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4 Risk management frameworks

This section puts the use of risk management tools and techniques into perspective, looks at the use of such tools in other industries and regulatory frameworks, explores the AS/NZ Standard 4360 for Risk Management, and reaches a conclusion about the applicability of the appropriate tools for examining the risks associated with aquaculture.

4.1 Introduction to risk management

Managing risk is an integral part of good business practice. Learning how to manage risk effectively enables decision-makers (and other stakeholders) to achieve improved outcomes by identifying and analysing a wider range of issues and providing a systematic way to make informed decisions. A structured risk management approach also encourages the identification of opportunities for continuous improvement through innovation.

The underlying principles of managing risk are largely generic, but the specific environment of each industry - comprising its legal, cultural, shareholder, socioeconomic and physical attributes - determines the context for managing risk. Industries such as aquaculture will face risks in a number of different areas, and a comprehensive risk management programme will provide a means of identifying and prioritising risk areas as well as specific risks.

Risk management techniques provide decision-makers at all levels with a systematic approach to identifying, assessing and managing the risks that are integral parts of their responsibilities.4 The process used and proposed for future use is AS/NZS 4360:2004 Risk Management. This was the world’s first and leading risk management standard, originating in 1995, and is one of the three standards that is internationally accepted by ISO (the others are from Canada and the UK). AS/NZS 4360 has been used in a number of international public and private sector contexts, including national-level risk management for health sectors in the UK, Canada and Korea.

Figure 1: Diagrammatic representation of AS/NZS 4360:2004 risk management

4.2 Best practice

Globally, risk management practices have been formally recognised for over 55 years. A science and practice has developed since then, such that there is considerable maturity in the principles, practice, methodologies, tools and education that goes with them.

A lot of codified best practice in the marine environment has been driven by oil industry activity and the potential impacts of these activities. Major losses and spillages that have had significant economic and environmental impacts have been particularly influential, with Torrey Canyon (1967), Amoco Cadiz (1978) and Exxon Valdez (1989) being the most notable. The oil industry has a major component of its operations at sea from fixed and floating drilling rigs, through supertankers, marine terminals, and coastal tanker and barge operations. It has also been through considerable numbers of lifecycles of equipment reaching the end of its operational life, or being damaged in major hazard events. For example, Hurricane Katrina in 2006 caused damage in excess of US$1.4 billion to oil rigs in the Gulf of Mexico, yet none were totally abandoned, mainly due to oil’s current scarcity.5

North Sea oil rigs reaching the end of their natural life and facing possible abandonment gave rise to considerable public debate in Europe. This resulted in the development of protocols to accept the sinking of such structures on the sea bed after extensive clean-up. (The first end-of-life oil production structure, Brent Spar, had meanwhile been towed to land and dismantled.) In 1989 the International Maritime Organization of the United Nations set a series of guidelines regarding the removal of offshore installations. Oil rigs that are in water less than 100 metres deep had to be completely removed, but those in deeper water could be sunk as long as they had 55 metres of clear water over them.6 It is likely that these protocols would be followed today if something happened to, for example, the Maui platform, once the risk of oil spill had been reduced to “as low as reasonably practicable”.

The marine industry, particularly that involving shipping and drilling activities, has adopted a number of risk management-based conventions. For example, MARPOL (Marine Pollution Regulations), although not mandatory, effectively mean that any vessel owner not prepared to operate accordingly will not get contracts to carry cargoes or be permitted to dock at most oil facilities worldwide.

The marine insurance industry rating of ships is completely risk based. Similarly, the oil industry has very sophisticated and dynamic risk-based mathematical models, which are widely used in daily operation to govern the safety of its operations because of the extensive data available. This sort of confidence and extensive use of failure and event data is one of the reasons more hazardous activities can be permitted by regulatory authorities.

Within New Zealand, similar use has been made of such mathematical techniques. The Maritime New Zealand 2004 Oil Spill Risk Assessment report concluded as follows:

The 2004 risk assessment gives an updated (and we believe) more reliable picture of the likelihood of an oil spill in New Zealand waters than the previous study. It also includes better information on fishing vessels and smaller vessel activity and their contribution to the overall spill risk. Overall, it should provide greater insight into the patterns of shipping activity and the relative contribution to oil spill risk from the different risk creators, as well as giving an improved picture of the geographical spread of spill risk. It must be emphasised that the oil spill risk assessment is an ongoing process, with the aim over time of improving the characterisation of the risk so as to better understand it, while at the same time actively working to reduce that risk.7

This sort of approach for a potentially hazardous activity that is widely accepted as being necessary reflects current best practice in risk management. It makes an informed risk assessment, then makes provision to remediate the risk by providing a pooled national response resource, operated by both regional councils and Maritime New Zealand, which is paid for by an oil pollution levy based on the risk of oil spillage.

Mining is another industry that operates extensively in coastal marine areas with a wide range of mining methods. One of the most wide-ranging approaches to remediation is the Code of Practice for Marine Mining adopted by the International Marine Mineral Society, based on international experience and environmental referencing going back to 1873.8 Its environmental risk management approach is quite specific about the decommissioning phase:

Rehabilitation and decommissioning

Ensure that decommissioned sites are rehabilitated and left in a safe and stable condition, after taking into account beneficial uses of the site and surrounding seabed.

  1. Incorporate rehabilitation and decommissioning options in the conceptual design of operations at the feasibility stage.
  2. Develop clearly defined rehabilitation plans, monitor and review rehabilitation performance and progressively refine such plans.
  3. Determine and account for rehabilitation and decommissioning costs and periodically review their adequacy during the life of the operation.
  4. Establish a program of progressive rehabilitation commensurate with the nature of the operation and the type and rate of disturbance.
  5. Periodically review the rehabilitation and decommissioning strategies during the period of operations so as to incorporate changing regulatory requirements, public expectations, and environmental and cultural information.
  6. Address issues and programs related to long-term responsibility for the seabed in the final decommissioning plan.

Risk management best practice for aquaculture is not as well established. It typically takes the form of industry- and regulator-mandated codes of practice and other types of voluntary agreements, along with consent conditions on marine farming permits. Consent conditions typically require the removal of structures and site remediation to the condition at the commencement of activity.

International commentary indicates that risk management is not comprehensively incorporated into the approval conditions for aquaculture in jurisdictions across Australia, the United States of America and Europe, let alone in the many developing economies in which aquaculture has taken (or is taking) hold. There are concerns that risk management tools are not applied evenly throughout national aquaculture sectors, and that there has been limited scientific risk analysis and assessment applied to aquaculture.

A more scientific approach would yield a more effective aquaculture regulatory environment, but rigour must be balanced by practicality in terms of using risk management tools that have potential benefits that outweigh the costs of establishment, development, monitoring and administration. However, there is an increasing understanding of aquaculture risks and how these can be managed, and this knowledge is being slowly integrated into management practices and regulatory frameworks.

4.2.1 Environmental management systems

Environmental management systems are frameworks that can be applied to the management of an enterprise to help identify, prioritise and manage environmental impacts in a systematic and continuous manner. They are adopted for their direct economic benefits as well as to demonstrate commitment to sound environmental practice. Limits on the adoption of environmental management systems are cost and compliance burdens. These costs and burdens are typically taken on to provide business with economic and marketing advantages, and their management for protection of the public good is not well established.

4.3 Risk management contexts

In any risk management study the first stage is to establish the contexts in which risk is to be analysed and assessed.

For aquaculture there appear to be three risk contexts that cover the entire risk profile of the industry, as it exists at present and is likely to evolve in the future. With this approach, users will also be able to adapt and utilise the frameworks to the individual contexts of the land-based aspects of aquaculture. This is useful because it does not appear logical to separate these activities, there being no aquaculture facility in New Zealand that is completely independent of shore-based facilities.

The three contexts are:

  • research and development
  • early stage commercialisation
  • full commercialisation.

A brief description of each of these contexts sets the background within which users of risk management frameworks can perform their risk analyses.

4.3.1 Research and development (R&D)

The R&D phase is necessary for the enrichment and ongoing development of this growing industry as it seeks to embrace new species and new methods of efficient marine farming. R&D activities cover aspects of improvements to existing species, new species biology, and new technologies (e.g. feeding and breeding habits, performance in different habitats, interaction with flora and fauna, growth studies, structures for farming, economic studies, and marketing and technology studies).

In New Zealand, major research contributors include the Cawthron Institute, NIWA Aquaculture, and the marine biology departments of universities. More recently aquaculture companies are joining Foundation of Research, Science and Technology and privately funded studies to ensure the research has a commercial focus.

R&D studies can be extensive and include significant public sector involvement. For example, a joint study by the Universities of Otago and Auckland into specialised enhancement of kina roes involved 12 private companies over three years and over $3 million of Crown funding, plus private equity funding from other participants.9 The typical timeframe for new species development is 7 to 10 years.

The primary objective of the R&D phase, against which risk can be analysed, is the development of innovative and value-added research that will make the aquaculture industry in New Zealand grow and be more profitable. In this phase the risks of failure are potentially very high and could lead to the abandonment of especially set-up facilities. These facilities might be established at great cost by the various equity partners, and there may be no apparent parties to take over the specialised assets.

There would appear to be little recognition of this phase in existing New Zealand aquaculture risk management. By comparison, in other jurisdictions (Chile, Norway, Canada and Australia) considerable risk is borne by the Government and local authorities. A broad range of consent (or no consent) conditions are permitted to facilitate this critical phase, and some international jurisdictions have provided economic instruments to support sustainable development.10 There is no available literature about who bears the cost of any abandonment during this phase.

4.3.2 Early-stage commercialisation

Early-stage commercialisation is where licensed technology, or that derived from the R&D phase, is taken by an investor or group of investors to a commercial stage. In aquaculture this usually occurs over two to three years. In this phase, activities include business and marketing planning, market exploration, contracting for supplies and broodstock, farm licensing or water leasing, capital equipment purchase, employee sourcing and contracting, and further specialised R&D. Adequate private equity and a reasonable degree of security about the risks expected in this phase are often necessary for the venture to proceed. The New Zealand salmon and mussel industries are good New Zealand examples where commercialisation of R&D has occurred, according to the sources interviewed.

New Zealand, although a good place to practise aquaculture, has suffered from a lack of sound business cases to get investors involved in any significant projects. Industry sources cite a number of abandoned land-based - and some water-based - facilities or very limited, non-commercial hobby farming approaches to aquaculture.

This phase has a high cost of entry compared to other protein farming activities. Whereas other start-up businesses may expect to have a positive return on capital within three to five years, new forms of aquaculture are, by all accounts from well-established marine farmers, some 12 to 15 years from concept to liveable income. As a result they require quite different investment cultures and/or strategies.

There may be a number of competing objectives in the early commercialisation phase, including:

  • proving the scalability of R&D concepts, science and technology
  • establishing markets
  • establishing management regimes
  • building core competence and capability
  • generating cash flow and staying solvent
  • building and protecting intellectual property
  • building rapport with regulators
  • attracting further investors, as necessary.

Because the scale at this stage may be small (many oyster farms started off with one or two hectares), the possible environmental impacts are similarly reduced, although this depends on the activity being undertaken (e.g. moving from mussels to paua or finfish on an existing farm, or a new site, could have significant effects). There is a specific risk profile of activities in this phase that requires recognition during the risk analysis phase.

4.3.3 Full commercialisation

The full commercialisation phase is most familiar to regulators and the one most widely studied and analysed in New Zealand aquaculture. However, this phase was not reached without many players passing through the R&D and early-stage commercialisation phases described above.

For an industry to be recognised as being in this phase, some of the key questions to ask are:

  • is it geographically widespread?
  • is it profitable?
  • do people want to enter the industry?
  • is it growing as demand grows?
  • is there ongoing investment in R&D to make it more profitable?
  • are all the underlying infrastructural elements in place (e.g. training and education, industry associations, equipment producers, maintenance contractors, upstream and downstream processors)?

Marine farming species in this phase are GreenshellTM mussels, oysters and king salmon, as noted previously. Emerging aquaculture species such as paua, kingfish and kina are mostly in the previous two phases, but may be expected to become fully commercial under the right conditions.

4.4 Risk analysis methods and their applicability

As part of this study, quantitative and qualitative methods were examined to establish risk analysis methodologies appropriate for studying the aquaculture industry in New Zealand. Qualitative methods rely on opinion, informed judgement and creative analysis. They can include using techniques such as:

  1. brainstorming
  2. evaluation using multidisciplinary groups
  3. specialist and expert judgement
  4. structured interviews/questionnaires.

This report used techniques (c) and (d) with participation from a wide range of experts and stakeholders, culminating in a facilitated session to test the approach in (d) using a multidisciplinary group of government officials, council planners, and research and industry participants.

In contrast, quantitative methods can include:

  • consequence analysis
  • decision trees
  • fault tree and event tree analysis
  • influence diagrams
  • lifecycle cost analysis
  • network analysis
  • probability analysis
  • simulation/computer modelling
  • statistical/numerical analysis
  • test marketing and market research.

Part of the study considered whether there was sufficient information within the aquaculture industry to support a quantitative approach to risk analysis. A fault and event tree was created to assess the risk of marine farm abandonment. The fault tree shows that farm abandonment is a two-stage process. First, a marine farming business must fail or otherwise be unable to continuing farming activities at the site. Secondly, the farm must remain with no owner present. If the farm site is then sold to another marine farmer or farming activity otherwise resumes, abandonment is avoided.

Figure 2: Fault and event tree: marine farm business failure

Further application of such a quantitative approach was constrained by the absence of available data from research and industry sources to populate a fault and event tree. It was particularly difficult to address the need for data that captures the likelihood of a site that has had a farm failure on it being returned to business as usual. It is hoped all relevant data may be more easily captured in the future with the formation of Aquaculture New Zealand as the industry’s single representative body.

It was concluded that, at this point in time, a qualitative approach to risk analysis would have to be used. The fault and event tree above is, however, an instructive conceptual model for understanding how the risks to aquaculture in general might lead to abandonment. Where there is particular historical data that is credible both to the industry and to councils, this could be used to inform an assessment of the risk of abandonment.

4.4.1 Pure risk versus residual risk analysis

Within the risk analyses that could be performed there are several different sub-approaches. The first decision to make is whether to measure pure risk (the risk not taking into account any current controls) or the residual risk (the risk remaining after established controls have operated as designed). To do this, several key questions need to be asked:

  • What are the current controls that may prevent, detect or lower the consequences of potential or undesirable risks/events?
  • What is the potential likelihood of the risks?
  • What are the potential consequences of the risks if they do occur?
  • What factors might increase or decrease risk?
  • How confident are the judgements of likelihood and consequences?

If the aim of the risk analysis is to examine a completely new activity, where no previous experience can be drawn upon from this industry or a comparable one, and where the confidence about the judgements is low, then risk analysis will typically consider pure risk.

Where the industry is reasonably mature, there have been incidents with known outcomes, and where there are controls to reduce either the likelihood of a particular risk or reduce the effect of its consequences, then residual risk analysis is the preferred approach. Because there is a focus in this report on the risk of abandonment of marine farms, a residual risk approach was trialled, as described below.

4.5 Multi-stakeholder risk analysis

This section describes the qualitative risk analysis process trialled by Stimpson & Co in a multi-stakeholder workshop on 13 July 2007. It is also recommended later in this report to be used for all aspects of measuring residual risks of aquaculture activities in national, regional or smaller location-specific settings. This process provides a way of establishing a risk weighting or score based on the assessed likelihood and consequence of a particular risk. This section should be read in conjunction with the Excel file “Aquaculture Risk Analysis Trial July 2007.xls”.

4.5.1 Risk analysis

After the risks are identified, they are analysed and scored against the:

  • potential consequences
  • likelihood of occurrence.

It should be noted that existing management, technical systems, controls and procedures are taken into account when analysing risk.

Consequence

Consequence is the potential worst-case impact to the organisation from the risk after the magnitude of the loss is mitigated by current controls. Categorised as catastrophic, severe, major, moderate or minor, it can be thought of in terms of impact to health and safety, image, environment, stakeholder interest, or cost or delays to major projects or activities.

In circumstances where it is hard to equate several differing types of consequence (e.g. fatalities against cost) in a meaningful way, both consequences and the probability of their separate occurrence can be measured and recorded. The consequences have been matched in magnitude to the present size and shape of the aquaculture industry in Table 1 below. For different industries and objectives this table can be changed to suit.

Table 1: Scoring consequence and consequence type
  Consequence type Score

Health and safety

Image

Environment

Stakeholder Interest

$ extra cost or loss

Major project or activity delays

Catastrophic

Multiple fatalities

International media cover

Permanent widespread ecological damage

Special board meeting

> 1 million

> 1 year

5

Severe

Several fatalities

Sustained national media cover

Heavy ecological damage, costly restoration

Raised at board meeting

500,000 -
1 million

> 6 months

4

Major

Single fatality

Regional media cover or short-term national cover

Major but recoverable ecological damage

Share-holder enquiry

250,000 -
500,000

> 3 months

3

Moderate

Serious injuries

Local media cover

Limited but medium-term effects

Union raise issue

100,000 -
250,000

> 1 month

2

Minor

Minor injuries

Brief local media cover

Minor short-term effects

Staff raise issue

< 100,000

> 1 week

1

Note: In the case of an opportunity risk, the relative loss from not taking the opportunity is assessed.

Likelihood

Likelihood is the probability of the worst-case outcome eventuating after existing controls are considered. These are categorised as frequent, probable, occasional, remote or improbable. This table tends to remain the same for any type of project, industry, etc. If an actual frequency of consequences is known, this should be used rather than the qualitative likelihood.

Table 2: Scoring likelihood
  Frequency Qualitative Threat score
Frequent At least once per year Almost certain 5
Probable At least once per 5 years Likely 4
Occasional At least once per 10 years Possible 3
Remote At least once per 50 years Unlikely 2
Improbable Less than once per 50 years Rare 1

Note: In the case of an opportunity risk, the likelihood of failure of actions intended to seize the opportunity is assessed. The overall score for a risk is determined by multiplying together the risk scores for consequence and likelihood. The spreadsheet does this automatically.

4.5.2 Risk assessment

After ranking the risk analysis, use Table 3, or a modified one that better suits the defined purpose, to decide what risk mitigation treatment may be used for each risk measured.

Table 3: Risk assessment and mitigation treatment
 

Minor (1)

Moderate (2)

Major (3)

Severe (4)

Catastrophe (5)

Frequent (5)

Low risk

Enhance systems to minimise potential

Accept

Repair

Moderate risk

Enhance systems to minimise potential

Very high risk

Immediate action

Avoid

Enhance systems to minimise potential

Extreme risk

Immediate action

Cease activity

Avoid or eliminate threat

Extreme risk

Immediate action

Cease activity

Avoid or eliminate threat

Probable (4)

Low risk

Enhance systems to minimise potential

Accept

Repair

Moderate risk

Enhance systems to minimise potential

Insure

Very high risk

Immediate action

Enhance systems to minimise potential

Very high risk

Immediate action

Avoid

Contingency plans

Extreme risk

Immediate action

Cease activity

Avoid or eliminate threat

Occasional (3)

Negligible risk

Accept

Repair

Moderate risk

Enhance systems to minimise potential

Insure

Contingency plans

Very high risk

Immediate action

Insure

Contingency plans

Very high risk

Immediate action

Avoid

Contingency plans

Very high risk

Immediate action

Avoid

Contingency plans

Remote (2)

Negligible risk

Accept

Repair

Low risk

Accept

Repair

High risk

Monitor

Insure

Contingency plans

High risk

Monitor

Insure

Contingency and disaster plans

Very high risk

Monitor

Insure

Contingency and disaster plans

Improbable (1)

Negligible risk

Accept

Repair

Low risk

Accept

Repair

Moderate risk

Monitor

Insure

Contingency plans

High risk

Monitor

Insure

Contingency and disaster plans

High risk

Monitor

Insure

Contingency and disaster plans

4.5.3 Risk registers and treatment plans

The outcome from a risk identification, analysis and evaluation activity should be documented using a risk register (Excel/Access), or a specialised database-driven product. The register details the:

  • risk description
  • risk consequence and likelihood
  • risk score
  • highest priority risks drawn from the risk register
  • proposed treatment
  • responsible personnel
  • target dates for any action (e.g. risk reduction measures).

The risk register should be revisited as circumstances change, or as risks are reduced by agreed action.

4.5.4 Other uses of the risk analysis approach

In the attached spreadsheet only one set of risks against particular objectives has been addressed for this project - business failure - which may or may not lead to abandonment of the marine farm. The spreadsheet includes, by way of example, other objectives and risks related to aquaculture that may prove helpful. These have not been evaluated because the key concern of this project is marine farm abandonment.

4.5.5 Best use of the approach

The best use of this approach is as follows.

  1. Gather a multidisciplinary group of people together (10-12 is a good-sized group). These should be people who have input based on their knowledge of the topics being risk scored.
  2. Secure an independent facilitator to arbitrate and maintain progress.
  3. Have one person recording scores directly into the register, projected on a screen.
  4. Give everyone a list of the scoring sheets to be used and ensure they understand the process.
  5. Make any changes to the scoring or evaluation sheets before beginning the risk analysis.
  6. Agree on the objectives that are having their risks analysed.
  7. Brainstorm the risk to be assessed. It may be useful to start with a partially pre-populated register, or run over previous scoring.
  8. Get a consensus on any risk metrics that are important and put these in a visible place (e.g. costs of delays, possible size of losses) so there is consistency between risks.
  9. Decide if a risk is general or varies across different sectors of an industry (e.g. mussels, oysters, finfish), or only applies in a differing risk context (e.g. the Research & Development (R&D) phase only).
  10. Do not try to score more than about 40 risks in any one session: people lose focus!
  11. Use the risk register as the minutes of the meeting.

4.6 Risk evaluation

Once the residual risk has been ascertained, the next step is to evaluate the risks and decide whether they are acceptable or not. The process followed in the trial risk analysis has a suggested evaluation table for risk acceptability (Table 3), which follows some norms used for national infrastructural industry. It should be noted, however, that societal norms and values change over time, as do the perspectives of stakeholders, so any risk acceptability criteria must be reviewed from time to time.

There are no sets of prevailing guidelines about the acceptability of risk in the coastal marine area. Councils have set their own parameters through approving the ongoing operation of certain coastal marine area structures (e.g. wharves and marinas) with no bond requirements. Common law and such bodies as the Environmental Risk Management Authority use the “as low as reasonably practicable” approach to determine risk acceptability criteria.

4.6.1 History of abandonment of marine farms in New Zealand

For the period 1971 to 2004, when the Ministry of Fisheries and its antecedents governed and permitted aquaculture, forfeiture notices were served to abandoned and/or derelict farms. The Ministry of Fisheries reports the following.

  • There are only 10 leased areas still in the forfeiture process. Nine are at Waikare Inlet. Now that court proceedings against Far North District Council are concluded and stock-relaying requirements have been amended (but are still required), all seven lessees have indicated to the Ministry of Fisheries that they intend to comply with their forfeiture notice (i.e. put the areas into good order and repair and operate them as viable farms). All lessees except one have gone some considerable way to comply.
  • At Mahurangi, in the Hauraki Gulf, the Ministry of Fisheries has been unable to locate the one lessee whose lease is undergoing forfeiture. The area is very small and carries only a few bundles of catching sticks. The Ministry is considering forfeiture, and local oyster farmers indicate they will clear the area and keep the timber structure and sticks.
  • Of all the forfeiture notices the Ministry has issued, only one lessee has failed to comply. That lease was forfeited and local marine farmers have almost completed clearing the area at their own cost.
Table 4: Summary of forfeiture action taken and the number unresolved
Type of farm Number of forfeiture notices served in the past Number with outstanding forfeiture action Total number of leases or licences
Finfish farms 0 0 30
Mussels 9 0 521
Oyster farms 89 10 337

Source: Ministry of Fisheries

This forfeiture data is not a definitive record of marine farm abandonment. Some abandonment events known to the Ministry have not been captured in available records, including:

  • the abandonment of a mussel farming enterprise using experimental structures in Kaipara Harbour in the early 1980s
  • the Ministry of Fisheries contracted removal of a small (around 1 ha) oyster farm in Northland that had been established several miles away from its proposed location on an unproductive site in the late 1960s
  • the Ministry of Fisheries undertook removal of a small oyster farm in Tauranga harbour in the late 1960s.

The total instances of marine farm abandonment are more accurately reflected by the following figures:

  • mussel farm abandonments – 1 (experimental farm)
  • finfish farm abandonments – 0
  • oyster farm abandonments – 3.

These values will be used to inform the assessment of the risk of marine farm abandonment in section 6.4 of this report.

The data demonstrates that finfish farms have no history of abandonment and/or dereliction and mussel farms have a negligible history of abandonment and dereliction. This history therefore does not indicate an unacceptable residual risk of abandonment for finfish and mussel farms.

The history of oyster farm abandonment is somewhat more problematic, but better knowledge and application of site selection criteria will likely mitigate many of the risks that have led to previous abandonment, as will the more intense monitoring regimes used now and the application of codes of practice.

The issues of previous poor site selection on long-standing farms and vulnerability to site pollution will remain important in considering risks to pockets of the oyster farming sector. The analysis carried out shows that the likely rate of abandonment, dereliction and/or failure to maintain operating standards leading to forfeiture notices in the future across the sector as a whole is not as significant as the historical data suggests. Ongoing improvement to farming practice, zoning water space and monitoring for marine farming and consenting of land-based pollution sources is significantly reducing the rate at which abandonment can be expected in the future.

4.6.2 Qualitative assessment of the residual risk of marine farm business failure

At the risk scoring workshop on 13 July 2007, a partial risk assessment was trialled for the full commercialisation phase of aquaculture, focusing on the risk of business failure, which may or may not lead to farm abandonment. The assessment was a trial exercise which provided a general indication only of the residual risk of marine farm business failure. The risk analysis procedure should be repeated in a localised setting where those with local history and industry practice can assess the risks together.

The risk assessment was based on the possible failure of individual businesses rather than the industry as a whole, so any risk evaluation would have to ask which of these risks could pose a cumulative effect on the industry and how such a cumulative effect should be dealt with; for example, is this a risk the Government accepts, as it does with foot and mouth disease?

Out of some 27 business failure risks assessed, eight were within the range that would probably not be deemed acceptable residual risks to industry and other stakeholders. These residual risks and their controls are outlined in Table 6. One of these risks, unsustainable losses resulting from an unproductive site (Risk 2 on Table 6), is applicable to oyster farms that existed before the RMA.

A notable ongoing risk management issue is presented by a number of Northland oyster farms that have recently been transferred from the Ministry of Fisheries regime in moderate or poor condition to the responsibility of the Northland Regional Council under the RMA. These farms have ongoing consent compliance issues that may threaten their business, and even short-term site viability. Northland Regional Council is concerned that these farms pose an unacceptable residual risk of abandonment. Unsustainable losses due to an unproductive site may also be a risk to oyster farms consented after the RMA, but the risk is lower due to improved zoning, planning and farming practice. The risk posed by water quality changes from sewage plant failures applies predominantly to oyster farms, but may also apply to other inter-tidal cultures.

The other risks apply to all other marine farms, now and in the future. Six of the eight are external risks beyond the control of the marine farmer. None of the risks identified were so high that it would be deemed that aquaculture, as practised and controlled today, is so risky a business that it should not be permitted.

The highest-ranked risk identified was a major biosecurity event. This was considered likely to be the result of the failure of a national system, in this case biosecurity control. This could be a national issue with a national response forthcoming,11 or focused in one location. It could affect a broad spectrum of marine life or a single aquaculture species. However, the New Zealand aquaculture industry has coped well with such situations, which have only had a significant effect on industry production for a relatively short time: six months, during an algal bloom incident in 1993, is cited as the longest time for harvesting limitations for oyster and mussel farms.

Those companies that have diversified in different regions around New Zealand are best able to cope because their stock can be removed and re-laid elsewhere. Furthermore, biosecurity risk management is an area of ongoing and industry-driven improvement, with a sophisticated biotoxin monitoring system in place, and a biosecurity monitoring code of practice is being developed in conjunction with Biosecurity New Zealand.

The risk of systemic widespread business failure due to biosecurity hazards leading to gross abandonment, given the history within the industry and the risk controls in place, does not appear to be significant.

The seventh-ranked risk, a major natural hazard event (Risk 2 on Table 5), would probably mean that considerably more of New Zealand’s coastal and/or land-based structures and systems were at risk than just marine farms. The severity of this outcome would likely attract a national response in which marine farm abandonment would be only one of many considerations. Widespread, severe impacts resulting in unsustainable losses affecting business viability could also come about from fluctuations in the New Zealand dollar exchange rate, primarily against the US dollar.

These external factors are likely to significantly reduce business revenue through reduced productivity or profit, which can lead to business failure. It can be assumed that natural hazard and biosecurity failure effects are likely to be more random and uncertain, than the New Zealand dollar exchange rate. However, there needs to be ongoing review by industry and consenting authorities of such overarching effects and how they may affect the risk profile of industry participants.

High operating costs causing unsustainable losses is the most significant internal risk for marine farm business failure. Marine farmers facing unsustainable losses are likely to exit the industry by sale or rationalisation.

Over the long lifetime of marine farms and consent periods there will be fluctuations in the key profit drivers (such as the exchange rate), and there will undoubtedly be further incursions of various unwanted biological organisms with unknown or unpredictable effects, much of which is paralleled in land-based agriculture. Climate change may generate more severe weather events, and the frequency of these may increase in New Zealand. However, marine farming has withstood these events and adapted its systems accordingly.

All of these events are components of cyclical, often self-correcting systems that are ‘business-as-usual’ for primary production operators, as witnessed by the survival of participants in pastoral farming, forestry, fishery and aquaculture over many such cycles.

Overall, the qualitative risk assessment showed that there are a number of possible circumstances that may result in business failure, but that the general risk of marine farm business failure is low in the current New Zealand aquaculture context.

Table 5: Highest risks to business failure, as identified by stakeholders at a trial risk scoring workshop, 13 July 2007

Type of marine farm

Risk

Risk contributor

Internal (manageable) or external (strategic)

Consequence type

Consequence rating

Likelihood rating

Current controls

Business failure risk score (ranking)

1

All

Business failure

Failure of border control - biosecurity failure

External

Cost

Severe

Occasional

Management, eradication, control, in first instance - incursion prevention

12 (1)

2

Oyster

Business failure - first granting pre-RMA

Unsustainable losses - income too low, site not productive

External

Environment

Major

Occasional

None

9 (2=)

3

All

Business failure

Unsustainable losses - operating costs too high

Internal

Cost

Major

Occasional

None

9 (2=)

4

All

Business failure

Water quality changes - change to land use

External

Cost

Major

Occasional

Regional planning input, reverse sensitivity issues, effective sanitation, input into NZCPS review

9 (2=)

5

Oyster

Business failure

Unsustainable losses - income too low, site not productive

External

Cost

Major

Remote

Exit/ rationalisation (sale), maintaining working capital - debt, value maximisation from product (branding, etc)

6 (5=)

6

All

Business failure

Consent/compliance costs too high

External

Environment

Major

Remote

Exit/ rationalisation, submission to planning process

6 (5=)

7

All

Business failure

Disease/pathology impact

Internal

Cost

Major

Remote

Treatments, water quality, change management

6 (5=)

8

Oyster

Business failure

Water quality changes - spillages from sewage plants system failure

External

Cost

Moderate

Occasional

District plans, consent requirements, monitoring, warning systems, input in regional plans and NZCPS review

6 (5=)

Note: This table represents the result of the risk assessment methodology trialled in a workshop setting. It does not represent an endorsed expert assessment of these risks relative to each other, or to the consequence and likelihood ratings recommended in Tables 1 and 2. It is to be used as a worked example for councils undertaking this risk assessment methodology in a localised setting. NZCPS – New Zealand Coastal Policy Statement.

4.6.3 Water space value and structure value reduce the residual risk of abandonment

In the event of marine farm business failure in the current aquaculture context, the residual risk that councils will be required to restore sites is reduced further due to favourable conditions for on-sale of water space and/or the removal and on-sale of structures.

When the export business for aquaculture is sufficiently profitable (current industry opinion suggests this means an exchange rate less than US$0.75 to NZ$1), any business failure is likely to result in on-sale to another party. Sales of consented, farmed space occur 20-30 times per annum across the industry as farmers exit the industry for a range of reasons, much as they do in land-based primary production. When there are pressures on industry revenue and increases in participants exiting the industry, water space may be purchased for strategic reasons by larger companies to spread risks or to develop alternative species or means of farming, or by smaller players wishing to increase the scale of their operations. This has proven true even in the current state of the New Zealand aquaculture industry, where water space values recently reached an all-time high.

In the current New Zealand aquaculture context, the capital value of sea cage and long-line culture structures provides a reliable incentive for owners or other farmers to remove these structures from abandoned sites, whether or not the site will be farmed again. The wholesale value of stock currently exceeds the costs of harvest and recovery by a factor greater than two. The market value of recovered long-line structures also exceeds the cost of recovery. The complexity of sea cage structures suggests that their residual value will also be much greater than the cost of recovery. It is very unlikely that long lines or sea cages would be abandoned in the coastal marine area, provided industry participants have access to the site to undertake recovery.

The residual value of rack culture structures is much lower, but could provide some additional incentive for structure removal. Low-value, difficult-to-remove fixtures such as posts are the most likely to be left in the coastal marine area.

Overall, in the current industry context the cost of remediating sites with left-over structures seems unlikely to deter potential buyers of marine farming space.

4.6.4 Residual risk of adrift farm structures

The residual risk from adrift farm structures was analysed and only one risk scenario, that of a one-in-50-year storm affecting a number of mussel farms, caused concern. In this scenario, boat entanglement in submerged mussel lines (as recreational boating often occurs near mussel farming sites) is a possible but highly unlikely consequence. In such a scenario, insurance may meet some liability claims and marine gear, and the mussel lines could be recovered at some cost to the marine farmers. It seems unlikely that this sort of event would lead to farm abandonment on any scale.

The case of an adrift salmon farm structure in the Marlborough Sounds in 2005 is instructive of how risk from adrift structures is minimised by current controls. According to farm owners, the combination of the year’s highest spring tides and already fast currents resulted in excessive pressure, which snapped two moorings. Within 10 minutes the farm was broadside to the current, compounding the strain on the remaining extensive configuration of moorings. Other moorings then consecutively snapped, allowing the farm to drift from its inshore position some 200 metres or so towards the centre of the channel. Within two hours the farm was secured to numerous tug boats, and was moored in an alternative site within 24 hours. The harbour master was directly involved throughout the recovery operation, and the cost of tug boat use was met directly by the salmon farmer.

The operators of this and other large structures now take a “belt and braces” approach to risk reduction, with double moorings and larger anchor blocks in use. In future, more open sea environments may be used for finfish farms. These must be analysed for the potential of increased risk, particularly from tidal and tsunami events.

4.6.5 Clean-up and restoration costs for marine farms

It is difficult to propose standardised costs for the clean-up and restoration of marine farm sites because there are so many variables. Potential contributing costs include:

  • the type of structures at the site
  • the species being farmed
  • the length of time the farm has been operating poorly before abandonment
  • the presence of stock on the structures
  • site-specific conditions that may affect the level of environmental impact from farm abandonment
  • site-specific conditions that may hinder clean-up or restoration efforts
  • who undertakes the clean-up work
  • the requirement to have resource consent for undertaking restoration activities.

As part of the study, stakeholders were asked to provide indicative estimates of potential clean‑up and restoration costs (all costs are in 2007 rates).

  • One corporate marine farmer estimated that they could decommission an unused mussel line for $3,000 (at three to four lines per hectare the cost could be up to $12,000 per hectare).
  • Industry estimates the cost of removal of redundant oyster farming structures as $3,250 plus GST per hectare, as undertaken at full cost by an independent contractor.
  • Clean-up of a long-defunct oyster farm site would typically focus on sediment removal. One council estimated that such a clean-up could cost up to $30,000 per hectare in dredging costs alone, without considering the cost of structure removal and obtaining resource consent for dredging and dumping activities.
  • There are no estimates for the costs of restoring a finfish farm site.

These estimates are not comprehensive, qualified or rigorously supported, but have some utility in providing an order of magnitude of costs that can inform risk assessment and analysis of potential risk mitigation. Better-supported estimates are becoming available, but the cost of remediation remains an information gap that councils should seek to fill in consultation with industry.

4.7 Monitoring risk and communication

Risk monitoring is a key part of any risk management process. Once key risks have been identified - as they have been in this study - then ownership of risk monitoring has to be taken as circumstances change.

Councils usually monitor their consent conditions in detail once every two years. Industry parties (typically groups of farmers in an area, or larger companies) have their own risk monitoring regimes, particularly with regard to any Environmental Monitoring System (EMS) requirements (such as ISO 14001), water quality requirements for food safety reasons, or as part of preventive maintenance programmes to reduce the physical risks of equipment failure. Evidence was obtained during site visits to Northland and Coromandel of good industry practice, including inspection regimes and regular gear replacement.

Tools with considerable potential for more effective risk monitoring in the coastal marine area are emerging from New Zealand research programmes. For example, Integrated Catchment Management (ICM) for the Motueka River is a collaborative project led by Landcare Research, with the participation of Tasman District Council, other science providers, iwi and local communities.12 An ICM approach provides an essential framework in which to link research on physical hydrology with research on and management of, for example, water quality, soil quality, vegetation dynamics and land use. In the Motueka/Tasman Bay area, near-shore fishing and aquaculture interests are increasingly concerned that land-based activities may have detrimental effects on the productivity or quality of their harvests. An ICM framework is the ideal approach to address these issues because the components have complex interactions, are spatially distributed, and have long-term impacts that are socially and economically important.

Bio-indicators - species whose function, population or status can be used to assess environmental integrity - show potential to meet a need for ongoing monitoring of contaminants from stormwater and land run-off in the coastal marine area. Landcare Research has recently developed a whole-organism bio-indicator providing the means to assess the health of inter-tidal sediments and water quality. This can act as an ‘early-warning’ signal of adverse environmental effects. This particular bio-indicator will have direct relevance to the oyster industry in particular, where farms are susceptible to land run-off, leachate, etc. The development of further bio-indicators suitable for deep water farms is proposed.

The use of bio-indicators will provide regional councils and the New Zealand aquaculture industry with the tools to protect the long-term viability of farms and ensure the sustainability of the industry. The development of these and other such tools should be monitored and supported by central government, councils and industry groups.

Risk communication is essential in decision-making by enabling wide participation in deciding how risks should be managed. Communication is also a vital part of implementing decisions - whether explaining mandatory regulations, informing and advising parties about the risks they can control themselves, or dissuading parties from risky behaviour or practices. The risks in the practice and regulation of aquaculture in New Zealand have not been well promulgated up until now. However, risk communication is an essential part of developing public awareness of the industry’s position, particularly with respect to managing its own risks in a responsible manner.


4 AS/NZS 4360:2004 Risk Management.

11 Note that in the Biosecurity Act 1993 there is a provision for a special levy to be imposed by the Minister as part of a pest management strategy and used for the purpose for which it is imposed. This is a further mitigation of potential biosecurity threats, especially slower acting incursions, which may be withstood with concerted and well-resourced efforts.