ABALONEMARICULTUREI N T H E E A S T E R N C A P E

The Eastern Cape’s proximity to international and Sub-Saharan African markets by means of multi-modal logistics and world-class infrastructure at the East London and Coega Industrial Development Zones (IDZs) are some of the advantages for investing in abalone mariculture operations in the province. Suitable climate and seawater temperatures, as well as access to a world-leading mariculture research institute at Rhodes University in Grahamstown are additional benefits for investors.

The Eastern Cape Development Corporation (ECDC), the official economic development agency for the province, has helped several investors to identify and access business opportunities in abalone mariculture.

ECDC assists new and existing investors at no cost to:• Identifybusinessopportunitiesinkeysectors;• Facilitateandfinancejointventures;• Accessinvestmentincentiveschemesandlocalbusinessservicenetworks;• Createaccesstoadiverseportfolioofavailablelandandbuildings;• Facilitatecorporaterelocationsandaftercareservices;and• Lobbyprovincialandnationalgovernmentforrelevantinterventions.

This brochure gives an overview of labour, climate and logistics issues concerning abalone farming in the Eastern Cape. The information provides a brief synopsis of the suitability of the Eastern Cape for mariculture investment. A site visit is encouraged with the view to conduct a full feasibility of an abalone production facility in the province, or alternatively to invest in an existing operation or opportunity.

Marketinformation:AllstatisticsarefromtheFoodandAgricultureOrganisationoftheUnitedNations(2008),TheStateoftheWorldFisheriesandAquaculture.

INDUSTRYSTATUS

MARKET

LABOURPOLICY

COMPETITIVEADVANTAGES

SPECIES&TECHNOLOGY

LOGISTICS

CLIMATE

START-UPCOSTS

LEGISLATIVEREQUIREMENTS

RISKS

CONTENTS

INDUSTRYSTATUS

02

The abalone farming industry is the largest aquaculture sector in South Africa by value. The industry has grown from 180 tons a year in 2000 to 913 tons in 2009.

In2004,exportsoffarmedabaloneovertookthoseofwildcaughtanimals, a trend which is unlikely to be reversed.

Despite the considerable contribution that mariculture can make towardsregionaleconomicgrowth,jobcreationandforeignincomeearnings, the growth of the sector has been slow compared to other countries for several reasons which include:-• Lackofappropriatetechnologywhichisnowavailable;• Previouslyunsupportiveinstitutionalenvironmentwhichhas recentlyimproved;• Harvestingofthewildabaloneresource;and• Competitionforlandwithotherusers.

03

Mariculture falls within the agriculture sector and the South African Government labour regulations for farm workers (Basic Conditions ofEmploymentAct,No75of1997,Section8).Theseregulationscover minimum wages, overtime allowances, maximum working hours, leave regulations, and generally bring agricultural labour relationsinlinewithindustriallabour.However,theactualvaluesare lower than for other industries:• Minimumwageiscurrently(Feb2011)R6.74anhour;• Hoursofregularworkis45hoursaweek;• Overtimeratesare1.5timesthebasicrate;• WorkonSundaysandpublicholidaysispaidatdoublethe regularrate;• Annualleaveisthreeweeksevery12monthsworkedoronefull dayforevery17daysworked;• Sickleaveissixweeksforevery36monthcycleworked;• Familyresponsibilityleaveisthreedaysforevery12months worked.

Due to high levels of unemployment, particularly in the rural areas of the Eastern Cape province, there is increased motivation foremployeestokeeptheirjobsandtogoanextramilewhennecessary.Productivityisgenerallyimprovingwithanincreaseinlivingstandardsbeingthemajorincentive.Government’sextensive skills development schemes extend into the agricultural sector, where numerous training and education programmes offer financial incentives for employers to uplift their staff.

MARKETAquaculturecontinuestobethefastestgrowinganimalfood-producing sector worldwide. The per capita supply from aquaculturehasincreasedfrom0.7kgin1970to7.8kgin2006,anaverageannualgrowthrateof6.9percent.Itissettoovertakecapturefisheriesasasourceoffoodfishasitaccountedfor47percentoftheworld’sfishfoodsupplyin2006andprojectedtogrowat7.6%ayearuntil2020.

The South African abalone, Haliotus midae, is one of the three most popularspeciesintermsofdemandandprice.Otherspeciesindemand are the Japanese and Mexican species.

The price, depending on size and how the animal is processed (live, canned, dried or frozen), ranges from US$30 to US$35 per kilogramme. Most of the product is exported to the Far East, the biggest markets being China, Hong Kong and Japan.

Themarketisstable,althoughrecentabaloneaquaculturedevelopments in Korea and China have resulted in a narrower marketsharefortheSouthAfricanspecies.Pricesalsocomeunderpressure from the illegal trade in poached wild abalone and low inflation rates in market countries.

The Eastern Cape has a number of competitive advantages for abalone mariculture:• Thepriceofsuitablelandis,onaverage,lowerthantheWesternCape.• Warmerseatemperaturesallowtheabalonetoreachmarketsizein3.5yearsasopposedto4years.• Africa’sleadingmaricultureresearchinstituteissituatedintheprovinceatRhodesUniversity,Grahamstown.• TheEastLondonIDZhasprioritisedthemariculturesectorandiscommittedtoprovidingsuitableinfrastructureandsupportfor investorsinthezone.• TheEasternCapeoffersalifestyleunsurpassedbyanywhereelseinthecountry.

COMPETIVE ADVANTAGES

Labour policy

04

Technology for the culture and grow-out of the species has been developed. Current practice is to produce the spat in a hatchery andthenmovethemtogrow-outsites.Therearecurrently15grow-out facilities along the South African coastline, twelve of whichhavetheirownhatcheries.Oneofthesefacilitiesisbasedinthe Eastern Cape.

Notallthespecialisedequipmentrequiredforaquacultureoperations is readily available in South Africa. Current operations thereforesourcesomecapitalequipmentfromaroundtheworld.This is made possible by ports and airfreight from East London and PortElizabeth.

SPECIES&TECHNOLOGY

Currently all abalone farmed in the Eastern Cape is either dried or exportedlivetotheFarEast.Otherprocessingoptionspursuedbyotheroperatorsincludeshippingabalonelive,cannedorfrozen.

LocalFreezertruckscanbearrangedandwilloftenbesuppliedbythebuyer.Distancestoallmajorcentresarewithin1,000km.

ExportAn internationally recognised South African Bureau of Standards (SABS) health certificate is obtained by the producer prior to shipping.

A number of international freight forwarders are established with their own warehousing and administration facilities in both East LondonandPortElizabeth.Internationallyrecognisedoperatorssuch as Maersk, DB Schenker and Röhlig-Grindrod are linked to national and international networks with facilities either in Johannesburg and Cape Town as well as European destinations.

South African Airways (SAA) cargo operates all on-site airport facilities and is known for its compliance with all relevant internationalstandards,proceduresandqualitymaintenance.Cold storage facilities at both provincial airports, East London and PortElizabeth,meetthehighestinternationalstandardsandhavebeenapprovedbythePerishableProductExportControlBoardforhandling perishable products for export. This certification is in line with all relevant international agreements.

Volumetricweightis6,000andfreightratesareavailableonrequest.TransittimefromEasternCapeairportstodestinationportsviaJohannesburgisapproximately18-20hours.Otherrelevant facts for exporters:• Coldstoragefacilitieshaverollerbedstohandleaircraftpallets;• AirfreightspaceshortagesareexperiencedduringDecember fromEastLondon.Priorityisgiventoairfreightwithallocations oninternationalflights.PortElizabethrarelyexperiences shortages of space to Johannesburg or Cape Town, except from OctobertoMarchwhenfruitproductsareexportedfromthese twohubs;• SAAacceptsresponsibilityforthemaintenanceofprescribed temperature levels during transhipment at Johannesburg. Temperatureloggersareavailableonrequesttomonitor temperaturethroughoutthevoyage;• CargospacecanbebookedwithSAACargoreservationsin PortElizabethforthedestinationrequiredandSAAwillconfirm spaceoutofPortElizabeth.Spacewillberequestedfromeither JohannesburgorCapeTownbySAA’sreservationstaffinPort Elizabeth.

LOGISTICS

05

CLIMATETheEasternCapestraddlesthreemajorclimaticregions.Althoughsubjecttomajormovementsof air masses extending over hundreds of kilometres, there are many variations in temperature, rainfall, humidity and wind occurring over short distances in the Eastern Cape. The spatial variationswithinthecoastalbeltprovidealargenumberof“miniclimaticzones”.(Source:Agricultural Research Council weather station)

Average climatic data collected from three stations in the provinceLOCATION AVERAGEMIN AVERAGEMAx AVERAGE% AIRTEMPERATURE(°C) AIRTEMPERATURE(°C) HUMIDITY WaveCrest 13.1 21.2 65.6EastLondon 14.4 22.9 NAPortElizabeth 13.5 22.3 73.9

Average monthly seawater temperatures Averageminimumandmaximumtemperaturesrecordedin2009fromOrientBeach(EastLondon)andPollockBeach(PortElizabeth).

25.0

20.0

15.0

10.0

5.0

0.0Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

PEaverage PEminimum PEmaximum

EL average EL minimum EL maximum

25.0

20.0

15.0

10.0

5.0

0.0Jan Feb Mar Apr May June July Aug Sep Oct Nov

06

Dec

ECDC facilitates and supports investment and development in key sectors in the province through a number of professional services which include investment and trade promotion, and facilitating foreign direct and domestic investment.ECDCinvitesinterestedpartiestocontactECDC’ssectorspecialistforaquaculture,fisheriesandenvironmentalmanagement,RoryHaschick:Tel: + 27 (0) 43 704 5606/5710 | Fax: +27 (0) 43 743 6036 | Email: rory@ecdc.co.za

MaricultureisalistedactivityrequiringamariculturerightandpermitfromtheNationalDepartmentofAgriculture,ForestryandFisheries(DAFF).

To obtain this, applicants must prove they have access to suitable land and have obtained all relevant provincial permits which include permits to undertake listed activities, water abstraction and landrezoning.Anenvironmentalimpactassessmentmayhavetobe undertaken as part of the application process for the relevant permits.

Allmarinespecies,nomatterwheretheyarecultured,requireamariculturerightandpermitfromDAFF.

LEGISLATIVEREQUIREMENTSSpikes of high sea temperatures pose a threat to abalone operations in the eastern part of the province and in sheltered bays wherewatermovementmaybelimited.FarmsinareaswithahighsiltloadmaybepronetoinfestationsofthePolydoraparasite,aboring worm, however good management practices can serve to mitigate this risk.

RISKS

Marineaquacultureoperationsaregenerallyonlyviableatsignificanteconomiesofscale.Constructionofafacilitymaytakeuptotwoyearsbeforefullproductioncanbeinitiated.Inaddition,abalonerequires3.5yearstoreachmarketsize.Thismeansthatoperatingcostsshouldbefactored in for at least five years before a positive cash-flow begins.

A 100-ton facility will cost around R45 million (Capex) with approximately R15 million for operating costs over five years.

STARTUP COSTS

07

SMG

AFRI

CA_

6017