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Live rock Lobster earns big export dollars

Thursday 9 October 2014

The quota management system brought massive change to the New Zealand seafood industry when it was introduced in the late 1980s.

Previously fish could be caught by anyone who had a licence and complied with other regulations. Under the quota system a sustainable total catch or harvest of fish was set.

Individuals or companies were allocated the right to catch certain quantities of particular species. Quotas became like other forms of property – they could be leased, bought, sold or transferred. While there has been much tinkering with the system, its basis remains the same.

The impact on the rock lobster industry (of CRA coming into the QMS in 1990) was as big as it was in other fisheries and forced those involved to rethink their approach.

Such was the case in the CRA8 region of Southland and Fiordland. For some years individual companies in the region had been landing lobster through Jackson Bay, Milford, Riverton and Bluff, tailing and freezing them and exporting to the western seaboard of the United States.

It was a lucrative business for owner-operator boats and exporting companies that capitalised on an initiative largely pioneered via the Chatham Islands fishery in the late 1960s. The lobster had to be a minimum size and egg-bearing females were returned to the water but otherwise there was no limit on quantities. The lobster was usually frozen on the boats and taken to processing plants for packaging.

But the introduction of the QMS forced change.  The reason the government introduced the system was to manage the increasingly depleted stock of seafood. 

Those involved in the industry in Southland foresaw the large cuts in quantities that would be forced on them and knew that they had to prioritise greater value for the lobster that they were allowed to land.

John Steffens, a director of the Fiordland Lobster Company, says the solution was provided from another part of the country. His friend, Bay of Plenty fisherman Alan Gard, a director of Mt Maunganui Seafoods, had already started exporting live lobster to Japan with obvious benefits.

“They were sending off the whole animal and getting as much per kilo as we were getting for just the tails - and in the process we were losing 60 percent of the (landed weight) crayfish. Obviously we had to move towards exporting live,” John said.
There were risks involved in the change, not the least of which being that the lobster could die before being sent overseas or arrive at its ultimate destination dead and of no value. There were also logistics problems in transporting the catch quickly from remote areas.

Exporting to Japan brought other challenges - the language, the need to build new relationships with importers, a change in the way the product was marketed.

Massa Kanno, the major shareholder in Mt Maunganui Seafoods, owned a 40-metre Japanese tuna pole vessel which was commissioned as a floating live lobster depot in Doubtful Sound. An old coastal trader, Kotonui in Milford Sound, was used to swim fish in a Para pool.

For two years the Southlanders  worked closely with the Mt Maunganui company and in particular Kanno, a Japanese businessman with a chain of restaurants in Japan and the buyer of the lobster.

The Fiordland Lobster Company was formed in 1990. Some 15 fishermen took 50 percent of the shareholding, the rest being shared by the Mt Maunganui firm, Gard and Kanno.

The lobster were processed in Te Aanu, the company turning an old builder's shed into a plant, complete with two concrete seawater tanks, freezers, chillers and a packing room.  The export of frozen tails continued for a while longer.

The new operation brought more jobs and money to Te Anau which already enjoyed the benefits of farming, tourism and venison recovery.

In the first year the company handled and exported 60 tonnes of lobster.

John says the first 10 years were “a bit of a struggle”.

“We had our successes and our failures but we grew a bit each year.”

Profitability fluctuated depending on the catch. This could range between 60 and 300 tonnes a year.

One of the failures occurred when the tanker that brought seawater from Colic Bay to Te Anau had its pump break down. The driver attached a replacement but had forgotten it had last been used for sheep dip. The penny dropped when the bubbles were noticed in the water tanks and  it was filled with dead lobster.

As the company grew so did the need for stronger governance and management. The company was very much like a big family.

After 10 years Gard sold his share to pursue other interests and Kanno also sold, the shares being picked up by existing shareholders and investors. Ironically, FLC also bought the Mt Maunganui company that had started the live lobster exports.

The company was very much like a family.

With such a high priced product quality is the top priority. If there is a mortality rate in excess of 5 percent in a shipment then that has to be credited off the next order.

Southland is the country’s biggest lobster region with 30 percent-plus of the lobster take. FLC was very much focussed on the CRA8 region but didn’t want the growth to exceed much above 50 percent of the total production.

"Our focus was on providing a good return to everyone in the supply chain. The company was founded by fishermen and we didn’t ever want to rip off our mates. The first priority was to protect the resource, then the fishermen.”

Expansion of the business came with quota in the neighbouring CRA7 Otago region and the establishment of a processing plant in Dunedin. This was followed by CRA4 in the North Island, having already acquired a plant in Mt Maunganui with the purchase of the live lobster pioneers. The company also processes CRA4 in Wellington.

The value of lobster soared with the emergence of the Chinese market some years ago. Where FLC was getting an average price of $13 a kilo for its live product in Japan in 1990 last year the demand from China drove the price for the best quality lobster to over $80 a kilo.

As a result more than 90 percent of FLC’s live lobster is now sent to China because Japan could not match the price. Putting all your lobsters in one basket could be seen as a risk that should be spread but such is the difference in price that the risk is one worth taking.

FLC is now sending 800 tonnes of lobster to China - and now this is being bolstered by 500 tonnes from Australia.

The company’s foothold across the Tasman followed a similar process to its establishment in New Zealand.

It saw an opportunity when it identified that the fishermen were not achieving fair value and FLC started to buy from them, offering better prices and service. It formed the South Australian Lobster Company and then brought Tasmania and then Victoria into the fold, the company buying existing plants or built new ones to handle the booming trade.

FLC continues to grow. It has an office in China and a marketing team in New Zealand which visits China frequently.
The relationships with its Chinese partners are important to FLC which ensures that when the lobster arrives by air freight it is handled in the most sophisticated facilities. China buys live lobster and fish from all over the world and, by comparison  to Japan, there are fewer “middle men” and markups are not as high in China, John Steffens said.

With such a high priced product quality is the top priority. If there is a mortality rate in excess of five percent in a shipment then that has to be credited off the next order. “Shabby” exports would result in the door closing on further sales.

“We put a lot of resources into research, we want our lobster not to be stressed, to be happy little chappies,” John said.

FLC offers a limited number of “baby crays” to China. There is a smaller legal size limit on lobster landed from the Otago fishery than that which exists in the rest of the country, the reason being that the region is small geographically and the lobster migrate to the neighbouring Cray 8 region.

In a clever marketing ploy these smaller lobster are promoted as “baby” ones that are only available from the Otago region and from South Africa. The size allows greater flexibility for restaurant chefs who might serve the smaller lobster as an entrée.

The company’s marketing focuses on the delicate handling of the bright purple/red spiny (southern rock lobster).

It highlights the company’s holding depots and export factories being audited and fully licensed by the Ministry for Primary Industries, its in-depth training programmes and the numbers of staff who have the New Zealand Certificate in Aquaculture.

The company says rock lobster stocks are managed well above sustainability levels and fully supports NZRLIC and CRAMAC representation in the industry.

Moving live lobster requires a well established transport infrastructure.

FLC group general manager sales and marketing David Prendergast says helicopters are used in the Fiordland area to fly live lobster from the depots to Te Anau. Elsewhere the catch is transported by insulated truck to one of five export packing factories in New Zealand. Here fish are weighed and graded then swum in tanks to rejuvenate them for 24- 48 hours before being packed for export from the Christchurch and Auckland international airports.

Nonetheless, Mr Prendergast laments the industry has not yet been able to establish a Certificate of Non Manipulation (CNM) out of Australia for transhipment through to China.

“Under the New Zealand free trade agreement with China we have to produce a CNM for anything hubbed over a third country port. If we could achieve this document over Sydney to Shanghai, 80 percent of our South Island business would be exported from Christchurch. This would take a lot of pressure out of the logistics chain and assist the industry greatly."

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