The cost of not fishing: How marine businesses are coping with South Australia’s bloom
Even with targeted government assistance, many businesses in Marine Scalefish Fishery remain financially exposed, writes BDO Partner Anders Magnusson.
A harmful algal bloom (HAB) is spreading through South Australia’s waters, killing marine life, disrupting coastal ecosystems and putting the livelihoods of commercial fishers at risk. For many in marine-dependent industries, this is shaping up to be the most serious shock in years.
The South Australian and Commonwealth governments have jointly announced a package of $28 million in response to the crisis. Support for eligible businesses includes commercial fishing licence fee relief, the Small Business Industry Support Grant and other direct support payments.
While the HAB is affecting commercial fishers and aquaculture producers statewide to varying levels, Marine Scalefish Fishers in the Gulf St Vincent and Kangaroo Island region have reported particularly severe impacts.
How significant is this support for impacted businesses?
Slim margins for fishing businesses
At BDO, we produce social and economic indicators for South Australia’s commercial fisheries and aquaculture sectors annually, under contract with PIRSA. Our reports show that Marine Scalefish Fishers operating in the Gulf St Vincent and Kangaroo Island region tend to be less profitable than their counterparts in other regions.
A representative Marine Scalefish Fishery business in this region earns an annual income of $125,000. This covers the business’s operating costs, including a notional income drawn by the owner-operator, but leaves no profit. The operating costs include fixed and variable expenses. Fixed costs are around $45,000 and include insurance, interest, administrative expenses, and annual licence fees of around $5,000. The remainder are variable costs, incurred only when fishing activity occurs and include expenses such as fuel and labour.
Support helps, but only for a while
Even with targeted government assistance, many businesses in Marine Scalefish Fishery remain financially exposed. For example, if the average Marine Scalefish Fishery business in the Gulf St Vincent and Kangaroo Island region ceases fishing for a year, has its licence fees waived and receives a $10,000 Small Business Industry Support Grant, it can still expect to lose around $30,000 in that year through ongoing fixed costs. Further, the owner must find personal income somewhere else. The government support therefore provides substantial support for the short term, but the situation would have to improve in a matter of months for this representative business to continue operating.
For many operators, mental health and stress associated with the HAB are compounding the financial pressure, potentially influencing whether they stay in the industry.
A diverse industry under pressure
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Looking only at the average business ignores the broad range of profitability within the Marine Scalefish Fishery. In each year, some operators make substantial profits while others experience substantial losses. The more profitable businesses tend to have tighter control of their costs so are likely to be more resilient to shocks like this. For some less profitable businesses, a substantial fixed cost is interest on their debt. Interest payments are particularly high right now for these businesses. Interest rates are being held high as the Reserve Bank of Australia is taking a cautious approach to reducing the cash rate through the last stages of Australia’s high inflation period of the past few years. Debt levels are also likely to be higher for some businesses following the recent Marine Scalefish Fishery reform which prompted some businesses to borrow in order to purchase a larger share of access rights to the fishery.
Before the HAB, signs were emerging that the Marine Scalefish Fishery reform was beginning to pay off, with businesses that had invested in access rights starting to see improved returns. Now, those gains are under pressure. For many operators, survival will depend not just on the size of the support package, but also on how long the HBA lasts.
Anders Magnusson is a Partner at BDO and leads the firm’s Economics practice in South Australia. He specialises in economic impact assessments, cost–benefit analysis and regional economic modelling across sectors including fisheries, infrastructure, healthcare and energy. A frequent media commentator on economic trends, he’s provided insights on inflation, the labour market and RBA policy.
