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Tricky tides for fishing sector

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Fishing - [http://www.cadizeconomic.com/images/galeria/almadrabas-3.jpg] Fishing - [http://www.cadizeconomic.com/images/galeria/almadrabas-3.jpg]

A High Court decision which lifts an interdict that precluded the Department of Agriculture, Forestry and Fisheries (DAFF) from awarding hake fishing rights for the inshore trawl fishery is certain to send ominous ripples through the local fishing industry.

The matter dates back to the beginning of the year when large inshore hake fishing enterprise Viking Fishing applied for an interdict to stop a new fishing rights award that would have seen the hake quota spread amongst a multitude of new players. In essence, Viking – which was founded by Nico Bacon way back in 1980 and is now one of the biggest five fishing companies in South Africa – would have lost 60% of its hake catch quota.

This development, Viking argued, would render its key hake fishing operation unviable, and ultimately result in massive job losses at its Mossel Bay processing plant. The DAFF’s position stems from a long standing determination to transform the local fishing sector, bringing in more new black participants.

On the surface there has been much transformation in the fishing sector in the last two decades – but perceptions linger that much of the ‘catch’ is still in the net of white-owned corporations.

Currently South Africa’s biggest fishing company Oceana is controlled by food brands giant Tiger Brands – which overshadows the significant minority interest of empowerment company Brimstone and a (very rewarding) employee share incentive scheme.

Frozen hake specialist I&J is controlled by consumer brands giant AVI, also overshadowing empowerment initiatives. The largest black owned fishing ventures are Premier Fishing – controlled by African Empowerment Equity Investments (AEEI), Sea Harvest (controlled by Brimstone) and the TerraSan Group.

It seems likely that Viking – which does have significant empowerment participation – will appeal the process with the company, in a press release, noting the court’s ruling was not unanimous.

One of the three presiding judges handed down a dissenting judgement, finding that it did demonstrate a clear right to the interdict originally granted in January. If the DAFF believes the court decision vindicates its determination to bring new entrants in the hake inshore trawl sector then the billion rand question is whether the same logic will apply when other fishing rights are awarded in the 2020 catch allocation.

This could have serious implications for other industry players – especially those that are not perceived as ‘black controlled’. It’s worth remembering that the court ruled that the decision made by the DAFF cannot be said to be “irrational, inexplicable or unreasonable” – which is perhaps understandable considering the importance of increasing the participation of smaller black businesses in the mainstream economy.

Anthony Clark, an analyst at Vunani Securities with a deep understanding of the food and fishing sectors, said the court ruling would have significant upside from 2020 for black-owned and managed fishing companies – both large and small.

He pointed out that the hake inshore trawl and deep water sector was mainly controlled by large companies such as Viking, Oceana, I&J, Lusitania, Mar Pro and Sea Harvest.

He said the 15-year quota allocations announced by DAFF in December 2016 meant the inshore hake quota to be distributed to more entrants and allowed 12 new BEE entrants. This would bring the total number of participants to 27 – and mean existing players would see a reduction in their 15-year quota allocation to allow transformation to start in the fishing sector.

Clark felt that a precedent had been set in the court ruling with DAFF winning an important ruling on transformation. BEE fishing counters are now very well placed to gain better allocation quota in the 2020 process.

What the court ruling does bring into stark relief is a question around the value of empowerment equity participation in companies that are essentially still white controlled. In press reports Viking CEO Tim Riddell was at pains to stress that the company had scored 92.7% on its BEE scorecard - but that this statistic was disregarded by the DAFF.

This ‘overlooking’ of a seemingly credible empowerment status was also an issue when Oceana embarked on acquisitions in South Africa – specifically for parts of Lusitania Fishing and for the fishing business of the old FoodCorp group. Viking, will no doubt, fight on.

The company has invested extensively in operations - owning and operating a fleet of 31 fishing vessels as well as sprawling seafood processing facility in Cape Town (with smaller facilities in Mossel Bay and Durban).

While its significant holding in the hake sector is uncertain, the company also holds positions in the small pelagic fishery for sardine and anchovy, west coast rock lobster (see accompanying story) and prawn fishing.

In recent years Viking has diversified into fish farming (or aquaculture), holding interests in abalone, finfish, mussel and oyster farms. These operations are, obviously, not subject to government regulated catch allocations.

Interestingly Viking has established a network of factory outlets where fresh and frozen seafood products can be purchased at reasonable prices. Sea Harvest has a similar venture – albeit with a fast food bent - with its fish and chip shop in Sea Point.

If anything, the court ruling in the DAFF’s favour suggests the more established Cape Town fishing companies will need to undergo a period of introspection and re-invention. Oceana has already stressed in its investment presentations that its exposure to DAFF fishing allocation rulings is limited to less than a third of its operations.

The Lucky Star canned pilchard business is not dependant on catch allocations, and a large chunk of Oceana’s business now lies in Louisiana with the Daybrook fish meal and fish oil operations.

Of course, it will be interesting to see if consumer brands conglomerate Tiger Brands and AVI reduce their shareholdings in Oceana and I&J respectively to allow increased empowerment participation.

In the meantime, the moves of the two black owned (and cash flush) fishing companies Sea Harvest and Premier Fishing should be monitored carefully. Both have signalled a willingness to make acquisitions, but neither have executed on deals yet.

On the other hand, the smaller TerraFin has acquired the Saldanha Group’s fishing operations in a deal purportedly worth R450m, and is (CBN hears) on the verge of clinching another deal.

Stumping up for lobster

Recent urgent calls to protect the fast diminishing West Coast red Lobster population have not abated – although, so far, there is no official word from the DAFF.

It has been estimated that overfishing, poaching and poor management of the rock lobster has meant that only 2% of the original fishery stock remains, and a shift of the popular (if pricey) seafood to the red-list.

It has been widely reported that the WWF (World Wildlife Fund), along with fishers, has submitted an open letter to the Minister of the DAFF to call for urgent intervention to address the critical situation. Major fishing companies – specifically Premier Fishing and Oceana – could be affected – although the former is far more involved in south coast lobster (which is caught in deeper waters and not hindered by poaching).

While CBN anxiously awaits news of the rock lobster predicament, there was - at the time of going to press - a breaking news story suggesting a huge payback for previous reckless fishing escapades.

The PE Herald reported that: Cape Town businessman Arnold Bengis – who in 14 years decimated the rock lobster population – has been ordered by a US court to fork out $37 million (R483 million) for pillaging thousands of tons of rock lobster. The court also sentenced Bengis to more than four years’ imprisonment, and ordered an immediate arrest warrant for Bengis (who now resides in Israel).

The Herald reported that the DAFF initially wanted $100 million in restitution. The newspaper added that although Bengis’s activities stopped 17 years ago‚ the damage to the coastal ecosystem was still depriving fishing communities of access to resources.

The Herald said former DAFF head of fisheries Horst Kleinschmidt showed research that suggested that free-falling rock lobster stocks had “immediately stabilised” after Bengis’ operation was stopped.

His fleet of trawlers overfished more than 2 200 tons of west coast rock lobster between 1987 and 2000.

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