The Program is required to enable the economics research required over the next 3 years by retaining the WRL Economist and WRL Data Analyst (0.5 FTE each; total 1.0 FTE):

This application builds on the just-completed economics program undertaken by WRL (2020-060 Understanding the economics and markets of the western rock lobster industry) which identified various areas worthy of future work and investigation.

These areas include:

1. Industry Resilience and Contribution
The Western Australian industry was forced to accept lower prices for its product, as export product was directed to markets that offered lower prices than available in mainland China while significant volumes were also directed to the domestic market – primarily to major supermarket chains. The resulting low beach prices to fishers were mitigated to some extent as high catch rates (and low costs to fish) associated with more than a decade of prudent harvest strategy (which included MEY considerations) helped most fishers stay in business. Industry resilience into the future will be influenced by an unsettled geopolitical landscape that in addition to current complexity will also likely feature perhaps-significant tariff barriers to trade.

2. MEY modelling
While the MEY model includes a reasonable estimate of boat costs, external review has pointed out the desirability of including opportunity costs of capital and unpaid labour in the model. WRL recommends that future work include efforts to estimate the opportunity cost of capital (which is heavily skewed towards the cost of transferrable quota) as well as unpaid labour including office work.

1. undertake research and expand the narrative demonstrating the effects of likely tariff-barrier driven international trade disruptions on the industry’s financial wellbeing and economic contribution, building on industry’s experience of earlier trade disruptions including COVID and China market disruptions.

2. investigate and implement enhancements to the WRL MEY model based on verified stakeholder feedback and on external review of the previous project;
• In response to external review recommendations, work should include efforts to include in MEY modelling (a) estimates of the opportunity cost of capital and (b) unpaid labour costs which are not currently captured in boat cost data collection.
• MEY modelling is also based on (among other factors) expected longer-term beach prices for lobster achieved by fishers. Beach prices are themselves underpinned by prices achieved in domestic and export markets for live, frozen and other processed forms of western rock lobster, and supply chain costs — all of which underlying factors have changed markedly over the past several years that encompassed COVID-19 and later trade disruptions, and have influenced the longer-term outlook considerably. The dynamics of these influences changes constantly.
• Domestic markets have shown the ability to absorb significant volumes of Australian product over the period of trade disruptions, encouraging a pivot by processors to include more cooked, frozen and other processed product in the product portfolio.
• Frozen and chilled product has also been demonstrated to have general acceptance in overseas markets, albeit at lower prices than achieved by similar live product.
• Air and sea freight costs continue to be adversely compromised, affecting the relative attractiveness of domestic versus export markets and of frozen versus live product.
• Processors and marketers have explored alternative export markets and notably paths to market in the wake of political uncertainty and trade disruptions. There is a need to understand the implications of these shifts on the net beach prices returns to fishers, which will be achieved through a better understanding of the changes in market access and supply chain costs (transport, live holding, handling, additional processing, freight forwarding).
• Notwithstanding industry efforts to diversify, China remains the main target end-market for Australian rock lobster processors, and this reliance on and expected reversion to a single market focus carries with it the implicit risks of future disruptions.
• Taken together, ongoing changes to this suite of changes constitute significant, and potentially longer-term, challenges to the western rock lobster industry that have high potential to bring about significant changes in industry structure.

3. research and implement mechanisms by which individual fishers / business owners can benchmark their businesses against relevant industry economic standards. Findings to date indicate a wide variance in competitiveness among fishers, which can be expected to continue to drive industry consolidation.
• Benchmarking aims to improve the internal performance of fishers' private business operations by providing each business with an opportunity to compare itself to the industry's performance.
• Benchmarking is not limited to economic metrics, and includes physical metrics such as fuel use that will enable future work to determine an understanding of the carbon footprint of the fishing fleet at individual vessel and whole of fleet levels.
• The benchmarking exercise, then, aims to generate an understanding of the range of cost structures in the fishing fleet, to better inform the cost elements of MEY modelling for economic sustainability of the fishery.
• The previous project identified a need to increase data collection from the smaller boats in the fleet, which constitute a majority of the operators but a minority of the catch. These operators, under-represented in WRL’s benchmarking program, are characterised by relatively lower financial awareness or motivation than the larger operators. WRL intends to experiment with new simplified data collection methodologies to increase these businesses’ engagement with and representation within WRL’s benchmarking program. The main success criterion will be increasing the information flow from these smaller operators from current low levels.

4. investigate and implement enhancements to the WRL Global Trade Report.
• The pandemic and its ongoing turmoil, combined with trade disruptions that compromised market access and export flows for Australia’s live exports, brought about a change in global lobster trade flows into the highest volume, highest value market – at Australia’s expense.
• The resultant situation includes a loss of market share and value to alternative suppliers of live spiny lobster including notably aquacultured product from Vietnam; and also ongoing changes to those markets with increased competition from other high value crustaceans such as snow crab.
• Consumer preferences have shown some signs of changing, notably with some preference-shifting to frozen product, which may be a sign of increasing consumer confidence in cold supply chains.

5. research and implement mechanisms by which WRL's Global Trade Report, MEY Model and Markets Dashboard would work together with DPIRD's Harvest Strategy to underpin TACC setting into the future, adding considerable benefit to government as the resource manager by supplying timely, independent, industry-oriented information to the consideration set. The previous project found that significant progress has been made toward identifying and integrating these elements and mechanisms, and recommended various additional works (outlined in this project summary) to support future TACC decision-making.