95, but fell back to 8.2% the following year as employment and wages fell more rapidly than revenue. The ratio increased during the next two years, and by 1997-98, the wages/salaries' share of revenue has risen to 8.8%. By 2000-01 it fell to 6.8% as labour productivity began to rise. However, the ratio was improved to 7.6% by 2001-02.

International trade

Trade has traditionally been very significant within the Australian Seafood Processing industry. In 1992-93, exports totalled $963.3 million (in constant 2006 prices), which accounted for 67% of industry revenue. It increased quickly the following year, up to 72.1% of revenue but slowly declined for the next three years, down to 60.9% of revenue. In

1997-98, prawn, abalone and tuna exports all increased significantly in value terms, thereby driving a 10.1% increase in total seafood exports for the year. By 1998-99, exports totalled $893.2 million, or 63.3% of revenue. In 1999-00, exports fluctuated - growing by 24.8% to $1.1 billion, or 70.4% of industry revenue, in 1999-00. This occurred as a result of volume and value increases for all major product varieties, especially tuna, although other fish exports declined. During 2000-01, exports were stagnant once again, rising by 0.3% as gains from increased prawn, abalone, tuna and other fish exports were cancelled out by decreased rock lobster exports. An appreciating Australian dollar combined with deteriorating economic conditions in the Northern Hemisphere caused industry exports to fall by 18.1% during 2001-02, down to $914.6 million (49.6% of seafood processing revenue).

The value of imported processed seafood into Australia was $658 million, or 58.2% of domestic demand, during 1992-93. They rose to 63.4% of demand during the following year, out-competing local producers for sales. The total value of imports fluctuated from year-to-year after that time, but their share of domestic demand continued on a downward slope. Imports increased to $879.6 million by 1998-99, or 63% of domestic demand for Australian processed seafood. Prawn and fish were the driving force behind these increased imports. Rising prices for imported fish and seafood in 2000-01, largely due to a depreciation of the Australian dollar, caused imports to increase once again, up 5.9% to $961.4 million, or 66.6% of domestic demand. In 2001-02, import growth decreased by 1.1% to $950.4 million, declining as a share of domestic demand to 50.5%.

Profitability

Industry profitability fluctuated more so than other key variables during the 1980's. It tended to decline in the early 1980's, recovered in 1984-85, declined between 1986-87 and 1988-89 before increasing in 1989-90 and 1990-91. The latter gains reflect successful industry restructuring. In 1989-90, the profit ratio for seafood processing was 15.1%, compared with 24.9% for all food, beverages and tobacco establishments. The profit ratio declined slightly in 1991-92, before decreasing sharply to 11.3% in 1992-93. High purchase prices caused value added to decline during 1993-94, thereby reducing the industry profit ratio down to just 9.5%, threatening the viability of many producers. However, profitability did improve for a short time after, with the ratio increasing to 12.5% in 1995-96 as both purchasing and labour costs eased. Profitability deteriorated again after that time and the ratio declined to 11.8% in 1996-97 and to a further 7.4% in 1997-98 before beginning to recover after that time. In the two years to fiscal 2001, profitability improved with sales rising and input costs constrained, facilitating an improvement in the profit ratio to 14.8%.

Revenue Revenue $ Million Growth % 1992-93 1,438.8 N/A 1993-94 1,475.9 2.6 1994-95 1,476.0 0.0 1995-96 1,357.4 -8.0 1996-97 1,335.7 -1.6 1997-98 1,428.8 7.0 1998-99 1,410.3 -1.3 1999-00 1,582.0 12.2 2000-01 1,598.5 1.0 2001-02 1,844.8 15.4 2002-03 1,671.2 -9.4 2003-04 1,539.3 -7.9 2004-05 1,426.0 -7.4 2005-06 1,450.7 1.7 2006-07 1,495.0 3.1 2007-08 1,534.5 2.6

Revenue Revenue Growth Rate

Gross Product Gross Product $ Million Growth % 1992-93 279.7 N/A 1993-94 256.2 -8.4 1994-95 267.2 4.3 1995-96 281.5 5.3 1996-97 274.4 -2.5 1997-98 265.6 -3.2 1998-99 248.0 -6.6 1999-00 336.5 35.7 2000-01 344.2 2.3 2001-02 252.2 -26.7 2002-03 250.0 -0.9 2003-04 256.0 2.4 2004-05 205.2 -19.8 2005-06 248.8 21.2 2006-07 255.4 2.7 2007-08 253.0 -0.9

Gross Product Gross Product Growth Rate

Outlook

Revenue Revenue $ Million Growth % 2006-07 1,495.0 3.1 2007-08 1,534.5 2.6 2008-09 1,572.0 2.4 2009-10 1,615.2 2.7 2010-11 1,643.0 1.7 2011-12 1,691.9 3.0

Revenue Revenue Growth Rate

Gross Product Growth Gross Product $ Million Growth % 2006-07 255.4 2.7 2007-08 253.0 -0.9 2008-09 247.9 -2.0 2009-10 259.5 4.7 2010-11 266.6 2.7 2011-12 273.5 2.6

Gross Product Gross Product Growth Rate

The biggest problem facing the Seafood Processing industry is limited supply. With about 90% of the Australian population consuming seafood, commercial fishermen are under increasing pressure the meet the demand.

Most fisheries have been fully exploited since the mid-1980's. There is some potential for increased finfish production, but it exists mainly in more remote deep sea areas, which are expensive to exploit and which are likely to yield relatively unknown varieties of fish (which are likely to bring lower prices). An increase in on-board processing is essential for the development of deep water fisheries and fisheries in northern Australia. Therefore, it appears inevitable that fish inputs will become more costly over the next five years. A development already under way, and likely to be of increasing importance in the future for the Australian Seafood Processing industry, is aquaculture or fish farming. Tasmania and Western Australia have been leading the way in this industry. However, even though aquaculture is experiencing strong growth, it is not expected to solve the supply problem within the next five years since it still represents a relatively small share of total fish and seafood product output.

It is likely that the demand for seafood will increase strongly over the outlook period, as fish is regarded by many consumers as a superior product, per capita demand is likely to increase with average real disposable incomes. Potential for the export of processed seafood from Australia is limited by supply rather than by competition. Nevertheless, while the volume of exports is limited, the return from such exports can be increased by further value adding to meet consumer requirements. Of concern is the observed increase in trade barriers, especially non-tariff barriers. These include trade sanctions to address environmental issues, and the imposition of higher health standards. Australia needs to focus on establishing markets that reward high quality. Australian oysters are one product that will benefit from this strategy as competing countries face mounting pollution problems. Australian oyster production is relatively free from pollution and is well positioned to access Indonesia, Thailand, Malaysia, China and the Philippines. Moreover, in many segments of this industry, exports are undertaken primarily by the marketing bodies, with little export by producers who are not linked with such bodies. The oyster segment exemplifies this with non-associated producers concentrating on the domestic market.

Revenue

IBISWorld forecasts that during the five years to 2011-12, Australian Seafood Processing industry revenue will increase at an average annual rate of 2.5% to $1.69 billion (in constant 2006 prices). It is forecast that growth will be relatively steady during the outlook period, driven by domestic demand. It is anticipated that production will continue to increase modestly. However, growth should be steadier than in the previous five years as overseas demand levels

© Copyright 2008, IBISWorld Pty Ltd 39 OUTLOOK Seafood Processing in Australia 21 August 2007 will most likely be a little more constant. Growth in the aquaculture industry will bolster local supplies. However, as domestic demand for fish and fish products increases, a rising quantity of fish is likely to be imported and, at least in part, this will be processed overseas.

IBISWorld forecasts that the Australian Seafood Processing industry's revenue will grow by approximately 2.6% to $1.53 billion during 2007-08. Domestic demand for these products is expected to be strong; however export demand will be negatively affected by the Australian dollar appreciation against the trading partners' currencies - thereby making Australian processed seafood products more expensive in those foreign markets.

Less pronounced growth in seafood processing revenue is forecast for 2008-09, increasing by 2.4% to $1.57 billion throughout the year. This is partially as a result of declining international demand for Australian seafood products, while it is expected that domestic per capita consumption of processed fish and seafood should be increasing. However, there will be pressure on domestic demand as the affects of rising prices that are expected could result in particular species of fish disappearing from supermarkets and restaurants.

A similar pattern is expected to continue for Australian seafood processors into 2009-10 as gradual dismantling of trade barriers and a rising number of middle class people in East Asia begin to purchase more expensive foods, including imported fish and seafood. Therefore, industry revenue is forecast to grow by 2.7% to $1.62 billion during the year.

Little change is anticipated for 2010-11, with annual sales revenue for Australian-made seafood products rising by 1.7% to $1.64 billion, driven mostly by higher prices received per unit since both international and domestic demand are likely to remain steady when compared to the previous year. Slightly higher growth of around 3% is anticipated during 2011-12, as by this stage seafood consumption is expected to be at a much higher level than in previous years.

Value added

IBISWorld forecasts that industry value added will grow at an average annual rate of 1.4% during the five years to 2011-12, rising to $273.5 million. Value added is expected to remain relatively steady during the outlook period since little new investment in processing infrastructure is expected. There is only expected to be a slight decline in value added in 2007-08 and 2008-09 as a result of a decline in the supply of both marine fish and finfish.

Potential exists for increased value added products to supply both domestic and export markets. Value adding includes transformation of lower value products into higher value products, such as oven-ready products for use by the fast-food trade or re-forming the flesh from small fish into larger fillets, improved preservation techniques, such as better initial handling and better refrigeration to give a fresher, and hence more valuable product, increased utilisation of by-products or waste, and better packaging, both to prolong the life of the product and to make it more attractive to consumers. An example of high value adding is the processing of aquaculture products, such as smoked salmon.

There are significant opportunities to increase export earnings by value-adding, as most exports are almost unprocessed when leaving Australia but are often further processed by the importing country. There is also scope for developing new processed exports - such as pates, smoked fish, molluscs and fish roe. Such developments will be crucially dependent on proper quality control. In the past, lack of information about the precise requirements of specialist markets, such as the sashimi market in Japan, has resulted in highly variable returns to Australian exporters. Improved market information may enable increased returns from better targeting of customers. This problem has been partially addressed via SEAQUAL, which is the national seafood quality initiative. The aim is to develop and integrate a quality system from catch to final sale.

As noted above, a considerable amount of fish is wasted. This will become increasingly costly as raw material prices rise, and also as the cost of waste disposal increases. The factors which determine whether it is financially viable to

© Copyright 2008, IBISWorld Pty Ltd 40 OUTLOOK Seafood Processing in Australia 21 August 2007 process by-products include their volume and uniformity, the costs of processing them, the costs of landing by-catch and transport costs. A few Australian processors are using these by-products for the production of pates, fish stock, leather and oils for medicinal purposes.

Given Australia's limited natural supplies of fish, the Australian Seafood Processing industry is likely to remain heavily dependent on imported supplies, at least for the next five years. Consequently, industry performance will be influenced by changes in relative exchange rates. New Zealand seems likely to remain an important source of imports. However, South Africa, which was once an important supplier could again resume such a role.

Employment, wages and salaries

The level of employment is forecast to grow slowly but steadily during the outlook period, rising from an estimated 4,798 people in 2007-08 to 5,193 at the end of this period. This will be driven by a steady rise in revenue, but constrained by capital investment in manufacturing machinery accounting for most production gains.

IBISWorld predicts that the industry's dependence on labour for production will not change substantially during the next five years, although minor productivity improvements are expected. Therefore, the wages/salaries' share of industry revenue will most likely remain unchanged at around 8.5% during the period.

International trade

Exports are predicted to fall by an average rate of 7.6% per year during the next five years, down to $354.3 million in 2011-12. While demand for seafood picks up in Asia during the remainder of 2006-07, exports are anticipated to rise in terms of volume but a stronger Australian dollar will cause local exports of processed seafood to fall in value - down by 7.7% to $485 million and their share of revenue down by 3.6 percentage points to about 28.6% from the previous year. For the reminder of the outlook period, it is expected that exports will decline at a steady rate as competition from other seafood processing countries will probably put some downward pressure of prices, resulting in exports share of revenue declining to 19.1%. However, it is anticipated that the Seafood Processing industry will expand its export markets both interstate and overseas, with its seven key sectors being, rock lobster, oyster and prawn.

IBISWorld expects that imports of processed seafood into Australia will rise by 9.6% per year, on average, to $1.6 billion by 2011-12. Imports will probably rise steadily for most of the period as a result of currency and demand conditions, with the import share of domestic demand expected to rise from 51.2% to 54.8% by 2011-12.

Profitability

Industry profitability is expected to remain fairly stable at 8% in 2007-08 as revenue gains are more than cancelled out by a rise in raw material input costs but labour costs as a share of sales are predicted to be stable. In 2008-09, profitability is estimated to fall to 7.1% as value added is expected to decline, however later in the period, IBISWorld expects that the industry profit ratio will stabilise to a rate of 7.7% until June 2012.

News

Health benefits make segment bigger: 04-February-2008 Nielsen estimates the Australian canned fish market to be worth $A513 million. Simplot's "John West" brand is the most popular, with a market share of 32.5 per cent by value. Heinz is in second place, with 19.9 per cent of the market. Lisa Rizzardo, of Simplot, notes that buyers trust the health claims made for fish, and that interest in omega-3 and low fat foods is driving the category. Canned tuna accounts for over one-third of seafood bought by Australians. Sirena is the fastest-growing proprietary tuna brand, with double-digit sales growth for the last two years. Source: Retail World, (16) : 04-Feb-2008

Tassal nets Superior Gold brand: 03-January-2008 Tasmanian food products group King Island has divested its Superior Gold smoked fish brand. The buyer for $A26.5m is seafood company Tassal, also based in Tasmania. King Island had until recently been owned by Filipino conglomerate San Miguel, via the National Foods subsidiary in Australia. Those assets have now been acquired for $A2.8bn by Japan's Kirin. The Superior Gold transaction is said to be separate from the larger change of ownership. Tassal has not yet finalised the funding for the deal, as it also awaits regulatory approval. A decision is expected in mid-February 2008. Source: The Australian, (17) : 03-Jan-2008

Lobster the catch of the day as limited supply forces up seafood price: 21-December-2007 The strength of Australia's dollar is impacting on export demand for seafood, but it remains highly popular in Australia. Supply is tight due to tough marine regulations, which has helped strengthen some prices, according to Peter Cavalieros, the GM of seafood wholesaler Aquanas. The most reasonably priced seafood products are Tasmanian Atlantic salmon and oysters, at approximately $A15 per kilogram or $A15 per dozen, while tropical rock lobster can be $A60/kg. Source: The Australian Financial Review, (16-17) : 21-Dec-2007

Nutrition standards tackle health: 20-August-2007 The National Heart Foundation's Lucy Walker says people are sceptical about manufacturing claims and advertising. Walker says Australians do not necessarily believe "good for you" claims about foods, but still expect food companies to assist them in choosing healthy foods. Some 85 per cent of people surveyed by Instinct & Reason said they are positively swayed by a "Tick" from the Heart Foundation. Research by Food Standards Australia New Zealand show that the "Tick" and "use by" dates are viewed as the most trustworthy parts of food labels Source: Retail World, (20) : 20-Aug-2007