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THE DESTRUCTION OF GLOBAL FISHERIES & THE EMERGING DOMINANCE OF AQUACULTURE

Which commodity has not participated in the 54 month bull market . yet?
Fresh Atlantic Salmon 4 - 5 kg

6 FCA Oslo
4 Price (Euro/kg)
0 2000
2001
2002
2003
2004
2005
2006
2007
Source: Intrafish
We are on the cusp of major shortages of food that form some 30 to 40% of the cost of living in many countries. Dr Michael Metz, Oppenheimer & Co. Inc.
For Australia the reality is that we are likely to be net importers of seafood (value terms) within just 3 4 years.
20th June 2007
STATE ONE STOCKBROKING LTD AFSL 247100
This information must be read in conjunction with the disclaimer at the end of this document

KEY POINTS GLOBAL FISH PRODUCTION AND RESOURCES
Mans ability to exploit the oceans improved dramatically about thirty years ago, with the advent of satellites, GPS, onboard databases and larger and much more powerful ships. Despite the huge technical advances in fishing equipment and techniques, with some 4 million vessels in the global fishing fleet, the global wild catch has been static at about 95 million tonnes pa since 1995, as increasing numbers of species have been identified, located and then fished to exhaustion. Industrialised fishing typically reduces fish biomass by 80% within 15 years of exploitation. Research done by the FAO suggests that in the sixty years to 2006 some 30% of the worlds marine fish species have been exhausted (defined as depletion to less than 10% of their original stock size). At least 75% of the worlds fish stocks have been either overexploited or fully exploited. As a local example: a decade ago the Victorian Orange Roughy catch was 40,000 tonnes per annum, by 2005 it was just 1,400tpa. It has been projected by Drs Boris Worm and Ransom Myers that, unless drastic action is taken to prevent further deterioration, stocks of virtually all the presently exploited species will collapse by 2048. Research has also shown that probably the only effective way to restore imperilled fish stocks is to impose a total fishing ban, as even the smallest amount of ongoing fishing tends to selectively harvest the largest fish, which have been determined as playing a key role in sustaining the fish resource over the long term. The time for fish stock recovery is dependent upon the species of fish. It often takes fifteen years or more, and can rarely be achieved in less than ten years. There have already been a number of areas where a blanket ban has been imposed on fishing, and State One expects that there will be a rapid multiplication of such bans over the next decade. Calls were made by Greenpeace at the 2007 biannual United Nations fisheries meeting to push for implementation of a global network of fully protected marine reserves covering fully 40% of marine ecosystems. State Ones view is that despite acknowledging the risks facing the global fish resource, some remaining areas of wild catch are being subject to increased fishing pressure, as the industry seeks to make hay before being subject to additional bans or closures. Regardless of whether such bans are imposed, State One is of the view that by 2015 global wild catch fish production will undergo a marked decline. Regardless of whether they comply with the firm message emanating from the environment, wild catch fishermen will ultimately be forced back to shore, as poor catches, longer steaming times and the higher cost of marine fuels undermine the economics of their craft.
KEY POINTS GLOBAL FISH DEMAND & THE EMERGANCE OF AQUACULTURE

Globally, fish is increasingly being favoured as the healthiest form of protein. Per capita fish consumption is growing at about 1.1% pa, generating a global increase in demand for fish and fish products of about 2.3% pa, despite rising prices for many species due to supply limitations. Increases in per capita fish consumption are being driving by: - global affluence; - the aging global population, which tends to increasingly favour fish over alternatives; - the emergence of Asia as an economic powerhouse, with its cultural bias towards fish consumption; - the growing list of health benefits attributed to fish including it being the primary source of Omega 3s; & - changing patterns of protein consumption due to Mad Cow Disease, Bird Flu and other health factors. Between 1990 & 2005, global fish consumption grew at about 1.1% per capita pa reaching 158 mill. tonnes. The Food and Agriculture Organization (FAO) has forecast that total world consumption of fish (food and feed) will increase by more than 25% to 179 million tonnes by 2015, an increase of 47 million tonnes from 2002, and an average annual growth rate of 2.3% pa. As wild stocks have declined, global aquaculture production has increased - a six-fold increase in the 20 years to 2005, to about 63 million tonnes. Aquaculture has been much slower to develop than other forms of animal husbandry, despite the fact that aquaculture benefits from the inherent efficiencies of raising cold-blooded animals in an essentially gravity
STATE ONE STOCKBROKING LTD AFSL 247100 This information must be read in conjunction with the disclaimer at the end of this document
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neutral environment. The most efficient fish species can already achieve food conversion ratios (FCR) of 1:1 or less, which is substantially lower than can be realized for land-based animals. Certain fish species, such as barramundi, can also efficiently convert grain-based proteins and lipids to body weight. Use of these non-marine derived feed inputs is expected to grow dramatically, as fishmeal and fish oils increase in price and decrease in availability due to declining supplies of pelagic fish inputs. In the decade to 2015, world aquaculture production will at least double, an average annual growth rate of not less than 7.0% pa, and potentially very much more. During this period we expect that global fish prices will show a marked appreciation, as the steady increase in fish demand collides with a marked reduction in wild catch supply. _____________________
TABLE OF CONTENTS
1.0 GLOBAL FISH PRODUCTION & CONSUMPTION
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 Global Fish Production Sources of Wild Capture Production Recent Trends in Fish Production and Use Fish as a Food Source Fish as a Core Source of Global Protein Economic Importance of Global Fishing & Aquaculture Fish Demand Outstripping Supply Fish Stock Depletion Causes of Fish Depletion Solutions to Declining Fish Stocks Trends in Fish Prices Consumer Impact and Response to Declining Fish Stocks Other Key Consumer Trends - Focus on Health Benefits of Fish as a Key Source of Omega 3 Fatty Acids
2.0
THE ROLE OF AQUACULTURE

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 What is Aquaculture The Growth & Location of Aquaculture Types of Aquaculture Onshore vs Offshore Aquaculture Production World Aquaculture Production by Species US Consumption of Aquacultured Finfish Comparison of the Attractiveness of Farming Major Fish Species The Disadvantages of Aquaculture Responsible Aquaculture The Seafood Watch Program Conclusion
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1.0 GLOBAL FISH PRODUCTION & CONSUMPTION

1.1 GLOBAL FISH PRODUCTION
Total world fish production increased steadily from 19.3 mill. tonnes in 1950 to over 100 mill. tonnes in 1989 and 157.5 mill. tonnes in 2005. In 1950 wild capture fisheries made up 96.5% of total world production, with aquaculture producing the remaining 3.5%. This distribution has changed dramatically, with capture fisheries now making up just 60% and aquaculture 40% of total worldwide fish production (by volume), with the aquaculture contribution rapidly increasing. Of total fish production approximately 75% is used as human food, with the remainder used for non-food products, in particular the manufacture of fishmeal and oil for use in animal feeds.
CHART 1: TOTAL WORLDWIDE FISH PRODUCTION 1950 - 2005

120 Capture Production Aquaculture Production
100
Tonnes (M illion)
80
60
40
20
19 65
19 70
19 75
19 80
Source: FAO Statistics
1.2 SOURCES OF WILD CAPTURE PRODUCTION

While wild capture of fish in the Ocean and Sea has long been the dominant element of wild fish capture activities, data shows that this element has in fact been static or declining for the past ten years. The offsetting increase in wild capture fish production from inland waters has been steady but very modest.
CHART 2: WILD CAPTURE FISH PRODUCTION - INLAND VS OCEAN AND SEA 1950-2005
100 90 80 70 T n e (M n o n s illio ) 60 50 40 30 20 10 0
Inland Capture
Ocean and Sea Capture
19 60
19 50
19 65
19 75
19 55
19 70
19 90
20 05
20 05
19 85
19 90
19 55
19 60
19 95
19 95
19 80
19 85
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20 00
20 00
19 50
1.3
RECENT TRENDS IN FISH PRODUCTION AND USE TABLE 1: WORLD FISHERIES AND AQUACULTURE PRODUCTION AND UTILISATION
2000 2001 2002 2003 2004 2005
Production
INLAND Capture Aquaculture Total Inland 8.8 21.2 30.0 8.9 22.5 31.4 8.8 23.9 32.7 9 25.4 34.4 9.2 27.2 36.4 9.6 28.9 38.5
MARINE Capture Aquaculture Total Marine 86.8 14.3 101.1 84.2 15.4 99.6 84.5 16.5 101 81.5 17.3 98.8 85.8 18.3 104.1 84.2 18.9 103.1
Total Capture Total Aquaculture Total World Fisheries
95.6 35.5 131.1
93.1 37.9 131
93.3 40.4 133.7
90.5 42.7 133.2
95 45.5 140.5
93.8 47.8 141.6
Utilization
Human Consumption Non-food uses Population (billions) Per capita food fish supply (kg) 96.9 34.2 6.1 16.0 99.7 31.3 6.1 16.2 100.2 33.5 6.2 16.1 102.7 30.5 6.3 16.3 105.6 34.8 6.4 16.6 107.2 34.4 6.5 16.6
Source: FAO SOFIA 2006 Report
Human consumption accounts for approximately 75% of Total World Fish Production. Note: The above data differs from that used elsewhere in this report, in that it states aquaculture production at a lower level (possibly because of the exclusion of the Aquatic Plants aspect of aquaculture - about 14 million tonnes in recent years).
1.4 FISH AS A FOOD SOURCE

The diets of 2.6 billion people, or two in five people on the planet, depend on fish as their primary source of animal protein. This large dependency on fish as a source of animal protein combined with a global population growing at approximately 1.3% pa and higher standards of living has resulted in human consumption of fish increasing from 93.6 million tonnes in 1998 to 100.7 million tonnes in 2002, a 7.6% increase in only 4 years (ie. an average annual growth of approximately 2.0%). The Food and Agriculture Organization (FAO) has forecast that total world consumption of fish (food and feed), will increase by more than 25% to 179 mill. tonnes by 2015, up 47 mill. tonnes from 2002. Thats an annual growth rate of 2.3% pa.
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1.5 FISH AS A CORE SOURCE OF GLOBAL PROTEIN

The chart below shows that fish protein is a very large percentage of total animal protein consumption when compared with bovine, pig and chicken meat consumption per capita per annum.
CHART 3: AVERAGE ANNUAL PER CAPITA PROTEIN CONSUMPTION 2001-2003

65 55 45 Kg/Year 35 25 15 5
na In di a Ja pa n an y ng do m Ki
Chicken
Bovine
Pig
Fish
Af ric a
Br az i
Au st ra
Ch i
er m
So ut h
In the above chart it should be noted that fish is a very significant element of the animal protein consumed in Japan and China. As other Asian countries develop economically, we expect that there will be a similar high propensity to consume increased amounts of fish. Long term data shows that global per capita fish consumption has risen steadily from just under 14 kg/pa in 1990 to about 16.5 kg/pa in 2005. This trend is forecast to continue, reaching 19.1 kg/pa by 2015.
CHART 4: ANNUAL PER CAPITA FISH CONSUMPTION GROWTH

30 World Developed Countires Developing Countries
25
K /Y a g er
20
15
10
5
19 90 20 00 20 10 20 15
Source: Josupeit FAO
The forecast increase in per capita consumption of fish 1.1% pa in the period to 2015 - marks a continuation of long term trends. Since 1961 global per capita fish consumption has increased from 9.0 kg pa, at a rate of about 1.45% pa. There are a number of factors driving greater fish consumption: Global demographics with an aging population and higher rates of population and economic growth in Asia are both prompting ongoing significant increases in fish demand. The valid health claims of fish are prompting an increase in demand for high quality fish, and not only from the Western World. Omega 3s are increasingly being seen as having important health benefits to man. The major source of Omega-3s are fatty fish.
Un i
te d
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US A
lia
-5
The levels of fish consumption show a wide variation between the continents, with FAO data for 2001 to 2003 showing the following per capita consumption:
CHART 5: AVERAGE ANNUAL PER CAPITA FISH CONSUMPTION BY CONTINENT 2001-2003

30
25
K /Y a g er
20
15
10
5 North America South America Europe Oceania Asia Africa China
1.6 ECONOMIC IMPORTANCE OF GLOBAL FISHING & AQUACULTURE

The FAO reports that the number of people earning an income from direct employment in fisheries and aquaculture increased to about 38 million in 2002. It is estimated, when economic activity resulting indirectly from fisheries production is accounted for, that the sector supports around 200 million people globally. The global fish production for 2000 was valued at US$81 billion. In 2002 the export value of international trade in fish products grew to US$58.2 billion, representing a 5 percent increase relative to 2000 and a 45 percent increase since 1992.
1.7 FISH DEMAND OUTSTRIPPING SUPPLY

The chart below shows projections by the FAO to determine whether food fish demand (fish for human consumption) will exceed food fish supply (fish production excluding that used as feed). The chart suggests that by 2015 annual demand will exceed annual supply by an amount of 5.2 million tonnes. It is State Ones view that even this data may prove to be optimistic, and that a shortfall in fish supply will be evident well before 2015.
CHART 6: WORLDWIDE PROJECTIONS FOR FOOD FISH DEMAND COMPARED TO PROJECTED SUPPLY
Food Fish Demand 130 110 90 70 50 30 10 -10 1990 2000 2010 2015 Total Supply Supply Gap
T n e ( illio ) ons M n
If the FAOs projections are correct, and demand does consistently outstrip supply, it is highly likely that global fish prices will increase markedly as supply tightens.
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1.8 FISH STOCK DEPLETION

The worldwide dependence on fish as a food source and the millions of jobs sustained by the fishing industry are under threat due to the rapid depletion of fish stocks. The FAO has warned that world stocks of most fish are stretched to their limit. FAO assistant director-general for fisheries, Ichiro Nomura, said stock depletion had implications for food security and economic development, reduced social welfare, and undermined the well being of underwater ecosystems. The FAOs 2006 biennial report, The State of World Fisheries and Aquaculture (SOFIA) reports that only 3% of marine stocks are underexploited and 21% are moderately exploited, meaning that they could sustain a modest increase in fishing. A shocking 52% of marine stocks are fully exploited (fished at their maximum biological productivity) with a total of another 25% being in the most decimated categories 17% overexploited, 7% depleted and 1% recovering from depletion. The report states that 7 of the top 10 marine fish species which together account for 30% of all capture fisheries production, are already fully or over-exploited.
CHART 7: GLOBAL TRENDS IN THE STATE OF WORLD MARINE STOCKS SINCE 1974
60
Fully Exploited
50 Percentage of Stocks 40 30 20 10 0
Underexploited & Moderately Exploited
Overexploited + Depleted + Recovering
19 70
19 80
Source: FAO SOFIA 2006 Report
A four year study of 7,800 marine species around the worlds ecosystems has concluded that at present rates of fishing the worlds stocks of seafood will have collapsed by 2048. The report which was authored by Dr Boris Worm and Dr Ransom Myers of Dalhousie University states that by the year 2048, catches of all the presently fished seafood will have declined on average by more than 90 percent since 1950. This loss of biodiversity will impair the oceans from feeding a growing human population which is expected to rise by 50 percent to 9 billion by 2050. Overfishing also destroys the stability of marine environments reducing the oceans ability to produce seafood, resist diseases, filter pollutants and rebound from stresses such as climate change.
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20 10
19 95
20 05
19 75
19 85
19 90
20 00
The chart below shows the percentage of seafood species which have collapsed to date (a decline to less than 10% of their original yield) and the projected decline if nothing is done to change the current situation.
CHART 8: GLOBAL LOSS OF SEAFOOD SPECIES PROJECTED % REMAINING

100
P rce ta e o S e s R m in g e n g f p cie e a in
90 80 70 60 50 40 30 20 10 0
19 50 20 00
Percent of species remaining Long term trend
Source: Worm and Myers
A perfect example of how over-exploitation and mismanagement has led to a fishery collapse is the cod fishery off Newfoundland, Canada, which collapsed in 1992. (Collapse is defined as a stock decline to less than 10% of the original stock level). Five hundred years ago, the explorer John Cabot reported that codfish ran so thick you could catch them by hanging wicker baskets over a ships side. In 1968 the cod catch increased to a peak of 800,000 tonnes, but by 1975 the annual catch had fallen by more than 60%. During the 1970s and 1980s the cod catch remained steady, mainly as a result of improved fishing methods. However by 1992 cod stocks were at the lowest levels ever measured and the Canadian government was forced to close the fishery. Overnight some 30,000 people lost their jobs. Despite the ban, stocks have still not recovered, and it is not certain whether they ever will. One of most destructive forms of fishing has been the massive longline fishing in the open ocean, which has been an indiscriminate killer, with large portions of the catch (the bycatch) simply being dumped at sea. Data provided by the longliners does now give a useful picture of the extent to which most of the worlds fisheries have been destroyed. The two maps below compare the changes in the number of fish caught per 100 hooks in the Japanese longline fishing industry between 1959 and 1999 for tuna and billfish.
CHART 9
In the above map, the No. of points where the No. of Fish caught per 100 hooks Exceeded 5 = + 170 Data Points.
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20 50
19 80
19 90
20 10
20 30
20 40
19 60
19 70
20 20
CHART 10
Source: Worm and Myers In the above map, the No. of points where the No. of Fish caught per 100 hooks exceeded 5 = 4 Data Points.
In other words almost every area which previously provided a significant catch for the longliners has now been virtually exhausted. It should also be noted that even in 1959 the long liners were having minimal success in the seas off Eastern Asia.
1.9 CAUSES OF FISH DEPLETION

Overfishing Over fishing is the single largest contributor to fish stock depletion. Modern fishing methods are able to capture fish at a much faster rate than they can reproduce, resulting in a massive decline in marine biomass. Industrialised fisheries typically reduce community biomass by 80% within 15 years of exploitation. Global fishing capacity has started to level off but excess fishing capacity is still resulting in too many boats chasing too few fish. The study conducted by Dr Worm and Dr Myers estimates that the biomass of large predatory fish such as tuna, marlin, cod and flounder, is only about 10% of pre industrial fishing levels. The depletion of these top predator species endanger the structure and functioning of marine ecosystems and will have extended effects throughout the global ocean. The study also reports that the average size of these top predators is only one fifth to one half of the size they were in the past. The problem of over fishing is further compounded by a combination of (i) bad fishery management practices, resulting in about a quarter of the sea catch being wasted; and (ii) illegal fishing, which is estimated to account for 30% of the total production of some fisheries. Pollution Some 60% of people live within 60km of the sea. This results in large amounts of pollution in varying forms including domestic sewage, industrial discharges, sea dumping operations, mining, agricultural nutrients and pesticides. Fish kills from pollution generally take one of two forms, direct poisoning of the fish or oxygen depletion resulting in dead zones. Dead zones are caused by excessive nutrients in the water, the main one being nitrogen. The nutrients trigger the growth of algae and phytoplankton which deplete most of the oxygen in the surrounding water, resulting in the death of fish in these areas. Since the 1960s the number of dead zones has doubled every decade. The United Nations Environmental Program (UNEP) estimates that nearly 150 permanent and recurring dead zones exist worldwide and says that dead zones will become a greater menace than the overexploitation of fisheries.
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Global Warming Global warming has many negative effects on world fisheries, and will substantially increase pressure on fish populations which are already strained. Average global surface temperatures are projected to increase by 1.5 to 5.8 degrees Celsius by 2100 (Houghton et al). These warmer temperatures can push fish food sources into colder waters disturbing the ecosystems and increasing competition for food negatively effecting fish survival rates. Researchers forecast substantial shifts in fish habitats, decreasing water quality and disappearing wetlands (Pew Report). The Pew Report specifically mentions the devastation of trout and salmon as climate change continues. Habitat Destruction Large scale use of bottom trawling, which involves dragging heavy nets along the sea floor is destroying the habitat which it cuts through. Bottom trawling also stirs up the sediments on the ocean floor with the resulting suspended solids pollution moving with currents to create environmental impacts remote from the site of the actual trawling. This destruction of habitat and suspended solids pollution results in the death of many marine species and has a multiplier effect up the food chain. This destruction of habitat and suspended solids pollution results in the death of many marine species. In addition to the destruction of habitat caused by bottom trawling, the by-catch ratio (waste that is discarded) can run up to 10 kg of by-catch per kg of targeted product caught.
1.10 SOLUTIONS TO DECLINING FISH STOCKS

The FAOs State of the World Fisheries and Aquaculture report has said that rebuilding depleted wild fish stocks is a challenging necessity. Ichiro Nomura, FAO Assistant Director General for Fisheries, has added that While recovery of depleted stocks is urgent, it is just as important to avoid depleting stillhealthy stocks in the first place by matching fishing efforts to what these stocks are capable of supporting. Restoring stocks to a healthy biomass level by 2015 was a goal set at the 2002 World Summit on Sustainable Development. The following points outline some methods which could reduce over fishing and aid in the rebuilding of depleted wild fish stocks: Significantly decreasing or temporarily stopping fishing in overexploited fisheries. Introducing quota systems to avoid fisheries becoming overexploited. Reducing the destruction of underwater environments, mainly by curbing the use of bottom trawling. Actively rehabilitating damaged habitats. Cutting government subsidies to unprofitable fishing fleets forcing the reduction of fleet sizes. Reducing the by-catch percentage and increasing catch efficiency. Creating networks of marine reserves. Enforcing responsible fishery and marine park management. Encouraging the ascent of responsible aquaculture to take the pressure off capture production.
In November 2006, the European Union fisheries ministers agreed to tighten controls on reported catches by using satellite technology to track each fishing vessel at sea. Log books will be replaced by electronic reporting through computers. Scientists have noted that if fishing is banned altogether for several years in a specific area, the overall catch can be increased in a sustainable way. In some areas where such bans have occurred, the number of fish increased 90% within a few years, their size increased 30% and the number of species by 20%. The time for fish stock recovery is however dependent upon the species of fish. It often takes fifteen years or more for full recovery, and can rarely be achieved in less than ten years.
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1.11 TRENDS IN FISH PRICES

Trends in the prices of fish are far less visible than those of other commodities. It is difficult to identify the trends in the prices of marine produce, whereas the prices of meat and poultry are more readily ascertainable through indices such as those on the Chicago Board Of Trade, which include Frozen Pork Bellies, Feeder Cattle, Live Cattle and Lean Hog.
CHART 11: FISH PRICES: 1976 2003

Shrimp 7 6 5 Price (US$/kg) 4 3 2 1 0
19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02
Salmon
Seabass
Tilapia and Catfish
Bivalve 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 Price (US$/kg) (Bivalve)
Wholesale Price per lb ($)
CHART 12: GROWTH IN US TILAPIA CONSUMPTION V WHOLESALE PRICING

Consumption 300 Wholesale Price $1.50 $1.40 250 $1.30 200 $1.20 $1.10 150 $1.00 100 $0.90 $0.80 50 $0.70 0
20 00 19 99 19 97 19 98 20 03 19 96 20 04 20 02 20 05 19 95 20 01
TPA, in millions
$0.60
Source: Australis Aquaculture
Tilapia, a major aquaculture success story of the past decade (despite being of only average quality), has enjoyed a rapid growth in consumption and steady increases in selling prices within the US. Over the past decade US tilapia consumption has seen an average compound growth rate of 27% pa. (Note that the average tilapia yield is only 32% of whole fish as fillets. A price of $US1.40 per pound of whole fish therefore equals approximately $US4.37 per pound of fillet).
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1.12 CONSUMER IMPACT AND RESPONSE TO DECLINING FISH STOCKS

The fallout from the decline in wild caught fish stocks has driven the emergence of several important trends in global fish consumption. These include: Increasing Acceptance of Aquaculture as Wild Caught Declines With the decline in ocean stocks due to over fishing and increasing demand for seafood products, commercial aquaculture has become an important factor in overall seafood production. Growing at an average compounded rate of 8.8% since 1950, global aquaculture now supplies approximately half of the worlds consumed seafood with Asian countries supplying over 90% of world aquaculture production. In the US, more than 80% of the seafood consumed is imported and 40% of these imports are farmed. As such, American consumers are increasingly accustomed to the seafood they purchase originating overseas and through aquaculture, thus dissolving the previously held prejudices against imported and farm-raised seafood. Price and supply stability are major incentives driving the market for farm-raised seafood. Consumer, Retailer and Industry Support For Sustainably Produced Product Consumers and corporate/retail buyers are becoming more educated about where their food comes from, how it was raised, and what additives have been used throughout the production process. A clear indication of this trend is the 20% annual growth rate for organic food products compared to approximately 2.5% p.a. for the total food products market. For seafood products, this trend towards ecolabeling revolves primarily around sustainable aquaculture practices. Increasingly, governmental, environmental, consumer, retail and industry groups have focused attention on the need to use sustainable methods in all aspects of fishing and fish farming. Sustainable methods focus on environmental practices that contribute to the long-term availability of seafood for human consumption, and address both wild-caught and aquaculture environments. For wild-caught, these standards generally address protection of exploited species. For aquaculture, sustainability addresses key concerns that have emerged from the rapid growth in aquaculture throughout the world, including water pollution, the introduction of non-native species, and the overuse of small pelagic fish as feedstock in aquaculture production. Consumers and corporate buyers are increasingly looking for product labels and/or certifications to assist them in purchasing seafood that is produced using sustainable practices. Although there are no universal standards or acceptance, several bodies have emerged as leaders in this area including US-based Monterey Bay Aquariums Seafood Watch Program, funded by the Packard Foundation and Londonbased Marine Stewardship Council (MSC), founded by Unilever and the World Wildlife Fund. The Seafood Watch Program certifies species of fish and publishes millions of public education pieces each year listing species that are acceptable from a sustainability perspective. MSC takes a different tack, focusing primarily on certifying ocean fisheries and eco-labeling producers as being in compliance with MSCs standards for sustainable practices for wild-caught product. Other groups also actively promoting sustainable practices include Environmental Defence Fund, National Audubon Society, Greenpeace, and Global Aquaculture Alliance. While all of these groups have different agendas and guidelines, and generally target specific audiences or industry segments, together they are filling a near-term void for consumers and industry buyers looking for guidance on this issue. Sustainable certification received a major boost in early 2007 when Wal-Mart committed to purchasing its entire wild seafood species (excluding branded value-added products) from MSC approved sources within 3-5 years. Other retailers throughout the world are pursuing similar initiatives. Californias Monterey Bay Aquarium Seafood Watch Program has assessed aquaculture species into one of three categories, being Best Choice, a Good Alternative or Avoid, based on a set of sustainability data. Included amongst the fourteen finfish listed in the Best Choice Category is US farmed barramundi, a market which is dominated by ASX listed Australis Aquaculture Limited.
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1.13 OTHER KEY CONSUMER TRENDS - FOCUS ON HEALTH BENEFITS OF FISH AS A KEY SOURCE OF OMEGA 3 FATTY ACIDS
Fats fall into three main groups, saturated, mono-unsaturated and polyunsaturated. Of these groups, saturated fats are considered to be very unhealthy. In the human diet there is a place for mono-unsaturated fats, the best known example being olive oil. The third type, polyunsaturated fatty acids, are essential for good health and normal growth. They fall into 2 groups, Omega 6 and Omega 3. These fats cannot be manufactured by the human body and must therefore be supplied in diet. The Omega 3 fatty acids are essential to life at every stage, even before birth. They are found in every membrane of every cell in the human body and help to ensure that the cell membrane is ideally equipped to do its job. They are also used in the regulation of all biological functions, including those of the cardiovascular, reproductive, immune and nervous system. To achieve good health it is essential to obtain enough Omega 3 from the diet. Specific key benefits of Omega 3 are as follows: 1. Protects against fatal heart attacks: Anti-thrombotic Helps reduce platelet aggregation that can form potentially fatal blood clots. Triglyceride reduction Reduces high triglyceride levels which are a heart risk factor. Arrhythmia prevention Helps protect against heartbeat abnormalities. Inhibition of inflammation Helps stabilise arterial plaques so they are less likely to rupture. Arterial elasticity Improves arterial elasticity reducing the risk of a heart attack. Lowers blood pressure. Lowers blood viscosity the heart does not have to work as hard to pump blood around the body. 2. Plays a role in the prevention of some forms of cancer, namely: Breast cancer; Prostate cancer; Bowel (colon) cancer; and Lung cancer. 3. Aids in forming and maintaining a sound body and mind: Foetal brain development Foetal brain, eye and neural development all require substantial amounts of DHA which is found in Omega 3. Omega 3 is critical during the last three months of pregnancy and the first year of life. Some of the advantages of higher doses of Omega 3 during this time are faster eyesight and physical development and improved IQ and learning capabilities. Increased intakes can result in improved concentration and behaviour in children, especially those with learning difficulties. Omega 3 might be natures Prozac as studies have found Omega 3 fatty acids have caused striking improvements in severely depressed and suicidal patients. ADHD Attention Deficit Hyperactivity Disorder (found in between 3-5% of British and US children), is shown to improve when the children are supplemented with Omega polyunsaturates. Dementia A recent study has shown that people who eat fish or seafood at least once a week have a significantly lower risk of developing dementia. The study concluded that the Omega 3 fatty acids found in oily fish and fish oil supplements can reduce inflammation of the brain and also play a part in brain development and nerve cell regeneration. There is a significant variation in the Omega 3 content of various seafood products, as shown below:
Omega-3 Content in mg per 5 oz Serving
Wild Coho Salmon, 900mg
Australis Barramundi 833mg
Swordfish 600mg
Tilapia 294mg
Shrimp 270mg

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Cod 240mg
2.0 THE ROLE OF AQUACULTURE

OVERVIEW
As wild fish stocks have been depleted, so have aquacultured fish become a larger and more accepted component of the fishing food industry. The quality of fish produced through aquaculture has also improved dramatically as technical expertise has deepened. The volume of aquacultured fish, estimated at 63 million tonnes in 2005, is now approaching the volume of wild catch, and will certainly surpass the wild catch tonnage within 2-10 years. Globally aquaculture has been growing at 7.3 % pa between 1995 and 2005, i.e. a doubling over the decade. Areas of high growth are Africa (19.1% pa), South America (11.0% pa) and Asia (7.4% pa). North America, Europe and Oceania have lagged markedly. Although to date aquaculture has been largely based in Asia more than 92% of current production there are signs that Western economies are now seeing the need to participate. To date, aquaculture has focused largely on fresh water fish species (some 40% of current production), rather than marine (ie saltwater) species which account for less than 10%. Aquaculture output will continue to grow and play an even larger role in future as fish demand increases and output from capture fisheries stays static or falls. This demand gap creates a huge market for aquaculture companies that can produce fish responsibly and cost effectively. Not all aquaculture has positive results: there have been instances of very poor quality farmed fish emanating from some Asian countries in particular, although major Asian exporting countries have significantly improved or are taking steps to improve their controls over product quality. There have also been many instances where the environmental impact of aquaculture has been deemed to be too severe due to a high concentration of waste being deposited in pristine nearshore locations, escapes impacting negatively on wild fish resources, and aquaculture facilitating disease and parasite.
2.1 WHAT IS AQUACULTURE?

The FAO defines aquaculture as: The farming of aquatic organisms including fish, molluscs, crustaceans and aquatic plants with some sort of intervention in the rearing process to enhance production, such as regular stocking, feeding, protection from predators, etc. Farming also implies individual or corporate ownership of the stock being cultivated.
2.2 THE GROWTH & LOCATION OF AQUACULTURE

Global fish production continued to reach new heights of 158 million tonnes in 2005, largely as a result of the increase in aquaculture. Capture fisheries grew by only about 1% from 1995 to 2005, while aquaculture increased by around 102% over the same period. Aquaculture will be even more important going forward, as the output from capture fisheries not only levels off, but faces the very real risk of a potential significant downturn. As governments take the action necessary to comprehensively tackle the growing problems of fish stock depletion, State One expects to see whole areas of ocean totally closed off to all fishing, and harsh quotas enforced in the remaining waters. The ultimate downturn in production from capture fisheries will see even greater demand being placed on production from aquaculture.
Page 15 of 26
The table below shows aquaculture production growth by continent over the last 10 years.
TABLE 2: AQUACULTURE GROWTH BY CONTINENT BETWEEN 1995 AND 2005

Continent Asia Europe South America North America Africa Oceania Total Total Production (Tonnes 000) 1995 2005 28,420 57,972 1,593 2,140 409 1,165 559 862 115 656 100 162 31,196 62,959 Percentage Increase in Production 104% 34% 185% 54% 473% 62% 102% Annual Compounded Growth 7.4% 3.0% 11.0% 4.4% 19.1% 4.9% 7.3%
The pie chart shows that Asia is by far the largest producer of fish from aquaculture with a huge 92%. The rest of the worlds combined 8% is almost negligible when compared with Asian production. Note also that aquaculture in the Western world is growing at about half the global average rate. This imbalance is something that the Western world will need to address if we are to create our own sustainable source of fish. It is also important to note that a large portion of the Asian production is consumed in Asia and is not destined for the export markets.
CHART 13: AQUACULTURE PRODUCTION BY CONTINENT IN 2005

Europe, 3.4%
Oceania, 0.3%
Af rica, 1.0% Asia, 92.0% North America, 1.4%
South America, 1.9%
TABLE 3: AQUACULTURE PRODUCTION BY COUNTRY 2005 (MILLION TONNES) DOMINATED BY CHINA

Country China India Indonesia Philippines Viet Nam Japan Thailand South Korea Bangladesh Chile Norway Egypt North Korea Myanmar USA Taiwan Other TOTAL Page 16 of 26 Tonnes (m) 43.3 2.8 2.1 1.9 1.5 1.3 1.1 1.1 0.9 0.7 0.7 0.5 0.5 0.5 0.5 0.3 3.4 63.0
Aquaculture Production compared with Capture Production Between 1995 and 2005 fish production from capture fisheries was essentially static, with an annual growth rate of just 0.1%. Based on this it is clear that production from capture fisheries has stopped growing, with a risk of a marked downturn. We believe that it is simply a matter of time before the downturn commences, even if governments dont enforce tighter controls. In comparison, the compound growth rate for production from aquaculture between 1995 and 2005 was 7.3%. Even though this is down from 10.6% pa for the preceding 10 year period, it is still very significant growth, resulting in a doubling of production over 10 years. The chart below shows the compound growth rates for total fish production, capture fish production and aquaculture fish production over 10 year periods starting from 1955.
CHART 14: WORLDWIDE FISH PRODUCTION GROWTH OVER 10 YEAR PERIODS ANNUAL PERCENTAGE GROWTH
Total 12 10 Percentage Growth 8 6 4 2 0 1965 1975 1985 1995 2005 Capture Aquaculture
Based on the above growth data which shows that production from capture fisheries has stopped growing and that production growth from aquaculture is still strong, State One has derived a potential scenario showing when aquaculture production will first overtake capture production. For our aquaculture growth projections we have used a growth rate of 7.1% per annum over the next 6 years compared with 8.7% over the previous 55 years and we have assumed that capture production remains static at its current level. Based on this scenario, the chart below shows that aquaculture could overtake capture production by as early as 2011.
CHART 15: PROJECTED GROWTH OF AQUACULTURE PRODUCTION COMPARED TO CAPTURE PRODUCTION

Capture Production 120 100 T n e (M n o n s illio ) 80 60 40 20 0 Aquaculture Production
Aquaculture Production Trend Line
19 50
19 70
20 00
19 80
19 60
19 90
20 10

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20 20
2.3 TYPES OF AQUACULTURE

Recirculating Systems This method involves the growing of fingerlings in a series of enclosed tanks, where the fish are moved to progressively larger tanks as they grow. Large quantities of clean fresh water are required, with massive purification systems. Water is constantly filtered by mechanical and biological means to ensure a fresh water supply. Oxygen is also added as required to maintain suitable levels. Recirculation systems occupy a small area and allow the grower to produce very high yields of fish per unit area, as long as sufficient oxygen, fresh water and food are provided and an optimum temperature is maintained. Recirculating systems address many of the issues associated with aquaculture such as fish escapes and waste discharge into the surrounding environment. The drawbacks of recirculating systems include: they are highly capital and energy intensive, require constant monitoring and a high level of fish farming expertise.
Open Net Pens/Cages Open Net Pen or Cage fish production involves growing fish in enclosed nets or cages in offshore coastal areas or freshwater lakes. This method is relatively cheap and does not require much capital expenditure. The major drawbacks of this type of production are that fish waste passes freely into the surrounding environment, farmed fish can escape, and diseases and parasites can be easily spread. World-class marine farming operations have shown that this can be done responsibly and cost effectively around the world.
Man-made (enclosed) ponds Man made ponds or dams are used to hold fish in a coastal or inland body of fresh or salt water. This method reduces potential environmental risks, such as fish escaping, as the ponds are not always connected to natural bodies of water. There is however a danger of untreated waste from ponds polluting the surrounding environment and contaminating groundwater. Another drawback is that pond production is often associated with the destruction of wetlands a result already estimated at more than one million hectares worldwide. This destroys the habitat of juvenile wild fish, compounding the fish stocks problem.
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2.4 ONSHORE vs OFFSHORE AQUACULTURE PRODUCTION

While we have not been able to locate data detailing the historical make-up of aquaculture production precisely according to the above types of aquaculture systems, we have obtained data which shows that global aquaculture production is progressing at comparable rates in both Onshore and Offshore locations. It appears however that offshore locations are becoming more prevalent in recent years due to the increasing capabilities of the major aquaculture producers and possibly because of a lack of onshore locations.
CHART 16: AQUACULTURE PRODUCTION - INLAND VS OCEAN AND SEA 1950-2004

40 35 30 T n e (M n o n s illio ) 25 20 15 10 5 0
19 75 19 80 20 05 19 50 19 85 19 55 19 60 19 65 19 90 19 95 19 70 20 00
Inland Production
Ocean and Sea Production
2.5 WORLD AQUACULTURE PRODUCTION BY SPECIES

The world aquaculture industry has to date been dominated by freshwater fish (mainly Asian catfish and carp), as well as seaweed, prawns, molluscs. The farming of marine (ie ocean) and diadromous (estuarine) finfish has to date been modest by comparison with the above mentioned species. The FAO Data detailed below is based on the following definitions: Freshwater Fish Fish found in freshwater eg. catfish, rainbowfish, goldfish, knifefish. Aquatic Plants Plants that have adapted to living in or on aquatic environments eg. seaweed, marine algae. Molluscs Molluscs include all the shelled creatures off the seashore, with the exception of the barnacles. These range from tiny snails, clams, and abalone to larger organisms such as squid, cuttlefish and the octopus. Crustaceans Include a large range of shrimps, water fleas, barnacles, copepods, fish lice, ostracods, sandfleas, beach hoppers, isopods, amphipods, pill bugs, slaters, a range of prawns and shrimp, freshwater yabbies, rock lobsters, hermit crabs, half crabs, spider crabs, swimming crabs, normal crabs and shore crabs. Diadromous Fish Those that use both marine and freshwater habitats during their life cycle. These include: Atlantic salmon, barramundi, smelt, gaspereau and the American eel. Marine Fish Fish found in the ocean eg. tuna, angel fish, shark, Other Aquatic Animals No definition, everything else that does not fall into the above.
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CHART 17: WORLD AQUACULTURE PRODUCTION IN 2004: MAJOR SPECIES GROUPS

Freshwater Fishes Aquatic Plants Molluscs Crustaceans Diadromous Fishes Marine Fishes Other Aquatic Animals 0 1.4 0.4 5 10 15 Tonnes (Million) 20 25 3.7 2.9 13.9 13.2 23.9
CHART 18: WORLD AQUACULTURE VALUE IN 2004: MAJOR SPECIES GROUPS
Freshwater Fishes Aquatic Plants Molluscs Crustaceans Diadromous Fishes Marine Fishes Other Aquatic Animals 0 1241 5000 10000 15000 20000 US$ Millions 4951 8346 6809 9834 14361
24624
25000
30000
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2.6 US CONSUMPTION OF AQUACULTURED FINFISH

US statistics on finfish consumption show a number of key issues pertinent to aquaculture: world markets are increasingly accepting of farmed fish; in fact the top three finfish now consumed in the US (salmon, catfish, tilapia) are all farmed; and tilapia consumption has increased 35 fold in 15 years. This shows how great the demand is for a wellpriced consistently-produced farmed fish, even if it is only of average quality.
CHART 19: US CONSUMPTION OF PRIMARY AQUACULTURE SPECIES 1991-2004

Salmon 300,000 Catfish Tilapia
250,000
200,000 TPA
150,000
100,000
50,000
Forecasts of the expected growth in fish demand in the US suggest that the next thirteen years will see an increase of 6.0 million tonnes in the US demand for aquacultured fish. This chart is supplied by Australis Aquaculture Ltd, whose current expansion plans would secure not even 1% of this increased market.
Tonnes
Despite the attractiveness of barramundi as a species for aquaculture (see 2.8 below), world barramundi production is currently only about 30,000 tpa. Thats about 1.5% of the amount of farmed salmon produced (2.2 million tpa), and 2.5% of tilapia (1.2 million tpa). Most barramundi is consumed locally and is not available for export. Current export offerings are reckoned to be 5,000 tpa at most.
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19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04
CHART 20: US MARKET: 6 MILLION TONNE OPPORTUNITY
US Demand New Aquaculture Supply
Declining Wild Fisheries Supply
2.7 COMPARISON OF THE ATTRACTIVENESS OF FARMING MAJOR FISH SPECIES

Table 4 below summarises some of the key parameters in determining the relative attractiveness of farming a range of established and emerging fish species. We have used the feed conversion ratios (FCRs) typically achieved with the most used mode of farming. The FCR measures the kg of feed required to grow a kg of fish. The lower the FCR the lower the required feed input but also, importantly, the lower the amount of environmental degradation arising from fish waste. The FCR is largely determined upon the metabolism of the individual species. There can also be a wide variation in FCR, dependent upon the type of farming method used. For example, Australis Aquaculture achieves an FCR of 0.8-0.9 in farming barramundi in its indoor recirculating facility at Turners Falls, Massachusetts. In an open water pen situation, the FCR would probably be nearer 1.3. We have used 1.0 as an average for a typical indoor facility. The preferred aquaculture species offer high growth rates, a low FCR, and the potential to thrive on lower cost feed. Total feed cost is largely determined by the FCR and the percentage of marine-derived content in the feed. The greater the requirement for marine-derived input, the higher the financial vulnerability in the long term farming of that species, to higher future prices for these increasingly scarce ingredients. It can be seen from the table that the species which have hitherto experienced explosive growth, despite their low appeal in a quality sense (carp, basa and tilapia) and their rather poor FCRs, are those which can thrive on the cheaper feeds (those low in marine derived content). Farming such species is seen as a lower risk long term proposition. Of the higher quality fish species, it can be seen that barramundi offers the advantage of a very low FCR and relatively lower reliance on marine derived inputs for feed, to give a relatively low total feed cost. In both respects it is significantly better than the ubiquitous salmon. Kingfish too compares favourably with the salmon and, like barramundi, is best grown in significantly warmer water than used for salmon.
TABLE 4: KEY AQUACULTURE PARAMETERS FOR MAJOR FISH SPECIES

Typical Feed Conversion Ratio (FCR) % of Marine Derived Content in Feed Tonne MarineDerived Input / tonne Produced Feed Cost ($ / tonne Gain) Feed Cost ($ / tonne Feed) Fish Meal Content (%) Fish Meal Ratio (*) Fish Oil Content (%) Oil Ratio
(*)
Established Species
Carp Basa Tilapia Salmon Seabass Seabream 1.8 2.5 1.5 1.3 1.8 1.8 3% 8% 9% 40% 35% 35% 0.2 0.8 0.9 4.0 4.0 4.0 $ $ $ $ $ $ 540 750 825 1,690 1,980 1,980 300 300 550 1300 1100 1100 3% 8% 5% 16 % 21 % 21 % 4 4 4 4 4 4 0 0 4% 24 % 14 % 14 % 10 10 10 10 10 10
Emerging Species
Barramundi Kingfish Cod Snapper Cobia Groupers Halibut 1 1.3 1.5 1.8 1.8 1.8 2.0 25% 45% 40% 35% 42% 42% 40% 1.3 3.7 3.8 4.0 4.8 4.8 5.1 $ $ $ $ $ $ $ 1,000 1,690 2,025 2,250 2,340 2,430 2,700 1000 1300 1350 1250 1300 1350 1350 20 % 27 % 24 % 21 % 25 % 25 % 24 % 4 4 4 4 4 4 4 5% 18 % 16 % 14 % 17 % 17 % 16 % 10 10 10 10 10 10 10
Source: Australis Aquaculture Limited
* It takes 4 kg of wild fish to produce 1 kg of fish meal, and 10 kg of wild fish to produce 1 kg of fish oil.
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2.8 THE DISADVANTAGES OF AQUACULTURE

Although the world is becoming more reliant on aquaculture as a source of fish, it is not without its problems. The disadvantages and potential problems associated with aquaculture include: Fish escaping into the environment can have numerous ecological impacts. These include the spread of disease; escaped fish interbreeding with wild fish and therefore compromising the hardiness of the wild population; increased competition for natural resources; increased predation in the surrounding environment; the alteration of habitats; and the introduction of new fish colonies. The risk of fish escaping is the greatest in open net pens and cages, less so in hand made and enclosed ponds, especially if the ponds arent linked to open water, and almost negligible in recirculating systems. The high fish density per unit of area in aquaculture amplifies any disease and the transference thereof. Aquaculture can introduce and amplify pathogens and disease into wild populations. This disease transfer can impose devastating losses on the surrounding areas. Recirculating systems have almost no risk of transferring disease or pathogens to the wild, but this does not eliminate the risk of disease within the actual system. Open net pens and cages pose the greatest risk with enclosed ponds not far behind. The good news however is that disease can be reduced and eliminated if the water in the system is managed correctly. The main forms of waste discharge from aquaculture are nutrients, suspended soil, chemicals and biological waste. Of these, the largest contributors are fish excretion and excess feed. For example, a salmon farm of 200,000 fish releases an amount of nitrogen, phosphorus, and fecal matter roughly equivalent to the waste from cities ranging from 20,000 to 65,000 people (Hardy 2000). Studies carried out in Hong Kong indicate that 85% of phosphorus, 80 to 88% of carbon, and 52 to 95% of nitrogen inputs to open net cages may be lost through uneaten food and fecal waste (Fishing Industry Research Institute, FIRI 2006). In addition, waste discharge can cause algae growth resulting in dead zones. A major potential problem with aquaculture (especially with carnivores such as salmon), is that it can cause an increase in over-fishing, instead of alleviating the pressure on wild fisheries. The traditional perspective is that carnivores need to be fed other fish to grow quickly and healthily (** See below). If farmed fish are fed largely marine-derived feed and their FCRs are high, there can be a significantly greater amount of fish consumed than produced. The table in the previous section shows that for many quality species of fish, the tonnes of marine-derived input can be as much as 4-5 times the tonnes of farmed fish produced. This is clearly unsatisfactory, especially when one considers that such practices are often associated with other unsustainable practices. From the table, it is clear that basa, carp and tilapia are the only species that typically consume less fish than they produce. In respect of the high end fish products, the table shows that barramundi is a clear stand-out in terms of farming sustainability. ** The traditional perspective in respect of fish feeds is now being challenged by leading aquaculturalists who are striving to lower their input costs and meet the markets expectations regarding sustainability. They are increasingly using sophisticated feed blends, with less fish-based feed elements to obtain the required results. Australis Aquaculture in the USA is for example using only about 25 % fishmeal in its barramundi feed, but is still managing to achieve the desired result of an FCR of 0.8 0.9. By careful feed formulation it has also boosted the Omega 3 content of its product, from around 180 mg per 5-ounce serve to 833 mg. [It should be noted that about 25% of all global fish production is currently used as fishmeal and fish oil. In 2002, aquaculture used 46% and 81% of the global supply of fishmeal and fish oil respectively. The International Fishmeal and Fish Oil Organisation (IFFO) predicts that aquaculture will use an increasingly large share of fishmeal and fish oil supply, possibly as high as 56% of the fishmeal and 97% of the fish oil by 2010.]
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2.9 RESPONSIBLE AQUACULTURE

Aquaculture can be the solution to over fishing and all the problems associated with it, but it is essential that it is done in a responsible manner. Responsible aquaculture involves working towards optimal use of scarce inputs such as water, land, seed, broodstock and feed ingredients. It makes no sense employing aquaculture production if in the end greater wild fish input is required than the farmed fish output. The sectors use of natural resources must ensure long term sustainability implying that it must not have adverse effects on the environment. The FAO has a Code of Conduct for Responsible Fisheries (CCRF), which is considered the basic foundation on which to promote aquaculture development in the future. The basic requirements for aquaculture to be considered responsible are: Ensure the type of aquaculture is ecologically sustainable and allows rational use of resources. Ensure that the livelihoods of local communities are not negatively affected. Minimize adverse ecological changes resulting from water extraction, land use, discharge of effluents, use of drugs and chemicals and other aquaculture activities. Ensure that the farm site and farmed species are a responsible choice considering the local environment. Monitor the impacts that the fish farm has on the surrounding environment. Regulate the use of chemical inputs which are hazardous to human health and the environment. Follow international codes of practice. Improve the selection and use of appropriate feeds and fertilizers to achieve maximum efficiency. Employ effective farm and fish health management practices. Ensure the minimum use of hormones, therapeutants, drugs, antibiotics and other disease control chemicals. Minimize the risks of disease transfer and other adverse effects on wild and cultured stocks. Ensure that disposal of waste such as offal, sludge, dead or diseased fish, excess veterinary drugs and other hazardous chemicals are done in a manner that does not constitute a hazard to human health and the environment. Ensure that the fish produced are safe to eat and ensure product quality. This requires care before and during harvesting, during onsite processing and in storage and transport of the fish. Maintain integrity of aquatic communities and ecosystems by minimizing the introduction of nonnative species or genetically altered stocks into open waters. Ensure that the risk of farmed fish escaping into the wild is minimized.
2.10 THE SEAFOOD WATCH PROGRAM

The Seafood Watch Program, run by Monterey Bay Aquarium in California is a leading proponent of sustainable fisheries practices. The Program has issued the following guiding principles that illustrate the qualities that aquaculture operations must possess to be considered sustainable: uses less wild caught fish (in the form of fish meal and fish oil) than it produces in the form of edible marine fish protein, and thus provides net protein gains for society; does not pose a substantial risk of deleterious effects on wild fish stocks through the escape of fish; does not pose a substantial risk of deleterious effects on wild fish stocks through the amplification, retransmission or introduction of disease or parasites; employs methods to treat and reduce the discharge of organic waste and other potential contaminants so that the resulting discharge does not adversely affect the surrounding ecosystem; and implements and enforces all local, national and international laws and customs and utilizes a precautionary approach (which favours conservation of the environment in the face of irreversible environmental risks) for daily operations and industry expansion. Out of these guiding principles the Seafood Watch Program has developed a set of sustainability criteria which they use to evaluate aquaculture operations. The criteria are as follows: 1. 2. 3. 4. 5. Use of marine resources. Risk of escapes to wild stocks. Risk of disease and parasite transfer to wild stocks. Risk of pollutions and habitat effects. Effectiveness of the management regime.
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The table below shows how the Seafood Watch Program criteria have been applied to rate various species of farmed fish into Best Choices, Good Alternatives or Avoid.
TABLE 5: SPECIES RATED ACCORDING TO SUSTAINABILITY

Best Choice Abalone Arctic Char Barramundi (US farmed) Catfish Caviar Clams Crayfish (US) Mussels Oysters Bay Scallops Striped Bass Sturgeon Tilapia (US) Rainbow Trout Good Alternatives Tra, Basa Shrimp (US) Tilapia (Central America) Oysters Scallops Squid Tuna (canned light) Calms Avoid Crayfish (Outside US) Salmon Shrimp (Outside US) Tilapia (China, Taiwan) Chilean Seabass Atlantic Cod Groupers Mahi Mahi Monkfish Orange Roughy Rockfish (pacific) Sharks Tuna Flounders, Soles
Source: Monterey Bay Aquarium Seafood Watch
2.11 CONCLUSION
Steadily increasing demand for fish and the inevitable decline in wild caught seafood is rapidly increasing demand for aquaculture products. As fish prices move higher, and the technical and managerial experience needed to operate large scale aquaculture operations increases, the economics of aquaculture are becoming increasingly attractive. This transition is expected to be most marked in the developed world, where aquaculture has struggled for viability due principally to competition with wild caught seafood. Increased consumer acceptance, as well as more stable price and supply will drive the growth of the aquaculture sectors on a world wide basis. Consolidation and growth of the supermarket, club store and food service industries is an additional factor which favours the product uniformity, scale and price stability which is available from aquaculture. Given the grave state of most wild fish stocks, coupled with the economic and regulatory realities resulting from increased fishing effort and the higher cost of fuels, the accelerated growth of aquaculture is inevitable. The growth of the aquaculture industry will put increasing pressure on certain marine resources for the production of feeds. While the aquaculture industry as a whole will benefit from the inherent efficiencies of raising cold-blooded animals, greater advantage will be conferred to the most efficient producers who select species and employ practices which maximize the use of grain-based inputs, and achieve food conversation ratios at or below 1:1. The aquaculture industry will need to increasingly make use of grain-based protein and oil sources, and manage the risk of fish escape, pollution and habitat effects. Western aquaculture companies that can implement emerging technologies and responsible practices will be well positioned to realize rapid and sustained growth. In sum, we see huge opportunities for responsible and cost efficient aquaculture production over the coming decade. ---------------------------------------This Report has been Prepared and Researched by: Alan Hill B.ENG M.B.A MSDIA FAICD & Cronje Wolvaardt B.COMPT (Accounting)
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GENERAL ADVICE WARNING The contents of this document have been prepared without taking account of your objectives, financial situation or needs. Because of that you should, before taking any action to acquire or deal in, or follow a recommendation (if any) in respect of any of the financial products or information mentioned in this document, consulting your own investment advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs. Whilst State One Stockbroking Ltd believes information contained in this document is based on information which is believed to be reliable, its accuracy and completeness are not guaranteed and no warranty of accuracy or reliability is given or implied and no responsibility for any loss or damage arising in any way for any representation, act or omission is accepted by State One Stockbroking Ltd or any officer, agent or employee of State One Stockbroking Ltd. If applicable, you should obtain the Product Disclosure Statement relating to the relevant financial product mentioned in this document (which contains full details of the terms and conditions of the relevant financial product) and consider it before making any decision about whether to acquire the financial product. DISCLOSURE The directors and associated persons of State One Stockbroking Ltd. may have an interest in the financial products discussed in this document and they may earn brokerage, commissions, fees and advantages, pecuniary or otherwise, in connection with the making of a recommendation or dealing by a client in such financial products. CONFIDENTIALITY NOTICE The information contained in and accompanying this communication is strictly confidential and intended solely for the use of the intended recipient/s. The copyright in this communication belongs to State One Stockbroking Ltd. or one of its related companies ("State One"). If you are the intended recipient of this communication you should not copy, disclose or distribute this communication without the authority of State One. Any views expressed in this communication are those of the individual sender except where the sender specifically states them to be the views of State One. If you are not the intended recipient of this communication please delete and destroy all copies and telephone State One on +61 8 9288 3388 immediately.
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THE DESTRUCTION OF GLOBAL FISHERIES & THE EMERGING DOMINANCE OF AQUACULTURE

Fresh Atlantic Salmon 4 - 5 kg

20th June 2007

STATE ONE STOCKBROKING LTD AFSL 247100

THE DESTRUCTION OF GLOBAL FISHERIES & THE EMERGING DOMINANCE OF AQUACULTURE

KEY POINTS GLOBAL FISH DEMAND & THE EMERGANCE OF AQUACULTURE

THE ROLE OF AQUACULTURE

1.0 GLOBAL FISH PRODUCTION & CONSUMPTION

CHART 1: TOTAL WORLDWIDE FISH PRODUCTION 1950 - 2005

Source: FAO Statistics

1.2 SOURCES OF WILD CAPTURE PRODUCTION

Ocean and Sea Capture

Source: FAO Statistics

Total Capture Total Aquaculture Total World Fisheries

95.6 35.5 131.1

93.1 37.9 131

93.3 40.4 133.7

90.5 42.7 133.2

93.8 47.8 141.6

Source: FAO SOFIA 2006 Report

1.4 FISH AS A FOOD SOURCE

1.5 FISH AS A CORE SOURCE OF GLOBAL PROTEIN

CHART 3: AVERAGE ANNUAL PER CAPITA PROTEIN CONSUMPTION 2001-2003

Source: FAO Statistics

CHART 4: ANNUAL PER CAPITA FISH CONSUMPTION GROWTH

Source: Josupeit FAO

CHART 5: AVERAGE ANNUAL PER CAPITA FISH CONSUMPTION BY CONTINENT 2001-2003

5 North America South America Europe Oceania Asia Africa China

Source: FAO Statistics

1.6 ECONOMIC IMPORTANCE OF GLOBAL FISHING & AQUACULTURE

1.7 FISH DEMAND OUTSTRIPPING SUPPLY

Source: Josupeit FAO

1.8 FISH STOCK DEPLETION

Overexploited + Depleted + Recovering

Source: FAO SOFIA 2006 Report

CHART 8: GLOBAL LOSS OF SEAFOOD SPECIES PROJECTED % REMAINING

Percent of species remaining Long term trend

Source: Worm and Myers

1.9 CAUSES OF FISH DEPLETION

1.10 SOLUTIONS TO DECLINING FISH STOCKS

1.11 TRENDS IN FISH PRICES

CHART 11: FISH PRICES: 1976 2003

Tilapia and Catfish

Source: Josupeit FAO

CHART 12: GROWTH IN US TILAPIA CONSUMPTION V WHOLESALE PRICING

Source: Australis Aquaculture

1.12 CONSUMER IMPACT AND RESPONSE TO DECLINING FISH STOCKS

Wild Coho Salmon, 900mg

Australis Barramundi 833mg

Source: Australis Aquaculture

2.0 THE ROLE OF AQUACULTURE

2.1 WHAT IS AQUACULTURE?

2.2 THE GROWTH & LOCATION OF AQUACULTURE

TABLE 2: AQUACULTURE GROWTH BY CONTINENT BETWEEN 1995 AND 2005

Source: FAO Statistics

CHART 13: AQUACULTURE PRODUCTION BY CONTINENT IN 2005

Af rica, 1.0% Asia, 92.0% North America, 1.4%

South America, 1.9%

Source: FAO Statistics

TABLE 3: AQUACULTURE PRODUCTION BY COUNTRY 2005 (MILLION TONNES) DOMINATED BY CHINA

Source: FAO Statistics

Source: FAO Statistics