Angling for SA's R5.4bn in deep-sea fishing contracts

Picture: Getty Images
Picture: Getty Images

Apart from enthusiastic members of the emergent vegan and vegetarian community, even the most well-heeled South African would unlikely deny the simple pleasure of enjoying a plate of fish and chips. Served from many a corner café, seafood establishment or harbour-side eatery for decades, the humble hake – grilled or fried – has now found itself at the centre of an industry skirmish that pits the proverbial David against the Goliaths of the fishing industry.

An industry long known for its predilection towards consolidation and, as a result, often criticised for its monopolistic tendencies, the commercial deep-sea fishing sector is in the crosshairs of transformation efforts to make it more accessible for new, smaller entrants.

This lobbying is more specifically directed at the department of agriculture, forestry and fisheries (DAFF), which rubberstamps the awarding of fishing licences, and which, in 2020, is due to reallocate 15-year fishing rights, last awarded to the market’s long-standing heavyweights in 2005.

Diffusion of licences

Various industry associations have, however, criticised repeated calls to “fragment” the industry, which would divide the annual total allowable catch (TAC) among a larger number of participants.

“Fragmentation means allowing new entrants into the fishery [sector], thereby reducing the tonnages of current rights holders. This does not create jobs, and creates paper permit holders who are forced by the marginal tonnages received to enter into joint ventures with established companies to catch, process and market their quota,” argues industry umbrella body FishSA’s executive director Jeremy Marillier.

“Small-scale fishermen can be better included in the supply-chain operations of companies who have factories at coastal community level. 

“Procurement of goods and services from these communities could be improved where the skills and quality goods exits.” 

Big money 

With annual sales from the commercial deep-sea fishing industry exceeding R5.4bn and total foreign exchange earnings of R3.5bn, it’s understandable that the big boys are somewhat territorial.

The 52 rights holders in the South African Deep Sea Trawler Industry Association (SADSTIA) supply hake, South Coast rock lobster and squid, as well as cheaper bycatch species such as maasbanker, angelfish and panga, to Southern Africa markets and Europe, the US, Australia, the UK and China. South African hake producers provide 2.2% of the global groundfish catch. 

The industry directly employs more than 7 750 people, either on fishing vessels, at land-based processing plants or in a range of management, administrative or supportive roles, with a monthly wage bill of R84.5m. A junior trawlerman earns about R140 000 a year, while a seafarer at the top of his or her profession can earn up to R1.1m a year.

According to the SA Sustainable Seafood Initiative (Sassi), South Africans consume 312m kilograms of fish each year, with half of that being locally caught. Seventy percent of that tonnage is hake and sardines. Around 95% of the overall catch of 160 000 tonnes a year is landed in the Western Cape, with annual hake catches alone around 145 000 tonnes a year. 

Cluster approach

South African producers’ success in penetrating the international market, SADSTIA advances, lies in the tendency of local trawl operators to consolidate into “clusters” − groups of rights holders that utilise the same fishing vessel or fleet of vessels.

These economies of scale would not be available to small-scale fisheries looking to become a part of the industry and they would thus be unable to secure fixed contracts with international wholesalers and retailers, it holds.

“The cluster concept has enabled the industry to achieve the requisite economy of scale even though rights are held by 52 separate entities. Clustering has seen smaller operators band together to achieve the volumes required to supply a demanding international market. Reversing this trend, by introducing ever more small operators, would result in the export of more commodity hake products, less beneficiation and therefore less employment and lower returns,” the association says.

The capital-intensive nature of the commercial fishing and processing industry further prejudices new market entrants, it adds. The most recently built freezer factory trawler in the South African fleet was purchased for R255m in 2015, while a reasonable price tag for the construction of a new hake processing facility comes in at over R200m.

“In short, it is very difficult, if not impossible, for small operators to survive, much less thrive, in a highly complex, capital and labour intensive global industry,” says SADSTIA.

Further countering arguments that call for a transformation of the sector, the organisation references a July 2016 report by empowerment rating agency Empowerdex it commissioned into the level of transformation in the sector.

According to the report, the industry is a Level 3 contributor to broad-based black economic empowerment (BBBEE) and is 62.36% black-owned.

Unsurprised by the result, Oceana Group CEO Francois Kuttel says the fishing industry has undergone a “sea change” over the past 25 years. 

“For example, prior to 1990, only a handful of companies held rights in the deep-sea trawl fishery – all of them large and predominantly white-owned. Today, there are 52 rights holders and many of them are small to medium enterprises that have invested in vessels, factories and other capital equipment and are operating successfully alongside the large companies that remain in the fishery,” he notes.

“Structural change has been good for the industry, which is today more competitive than ever before.”

Rent-seeking risk

Tony Leiman, an associate professor in the department of economics at the University of Cape Town, agrees, describing the offshore hake trawl as a mature fishery in which all “get-rich-quick” opportunities have been exploited.

He adds that long-term fishing rights provide a secure platform for investment and incentivises the responsible management of the resource, while any attempt to fragment the industry will encourage irresponsible short-term rent seeking. 

“In the colloquial sense, the industry’s members have demonstrated a mature willingness to sacrifice short-term yields for long-term stability,” he states in a paper titled Conservation, Competition and Industrial Organisation in the South African Fishing Industry.

“Letting more and more people fish merely condemns them to poverty. To increase fishermen’s incomes, one has to increase their catch per unit effort, and that means enlarging the stock of fish. To have firms whose individual incentives are compatible with maximising industry level profits, one needs a collusive oligopoly with long-term rights. It is not surprising that the Competition Commission shudders at the notion. But it is imperative that they think seriously about the situation.”

Opaque joint ventures

Arguing in favour of widening the pool of rights holders, however, economists Kholiswa Mnisi and Bongisa Lekezwa contend that the reconsolidation of fishing rights to the few established companies through various pooling arrangements threatens to compromise the very aims of regulations in the fishing industry and the objectives of the competition policy.

Upon the release of fishing rights in 2020, the small quota holders will be required to show that they are active participants in the industry, which the duo describe in a paper presented to the 8th Annual Competition Law, Economics & Policy Conference as an ambitious task made more difficult by a lack of technical support and capital from DAFF or government entities.

“A forward-looking approach to transforming the fishing industry requires regulators to seriously consider the structural barriers that prevent small quota holders from remaining obscure members of joint ventures that do not enable them to pass the threshold from ‘spectator owner’ to ‘participant owner’,” they assert.

DAFF – which failed to respond to several requests for comment – is backed by government’s guiding empowerment agenda, and the department is unlikely to be dissuaded from efforts to widen the industry playing field by awarding fishing licences to new entrants in 2020.

This is likely to see continued opposition by the major fisheries as they make moves to protect long-term investments and established co-dependent relationships that have enabled them to navigate the currents of the international fisheries markets.

Leiman continues to caution, however, that the implications of impending ownership diversity remain equivocal.

“All one has is a presumption that it would be ‘a good thing’ and would involve small- and medium-scale black-owned and managed enterprises. Even less clear is the cost that would have to be paid, and who would pay it,” he holds. 

This is a shortened version of the cover story that originally appeared in the 1 December edition of finweek. Buy and download the magazine here.

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