R.A.J. Roberts
Former Chief, FAO
Agricultural Marketing and Rural Finance Service
This survey covers the interaction between the aquaculture industries of Australia and New Zealand, and their respective insurance industries.
Whereas some zones of these two countries are similar and unsurprisingly support similar types of aquaculture, Australia, an island continent stretching well into the tropics, can provide a much wider range of climatic conditions, and therefore can support a greater variety of farmed species.
One feature shared by Australia and New Zealand is an awareness of the dangers of uncontrolled aquaculture and unsustainable farming practices, which in many countries have led to poor water quality, disease and the resultant serious production losses. Another shared feature is well-educated populations, with strong community awareness of environmental issues.
This awareness is reinforced by the close relationship that Australians, and especially New Zealanders have with the coast and other bodies of water, having important recreational uses, including fishing. These community characteristics mean that in these two countries there is a particularly close governmental involvement in the aquaculture industry, starting with the selection and licensing of sites. In Australia the responsibility is shared between the federal and state authorities; in New Zealand, the central government frames overall legislation and regulation, with implementation now largely in the hands of regional councils.
The involvement of the public sector is further strengthened in New Zealand as strong elements within the Maori population claim special rights over the seabed and foreshore. Aquaculture legislation passed in December 2004 gives Maori the right to 20 percent of aquaculture licences, while the ownership of the seabed and foreshore is largely vested in the Crown (i.e. the government on behalf of the general population).
This report deals with each country in turn due to the differences between them. First, there will be a description of the structure of the aquaculture subsector, and then the directly relevant governmental (local, regional, national) agencies, together with a brief note on the structure of the insurance industry. A supply and demand approach is then taken for the main part of the report, covering current aquaculture insurance practices.
Oceania’s aquaculture production in 1995 was estimated at 99 000 tonnes. Since then an increasing trend has been visible. In 2004 the production was estimated at 139 000 tonnes. Mussel and Atlantic salmon production saw the largest increase in volumes produced in this decade. The total value of Oceania’s aquaculture production in 2004 was estimated at US$447 million. A decade earlier in 1995 the value of aquaculture production was around US$208 million. Although the value doubled in this decade, the main species remained the same.
9.2.1 Australia
Australia’s aquaculture production increased between 1995 and 2004 from 22 000 tonnes to 39 000 tonnes. Over this period the Atlantic salmon production more than doubled, from 6 000 tonnes to almost 15 000 tonnes annually. Sydney cupped oyster production remained fairly stable over the same decade. Considerable increases could also be viewed in Southern bluefin tuna and giant tiger prawn production, whose figures doubled as well since 1995.
In 2004, Australia’s aquaculture sector generated an estimated total output value of US$260 million. Five species reached production levels worth more than US$10 million: Atlantic salmon (85 million), southern bluefin tuna (48 million), Giant tiger prawn (37 million), Sydney cupped oyster (27 million) and Pacific cupped oyster (13 million). Barramundi and rainbow trout production value was estimated at just under US$10 million in 2004. While Atlantic salmon, giant tiger prawn and Sydney cupped oyster showed increasing trends in the new millennium, this was not the case with some other species. Since 2001, the production in value terms of Southern bluefin tuna, which was estimated at nearly US$106 million, has decreased dramatically. In recent years, large fluctuations were also observed in Pacific cupped oyster.
9.2.2 New Zealand
The aquaculture production of New Zealand was estimated at 70 000 tonnes in 1995. More than 62 000 tonnes of this volume originated from New Zealand mussel culture. In 2004 New Zealand’s production volume was 30 000 tonnes higher than in 1995; however, this production increase can be attributed to one species only - New Zealand mussel. The production volume of Chinook salmon and Pacific cupped oyster showed limited fluctuation over the last decade.
In 2004 New Zealand’s aquaculture production value was estimated at US$166 million. This value is more than triple that of 1995, when the aquaculture production value was estimated at US$53 million. Of the three important aquaculture products of the country in 2004, New Zealand mussel accounts for 73 percent of the total value generated by the sector, followed by Chinook salmon and Pacific cupped oyster, with US$36 million and US$9 million respectively.
9.3.1 Australia
Most aquaculture enterprises are small; however, the bulk of marketed production of major species is accounted for by a few major firms. This applies in particular to salmon, tuna (capture-based aquaculture), barramundi and prawns.
Important amalgamations in the industry have been observed in recent months, which impacts on the demand for insurance in the market. For example, one rapidly expanding company operates its own in-house (or "captive") insurance arm.
The insurance industry in Australia comprises some 50 primary insurers, with a number of reinsurers also represented and very active in both treaty and facultative contractual arrangements. Of these primary insurers there is only one underwriter specializing in aquaculture risk. Two other underwriters are known to have insured aquaculture. One of these has withdrawn following a big loss on a cultured pearl operation. The other insures a very minor piece of aquaculture business "as a favour to a valued client". It is clear that the insurance industry’s attitude in Australia towards aquaculture risk is very cautious, with only one company deeming it worthy of special effort.
Nevertheless, one of the major insurers is now preparing to re-enter the market, having decided that aquaculture is a potentially viable area of business, provided that the interface between the insurer and the clientele is technically adequate. This insurer is part of a large, international insurance company and the aquaculture venture is similarly driven from its head office abroad.
Brokers have traditionally been the interface between underwriters and clients, which continues for much of the insurance business transacted. There are at least three specialist underwriting agencies/brokers handling agricultural insurance, but as far as is known, only one broker is making aquaculture risk a special part of its business. This broker is gearing itself up technically to be able to undertake this role.
Surprisingly, the major specialist Australian agricultural underwriters/agencies have no aquaculture risk on their books. The attitude of these insurers is summed up by the CEO of one of these firms who stated forcibly that he "has no intention of entering this class of business".
The strong aversion among most of the CEOs and senior underwriters originates in a number of loss events in recent years in aquaculture, which have become well-known in the industry:
Some losses due to viral disease in the nascent prawn industry, against a background of very substantial losses in a major prawn-producing country, Thailand. Currently, the Commonwealth Scientific and Industrial Research Organization (CSIRO) position is that Australia is "not well prepared against prawn diseases".
9.3.2 New Zealand
The aquaculture industry in New Zealand has taken a direct approach to managing risk. The resulting measures range from the constant monitoring of disease, biotoxin and pollutant situations to location issues such as rearing salmon in cleaner waters, and the use of predator barriers. This approach has gathered pace over the last five to six years.
Perhaps because of the effectiveness and extent of these measures, insurance is beginning to be regarded by some aquaculturists as a useful back-up to the primary measures to control losses. This attitude is more common with salmon farmers than with those farming mussels, oysters and abalone.
A new species to aquaculture in New Zealand, yellowtail kingfish (Seriola lalandi) - also known as the yellowtail amberjack and goldstriped amberjack - is now being produced at three facilities in the country. One of these, a large landbased, recirculation water plant in the far north of the country, is designed to produce 50 tonnes of harvested fish per month. This facility, which is highly capital-intensive, is also covered by insurance, not only for plant, equipment, public and statutory liability, but also for the growing fish stock while in transit from the hatchery, growing in onshore tanks, and also for processed fish. Interestingly, the growing fish policy responds only to standard mortality losses and not to compulsory slaughter orders.
9.4.1 Australia
On the demand side, most industry participants and representatives contacted cited the cost of insurance as being a major constraint. At the time of writing, market prices for most aquaculture products were lower than in the recent past, and for this reason farmers are cutting costs wherever and whenever possible. Insurance premiums fall into the category of "optional expenditure" for many farmers and are therefore a category where cost savings are made.
The exception to this is the group of heavily-borrowed aquaculturists, whose bankers insist on insurance of the growing stock.
9.4.2 New Zealand
As with agricultural insurance, many aquaculture insurance polices are purchased in New Zealand because of pressure from banks and/or other investors. Here there is an interesting difference between the Maori incorporations that have aquaculture investments, and other entrepreneurs. With a few notable exceptions, the Maori Incorporations rarely insure the growing fish in their aquaculture operations. It is believed that this is because their funding base is very secure. They have little need to borrow from institutions or raise funds through the issue of shares.
9.5.1 Australia
Only one UK-based specialist insurer covers growing aquatic organisms in Australia. This company, with its main office for Australia/New Zealand in Nelson, New Zealand, operates a specialist business, with significant in-house expertise in aquaculture risk and in aquaculture generally. Further, a number of firms cover related risk such as breakdown of onshore machinery (pumps, generators, freezers). In addition to policies written by Australian underwriters, it is possible that some business is being passed by brokers? directly back to the London market, but the extent of this is not known.
9.5.2 New Zealand
It has not been possible in the time available to survey all 1 051 farms in the country. What is clear is that the major aquaculture enterprises accounting for the bulk of production are generally insuring growing finfish, but not mussels and oysters. The smaller producers whose views were canvassed maintain that their interest in insurance is constrained by the costs. Premiums are believed to be in the range 3 to 5 percent of the insured value, typically with a 20 percent deductible.
In contrast with the small producers, the large operators carry insurance on their growing fish as part of their normal business operations. At least 90 percent of New Zealand’s farmed salmon is insured.
9.6.1 Australia
The bulk of aquaculture insurance currently in force in Australia is of the "all risks" type. As such this covers mortality from: oxygen depletion due to competing biological activity; attacks by predators including seals, sharks, birds and jellyfish; storms, freeze and super-cooling; electrical breakdown; changes in the normal chemical constituents of water including pH and salinity; disease; and toxic algal bloom.
An additional peril, which may prompt legal action by an insurer and/or the insured farmer, is chemical spray drift.
In keeping with its specialist nature, the major insurer covers onshore aquaculture equipment in addition to boats and offshore equipment, but not other related risk areas. It should be noted, however, that these related areas, i.e. onshore property, public liability, employer’s liability, product liability and marine liability, are available with other companies in the market. Four of these kinds of companies, all major players in the Australian market, claimed to write policies for aquaculture entrepreneurs for perils to assets other than growing fish stocks.
9.6.2 New Zealand
The situation in New Zealand is similar to that in Australia, i.e. the bulk of aquaculture insurance on growing species currently in force in New Zealand is of the "all risks" type. As such this covers mortality from: oxygen depletion due to competing biological activity; attacks by predators including seals, sharks, birds and jellyfish; storms, freeze and super-cooling; electrical breakdown; changes in the normal chemical constituents of water including pH and salinity; disease; and toxic algal bloom.
Perils impact aquaculture enterprises in different ways. For example, oyster cultivation, which is largely uninsured, suffers from two main perils, polluted water from shore discharge, and in some areas, theft.
An additional peril, which may prompt legal action by an insurer and/or the insured farmer, is chemical spray drift. In New Zealand it is thought that the incidences of this peril are not great because aquaculture areas are usually distant from intensive horticultural zones.
In keeping with its specialist nature, the major insurer covers onshore aquaculture equipment and boats and offshore equipment, but not other related risk areas. However, these related areas, i.e. public liability, employer’s liability, product liability and marine liability, are readily available with other companies in the market.
9.7.1 Australia
The following species are currently insured in Australia (2004-2005):
|
Species |
Percentage insured (%)[12] |
|
Salmon |
70 |
|
Rainbow trout |
70 |
|
Abalone (paua) |
? |
|
Southern bluefin tuna |
30/40 |
|
Murray cod |
? |
Species likely to be insured in the future are: kingfish, snapper and Moreton Bay bugs.
9.7.2 New Zealand
Species presently insured are:
Pacific salmon - most (estimated at over 90 percent) of the growing stock is insured, as well as the sea cages in which they are held;
greenlip mussels - there is no insurance of growing shellfish, just of boats and gear;
abalone (paua) - about 50 percent of producers insure their stock;
yellowtail kingfish - currently there are only three operators. One of these operators, by far the biggest, insures all stock; the others are understood to be still at the early, developmental stage, but have enquired about insurance for the future expanded phase.
Snapper is likely to be insured in the future.
9.8.1 Australia
The following growing systems are currently insured:
freshwater flow-through hatcheries.
Growing systems that may be insured in the near future are offshore, submerged farms and ship-based aquaculture farms.
9.8.2 New Zealand
Growing systems currently insured in New Zealand are:
freshwater flow-through hatcheries.
A growing system that may be insured in the near future is aquaculture in offshore submerged farms.
9.9.1 Australia
As with other classes of insurance, reinsurance plays a key role in creating the capacity to undertake aquaculture business. The major specialist insurer in Australia retains up to 50 percent of the risk, for a maximum of US$250 000 in any one location. With higher levels of reinsurance the same company can write up to US$7 million per farm, or US$15 million per 15 km2. As a market leader this company sets its own terms and conditions for policies.
Despite the huge expanses of suitable locations for aquaculture enterprises in Australia, problems have begun for insurers in the form of aggregation of risk in a single locality, e.g. Port Lincoln.
9.9.2 New Zealand
Broker activity is strong in meeting the overall insurance needs of aquaculture units. This is necessary since underwriting of growing fish is largely undertaken only by one company, although another major insurer is gearing up to re-enter the market. However, this underwriter’s policies do not include onshore equipment and buildings, liability and business interruption, et alia, which are covered by other insurers.
Reinsurance plays a key role, with the main insurer of growing fish operating with a 50 percent global RI treaty. Clearly, this reinsurance arrangement plays a key role in creating the capacity to undertake aquaculture business. The major specialist insurer in New Zealand retains up to 50 percent of the risk, up a maximum of US$250 000 in any one location. With higher levels of reinsurance, the same company can write up to US$7 million per farm, or US$15 million per 15 km2. As in Australia, the same company, being a market leader, sets its own terms and conditions for policies.
9.10.1 Australia
Risk management surveys are an important part of the business of aquaculture insurance. Again, the major insurer uses both in-house and independent surveyors.
9.10.2 New Zealand
Risk management surveys are dealt with similarly as in Australia.
9.11.1 Australia
Independent loss adjusters are used in the assessment of claims against the policies following incidence of an insured loss.
9.11.2 New Zealand
Independent loss adjusters are used in the assessment of claims against the policies following incidence of an insured loss.
9.12.1 Australia
Over ten years of operations in Australia, from 1994 to 2003, the main aquaculture insurance company rates its experience as "good" or "very good" for seven years, "bad" for one year, and "very bad" for two years.
9.12.2 New Zealand
From 1994 - 2003, thus after ten years of aquaculture insurance operations in New Zealand, the company rates its experience as "good" or "very good" for eight of the past ten years, "neutral" for one year, and "very bad" in one year.
The major lesson to be learned from the Australian and New Zealand experience is that aquaculture insurance cannot be handled in the same manner as property insurance. On the contrary, it requires a risk management approach to the perils in any one farm or type of farms. Risk management surveys lead to the introduction of procedures designed to reduce the frequency of loss events, and to minimize losses when a peril situation occurs. Such techniques require considerable technical expertise and include the monitoring of systems, the water and the health of the farmed species on a regular basis.
When the farmed species is insured, not only does the insurer insist on an a priori risk management survey, but also requires farming practices to allow for reduction in losses in the operation. Such requirements convey direct benefits to insured farmers by ensuring that high-level expertise is available to them.
Closely associated with this is that the insurance industry constitutes a useful pool of information. Loss events are carefully assessed since claims are involved, so that the information on losses and the associated peril events is far more accurate than sources such as newspaper reports. One insurance industry professional claimed that insurers have effectively acted as a useful cog in the research and development (R&D) machinery of the nascent aquaculture industries in both Australia and New Zealand.
Over the last ten years, in both Australia and New Zealand, on-farm equipment and management practices have improved significantly to the extent that loss containment has been greatly improved. However, the incidence of toxic algal blooms, diseases and losses due to adverse environmental events has not diminished, driving the industry towards onshore facilities, where perils can be more readily controlled.
Finally, it is notable that new technology is increasingly being developed in order to cut losses and to safeguard the health of products being harvested. It should be noted that when linked to losses, automatic recording devices measuring such variables as rainfall and salinity might provide the basis for index-type insurance products in the future.
A major area of concern to aquaculturalists and to their insurers in Oceania, is water pollution arising from land-based operations. These range from industrial processes to sewage leakages from both established and new housing developments. The trend in recent years for population movements towards coastal areas creates a potential conflict situation with those earning a livelihood from the tidal or neartidal zones of the coastal area.
With the growing maturity of the aquaculture industries of Australia and New Zealand, it should be possible for effective dialogue to be fostered between the aquaculture industry and government, regional councils and other local body guardians of the seabed and foreshore. Unfortunately, there is some distance to go in this direction, as is evidenced by recent court actions brought by aquaculturists against local authorities over the alleged failure of the latter to properly control polluted water run-off into the ocean, close to oyster racks, which resulted in harvest bans. Failure to satisfactorily address the issues involved will carry a very serious threat to the viability of the aquaculture enterprises in certain parts of the two countries concerned.
|
[11] Please see Chapter 2,
section 2.2, footnote 2. [12] These estimates are based on an interview with one of the leading Australian brokers of aquaculture insurance, based in Sydney. Because he may not necessarily be aware of all policies written by the Lloyd’s market, for example, it is possible that the estimates are slightly conservative. However, they are regarded as indicative and therefore useful for the purposes of this study. |
