The Maori Commercial Aquaculture Settlement New Space Plan

Transcription

1 The Maori Commercial Aquaculture Settlement New Space Plan ISBN No: (print) August 2014

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3 Disclaimer Every effort has been made to ensure the information in this document is accurate. MPI does not accept any responsibility or liability whatsoever for any error of fact, omission, interpretation or opinion that may be present, however it may have occurred. Requests for further copies should be directed to: Publications Logistics Officer Ministry for Primary Industries PO Box 2526 Wellington Telephone: Facsimile: Crown Copyright June 2014 Ministry for Primary Industries

4 Contents Page Foreword 1 1. Background to the new space settlement process: the statutory framework The Crown s settlement and delivery obligations New space settlement assets The New Space Plan New space settlement timeframes The default settlement mechanism The prospective nature of the new space settlement Review of the New Space Plan 5 2. Assessment of progress The New Space Plan Establishing processes and methods for determining the value of the settlement assets Progress: the National Forecast Model Progress: the National Valuation Methodology Progress: difference in value between two consenting regimes Progress: authorisations Reaching regional agreements Regional agreements Timeframes for achieving regional agreements Other settlement matters Relationship to other legislation and processes 15 Appendix 1: National Forecast Models 17 Appendix 2: National Valuation Methodology for New Commercial Aquaculture Space 35 Appendix 3: Aquaculture settlement areas 41 Appendix 4: Timeframes for achieving regional agreements 44 Appendix 5: Iwi aquaculture organisations 47 Appendix 6: Glossary 50

5 Foreword Tēnā koutou. I am very pleased to release the Māori Commercial Aquaculture Settlement New Space Plan. I would like to acknowledge the work of iwi aquaculture organisations, the New Aquaculture Space Iwi Steering Group and Te Ohu Kaimoana for engaging on the development of this plan. Your contribution to this complex piece of work is appreciated. The implementation of the Maori Commercial Aquaculture Claims Settlement Act 2004 (the Act) acknowledges the Crown s obligation to Māori in regards to commercial aquaculture space. It also supports Māori aspirations for their involvement in the aquaculture industry. This plan outlines how the Crown intends to carry out its obligations to settle iwi interests in new aquaculture space. The plan sets out the building blocks for the new space settlement process, which largely involves the settlement of space that is anticipated to be consented in the future. The settlement of future assets is an unprecedented approach under the Treaty of Waitangi settlement process and is a significant achievement for the Crown and iwi to attain. The plan includes a forecast of future anticipated commercial aquaculture space through to 2035 and the methodology for valuing settlement assets. These two key components under the Act will inform the Crown s regional offers to iwi aquaculture organisations, which I anticipate starting to make in the second half of The Crown will use best endeavours to reach regional agreements with Iwi aquaculture organisations within the statutory timeframes. The New Space Plan sets out a timeline for achieving regional agreements and will continue to require a strong commitment from the Crown, Iwi aquaculture organisations and Te Ohu Kaimoana Trustee Limited. Ngā mihi nui kia koutou katoa. Hon Nathan Guy Minister for Primary Industries Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 1

6 1. Background to the new space settlement process: the statutory framework 1.1 The Crown s settlement and delivery obligations 1. The purpose of the Maori Commercial Aquaculture Claims Settlement Act 2004 (the Act) is to provide a full and final settlement of Māori claims to commercial aquaculture on or after 21 September 1992, 1 and provide for commercial aquaculture settlement assets. 2. There are two primary delivery obligations on the Crown under the Act: a) the Crown s delivery obligations in respect of pre-commencement space; 2 and b) the Crown s delivery obligations in respect of new space. It is the second of these obligations (new space), with which this plan is concerned. 3. The Act requires the Crown to provide for, and transfer to Te Ohu Kaimoana Trustee Limited (the Trustee 3 ), settlement assets that are representative of 20 percent of new space created or anticipated on or after 1 October These obligations apply and must be satisfied on a regional basis. 4. New Space is space that is subject to consent for aquaculture activities in the coastal marine area from 1 October 2011 onwards. It can be space that is actually consented after 1 October 2011 or space that is anticipated (forecasted) to be used for aquaculture activities in the future. 1.2 New space settlement assets 5. Under section 9 of the Act new space settlement assets can be provided to the Trustee for allocation to iwi by one or more of the following options: a) providing authorisations representative of 20 percent of anticipated new space; 5 b) the payment of a financial equivalent of that space; and/or c) entering into one or more new space regional agreements between the Crown, iwi aquaculture organisations and the Trustee. 1 Note that this aquaculture settlement process is a contemporary settlement process. 2 Pre-commencement space is space that became subject to use for aquaculture activities between 21 September 1992 and 31 December The settlement of pre-commencement space is the subject of a separate Ministerial plan, and is not dealt with in the New Space Plan. 3 The Trustee plays a key role in developing a regional consensus amongst iwi on their preference for settlement assets prior to engagement on a new space regional agreement. This involves the provision of information to iwi to assist iwi to make informed decisions on their preferences for settlement assets. 4 Note that space created in the interim period of 1 January 2005 to 30 September 2011 is space created under the former Aquaculture Management Area framework and is instead settled under sections 44A 44L of the Aquaculture Reform (Repeals and Transitional Provisions) Act Authorisation has the same meaning as in section 165C of the Resource Management Act 1991; namely authorisation means the right to apply for a coastal permit to occupy space in a common marine and coastal area. 2 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

7 6. New space settlement assets can also include any other benefit agreed to under the new space settlement process The New Space Plan 7. The New Space Plan is the framework for how the Crown will deliver on the settlement of new space under the Act. The plan must: a) provide an assessment of the Crown s progress in complying with its obligations in respect of new space; b) to the extent that the Crown has not complied with those obligations, provide how the Crown is going to comply; and c) establish processes and methods for determining the value of the new space settlement assets to be delivered under section 9 of the Act. 8. Those processes and methods need to avoid increasing the demand for coastal permits (which would increase the value of space), reduce the risk of collusion, be cost effective for the Crown, and enable an assessment to be made on a regional basis of: a) the amount of anticipated new space (a National Forecast Model); and b) the value of aquaculture by type, and the overall productive capacity of the anticipated new space (a National Valuation Methodology). 9. All Iwi aquaculture organisations and other organisations referred to in section 14(2)(b) of the Act, including the Trustee, have been consulted in the preparation of this New Space Plan. 1.4 New space settlement timeframes 10. The Crown must use its best endeavours to negotiate and enter into regional agreements to meet its new space obligations. 11. Section 11(2) of the Act sets out the statutory timeframes within which agreements must be entered into. These are: a) two years after the commencement of the 2011 amendments to the Act for the regions of Northland, Waikato East, Marlborough and Tasman (extended by Gazette notice to 30 June 2015); and b) for all other regions, a date three years after the commencement of the 2011 amendment Act, or within two years after the receipt of the first resource consent application for the purpose of aquaculture activities (whichever is later). 12. Consent applications for aquaculture activities were lodged in 2012 with the regional councils in Auckland and Canterbury and consent applications were lodged in 2013 with the regional council for Southland. Accordingly these three regions now have statutory timeframes applying to them for concluding regional agreements. 6 See section 5 of the Act (definition of a Settlement Asset ). Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 3

8 13. Section 11(4) of the Act provides for the Minister for Primary Industries (the Minister) to extend the periods for reaching regional agreements. In the event that the Crown and iwi aquaculture organisations cannot conclude a regional agreement within the relevant settlement timeframe, the default settlement mechanism set out in section 11(5) of the Act applies in respect of that region. Table 1: Current timeframes for negotiating and agreeing regional agreements Region Priority regions Current statutory deadline date Comments Northland 30 June 2015 Waikato East 30 June 2015 Tasman 30 June 2015 Marlborough 30 June 2015 Deadline date was originally 30 September Statutory deadline extended by Gazette notice following consultation with iwi to 30 June Non-priority regions that have received a resource consent application for the purpose of aquaculture activities (new space) since 1 October 2011 Auckland 30 November 2015 Canterbury 30 November 2015 Southland 27 March 2015 Resource consent received by Auckland Council on 17 February 2012 for Waimangu Point. Statutory deadline extended by Gazette notice following consultation with iwi to 30 November Resource consent received by Canterbury Regional Council on 30 May 2012 for Menzies Bay, Banks Peninsula. Statutory deadline extended by Gazette notice following consultation with iwi to 30 November Resource consent received by Southland Regional Council on 27 March 2013 for Horseshoe Bay, Stewart Island. Statutory deadline of 27 March 2015 continues to apply. Non-priority regions that have not yet received a resource consent application for the purpose of aquaculture activities (new space) since 1 October 2011 Waikato West Bay of Plenty Gisborne Hawkes Bay Taranaki Manawatu-Wanganui Wellington Otago West Coast Chatham Islands No resource consents for aquaculture received for these regions. Therefore no statutory deadline in place. 1.5 The default settlement mechanism 14. The default settlement mechanism does not involve the Crown negotiating regional agreements with relevant Iwi aquaculture organisations for the settlement of new 4 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

9 space. It instead involves the Crown arranging to transfer to the Trustee authorisations in relevant aquaculture settlement areas in the region to apply to occupy space in the coastal marine area for the purpose of aquaculture activities and any payment required by section 13(4). If there are insufficient authorisations available that represent 20 percent of new or anticipated new space, then the Crown needs to pay to the Trustee the difference (that is, the financial equivalent of the space). 1.6 The prospective nature of the new space settlement 15. To enable the 2011 aquaculture reforms and to facilitate growth in aquaculture, Cabinet made a decision to settle the Crown s new space obligations prospectively [CAB (10) 30/9]. This was to ensure that Iwi aquaculture organisations received parcels of new space of an economical size, as opposed to small pockets of new space on a piecemeal basis. 16. The settlement of new space is therefore a different process to the settlement of precommencement space. It involves the settlement of actual new space created after 1 October 2011, and new space that is anticipated to be consented in the future. This involves forecasting which region the anticipated new space is expected to be in, and how productive that space is expected to be. It is also about assessing which species are likely to be farmed in that space, as different species have different financial values. 17. This prospective settlement process has not been attempted before in Treaty settlements, and poses significant challenges to both Iwi and the Crown. The regulation of aquaculture and related consenting is complex and highly technical. This complexity is compounded by the need to forecast anticipated new commercial aquaculture space into the future. This is why a process for periodic review of the settlement assets delivered under each regional agreement is considered to be very important. 1.7 Review of the New Space Plan 18. Section 15(1) of the Act requires the Minister to begin a review of the New Space Plan by 31 December 2017, and then on at least a five-yearly basis. As part of such a review, all aspects of the plan will be considered, and assessed to determine whether they continue to ensure the Crown is meeting its obligations under section In addition to the regular (five-yearly) review, the Minister must review the Plan at any time it appears that the amount of anticipated new space is likely to change significantly. 7 7 Section 15 of the Act. Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 5

10 2. Assessment of progress 20. In summary, the core elements of the new space delivery process that have been completed are: a) the New Space Plan; b) a National Forecast Model; c) a National Valuation Methodology; and d) authorisations including those provided by council and those created through a process of gazettal of aquaculture settlement areas The New Space Plan 21. The draft New Space Plan was released for consultation with iwi aquaculture organisations and the Trustee in February During the week of 12 May 2014, the Ministry for Primary Industries (MPI) held consultation hui in Auckland, Nelson and Wellington to discuss the content of the draft New Space Plan including the National Forecast Model and the National Valuation Methodology. 22. Consultation concluded on 30 May 2014 and all submissions were considered in the preparation of the final version of the New Space Plan. 23. The first review of the New Space Plan must begin by 31 December Establishing processes and methods for determining the value of the settlement assets 24. The Act requires the Crown to provide for, and transfer to the Trustee, settlement assets that are representative of 20 percent of all new aquaculture space created after 1 October The Act requires the Minister to establish processes and methods for determining the value of the settlement assets to be delivered to iwi aquaculture organisations under section 9 of the Act. The processes and methods must enable an assessment to be made of: a) the value that would be representative of each of the types of aquaculture expected to be developed in the anticipated new space in each region; and b) the overall productive capacity of the anticipated new space available for aquaculture activities in each region; and c) the difference in value between: i) the current costs of obtaining, pursuant to an authorisation granted under the Act, a resource consent under the Resource Management Act 1991 (RMA); and 8 Sections 12 and 13 of the Act. 6 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

11 ii) the costs of obtaining the resource consent pursuant to an authorisation had the authorisation been granted in relation to an aquaculture management area as at 1 January The National Forecast Model and the National Valuation Methodology were released for consultation with all the relevant Iwi aquaculture organisations and the Trustee in May The introduction of this work into the New Space Plan signals that the processes and methods for determining the value of new space settlement assets are now complete. 2.3 Progress: the National Forecast Model 27. The Act provides for a prospective settlement. Section 14(1) of the Act requires the Minister to establish the process and methods for determining the value of the settlement assets to be delivered under the Act. To do this the Crown must anticipate the amount of new space available in the future to inform settlement negotiations at a regional level. 28. A national forecast of new commercial aquaculture space, between 2015 and 2035, has been developed to quantify the Crown obligations in respect of anticipated new space. The forecast estimates total national growth to 2035, including where and when that growth is anticipated to occur in the regions. Appendix 1 has a description of the methodology and assumptions used in the national forecast. 29. Where the growth will occur is important because settlements must be provided on a regional basis. When the growth is anticipated to occur is important because it affects the cash value of the future space. The timing when space comes on line is based primarily on forecast demand growth. 30. The forecast estimates growth in both green weight tonnes (GWT) and hectares (ha) of new space for the three existing marine aquaculture species: salmon, mussels and pacific oysters. 31. These are the only commercialised species in New Zealand. There are other potential aquaculture species under trial, but there is insufficient information on the commercial viability and productivity of other species to forecast growth at this time. New species will be considered in the future as and when they become commercially viable. 32. The forecast is based on a model developed for MPI by Market Economics. The model incorporates growth scenarios from respected economists Coriolis; Ernst & Young (EY); and Market Economics. Table 2 shows the forecast results. 33. The forecast allocates aquaculture growth into the regions based on desk-top multicriteria analysis: a) environmental suitability and capacity for new space; b) regional coastal plan rules for aquaculture; c) competition for coastal space with other uses and values; d) proximity to existing industry and required infrastructure; Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 7

12 e) regional support for aquaculture growth; f) existing undeveloped capacity within the region; g) applications received and approved since 1 October Table 2: Summary of national forecast National growth by 2035 (GWT) Mussels Oysters Salmon Regional growth by 2035 (ha) Region Mussels Oysters Salmon Total new space by region Northland Auckland Waikato East (Coromandel) Rest of North Island Tasman Marlborough Canterbury Southland West Coast Otago Chatham Islands Total new space nationally Progress: the National Valuation Methodology 34. As noted above, section 14(1) of the Act requires the Minister to establish the process and methods for determining the value of the settlement assets to be delivered under the Act. 35. MPI and the Trustee adopted a joint approach to procuring expert advice on the National Valuation Methodology. After a competitive tendering process, EY was contracted to provide this advice with Sapere Research Group contracted to provide a peer review of the methodology. Advice was also sought from the New Aquaculture Space Iwi Steering Group. 36. The development of the National Valuation Methodology identified the key characteristics of the asset being valued as: 9 This allocation acknowledges there will be growth in other parts of the North Island, but historical evidence illustrates growth to be highly varied and the same trend is likely to occur in the future. There is insufficient information to identify the precise regions in which growth may occur but this will be reviewed once a resource consent has been lodged in one of the regions in the rest of the North Island. 8 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

13 a) space that has not yet been authorised or consented, under the assumption that the space will be consented at some future date; b) the value of space is defined as the present value of farming operations on that space less consenting costs; under the assumption that other factors of production (labour and physical assets) will earn a normal risk-adjusted rate of return; c) the relevant farming operations are those that could reasonably be expected to be undertaken by a generic owner of space, using industry-standard technology and deriving industry-standard returns; 10 and d) because the values are (initially) determined at the point in time at which the space is made available for aquaculture but prior to consent being granted, the National Valuation Methodology must capture all costs, including consenting costs, the costs of installing capital infrastructure, and costs related to the passage of time between the date of valuation and revenue first being generated from the space. 37. Relevant considerations in applying the market value standard include the need to define the characteristics of both the market and the typical buyer and seller in that market. Key considerations in this context are: a) that neither marine farms nor aquaculture space are typically transacted in New Zealand on liquid capital markets; b) the characteristics of the parties (buyers and sellers) who typically transact in the relevant market, including residence and size; 11 c) the need to have regard to the highest and best use that a generic buyer would use the asset for, which will not necessarily be the asset s current use; d) the value of aquaculture space should be estimated with regard to the expected returns to occupying and using the site for aquaculture purposes; and e) from time to time, and in specific areas, a processing company may have excess capacity, and through purchase of farms will achieve some additional benefit not available to other purchasers After consideration of alternatives a discounted cash flow (DCF) approach, supplemented with analysis of comparable transactions, was adopted as the most relevant valuation methodology in the current context (refer to Appendix 2). 13 This approach is similar to that adopted for the valuation of pre-commencement space. 39. As well as cross-checking the results generated by the DCF models against available transactions data, industry rules-of-thumb can (and should) also be used as additional cross-checks. 40. In summary, the DCF models developed for mussels, oysters and salmon: 10 The relevant industry-standard returns are those that are directly attributable to ownership and operation of the space, and are defined (as in the pre-commencement exercise) as farm gate or landed on the wharf commodity returns. 11 For example: ongoing consolidation in the mussel industry means that recent transactions have typically involved larger buyers and smaller sellers, although it is the expected future state of the market, which EY believe will be dominated by larger businesses, that is relevant to this exercise. 12 As this value is not directly related to aquaculture space, the methodology does not account for this factor in valuing new space. 13 Noting there are only limited transactions data available in aquaculture space or marine farms, and in a number of instances transactions have occurred only when the seller was in financial distress. Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 9

14 a) estimate forecast net cash flows for new space, 14 having regard to factors such as industry risks, adverse events, growth prospects, legislative requirements and the general economic outlook (the cash flows also take into account consenting costs and capital and working capital investments this is based on industry data); b) determine a discount rate having regard to the risks inherent in the forecast net cash flows for the company, the mix of (optimal) financing between equity and debt and the estimated cost of these forms of financing; c) consider the timing of new space consented and the lag before the new space is productive; d) apply the discount rate to the forecast net cash flows and the terminal value in order to derive a net present value ; and e) are flexible enough to capture regional characteristics. 41. The DCF approach was subject to an independent peer review, overseen by MPI and the Trustee. 42. The MPI view on the National Valuation Methodology (the DCF approach benchmarked to market trades) is that: a) the methodology is theoretically correct and takes into account the time value of money issues that are appropriate for a prospective settlement; and b) the methodology allows for different perceptions of risk associated with aquaculture generally and by species, farming methods and regions in particular and how these different perceptions influence values. 43. MPI notes that inherent in these types of valuation methodologies is the ability to create an illusion of precision that is not real. Fundamentally every input into the model is either an estimate of the future or an individual s perception of the risk. Critical considerations in using the output models are: a) judgement (the inputs are estimates of future regional averages over time for example, the average growth productivity in a region over the next 20 years); b) clearly documenting your assumptions and scenarios; and c) rigorous testing against all available real world data points, noting that there is a paucity of these. 2.5 Progress: difference in value between two consenting regimes 44. As part of the requirement to develop processes and method for determining the value of the settlement assets, the Act includes a requirement for the Minister to establish the difference in value between: a) the costs of obtaining resource consent under an authorisation in relation to an aquaculture management area under the regime applying as at 1 January 2005; and b) the costs of obtaining, pursuant to an authorisation granted under the Act, a resource consent under the RMA that could commence under section 116A of the RMA. 14 The cash flows are explicitly forecast out to 2060; at 2060 a terminal value calculation is made. 10 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

15 45. In determining the difference in value between the two consenting regimes the key issues under both the 2005 and 2011 consenting regimes are: a) there are very limited data points to determine costs; b) cost will vary based on the size of the area being applied for; and c) each regional council could potentially use different consent planning processes within a region for different applications. 46. Should iwi aquaculture organisations opt to take authorisations for space as their preferred settlement asset, the Act requires the Minister to assess the difference in value between the cost of obtaining a resource consent under the former aquaculture management area regime and the cost of obtaining a resource consent under the current regime. 2.6 Progress: authorisations 47. Authorisations are a primary settlement asset under the Act, and under the prospective mechanism for delivery of the new space settlement, they play a key role in the offers being made to regions. 48. Authorisation is defined in the Act as having the same meaning as in section 165C of the RMA (that is, the right to apply for a coastal permit to occupy space in the common marine and coastal area). Authorisations do not offer a guarantee of consented space, but rather are a preferential right to apply within a certain defined area. 49. At this time, there are 15 aquaculture settlement areas in place (refer to Appendix 3) comprising 214 hectares. Any authorisations that are provided to iwi aquaculture organisations under the settlement process must be provided within these aquaculture settlement areas, unless the relevant regional agreement specifies otherwise. 50. The gazettal of these areas was undertaken in close consultation with the relevant councils, iwi aquaculture organisations, the Trustee, industry and other interests. The decision to gazette space was based on the available information which indicated the space was potentially suitable for aquaculture. The sites were selected following desktop analysis of both constraints and opportunities against the criteria in both the RMA and the Fisheries Act 1996.This gazettal does not create any presumption about the outcome of an application for resource consent or a marine farming permit. The gazetted sites would need to go through the full RMA and Fisheries Act processes. 51. Where insufficient gazetted space is available in a region (or the gazetted space available isn t in the right area or for the right species), and authorisations are the preferred settlement asset for Iwi aquaculture organisations; MPI will work with Iwi aquaculture organisations the Trustee, other Government Departments and the relevant Regional Councils to identify appropriate space for gazettal. Any decision to gazette further aquaculture settlement areas will be jointly made by the Minister for Primary Industries and the Minister of Conservation. Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 11

16 3. Reaching regional agreements 3.1 Regional agreements 52. The 2004 Act originally provided for claims to be settled by allocating authorisations for 20 percent of aquaculture management areas to Iwi aquaculture organisations. The 2011 aquaculture law reforms remove the requirement for aquaculture management areas to be established before new space for aquaculture activities could be applied for. Because of this change a new delivery mechanism for the settlement needed to be developed. 53. The Maori Commercial Aquaculture Claims Settlement Amendment Act 2011 amended the Act to enable the settlement to be delivered on a regional basis through regional agreements or, when an agreement is not reached within the specified time frame, through a default option. 54. All of the Iwi aquaculture organisations identified within a region (as listed in the Maori Fisheries Act 2004) are required to agree on the mixture of the settlement assets which are to be transferred under each regional agreement. The settlement assets available to iwi through the regional agreements will require Iwi aquaculture organisations to carefully consider their future aspirations in the aquaculture sector. 55. Regional agreements will be entered into between the Crown and the Iwi aquaculture organisations (or recognised Iwi organisations as the case may be) on a regional basis (or in some cases, may involve a cluster of regions who are geographically aligned). They must also include the Trustee as a party to the agreement, for the purpose of confirming that all interested iwi aquaculture organisations are represented in the agreement. 56. Regional agreements set out the new space and anticipated new space in a region and the agreed negotiated settlement assets representing 20 percent of the new space in that region. 57. To address the complexities and uncertainties associated with the prospective nature of the new space settlement, the regional agreement template includes a clause providing for periodic checks and adjustments to the new space settlement assets delivered to regions, to capture and adjust for any significant differences between the space forecast for each region as at the review date, and the actual (consented) space as at that date. 58. A region is defined according to regional council boundaries (note that the Act treats the east coast of the Waikato region as a separate region). The Trustee will continue to work with iwi aquaculture organisations in all of the new space regions to prepare for the negotiation of the regional agreements. 59. The timeframe for achieving regional agreements will be driven in part by the statutory deadlines for conclusion of regional agreements set out in section 11 of the 12 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

17 Act (as modified by extension Gazette notices issued under section 11(4) by the Minister). 3.2 Timeframes for achieving regional agreements 60. The first step towards achieving a negotiated regional agreement is the Crown regional offers. These offers will set out the Crown s offer of 20 percent of the new consented new space since 2011, and/or anticipated (forecast) new space up to the year 2035 for the specified region. 61. MPI intends to start making Crown regional offers to Iwi aquaculture organisations within the priority regions 15 of Northland, Waikato East, Tasman and Marlborough in August The non-priority regions that have forecast (anticipated) new space and a statutory deadline date applying to them will begin to receive offers soon after offers have been sent to the priority regions. 63. Once a Crown regional offer is made, MPI will approach Iwi aquaculture organisations, on a region-by-region basis, to confirm a negotiation timetable for each region shortly after tabling the offer to ensure statutory timeframes are met. 64. The table below provides an overview of the commitment required to achieve regional agreements within statutory timeframes. Appendix 4 details the proposed approach to negotiations on a regional basis. It is through this approach to negotiations that MPI will seek to conclude regional agreements with iwi aquaculture organisations who have interests in more than one region concurrently. 15 Although the Act doesn t use the term priority region, it does distinguish four regions with particular aquaculture potential from the other regions, in terms of the statutory deadlines for entering a regional agreement. Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 13

18 Jul Aug Sep Oct Nov Dec Table 3: Overview for reaching regional agreements 2014 calendar year Crown regional offers to priority regions MPI and Iwi aquaculture organisations in priority regions confirm negotiation timetables Te Ohu Kaimoana engages with Iwi aquaculture organisations in priority regions to co-ordinate response to Crown offer Priority region negotiations Crown regional offers to non-priority regions MPI and Iwi aquaculture organisations in non-priority regions confirm negotiation timetables Te Ohu Kaimoana engages with Iwi aquaculture organisations in non-priority regions to co-ordinate response to Crown offer Non-priority region negotiations 14 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

19 4. Other settlement matters 4.1 Relationship to other legislation and processes 65. Delivery of the Crown s new space settlement obligations under the Act will be considered against other legislation and processes. 66. Becoming a productive marine farm still requires the necessary approvals to be obtained, namely a coastal permit pursuant to the RMA. To obtain this permit an undue adverse effects test under the Fisheries Act 1996 must also be met. 67. Section 6A of the Act sets out that nothing done under the Act can be taken into account in determining under the Marine and Coastal Area (Takutai Moana) Act 2011 (the MACA Act) whether customary marine title exists in a specified area of the common marine and coastal area. This means that the creation of new space will have a neutral effect on any customary marine title investigations. 68. The MACA Act gives customary marine title holders the ability to decline permission for a resource consent for new aquaculture applications in its area. However, aquaculture activities that are existing at the time customary marine title is recognised, under section 64(2)(e) of the MACA Act, are able to continue without the customary marine title holder s permission. Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 15

20 Appendix 1: National Forecast Models 16 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

21 Appendix 1: National Forecast Models This appendix explains the methodology and assumptions underlying the Forecast of Marine Aquaculture Growth to 2035 (National Forecast Model). The forecast is in two parts: 1. the National Forecast of total growth in New Zealand; 2. the Regional Forecast where and when the national growth is anticipated to occur regionally. The National and Regional Forecasts are discussed in turn below. These forecasts have been developed with the New Aquaculture Space Iwi Steering Group, Te Ohu Kaimoana and Aquaculture New Zealand. Background The Maori Commercial Aquaculture Claims Settlement Act 2004 requires that the Crown provide for, and transfer to the Trustee, settlement assets that are representative of 20 percent of all new aquaculture space created after 1 October The settlement is delivered regionally. Because the Act provides for a prospective settlement, the Crown must anticipate the amount of new space available in future to inform regional negotiations. A forecast has been developed to inform decisions on anticipated new space. The forecast estimates total national growth to 2035 and then where and when that growth will occur in the regions. Species included in the forecast The forecast estimates growth in both green weight tonnes (GWT) and hectares (ha) of new space for the three existing marine aquaculture species: salmon, mussels and Pacific oysters. The forecast also projects finfish (kingfish and hāpuku) growth in GWT only. Finfish have not yet been commercialised in New Zealand and there is insufficient information on viability and productivity to forecast hectares of new space. There are other potential aquaculture species under trial, but there is insufficient information on the commercial viability and productivity of other species to forecast growth at this time. New species will be considered in future as and when they become commercially viable. The National Forecast of total growth in New Zealand The National Forecast of total growth in New Zealand is based on a model developed for MPI by Market Economics in The model incorporates a range of existing growth scenarios and provides a useable tool to help predict future marine aquaculture growth. The growth scenarios used in the model are from Coriolis (2011), Ernst & Young (2009, 2013) and Market Economics (2011). A summary of the growth scenarios is in Attachment 1. Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 17

22 The scenarios represent a range of respected economists views on future growth. Some scenarios are more positive about growth prospects, while others are more cautious. The model assumes that actual future growth is within the range of these scenarios. The higher growth scenarios need to be treated with caution. We do not believe aquaculture will reach its full growth potential because of competition with other coastal uses and values (Coriolis, 2014). We have removed the lowest two scenarios (Coriolis low growth and EY business as usual) because they predict that new space growth will be lower than has already eventuated since October In making this statement, we assume the Environmental Protection Authority decision on King Salmon stands. The forecast uses the mean of the remaining growth scenarios as a sensible basis for estimating national growth. Using the mean is consistent with advice from Market Economics and Sapere. The model has been run and sense tested in collaboration with the New Space Aquaculture Iwi Steering, Te Ohu Kaimoana and Aquaculture New Zealand. The results of the forecast seem sensible. The results are consistent with the actual growth in new space since October 2011 and with the growth needed to achieve industry s $1 billion goal by The Government has a strategy and action plan to support industry to achieve its goal by Table A1: Other inputs into the forecast of national growth Model input Description For more information see Base year The year the model begins, set at 2013 Base year production mussels and salmon Base year productivity status for oysters Year of oyster recovery Annual productivity growth Mean productivity Capacity taken by existing space The total national production in 2013 taken from the commodity levy data This is % post-virus production (1493 t) compared to pre-virus production (2681 t) When we estimate oyster farm production will recover to pre-virus levels, set at 2018 Annual farms productivity increases due to better farming practices and technologies Mean productivity of a hectare of farm from the commodity levy data and council/mpi records on space in production Estimated production growth absorbed by existing undeveloped farms and applications Attachment 2 Attachment 2 Attachment 2 Attachment 3 Attachment 4 Attachment 5 18 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

23 The Regional Forecast where and when the national growth is anticipated to occur regionally The Regional Forecast estimates where and when the national growth will occur regionally. Where the growth will occur is important because settlements must be provided on a regional basis. When the growth will occur is important because it affects the cash value of the future space. The forecasted national growth is allocated into the regions based on a desk-top multi-criteria analysis using the following criteria: environmental suitability and capacity for new space; regional coastal plan rules for aquaculture; competition for coastal space with other uses and values; proximity to existing industry and required infrastructure; regional support for aquaculture growth; existing undeveloped capacity within the region; and applications received and approved since October The timing when space comes on-line is based primarily on the demand-growth curve and the key assumption that the industry will grow to meet demand. However, particularly for mussels, old law legacy applications coming through the system distort growth and result in supply initially exceeding demand. Attachment 6 shows the calculations underlying regional growth results. Summary of forecast assumptions This section lists some of the key assumptions underlying the forecast. 1. Marine aquaculture is expected to grow in New Zealand as world demand for seafood increases. Both the Food and Agriculture Organization (2012) and the World Bank (2013) predict increasing demand for seafood. Aquaculture will be needed to meet demand due to pressures on existing wild fish stocks. 2. Growth will be within the range of the growth scenarios run in the model. The model assumes growth will be within the range of scenarios modelled. The mean of the growth scenarios is a sensible basis for the forecast. This approach is consistent with advice from Market Economics and Sapere. 3. Aquaculture will grow to meet demand once existing growth capacity has been accounted for. Specifically, any shortfall in production relative to the demand scenario will be addressed by further marine farm development to The model also takes into account that there is some undeveloped space that would absorb some capacity for growth. Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 19

24 4. No new oyster farms until after There will be no new oyster growth until the industry recovers from the oyster herpes virus, estimated in Once built, new aquaculture space remains built. The model presumes that new space will remain at least for the duration of the forecast. However, we note there is the possibility that some existing space could be declined at reconsent. 6. Speculative applications will be low due to RMA costs and constraints. RMA costs and constraints will limit speculative applications. 7. RMA coastal plans will adapt over time to enable sustainable aquaculture growth. Currently many regions most suited to grow contain prohibitions on new space. The model assumes that the RMA will adapt over time to enable reasonable growth forecast. However, the RMA will always limit growth and the higher growth scenarios need to be treated with caution. 8. Most growth over time is expected around the existing industry and infrastructure. Over the last 30 years, the existing industry has predominately grown in the regions most suited to current aquaculture activities for environmental and infrastructure reasons. 9. Inshore space will be preferred for development. Inshore space will be preferred for development before industry invests in offshore space. There is unlikely to be new offshore space before The exception is that we could see offshore salmon farming by 2025 due to stronger community opposition and higher economic value. If offshore salmon is successful we are likely to see salmon growth exceed the forecast. References Coriolis (2011) Coriolis (2014) IFAB 2013 seafood review. Ernst & Young (2009) New Zealand aquaculture: industry growth scenarios. Ernst & Young (2013) New Zealand aquaculture: industry growth scenarios, 2013 update. 28 June Food and Agriculture Organization (2012) State of world fisheries and aquaculture Market Economics (2013) Marine farming growth projection model. Prepared for the Ministry for Primary Industries; Wellington, New Zealand. World Bank (2013) Fish to 2030: prospects for fisheries and aquaculture. Agriculture and environmental services discussion paper; no. 3; World Bank Group; Washington DC, USA. 20 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries

25 Attachment 1 The growth scenarios This attachment provides a summary of the various growth scenarios used in the model. The scenarios represent a range of respected economists views on future growth. Forecasting future growth of an industry is difficult. The world economy, politics, population and climate will change between now and We have used our best endeavours recognising the law provides for regular reviews to ensure the Crown meets its obligations to Māori over time. The higher growth scenarios need to be treated with caution. We do not believe aquaculture will reach its full growth potential because of competition with other coastal uses and values (Coriolis, 2014) and resulting RMA constraints and uncertainty. The lowest two scenarios (Coriolis low growth and EY 2013 business as usual) were removed from the model because they predict new space growth in 2035 of salmon, oysters and mussels lower than has already eventuated since October 2011 and once existing capacity to absorb growth has been accounted for. The forecast uses the mean of the remaining growth scenarios as a sensible basis for estimating national growth. Using the mean is consistent with advice from Market Economics and Sapere. For clarity, the mean of the following scenarios has been used to forecast national growth: Coriolis medium and high growth; EY 2009 composite; EY 2013 composite; and the two Market Economic VARS. The key to this forecast is that the results are sensible and consistent with industry s growth aspirations to achieve $1 billion annual sales by 2025 with new space applications received and approved since October Ministry for Primary Industries Māori Commercial Aquaculture Settlement New Space Plan 21

26 Table A2: Coriolis growth scenarios: New Zealand growth constrained by market demand Projection type Source Date August 2011 Methodology NZ growth is globally constrained at high growth NZ growth is globally constrained at medium growth NZ growth is globally constrained at low growth Coriolis, part of NIWA Research Consortium; commissioned by the Ministry of Fisheries. Top-Down Approach Based on global demand for aquaculture products and considers low, medium and high growth scenarios. Uses historical trends and anecdotal information about the future to establish a range of scenarios. Assumptions has a fundamental underlying assumption that NZ maintains its global share (that is, NZ market share remains constant); and that NZ producers are constrained by global competition. Constraints Demand-driven scenarios do not take economic behaviour into account: they assume aquaculture activities remain economically viable, despite pressures on profitability that occur in the real world (for example, the oyster Herpes virus). Demand-driven scenarios do not take the economic behaviour of economic agents into account. Economic agents, as defined for economic modelling purposes, are producers, consumers and government. Table A3: EY growth scenarios: growth constrained by availability of new space Projection type Source Date 2013 Methodology NZ demand not globally constrained Ernst & Young, commissioned by Aquaculture New Zealand and MPI Bottom Approach Uses historical trends and anecdotal information about the future to establish a range of scenarios. Assumptions that the primary constraint on growth is the availability of new aquaculture space; that NZ producers would not face demand-side constraints; that is, that any additional output from NZ industry could be exported at any given world price. Scenarios Scenario 1: business as usual 2000 ha new space; Scenario 2: value-add and marketing BAU plus higher value products and real price growth; Scenario 3: permitted new space BAU plus another 2000 ha; Scenario 4: productivity BAU plus annual productivity increase; Scenario 5: composite. Constraints no modelling of economic behaviour: assumes costs and revenue remain viable; does not take into account behaviour of producers, consumers and government. Note EY also undertook the same exercise for Aquaculture New Zealand in The Forecast Model also includes the EY composite scenario from the 2009 study. 22 Māori Commercial Aquaculture Settlement New Space Plan Ministry for Primary Industries