FINFISHMARICULTUREI 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 finfish 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 finfish mariculture, some of which have already established operations in the East London and Coega IDZs.

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 finfish 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 a finfish 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

INDUSTRY STATUS

02

Aquacultureofmarinefood-fishspecies,widelyknownasfinfishmariculture, is a relatively new industry in South Africa that has developed in response to declining catches and increasing fish prices.

Finfish mariculture is expanding following research and pilot commercial operations where technology for farming indigenous species has been demonstrated.

Finfishprojectsincludeland-basedduskykobculturewhich,in2009,producedaroundsixtons,andapilotscalecagecultureofyellowtailwhichproduced23tons.PilotscalekobpondcultureexperimentsareduetobegininPortElizabethduring2011.Theannualtotalproductionisexpectedtoexceed200tonsin2011.

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:

• Lackofappropriatetechnology,whichisnowavailable;• Previouslyunsupportiveinstitutionalenvironment,whichhas recentlyimproved;• HistoricallylowpriceofseafoodinSouthAfrica,whichis changing as consumers are becoming more conscious of the healthbenefitsthatseafoodoffer;• Readyaccesstoseafoodfromcaptivemarinefisheries;• Ahigh-energycoastlinethatlimitssea-basedmariculture operations;• Veterinaryandanimalhealthsupport;and• Competitionforlandwithotherusers,whichrestrictsland- based operations.

03

The Eastern Cape has a number of competitive advantages for finfish mariculture:• Thepriceofsuitablelandis,onaverage,lowerthantheWesternCape(westerncoastalareaofSouthAfrica).• WarmerseatemperaturesallowfishtoreachmarketsizeinashortertimethanthosegrownintheWesternCape.• Africa’sleadingmaricultureresearchinstituteissituatedintheprovinceatRhodesUniversity,Grahamstown.• TheEastLondonIDZhasprioritisedmaricultureandiscommittedtoprovidingsuitableinfrastructureandsupportforinvestorsin thezone.• TheEasternCapeoffersalifestyleunsurpassedbyanywhereelseinthecountry.

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;• Hoursofregularworkare45hoursaweek;• Overtimeratesare1.5timesthebasicrate;• WorkonSundaysandpublicholidaysispaidatdoublethe regularrate;• Annualleaveisthreeweeksevery12monthsworkedoronefull dayforevery17daysworked;• Sickleaveissixweeksforevery36monthcycleworked;and• 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.

MARKETGlobalstatisticsshowthataquaculturecontinuestobethefastestgrowing animal food-producing sector. The per capita supply from aquaculturehasincreasedfrom0.7kgin1970to7.8kgin2006,anaverageannualgrowthrateof6.9percent.Itissettoovertakecapturefisheriesasasourceoffoodfishasitaccountedfor47percentoftheworld’sfishfoodsupplyin2006andisprojectedtogrowat7.6%ayearuntil2020.

South Africa is currently a net exporter of fishery products but most South African products are considered used to the maximum with many high-valued fish products such as wild abalone, prawns and linefishbeingover-exploited.Theprojectedincreaseindemandfor high-end fish products provides an opportunity for substantial increases in finfish mariculture production.

Domestic demand can also be met by imports, therefore the projectedincreaseindemandonlyprovidesanopportunityforfinfish mariculture if it is competitive.

Acompetitiveexportmarketdoesexistforaquacultureproducts,however,asproductionhasyettoreachfullcapacity,amajorpercentage of products will be exported to the USA, Asia and Africa.Currentlytherearenoexportsofaquacultureproductsallowed to the EU as an environmental monitoring programme must be completed before certification will be awarded.

COMPETIVE ADVANTAGES

Labour policy

04

Technology for the culture of kob (Argyrosomus japonicus and A.inodorus) and yellowtail (Seriola lalandii) has been developed and is being refined for white stumpnose (Rhabdosargus globiceps), geelbek (Atractoscion aequidens), spotted grunter (Pomadaysis commersonnii) and white margined sole (Dagetichthyes marginata).

Current practice is to produce fingerlings in a hatchery and then transport them to grow-out sites.

The province has four facilities (three commercial and one research) involved in the production of fingerlings.

In terms of operational grow-out farms, there is one sea-cage (yellowtail) and five land-based operations (dusky kob), of which all exceptonearesituatedintheEasternCape.Offshorecagecultureis also being investigated for the Eastern Cape.

Since South Africa does not have all the technology and specialised equipmentforaquacultureoperations,currentoperatorssourcesome parts from around the world. This is made possible by ports andairfreightfromEastLondonandPortElizabeth.

SPECIES&TECHNOLOGY

There is currently no fish processing plant in East London and therefore all product produced in the region are processed in other areasintheprovincesuchasPortElizabethandCapeStFrancis.However,asfinfishproductiongrowsintheregion,investmentintothis infrastructure is likely to occur.

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).

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ECDC facilitates and supports investment and development in keys sectors in the province through a number of professional services which include investment and trade promotion, and facilitating foreign direct and domestic investment in key sectors.

ECDC invites interested parties to contact ECDC’s sector specialist foraquaculture,fisheries&environmentalmanagement,RoryHaschick:Tel: + 27 (0) 43 704 5606/5710 | Fax: +27 (0) 43 743 6036Email: 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.

Certainprojectsmayqualifyforanexemptionfromtheregulationsbased on annual tonnages produced.

Allmarinespecies,nomatterwheretheyarecultured,requireamariculturerightandpermitfromDAFF.

LEGISLATIVEREQUIREMENTSLarge swells following storm and current events occur along the length of the exposed and high-energy coastline of the Eastern Cape. These events could pose a threat to offshore cage operations and the general recommendation is that the site should experience lessthanonemetreswellheightforatleast90%ofthetime.

However,technologyfor“highseas”cageshasdevelopedrapidlyinrecent years. The potential feasibility of marine fish culture in South Africa’s semi-sheltered embayments which are protected from the prevailing swell direction is currently under investigation.

Minor threats to cage operations include predation from seals and sharks which can be mitigated using barrier nets or acoustic technology. Theft is a potential problem for both land and cage operations,however,efficient24-hourmonitoringoffacilities(usingmanpower or cameras) help to reduce the risk.

A risk to land-based operations is the possibility of periodically inconsistentsuppliesofacceptablequalityseawaterduetosuchfactors as red tide, an extreme drop or spike in ocean temperature, or increased sediment from rainfall runoff.

This can be mitigated easily through pre-filtration and treatment inconjunctionwiththeuseofpartialrecirculationtechnologies.Ifthequalityofincomingseawatertothefarmsisunfavourablefora short period of time, the farm can turn off or reduce incoming seawaterandrunon100%recirculationuntilthequalityofseawater improves.

RISKS

Marineaquacultureoperationsaregenerallyonlyviableatsignificanteconomiesofscale.Constructionofafacilityinadditiontothetimetakenfortheanimalstogrowtoharvestsizecanbeuptothreeyears.Thisperiodaccruessubstantialoperatingcostscomparedtootherindustries.

Start-up costs for a 50-ton land-based pond system (excluding hatchery) are in the order of R1, 500,000 (Capex) and R800, 000 (operating costs).

Start-up costs for a 300-ton recirculating land-based system (excluding hatchery) are in the order of R20 million (Capex) and R8 million (operating costs).

Start-up costs for a 200-ton cage culture operation (excluding hatchery) are in the order of R8 million (Capex) and R5 million (operating costs which includes a boat).

Internationally,mostmarinefisharerearedinseacages,andarelativelylargevolume(minimum1,000tons)isrequiredforabusinesstoachieve competitive production costs for export.

STARTUP COSTS

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